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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
COMMISSION FILE NUMBER: 1-13762
RECKSON OPERATING PARTNERSHIP, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 11-3233647
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(State or other jurisdiction of incorporation or organization) (IRS Employer Identification Number)
225 Broadhollow Road, Melville, NY 11747
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(Address of principal executive office) (zip code)
(631) 694-6900
(Registrant's telephone number including area code)
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INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS) YES_X_ NO__, AND (2) HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES_X_ NO__.
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RECKSON OPERATING PARTNERSHIP, L.P.
QUARTERLY REPORT
FOR THE THREE MONTHS ENDED JUNE 30, 2002
TABLE OF CONTENTS
INDEX PAGE
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2002 (unaudited) and
December 31, 2001............................................................................ 2
Consolidated Statements of Income for the three and six months ended
June 30, 2002 and 2001 (unaudited)........................................................... 3
Consolidated Statements of Cash Flows for the six months ended
June 30, 2002 and 2001 (unaudited)........................................................... 4
Notes to the Consolidated Financial Statements (unaudited)................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk................................... 26
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PART II. OTHER INFORMATION
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Item 1. Legal Proceeding............................................................................. 32
Item 2. Changes in Securities and Use of Proceeds.................................................... 32
Item 3. Defaults Upon Senior Securities.............................................................. 32
Item 4. Submission of Matters to a Vote of Securities Holders........................................ 32
Item 5. Other Information............................................................................ 32
Item 6. Exhibits and Reports on Form 8-K............................................................. 33
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SIGNATURES 33
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1
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
RECKSON OPERATING PARTNERSHIP, L.P.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT UNIT AMOUNTS)
JUNE 30, 2002 DECEMBER 31, 2001
(UNAUDITED)
----------------------- ----------------------
ASSETS
Commercial real estate properties, at cost
Land.................................................................. $ 418,748 $ 408,837
Buildings and improvements............................................ 2,405,072 2,328,374
Developments in progress:
Land.................................................................. 90,229 69,365
Development costs..................................................... 24,919 74,303
Furniture, fixtures and equipment.......................................... 7,791 7,725
---------------------- ----------------------
2,946,759 2,888,604
Less accumulated depreciation......................................... (408,349) (361,960)
---------------------- ----------------------
2,538,410 2,526,644
Investments in real estate joint ventures.................................. 5,697 5,744
Investment in mortgage notes and notes receivable.......................... 55,368 56,234
Cash and cash equivalents.................................................. 39,281 121,773
Tenant receivables......................................................... 11,511 9,633
Investments in service companies and affiliate loans and joint ventures.... 86,787 84,142
Deferred rents receivable.................................................. 94,264 81,089
Prepaid expenses and other assets.......................................... 24,554 45,303
Contract and land deposits and pre-acquisition costs....................... 101 3,782
Deferred lease and loan costs ............................................. 64,811 64,438
---------------------- ----------------------
TOTAL ASSETS.......................................................... $ 2,920,784 $ 2,998,782
====================== ======================
LIABILITIES
Mortgage notes payable..................................................... $ 745,983 $ 751,077
Unsecured credit facility.................................................. 176,000 271,600
Senior unsecured notes..................................................... 499,239 449,463
Accrued expenses and other liabilities..................................... 75,215 84,651
Distributions payable...................................................... 33,199 32,988
---------------------- ----------------------
TOTAL LIABILITIES..................................................... 1,529,636 1,589,779
Minority partners' interests in consolidated partnerships.................. 243,286 242,698
---------------------- ----------------------
Commitments and contingencies.............................................. -- --
PARTNERS' CAPITAL
Preferred Capital, 11,211,662 and 11,222,965 units outstanding,
respectively.......................................................... 290,270 301,573
General Partners' Capital:
Class A common units, 50,988,233 and 49,982,377 units
outstanding, respectively............................................. 553,800 551,417
Class B common units, 10,283,513 units outstanding....................... 225,619 231,428
Limited Partners' Capital:
Class A common units, 7,276,224 and 7,487,218 units outstanding,
respectively.......................................................... 78,173 81,887
---------------------- ----------------------
TOTAL PARTNERS' CAPITAL................................................. 1,147,862 1,166,305
---------------------- ----------------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL............................... $ 2,920,784 $ 2,998,782
====================== ======================
(see accompanying notes to financial statements)
2
RECKSON OPERATING PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED AND IN THOUSANDS, EXCEPT PER UNIT DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------------- ---------------------------------
2002 2001 2002 2001
------------------ ----------------- -------------- ---------------
REVENUES:
Base rents.................................................. $ 109,528 $ 111,184 $ 216,697 $ 218,678
Tenant escalations and reimbursements....................... 14,099 14,165 29,435 30,110
Equity in earnings of real estate joint ventures and
service companies...................................... 159 801 494 1,199
Interest income on mortgage notes and notes receivable...... 1,565 1,559 3,121 3,067
Gain on sales of real estate................................ -- -- 537 --
Investment and other income................................. 282 4,674 815 10,204
------------------ ----------------- -------------- ---------------
TOTAL REVENUES......................................... 125,633 132,383 251,099 263,258
------------------ ----------------- -------------- ---------------
EXPENSES:
Property operating expenses................................. 41,739 40,874 83,951 81,868
Marketing, general and administrative....................... 6,758 7,353 12,947 13,837
Interest.................................................... 22,119 23,557 43,110 47,188
Depreciation and amortization............................... 28,031 27,172 54,167 50,693
------------------ ----------------- -------------- ---------------
TOTAL EXPENSES......................................... 98,647 98,956 194,175 193,586
------------------ ----------------- -------------- ---------------
Income before distributions to preferred unit holders
and minority interests................................. 26,986 33,427 56,924 69,672
Minority partners' interests in consolidated partnerships... (4,813) (4,065) (9,933) (9,820)
------------------ ----------------- -------------- ---------------
Net income.................................................. 22,173 29,362 46,991 59,852
Preferred unit distributions................................ (5,767) (5,928) (11,715) (12,013)
------------------ ----------------- -------------- ---------------
Net income available to common unit holders................. $ 16,406 $ 23,434 $ 35,276 $ 47,839
================== ================= ============== ===============
Net Income available to:
Class A common units................................... $ 12,928 $ 18,535 $ 27,746 $ 37,300
Class B common units................................... 3,478 4,899 7,530 10,539
------------------ ----------------- -------------- ---------------
Total....................................................... $ 16,406 $ 23,434 $ 35,276 $ 47,839
================== ================= ============== ===============
Net income per weighted average common units:
Class A common unit...................................... $ .22 $ .34 $ .48 $ .69
================== ================= ============== ===============
Class B common unit...................................... $ .34 $ .48 $ .73 $ 1.02
================== ================= ============== ===============
Weighted average common units outstanding:
Class A common units................................... 58,275 54,985 57,900 54,086
Class B common units................................... 10,284 10,284 10,284 10,284
(see accompanying notes to financial statements)
3
RECKSON OPERATING PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
SIX MONTHS ENDED
JUNE 30,
------------------------------------------
2002 2001
------------------- ---------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................... $ 46,991 $ 59,852
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization.............................................. 54,167 50,693
Gain on sales of real estate............................................... (537) --
Minority partners' interests in consolidated partnerships.................. 9,933 9,820
Equity in earnings of real estate joint ventures and service companies..... (494) (1,199)
Changes in operating assets and liabilities:
Prepaid expenses and other assets.......................................... 20,914 (1,482)
Tenant receivables......................................................... (1,878) 1,682
Deferred rents receivable.................................................. (13,175) (22,150)
Real estate tax escrows.................................................... 288 (1,266)
Accrued expenses and other liabilities..................................... (9,490) (1,931)
------------------- ---------------------
Net cash provided by operating activities.................................. 106,719 94,019
------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in contract deposits and pre-acquisition costs.................... -- (1,343)
Proceeds from mortgage note receivable repayments.......................... 8 2,945
Additions to commercial real estate properties............................. (20,810) (87,982)
Additions to developments in progress...................................... (31,809) (5,252)
Payment of leasing costs................................................... (6,169) (5,998)
Additions to furniture, fixtures and equipment............................. (64) (244)
Proceeds from sales of real estate and marketable securities............... 2,128 --
Investments in affiliate joint ventures.................................... -- (24,966)
------------------- ---------------------
Net cash used in investing activities..................................... (56,716) (122,840)
------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on secured borrowings................................... (5,094) (73,801)
Payment of loan costs...................................................... (990) (789)
Increase in investments in affiliate loans and service companies........... (2,651) (5,042)
Proceeds from issuance of senior unsecured notes........................... 49,432 --
Proceeds from secured borrowings........................................... -- 75,000
Proceeds from of unsecured credit facility................................. 45,000 118,000
Repayment of unsecured credit facility..................................... (140,600) --
Distributions to minority partners in consolidated partnerships............ (9,559) (10,727)
Contributions.............................................................. 6,014 1,331
Distributions ............................................................. (74,047) (65,510)
------------------- ---------------------
Net cash (used in) provided by financing activities........................... (132,495) 38,462
------------------- ---------------------
Net (decrease) increase in cash and cash equivalents.......................... (82,492) 9,641
Cash and cash equivalents at beginning of period.............................. 121,773 16,624
------------------- ---------------------
Cash and cash equivalents at end of period.................................... $ 39,281 $ 26,265
=================== =====================
(see accompanying notes to financial statements)
4
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(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").
The Operating Partnership is engaged in the ownership, management,
operation, leasing and development of commercial real estate properties,
principally office and industrial buildings and also owns certain undeveloped
land (collectively, the "Properties") located in the New York tri-state area
(the "Tri-State Area").
During June 1995, the Company contributed approximately $162 million in
cash to the Operating Partnership in exchange for an approximate 73% general
partnership interest. All Properties acquired by the Company are held by or
through the Operating Partnership. In addition, in connection with the formation
of the Operating Partnership, the Operating Partnership executed various option
and purchase agreements whereby it issued common units of limited partnership
interest 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 other business assets and 100% of the non-voting preferred stock
of the management and construction companies. At June 30, 2002, the Company's
ownership percentage in the Operating Partnership was approximately 89.4%.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the consolidated
financial position of the Operating Partnership and its subsidiaries at June 30,
2002 and December 31, 2001 and the results of their operations for the three and
six months ended June 30, 2002 and 2001, respectively, and, their cash flows for
the six months ended June 30, 2002 and 2001, respectively. The Operating
Partnership's investments in majority owned and/or controlled real estate joint
ventures are reflected in the accompanying financial statements on a
consolidated basis with a reduction for minority partners' interest. The
operating results of the service businesses currently conducted by Reckson
Management Group, Inc., RANY Management Group, Inc. Reckson Construction Group
New York, Inc. and Reckson Construction Group, Inc., in which the Operating
Partnership owns a 97% non-controlling interest, are reflected in the
accompanying financial statements on the equity method of accounting. The
Operating Partnership also invests in real estate joint ventures where it may
own less than a controlling interest. Such investments are also reflected in the
accompanying financial statements on the equity method of accounting. All
significant intercompany balances and transactions have been eliminated in the
consolidated financial statements.
The minority partners' interests in consolidated partnerships at June 30,
2002 represent a 49% non-affiliated interest in RT Tri-State LLC, owner of an
eight property suburban office portfolio, a 40% non-affiliated interest in Omni
Partners, L.P., owner of a 575,000 square foot suburban office property and
beginning December 21, 2001, a 49% non-affiliated interest in Metropolitan 919
Third Avenue, LLC, owner of the property located at 919 Third Avenue, New York,
NY.
5
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 June 30, 2002 and for the three and six month periods ended
June 30, 2002 and 2001 include, in the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary to present fairly the
financial information set forth herein. The results of operations for the
interim periods are not necessarily indicative of the results that may be
expected for the year ending December 31, 2002. These financial statements
should be read in conjunction with the Operating Partnership's audited financial
statements and notes thereto included in the Operating Partnership's Form 10-K
for the year ended December 31, 2001.
In October 2001, the Financial Accounting Standards Board issued Statement
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
Statement No. 144 provides accounting guidance for financial accounting and
reporting for the impairment or disposal of long-lived assets. Statement No. 144
supersedes Statement No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of. It also supersedes the accounting
and reporting provisions of Accounting Principles Board Opinion No. 30,
Reporting the Results of Operations--Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions related to the disposal of a segment of a business. The
Operating Partnership adopted Statement No. 144 on January 1, 2002. The adoption
of this statement did not have a material effect on the results of operations or
the financial position of the Operating Partnership.
Effective January 1, 2002 the Company has elected to follow FASB Statement No.
123, "Accounting for Stock Based Compensation". Statement No.123 requires the
use of option valuation models which determine the fair value of the option on
the date of the grant. All future employee stock option grants will be expensed
over the options' vesting periods based on the fair value at the date of the
grant in accordance with Statement No. 123. The Company expects minimal
financial impact in the current year from the adoption of Statement No. 123. To
determine the fair value of the stock options granted, the Company intends to
use a Black-Scholes option pricing model. Historically, the Company had applied
Accounting Principles Board Opinion No. 25 and related interpretations in
accounting for its stock option plans and reported pro forma disclosures in its
Form 10-K filings by estimating the fair value of options issued and the related
expense in accordance with Statement No. 123. Accordingly, no compensation cost
had been recognized for its stock option plans in the past.
In April 2002, the FASB issued Statement No. 145, which rescinded Statement
No. 4, "Reporting Gains and Losses from Extinguishment of Debt". Statement No.
145 is effective for fiscal years beginning after May 15, 2002. The Operating
Partnership will adopt Statement No. 145 on January 1, 2003.
Certain prior year amounts have been reclassified to conform to the current
year presentation.
3. MORTGAGE NOTES PAYABLE
As of June 30, 2002, the Operating Partnership had approximately $746.0
million of fixed rate mortgage notes which mature at various times between 2004
and 2027. The notes are secured by 21 properties with a net carrying value of
approximately $1.5 billion and have a weighted average interest rate of
approximately 7.3%.
4. SENIOR UNSECURED NOTES
As of June 30, 2002, the Operating Partnership had outstanding
approximately $499.2 million (net of issuance discounts) of senior unsecured
notes (the "Senior Unsecured Notes"). The following table sets forth the
Operating Partnership's Senior Unsecured Notes and other related disclosures by
scheduled maturity date (dollars in thousands):
FACE
ISSUANCE AMOUNT COUPON RATE TERM MATURITY
--------------------- -------------------- ------------------ ------------------ -----------------------
March 26, 1999 $ 100,000 7.40% 5 years March 15, 2004
June 17, 2002 $ 50,000 6.00% 5 years June 15, 2007
August 27, 1997 $ 150,000 7.20% 10 years August 28, 2007
March 26, 1999 $ 200,000 7.75% 10 years March 15, 2009
Interest on the Senior Unsecured Notes is payable semiannually with
principal and unpaid interest due on the scheduled maturity dates. In addition,
the Senior Unsecured Notes issued on March 26, 1999 and June 17, 2002 were
issued at aggregate discounts of $738,000 and 267,500, respectively. Such
discounts are being amortized over the term of the Senior Unsecured Notes to
which they relate.
On June 17, 2002, the Operating Partnership issued $50 million of 6% (6.13%
effective rate) senior unsecured notes. Net proceeds of approximately $49.4
million received from this issuance were used to repay outstanding borrowings
under the Operating Partnership's unsecured credit facility.
6
5. UNSECURED CREDIT FACILITY
As of June 30, 2002, the Operating Partnership had a three year $575
million unsecured revolving credit facility (the "Credit Facility") from The
JPMorgan Chase Bank as administrative agent, UBS Warburg LLC as syndication
agent and Deutsche Bank as documentation agent. The Credit Facility matures in
September 2003 and borrowings under the Credit Facility are currently priced off
LIBOR plus 105 basis points.
The Operating Partnership utilizes the Credit Facility primarily to finance
real estate investments, fund its real estate development activities and for
working capital purposes. At June 30, 2002, the Operating Partnership had
availability under the Credit Facility to borrow approximately an additional
$400 million, subject to compliance with certain financial covenants.
6. COMMERCIAL REAL ESTATE INVESTMENTS
As of June 30, 2002, the Operating Partnership owned and operated 77 office
properties (inclusive of eleven office properties owned through joint ventures)
comprising approximately 13.8 million square feet, 102 industrial properties
comprising approximately 6.8 million square feet and two retail properties
comprising approximately 20,000 square feet located in the Tri-State Area.
The Operating Partnership also owns approximately 254 acres of land in 12
separate parcels of which the Operating Partnership can develop approximately
two million square feet of office space and approximately 450,000 square feet of
industrial space. On April 1, 2002, the Operating Partnership paid approximately
$23.8 million to acquire an additional 52.7 acres of land located in Valhalla,
NY on which the Operating Partnership can develop approximately 875,000 square
feet of office space. The Operating Partnership currently owns and operates
three buildings encompassing approximately 700,000 square feet in the same
office park in which this land is located. The Operating Partnership financed
this acquisition in part from the sales proceeds of an office property being
held by a qualified intermediary for the purposes of an exchange of real
property pursuant to Section 1031 of the Internal Revenue Code of 1986 (the
"Code") and from an advance under the Credit Facility. In addition, the
Operating Partnership owns a 32 acre land parcel in Rye Brook, NY which is under
contract for sale for approximately $22.3 million. The sale of this land is
subject to certain rezoning and other municipal approvals. At this time it is
undetermined whether these approvals or rezoning will be obtained and the sale
closed. The Operating Partnership currently owns and operates six buildings
encompassing approximately 542,000 square feet in the same office park in which
this land is located. As of June 30, 2002, the Operating Partnership had
invested approximately $115 million in these developments in progress.
Management has made subjective assessments as to the value and recoverability of
these investments based on current and proposed development plans. The Operating
Partnership has capitalized approximately $5.4 million for the six months ended
June 30, 2002 related to real estate taxes, interest and other carrying costs
related to these developments in progress.
The Operating Partnership also owns a 357,000 square foot office building
in Orlando, Florida. Additionally, the Operating Partnership holds a $17.0
million interest in a note receivable secured by a partnership interest in Omni
Partners, L.P., owner of the Omni, a 575,000 square foot Class A office property
located in Uniondale, NY and three other notes receivable aggregating $36.5
million which bear interest at rates ranging from 10.5% to 12% per annum and are
secured by a minority partner's preferred unit interest in the Operating
Partnership and certain real property. As of June 30, 2002, management has made
subjective assessments as to the underlying security value on the Operating
Partnership's note receivable investments. These assessments indicated an excess
of market value over carrying value related to the Operating Partnership's note
receivable investments.
The Operating Partnership also owns a 60% non-controlling interest in a
172,000 square foot office building located at 520 White Plains Road in White
Plains, New York (the "520JV"). As of June 30, 2002, the 520JV had total assets
of $21.5 million, a mortgage note payable of $12.8 million and other liabilities
of $.9 million. The Operating Partnership's allocable share of the 520JV
mortgage note payable is approximately $7.7 million. In addition, the 520JV had
total revenues of $1,615,000 and total expenses of $1,637,000 for the six months
ended June 30, 2002. The Operating Partnership accounts for the 520JV under the
equity method of accounting. The 520JV contributed approximately $29,000 and
$216,000 to the Operating Partnership's equity in earnings of real estate joint
ventures for the six months ended June 30, 2002 and 2001, respectively.
7
On December 21, 2001, the Operating Partnership formed a joint venture
with the New York State Teachers' Retirement System ("NYSTRS") whereby NYSTRS
acquired a 49% indirect interest in the property located at 919 Third Avenue,
New York, NY for $220.5 million which included $122.1 million of its
proportionate share of secured mortgage debt and approximately $98.4 million of
cash which was then distributed to the Operating Partnership. On January 4,
2002, net proceeds from this sale were used primarily to repay borrowings under
the Credit Facility and for working capital purposes.
On August 7, 2002, the Operating Partnership sold an industrial property on
Long Island aggregating approximately 32,000 square feet for approximately $1.8
million. This property was sold to the sole tenant of the property through an
option contained in the tenant's lease. On August 8, 2002, the Operating
Partnership sold two Class A office properties located in Westchester County, NY
aggregating approximately 157,000 square feet for approximately $18.5 million.
Net proceeds from the sale of August 8th were used to repay borrowings under the
Credit Facility.
7. PARTNERS' CAPITAL
On March 28, 2002, approximately 11,303 Series E preferred units of the
limited partnership interest, with a liquidation preference value of
approximately $11.3 million, were exchanged for 451,934 Units at a price of
$25.01 per Unit. In addition, during the three months ended June 30, 2002, the
Company increased its general partner interest in the Operating Partnership by
acquiring 666,466 outstanding Units from certain limited partners in exchange
for an equal number of shares of its Class A common stock.
As of June 30, 2002, the Operating Partnership had issued and outstanding
10,283,513 Class B common units, all of which are held by the Company and which
were entitled to receive an annual distribution of $2.5968 per unit. The
distribution on the Class B units is subject to adjustment annually based on a
formula which measures increases or decreases in the Company's Funds From
Operations, as defined, over a base year. On July 31, 2002, the annual
distribution on the Class B common unit was decreased to $2.5884 per unit.
The Class B common units are exchangeable at any time, at the option of the
holder, into an equal number of Class A common units subject to customary
antidilution adjustments. The 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.
During May 2002, the Operating Partnership declared the following
distributions:
RECORD PAYMENT THREE MONTHS ANNUALIZED
SECURITY DISTRIBUTION DATE DATE ENDED DISTRIBUTION
-------- ------------ ---- ---- ----- ------------
Class A common unit $.4246 July 5, 2002 July 17, 2002 June 30, 2002 $1.6984
Class B common unit $.6471 July 15, 2002 July 31, 2002 July 31, 2002 $2.5884
Series A preferred unit $.476563 July 15, 2002 July 31, 2002 July 31, 2002 $1.9063
Series E preferred unit $.553125 July 15, 2002 July 31, 2002 July 31, 2002 $2.2125
The Board of Directors of the Company has authorized the purchase of up to
an additional five million shares of the Company's Class B common stock and/or
its Class A common stock. Subsequent to June 30, 2002, the Operating Partnership
purchased 368,200 Class B common units at an average price of $22.90 per Class B
unit and 1,856,200 Class A common units at an average price of $21.98 per Class
A unit for an aggregate purchase price for both the Class A and Class B units of
approximately $49.2 million. Previously, in conjunction with the Company's
common stock buy-back program, the Operating Partnership purchased and retired
1,410,804 Class B common units at an average price of $21.48 per unit and 61,704
Class A common units at an average price of $23.03 per unit for an aggregate
purchase price of approximately $31.7 million. In addition, the Board of
Directors of the Company has formed a pricing committee to consider purchases of
up to $75 million of the Company's outstanding preferred securities.
On May 22, 2002, approximately $1.4 million of loans made to certain executive
officers to purchase the Company's common stock matured. The loans were secured
by 61,668 shares of the Company's Class A common stock. The loans were satisfied
by the executive officers with the 61,668 shares of Class A common stock. The
market value of these shares on May 22, 2002 was sufficient to fully satisfy
these loans and as such there was no financial impact to the Company. The
Company has subsequently retired these shares.
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
8. SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION (IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
-----------------------------
2002 2001
------------ -------------
Cash paid during the period for interest......................... $ 45,817 $ 52,766
============ =============
Interest capitalized during the period .......................... $ 4,406 $ 5,137
============ =============
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 includes
one office property located in Orlando, Florida. The Operating Partnership has
managing directors who report directly to the Co-Presidents and Chief Financial
Officer of the Company who have been identified as the Chief Operating Decision
Makers due to their final authority over resource allocation decisions and
performance assessment.
The Operating Partnership does not consider (i) interest incurred on its
Credit Facility and Senior Unsecured Notes and (ii) the operating performance of
the office property located in Orlando, Florida as part of its Core Portfolio's
property operating performance for purposes of its component disclosure set
forth below.
The following table sets forth the components of the Operating
Partnership's revenues and expenses and other related disclosures for the three
and six months ended June 30, 2002 and 2001 (in thousands):
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------
JUNE 30, 2002 JUNE 30, 2001
-------------------------------------------------------- ----------------------------------------
CONSOLIDATED CONSOLIDATED
CORE PORTFOLIO OTHER TOTALS CORE PORTFOLIO OTHER TOTALS
---------------- ----------- -------------- ---------------- ---------- ------------
REVENUES:
Base rents, tenant
escalations and
reimbursements........ $ 121,517 $ 2,110 $ 123,627 $ 123,030 $ 2,319 $ 125,349
Equity in earnings of
real estate joint
ventures and service
companies........... -- 159 159 -- 801 801
Other income 141 1,706 1,847 1,929 4,304 6,233
------------- ----------- ------------- ------------- ------------ ------------
Total Revenues........ 121,658 3,975 125,633 124,959 7,424 132,383
------------- ----------- ------------- ------------- ------------ ------------
EXPENSES:
Property operating
Expenses.............. 40,190 1,549 41,739 40,080 794 40,874
Marketing, general
and administrative.... 4,671 2,087 6,758 5,446 1,907 7,353
Interest................ 12,990 9,129 22,119 12,149 11,408 23,557
Depreciation and
amortization.......... 25,831 2,200 28,031 25,096 2,076 27,172
------------- ----------- ------------- ------------- ------------ -----------
Total Expenses...... 83,682 14,965 98,647 82,771 16,185 98,956
------------- ----------- ------------- ------------- ------------ ------------
Income (loss) before
distributions to
preferred unitholders
and minority interests. $ 37,976 $ (10,990) $ 26,986 $ 42,188 $ (8,761) $ 33,427
============= =========== ============== ============= ============ ============
Total Assets............. $ 2,693,174 $ 227,610 $ 2,920,784 $ 2,691,989 $ 423,705 $ 3,115,694
============= =========== ============== ============= ============ ============
9
SIX MONTHS ENDED
--------------------------------------------------------------------------------------------------
JUNE 30, 2002 JUNE 30, 2001
--------------------------------------------------- ---------------------------------------------
CONSOLIDATED CONSOLIDATED
CORE PORTFOLIO OTHER TOTALS CORE PORTFOLIO OTHER TOTALS
----------------- ----------- ------------------ ---------------- ------------ -------------
REVENUES:
Base rents, tenant
escalations and
reimbursements........ $ 241,715 $ 4,417 $ 246,132 $ 243,752 $ 5,036 $ 248,788
Equity in earnings of
real estate joint
ventures and service
companies........... -- 494 494 -- 1,199 1,199
Other income 1,093 3,380 4,473 2,478 10,793 13,271
------------- ----------- ------------- ------------- ------------ -----------
Total Revenues........ 242,808 8,291 251,099 246,230 17,028 263,258
------------- ----------- ------------- ------------- ------------ -----------
EXPENSES:
Property operating
Expenses.............. 81,610 2,341 83,951 80,434 1,434 81,868
Marketing, general
and administrative.... 9,275 3,672 12,947 10,070 3,767 13,837
Interest................ 25,954 17,156 43,110 25,055 22,133 47,188
Depreciation and
amortization.......... 50,428 3,739 54,167 46,631 4,062 50,693
------------- ----------- ------------- ------------- ------------ -----------
Total Expenses...... 167,267 26,908 194,175 162,190 31,396 193,586
------------- ----------- ------------- ------------- ------------ -----------
Income (loss) before
distributions to
preferred unitholders
and minority interests.. $ 75,541 $ (18,617) $ 56,924 $ 84,040 $ (14,368) $ 69,672
============= =========== ============== ============ ============= ===========
10
10. RELATED PARTY TRANSACTIONS
As part of the Company's REIT structure it is provided management, leasing and
construction related services through taxable REIT subsidiaries as defined by
the Code. These services are currently provided by Reckson Management Group,
Inc., RANY Management Group, Inc., Reckson Construction Group New York, Inc.,
and Reckson Construction Group, Inc. (collectively, the "Service Companies").
The Operating Partnership owns a 97% non-controlling interest in the Service
Companies. An entity which is substantially owned by certain Rechler family
members who are also executive officers of the Company owns a 3% controlling
interest in the Service Companies. During the six months ended June 30, 2002,
Reckson Construction Group, Inc. billed approximately $77,000 of market rate
services and Reckson Management Group, Inc. billed approximately $156,000 of
market rate management fees to certain properties in which certain Rechler
family members who are also executive officers maintain an equity interest.
These properties consist of five properties in which these officers had acquired
their interests prior to the initial public offering, but were not contributed
to the Company as part of the initial public offering (the "Option Properties").
At the initial public offering the Operating Partnership was granted ten year
options to acquire these interests at a price based upon an agreed upon formula.
In addition, for the six months ended June 30, 2002, Reckson Construction Group,
Inc. performed market rate services, aggregating approximately $200,000 for a
property in which certain executive officers maintain an equity interest.
The Company leases 43,713 square feet of office and storage space at an Option
Property for its corporate offices located in Melville, New York at an annual
base rent of approximately $1.1 million. The Company also leases 10,722 square
feet of warehouse space used for equipment, materials and inventory storage at
an Option Property located in Deer Park, New York at an annual base rent of
approximately $72,000.
A company affiliated with an independent director of the Company, leases 15,566
square feet in a property owned by the Company at an annual base rent of
approximately $416,000. In addition, Reckson Strategic Venture Partners, LLC
("RSVP") leases 5,144 square feet in one of the Company's joint venture
properties at an annual base rent of approximately $170,000.
During 1997, the Company formed FrontLine Capital Group, formerly Reckson
Service Industries, Inc., ("FrontLine") and RSVP. RSVP is a real estate venture
capital fund which invests primarily in real estate and real estate operating
companies outside the Operating Partnership's core office and industrial focus
and whose common equity is held indirectly by FrontLine. In connection with the
formation and spin-off of FrontLine, the Operating Partnership established an
unsecured credit facility with FrontLine (the "FrontLine Facility") in the
amount of $100 million for FrontLine to use in its investment activities,
operations and other general corporate purposes. The Company has advanced
approximately $93.4 million under the FrontLine Facility. The Operating
Partnership also approved the funding of investments of up to $100 million
relating to RSVP (the "RSVP Commitment"), through RSVP-controlled joint ventures
(for REIT-qualified investments) or advances made to FrontLine under an
unsecured loan facility (the "RSVP Facility") having terms similar to the
FrontLine Facility (advances made under the RSVP Facility and the FrontLine
Facility hereafter, the "FrontLine Loans"). During March 2001, the Company
increased the RSVP Commitment to $110 million and as of June 30, 2002,
approximately $109.1 million had been funded through the RSVP Commitment, of
which $59.8 million represents investments by the Company in RSVP-controlled
(REIT-qualified) joint ventures and $49.3 million represents loans made to
FrontLine under the RSVP Facility. As of June 30, 2002, interest accrued (net of
reserves) under the FrontLine Facility and the RSVP Facility was approximately
$19.6 million. RSVP retained the services of two managing directors to manage
RSVP's day to day operations. Prior to the spin off of Frontline, the Company
guaranteed certain salary provisions of their employment agreements with RSVP
Holdings, LLC, RSVP's common member. The term of these employment agreements is
seven years commencing March 5, 1998 provided however, the term may be earlier
terminated after five years upon certain circumstances. The salary for each
managing director is $1 million in the first five years and $1.6 million in
years six and seven.
At June 30, 2001, the Company assessed the recoverability of the FrontLine Loans
and reserved approximately $3.5 million of the interest accrued during the
three-month period then ended. In addition, the Company formed a committee of
its Board of Directors, comprised solely of independent directors, to consider
any actions to be taken by the Company in connection with the FrontLine Loans
and its investments in joint ventures with RSVP. During the third quarter of
2001, the Company noted a significant deterioration in FrontLine's operations
and financial condition and, based on its assessment of value and recoverability
and considering the findings and recommendations of the committee and its
11
financial advisor, the Company recorded a $163 million valuation reserve charge,
inclusive of anticipated costs, in its consolidated statements of operations
relating to its investments in the FrontLine Loans and joint ventures with RSVP.
The Operating Partnership has discontinued the accrual of interest income with
respect to the FrontLine Loans. The Operating Partnership has also reserved
against its share of GAAP equity in earnings from the RSVP controlled joint
ventures funded through the RSVP Commitment until such income is realized
through cash distributions.
At December 31, 2001, the Company, pursuant to Section 166 of the Code charged
off $70 million of the aforementioned reserve directly related to the FrontLine
Facility, including accrued interest. On February 14, 2002, the Company charged
off an additional $38 million of the reserve directly related to the FrontLine
Facility, including accrued interest and $47 million of the reserve directly
related to the RSVP Facility, including accrued interest.
FrontLine is in default under the FrontLine Loans from the Operating Partnership
and on June 12, 2002, filed a voluntary petition for relief under Chapter 11 of
the United States Bankruptcy Code.
As a result of the foregoing, the net carrying value of the Operating
Partnership's investments in the FrontLine Loans and joint venture investments
with RSVP, inclusive of the Operating Partnership's share of previously accrued
GAAP equity in earnings on those investments, is approximately $65 million which
was reassessed with no change by management as of June 30, 2002. Such amount has
been reflected in investments in service companies and affiliate loans and joint
ventures on the Operating Partnership's consolidated balance sheet. The common
and preferred members of RSVP are currently in dispute over certain provisions
of the RSVP operating agreement. The members are currently negotiating to
restructure the RSVP operating agreement to settle the dispute. There can be no
assurances that the members will successfully negotiate a settlement.
Both the FrontLine Facility and the RSVP Facility have terms of five years, are
unsecured and advances thereunder are recourse obligations of FrontLine.
Notwithstanding the valuation reserve, under the terms of the credit facilities,
interest accrued on the FrontLine Loans at a rate equal to the greater of (a)
the prime rate plus two percent and (b) 12% per annum, with the rate on amounts
that were outstanding for more than one year increasing annually at a rate of
four percent of the prior year's rate. In March 2001, the credit facilities were
amended to provide that (i) interest is payable only at maturity and (ii) the
Company may transfer all or any portion of its rights or obligations under the
credit facilities to its affiliates. The Company requested these changes as a
result of changes in REIT tax laws. As a result of FrontLine's default under the
FrontLine Loans, interest on borrowings thereunder accrue at default rates
ranging between 13% and 14.5% per annum.
In November 1999, the Company received 176,186 shares of the common stock of
FrontLine as fees in connection with the FrontLine Loans. As a result of certain
tax rule provisions included in the REIT Modernization Act, it was determined
that the Company could no longer maintain any equity position in FrontLine. As
part of a compensation program, the Company distributed these shares to certain
non-executive employees, subject to recourse loans. The loans were scheduled to
be forgiven over time based on continued employment with the Company. Based on
the current value of FrontLine's common stock, the Operating Partnership has
established a valuation reserve charge relating to the outstanding balance of
these loans in the amount of $2.4 million.
12
11. COMMITMENTS AND CONTINGENCIES
HQ Global Workplaces, Inc. ("HQ"), one of the largest providers of flexible
officing solutions in the world and which is controlled by FrontLine, currently
operates nine (formerly eleven) executive office centers in the Operating
Partnership's properties, three of which are held through joint ventures. The
leases under which these office centers operate expire between 2008 and 2011,
encompass approximately 225,000 square feet and have current contractual annual
base rents of approximately $6.7 million. On March 13, 2002, as a result of
experiencing financial difficulties, HQ voluntarily filed a petition for relief
under Chapter 11 of the U.S. Bankruptcy Code. As of June 30, 2002, HQ's leases
with the Operating Partnership were in default. Further, effective March 13,
2002, the Bankruptcy Court granted HQ's petition to reject two of its leases
with the Operating Partnership. The two rejected leases aggregated approximately
23,900 square feet and provided for contractual base rents of approximately
$548,000 for the 2002 calendar year. Commencing April 1, 2002 and pursuant to
the bankruptcy filing, HQ has been paying current rental charges under its
leases with the Operating Partnership, other than under the two rejected leases.
The Operating Partnership is in negotiation to restructure three of the leases
and leave the terms of the remaining six leases unchanged. All negotiations with
HQ are conducted by a committee designated by the Company's Board and chaired by
an independent director. There can be no assurance as to whether any deal will
be consummated with HQ or if HQ will affirm or reject any or all of its
remaining leases with the Operating Partnership. As a result of the foregoing,
the Operating Partnership has reserved approximately $500,000 (net of minority
partners' interests and including the Operating Partnership's share of
unconsolidated joint venture interest), or 74%, of the amounts due from HQ as of
June 30, 2002.
WorldCom/MCI and its affiliates ("WorldCom"), a telecommunications company,
which leases as of June 30, 2002 approximately 547,000 square feet in fifteen of
the Operating Partnership's properties located throughout the Tri-State Area
voluntarily filed a petition for relief under Chapter 11 of the U.S. Bankruptcy
Code on July 21, 2002. The total annualized base rental revenue from these
leases amounts to approximately $12.3 million, or 2.8% of the Operating
Partnership's total 2002 annualized rental revenue, making it the Operating
Partnership's second largest tenant based on base rental revenue earned on a
consolidated basis. All of WorldCom's leases are current on base rental charges
through July 31, 2002 and the Operating Partnership currently holds
approximately $300,000 in security deposits relating to these leases. There can
be no assurance as to whether WorldCom will affirm or reject any or all of its
leases with the Operating Partnership. As a result of the foregoing, the
Operating Partnership has increased its reserve against the deferred rent
receivable on its balance sheet at June 30, 2002 in an amount equal to $1.1
million representing approximately 51% of the outstanding deferred rent
receivable attributable to WorldCom.
MetroMedia Fiber Network Services, Inc. ("MetroMedia"), which leases
approximately 112,000 square feet in one property from the Operating
Partnership, voluntarily filed a petition for relief under Chapter 11 of the
U.S. Bankruptcy Code in May 2002. MetroMedia's lease with the Operating
Partnership provided for contractual base rent of approximately $25 per square
foot amounting to $2.8 million per calendar year and expired in May 2010. In
July 2002, the Bankruptcy Court granted MetroMedia's petition to restructure and
reduce space under its existing lease. As a result, the lease was amended to
reduce MetroMedia's space by 80,357 square feet to 31,718 square feet. Annual
base rent on the 31,718 square feet MetroMedia will continue to lease is $25 per
square foot amounting to approximately $793,000 per annum. Further, pursuant to
the Bankruptcy Court order MetroMedia is required to pay to the Operating
Partnership a surrender fee of approximately $1.8 million. As a result of the
foregoing, at June 30, 2002, the Operating Partnership has written off
approximately $388,000 of deferred rent receivable relating to this lease and
recognized the aforementioned surrender fee.
Arthur Andersen, LLP ("AA") leases approximately 38,000 square feet in one of
the Operating Partnership's New York City buildings. AA's lease with the
Operating Partnership provides for base rent of approximately $2 million on an
annualized basis and expires in April 2004. AA is current on all rental charges
through July 31, 2002. AA has experienced significant financial difficulties
with its business and there is uncertainty as to whether it will remain in its
space for the duration of its lease term. As of June 30, 2002, the Operating
Partnership has reserved 100% of the deferred rent receivable related to this
lease which is approximately $140,000.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the historical
financial statements of Reckson Operating Partnership, L. P. (the "Operating
Partnership") and related notes.
The Operating Partnership considers certain statements set forth herein to
be forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, with respect to the Operating Partnership's
expectations for future periods. Certain forward-looking statements, including,
without limitation, statements relating to the timing and success of
acquisitions and the completion of development or redevelopment of properties,
the financing of the Operating Partnership's operations, the ability to lease
vacant space and the ability to renew or relet space under expiring leases,
involve risks and uncertainties. Although the Operating Partnership believes
that the expectations reflected in such forward-looking statements are based on
reasonable assumptions, the actual results may differ materially from those set
forth in the forward-looking statements and the Operating Partnership can give
no assurance that its expectation will be achieved. Among those risks, trends
and uncertainties are: the general economic climate, including the conditions
affecting industries in which our principal tenants compete; changes in the
supply of and demand for office and industrial properties in the New York
tri-state area; changes in interest rate levels; downturns in rental rate levels
in our markets and our ability to lease or release space in a timely manner at
current or anticipated rental rate levels; the availability of financing to us
or our tenants; credit of our tenants, changes in operating costs, including
utility, security and insurance costs; repayment of debt owed to the Operating
Partnership by third parties (including FrontLine Capital Group); risks
associated with joint ventures; and other risks associated with the development
and acquisition of properties, including risks that development may not be
completed on schedule, that the tenants will not take occupancy or pay rent, or
that development or operating costs may be greater than anticipated.
Consequently, such forward-looking statements should be regarded solely as
reflections of the Operating Partnership's current operating and development
plans and estimates. These plans and estimates are subject to revisions from
time to time as additional information becomes available, and actual results may
differ from those indicated in the referenced statements.
CRITICAL ACCOUNTING POLICIES
The consolidated financial statements of the Operating Partnership include
accounts of the Operating Partnership and all majority-owned subsidiaries. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States ("GAAP") requires management to make
estimates and assumptions in certain circumstances that affect amounts reported
in the Operating Partnership's consolidated financial statements and related
notes. In preparing these financial statements, management has utilized
information available including its past history, industry standards and the
current economic environment among other factors in forming its estimates and
judgments of certain amounts included in the consolidated financial statements,
giving due consideration to materiality. It is possible that the ultimate
outcome as anticipated by management in formulating its estimates inherent in
these financial statements may not materialize. However, application of the
critical accounting policies below involves the exercise of judgment and use of
assumptions as to future uncertainties and, as a result, actual results could
differ from these estimates. In addition, other companies may utilize different
estimates, which may impact comparability of the Operating Partnership's results
of operations to those of companies in similar businesses.
Revenue Recognition and Accounts Receivable
Rental revenue is recognized on a straight line basis, which averages
minimum rents over the terms of the leases. The excess of rents recognized over
amounts contractually due are included in deferred rents receivable on the
Operating Partnership's balance sheets. The leases also typically provide for
tenant reimbursements of common area maintenance and other operating expenses
and real estate taxes. Ancillary and other property related income is recognized
in the period earned.
The Operating Partnership makes estimates of the collectibility of its
tenant receivables related to base rents, tenant escalations and
reimbursements and other revenue or income. The Operating Partnership
specifically analyzes tenant receivables and analyzes historical bad debts,
customer credit worthiness, current economic trends, changes in customer payment
terms, publicly available information and, to the extent available, guidance
provided by the tenant when evaluating the adequacy of its
14
allowance for doubtful accounts. In addition, when tenants are in bankruptcy the
Operating Partnership makes estimates of the expected recovery of pre-petition
administrative and damage claims. In some cases, the ultimate resolution of
those claims can exceed a year. These estimates have a direct impact on the
Operating Partnership's net income, because a higher bad debt reserve results in
less net income.
During the six months ended June 30, 2002, the Operating Partnership
incurred approximately $3.5 million of bad debt expense related to tenant
receivables and deferred rents receivable which accordingly reduced total
revenues and reported net income during the period.
The Operating Partnership records interest income on investments in
mortgage notes and notes receivable on an accrual basis of accounting. The
Operating Partnership does not accrue interest on impaired loans where, in the
judgment of management, collection of interest according to the contractual
terms is considered doubtful. Among the factors the Operating Partnership
considers in making an evaluation of the collectibility of interest are: (i) the
status of the loan, (ii) the value of the underlying collateral, (iii) the
financial condition of the borrower and (iv) anticipated future events.
Gain on sales of real estate are recorded when title is conveyed to the
buyer, subject to the buyer's financial commitment being sufficient to provide
economic substance to the sale.
Real Estate
Land, buildings and improvements, furniture, fixtures and equipment are
recorded at cost. Tenant improvements, which are included in buildings and
improvements, are also stated at cost. Expenditures for maintenance and repairs
are charged to operations as incurred. Renovations and/or replacements, which
improve or extend the life of the asset are capitalized and depreciated over
their estimated useful lives.
Depreciation is computed utilizing the straight-line method over the
estimated useful lives of ten to thirty years for buildings and improvements and
five to ten years for furniture, fixtures and equipment. Tenant improvements are
amortized on a straight-line basis over the term of the related leases.
The Operating Partnership is required to make subjective assessments as to
the useful lives of its properties for purposes of determining the amount of
depreciation to reflect on an annual basis with respect to those properties.
These assessments have a direct impact on the Operating Partnership's net
income. Should the Operating Partnership lengthen the expected useful life of a
particular asset, it would be depreciated over more years, and result in less
depreciation expense and higher annual net income.
Assessment by the Operating Partnership of certain other lease related
costs must be made when the Operating Partnership has a reason to believe that
the tenant will not be able to execute under the term of the lease as originally
expected.
Long Lived Assets
On a periodic basis, management assesses whether there are any indicators
that the value of the real estate properties may be impaired. A property's value
is impaired only if management's estimate of the aggregate future cash flows
(undiscounted and without interest charges) to be generated by the property are
less than the carrying value of the property. Such cash flows consider factors
such as expected future operating income, trends and prospects, as well as the
effects of demand, competition and other factors. To the extent impairment has
occurred, the loss will be measured as the excess of the carrying amount of the
property over the fair value of the property.
The Operating Partnership is required to make subjective assessments as to
whether there are impairments in the value of its real estate properties and
other investments. These assessments have a direct impact on the Operating
Partnership's net income, because recognizing an impairment results in an
immediate negative adjustment to net income. In determining impairment, if any,
the Operating Partnership has adopted Financial Accounting Standards Board
Statement No. 144, "Accounting for the Impairment or Disposal of Long Lived
Assets".
15
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 June 30, 2002, the Operating Partnership owned and operated 77 office
properties (inclusive of eleven office properties which are owned through joint
ventures) comprising approximately 13.8 million square feet, 102 industrial
properties comprising approximately 6.8 million square feet and two retail
properties comprising approximately 20,000 square feet located in the Tri-State
Area.
The Operating Partnership also owns approximately 254 acres of land in 12
separate parcels of which the Operating Partnership can develop approximately
two million square feet of office space and approximately 450,000 square feet of
industrial space. On April 1, 2002, the Operating Partnership paid approximately
$23.8 million to acquire an additional 52.7 acres of land located in Valhalla,
NY on which the Operating Partnership can develop approximately 875,000 square
feet of office space. The Operating Partnership currently owns and operates
three buildings encompassing approximately 700,000 square feet in the same
office park in which this land is located. The Operating Partnership financed
this acquisition in part from the sales proceeds of an office property being
held by a qualified intermediary for the purposes of an exchange of real
property pursuant to Section 1031 of the Internal Revenue Code of 1986 and from
an advance under the Operating Partnership's unsecured credit facility. In
addition, the Operating Partnership owns a 32 acre land parcel in Rye Brook, NY
which is under contract for sale for approximately $22.3 million. The sale of
this land is subject to certain rezoning and other municipal approvals. At this
time it is undetermined whether these approvals or rezoning will be obtained and
the sale closed. The Operating Partnership currently owns and operates six
buildings encompassing approximately 542,000 square feet in the same office park
in which this land is located. As of June 30, 2002, the Operating Partnership
had invested approximately $115 million in these developments in progress.
Management has made subjective assessments as to the value and recoverability of
these investments based on current and proposed development plans. The Operating
Partnership has capitalized approximately $5.4 million for the six months ended
June 30, 2002 related to real estate taxes, interest and other carrying costs
related to these developments in progress.
The Operating Partnership also owns a 357,000 square foot office building
located in Orlando, Florida. Additionally, the Operating Partnership holds a
$17.0 million interest in a note receivable secured by a partnership interest in
Omni Partners, L. P., owner of the Omni, a 575,000 square foot Class A Office
Property located in Uniondale, NY and three other notes aggregating $36.5
million which bear interest at rates ranging from 10.5% to 12% per annum and are
secured by a minority partner's preferred unit interest in the Operating
Partnership and certain real property. As of June 30, 2002, management has made
subjective assessments as to the underlying security value on the Operating
Partnership's note receivable investments. These assessments indicated an excess
of market value over carrying value related to the Operating Partnership's note
receivable investments.
As part of the Company's REIT structure it is provided management, leasing
and construction related services through taxable REIT subsidiaries as defined
by the Code. These services are currently provided by Reckson Management Group,
Inc., RANY Management Group, Inc., Reckson Construction Group New York, Inc.,
and Reckson Construction Group, Inc. (collectively, the "Service Companies").
The Operating Partnership owns a 97% non-controlling interest in the Service
Companies. An entity which is substantially owned by certain Rechler family
members who are also executive officers of the Company owns a 3% controlling
interest in the Service Companies. During the six months ended June 30, 2002,
Reckson Construction Group, Inc. billed approximately $77,000 of market rate
services and Reckson Management Group, Inc. billed approximately $156,000 of
market rate management fees to certain properties in which certain Rechler
family members who are also executive officers maintain an equity interest.
These properties consist of five properties in which these officers had acquired
their interests prior to the initial public offering, but were not contributed
to the Company as part of the initial public offering (the "Option Properties").
At the initial public offering the Operating Partnership was granted ten year
options to acquire these interests at a price based upon an agreed upon formula.
In addition, for the six months ended June 30, 2002, Reckson Construction Group,
Inc. performed market rate services, aggregating approximately $200,000 for a
property in which certain executive officers maintain an equity interest.
16
The Company leases 43,713 square feet of office and storage space at an
Option Property for its corporate offices located in Melville, New York at an
annual base rent of approximately $1.1 million. The Company also leases 10,722
square feet of warehouse space used for equipment, materials and inventory
storage at an Option Property located in Deer Park, New York at an annual base
rent of approximately $72,000.
A company affiliated with an independent director of the Company, leases
15,566 square feet in a property owned by the Company at an annual base rent of
approximately $416,000. In addition, Reckson Strategic Venture Partners, LLC
("RSVP") leases 5,144 square feet in one of the Company's joint venture
properties at an annual base rent of approximately $170,000.
During July 1998, the Operating Partnership formed Metropolitan Partners,
LLC ("Metropolitan") for the purpose of acquiring Class A office properties in
New York City. Currently the Operating Partnership owns, through Metropolitan,
five Class A office properties aggregating approximately 3.5 million square
feet.
During September 2000, the Operating Partnership formed a joint venture
(the "Tri-State JV") with Teachers Insurance and Annuity Association ("TIAA")
and contributed eight Class A suburban office properties aggregating
approximately 1.5 million square feet to the Tri-State JV for a 51% majority
ownership interest. TIAA contributed approximately $136 million for a 49%
interest in the Tri-State JV which was then distributed to the Operating
Partnership. For purposes of its financial statements the Operating Partnership
consolidates this joint venture.
On December 21, 2001, the Operating Partnership formed a joint venture with
the New York State Teachers' Retirement Systems ("NYSTRS") whereby NYSTRS
acquired a 49% indirect interest in the property located at 919 Third Avenue,
New York, NY for $220.5 million which included $122.1 million of its
proportionate share of secured mortgage debt and approximately $98.4 million of
cash which was then distributed to the Operating Partnership. For purposes of
its financial statements, the Operating Partnership consolidates this joint
venture.
The total market capitalization of the Operating Partnership at June 30,
2002 was approximately $3.3billion. The Operating Partnership's total 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 and
(iii) the approximately $1.3 billion (including its share of joint venture debt
and net of minority partners' interests share of joint venture debt) of debt
outstanding at June 30, 2002. As a result, the Operating Partnership's total
debt to total market capitalization ratio at June 30, 2002 equaled approximately
39.0%.
During 1997, the Company formed FrontLine Capital Group, formerly Reckson
Service Industries, Inc., ("FrontLine") and RSVP. RSVP is a real estate venture
capital fund which invests primarily in real estate and real estate operating
companies outside the Operating Partnership's core office and industrial focus
and whose common equity is held indirectly by FrontLine. In connection with the
formation and spin-off of FrontLine, the Operating Partnership established an
unsecured credit facility with FrontLine (the "FrontLine Facility") in the
amount of $100 million for FrontLine to use in its investment activities,
operations and other general corporate purposes. The Company has advanced
approximately $93.4 million under the FrontLine Facility. The Operating
Partnership also approved the funding of investments of up to $100 million
relating to RSVP (the "RSVP Commitment"), through RSVP-controlled joint ventures
(for REIT-qualified investments) or advances made to FrontLine under an
unsecured loan facility (the "RSVP Facility") having terms similar to the
FrontLine Facility (advances made under the RSVP Facility and the FrontLine
Facility hereafter, the "FrontLine Loans"). During March 2001, the Company
increased the RSVP Commitment to $110 million and as of June 30, 2002,
approximately $109.1 million had been funded through the RSVP Commitment, of
which $59.8 million represents investments by the Company in RSVP-controlled
(REIT-qualified) joint ventures and $49.3 million represents loans made to
FrontLine under the RSVP Facility. As of June 30, 2002, interest accrued (net of
reserves) under the FrontLine Facility and the RSVP Facility was approximately
$19.6 million. RSVP retained the services of two managing directors to manage
RSVP's day to day operations. Prior to the spin off of Frontline, the Company
guaranteed certain salary provisions of their employment agreements with RSVP
Holdings, LLC, RSVP's common member. The term of these employment agreements is
seven years commencing
17
March 5, 1998 provided however, the term may be earlier terminated after five
years upon certain circumstances. The salary for each managing director is $1
million in the first five years and $1.6 million in years six and seven.
At June 30, 2001, the Company assessed the recoverability of the FrontLine
Loans and reserved approximately $3.5 million of the interest accrued during the
three-month period then ended. In addition, the Company formed a committee of
its Board of Directors, comprised solely of independent directors, to consider
any actions to be taken by the Company in connection with the FrontLine Loans
and its investments in joint ventures with RSVP. During the third quarter of
2001, the Company noted a significant deterioration in FrontLine's operations
and financial condition and, based on its assessment of value and recoverability
and considering the findings and recommendations of the committee and its
financial advisor, the Company recorded a $163 million valuation reserve charge,
inclusive of anticipated costs, in its consolidated statements of operations
relating to its investments in the FrontLine Loans and joint ventures with RSVP.
The Operating Partnership has discontinued the accrual of interest income with
respect to the FrontLine Loans. The Operating Partnership has also reserved
against its share of GAAP equity in earnings from the RSVP controlled joint
ventures funded through the RSVP Commitment until such income is realized
through cash distributions.
At December 31, 2001, the Company, pursuant to Section 166 of the Code
charged off $70 million of the aforementioned reserve directly related to the
FrontLine Facility, including accrued interest. On February 14, 2002, the
Company charged off an additional $38 million of the reserve directly related to
the FrontLine Facility, including accrued interest and $47 million of the
reserve directly related to the RSVP Facility, including accrued interest.
FrontLine is in default under the FrontLine Loans from the Operating
Partnership and on June 12, 2002, filed a voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code.
As a result of the foregoing, the net carrying value of the Operating
Partnership's investments in the FrontLine Loans and joint venture investments
with RSVP, inclusive of the Operating Partnership's share of previously accrued
GAAP equity in earnings on those investments, is approximately $65 million which
was reassessed with no change by management as of June 30, 2002. Such amount has
been reflected in investments in service companies and affiliate loans and joint
ventures on the Operating Partnership's consolidated balance sheet. The common
and preferred members of RSVP are currently in dispute over certain provisions
of the RSVP operating agreement. The members are currently negotiating to
restructure the RSVP operating agreement to settle the dispute. There can be no
assurances that the members will successfully negotiate a settlement.
Both the FrontLine Facility and the RSVP Facility have terms of five years,
are unsecured and advances thereunder are recourse obligations of FrontLine.
Notwithstanding the valuation reserve, under the terms of the credit facilities,
interest accrued on the FrontLine Loans at a rate equal to the greater of (a)
the prime rate plus two percent and (b) 12% per annum, with the rate on amounts
that were outstanding for more than one year increasing annually at a rate of
four percent of the prior year's rate. In March 2001, the credit facilities were
amended to provide that (i) interest is payable only at maturity and (ii) the
Company may transfer all or any portion of its rights or obligations under the
credit facilities to its affiliates. The Company requested these changes as a
result of changes in REIT tax laws. As a result of FrontLine's default under the
FrontLine Loans, interest on borrowings thereunder accrue at default rates
ranging between 13% and 14.5% per annum.
In November 1999, the Company received 176,186 shares of the common stock
of FrontLine as fees in connection with the FrontLine Loans. As a result of
certain tax rule provisions included in the REIT Modernization Act, it was
determined that the Company could no longer maintain any equity position in
FrontLine. As part of a compensation program, the Company distributed these
shares to certain non-executive employees, subject to recourse loans. The loans
were scheduled to be forgiven over time based on continued employment with the
Company. Based on the current value of FrontLine's common stock, the Operating
Partnership has established a valuation reserve charge relating to the
outstanding balance of these loans in the amount of $2.4 million.
18
RESULTS OF OPERATIONS
Three months ended June 30, 2002 as compared to the three months ended June 30,
2001.
The Operating Partnership's total revenues decreased by $6.8 million or 5.1% for
the three months ended June 30, 2002 as compared to the 2001 period. Property
operating revenues, which include base rents and tenant escalations and
reimbursements ("Property Operating Revenues") decreased by $1.7 million or 1.4%
for the three months ended June 30, 2002 as compared to the 2001 period. The
change in Property Operating Revenues is attributable to increases in rental
rates in our "same store" properties amounting to $9.1 million. In addition,
Property Operating Revenues increased by $0.8 million attributable to lease up
of newly developed and redeveloped properties. These increases in Property
Operating Revenues were offset by $4.4 million of operating revenue attributable
to six properties that were sold in 2001. The Operating Partnership's Property
Operating Revenues was further effected by the impact of the straightline rent
adjustment of $4.4 million for the three months ended June 30, 2002 as compared
to $10.9 million for the 2001 period. Straightline rent for the three months
ended June 30, 2002 was decreased by $1.8 million for bad debt reserves. This
decrease of $6.5 million is primarily attributable to the property located at
919 Third Avenue for the free rent period, which was effective through February
28, 2002, contained in the lease of the largest tenant in the building. Other
revenues (excluding Property Operating Revenues) decreased by $5.0 million or
71.5% for the three months ended June 30, 2002 as compared to the 2001 period.
This decrease is primarily attributable to $4.6 million of interest income
accrued on the FrontLine Loans during the 2001 period with no such comparable
interest earned for the 2002 period.
Property operating expenses, real estate taxes and ground rents ("Property
Expenses") increased by $0.9 million or 2.1% for the three months ended June 30,
2002 as compared to the 2001 period. This increase includes a $1.5 million
increase in property operating expenses and a $1.1 million increase in real
estate taxes related to our "same-store" properties. Included in the $1.5
million of property operations expense increase is $500,000 and $350,000
attributable to increases in security and insurance costs respectively. These
increases result primarily from implications of September 11th and security cost
increases primarily relate to our New York City properties. These increases in
Property Expenses were offset by $1.7 million of expenses attributable to six
properties that were sold in 2001.
Gross Operating Margins (defined as Property Operating Revenues less Property
Expenses, taken as a percentage of Property Operating Revenues) for the three
months ended June 30, 2002 and 2001 were 66.2% and 67.4%, respectively. The
decrease in Gross Operating Margins is primarily attributable to decreases in
average occupancy of the portfolio and also as a result of an increase in
reserves on deferred rents receivable which reduced property operating revenues
for the three months ended June 30, 2002.
Marketing, general and administrative expenses decreased by approximately
$595,000 or 8.1% for the three months ended June 30, 2002 as compared to the
2001 period. The decrease in marketing, general and administrative expenses is
primarily due to staff reduction, cost containment and reduction in legal and
professional fees incurred during the 2001 period in connection with certain
cancelled acquisition transactions. Marketing, general and administrative
expenses, as a percentage of total revenues, were 5.4% for the three months
ended June 30, 2002 as compared to 5.6% for the 2001 period. The Operating
Partnership capitalized approximately $1.3 million of marketing, general and
administrative expenses for the three months ended June 30, 2002 as compared to
$1.2 million for the 2001 period. These costs relate to leasing, construction
and development activities, which are performed by the Operating Partnership.
Interest expense decreased by approximately $1.4 million for the three months
ended June 30, 2002 as compared to the 2001 period. The decrease was primarily
attributable to a decrease in interest expense on the Operating Partnership's
variable rate debt due to lower interest rates and a lower average balance
outstanding on the Operating Partnership's unsecured credit facility. The
weighted average balance outstanding was $218.1 million for the three months
ended June 30, 2002 as compared to $323.2 million for the three months ended
June 30, 2001.
19
Six months ended June 30, 2002 as compared to the six months ended June 30,
2001.
The Operating Partnership's total revenues decreased by $12.2 million or 4.6%
for the six months ended June 30, 2002 as compared to the 2001 period. Property
Operating Revenues decreased by $2.6 million or 1.1% for the six months ended
June 30, 2002 as compared to the 2001 period. The change in Property Operating
Revenues is attributable to increases in rental rates in our "same store"
properties amounting to $13.9 million. In addition, Property Operating Revenues
increased by $3.0 million attributable to lease up of newly developed and
redeveloped properties. These increases in Property Operating Revenues were
offset by $9.3 million of revenue attributable to six properties that were sold
in 2001. The Operating Partnership's property operating revenues was further
effected by the impact of the straightline rent adjustment of $13.0 million for
the six months ended June 30, 2002 as compared to $22.0 million for the 2001
period. This decrease of $9.0 million is primarily attributable to the property
located at 919 Third Avenue for the free rent period, which was effective
through February 28, 2002, contained in the lease of the largest tenant in the
building. Straightline rent for the six months ended June 30, 2002 was decreased
by $2.5 million for bad debt reserves. Other revenues (excluding Property
Operating Revenues) decreased by $9.5 million or 65.7% for the six months ended
June 30, 2002 as compared to the 2001 period. This decrease is primarily
attributable to $6.1 million of interest income accrued on the FrontLine Loans
during the 2001 period with no such comparable interest accrual for the 2002
period.
Property Expenses increased by $2.1 million or 2.5% for the six months ended
June 30, 2002 as compared to the 2001 period. This increase is primarily due to
a $2.0 million increase in property operating expenses and a $2.2 million
increase in real estate taxes related to our "same store" properties. Included
in the $2.0 million increase in property operating expenses is $850,000 and
$470,000 attributable to increases in security and insurance costs,
respectively. The increases result primarily from implications of September 11th
and security cost increases primarily relate to our New York City properties. In
addition, Property Expenses increased by $0.8 million attributable to the lease
up of newly developed and redeveloped properties. These increases in Property
Expenses were offset by $3.3 million of expenses attributable to six properties
that were sold in 2001.
Gross Operating Margins for the six months ended June 30, 2002 and 2001 were
65.9% and 67.1%, respectively. The decrease in Gross Operating Margins is
primarily attributable to decreases in average occupancy of the portfolio and
also as a result of an increase in reserves on deferred rents receivable.
Marketing, general and administrative expenses decreased by approximately
$890,000 or 6.4% for the six months ended June 30, 2002 as compared to the 2001
period. The decrease in marketing, general and administrative expenses is
primarily due to staff reduction, cost containment and reduction in legal and
professional fess incurred during the 2001 period in connection with certain
cancelled acquisition transactions. Marketing, general and administrative
expenses, as a percentage of total revenues, were 5.2% for the six months ended
June 30, 2002 as compared to 5.3% for the 2001 period. The Operating Partnership
capitalized approximately $2.6 million of marketing, general and administrative
expenses for the six months ended June 30, 2002 as compared to $2.4 million for
the 2001 period. These costs relate to leasing, construction and development
activities, which are performed by the Operating Partnership.
Interest expense decreased by approximately $4.1 million for the six months
ended June 30, 2002 as compared to the 2001 period. The decrease was primarily
attributable to a decrease in interest expense on the Operating Partnership's
variable rate debt due to lower interest rates and a lower average balance
outstanding on the Operating Partnership's unsecured credit facility. The
weighted average balance outstanding was $211.8 million for the six months ended
June 30, 2002 as compared to $289.0 million for the six months ended June 30,
2001.
Liquidity and Capital Resources
As of June 30, 2002, the Operating Partnership had a three year $575 million
unsecured revolving credit facility (the "Credit Facility") from The JPMorgan
Chase Bank, as administrative agent, UBS Warburg LLC as syndication agent and
Deutsche Bank as documentation agent. The Credit Facility matures in September
2003 and borrowings under the Credit Facility are currently priced off LIBOR
plus 105 basis points.
The Operating Partnership utilizes the Credit Facility primarily to finance
real estate investments, fund its real estate development activities and for
working capital purposes. At June 30, 2002, the Operating Partnership had
availability under the Credit Facility to borrow approximately an additional
$400 million, subject to compliance with certain financial covenants.
20
On March 28, 2002, approximately 11,303 Series E preferred units of the
limited partnership interest, with a liquidation preference value of
approximately $11.3 million, were exchanged for 451,934 limited partnership
units at a price of $25.01 per unit. In addition, during the three months ended
June 30, 2002, the Company increased its general partner interest in the
Operating Partnership by acquiring 666,466 outstanding Units from certain
limited partners in exchange for an equal number of shares of its Class A common
stock.
On June 17, 2002, the Operating Partnership issued $50 million of 6% (6.13%
effective rate) senior unsecured notes due June 15, 2007. Net proceeds of
approximately $49.4 million were used to repay outstanding borrowings under the
Credit Facility.
On August 7, 2002, the Operating Partnership sold an industrial property
on Long Island aggregating approximately 32,000 square feet for approximately
$1.8 million. This property was sold to the sole tenant of the property through
an option contained in the tenant's lease. On August 8, 2002, the Operating
Partnership sold two Class A office properties located in Westchester County, NY
aggregating approximately 157,000 square feet for approximately $18.5 million.
Net proceeds from the August 8th sale were used to repay borrowings under the
Credit Facility.
The following table sets forth the Operating Partnership's invested capital
(before valuation reserves) in RSVP controlled (REIT-qualified) joint ventures
and amounts which were advanced under the RSVP Commitment to FrontLine, for its
investment in RSVP controlled investments (in thousands):
RSVP controlled
joint ventures Amounts advanced Total
--------------- ---------------- ---------------
Privatization $ 21,480 $ 3,520 $ 25,000
Student Housing 18,086 3,935 22,021
Medical Offices 20,185 -- 20,185
Parking -- 9,091 9,091
Resorts -- 8,057 8,057
Net leased retail -- 3,180 3,180
Other assets and overhead -- 21,598 21,598
-------------- -------------- ---------------
$ 59,751 $ 49,381 $ 109,132
============== ============== ===============
Included in these investments is approximately $17.5 million of cash that has
been contributed to the respective RSVP controlled joint ventures or advanced
under the RSVP Commitment to FrontLine and is being held, along with cash from
the preferred investors.
As of June 30, 2002 the Operating Partnership had issued and outstanding
10,283,513 Class B common units, all of which are held by the Company and which
were entitled to receive an annual distribution of $2.5968 per unit. The
distribution on the Class B units is subject to adjustment annually based on a
formula which measures increases or decreases in the Company's Funds From
Operations ("FFO"), as defined, over a base year. On July 31, 2002, the annual
distribution on the Class B common units was decreased to $2.5884 per unit.
The Class B common units are exchangeable at any time, at the option of the
holder, into an equal number of Class A common units subject to customary
antidilution adjustments. The 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.
The Board of Directors of the Company has authorized the purchase of up to
an additional five million shares of the Company's Class B common stock and/or
its Class A common stock. Subsequent to June 30, 2002, the Operating Partnership
purchased 368,200 Class B common units at an average price of $22.90 per Class B
unit and 1,856,200 Class A common units at an average price of $21.98 per Class
A unit for an aggregate purchase price for both the Class A and Class B units of
approximately $49.2 million. Previously, in conjunction with the Company's
common stock buy-back program, the Operating Partnership purchased and retired
1,410,804 Class B common units at an average price of $21.48 per unit and 61,704
Class A common units at an average price of $23.03 per unit for an aggregate
purchase price of approximately $31.7 million. In addition, the Board of
Directors of the Company has formed a pricing committee to consider purchases up
to $75 million of the Company's outstanding preferred securities.
On May 22, 2002, approximately $1.4 million of loans made to certain executive
officers to purchase the Company's common stock matured. The loans were secured
by 61,668 shares of the Company's Class A common stock. The loans were satisfied
by the executive officers with the 61,668 shares of Class A common stock. The
market value of these shares on May 22, 2002 was sufficient to fully satisfy
these loans and as such there was no financial impact to the Company. The
Company has subsequently retired these shares.
21
The Operating Partnership also owns a 60% non-controlling interest in a
172,000 square foot office building located at 520 White Plains Road in White
Plains, New York (the "520JV"). As of June 30, 2002, the 520JV had total assets
of $21.5 million, a mortgage note payable of $12.8 million and other liabilities
of $.9 million. The Operating Partnership's allocable share of the 520JV
mortgage note payable is approximately $7.7 million. In addition the 520JV had
total revenues of $1,615,000 and total expenses of $1,637,000 for the six months
ended June 30, 2002. The Operating Partnership accounts for the 520JV under the
equity method of accounting, The 520JV contributed approximately $29,000 and
$216,000 to the Operating Partnership's equity in earnings of real estate joint
ventures for the six months ended June 30, 2002 and 2001, respectively.
Effective January 1, 2002 the Company has elected to follow FASB Statement No.
123, "Accounting for Stock Based Compensation". Statement No.123 requires the
use of option valuation models which determine the fair value of the option on
the date of the grant. All future employee stock option grants will be expensed
over the options' vesting periods based on the fair value at the date of the
grant in accordance with Statement No. 123. The Company expects minimal
financial impact in the current year from the adoption of Statement No. 123. To
determine the fair value of the stock options granted, the Company intends to
use a Black-Scholes option pricing model. Historically, the Company had applied
Accounting Principles Board Opinion No. 25 and related interpretations in
accounting for its stock option plans and reported pro forma disclosures in its
Form 10-K filings by estimating the fair value of options issued and the related
expense in accordance with Statement No. 123. Accordingly, no compensation cost
had been recognized for its stock option plans in the past.
The Operating Partnership's indebtedness at June 30, 2002 totaled
approximately $1.3 billion (including its share of joint venture debt and net of
the minority partners' interests share of joint venture debt) and was comprised
of $176.0 million outstanding under the Credit Facility, approximately $499.2
million of senior unsecured notes and approximately $610.4 million of mortgage
indebtedness. Based on the Operating Partnership's total market capitalization
of approximately $3.3 billion at June 30, 2002 (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 and (iii) the $1.3 billion of debt), the Operating Partnership's
debt represented approximately 39.0% of its total market capitalization
HQ Global Workplaces, Inc. ("HQ"), one of the largest providers of flexible
officing solutions in the world and which is controlled by FrontLine, currently
operates nine (formerly eleven) executive office centers in the Operating
Partnership's properties, three of which are held through joint ventures. The
leases under which these office centers operate expire between 2008 and 2011,
encompass approximately 225,000 square feet and have current contractual annual
base rents of approximately $6.7 million. On March 13, 2002, as a result of
experiencing financial difficulties, HQ voluntarily filed a petition for relief
under Chapter 11 of the U.S. Bankruptcy Code. As of June 30, 2002, HQ's leases
with the Operating Partnership were in default. Further, effective March 13,
2002, the Bankruptcy Court granted HQ's petition to reject two of its leases
with the Operating Partnership. The two rejected leases aggregated approximately
23,900 square feet and provided for contractual base rents of approximately
$548,000 for the 2002 calendar year. Commencing April 1, 2002 and pursuant to
the bankruptcy filing, HQ has been paying current rental charges under its
leases with the Operating Partnership, other than under the two rejected leases.
The Operating Partnership is in negotiation to restructure three of the leases
and leave the terms of the remaining six leases unchanged. All negotiations with
HQ are conducted by a committee designated by the Company's Board and chaired by
an independent director. There can be no assurance as to whether any deal will
be consummated with HQ or if HQ will affirm or reject any or all of its
remaining leases with the Operating Partnership. As a result of the foregoing,
the Operating Partnership has reserved approximately $500,000 (net of minority
partners' interests and including the Operating Partnership's share of
unconsolidated joint venture interest), or 74%, of the amounts due from HQ as of
June 30, 2002.
WorldCom/MCI and its affiliates ("WorldCom"), a telecommunications company
which leases as of June 30, 2002 approximately 547,000 square feet in fifteen of
the Operating Partnership's properties located throughout the Tri-State Area
voluntarily filed a petition for relief under Chapter 11 of the U.S. Bankruptcy
Code on July 21, 2002. The total annualized base rental revenue from these
leases amounts to approximately $12.3 million, or 2.8% of the Operating
Partnership's total 2002 annualized rental revenue, making it the Operating
Partnership's second largest tenant based on base rental revenue earned on a
consolidated basis. All of WorldCom's leases are current on base rental charges
through July 31, 2002 and the Operating Partnership currently holds
approximately $300,000 in security deposits relating to these leases. There can
be no assurance as to whether WorldCom will affirm or reject any or all of its
leases with the Operating Partnership. As a result of the foregoing, the
Operating Partnership has increased its reserve against the deferred rent
receivable on its balance sheet at June 30, 2002 in an amount equal to $1.1
million representing approximately 51% of the outstanding deferred rent
receivable attributable to WorldCom.
22
MetroMedia Fiber Network Services, Inc. ("MetroMedia"), which leases
approximately 112,000 square feet in one property from the Operating
Partnership, voluntarily filed a petition for relief under Chapter 11 of the
U.S. Bankruptcy Code in May 2002. MetroMedia's lease with the Operating
Partnership provided for contractual base rent of approximately $25 per square
foot amounting to $2.8 million per calendar year and expired in May 2010. In
July 2002, the Bankruptcy Court granted MetroMedia's petition to restructure and
reduce space under its existing lease. As a result, the lease was amended to
reduce MetroMedia's space by 80,357 square feet to 31,718 square feet. Annual
base rent on the 31,718 square feet MetroMedia will continue to lease is $25 per
square foot amounting to approximately $793,000 per annum. Further, pursuant to
the Bankruptcy Court order MetroMedia is required to pay to the Operating
Partnership a surrender fee of approximately $1.8 million. As a result of the
foregoing, at June 30, 2002, the Operating Partnership has written off
approximately $388,000 of deferred rent receivable relating to this lease and
recognized the aforementioned surrender fee.
Arthur Andersen, LLP ("AA") leases approximately 38,000 square feet in one of
the Operating Partnership's New York City buildings. AA's lease with the
Operating Partnership provides for base rent of approximately $2 million on an
annualized basis and expires in April 2004. AA is current on all rental charges
through July 31, 2002. AA has experienced significant financial difficulties
with its business and there is uncertainty as to whether it will remain in its
space for the duration of its lease term. As of June 30, 2002, the Operating
Partnership has reserved 100% of the deferred rent receivable related to this
lease which is approximately $140,000.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following table sets forth the Operating Partnership's significant debt
obligations by scheduled principal cash flow payments and maturity date and its
commercial commitments by scheduled maturity at June 30, 2002 (in thousands):
MATURITY DATE
------------------------------------------------------------------------------
2002 2003 2004 2005 2006 THEREAFTER TOTAL
--------- ---------- ---------- ---------- ---------- ----------- -----------
Mortgage notes payable (1) $ 5,965 $ 12,300 $ 13,169 $14,167 $ 13,785 $128,700 $ 188,086
Mortgage notes payable (2) -- -- 2,616 18,553 129,920 406,808 557,897
Senior unsecured notes -- -- 100,000 -- -- 400,000 500,000
Unsecured credit facility -- 176,000 -- -- -- -- 176,000
Land lease obligations 1,331 2,687 2,811 2,814 2,795 49,921 62,359
Air rights lease obligations 187 369 379 379 379 4,659 6,352
--------- ---------- ---------- ---------- ---------- ----------- ------------
$ 7,483 $191,356 $118,975 $35,913 $146,879 $990,088 $1,490,694
========= ========== ========== ========== ========== =========== ============
(1) Scheduled principal amortization payments
(2) Principal payments due at maturity
Certain of the mortgage notes payable are guaranteed by certain limited
partners in the Operating Partnership and/or the Company. In addition,
consistent with customary practices in non-recourse lending, certain
non-recourse mortgages may be recourse to the Company under certain limited
circumstances including environmental issues and breaches of material
representations.
In addition, at March 31, 2002, the Operating Partnership had approximately
$1.0 million in outstanding undrawn standby letters of credit issued under the
Credit Facility which expire in 2003.
Thirteen of the Operating Partnership's office properties and two of the
Operating Partnership's industrial properties which were acquired by the
issuance of Units are subject to agreements limiting the Operating Partnership's
ability to transfer them prior to agreed upon dates without the consent of the
limited partner who transferred the respective property to the Operating
Partnership. In the event the Operating Partnership transfers any of these
properties prior to the expiration of these limitations, the Operating
Partnership may be required to make a payment relating to taxes incurred by the
limited partner. The limitations on nine of the properties expire prior to June
30, 2003. The limitations on the remaining properties expire between 2007 and
2013.
Eleven of the Operating Partnership's office properties are held in joint
ventures which contain certain limitations on transfer. These limitations
include requiring the consent of the joint venture partner to transfer a
property prior to various specified dates ranging from 2003 to 2005, rights of
first offer, and buy/sell provisions.
23
Historically, rental revenue has been the principal source of funds to pay
operating expenses, debt service and capital expenditures, excluding
non-recurring capital expenditures of the Operating Partnership. The Operating
Partnership expects to meet its short-term liquidity requirements generally
through its net cash provided by operating activities along with the Credit
Facility previously discussed. The Credit Facility contains several financial
covenants with which the Operating Partnership must be in compliance in order to
borrow funds thereunder. 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 believes that it will, from time to time,
generate funds from the disposition 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. There can be no assurance that there will be adequate demand
for the Operating Partnership's equity securities at the time or at the price in
which the Operating Partnership desires to raise capital through the sale of its
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.
The Operating Partnership is subject to federal, state and local laws and
regulations relating to the protection of the environment, which 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.
As a result of current economic conditions, certain tenants have either not
renewed their leases upon expiration or have paid the Operating Partnership to
terminate their leases. In addition, a number of U.S. companies have filed for
protection under federal bankruptcy laws. Certain of these companies are tenants
of the Operating Partnership. The Operating Partnership is subject to the risk
that other companies that are tenants of the Operating Partnership may file for
bankruptcy protection. This may have an adverse impact on the financial results
and condition of the Operating Partnership. In addition, vacancy rates in our
markets have been trending higher and in some instances our asking rents in our
markets have been trending lower and landlords are being required to grant
greater concessions such as free rent and tenant improvements. Additionally, the
Operating Partnership carries comprehensive liability, fire, extended coverage
and rental loss insurance on all of its properties. Five of the Operating
Partnership's properties are located in New York City. As a result of the events
of September 11, 2001, insurance companies are limiting and/or excluding
coverage for acts of terrorism in all risk policies. The Operating Partnership's
current insurance coverage provides for full replacement cost of its properties,
except that the coverage for acts of terrorism on its properties covers losses
in an amount up to $100 million per occurrence (except for one property which
has an additional aggregate $150 million of coverage). As a result, the
Operating Partnership may suffer losses from acts of terrorism that are not
covered by insurance. In addition, the mortgage loans which are secured by
certain of the Operating Partnership's properties contain customary covenants,
including covenants that require the Operating Partnership to maintain property
insurance in an amount equal to replacement cost of the properties. There can be
no assurance that the lenders under these mortgage loans will not take the
position that exclusions from the Operating Partnership's coverage for losses
due to terrorist acts is a breach of a covenant which, if uncured, could allow
the lenders to declare an event of default and accelerate repayment of the
mortgage loans. Other outstanding debt instruments contain standard cross
default provisions that would be triggered in the event of an acceleration of
the mortgage loans. This matter could adversely affect the Operating
Partnership's financial results, its ability to finance and/or refinance its
properties or to buy or sell properties.
In order to qualify as a REIT for federal income tax purposes, the Company is
required to make distributions to its stockholders of at least 90% of REIT
taxable income. As a result, it is anticipated that the Operating Partnership
will make distributions in amounts sufficient to meet this requirement. The
Operating Partnership expects to use its cash flow from operating activities for
distributions to unit holders and for payment of recurring, non-incremental
revenue-generating expenditures. The Operating Partnership intends to invest
amounts accumulated for distribution in short-term investments.
24
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 be offset by contractual rent
increases and expense escalations described above. To the extent the
Operating Partnership's properties contain vacant space, the Operating
Partnership will bear such inflationary increases in expenses.
The Credit Facility bears interest at a variable rate, which will be
influenced by changes in short-term interest rates, and is sensitive to
inflation.
FUNDS FROM OPERATIONS
Management believes that funds from operations ("FFO") is an appropriate
measure of performance of an operating partnership whose general partner is 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
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.
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------- --------------------------------
2002 2001 2002 2001
-------------- ------------- -------------- -------------
Net income available to common
unit holders............................. $ 16,406 $ 23,434 $ 35,276 $ 47,839
Adjustment for Funds From Operations:
Add:
Real estate depreciation and
amortization.......................... 27,041 26,727 52,362 49,715
Minority partners' interests in
consolidated partnerships............. 4,813 4,065 9,933 9,820
Less:
Gain on sales of real estate............. -- -- 537 --
Amounts distributable to minority
partners in consolidated
partnerships...................... 6,329 5,104 12,893 10,805
---------------- ---------------- ------------------ ----------------
Funds From Operations....................... $ 41,931 $ 49,122 $ 84,141 $ 96,569
================ ================ ================== ================
Weighted average units outstanding.......... 68,559 65,268 68,184 64,369
================ ================ ================== ================
25
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 will be adjusted to fair
value through income. If a derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of the derivative will either be offset against
the change in fair value of the hedged asset, liability or firm commitment
through earnings, or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings. As of June 30, 2002,
the Operating Partnership had no derivatives outstanding.
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 June 30, 2002 (dollars in
thousands):
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
2002 2003 2004 2005 2006 THEREAFTER TOTAL(1) FMV
-------------------------------------------------------------------------------------------------------
Long term debt:
Fixed rate........... $ 5,965 $ 12,300 $ 115,785 $ 32,720 $ 143,705 $ 935,508 $ 1,245,983 $ 1,265,746
Weighted average
Interest rate..... 7.49% 7.51% 7.47% 6.92% 7.38% 7.27% 7.30%
Variable rate........ $ -- $ 176,000 $ -- $ -- $ -- $ -- $ 176,000 $ 176,000
Weighted average
interest rate..... -- 2.97% -- -- -- -- 2.97%
(1) Includes aggregate unamortized issuance discounts of approximately
$761 on the senior unsecured notes issued during March 1999 and June 2002,
which are due at maturity.
In addition, a one percent increase in the LIBOR rate would have an
approximate $1.8 million annual increase in interest expense based on $176.0
million of variable rate debt outstanding at June 30, 2002.
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 June 30, 2002 (dollars in thousands):
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
2002 2003 2004 2005 2006 THEREAFTER TOTAL (1) FMV
-----------------------------------------------------------------------------------------------------
Mortgage notes
and notes receivable:
Fixed rate........... $ 1,157 $ -- $ 36,500 $ -- $ -- $ 16,990 $ 54,647 $ 55,867
Weighted average
interest rate...... 9.0% -- 10.23% -- -- 11.92% 10.73%
(1) Excludes interest receivables aggregating approximately $721.
26
NON-INCREMENTAL REVENUE GENERATING CAPITAL EXPENDITURES, TENANT IMPROVEMENT
COSTS AND LEASING COMMISSIONS
The following table summarizes the expenditures incurred for capital
expenditures for the entire portfolio and tenant improvements and leasing
commissions for space leased at the Operating Partnership's office and
industrial properties for the years 1998 through 2001 and the six months ended
June 30, 2002.
NON-INCREMENTAL REVENUE GENERATING CAPITAL EXPENDITURES
Average
1998 1999 2000 2001 1998-2001 2002
-------------- -------------- ------------- ------------- -------------- -------------
Suburban Office Properties
Total $2,004,976 $2,298,899 $3,289,116 $4,606,069 $3,049,765 $2,325,404
Per Square Foot 0.23 0.23 0.33 0.45 0.31 $0.23
NYC Office Properties
Total N/A N/A $946,718 $1,584,501 $1,265,610 $828,596
Per Square Foot N/A N/A 0.38 0.45 0.42 $0.24
Industrial Properties
Total $1,205,266 $1,048,688 $813,431 $711,666 $944,763 $437,208
Per Square Foot 0.12 0.11 0.11 0.11 0.11 $0.07
NON-INCREMENTAL REVENUE GENERATING TENANT IMPROVEMENTS AND LEASING
COMMISSIONS
AVERAGE
1998 1999 2000 2001 1998-2001
-------------- ------------ ------------ ----------- -----------
Long Island Office Properties
Tenant Improvements $1,140,251 $1,009,357 $2,853,706 $2,722,457 $1,931,443
Per Square Foot Improved 3.98 4.73 6.99 8.47 6.04
Leasing Commissions $418,191 $551,762 $2,208,604 $1,444,412 $1,155,742
Per Square Foot Leased 1.46 2.59 4.96 4.49 3.38
-------------- ------------ ------------ ----------- -----------
Total Per Square Foot $5.44 $7.32 $11.95 $12.96 $9.42
============== ============ ============ =========== ===========
Westchester Office Properties
Tenant Improvements $711,160 $1,316,611 $1,860,027 $2,584,728 $1,618,132
Per Square Foot Improved 4.45 5.62 5.72 5.91 5.43
Leasing Commissions $286,150 $457,730 $412,226 $1,263,012 $604,780
Per Square Foot Leased 1.79 1.96 3.00 2.89 2.41
-------------- ------------ ------------ ----------- -----------
Total Per Square Foot $6.24 $7.58 $8.72 $8.80 $7.84
============== ============ ============ =========== ===========
Connecticut Office Properties
Tenant Improvements $202,880 $179,043 $385,531 $213,909 $245,341
Per Square Foot Improved 5.92 4.88 4.19 1.46 4.11
Leasing Commissions $151,063 $110,252 $453,435 $209,322 $231,018
Per Square Foot Leased 4.41 3.00 4.92 1.43 3.44
-------------- ------------ ------------ ----------- -----------
Total Per Square Foot $10.33 $7.88 $9.11 $2.89 $7.55
============== ============ ============ =========== ===========
New Jersey Office Properties
Tenant Improvements $654,877 $454,054 $1,580,323 $1,146,385 $958,910
Per Square Foot Improved 3.78 2.29 6.71 2.92 3.93
Leasing Commissions $396,127 $787,065 $1,031,950 $1,602,962 $954,526
Per Square Foot Leased 2.08 3.96 4.44 4.08 3.64
-------------- ------------ ------------ ----------- -----------
Total Per Square Foot $5.86 $6.25 $11.15 $7.00 $7.57
============== ============ ============ =========== ===========
New York City Office Properties
Tenant Improvements N/A N/A $65,267 $788,930 $427,099
Per Square Foot Improved N/A N/A 1.79 15.69 8.74
Leasing Commissions N/A N/A $418,185 $1,098,829 $758,507
Per Square Foot Leased N/A N/A 11.50 21.86 16.68
-------------- ------------ ------------ ----------- -----------
Total Per Square Foot N/A N/A $13.29 $37.55 $25.42
============== ============ ============ =========== ===========
Industrial Properties
Tenant Improvements $283,842 $375,646 $650,216 $1,366,488 $669,048
Per Square Foot Improved 0.76 0.25 0.95 1.65 0.90
Leasing Commissions $200,154 $835,108 $436,506 $354,572 $456,585
Per Square Foot Leased 0.44 0.56 0.64 0.43 0.52
-------------- ------------ ------------ ----------- -----------
Total Per Square Foot $1.20 $0.81 $1.59 $2.08 $1.42
============== ============ ============ =========== ===========
2002 NEW RENEWAL
-------------- -------------- -----------
Long Island Office Properties
Tenant Improvements $817,925 $470,774 $347,151
Per Square Foot Improved 5.33 10.51 3.20
Leasing Commissions $661,559 $253,957 $407,602
Per Square Foot Leased 4.31 5.67 3.75
-------------- -------------- -----------
Total Per Square Foot 9.63 $16.18 $6.95
============== ============== ===========
Westchester Office Properties
Tenant Improvements $1,200,380 $967,886 $232,494
Per Square Foot Improved 7.59 11.53 3.13
Leasing Commissions $513,884 $357,295 $156,589
Per Square Foot Leased 3.25 4.26 2.11
-------------- -------------- -----------
Total Per Square Foot $10.84 $15.79 $5.24
============== ============== ===========
Connecticut Office Properties
Tenant Improvements $385,999 $384,279 $1,720
Per Square Foot Improved 8.86 9.34 0.71
Leasing Commissions $101,574 $101,574 $0
Per Square Foot Leased 2.33 2.47 --
-------------- -------------- -----------
Total Per Square Foot $11.19 $11.81 0.71
============== ============== ===========
New Jersey Office Properties
Tenant Improvements $624,731 $336,076 $288,655
Per Square Foot Improved 10.22 19.80 6.54
Leasing Commissions $330,520 $127,681 $202,839
Per Square Foot Leased 5.13 6.30 4.60
-------------- -------------- -----------
Total Per Square Foot $15.35 $26.10 $11.14
============== ============== ===========
New York City Office Properties
Tenant Improvements $2,074,924 $1,348,436 $726,488
Per Square Foot Improved 20.23 20.47 19.82
Leasing Commissions $816,045 $389,781 $426,264
Per Square Foot Leased 7.96 5.92 11.63
-------------- -------------- -----------
Total Per Square Foot $28.19 26.39 $31.44
============== ============== ===========
Industrial Properties
Tenant Improvements $743,640 $672,728 $70,912
Per Square Foot Improved 1.56 3.71 --
Leasing Commissions $330,391 $289,591 $40,800
Per Square Foot Leased 0.69 1.60 0.14
-------------- -------------- -----------
Total Per Square Foot $2.25 5.32 $0.14
============== ============== ===========
27
LEASE EXPIRATION SCHEDULE
The following table sets forth scheduled lease expirations for executed leases
as of June 30, 2002:
LONG ISLAND OFFICE (EXCLUDING OMNI)
Number of Square % of Total Cumulative Expiring Expiring
Year of Leases Feet Leased % of Total GAAP Cash
Expiration Expiring Expiring Sq Ft Leased Sq Ft Rent (1) Rent (2)
---------- -------- -------- ----- ------------ -------- --------
2002 17 66,399 2.1% 2.1% $23.83 $26.06
2003 50 319,071 10.0% 12.1% $24.48 $26.72
2004 49 301,455 9.5% 21.6% $21.75 $24.38
2005 71 396,191 12.5% 34.0% $24.95 $27.66
2006 44 169,206 5.3% 39.4% $25.18 $28.45
2007 36 423,707 13.3% 52.7% $24.60 $30.25
2008 and thereafter 81 1,505,191 47.3% 100.0% -- --
-- ----------- -----
Total/Weighted Average 348 3,181,220 100.0% -- -- --
OMNI
Number of Square % of Total Cumulative Expiring Expiring
Year of Leases Feet Leased % of Total GAAP Cash
Expiration Expiring Expiring Sq Ft Leased Sq Ft Rent (1) Rent (2)
---------- -------- -------- ----- ------------ -------- --------
2002 2 34,975 6.3% 6.3% $28.02 $33.80
2003 3 49,793 9.0% 15.4% $29.54 $35.16
2004 5 113,793 20.6% 36.0% $27.29 $34.79
2005 4 43,780 7.9% 43.9% $28.24 $35.42
2006 0 -- 0.0% 43.9% -- --
2007 2 59,722 10.8% 54.7% $26.78 $34.41
2008 and thereafter 12 250,112 45.3% 100.0% -- --
-- ---------------- -----
Total/Weighted Average 28 552,175 100.0% -- -- --
WESTCHESTER OFFICE
Number of Square % of Total Cumulative Expiring Expiring
Year of Leases Feet Leased % of Total GAAP Cash
Expiration Expiring Expiring Sq Ft Leased Sq Ft Rent (1) Rent (2)
---------- -------- -------- ----- ------------ -------- --------
2002 24 172,220 5.7% 5.7% $21.16 $22.28
2003 46 242,271 8.0% 13.7% $22.17 $23.82
2004 38 177,296 5.9% 19.6% $21.50 $22.52
2005 51 465,316 15.4% 35.0% $22.62 $23.91
2006 40 720,326 23.8% 58.8% $22.69 $24.55
2007 33 425,732 14.1% 72.9% $25.36 $27.15
2008 and thereafter 35 819,145 27.1% 100.0% -- --
-- ---------------- -----
Total/Weighted Average 267 3,022,306 100.0% -- -- --
28
LEASE EXPIRATION SCHEDULE
STAMFORD OFFICE
Number of Square % of Total Cumulative Expiring Expiring
Year of Leases Feet Leased % of Total GAAP Cash
Expiration Expiring Expiring Sq Ft Leased Sq Ft Rent (1) Rent (2)
- ---------- -------- -------- ----- ------------ -------- --------
2002 13 32,118 3.0% 3.0% $24.53 $25.96
2003 20 145,085 13.6% 16.6% $30.97 $31.81
2004 28 236,570 22.2% 38.9% $22.02 $23.08
2005 24 123,864 11.6% 50.5% $26.41 $28.18
2006 24 291,313 27.4% 77.9% $24.22 $25.11
2007 10 94,890 8.9% 86.8% $32.04 $34.41
2008 and thereafter 9 140,729 13.2% 100.0% -- --
Total/Weighted Average 128 1,064,569 100.0% -- -- --
NEW JERSEY OFFICE
Number of Square % of Total Cumulative Expiring Expiring
Year of Leases Feet Leased % of Total GAAP Cash
Expiration Expiring Expiring Sq Ft Leased Sq Ft Rent (1) Rent (2)
- ---------- -------- -------- ----- ------------ -------- --------
2002 8 81,618 4.4% 4.4% $21.13 $21.64
2003 20 319,328 17.2% 21.5% $27.16 $28.22
2004 28 206,608 11.1% 32.6% $23.08 $23.91
2005 27 272,784 14.7% 47.3% $23.83 $24.84
2006 16 181,060 9.7% 57.0% $24.48 $26.12
2007 5 57,237 3.1% 60.1% $21.25 $23.18
2008 and thereafter 20 743,082 39.9% 100.0% -- --
Total/Weighted Average 124 1,861,717 100.0% -- -- --
NEW YORK CITY OFFICE
Number of Square % of Total Cumulative Expiring Expiring
Year of Leases Feet Leased % of Total GAAP Cash
Expiration Expiring Expiring Sq Ft Leased Sq Ft Rent (1) Rent (2)
- ---------- -------- -------- ----- ------------ -------- --------
2002 10 122,367 3.6% 3.6% $43.61 $40.26
2003 7 114,987 3.4% 6.9% $32.10 $33.65
2004 20 223,677 6.5% 13.5% $36.54 $39.89
2005 34 451,470 13.2% 26.7% $36.30 $38.34
2006 54 346,402 10.1% 36.8% $30.29 $31.95
2007 12 126,083 3.7% 40.5% $34.66 $37.35
2008 and thereafter 88 2,034,773 59.5% 100.0% -- --
Total/Weighted Average 225 3,419,759 100.0% -- -- --
29
LEASE EXPIRATION SCHEDULE
INDUSTRIAL
Number of Square % of Total Cumulative Expiring Expiring
Year of Leases Feet Leased % of Total GAAP Cash
Expiration Expiring Expiring Sq Ft Leased Sq Ft Rent (1) Rent (2)
---------- -------- -------- ----- ------------ -------- --------
2002 8 91,878 1.8% 1.8% $7.15 $7.95
2003 19 499,273 9.8% 11.6% $5.67 $6.86
2004 35 562,235 11.0% 22.6% $6.55 $7.60
2005 26 476,541 9.4% 32.0% $5.85 $7.30
2006 39 865,820 17.0% 49.0% $6.65 $7.91
2007 22 229,316 4.5% 53.5% $7.70 $9.16
2008 and thereafter 50 2,371,109 46.5% 100.0% -- --
-- --------------- -----
Total / Weighted Average 199 5,096,172 100.0% -- -- --
RESEARCH & Development
Number of Square % of Total Cumulative Expiring Expiring
Year of Leases Feet Leased % of Total GAAP Cash
Expiration Expiring Expiring Sq Ft Leased Sq Ft Rent (1) Rent (2)
---------- -------- -------- ----- ------------ -------- --------
2002 1 4,620 0.4% 0.4% $12.85 $12.85
2003 4 91,938 8.2% 8.6% $10.59 $10.97
2004 9 99,218 8.9% 17.5% $13.86 $15.07
2005 11 457,440 40.9% 58.3% $9.95 $11.45
2006 7 83,061 7.4% 65.8% $17.49 $20.08
2007 4 85,444 7.6% 73.4% $12.60 $13.95
2008 and thereafter 15 298,015 26.6% 100.0% -- --
-- ---------------- -----
Total / Weighted Average 51 1,119,736 100.0% -- -- --
30
The following table sets forth the Operating Partnership's schedule of its top
25 tenants based on base rental revenue as of June 30, 2002:
Percent of Consolidated
Total Annualized Base
Tenant Name (1) Tenant Type Square Feet Rental Revenue
- -----------------------------------------------------------------------------------------------------------------
* Debevoise & Plimpton Office 465,420 5.5%
* WorldCom/MCI Office 547,018 2.8%
* American Express Office 238,261 1.7%
Bell Atlantic Office 208,661 1.3%
* Shulte Roth & Zabel Office 230,621 2.2%
* HQ Global Office/Industrial 201,900 1.5%
United Distillers Office 137,918 0.9%
Waterhouse Securities Office 127,143 0.9%
* Prudential Office 219,416 0.9%
* Banque Nationale De Paris Office 144,334 1.5%
D.E. Shaw Office 89,526 0.7%
Vytra Healthcare Office 105,612 0.7%
Metromedia Fiber Network Svcs. Office 112,075 0.7%
* Kramer Levin Nessen Kamin, Office 140,892 1.3%
Hoffman-La Roche Inc. Office 120,736 0.6%
Heller Ehrman White Office 54,815 0.6%
Lab Corp Office 108,000 0.6%
* Novartis Office 150,747 0.9%
* Draft Worldwide, Inc. Office 124,008 1.1%
Practicing Law Institute Office 62,000 0.6%
Lockheed Martin Corporation Office 123,554 0.5%
* State Farm Office/Industrial 162,650 1.0%
Estee Lauder Industrial 370,000 0.5%
* JP Morgan Chase Bank Office 69,527 0.6%
Radianz U.S. No. 2 Inc. Office 130,009 0.5%
- -----------------------------------------------------------------------------------------------------------------
(1) Ranked by pro rata share of annualized base rental revenue
(2) Based on annualized base rental revenue adjusted for pro rata share of
joint venture interests.
* Part or all of space occupied by tenant is in a 51% or more owned joint
venture building.
- --------------------------------------------------------------------------------
31
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Operating Partnership is not presently subject to any material
litigation nor, to the Operating Partnership's knowledge, is any
litigation threatened against the Operating Partnership, other than
routine actions for negligence or other claims and administrative
proceedings arising in the ordinary course of business, some of which
are expected to be covered by liability insurance and all of which
collectively are not expected to have a material adverse effect on the
liquidity, results of operations or business or financial condition of
the Operating Partnership.
On or about October 3, 2001, Burgess Services, LLC ("Burgess Services"),
Dominion Venture Group, LLC ("Dominion Venture Group") and certain
affiliated parties commenced an action in Oklahoma State Court against
Reckson Strategic Venture Partners, LLC ("RSVP"), the Company, and
RAP-Dominion LLC ("RAP-Dominion"), a joint venture through which the
Operating Partnership invested with RSVP in a venture with certain of
the plaintiffs. On April 10, 2002, the litigation was settled without
liability on the part of the Company, the Operating Partnership or the
defendant. In connection with the settlement, the joint venture will be
terminated.
Item 2. Changes in Securities and use of proceeds
During the three months ended June 30, 2002, the Registrant issued
666,466 common units of general partnership interest for an equal
number of common units of limited partnership interest. These
transactions were exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933.
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Securities Holders - None
Item 5. Other information
The Company as general partner of the Operating Partnership has received
approval of the Audit Committee of the Board permitting Ernst & Young, LLP, the
Company's auditors to perform the following non-audit related services: (i) the
preparation and review of tax filings; (ii) analysis related to compliance with
law including, but not limited to the REIT qualification; (iii) review of
Company disclosure related issues; and (iv) analysis relating to alternative
structures of potential joint ventures, acquisitions and financings.
32
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
10.1 2002 Stock Option Plan of the Company
99.1 Certification of Donald Rechler, Co-CEO of Reckson
Associates Realty Corp., the sole general partner
of Reckson Operating Partnership, L.P., pursuant to
Section 1350 of Chapter 63 of title 18 of the United
State Code
99.2 Certification of Scott H. Rechler, Co-CEO of Reckson
Associates Realty Corp., the sole general partner of
Reckson Operating Partnership, L.P., pursuant to
Section 1350 of Chapter 63 of title 18 of the United
State Code
99.3 Certification of Michael Maturo, CFO of Reckson
Associates Realty Corp., the sole general partner of
Reckson Operating Partnership, L.P., pursuant to
Section 1350 of Chapter 63 of title 18 of the United
State Code
b) During the three months ended June 30, 2002 the Registrant filed
the following reports on Form 8K:
On May 2, 2002, the Registrant submitted a report on Form 8-K under
Item 9 thereof in order to submit its first quarter presentation in
satisfaction of the requirements of Regulation FD.
On May 2, 2002, the Registrant submitted a report on Form 8-K under
Item 9 thereof in order to submit supplemental operating and
financial data for the quarter ended March 31, 2002 in satisfaction
of the requirements of Regulation FD.
On May 23, 2002, the Registrant submitted a report on Form 8-K
under Item 9 thereof in order to submit the Company's annual
shareholders' meeting presentation in satisfaction of the
requirements of Regulation FD.
On June 18, 2002, the Registrant submitted a report on Form 8-K
under Item 5 thereof relating to the public offering by the
Operating Partnership of $50,000,000 aggregate principal amount of
its 6.00% senior unsecured notes due 2007.
On June 28, 2002, the Registrant submitted a report on Form 8-K
under Item 9 thereof in order to submit a press release concerning
certain data on the Registrant's leases with WorldCom/MCI 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 sole general partner
By: /s/ Scott H. Rechler By: /s/ Michael Maturo
- ----------------------------------------------------------- ------------------------------------------------------
Scott H. Rechler, Co-Chief Executive Officer Michael Maturo, Executive Vice President, Treasurer
and Chief Financial Officer
By: /s/ Donald Rechler
- -----------------------------------------------------------
Donald Rechler, Co-Chief Executive Officer
DATE: August 12, 2002
33
EXHIBIT 10.1
RECKSON ASSOCIATES REALTY CORP.
2002 STOCK OPTION PLAN
ARTICLE 1. GENERAL
1.1. Purpose. The purpose of the Reckson Associates Realty Corp. 2002
Stock Option Plan (the "Plan") is to provide for certain of officers, directors
and key employees, as defined in Section 1.3, of Reckson Associates Realty Corp.
(the "Company") and certain of its Affiliates (as defined below) an equity-based
incentive to maintain and enhance the performance and profitability of the
Company. It is the further purpose of this Plan to permit the granting of awards
that will constitute performance based compensation for certain executive
officers, as described in Section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code"), and regulations promulgated thereunder.
1.2. Administration.
(a) The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company (the "Board"), which
Committee shall consist of two or more directors, or by the Board. It is
intended that the directors appointed to serve on the Committee shall be
"non-employee directors" (within the meaning of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934 (the "Act")) and "outside directors" (within the
meaning of Code Section 162(m)); however, the mere fact that a Committee member
shall fail to qualify under either of these requirements shall not invalidate
any award made by the Committee which award is otherwise validly made under the
Plan. The members of the Committee shall be appointed by, and may be changed at
any time and from time to time in the discretion of, the Board.
(b) The Committee shall have the authority (i) to exercise all of the
powers granted to it under the Plan, (ii) to construe, interpret and implement
the Plan and any Plan Agreements (as defined below) executed pursuant to the
Plan, (iii) to prescribe, amend and rescind rules relating to the Plan, (iv) to
make any determination necessary or advisable in administering the Plan, (v) to
correct any defect, supply any omission and reconcile any inconsistency in the
Plan and (vi) to delegate to Donald J. Rechler and Scott H. Rechler (the "Proper
Officers") its authority to grant awards under the Plan to key employees,
excluding those employees who are executive officers ("Non-Executive Officers"),
provided that (a) the aggregate number of shares of Common Stock granted to any
Non-Executive Officer during any calendar year shall not exceed 100,000 shares
and (b) the Proper Officers shall report annually to the Committee regarding the
material terms of awards granted to any Non-Executive Officers. The Committee
shall have no authority to interpret or administer Article 5 of the Plan or to
take any action with respect to any awards thereunder.
(c) The determination of the Committee on all matters relating to the
Plan or any Plan Agreement shall be conclusive.
(d) No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any award
hereunder.
(e) Notwithstanding anything to the contrary contained herein, the
Board may, in its sole discretion, at any time and from time to time, resolve to
administer the Plan, in which case, the term Committee as used herein shall be
deemed to mean the Board.
1.3. Persons Eligible for Awards. Awards under the Plan may be made to
such officers, directors and key employees ("key personnel") of the Company or
its Affiliates as the Committee shall from time to time in its sole discretion
select. No member of the Board who is not an officer or employee of the Company
or an Affiliate (an "Independent Director") shall be eligible to receive any
Awards under the Plan, except for non-qualified stock options granted
automatically under the provisions of Article 5 of the Plan.
1.4. Types of Awards Under Plan.
(a) Awards may be made under the Plan in the form of (i) stock options
("options"), (ii) restricted stock awards and (iii) unrestricted stock awards,
in lieu of cash compensation, all as more fully set forth in Articles 2 and 3.
(b) Options granted under the Plan may be either (i) "nonqualified"
stock options ("NQSOs") or (ii) options intended to qualify for incentive stock
option treatment described in Code Section 422 ("ISOs"). Grants of options made
under the Plan may also be made in lieu of cash fees otherwise payable to
Directors of the Company or cash bonuses payable to employees of the Company or
any Affiliate.
(c) All options when granted are intended to be NQSOs, unless the
applicable Plan Agreement explicitly states that the option is intended to be an
ISO. If an option is intended to be an ISO, and if for any reason such option
(or any portion thereof) shall not qualify as an ISO, then, to the extent of
such nonqualification, such option (or portion) shall be regarded as a NQSO
appropriately granted under the Plan provided that such option (or portion)
otherwise meets the Plan's requirements relating to NQSOs.
1.5. Shares Available for Awards.
(a) Subject to Section 4.5 (relating to adjustments upon changes in
capitalization), as of any date the total number of shares of Common Stock with
respect to which awards may be granted under the Plan, shall equal the excess
(if any) of 1,500,000 shares of Common Stock, over (i) the number of shares of
Common Stock subject to outstanding awards, (ii) the number of shares in respect
of which options have been exercised, or grants of restricted or unrestricted
Common Stock have been made pursuant to the Plan, and (iii) the number of shares
issued subject to forfeiture restrictions which have lapsed. In any calendar
year, a person eligible for awards under the Plan may not be granted options
under the Plan covering a total of more than 150,000 shares of Common Stock.
In accordance with (and without limitation upon) the preceding
sentence, awards may be granted in respect of the following shares of Common
Stock: shares covered by previously-granted awards that have expired, terminated
or been cancelled for any reason whatsoever (other than by reason of exercise or
vesting).
2
(b) Shares of Common Stock that shall be subject to issuance pursuant
to the Plan shall be authorized and unissued or treasury shares of Common Stock,
or shares of Common Stock purchased on the open market or from shareholders of
the Company for such purpose.
1.6. Definitions of Certain Terms.
(a) The term "Affiliate" as used herein means Reckson Operating
Partnership, L.P., Reckson FS Limited Partnership, RANY Management Group, Inc.,
Reckson Finance, Inc., Reckson Management Group, Inc., Reckson Construction
Group, Inc., Metropolitan Partners LLC, any person or entity that directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, the Company, or any other person or entity as
subsequently approved by the Board.
(b) The term "Cause" shall mean a finding by the Committee that the
recipient of an award under the Plan has (i) acted with gross negligence or
willful misconduct in connection with the performance of his material duties to
the Company or its Affiliates; (ii) defaulted in the performance of his material
duties to the Company or its Affiliates and has not corrected such action within
15 days of receipt of written notice thereof; (iii) willfully acted against the
best interests of the Company or its Affiliates, which act has had a material
and adverse impact on the financial affairs of the Company or its Affiliates; or
(iv) been convicted of a felony or committed a material act of common law fraud
against the Company, its Affiliates or their employees and such act or
conviction has, or the Committee reasonably determines will have, a material
adverse effect on the interests of the Company or its Affiliates.
(c) The term "Common Stock" as used herein means the shares of Class A
common stock of the Company as constituted on the effective date of the Plan,
and any other shares into which such common stock shall thereafter be changed by
reason of a recapitalization, merger, consolidation, split-up, combination,
exchange of shares or the like.
(d) The "fair market value" (or "FMV") as of any date and in respect of
any share of Common Stock shall be:
(i) if the Common Stock is listed for trading on the New York Stock
Exchange, the closing price, regular way, of the Common Stock as
reported on the New York Stock Exchange Composite Tape, or if no
such reported sale of the Common Stock shall have occurred on such
date, on the next preceding date on which there was such a reported
sale; or
(ii) the Common Stock is not so listed but is listed on another
national securities exchange or authorized for quotation on the
National Association of Securities Dealers Inc.'s NASDAQ National
Market System ("NASDAQ/NMS"), the closing price, regular way, of
the Common Stock on such exchange or NASDAQ/NMS, as the case may
be, on which the largest number of shares of Common Stock have been
traded in the aggregate on the preceding twenty trading days, or if
no such reported sale of the Stock shall have occurred on such date
on such exchange or NASDAQ/NMS, as the case may be, on the
preceding date on
3
which there was such a reported sale on such
exchange or NASDAQ/NMS, as the case may be; or
(iii) if the Stock is not listed for trading on a national
securities exchange or authorized for quotation on NASDAQ/NMS, the
average of the closing bid and asked prices as reported by the
National Association of Securities Dealers Automated Quotation
System ("NASDAQ") or, if no such prices shall have been so reported
for such date, on the next preceding date for which such prices
were so reported.
1.7. Agreements Evidencing Awards.
(a) Options and restricted stock awards granted under the Plan shall be
evidenced by written agreements. Any such written agreements shall (i) contain
such provisions not inconsistent with the terms of the Plan as the Committee may
in its sole discretion deem necessary or desirable and (ii) be referred to
herein as "Plan Agreements."
(b) Each Plan Agreement shall set forth the number of shares of Common
Stock subject to the award granted thereby.
(c) Each Plan Agreement with respect to the granting of an option shall
set forth the amount (the "option exercise price") payable by the grantee to the
Company in connection with the exercise of the option evidenced thereby. The
option exercise price per share shall not be less than 100% of the fair market
value of a share of Common Stock on the date the option is granted.
ARTICLE 2. STOCK OPTIONS
2.1. Option Awards.
(a) Grant of Stock Options. The Committee may grant options to purchase
shares of Common Stock in such amounts and subject to such terms and conditions
as the Committee shall from time to time in its sole discretion determine,
subject to the terms of the Plan.
(b) Dividend Equivalent Rights. To the extent expressly provided by the
Committee at the time of the grant, each NQSO granted under this Section 2.1
shall also generate Dividend Equivalent Rights ("DERs"), which shall entitle the
grantee to receive an additional share of Common Stock for each DER received
upon the exercise of the NQSO, at no additional cost, based on the formula set
forth herein. As of the last business day of each calendar quarter, the amount
of dividends paid by the Company on each share of Common Stock with respect to
that quarter shall be divided by the FMV per share to determine the actual
number of DERs accruing on each share subject to the NQSO. Such amount of DERs
shall be multiplied by the number of shares covered by the NQSO to determine the
number of DERs which accrued during such quarter. The provisions of this Section
2.1(b) shall not be amended more than once every six months other than to
comport with changes in applicable law.
4
For example. Assume that a grantee holds a NQSO to purchase 600 shares
of Common Stock. Further assume that the dividend per share for the first
quarter was $0.10, and that the FMV per share on the last business day of the
quarter was $20. Therefore, .005 DER would accrue per share for that quarter and
such grantee would receive three DERs for that quarter (600 X .005). For
purposes of determining how many DERs would accrue during the second quarter,
the NQSO would be considered to be for 603 shares of Common Stock.
2.2. Exercisability of Options. Subject to the other provisions of the
Plan:
(a) Exercisability Determined by Plan Agreement. Each Plan Agreement
shall set forth the period during which and the conditions subject to which the
option shall be exercisable (including, but not limited to vesting of such
options), as determined by the Committee in its discretion.
(b) Partial Exercise Permitted. Unless the applicable Plan Agreement
otherwise provides, an option granted under the Plan may be exercised from time
to time as to all or part of the full number of shares for which such option is
then exercisable, in which event the DERs relating to the portion of the option
being exercised shall also be exercised.
(c) Notice of Exercise; Exercise Date.
(i) An option shall be exercisable by the filing of a written
notice of exercise with the Company, on such form and in such
manner as the Committee shall in its sole discretion prescribe, and
by payment in accordance with Section 2.4.
(ii) Unless the applicable Plan Agreement otherwise provides, or
the Committee in its sole discretion otherwise determines, the date
of exercise of an option shall be the date the Company receives
such written notice of exercise and payment.
2.3. Limitation on Exercise. Notwithstanding any other provision of the
Plan, no Plan Agreement shall permit an ISO to be exercisable more than 10 years
after the date of grant.
2.4. Payment of Option Price.
(a) Tender Due Upon Notice of Exercise. Unless the applicable Plan
Agreement otherwise provides or the Committee in its sole discretion otherwise
determines, any written notice of exercise of an option shall be accompanied by
payment of the full purchase price for the shares being purchased.
(b) Manner of Payment. Payment of the option exercise price shall be
made in any combination of the following:
(i) by certified or official bank check payable to the Company (or
the equivalent thereof acceptable to the Committee);
(ii) by personal check (subject to collection), which may in the
Committee's discretion be deemed conditional;
5
(iii) with the consent of the Committee in its sole discretion, by
delivery of previously acquired shares of Common Stock owned by the
grantee for at least six months having a fair market value
(determined as of the option exercise date) equal to the portion of
the option exercise price being paid thereby, provided that the
Committee may require the grantee to furnish an opinion of counsel
acceptable to the Committee to the effect that such delivery would
not result in the grantee incurring any liability under Section
16(b) of the Act and does not require any Consent (as defined in
Section 4.2); and
(iv) with the consent of the Committee in its sole discretion, by
the full recourse promissory note and agreement of the grantee
providing for payment with interest on the unpaid balance accruing
at a rate not less than that needed to avoid the imputation of
income under Code Section 7872 and upon such terms and conditions
(including the security, if any, therefor) as the Committee may
determine; and
(v) by withholding shares of Common Stock from the shares otherwise
issuable pursuant to the exercise.
(c) Cashless Exercise. Payment in accordance with Section 2.4(b) may be
deemed to be satisfied, if and to the extent provided in the applicable Plan
Agreement, by delivery to the Company of an assignment of a sufficient amount of
the proceeds from the sale of Common Stock acquired upon exercise to pay for all
of the Common Stock acquired upon exercise and an authorization to the broker or
selling agent to pay that amount to the Company, which sale shall be made at the
grantee's direction at the time of exercise, provided that the Committee may
require the grantee to furnish an opinion of counsel acceptable to the Committee
to the effect that such delivery would not result in the grantee incurring any
liability under Section 16 of the Act and does not require any Consent (as
defined in Section 4.2).
(d) Issuance of Shares. As soon as practicable after receipt of full
payment, the Company shall, subject to the provisions of Section 4.2, deliver to
the grantee one or more certificates for the shares of Common Stock so
purchased, which certificates may bear such legends as the Company may deem
appropriate concerning restrictions on the disposition of the shares in
accordance with applicable securities laws, rules and regulations or otherwise.
2.5. Default Rules Concerning Termination of Employment.
Subject to the other provisions of the Plan and unless the applicable
Plan Agreement otherwise provides:
(a) General Rule. All options granted to a grantee shall terminate upon
the grantee's termination of employment for any reason except to the extent
post-employment exercise of the option is permitted in accordance with this
Section 2.5.
(b) Termination for Cause. All unexercised or unvested options granted
to a grantee shall terminate and expire on the day a grantee's employment is
terminated for Cause.
6
(c) Regular Termination; Leave of Absence. If the grantee's employment
terminates for any reason other than as provided in subsection (b), (d) or (f)
of this Section 2.5, any awards granted to such grantee which were exercisable
immediately prior to such termination of employment may be exercised, and any
awards subject to vesting may continue to vest, until the earlier of either: (i)
90 days after the grantee's termination of employment and (ii) the date on which
such options terminate or expire in accordance with the provisions of the Plan
(other than this Section 2.5) and the Plan Agreement; provided that the
Committee may, in its sole discretion, determine such other period for exercise
in the case of a grantee whose employment terminates solely because the
grantee's employer ceases to be an Affiliate or the grantee transfers employment
with the Company's consent to a purchaser of a business disposed of by the
Company. The Committee may, in its sole discretion, determine (i) whether any
leave of absence (including short-term or long-term disability or medical leave)
shall constitute a termination of employment for purposes of the Plan and (ii)
the effect, if any, of any such leave on outstanding awards under the Plan.
(d) Retirement. If a grantee's employment terminates by reason of
retirement (i.e., the voluntary termination of employee by a grantee after
attaining the age of 55), the options exercisable by the grantee immediately
prior to the grantee's retirement shall be exercisable by the grantee until the
earlier of (i) 36 months after the grantee's retirement and (ii) the date on
which such options terminate or expire in accordance with the provisions of the
Plan (other than this Section 2.5) and the Plan Agreement.
(e) Death After Termination. If a grantee's employment terminates in
the manner described in subsections (c) or (d) of this Section 2.5 and the
grantee dies within the period for exercise provided for therein, the options
exercisable by the grantee immediately prior to the grantee's death shall be
exercisable by the personal representative of the grantee's estate or by the
person to whom such options pass under the grantee's will (or, if applicable,
pursuant to the laws of descent and distribution) until the earlier of (i) 12
months after the grantee's death and (ii) the date on which such options
terminate or expire in accordance with the provisions of subsections (c) or (d)
of this Section 2.5.
(f) Death Before Termination. If a grantee dies while employed by the
Company or any Affiliate, all options granted to the grantee but not exercised
before the death of the grantee, whether or not exercisable by the grantee
before the grantee's death, shall immediately become and be exercisable by the
personal representative of the grantee's estate or by the person to whom such
options pass under the grantee's will (or, if applicable, pursuant to the laws
of descent and distribution) until the earlier of (i) 12 months after the
grantee's death and (ii) the date on which such options terminate or expire in
accordance with the provisions of the Plan (other than this Section 2.5) and the
Plan Agreement.
2.6. Special ISO Requirements. In order for a grantee to receive
special tax treatment with respect to stock acquired under an option intended to
be an ISO, (i) the Plan must be approved by the Company's shareholders in
accordance with the requirements of Code Section 422(b) and (ii) the grantee of
such option must be, at all times during the period beginning on the date of
grant and ending on the day three months before the date of exercise of such
option, an employee of the Company or any of the Company's parent or subsidiary
corporations (within the meaning of Code Section 424), or of a corporation or a
parent or subsidiary corporation of such
7
corporation issuing or assuming a stock option in a transaction to which Code
Section 424(a) applies. If an option granted under the Plan is intended to be an
ISO, and if the grantee, at the time of grant, owns stock possessing more than
10% of the total combined voting power of all classes of stock of the grantee's
employer corporation or of its parent or subsidiary corporation, then (i) the
option exercise price per share shall in no event be less than 110% of the fair
market value of the Common Stock on the date of such grant and (ii) such option
shall not be exercisable after the expiration of five years after the date such
option is granted.
ARTICLE 3. RESTRICTED STOCK AND UNRESTRICTED STOCK AWARDS
3.1. Restricted Stock Awards.
(a) Grant of Awards. The Committee may grant restricted stock awards,
alone or in tandem with other awards, under the Plan in such amounts and subject
to such terms and conditions as the Committee shall from time to time in its
sole discretion determine; provided, however, that the grant of any such
restricted stock awards may be made in lieu of, or in tandem with other, cash
compensation and bonuses. The vesting of a restricted stock award granted under
the Plan may be conditioned upon the completion of a specified period of
employment with the Company or any Affiliate, upon the attainment of specified
performance goals, and/or upon such other criteria as the Committee may
determine in its sole discretion.
(b) Payment. Each Plan Agreement with respect to a restricted stock
award shall set forth the amount (if any) to be paid by the grantee with respect
to such award. If a grantee makes any payment for a restricted stock award which
does not vest, appropriate payment may be made to the grantee following the
forfeiture of such award on such terms and conditions as the Committee may
determine. The Committee shall have the authority to make or authorize loans to
finance, or to otherwise accommodate the financing of, the acquisition or
exercise of a restricted stock award.
(c) Forfeiture upon Termination of Employment. Unless the applicable
Plan Agreement otherwise provides or the Committee otherwise determines, (i) if
a grantee's employment terminates for any reason (including death) before all of
his restricted stock awards have vested, such awards shall terminate and expire
upon such termination of employment, and (ii) in the event any condition to the
vesting of restricted stock awards is not satisfied within the period of time
permitted therefor, such unvested shares shall be returned to the Company.
(d) Issuance of Shares. The Committee may provide that one or more
certificates representing restricted stock awards shall be registered in the
grantee's name and bear an appropriate legend specifying that such shares are
not transferable and are subject to the terms and conditions of the Plan and the
applicable Plan Agreement, or that such certificate or certificates shall be
held in escrow by the Company on behalf of the grantee until such shares vest or
are forfeited, all on such terms and conditions as the Committee may determine.
Unless the applicable Plan Agreement otherwise provides, no share of restricted
stock may be assigned, transferred, otherwise encumbered or disposed of by the
grantee until such share has vested in accordance with the terms of such award.
Subject to the provisions of Section 4.2, as soon as practicable after any
restricted stock award shall vest, the Company shall issue or reissue to the
8
grantee (or to the grantee's designated beneficiary in the event of the
grantee's death) one or more certificates for the Common Stock represented by
such restricted stock award.
(e) Grantees' Rights Regarding Restricted Stock. Unless the applicable
Plan Agreement otherwise provides: (i) a grantee may vote and receive dividends
on restricted stock awarded under the Plan; and (ii) any stock received as a
distribution with respect to a restricted stock award shall be subject to the
same restrictions as such restricted stock.
3.2. Unrestricted Stock. The Committee may issue unrestricted stock
under the Plan, alone or in tandem with other awards, in such amounts and
subject to such terms and conditions as the Committee shall from time to time in
its sole discretion determine; provided, however, that the grant of any such
unrestricted stock awards may be made in lieu of, or in tandem with other, cash
compensation and bonuses. The Committee shall have the authority to make or
authorize loans to finance, or to otherwise accommodate the financing of, the
acquisition or exercise of an unrestricted stock award.
ARTICLE 4. MISCELLANEOUS
4.1. Amendment of the Plan; Modification of Awards.
(a) Plan Amendments. The Board may, without stockholder approval, at
any time and from time to time suspend, discontinue or amend the Plan in any
respect whatsoever, except that (i) no such amendment shall impair any rights
under any award theretofore made under the Plan without the consent of the
grantee of such award and (ii) except as and to the extent otherwise permitted
by Section 4.5 or 4.11, no such amendment shall cause the Plan to fail to
satisfy any applicable requirement under Rule 16b-3 without stockholder
approval.
(b) Award Modifications. Subject to the terms and conditions of the
Plan (including Section 4.1(a)), the Committee may amend outstanding Plan
Agreements with such grantee, including, without limitation, any amendment which
would (i) accelerate the time or times at which an award may vest or become
exercisable and/or (ii) extend the scheduled termination or expiration date of
the award, provided, however, that no modification having a material adverse
effect upon the interest of a grantee in an award shall be made without the
consent of such grantee; and no amendment may be made to adjust the option
exercise price per share specified in a Plan Agreement evidencing a stock option
award, unless such adjustment occurs pursuant to Section 4.5, and no award may
be cancelled and re-granted to effect a re-pricing.
4.2. Restrictions.
(a) Consent Requirements. If the Committee shall at any time determine
that any Consent (as hereinafter defined) is necessary or desirable as a
condition of, or in connection with, the granting of any award under the Plan,
the acquisition, issuance or purchase of shares or other rights hereunder or the
taking of any other action hereunder (each such action being hereinafter
referred to as a "Plan Action"), then such Plan Action shall not be taken, in
whole or in part, unless and until such Consent shall have been effected or
obtained to the full satisfaction of the Committee. Without limiting the
generality of the foregoing, the Committee shall be entitled to determine not to
make any payment whatsoever until Consent has been given if (i) the Committee
may make any payment under the Plan in cash, Common Stock or both, and (ii) the
9
Committee determines that Consent is necessary or desirable as a condition of,
or in connection with, payment in any one or more of such forms.
(b) Consent Defined. The term "Consent" as used herein with respect to
any Plan Action means (i) any and all listings, registrations or qualifications
in respect thereof upon any securities exchange or other self-regulatory
organization or under any federal, state or local law, rule or regulation, (ii)
the expiration, elimination or satisfaction of any prohibitions, restrictions or
limitations under any federal, state or local law, rule or regulation or the
rules of any securities exchange or other self-regulatory organization, (iii)
any and all written agreements and representations by the grantee with respect
to the disposition of shares, or with respect to any other matter, which the
Committee shall deem necessary or desirable to comply with the terms of any such
listing, registration or qualification or to obtain an exemption from the
requirement that any such listing, qualification or registration be made, and
(iv) any and all consents, clearances and approvals in respect of a Plan Action
by any governmental or other regulatory bodies or any parties to any loan
agreements or other contractual obligations of the Company or any Affiliate.
4.3. Nontransferability. No award granted to any grantee under the Plan
or under any Plan Agreement shall be assignable or transferable by the grantee
other than by will or by the laws of descent and distribution. During the
lifetime of the grantee, all rights with respect to any award granted to the
grantee under the Plan or under any Plan Agreement shall be exercisable only by
the grantee.
4.4. Withholding Taxes.
(a) Whenever under the Plan shares of Common Stock are to be delivered
pursuant to an award, the Committee may require as a condition of delivery that
the grantee remit an amount sufficient to satisfy all federal, state and other
governmental withholding tax requirements related thereto. Whenever cash is to
be paid under the Plan, the Company may, as a condition of its payment, deduct
therefrom, or from any salary or other payments due to the grantee, an amount
sufficient to satisfy all federal, state and other governmental withholding tax
requirements related thereto or to the delivery of any shares of Common Stock
under the Plan.
(b) Without limiting the generality of the foregoing, (i) a grantee may
elect to satisfy all or part of the foregoing withholding requirements by
delivery of unrestricted shares of Common Stock owned by the grantee for at
least six months (or such other period as the Committee may determine) having a
fair market value (determined as of the date of such delivery by the grantee)
equal to all or part of the amount to be so withheld, provided that the
Committee may require, as a condition of accepting any such delivery, the
grantee to furnish an opinion of counsel acceptable to the Committee to the
effect that such delivery would not result in the grantee incurring any
liability under Section 16(b) of the Act and (ii) the Committee may permit any
such delivery to be made by withholding shares of Common Stock from the shares
otherwise issuable pursuant to the award giving rise to the tax withholding
obligation (in which event the date of delivery shall be deemed the date such
award was exercised).
4.5. Adjustments Upon Changes in Capitalization. If and to the extent
specified by the Committee, the number of shares of Common Stock which may be
issued pursuant to awards under the Plan, the maximum number of options which
may be granted to any one person in any
10
year, the number of shares of Common Stock subject to awards, the option
exercise price of options theretofore granted under the Plan, and the amount
payable by a grantee in respect of an award, shall be appropriately adjusted (as
the Committee may determine) for any change in the number of issued shares of
Common Stock resulting from the subdivision or combination of shares of Common
Stock or other capital adjustments, or the payment of a stock dividend after the
effective date of the Plan, or other change in such shares of Common Stock
effected without receipt of consideration by the Company; provided that any
awards covering fractional shares of Common Stock resulting from any such
adjustment shall be eliminated and provided further, that each ISO granted under
the Plan shall not be adjusted in a manner that causes such option to fail to
continue to qualify as an ISO within the meaning of Code Section 422.
Adjustments under this Section shall be made by the Committee, whose
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive.
4.6. Right of Discharge Reserved. Nothing in the Plan or in any Plan
Agreement shall confer upon any person the right to continue in the employment
of the Company or an Affiliate or affect any right which the Company or an
Affiliate may have to terminate the employment of such person.
4.7. No Rights as a Stockholder. No grantee or other person shall have
any of the rights of a stockholder of the Company with respect to shares subject
to an award until the issuance of a stock certificate to him for such shares.
Except as otherwise provided in Section 4.5, no adjustment shall be made for
dividends, distributions or other rights (whether ordinary or extraordinary, and
whether in cash, securities or other property) for which the record date is
prior to the date such stock certificate is issued. In the case of a grantee of
an award which has not yet vested, the grantee shall have the rights of a
stockholder of the Company if and only to the extent provided in the applicable
Plan Agreement.
4.8. Nature of Payments.
(a) Any and all awards or payments hereunder shall be granted, issued,
delivered or paid, as the case may be, in consideration of services performed
for the Company or for its Affiliates by the grantee.
(b) No such awards and payments shall be considered special incentive
payments to the grantee or, unless otherwise determined by the Committee, be
taken into account in computing the grantee's salary or compensation for the
purposes of determining any benefits under (i) any pension, retirement, life
insurance or other benefit plan of the Company or any Affiliate or (ii) any
agreement between the Company or any Affiliate and the grantee.
(c) By accepting an award under the Plan, the grantee shall thereby
waive any claim to continued exercisability or vesting of an award or to damages
or severance entitlement related to non-continuation of the award beyond the
period provided herein or in the applicable Plan Agreement, notwithstanding any
contrary provision in any written employment contract with the grantee, whether
any such contract is executed before or after the grant date of the award.
4.9. Non-Uniform Determinations. The Committee's determinations under
the Plan need not be uniform and may be made by it selectively among persons who
receive, or are
11
eligible to receive, awards under the Plan (whether or not such persons are
similarly situated). Without limiting the generality of the foregoing, the
Committee shall be entitled, among other things, to make non-uniform and
selective determinations, and to enter into non-uniform and selective Plan
Agreements, as to (a) the persons to receive awards under the Plan, (b) the
terms and provisions of awards under the Plan, and (c) the treatment of leaves
of absence pursuant to Section 2.7(c).
4.10. Other Payments or Awards. Nothing contained in the Plan shall be
deemed in any way to limit or restrict the Company, any Affiliate or the
Committee from making any award or payment to any person under any other plan,
arrangement or understanding, whether now existing or hereafter in effect.
4.11. Reorganization.
(a) In the event that the Company is merged or consolidated with
another corporation and, whether or not the Company shall be the surviving
corporation, there shall be any change in the shares of Common Stock by reason
of such merger or consolidation, or in the event that all or substantially all
of the assets of the Company are acquired by another person, or in the event of
a reorganization or liquidation of the Company (each such event being
hereinafter referred to as a "Reorganization Event") or in the event that the
Board shall propose that the Company enter into a Reorganization Event, then the
Committee may in its discretion, by written notice to a grantee, provide that
his options will be terminated unless exercised within 30 days (or such longer
period as the Committee shall determine in its sole discretion) after the date
of such notice; provided that if, and to the extent that, the Committee takes
such action with respect to the grantee's options not yet exercisable, the
Committee shall also accelerate the dates upon which such options shall be
exercisable. The Committee also may in its discretion by written notice to a
grantee provide that all or some of the restrictions on any of the grantee's
awards may lapse in the event of a Reorganization Event upon such terms and
conditions as the Committee may determine.
(b) Whenever deemed appropriate by the Committee, the actions referred
to in Section 4.11(a) may be made conditional upon the consummation of the
applicable Reorganization Event.
4.12. Section Headings. The section headings contained herein are for
the purposes of convenience only and are not intended to define or limit the
contents of said sections.
4.13. Effective Date and Term of Plan.
(a) The Plan shall be deemed adopted and become effective upon the
approval thereof by the shareholders of the Company.
(b) The Plan shall terminate 10 years after the date on which it is
approved by shareholders, and no awards shall thereafter be made under the Plan.
Notwithstanding the foregoing, all awards made under the Plan prior to such
termination date shall remain in effect until such awards have been satisfied or
terminated in accordance with the terms and provisions of the Plan and the
applicable Plan Agreement.
12
4.14. Governing Law. The Plan shall be governed by the laws of the
State of New York applicable to agreements made and to be performed entirely
within such state.
ARTICLE 5. STOCK OPTIONS GRANTED TO INDEPENDENT DIRECTORS
5.1. Automatic Grant of Options. Each Independent Director appointed or
elected for the first time shall automatically be granted (under this Plan or
another Company stock option plan) a NQSO to purchase 7,500 shares of Common
Stock on his date of appointment or election. Each Independent Director who is
serving as Director of the Company on the fifth business day after each annual
meeting of shareholders shall, on such day, automatically be granted (under this
Plan or another Company stock option plan) NQSOs to acquire 6,250 shares of
Common Stock; provided, however, that an Independent Director who is appointed
or elected for the first time shall not be eligible to receive NQSOs pursuant to
this sentence for the year of his initial appointment or election. The exercise
price per share for the Common Stock covered by a NQSO granted pursuant to this
Section 5.1 shall be equal to the FMV of the Common Stock on the date the NQSO
is granted.
5.2. Exercise; Termination; Non-Transferability
(a) All NQSOs granted under this Article 5 shall be immediately
exercisable. No NQSO issued under this Article 5 shall be exercisable after the
expiration of ten years from the date upon which such NQSO is granted.
(b) The rights of an Independent Director in a NQSO granted under this
Article 5 shall terminate twelve months after such Director ceases to be a
Director of the Company or the specified expiration date, if earlier; provided,
however, that such rights shall terminate immediately on the date on which an
Independent Director ceases to be a Director by reason of termination of his
directorship on account of any act of (i) fraud or intentional misrepresentation
or (ii) embezzlement, misappropriation or conversion of assets or opportunities
of the Company or any Affiliate.
(c) No NQSO granted under this Article 5 shall be transferable by the
grantee otherwise than by will or by the laws of descent and distribution, and
such grantee shall be exercisable during the grantee's lifetime only by the
grantee. Any NQSO granted to an Independent Director and outstanding on the date
of his death may be exercised by the legal representative or legatee of the
grantee for the period of twelve months from the date of death or until the
expiration of the stated term of the option, if earlier.
(d) NQSOs granted under this Article 5 may be exercised only by written
notice to the Company specifying the number of shares to be purchased. Payment
of the full purchase price of the shares to be purchased may be made by
certified or official bank check payable to the Company. A grantee shall have
the rights of a stockholder only as to shares acquired upon the exercise of a
NQSO and not as to unexercised NQSOs.
5.3. Adjustments Upon Changes in Capitalization. The number of shares
of Common Stock subject to awards and the option exercise price of NQSOs
theretofore granted under this Article 5, and the amount payable by a grantee in
respect of an award, shall be appropriately adjusted for any change in the
number of issued shares of Common Stock resulting from the
13
subdivision or combination of shares of Common Stock or other capital
adjustments, or the payment of a stock dividend after the effective date of the
Plan, or other change in such shares of Common Stock effected without receipt of
consideration by the Company; provided that any awards covering fractional
shares of Common Stock resulting from any such adjustment shall be eliminated.
5.4 Limited to Independent Directors. The provisions of this Article 5
shall apply only to NQSOs granted or to be granted to Independent Directors,
shall be interpreted as if this Article 5 constituted a separate plan of the
Company and shall not be deemed to modify, limit or otherwise apply to any other
provision of this Plan or to any NQSO issued under this Plan to a participant
who is not an Independent Director of the Company. To the extent inconsistent
with the provisions of any other Section of this Plan, the provisions of this
Article 5 shall govern the rights and obligations of the Company and Independent
Directors respecting NQSOs granted or to be granted to Independent Directors.
The provisions of this Article 5 shall not be amended more than once every six
months other than to comport with changes in applicable law.
14
EXHIBIT 99.1
RECKSON OPERATING PARTNERSHIP, L.P.
Exhibit 99.1
CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63
OF TITLE 18 OF THE UNITED STATES CODE
I, Donald Rechler, CO-CEO of Reckson Associates Realty Corp. the sole general
partner of Reckson Operating Partnership, L.P. (the "Company"), certify pursuant
to section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
1) The Quarterly Report on Form 10-Q of the Company for the quarterly
period ended June 30, 2002 (the "Report") fully complies with the
requirements of Section 13 (a) or 15 (d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
Dated: August 12, 2002
RECKSON OPERATING PARTNERSHIP, L.P.
By: Reckson Associates Realty Corp.,
its sole general partner
By /s/ Donald Rechler
---------------------------
Donald Rechler, Co-Chief Executive Officer
EXHIBIT 99.2
RECKSON OPERATING PARTNERSHIP, L.P.
Exhibit 99.2
CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63
OF TITLE 18 OF THE UNITED STATES CODE
I, Scott H. Rechler, CO-CEO of Reckson Associates Realty Corp. the sole
general partner of Reckson Operating Partnership, L.P.(the "Company"),
certify pursuant to section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350, that:
1) The Quarterly Report on Form 10-Q of the Company for the quarterly
period ended June 30, 2002 (the "Report") fully complies with the
requirements of Section 13 (a) or 15 (d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
Dated: August 12, 2002
RECKSON OPERATING PARTNERSHIP, L.P.
By: Reckson Associates Realty Corp.,
its sole general partner
By /s/ Scott H. Rechler
---------------------------
Scott H. Rechler, Co-Chief Executive Officer
EXHIBIT 99.3
RECKSON OPERATING PARTNERSHIP, L.P.
EXHIBIT 99.3
CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63
OF TITLE 18 OF THE UNITED STATES CODE
I, Michael Maturo, CFO of Reckson Associates Realty Corp. the sole general
partner of Reckson Operating Partnership, L.P. (the "Company"), certify pursuant
to section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
1) The Quarterly Report on Form 10-Q of the Company for the quarterly
period ended June 30, 2002 (the "Report") fully complies with the
requirements of Section 13 (a) or 15 (d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
Dated: August 12, 2002
RECKSON OPERATING PARTNERSHIP, L.P.
By: Reckson Associates Realty Corp.,
its sole general partner
By /s/ Michael Maturo
---------------------------
Michael Maturo, Chief Financial Officer