SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2005
OR
o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from __________ to __________
Commission File Number 1-13762
RECKSON OPERATING PARTNERSHIP, L. P.
(Exact name of registrant as specified in its charter)
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Delaware
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11-3233647
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(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
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225 Broadhollow Road, Melville, NY
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11747
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code: (631) 694-6900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes 
No 
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No . Indicate by a check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No .
No . Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K.
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check One):
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Large Accelerated Filer
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Accelerated Filer
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Non-Accelerated Filer
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Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No .
No .DOCUMENTS INCORPORATED BY REFERENCE
Portions of Reckson Associates Realty Corp.’s
Proxy Statement for the Annual Shareholder’s Meeting to be held May
25, 2006 are incorporated by reference into Part III.
As of March 17, 2006, approximately 1.5
million common units of limited partnership interest were held by non-affiliates
of the Registrant. There is no established trading market for such units.
TABLE OF CONTENTS
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PART I
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ITEM 1.
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BUSINESS
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General
Reckson Operating Partnership, L.P. (the “Operating
Partnership”) commenced operations on June 2, 1995. Reckson Associates
Realty Corp. (the “Company”), which serves as the sole general
partner of the Operating Partnership, is a fully integrated, self administered
and self managed real estate investment trust (“REIT”). The Operating
Partnership and the Company were formed for the purpose of continuing the
commercial real estate business of Reckson Associates, the predecessor of
the Operating Partnership, their affiliated partnerships and other entities
(“Reckson”). Unless the context requires otherwise, the terms “Company”, “we”, “us”, “our” and
similar terms include Reckson Associates Realty Corp., Reckson Operating
Partnership,
L. P. and its wholly-owned subsidiaries. For approximately 50 years, Reckson
has been engaged in the business of owning, developing, acquiring, constructing,
managing and leasing office and industrial properties in the New York City
tri-state area (the “Tri-State Area”). Based on industry surveys,
management believes that the Company is one of the largest owners and operators
of Class A central business district (“CBD”) and suburban office
properties in the Tri-State Area. At December 31, 2005 we owned 103 properties
(inclusive of twenty-five office properties owned through joint ventures)
in the Tri-State Area CBD and suburban markets, encompassing approximately
20.3 million rentable square feet, all of which are managed by us. The properties
include 17 Class A CBD office properties encompassing approximately 7.2 million
rentable square feet. The CBD office properties consist of six properties
located in New York City, nine properties located in Stamford, CT and two
properties located in White Plains, NY. The CBD office properties comprised
52.1% of our net operating income (property operating revenues less property
operating expenses) for the three months ended December 31, 2005. These
properties also include 78 Class A suburban office properties encompassing
approximately 12.2 million rentable square feet, of which 59 of these properties,
or 46.8% as measured by square footage, are located within our 14 office
parks. We have historically emphasized the development and acquisition of
suburban office properties in large-scale office parks. We believe that owning
properties in planned office parks provides strategic and synergistic advantages,
including the following: (i) certain tenants prefer locating in a park
with other high quality companies to enhance their corporate image, (ii)
parks afford tenants certain aesthetic amenities such as a common landscaping
plan, standardization of signage and common dining and recreational facilities,
(iii) tenants may expand (or contract) their business within a park, enabling
them to centralize business functions and (iv) a park provides tenants with
access to other tenants and may facilitate business relationships between
tenants. Additionally, the properties include eight flex properties encompassing
approximately 863,000 rentable square feet.
Through our ownership of properties in the key CBD and suburban office markets in the Tri-State Area, we believe we have a unique competitive advantage as the trend toward the regional decentralization of the workplace increases. Subsequent to the events of September 11, 2001, as well as the impact of technological advances, which further enable decentralization, companies are strategically re-evaluating the benefits and feasibility of regional decentralization and reassessing their long-term space needs. We believe this multi-location regional decentralization will continue to take place, increasing as companies begin to have better visibility as to the future of the economy, further validating its regional strategy of maintaining a significant market share in the key CBD and suburban office markets in the Tri-State Area.
We also own certain land parcels throughout our markets in the Tri-State Area which we hold for current and future development (the “Development Parcels”). During July 2004, we commenced the ground-up development on one of the Development Parcels of a 300,000 square foot Class A office building located within our existing three building executive office park in Melville, NY with a total anticipated investment of approximately $64.0 million. This development was recently completed and is approximately 67% leased. During July 2005, we commenced the ground-up development on one of the Development Parcels of a 37,000 square foot Class A retail property located within our existing six building Landmark Square office park in Stamford, Connecticut with a total anticipated investment of approximately $10.1 million. In August 2005, we recommenced the ground-up development of one of the Development Parcels of a 316,000 square foot Class A office
building located within our existing three building office park located in Princeton, NJ with an anticipated incremental investment of approximately $47.0 million. There can be no assurances that the actual cost of these ground-up development projects will not exceed their anticipated amounts. Further, one of the Development Parcels, aggregating approximately 4.1 acres, is classified as held for sale on our balance sheets and is expected to close during September 2006 for aggregate consideration of $2.0 million. In addition, as previously discussed, in May 2005, we entered into a contract to sell approximately 60 acres of vacant land in Chatham Township, NJ, subject to a change in zoning and other conditions. There can be no assurances that such conditions will be met or that the transaction will be consummated. Excluding the foregoing, at December 31, 2005 our inventory of Development Parcels aggregated approximately 309 acres of land in 10 separate parcels of which we can, based
on current estimates, develop approximately 3.6 million square feet of office space and which we had invested approximately $123.8 million.
Our core business strategy is based on a long-term outlook considering real estate as a cyclical business. We seek to accomplish long-term stability and success by developing and maintaining an infrastructure and franchise that is modeled for
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success over the long-term. This approach allows us to recognize different points in the market cycle and adjust our strategy accordingly. We are reasonably optimistic about the prospects for continued economic recovery in our markets. We still choose to maintain our conservative operating strategy of focusing on retaining high occupancies, controlling operating expenses, maintaining a high level of investment discipline and preserving financial flexibility.
Historically we have opportunistically
purchased underdeveloped land, vacant buildings or buildings that were under
managed or under performing. We apply our real estate expertise to develop,
redevelop, renovate and reposition our assets with the goal of creating value
in these real estate assets. Since the Company’s initial public offering
(“IPO”) in June 1995, we have developed, redeveloped, renovated
or repositioned 20 properties encompassing approximately 3.3 million square
feet of office and industrial / flex space.
As of December 31, 2005, we had invested approximately $55.2 million in loans and REIT-qualified joint ventures with Reckson Strategic Venture Partners, LLC (“RSVP”), a real estate venture capital fund created in 1997 as a research and development vehicle for us to invest in alternative real estate sectors outside our core office focus (see “Recent Developments-Other Investing Activities” for further discussion).
Reckson Associates Realty Corp. controls
the Operating Partnership as the sole general partner and, as of December
31, 2005, owned approximately 96.8% of the Operating Partnership’s outstanding common units of limited partnership interest (“OP Units”).
We have established an unsecured credit facility (the “Credit Facility”) with a maximum borrowing amount of $500 million scheduled to mature in August 2008. The Credit Facility requires us to comply with a number of financial and other covenants on an ongoing basis.
There are numerous commercial properties that compete with us in attracting tenants and numerous companies that compete in selecting land for development and properties for acquisition.
Our principal executive offices are located at 225 Broadhollow Road, Melville, New York 11747 and our telephone number at this location is (631) 694-6900. At December 31, 2005, we had approximately 300 employees.
We make certain filings with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, available
free of charge through our website, www.reckson.com, as soon as reasonably practicable after they are filed with the Securities and Exchange Commission. Our annual report to equityholders, press releases and recent presentations are also available free of charge on the website.
Recent Developments
Acquisitions, Dispositions and Investing Activities
During January 2005, we acquired, in two separate transactions, two Class A office properties located at One and Seven Giralda Farms in Madison, New Jersey for total consideration of approximately $78 million. One Giralda Farms encompasses approximately 150,000 rentable square feet and Seven Giralda Farms encompasses approximately 203,000 rentable square feet. We made these acquisitions through advances under our Credit Facility.
In May 2005, we acquired a 1.4 million square foot, 50-story, Class A office tower located at One Court Square, Long Island City, NY, for approximately $471.0 million, inclusive of transfer taxes and transactional costs. One Court Square is 100% leased to the seller, Citibank N.A., under a 15-year net lease. The lease contains partial cancellation options effective during 2011 and 2012 for up to 20% of the leased space and in 2014 and 2015 for up to an additional 20% of the originally leased space, subject to notice and the payment of early termination penalties. On November 30, 2005, we sold a 70% joint venture interest in One Court Square (the “Court Square JV”) to certain institutional funds advised by JPMorgan Investment Management (the “JPM Investor”) for approximately $329.7 million, including the assumption of $220.5 million of the property’s mortgage debt. The operating agreement of the Court Square JV requires
approvals from members on certain decisions including annual budgets, sale of the property, refinancing of the property’s mortgage debt and material renovations to the property. In addition, after
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September 20, 2009, the members each have the right to recommend the sale of the property, subject to the terms of the mortgage debt.
On May 26, 2005, we entered into a contract to sell approximately 60 acres of vacant land located in Chatham Township, NJ for up to approximately $30.0 million, which is based upon a final approved site plan. The closing is anticipated to occur upon receiving final re-zoning approvals and other customary due diligence and approvals. The sale is contingent upon due diligence, environmental assessment, re-zoning and other customary approvals. There can be no assurances that any of the aforementioned contingences will be achieved and the sale ultimately completed.
On June 8, 2005, we sold a three-acre vacant
land parcel located on Long Island for approximately $1.4 million which resulted
in a net gain of approximately $179,000.
On June 20, 2005, we acquired our joint venture partner’s 40% interest in a 172,000 square foot office property located at 520 White Plains Road, Tarrytown, NY for approximately $8.1 million which consisted of the issuance of 127,510 OP Units valued at $31.37 per OP Unit and the assumption of approximately $4.1 million of secured mortgage indebtedness of the joint venture.
On July 14, 2005, we acquired two adjacent Class A suburban office buildings aggregating approximately 228,000 square feet located at 225 High Ridge Road in Stamford, CT for approximately $76.3 million. This acquisition was made through a borrowing under our Credit Facility. On August 26, 2005 this property was encumbered, along with eight other properties, with an interest only mortgage in the amount of approximately $55.3 million and on September 21, 2005 was sold to a newly formed joint venture, Reckson Australia Operating Company LLC (the “RAOC JV”) for approximately $76.5 million which included the assignment of the property’s mortgage debt.
On August 18, 2005, we entered into (i) an underwriting agreement relating to the public offering in Australia of approximately A$263.0 million (approximately US$202.0 million) of units (“LPT Units”) in a newly-formed Reckson-sponsored Australian listed property trust, Reckson New York Property Trust (“Reckson LPT”), a newly-formed listed property trust which is traded on the Australian Stock Exchange and (ii) contribution and sale agreements pursuant to which, among other things, we agreed to transfer 25 of our properties for an aggregate purchase price of approximately $563.0 million and containing an aggregate of 3.4 million square feet, in three separate tranches, to the RAOC JV in exchange for a 25% interest in the RAOC JV and approximately $502.0 million in cash (inclusive of proceeds from mortgage debt to be assumed by the RAOC JV). On September 21, 2005, Reckson LPT completed its public offering and the closing of the
first of three tranches (“Tranche I”) of this transaction.
In connection with the Tranche I closing, the RAOC JV acquired from us 17 of our suburban office properties containing approximately 2.0 million square feet for approximately $367.0 million (including the assumption of approximately $196.1 million in mortgage debt which had been incurred by us in August 2005). In return, we received a 25% interest in the RAOC JV and approximately $128.1 million in cash resulting in an aggregate gain of approximately $103.6 million. Approximately $22.0 million of the cash received was used to repay certain of our secured mortgage indebtedness on September 30, 2005 and approximately $105.7 million of the cash received was used to establish an escrow account with a qualified intermediary for a future exchange of real property pursuant to Section 1031 of the Code (a “Section 1031 Exchange”). A Section 1031 Exchange allows for the deferral of taxes related to the gain attributable to the sale of property if a
qualified replacement property is identified within 45 days and such qualified replacement property is acquired within 180 days from the initial sale. As described below, on October 7, 2005 we acquired a qualified replacement property for purposes of this Section 1031 Exchange and thereby deferred a portion of the tax gain from the Tranche I sale.
In connection with the foregoing, on September 21, 2005, Reckson Australia Holdings LLC (“Reckson Holdings”), a wholly-owned subsidiary of the Operating Partnership, and Reckson Australia LPT Corporation (“LPT REIT”), a U.S. real estate investment trust which is wholly-owned by Reckson LPT, entered into the Amended and Restated Limited Liability Company Agreement governing the RAOC JV (the “Operating Agreement”). Pursuant to the Operating Agreement, LPT REIT holds a 75% interest in, and acts as the managing member for, the RAOC JV, and Reckson Holdings holds a 25% non-managing member interest therein. The Operating Agreement provides that, if at any time additional capital contributions are made to the RAOC JV, Reckson Holdings will have a right to make additional capital contributions up to an amount necessary to maintain its 25% interest therein on the same terms and conditions as such other capital
contributions.
As the managing member of the RAOC JV, LPT REIT has the sole responsibility for managing its business and affairs on a day-to-day basis, other than with respect to certain identified “major decisions,” including but not limited to a merger or consolidation involving the RAOC JV, a disposition of all or substantially all of its assets, or the liquidation or dissolution of the RAOC JV. Such major decisions require the prior written consent of a majority of the non-managing members.
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On January 6, 2006, Reckson LPT completed the second Tranche of this transaction (“Tranche II”) whereby the RAOC JV acquired three of our suburban office properties; 6800 and 6900 Jericho Turnpike, Jericho, NY and 710 Bridgeport Avenue, Shelton, CT, aggregating approximately 761,000 square feet for approximately $84.6 million, including the assignment of approximately $20.1 million of mortgage debt. Approximately $25.1 million of sales proceeds was used to establish an escrow account for the purpose of a future Section 1031 Exchange. The balance of the cash proceeds was used to fund our development activities and for general corporate purposes.
The Tranche III closing (“Tranche III”), consisting of five of our properties valued at approximately $111.8 million, is scheduled to close in October 2006 and will include the assumption of approximately $51.5 million of existing mortgage debt. The Tranche III closing is subject to customary closing conditions.
Our Service Companies provide asset management, property management, leasing, construction and other services to the RAOC JV and affiliates of ours are entitled to transaction fees and ongoing fees for providing services to the RAOC JV. As of December 31, 2005, we earned and received approximately $3.6 million in transaction related fees and approximately $966,000 of ongoing fees from the RAOC JV. In addition, we also formed Reckson Australia Management Limited (“RAML”), a wholly owned subsidiary, that will manage Reckson LPT and serve as its “Responsible Entity”. The Responsible Entity will be managed by a six member board that includes three independent directors domiciled in Australia. To address and mitigate any potential conflicts of interest with Reckson LPT or its affiliates the Company has adopted the following policies: (i) all transactions between the Company and Reckson LPT or its affiliates shall require the
approval of a majority of the independent directors of both the Company and Reckson LPT, (ii) executive officers and directors of the Company are prohibited from owning equity in the Reckson LPT, and (iii) the adoption of an express policy which mandates that property services and leasing decisions shall be made without regard to the Company’s percentage ownership of any property.
Under the Operating Agreement, Reckson Holdings will have the right, beginning September 21, 2007, to require LPT REIT to redeem all or a portion of Reckson Holdings’ membership interest in the RAOC JV for cash or, at LPT REIT’s option, shares of LPT REIT’s common stock (which may be exchanged for LPT Units) on a one-for-one basis. Reckson Holdings also has the right to cause the liquidation of the RAOC JV in the event that RAML is replaced as Reckson LPT’s Responsible Entity. In addition, the Operating Agreement contains a right of first refusal granting Reckson Holdings the right to acquire any asset of the RAOC JV, at fair market value, in the event of an attempted sale of such asset or the exercise of Reckson Holdings’ right to liquidate the RAOC JV.
In connection with the Tranche I closing, on September 21, 2005 the Company, RAOC JV and LPT REIT entered into an Option Agreement (the “Option Agreement”) pursuant to which we granted RAOC JV options to acquire ten additional properties from the Operating Partnership over a two year period, beginning January 1, 2006. The properties contain an aggregate of approximately 1.2 million square feet and will be priced based on the fair market value at the time of each transfer to RAOC JV. The Option Agreement contains a right of first refusal granting RAOC JV the right to acquire any option property from Reckson in the event we receive, and are amenable to, an offer from a third party to purchase such option property. The Option Agreement will terminate under certain circumstances, including if (i) RAOC JV sends notice of its intent to exercise its option but fails to close as obligated, (ii) RAOC JV is in default under the Option Agreement,
the contribution agreement or the sale agreement or (iii) RAML or an affiliate of ours is no longer the Responsible Entity of Reckson LPT.
In connection with the mortgage indebtedness securing nine of the Tranche I properties, which were transferred to the RAOC JV on September 21, 2005, and three of the Tranche III properties scheduled to be transferred to the RAOC JV during October 2006, we have guaranteed to the lender certain customary non-recourse carve-outs, as well as certain obligations relating to the potential termination of a number of leases at four of these properties. We have also guaranteed to the lender certain capital requirements related to these properties. We will be relieved of the customary non-recourse carve-outs and capital requirements upon transfer of the respective properties to the RAOC JV and the RAOC JV meeting a net worth test of at least $100.0 million. We will be relieved of all but two of the lease related obligations upon transfer of the respective properties to the RAOC JV and the RAOC JV meeting a net worth test of at least $200.0 million. The RAOC
JV has agreed to indemnify us for any loss, cost or damage it may incur pursuant to our guaranty of these obligations. As of December 31, 2005, the RAOC JV met the $100.0 million net worth threshold and there remain approximately $18 million of aggregate guarantees outstanding.
During September 2005, we entered into
a letter of intent with an entity owned by the owner of the New York Islanders
professional hockey team to enter into a 50 / 50 joint venture to potentially
develop over five million square feet of office, residential, retail and
hotel space located on 77 acres in the Mitchel Field, Long Island sub-market
in and around Nassau County’s Veterans Memorial Coliseum where we are
currently the largest owner of office properties. In March 2006, the joint
venture was selected by the County Executive for the development of the 77
acre site. The development remains subject to certain conditions and governmental
approvals, including legislative, zoning and other customary approvals. In
addition, there can be no assurances that we will enter into the aforementioned
joint venture, that all applicable conditions will be satisfied or that all
required approvals can be obtained.
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On September 22, 2005, we sold two suburban
office properties, aggregating approximately 69,000 square feet, located
at 310 and 333 East Shore Road in Great Neck, Long Island for aggregate consideration
of approximately $17.3 million. As a result, we recorded an aggregate gain
of approximately $14.0 million. For federal income tax purposes, we recognized
a tax gain of approximately $12.6 million. Such tax gain did not affect the
Company’s REIT distribution requirements.
On October 7, 2005, we acquired a 1.1 million square foot Class A office complex located in Uniondale, NY, commonly referred to as “EAB Plaza”, for approximately $240 million and changed the name of the complex to Reckson Plaza. The property is encumbered by a long-term ground lease which has a remaining term in excess of 75 years, including renewal options. The acquisition of Reckson Plaza was financed, in part, (i) from sales proceeds being held by a qualified intermediary pursuant to a Section 1031 Exchange as the property was an identified, qualified replacement property, (ii) a borrowing under our Credit Facility, (iii) the satisfaction of our $27.6 million junior participating mezzanine loan which was secured by a pledge of an indirect interest of an entity which owned the ground leasehold estate and (iv) cash on hand. In connection with this acquisition we also acquired an adjoining 8.2 acre development site for approximately
$19.0 million which was financed through a borrowing under our Credit Facility.
On October 20, 2005, we acquired a 118,000 square foot suburban office property situated on ten acres of land located at 711 Westchester Avenue in White Plains, NY for approximately $24.8 million. This acquisition was financed through the assumption of approximately $12.5 million of existing debt on the property and a borrowing under our Credit Facility.
On December 20, 2005, we sold our property
located at 48 Harbor Park Drive, Port Washington, NY for approximately $6.4
million and recorded a gain on sales of real estate of approximately $2.7
million.
On December 20, 2005, we sold our property
located at 100 Wall Street, New York, NY for approximately $134.0 million
and recorded
a gain on sales of real estate of approximately $46.1 million. The property
was secured by a first mortgage and cross collateralized with another one
of our New York City properties.
In order to effectuate the sale and not incur prepayment penalties which
would be due under a prepayment of the mortgage, we provided the lender with
replacement collateral and assigned this mortgage debt to the replacement
collateral properties. In connection with the assignment, we paid a substitution
of collateral fee and other costs aggregating approximately $2.0 million.
In addition, we provided the purchaser with a mezzanine loan in the amount
of $30.0 million which bears interest at 15.0% per annum, requires payments
of interest only and has a term of two years. Cash proceeds of approximately
$100.9 million were used, in part, to acquire a 14 building suburban office
portfolio as discussed below.
On December 29, 2005, we acquired a 1.6 million square foot suburban office portfolio, consisting of 14 buildings, concentrated within five business parks, located in Westchester County, for approximately $255.0 million. We made this acquisition through a borrowing under a $250 million term loan from Goldman Sachs Mortgage Company (the “Term Loan”) and cash sales proceeds from the sale of our property located at 100 Wall Street, New York, NY.
Notes Receivable Investment Activity
On March 16, 2005, a wholly owned subsidiary of the Operating Partnership advanced under separate mezzanine loan agreements, each of which bears interest at 9% per annum, (i) approximately $8.0 million which matures in April 2010 and is secured, in part, by indirect ownership interests in ten suburban office properties located in adjacent office parks in Long Island, NY and (ii) approximately $20.4 million which matures in April 2012 and is secured, in part, by indirect ownership interests in twenty-two suburban office properties located in adjacent office parks in Long Island, NY. Each mezzanine loan is additionally secured by other guaranties, pledges and assurances and is pre-payable without penalty after 18 months from the initial funding. We made these investments through a borrowing under our Credit Facility.
In May 2005, we acquired a 65% interest in an $85 million, 15-year loan secured by an indirect interest in a 550,000 square foot condominium in a Class A office tower located at 1166 Avenue of the Americas, New York, NY for approximately $55.3 million. The loan accrues interest compounded at 9.0% and pays interest at an annual rate of 6.0% through March 2010, 8.5% thereafter through March 2015 and 11.0% thereafter through maturity in 2020. The loan is pre-payable only under certain circumstances and, in any case, not before 2009. Upon a capital event related to the indirect interest in the property which secures the loan, we are entitled to participate in 30% of the net proceeds derived from such capital event. This investment replaced our $34.0 million mezzanine loan, including accrued and unpaid interest, to one of the partners owning such condominium interest. We also acquired an approximately 5% indirect ownership interest in the property for
a purchase price of approximately $6.2 million. The
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property is currently 100% leased. The balance of these investments was funded through a borrowing under our Credit Facility and cash on hand.
On September 30, 2005, we advanced $20.0 million to entities that are each controlled by Cappelli Enterprises under a junior mezzanine loan. This mezzanine loan bore interest at 15.0% per annum, was secured by a subordinate pledge of an indirect ownership interest in a 550,000 square foot office condominium in a Class A office tower located at 1166 Avenue of the Americas, New York, NY and had a scheduled maturity date of March 31, 2006. As described above, during May 2005, we made a $55.3 million participating loan investment secured by interests in this property (including the interests securing this new mezzanine loan). We also advanced a $10.0 million bridge loan to Louis Cappelli, an affiliate, under a promissory note (the “Promissory Note”) in anticipation of closing a longer-term structured finance transaction. The Promissory Note bore interest at 4.86% per annum, matured on November 30, 2005, was secured by a security interest in
a reserve account owned by the borrower and was pre-payable in whole or in part without penalty. These investments were funded through a borrowing under our Credit Facility. On November 30, 2005, the Promissory Note was repaid, we advanced an additional $5.0 million under the mezzanine loan and adjusted its interest rate to 17.5% per annum and extended its maturity date to November 30, 2009. The refinanced junior mezzanine loan is secured by interests in the 1166 Avenue of the Americas condominium and guaranteed by Mr. Cappelli.
On October 7, 2005, a wholly owned subsidiary of the Operating Partnership advanced under a second mortgage loan agreement $10.0 million to an entity which owns a 60,000 square foot office property located on Madison Avenue in New York City which is currently slated for residential conversion. The borrower is an affiliate of the seller of EAB Plaza which we acquired on October 7, 2005. This mortgage loan bears interest at 20.0% per annum, requires monthly payments of interest only, matures on October 7, 2007 and is secured by the underlying property. The mortgage loan is not pre-payable until the earlier of January 10, 2007 or the sale of the underlying property and upon notice. In addition to this mortgage loan, Reckson Construction and Development, LLC (“RCD”) entered into a development agreement with the owner of the property to perform certain predevelopment, development and / or other services with respect to the property. In
exchange for its services, RCD will receive a development fee of $2.0 million which is payable in equal monthly installments over a two-year period. Interest due under the mortgage note during its term and the entire development fee are currently being held in a segregated account under our control.
At December 31, 2005, we had invested approximately $93.4 million in mezzanine loans and approximately $55.3 million in a participating loan investment. In general these investments are secured by a pledge of either a direct or indirect ownership interest in the underlying real estate or leasehold, other guaranties, pledges and assurances.
The following table sets forth the terms of the mezzanine loans at December 31, 2005 (in thousands):
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Property
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Amount
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Interest Rate
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Funding
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Maturity
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Long Island office portfolio
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$
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8,031
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9.00
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%
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Mar., 2005
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Apr.,2010(a)
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Long Island office portfolio
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20,356
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9.00
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%
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Mar., 2005
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Apr.,2012(a)
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72 Madison Avenue, NY, NY
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10,000
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20.00
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%
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Oct., 2005
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Oct., 2007
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1166 Avenue of the Americas, NY, NY (b)
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25,000
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17.50
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%
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Nov., 2005
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Nov.,2009
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100 Wall Street, NY, NY
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30,000
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15.00
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%
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Dec., 2005
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Dec.,2007
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|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
93,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
(a)
|
Prepayable without penalty after 18 months from initial funding.
|
|||||||||||||
|
(b)
|
Junior mezzanine loan secured by interests in a 550,000 square foot condominium interest.
|
|||||||||||||
At December 31, 2005, we also held a $17.0 million note receivable, which bore interest at 12% per annum and was secured by a minority partnership interest in Omni Partners, L.P., owner of the Omni, a 579,000 square foot Class A office property located in Uniondale, NY (the “Omni Note”).
As of December 31, 2005, we held one other note receivable, which aggregated $1.0 million and carried an interest rate of 10.50% per annum (the “Other Note”) and collectively with the Omni Note, our mezzanine loans and preferred loan investments (the “Note Receivable Investments”). The Other Note matures on January 31, 2010 and is secured in part by a minority partner’s preferred unit interest in the Operating Partnership.
As of December 31, 2005, management has made subjective assessments as to the underlying security value on the Note Receivable Investments. These assessments indicate an excess of market value over the carrying value and, based on these assessments, we believe there is no impairment to their carrying value.
I-6
Other Investing Activities
During 1997, the Company formed FrontLine Capital Group (“FrontLine”) and RSVP, a real estate venture capital fund whose common equity is held indirectly by FrontLine. In connection with the formation and subsequent spin-off of FrontLine, the Operating Partnership established an unsecured credit facility with FrontLine (the “FrontLine Facility”) in the amount of $100.0 million. The Operating Partnership also approved the funding of investments of up to $110.0 million relating to REIT–qualified investments through RSVP-controlled joint ventures or advances made to FrontLine under an additional 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”). To date, approximately $59.8 million has been funded to RSVP-controlled joint ventures and $142.7 million through the
FrontLine Loans (collectively, the “RSVP / FLCG Investments”) on which we accrued interest (net of reserves) of approximately $19.6 million.
A committee of the Board of Directors, comprised solely of independent directors, considers any actions to be taken by the Company in connection with the RSVP / FLCG Investments and during 2001, based on our assessment of value and recoverability of the RSVP / FLCG Investments and considering the findings and recommendations of the committee and its financial advisor, we recorded a $163.0 million valuation reserve charge, inclusive of anticipated costs against the carrying cost of the RSVP / FLCG Investments. In addition, we have discontinued the accrual of interest income with respect to the FrontLine Loans and have also reserved against our share of GAAP equity in earnings, if any, from the RSVP-controlled joint ventures funded until such income is realized through cash distributions.
FrontLine is in default under the FrontLine Loans and on June 12, 2002, filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code.
In September 2003, RSVP completed the restructuring of its capital structure and management arrangements whereby a management company formed by its former managing directors, whose contracts as managing directors were terminated, has been retained to manage RSVP pursuant to a management agreement. The management agreement, which has a term of three years and is subject to early termination in the event of the disposition of all of the assets of RSVP, provides for an annual base management fee and disposition fees equal to 2% of the net proceeds received by RSVP on asset sales (the “Fees”). The Fees are subject to a maximum over the term of the agreement of $7.5 million. In addition, the former managing directors of RSVP retained a one-third residual interest in RSVP’s assets which is subordinated to the distribution of an aggregate amount of $75.0 million to RSVP and/or us in respect of RSVP-controlled joint ventures.
In connection with RSVP’s capital restructuring, RSVP and certain of its affiliates obtained a $60.0 million secured loan (the “RSVP Secured Loan”). On November 3, 2005, the outstanding balance of the RSVP Secured Loan was repaid primarily with proceeds received from the sale of certain assisted living related assets.
The net carrying value of our investments in the RSVP / FLCG Investments of approximately $55.2 million was reassessed with no change by management as of December 31, 2005.
Scott H. Rechler, who serves as Chief Executive
Officer, President and Chairman of the Board of the Company, serves as CEO
and Chairman of the Board of Directors of FrontLine and is its sole board
member.
Scott
H. Rechler also serves as a member of the management committee of RSVP and
serves as a member of the Board of Directors of American Campus Communities,
a company formally owned by RSVP.
In November 2004, a joint venture in which RSVP owns approximately 47% executed a binding agreement to contribute its Catskills, NY resort properties (excluding residentially zoned land) to Empire Resorts Inc. (NASDAQ: NYNY) (“Empire”) for consideration of 18.0 million shares of Empire’s common stock and the right to appoint five members of their Board of Directors. On December 29, 2005, the agreement was terminated and the joint venture received options to purchase approximately 5.2 million options of common stock of Empire at a price of $7.50 per share. The options will be exercisable until December 29, 2006.
In addition to the foregoing we also have investments in unconsolidated real estate joint ventures of (i) an approximate 5% indirect ownership interest in a joint venture that owns an investment in a New York City Class A office tower where our share of unconsolidated joint venture debt is approximately $11.8 million with an interest rate of 6.35% per annum and a remaining term of approximately 15 years, (ii) a 25% joint venture interest in the RAOC JV where our share of unconsolidated joint venture debt is approximately $52.3 million with a weighted average interest rate of 5.26% per annum and a weighted average term of 4.6 years and (iii) a 30% joint venture interest in the property located at One Court Square, Long Island City, NY where our share of unconsolidated joint venture debt is $94.5 million with an interest rate of 4.91% per annum and a remaining term of approximately 9.7 years.
I-7
Leasing Activity
During the year ended December 31, 2005, the Company executed 283 leases encompassing approximately 2.2 million square feet. The following table summarizes the leasing activity by location and property type:
|
|
|
Number of leases
|
|
Leased square feet
|
|
Average effective rent per square foot (1)
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CBD office properties
|
|
|
|
|
|
|
|
|
|
|
|
|
Connecticut
|
|
|
39
|
|
|
416,034
|
|
$
|
25.51
|
|
|
|
New York City
|
|
|
40
|
|
|
377,639
|
|
|
40.98
|
|
|
|
Westchester
|
|
|
6
|
|
|
17,834
|
|
|
26.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal / Weighted average
|
|
|
85
|
|
|
811,507
|
|
|
32.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Suburban office properties
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Island
|
|
|
98
|
|
|
694,711
|
|
|
25.32
|
|
|
|
New Jersey
|
|
|
29
|
|
|
181,702
|
|
|
25.11
|
|
|
|
Westchester
|
|
|
67
|
|
|
500,443
|
|
|
21.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal / Weighted average
|
|
|
194
|
|
|
1,376,856
|
|
|
24.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flex properties
|
|
|
|
|
|
|
|
|
|
|
|
|
New Jersey
|
|
|
4
|
|
|
45,918
|
|
|
7.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal / Weighted average
|
|
|
4
|
|
|
45,918
|
|
|
7.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
283
|
|
|
2,234,281
|
|
|
26.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
(1)
|
Base rent adjusted on a straight-line basis for free rent periods, tenant improvements and leasing commissions
|
||||||||||
Financing Activities
We maintain our $500 million Credit Facility with JPMorgan Chase Bank, as administrative agent, Wells Fargo Bank, National Association as syndication agent and Citicorp North America, Inc. and Wachovia Bank, National Association as co-documentation agents. The Credit Facility matures in August 2008, contains options provides for a one-year extension subject to a fee of 25 basis points and, upon receiving additional lender commitments, for an increase to the maximum revolving credit amount to $750 million. In addition, borrowings under the Credit Facility accrue interest at a rate of LIBOR plus 80 basis points and the Credit Facility carries a facility fee of 20 basis points per annum. In the event of a change in the Operating Partnership’s senior unsecured credit ratings the interest rates and facility fee are subject to change. At December 31, 2005, the outstanding borrowings under the Credit Facility aggregated $419.0 million and carried a
weighted average interest rate of 5.17% per annum.
The following table sets forth our applicable margin, pursuant to the Credit Facility, which indicates the additional respective percentages per annum applied to LIBOR based-borrowings determined based on the Operating Partnership’s senior unsecured credit rating:
|
Senior unsecured credit rating
|
|
Applicable
Margin |
|
|
|
|
|
|
|
|
|
A- /A3
|
|
|
0.500
|
%
|
|
BBB+ /Baa1
|
|
|
0.525
|
%
|
|
BBB /Baa2
|
|
|
0.600
|
%
|
|
BBB-/Baa3
|
|
|
0.800
|
%
|
|
Below BBB-/Baa3 or unrated
|
|
|
1.100
|
%
|
I-8
We utilize the Credit Facility primarily to finance real estate investments, fund our real estate development activities and for working capital purposes. On December 29, 2005, we borrowed $150.0 million under the Credit Facility and with cash available acquired a 1.6 million square foot suburban office portfolio, consisting of 14 buildings, located in Westchester County, New York. On January 13, 2006, we repaid $254.0 million of outstanding borrowings under the Credit Facility primarily from the proceeds of the Term Loan. As a result, our availability to borrow additional funds increased to $335.0 million. At December 31, 2005, we had availability under the Credit Facility to borrow approximately an additional $81.0 million, subject to compliance with certain financial covenants.
We maintain access to unsecured debt markets through the Operating Partnership’s investment grade ratings on its senior unsecured debt. As of December 31, 2005, these ratings from the major rating organizations are as follows:
|
Rating Organization
|
|
Rating
|
|
Outlook
|
|
||
|
|
|
|
|
|
|
|
|
|
Fitch Ratings
|
|
|
BBB-
|
|
|
Stable
|
|
|
Moody’s Investors Service
|
|
|
Baa3
|
|
|
Stable
|
|
|
Standard & Poor’s
|
|
|
BBB-
|
|
|
Stable
|
|
These security ratings are not a recommendation to buy, sell or hold the Company’s securities and they are subject to revision or withdrawal at any time by the rating organization. Ratings assigned by each rating organization have their own meaning within that organization’s overall classification system. Each rating should be evaluated independently of any other rating.
We capitalized interest incurred on borrowings to fund certain development projects in the amount of $11.4 million, $8.1 million and $8.0 million for the years ended December 31, 2005, 2004 and 2003, respectively.
In connection with the acquisition of certain properties, contributing partners of such properties have provided guarantees on certain of our indebtedness. As a result, we maintain certain outstanding balances on our Credit Facility.
On May 13, 2005, we obtained a $470.0 million unsecured bridge facility (the “Bridge Facility”) from Citibank, N.A. During August 2005, we repaid $303.5 million of outstanding borrowings under the Bridge Facility with net proceeds received from the secured debt financing of the property located at One Court Square, Long Island City, NY. In addition, in September 2005, we repaid the remaining balance outstanding under the Bridge Facility of $166.5 million with proceeds received from the secured debt financing of a pool of nine of our suburban office properties. As a result of the foregoing, the Bridge Facility has been retired and is no longer available for borrowings thereunder.
On June 20, 2005, in connection with the acquisition of our joint venture partner’s 40% interest in the property located at 520 White Plains Road, Tarrytown, NY, we assumed approximately $4.1 million of secured mortgage indebtedness of the joint venture. As a result, our total secured debt related to this property was approximately $11.1 million. On September 1, 2005, the mortgage note’s scheduled maturity date, we repaid the then outstanding balance of approximately $10.9 million with proceeds received from the August 26, 2005 mortgage financings discussed below, resulting in the satisfaction of this note.
On August 3, 2005, we placed a first mortgage in the amount of $315.0 million on the property located at One Court Square, Long Island City, a sub-market of New York City. The mortgage note bears interest at a fixed rate of 4.905% per annum, requires monthly payments of interest only through September 1, 2015, the anticipated repayment date (“ARD”). In the event the mortgage is not satisfied on the ARD, all excess cash flow, as defined, shall be applied to amortize the loan and the interest rate shall be reset to 2% plus the greater of 4.905% and the then-current ten-year U.S. Treasury yield. The final maturity date of the loan is May 1, 2020. The mortgage note is secured by the property and is otherwise non-recourse except in limited circumstances regarding breaches of material representations. As additional collateral for the loan, the lender under certain circumstances may require letters of credit for their benefit, in the amount of
$10.0 million each, during September 2013, March 2014 and September 2014 if Citibank, N.A., the property’s current sole tenant, exercises its second cancellation option for up to 20% of its leased space during 2014 and 2015 and the space has not been re-leased. Proceeds received from this financing, net of mortgage recording tax and other costs, of approximately $303.5 million, were used to repay a portion of the Bridge Facility. On November 30, 2005, we sold a 70% interest in this property to a group of institutional investors led by JPMorgan Investment Management which included their assumption of $220.5 million of the mortgage debt.
On August 26, 2005, we encumbered a pool of nine of our suburban office properties with interest only mortgages in the aggregate amount of approximately $196.1 million. Proceeds received, net of costs and required escrows, of approximately $188.3 million were used to repay borrowings under our Credit Facility, the remaining balance outstanding under our Bridge Facility and for the repayment of the secured property debt on 520 White Plains Road, Tarrytown, NY. On September 21, 2005, these properties and related underlying mortgages were sold to the RAOC JV. The mortgage notes bear interest at a fixed
I-9
interest rate of 5.20% per annum and mature in September 2010. These mortgage notes are cross-collateralized by the nine properties in the pool.
On September 12, 2005 we encumbered three of our suburban office properties with interest only mortgages in the aggregate amount of approximately $51.5 million. Proceeds received, net of costs and required escrows, of approximately $50.2 million were used to repay borrowings under our Credit Facility and for general corporate purposes. The mortgage notes bear interest at a fixed interest rate of 5.20% per annum and mature in October 2010. We have contracted to sell these properties to the RAOC JV, subject to the mortgage notes, in October 2006. These mortgage notes are cross-collateralized by the three properties in the pool.
Pursuant to the terms of the mortgage note encumbering the property located at 200 Summit Lake Drive in Valhalla, NY, the note was prepayable, without penalty, subsequent to September 1, 2005. On September 30, 2005, we repaid the outstanding balance of approximately $18.1 million with proceeds received from the RAOC JV which resulted in the satisfaction of this note.
The mortgage debt on the property located at 395 North Service Road in Melville, NY was scheduled to mature on October 28, 2005. Pursuant to the terms of the note, we prepaid the mortgage debt on September 30, 2005, at which time the outstanding balance was approximately $18.6 million. We funded this prepayment with a borrowing under our Credit Facility and proceeds received from the sale of properties to the RAOC JV which resulted in the satisfaction of this note.
On October 20, 2005, in connection with our acquisition of 711 Westchester Avenue in White Plains, NY we assumed an existing first mortgage debt on the property of approximately $12.5 million. The mortgage bears interest at approximately 5.4% per annum, requires monthly payments of interest only through January 2007 and monthly payments of interest and principal based on a 30 year amortization schedule commencing in February 2007. The mortgage matures on January 1, 2015.
On December 20, 2005, in connection with the sale of our mortgaged property located at 100 Wall Street, New York, NY, we exercised our right under the mortgage note to replace collateral and assign the related mortgage debt to two of our suburban office properties; 275 Broadhollow Road, Melville, NY and 90 Merrick Avenue, Merrick, NY. In connection with the assignment, we paid a substitution of collateral fee and other costs totalling approximately $2.0 million. Such costs are being amortized to expense over the remaining term of the mortgage.
At December 31, 2005, we had 15 fixed rate mortgage notes payable with an aggregate outstanding principal amount of approximately $625.1 million. These mortgage notes are secured by properties with an aggregate cost basis at December 31, 2005 of approximately $1.2 billion and which are pledged as collateral against the mortgage notes payable. In addition, approximately $41.6 million of the $625.1 million is recourse to the Company. The mortgage notes bear interest at rates ranging from 5.20% to 8.50%, and mature between 2006 and 2015. The weighted average interest rates on the outstanding mortgage notes payable at December 31, 2005, 2004 and 2003 were approximately 7.1%, 7.3%, and 7.2%, respectively.
At December 31, 2005, our unconsolidated joint ventures had total indebtedness of approximately $751.1 million, which was comprised of $13.0 million of floating rate unsecured debt and approximately $738.1 million of fixed rate mortgage indebtedness with a weighted average interest rate of approximately 5.1% and a weighted average maturity of approximately 8.3 years. Our aggregate pro-rata share of the unconsolidated joint venture debt was approximately $158.6 million.
On January 6, 2006, we sold two of our suburban office properties; 6800 and 6900 Jericho Turnpike, Jericho, NY to the RAOC JV, subject to their mortgage debt of approximately $20.1 million. The RAOC JV subsequently pre-paid the mortgage notes with proceeds from an unrelated financing transaction.
On January 13, 2006, we obtained our $250.0 million Term Loan from Goldman Sachs Mortgage Company. The Term Loan is for an initial term of three months and we have the option for a three month extension upon paying a one-time fee of 25 basis points on the amount then outstanding. The Term Loan has terms, including interest rates and financial covenants, substantially similar to our Credit Facility. Proceeds from the Term Loan were used to repay outstanding borrowings under our Credit Facility.
Stock and Other Equity Offerings
During 2005, we received approximately $14.1 million of proceeds from the exercise of 571,194 Company stock options.
During 2005 and 2004, the Operating Partnership issued 127,510 and 33,843 OP Units, respectively, in connection with property acquisitions. In addition, during 2005, certain limited partners in the Operating Partnership exchanged approximately 1.6 million OP Units for an equal number of shares of the Company’s common stock.
I-10
During June 2005, the Operating Partnership
issued $287.5 million aggregate principal amount of 4.00% exchangeable senior
debentures due June 15, 2025. The debentures were issued at 98% of par and
are exchangeable for shares of common stock of the Company on or after June
15, 2024 at an initial exchange rate of 24.6124 common shares per $1,000
of principal amount of debentures. The debentures are also exchangeable: (i)
if the market price of the Company’s common stock over a specified
period of time is more than 125% of the exchange price per share then in
effect; (ii) if the trading price of the debentures over a specified period
of time is less than 98% of the product of the closing price of the Company’s
shares multiplied by the applicable exchange rate; (iii) during a specified
period of time, for any debentures that have been called for redemption;
(iv) under certain circumstances, upon the occurrence of a distribution to
holders of the Company’s shares of (a)
rights to purchase the Company’s common stock at a price below the market
price of the Company’s shares or (b) assets, debt securities or rights
to purchase the Company’s securities or securities of the Operating Partnership
that have a per share/OP Unit value exceeding 10% of the market price of the
Company’s shares; or (v) if the Company’s common stock is not listed
on a national or regional securities exchange or quoted on NASDAQ for 30 consecutive
trading
days.
The initial exchange price of $40.63 represents a premium of approximately 25% to the closing price of the Company’s common stock on the issuance date of $32.50 per share. If exchanged in accordance with their terms, the debentures will be settled in cash up to their principal amount and any remaining exchange value will be settled, at our option, in cash, the Company’s common stock or a combination thereof. In accordance with the exchange rate terms of the debentures the Company has reserved approximately 8.8 million shares of its authorized common stock, $.01 par value, for potential future issuance upon the exchange of the debentures. Such amount is based on an exchange rate of 30.7692 common shares per $1,000 of principal amount of debentures. Although we have reserved these shares pursuant to the exchange rate terms, we believe the issuance of the Company’s shares, if any, would be significantly less than 8.8 million shares. The deben
tures
are guaranteed by the Company. We have the option to redeem the debentures beginning June 18, 2010 for the principal amount plus accrued and unpaid interest. Holders of the debentures have the right to require us to repurchase their debentures at 100% of the principal amount thereof plus accrued and unpaid interest on June 15, 2010, June 15, 2015 and June 15, 2020 or, in the event of certain change in control transactions, prior to June 15, 2010.
The Board of Directors of the Company initially authorized the purchase of up to 5.0 million shares of the Company’s common stock. Transactions conducted on the New York Stock Exchange have been, and will continue to be, effected in accordance with the safe harbor provisions of the Securities Exchange Act of 1934 and may be terminated by the Company at any time. Since the Board’s initial authorization, the Company has purchased 3,318,600 shares of its common stock for an aggregate purchase price of approximately $71.3 million. In June 2004, the Board of Directors re-set the Company’s common stock repurchase program back to 5.0 million shares. No purchases have been made since March 2003.
The Operating Partnership has issued and outstanding 1,200 preferred units of limited partnership interest with a liquidation preference value of $1,000 per unit with a stated distribution rate of 7.0%, which is subject to reduction based upon terms of their initial issuance (the “Preferred Units”). The terms of the Preferred Units provide for this reduction in distribution rate in order to address the effect of certain mortgages with above market interest rates, which were assumed by the Operating Partnership in connection with properties contributed to the Operating Partnership in 1998. As a result of the aforementioned reduction, there are currently no distributions being made on the Preferred Units.
Business Strategies and Growth Opportunities
Our primary business objectives are to
maximize current return to equityholders through increases in distributable
cash flow per share/OP Unit and to increase equityholders’ long-term
total return through the appreciation in value of the
Company’s common stock and the Operating Partnership’s OP Units. Our
core business
strategy is based on a long-term outlook considering real estate as a cyclical
business. We seek to accomplish long-term stability and success by developing
and maintaining an infrastructure and franchise that is modeled for success
over the long-term. This approach allows us to recognize different points
in the market cycle and adjust our strategy accordingly. During 2005, we
experienced increased leasing activity, which resulted in increased occupancies
in our properties. This was particularly true in the New York City and Long
Island markets and in the Route 24 corridor market in Northern New Jersey
where vacancy rates have decreased and market rents have increased. The increased
leasing activity and increase in rents is a result of the economic recovery
occurring in the New York tri-state region which has resulted in an increase
in demand for office space with limited new supply. We are reasonably optimistic
about the prospects for continued economic recovery in our markets. As a
result of the recovery in our markets we have started development activities
where we see market demand and limited supply warrant such activity. We have
also adopted a strategy of pricing our premier space in our highest quality
assets at the upper end of market rates. We may do this in instances where
expiring tenants cannot meet that pricing and, therefore, will vacate that
space. We may incur downtime to re-lease that space at higher rents. We still
choose to maintain our conservative strategy of focusing on retaining high
occupancies, controlling operating expenses, maintaining a high level of
investment discipline and preserving financial flexibility. We plan to achieve
these
objectives by continuing our business strategies and capitalizing on the internal
and external growth opportunities as described below.
I-11
Business Strategies. Management believes that throughout its operating history it has created value in its properties through a variety of market cycles by implementing the operating strategies described below. These operating strategies include: (i) a multidisciplinary leasing approach that involves architectural design and construction personnel as well as leasing professionals, (ii) innovative marketing programs that strategically position our properties and distinguish our portfolio from the competition, increase brand equity and gain market-share. These cost-effective, high-yield programs include electronic web-casting, targeted outdoor and print media campaigns and sales promotion that enhances broker relationships and influences tenant retention, (iii) a comprehensive tenant service program and property amenities designed to maximize tenant satisfaction and retention, (iv) cost control management and systems that take advantage of
economies of scale that arise from our market position and efficiencies attributable to the state-of-the-art energy control systems at many of the office properties, (v) a fully integrated infrastructure of proprietary and property management accounting systems which encompasses technologically advanced systems and tools that provide meaningful information, on a real time basis, throughout the entire organization and (vi) an acquisition, disposition and development strategy that is continuously adjusted in light of anticipated changes in market conditions and that seeks to capitalize on management’s multidisciplinary expertise and market knowledge to modify, upgrade and reposition a property in its marketplace in order to maximize value.
We also currently intend to adhere to a policy of maintaining a stabilized debt ratio over time (defined as our total debt as a percentage of the sum of our total debt and the market value of our equity) of not more than 50%. This debt ratio is intended to provide us with financial flexibility to select the optimal source of capital (whether debt or equity) with which to finance external growth. There can be no assurances that we will not adjust this policy in the future. As of December 31, 2005, our debt ratio was approximately 40.1%. This calculation is net of minority partners’ proportionate share of joint venture debt and includes our share of unconsolidated joint venture debt.
Growth Opportunities. We intend
to achieve our primary business objectives by applying our business strategies
to
the internal and external growth opportunities described below.
Internal Growth. To the extent New York City, Long Island, Westchester, New Jersey and the Southern Connecticut office markets continue to recover with limited new supply, management believes we are well positioned to benefit from rental revenue growth through: (i) contractual annual compounding of 3-4% base rent increases on approximately 90% of existing leases from our Long Island properties, (ii) periodic contractual increases in base rent on existing leases from our Westchester properties, New Jersey properties, New York City properties and our Southern Connecticut properties and (iii) the potential for increases to base rents as leases expire and space is re-leased at the higher rents that exist in the current market environment.
Through our ownership of properties in the key CBD and suburban office markets in the Tri-State Area, we believe we have a unique competitive advantage as the trend toward the regional decentralization of the workplace increases. Subsequent to the events of September 11, 2001 as well as the impact of technological advances, which further enable decentralization, companies are strategically re-evaluating the benefits and feasibility of regional decentralization and reassessing their long-term space needs. We believe this multi-location regional decentralization will continue to take place, increasing as companies begin to have better visibility as to the future of the economy, further validating our regional strategy of maintaining a significant market share in the key CBD and suburban office markets in the Tri-State Area.
External Growth. We seek to acquire multi-tenant Class A office buildings and other high quality, well located buildings in New York City and the surrounding Tri-State Area CBD and core suburban markets located in the Tri-State Area. Management believes that the Tri-State Area presents future opportunities to acquire or invest in properties at attractive yields. Valuations of Class A office properties in the Tri-State Area markets have risen significantly over the past 18 months. We believe this is attributable to several factors including the economic recovery the market is experiencing, the flow of capital into the real estate sector, the lack of available product and the supply constrained nature of our markets. We believe that our (i) capital structure, in particular our Credit Facility providing for a maximum borrowing amount of up to $500 million (with additional capacity of $250 million upon receiving additional lender
commitments) and access to unsecured debt markets, (ii) ability to acquire a property for OP Units and thereby defer the seller’s income tax on gain, (iii) operating economies of scale, (iv) relationships with corporate owners of real estate, financial institutions and private real estate owners, (v) fully integrated operations in our five existing divisions and (vi) our substantial position and franchise in the submarkets in which we own properties will enhance our ability to identify and capitalize on acquisition opportunities. We also intend to selectively develop new Class A CBD and suburban office properties primarily on land we currently own and to continue to redevelop existing properties as these opportunities arise. We will concentrate our development activities on Class A CBD and suburban office properties within the Tri-State Area. We will also invest in mezzanine debt or preferred equity positions that are secured by assets or interests in assets located in our Tri-State
Area markets. We may also utilize our development expertise to invest in mixed use development projects in our markets with local development partners. We believe that these types of investments may have higher risk/reward attributes. However, management believes that such risks can be mitigated by our experience, knowledge and operating expertise in the markets in which the assets are located.
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We also believe that our New York City division provides additional leasing and operational capabilities and enhances our overall franchise value by being the only real estate operating company in the Tri-State Area with significant presence in both Manhattan and key Tri-State Area sub-markets. We actively seek alternative sources of low-cost capital to finance our growth opportunities. During 2005, we accessed the Australian Capital Markets and formed a strategic joint venture with an Australian Listed Property Trust which we manage. This vehicle was structured in a manner where we can raise additional capital through future offerings of the Limited Property Trust’s units to the Australian Market. We plan to expand our joint venture relationships with U.S. institutional partners or seek similar low-cost capital overseas to purchase assets in our markets. We believe that establishing multiple low-cost capital sources will provide us with a
competitive advantage in acquiring assets as well as provide us the ability to leverage our operating infrastructure in the form of management and other fees.
In addition, when valuations for commercial real estate properties are high, we may seek to sell certain properties or interests therein to realize value and profit created. We will then seek opportunities to reinvest the capital realized from these dispositions back into assets in our core Tri-State Area markets. However, there can be no assurances that we will be able to identify such opportunities that meet our underwriting criteria. During 2005, we sold over $900 million of assets.
Regulations
Many laws and governmental regulations are applicable to our business and properties and changes in these laws and regulations, or their interpretation by agencies and the courts, occur frequently.
Environmental Matters
Under various Federal, state and local laws, ordinances and regulations, an owner of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances on or in such property. These laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous or toxic substances. The cost of any required remediation and the owner’s liability therefore as to any property is generally not limited under such enactments and could exceed the value of the property and/or the aggregate assets of the owner. The presence of such substances, or the failure to properly remediate such substances, may adversely affect the owner’s ability to sell or rent such property or to borrow using such property as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of such
substances at a disposal or treatment facility, whether or not such facility is owned or operated by such person. Certain environmental laws govern the removal, encapsulation or disturbance of asbestos-containing materials (“ACMs”) when such materials are in poor condition, or in the event of renovation or demolition. Such laws impose liability for release of ACMs into the air and third parties may seek recovery from owners or operators of real properties for personal injury associated with ACMs. In connection with the ownership (direct or indirect), operation, management and development of real properties, we may be considered an owner or operator of such properties or as having arranged for the disposal or treatment of hazardous or toxic substances and, therefore, potentially liable for removal or remediation costs, as well as certain other related costs, including governmental fines and injuries to persons and property.
All of our properties have been subjected to a Phase I or similar environmental audit (which involved general inspections without soil sampling, ground water analysis or radon testing) completed by independent environmental consultant companies. These environmental audits have not revealed any environmental liability that would have a material adverse effect on our business.
Competition
The leasing of real estate is highly competitive.
There are numerous commercial properties that compete with us in attracting
tenants and numerous companies that compete in selecting land for development
and properties for acquisition. We compete for tenants with landlords and
developers of similar properties located in our markets primarily on the
basis of location, rent charged, services provided, and the design and condition
of our properties. When attempting to acquire real estate, we compete with
REITs, private real estate funds, domestic and foreign financial institutions,
life
insurance companies, pension trusts, partnerships, individual investors
and others.
Forward Looking Statements
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
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ability to renew or relet space under expiring leases, involve risks and uncertainties. Many of the forward-looking statements can be identified by the use of words such as “believes”, “may”, “expects”, “anticipates”, “intends” or similar expressions. Although the Operating Partnership believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, the actual results may differ materially from those set forth in the forward-looking statements and the Operating Partnership can give no assurance that its expectation will be achieved. Among those risks, trends and uncertainties are: the general economic climate, including the conditions affecting industries in which our principal tenants compete; changes in the supply of and demand for office in the New York Tri-State Area; changes in interest rate levels; changes in the Operating
Partnership’s credit ratings; changes in the Operating Partnership’s cost and access to capital; downturns in rental rate levels in our markets and our ability to lease or re-lease space in a timely manner at current or anticipated rental rate levels; the availability of financing to us or our tenants; the financial condition of our tenants; changes in operating costs, including utility, security, real estate tax and insurance costs; repayment of debt owed to the Operating Partnership by third parties; risks associated with joint ventures; liability for uninsured losses or environmental matters; and other risks associated with the development and acquisition of properties, including risks that development may not be completed on schedule, that the tenants will not take occupancy or pay rent, or that development or operating costs may be greater than anticipated. Consequently, such forward-looking statements should be regarded solely as reflections of the Operating
Partnership’s current operating and development plans and estimates. These plans and estimates are subject to revisions from time to time as additional information becomes available, and actual results may differ from those indicated in the referenced statements.
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ITEM 1A.
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RISK FACTORS
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Set forth below are the risks that we believe
are material to investors who purchase or own our securities. The occurrence
of any of the following factors or circumstances could adversely affect our
cash flows, financial condition, results of operations and/or our ability
to service debt and make distributions to our equityholders, any or all of
which could in turn cause a decline in the market value of our securities.
• We are dependent on the New York Tri-State area market due to limited geographic diversification and our financial results may suffer as a result of a decline in economic conditions in such area
A decline in the economic conditions in the Tri-State Area and for commercial real estate could adversely affect our business, financial condition and results of operations. All of our properties are located in the Tri-State Area, although our organizational documents do not restrict us from owning properties outside this area. Each of our five markets is located in New York City and the suburbs of New York City and may be similarly affected by economic changes in this area. A significant downturn in the financial services industry and related industries would likely have a negative effect on these markets and on the performance of our properties.
The potential impact of terrorist attacks in the New York City and Tri-State Area may adversely affect the value of our properties and our ability to generate cash flow. As a result, there may be a decrease in demand for office space in metropolitan areas that are considered at risk for future terrorist attacks, and this decrease may reduce our revenues from property rentals.
• Debt servicing and refinancing, increases in interest rates and financial and other covenants could adversely affect our economic performance
Dependence upon debt financing;
risk of inability to service or refinance debt. Under the terms
of our partnership agreement, we operate so as to facilitate the Company’s
qualifications as a REIT. In order for the Company to qualify as a
REIT, for federal income tax purposes, it is required
to
distribute at least 90% of its taxable income. As a result, we are more
reliant on debt or equity financings than many other companies
that are able to retain more of their income.
We are subject to the risks associated
with debt financing. Our cash flow could be insufficient to meet required payments of principal and interest. We may not be able to refinance existing indebtedness, which in virtually all cases requires substantial principal payments at maturity, or the terms of such refinancing might not be as favorable as the terms of the existing indebtedness. As of December 31, 2005, the weighted average maturity of our existing indebtedness was approximately 3.8 years and our total existing indebtedness (net of minority partners’ interests’ share of our consolidated joint venture debt and including our share of unconsolidated joint venture debt) was approximately $2.0 billion. We also may not be able to refinance any indebtedness we incur in the future. Finally, we may not be able to obtain funds by selling assets or raising equity to make required payments on maturing indebtedness.
Rising interest rates could adversely affect cash flow. We conduct all of our operations through, and serve as the sole general partner of, the Operating Partnership. Increases in interest rates could increase the Operating Partnership’s interest
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expense, which could adversely affect its
ability to service its indebtedness or to pay distributions to our equityholders.
As of December 31, 2005, approximately 21% of our total existing indebtedness
was
variable rate debt and our total debt was approximately $2.0 billion. Outstanding
advances under the Operating Partnership’s credit facility bear interest
at variable rates. In addition, we may incur indebtedness in the future that
also bears interest at a variable rate.
Covenants in our debt agreements
could adversely affect our financial condition and our ability to make
distributions. The Operating Partnership has an unsecured credit
facility with JPMorgan Chase Bank, National Association, as Administrative
Agent, which provides for a maximum borrowing amount of up to $500 million.
The credit facility matures in August 2008, provides for a one-year extension
subject to a fee of 25 basis points and, upon receiving additional lender
commitments, for an increase to the maximum revolving credit amount to
$750 million.
The ability of the Operating Partnership to borrow under the credit facility
is subject to certain covenants, including covenants relating to limitations
on unsecured and secured borrowings, minimum interest and fixed charge coverage
ratios, a minimum equity value and a maximum dividend payout ratio. The credit
facility also contains a financial covenant limiting the amount of cash distributions
that we may pay to holders of our common equity during any fiscal quarter
if they exceed, when added to all distributions paid during the three
immediately
preceding quarters, the greater of:
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90% of our funds from operations; and
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the amounts required in order for the
Company to continue to qualify as a REIT.
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We rely on borrowings under the Operating
Partnership’s credit facility to finance acquisition and development
activities and for working capital purposes. Although the Operating Partnership
presently is in compliance with the covenants under the credit facility,
the Operating Partnership’s ability to borrow under such facility is
subject to continued compliance with the financial and other covenants contained
therein. There is no assurance that the Operating Partnership will continue
to be in compliance. If the Operating Partnership is unable to borrow under
its credit facility, it could adversely affect our financial condition, including
our ability to service our indebtedness or pay distributions to our equityholders.
The indenture under which our unsecured notes are issued also contains customary covenants, including financial covenants relating to limitations on our ability to incur secured and unsecured indebtedness and the maintenance of a certain percentage of unencumbered assets. The Operating Partnership is in compliance with the covenants under the indenture, but there can be no assurance that it will continue to be in compliance with such covenants.
In addition, the mortgage loans which are secured by certain of our properties contain customary covenants, including covenants that require us to maintain property insurance in an amount equal to the replacement cost of the properties with insurance carriers who satisfy certain ratings standards. As a result of the events of September 11, 2001, insurance companies were limiting coverage for acts of terrorism in “all-risk” policies. In November 2002, the Terrorism Risk Insurance Act of 2002 (the “TRIA”) was signed into law which, among other things, requires insurance companies to offer coverage for losses resulting from defined “acts of terrorism” through 2005. The TRIA was subsequently extended, with certain modifications, through 2007 with the enactment of the Terrorism Risk Insurance Extension Act of 2005. In the event that our coverage for losses resulting from terrorist acts is limited, there can be no assurance
that the lenders under our mortgage loans would not take the position that exclusions from our 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 our financial results and our ability to finance and/or refinance our properties or to buy or sell properties. Our current property insurance coverage, which expires on June 2, 2006, provides for full replacement cost of our properties, including for acts of terrorism up to $540 million on a per occurrence basis.
The facility fee and interest rate payable under the terms of our credit facility are subject to change based upon changes in our credit ratings. Our senior unsecured debt is currently rated “BBB-” by Fitch Ratings, “BBB-” by Standard & Poor’s and “Baa3” by Moody’s Investors Service, Inc. As of December 31, 2005, based on a pricing grid of the Operating Partnership’s unsecured debt ratings, borrowings under our credit facility accrued interest at a rate of LIBOR plus 80 basis points and our credit facility carried a facility fee of 20 basis points per annum. In the event of a change in the Operating Partnership’s unsecured credit ratings, the interest rates and facility fee are subject to change. At December 31, 2005, the outstanding borrowings under our credit facility aggregated $419.0 million and carried a weighted average interest rate of 5.17%.
No limitation on debt. Currently, we have a policy of incurring debt only if our Debt Ratio is 50% or less. As of December 31, 2005, our Debt Ratio was approximately 40.1%. For these purposes, “Debt Ratio” is defined as the total debt of the Operating Partnership as a percentage of the market value of outstanding shares of common stock, including the conversion of outstanding partnership units in the Operating Partnership, the liquidation preference of the preferred units of the Operating Partnership,
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excluding all units of general partnership
interest owned by us, plus total debt (including our share of unconsolidated
joint venture debt and net of minority partners’ interests’ share
of consolidated joint venture debt). Under this policy, we could incur additional
debt if the Company’s stock price increases, even if we may not have
a corresponding increase in our ability to repay the debt. In addition, as
of December 31,
2005, our debt-to-equity ratio was 1:1.5x. We calculated our debt-to-equity
ratio by comparing the total debt of the Operating Partnership to the value
of the Company’s outstanding common stock, common units of limited partnership
interest and liquidation preference of the preferred units of the Operating
Partnership
(including its share of unconsolidated joint venture debt and net of minority
partners’ interests’ share of consolidated joint venture debt),
each based upon the market value of the Company’s common stock,
and the liquidation preference of the preferred units of limited partnership
interest in the
Operating Partnership, excluding all units owned by us.
As described above, our credit facility
and the indenture under which our unsecured notes are issued contain financial
covenants which limit the ability of the Operating Partnership to incur additional
indebtedness. However, our organizational documents do not contain any limitation
on the amount of indebtedness we may incur. Accordingly, our Board of Directors
could alter or eliminate our policy with respect to the incurrence of debt
and would do so, for example, if it were necessary in order for the Company
to continue to qualify as a REIT. If this policy were changed, we could become
more highly
leveraged, resulting in higher interest payments that could adversely affect
our ability to pay distributions to our equityholders and could increase
the risk of default on the Operating Partnership’s existing indebtedness.
• The value of our investments in loans to FrontLine Capital Group (“FrontLine”) and in joint venture investments with Reckson Strategic Venture Partners LLC (“RSVP”) may be subject to further loss
During 1997, we formed Frontline and RSVP, a real estate venture capital fund 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. The Operating Partnership also approved the funding of investments of up to $110 million relating to REIT-qualified investments through RSVP-controlled joint ventures 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”). As of December 31, 2005, approximately $59.8 million had been funded to RSVP-controlled joint ventures and $142.7 million through the FrontLine Loans (collectively, the “RSVP/FLCG
Investments”), on which we accrued interest (net of reserves) of approximately $19.6 million. The net carrying value of our investments in the RSVP/FLCG Investments of approximately $55.2 million was reassessed with no change by management as of December 31, 2005. Such amount is included in investments in affiliate loans and joint ventures on our consolidated balance sheet.
FrontLine is in default under the FrontLine
Loans and on June 12, 2002 filed a voluntary petition for relief under Chapter
11 of the United States Bankruptcy Code. A committee of our Board of Directors,
comprised solely of independent directors, considers any actions to be taken
by us in connection with the RSVP/FLCG Investments. Scott H. Rechler, who
serves as Chief Executive Officer, President and Chairman of the Board of
Directors of the Company, serves as CEO and Chairman of the Board of Directors
of FrontLine and is its sole board member. Scott H. Rechler also serves as
a
member of
the management committee of RSVP and serves as a member of the Board of Directors
of American Campus Communities, a company formerly owned by RSVP.
• Our acquisition, development and construction activities could result in losses
We intend to acquire existing office properties to the extent that suitable acquisitions can be made on advantageous terms. Acquisitions of commercial properties entail risks, such as the risks that we may not be in a position or have the opportunity in the future to make suitable property acquisitions on advantageous terms and that our investments will fail to perform as expected. Some of the properties that we acquire may require significant additional investment and upgrades and are subject to the risk that estimates of the cost of improvements to bring such properties up to standards established for the intended market position may prove inaccurate.
We also intend to continue the selective development and construction of office properties in accordance with our development and underwriting policies as opportunities arise. Our development and construction activities include the risks that:
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we may abandon development opportunities after expending resources to pursue development;
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construction costs of a project may exceed our original estimates;
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occupancy rates and rents at a newly completed property may not be sufficient to make the property profitable;
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financing may not be available to us on favorable terms for development of a property; and
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we may not complete construction and lease-up on schedule, resulting in increased carrying costs to complete construction, construction costs and, in some instances, penalties owed to tenants with executed leases.
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Our development activities are also subject
to risks relating to the inability to obtain, or delays in obtaining, all
necessary zoning, land-use, building, occupancy and other required governmental
permits and authorizations. If any of the above events occur, our ability
to pay distributions to our equityholders and service the Operating Partnership’s
indebtedness could be adversely affected. In addition, new development activities,
regardless
of whether or not they are ultimately successful, typically require a substantial
portion of management’s time and attention.
• Adverse real estate market conditions, increases in operating expenses or capital expenditures, tenant defaults and uninsured losses could adversely affect our financial results
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Our properties’ revenues and value may be adversely affected by a number of factors, including:
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the national, state and local economic climate and real estate conditions, such as oversupply of or reduced demand for space and changes in market rental rates;
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the need to periodically renovate, repair and relet our space;
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increasing operating costs, including real estate taxes and utilities, which may not be passed through to tenants;
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defaults by our tenants or their failure to pay rent on a timely basis; and
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uninsured losses.
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A significant portion of our real estate investment expenses, such as mortgage payments, real estate taxes, insurance and maintenance costs, are generally not reduced when circumstances cause a decrease in income from our properties. In addition, our real estate values and income from properties are also affected by our compliance with laws, including tax laws, interest rate levels and the availability of financing.
We may suffer losses as a result of tenant bankruptcies. If any of our tenants files for protection from creditors under federal bankruptcy laws, such tenant generally has the right, subject to certain conditions, to reject its leases with us. In the event this occurs, we may not be able to readily lease the space or to lease it on equal or better terms.
Our reliance on a major tenant could lead to losses. As a result of our acquisition in May 2005 of a 1.4 million square foot office tower located at One Court Square, Long Island City, New York, our lease with the seller, Citibank, N.A. and our subsequent transfer of a 70% interest in the property to a joint venture partner, rent from Citibank at this and other properties in our portfolio currently comprises approximately 4.2% of our pro-rata share of annualized base rent. We could be adversely affected if Citigroup experiences a significant downturn in its business, becomes insolvent or files for bankruptcy. Under the terms of its lease at One Court Square, Citibank has the right to cancel up to 20% of the leased space in 2011 and 2012 and to cancel up to an additional 20% of such space in 2014 and 2015. We could be adversely affected if Citibank exercises its options to terminate its leases and we are unable to lease the space at
similar rents.
Because real estate investments
are illiquid, we may not be able to sell properties when appropriate.
Real estate investments generally cannot be sold quickly. We may not
be able to vary our portfolio promptly in response to economic or other
conditions. In addition, provisions of the Internal Revenue Code of 1986,
as amended (the “Code”), limit a REIT’s
ability to sell properties in some situations when it may be economically
advantageous to do so. Since under our partnership agreement we operate in a
manner that facilitates the Company’s qualifications as a REIT,
this limitation may limit our ability to dispose of assets.
We may be unable to structure property dispositions in a tax-efficient manner. Certain of our properties have low tax bases relative to their fair values and, accordingly, the disposition of such properties would generate significant taxable gain unless they were transferred in a tax-free exchange under Section 1031 of the Code or another tax-free or tax-deferred transaction. For an exchange to qualify for tax-deferred treatment under Section 1031, many technical requirements must be satisfied. For example, a qualified replacement property must be identified within 45 days of the sale of the relinquished property and such qualified replacement property generally must be acquired within 180 days from the sale. Given the competition for
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properties meeting our investment criteria,
there can be no assurance that we will be able to identify and acquire qualified
replacement properties within the required time frames under Section 1031,
in which case we would not receive the tax benefit of such an exchange. As
of March 7, 2006, we currently have approximately $94.5 million being held
by a qualified intermediary. In the event we do not find qualified replacement
properties in a timely manner we would recognize approximately $32.5 million
of taxable gain, which could potentially affect the Company’s REIT distribution
requirements.
Competition in our markets is significant. The competition for tenants in the office markets in the Tri-State Area is significant and includes properties owned by other REITs, local privately-held companies, institutional investors and other owners. There is also significant competition for acquisitions in our markets from the same types of competitors.
Increasing operating costs could
adversely affect cash flow.
Our properties are subject to operating risks common to commercial real estate,
any and all of which may adversely affect occupancy or rental rates. Our
properties are subject to increases in our operating expenses such as cleaning,
electricity, heating, ventilation and air conditioning; elevator repair and
maintenance; insurance and administrative costs; and other costs associated
with security, landscaping, repairs and maintenance of our properties. As
a result of the impact of the events of September 11, 2001, we have realized
increased insurance costs, particularly relating to property and terrorism
insurance, and security costs. While our tenants generally are currently
obligated to pay a portion of these costs, there is no assurance that tenants
will agree to pay these costs upon renewal or that new tenants will agree
to pay these costs initially. If operating expenses increase, the local rental
market may limit the extent to which rents may be increased to meet increased
expenses without at the same time decreasing occupancy rates. While we have
cost saving measures at each of our properties, if any of the above occurs,
our ability to pay distributions to our equityholders and service our indebtedness
could
be adversely affected.
Some potential losses are not covered by insurance; losses could result from terrorist acts. We carry comprehensive liability, fire, extended coverage and rental loss insurance on all of our properties. Five of our properties are located in New York City. As a result of the events of September 11, 2001, insurance companies were limiting coverage for acts of terrorism in “all risk” policies. In November 2002, the TRIA was signed into law, which, among other things, requires insurance companies to offer coverage for losses resulting from defined “acts of terrorism” through 2005. The TRIA was subsequently extended, with certain modifications, through 2007 with the enactment of the Terrorism Risk Insurance Extension Act of 2005. Our current property insurance coverage, which expires on June 2, 2006, provides for full replacement cost of our properties, including for acts of terrorism up to $540 million on a
per occurrence basis. There can be no assurance that we will be able to replace these coverages at reasonable rates or at all.
Furthermore, losses arising from acts of war or relating to pollution are not generally insured because they are either uninsurable or not economically insurable. If an uninsured loss or a loss in excess of insured limits should occur, we could lose our capital invested in a property, as well as any future revenue from the property. We would remain obligated on any mortgage indebtedness or other obligations related to the property. Any such loss could materially and adversely affect our business and financial condition and results of operations.
• Property ownership through partnerships and joint ventures creates additional investment risks
Partnership or joint venture investments
may involve risks not otherwise present for investments made solely by us,
including the possibility that our partners or co-venturer might become bankrupt,
that our partners or co-venturer might at any time have different interests
or goals than we do, and that our partners or co-venturer may take action
contrary to our instructions, requests, policies or objectives, including
our policy with respect to facilitating the Company’s qualification as
a REIT. Other risks of joint venture investments include impasse on decisions,
such
as
a sale,
because
neither we nor our partners or co-venturer would have full control over the
partnership or joint venture. There is no limitation under our organizational
documents as to the amount of funds that may be invested in partnerships
or joint ventures.
The following is a description of the significant joint ventures in which we are involved:
Our joint venture in 919 Third Avenue, New York, New York, includes the risks that we cannot enter into large leases or refinance or dispose of the property in our discretion. On December 21, 2001, we formed a joint venture (the “919JV”) 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, New York for $220.5 million, which was comprised of $122.1 million of its proportionate share of secured mortgage debt and approximately $98.4 million of cash which was then distributed to us. We are responsible for managing the day-to-day operations and business affairs of the 919JV and have substantial rights in making decisions affecting the property such as developing a budget, leasing and marketing. We must obtain the consent of NYSTRS in order to make certain decisions, including a sale of
the property, purchasing any additional property or entering into significant leases. NYSTRS has certain rights primarily intended to protect its investment.
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Our joint venture in a portfolio of six office properties includes the risks that we cannot enter into large leases or refinance the properties in our discretion. During September 2000, we formed a joint venture (the “Tri-State JV”) with Teachers Insurance and Annuity Association (“TIAA”) and contributed nine Class A suburban office properties aggregating approximately 1.5 million square feet to the Tri-State JV for a 51% majority ownership interest. TIAA contributed approximately $136 million for a 49% interest in the Tri-State JV which was then distributed to us. Since the formation of the Tri-State JV, we acquired TIAA’s 49% interest in two of the properties held by the Tri-State JV and the Tri-State JV sold one of its properties to a third party. As a result of these transactions, the Tri-State JV owns six Class A suburban office properties aggregating approximately 946,000
square feet. We are responsible for managing the day-to-day operations and business affairs of the Tri-State JV and have substantial rights in making decisions affecting the properties such as leasing, marketing and financing. The minority member has certain rights primarily intended to protect its investment.
Our investment in the Omni includes
the risks that we cannot refinance or dispose of the property in our sole
discretion and we could have our general partnership interest converted
into a limited partnership interest. The Operating Partnership owns a 60% general partner interest in Omni Partners, L.P. (the “Omni Partnership”), the partnership that owns the Omni, a 579,000 square foot office building located in our Nassau West Corporate Center office park. Odyssey Partners, L.P. (“Odyssey”) and an affiliate of Odyssey own the remaining 40% interest. Through our partnership interest, we act as managing partner and have the sole authority to conduct the business and affairs of the Omni Partnership subject to the limitations set forth in the amended and restated agreement of limited partnership of the Omni Partnership (the “Omni Partnership Agreement”). These limitations include Odyssey’s right to negotiate under
certain circumstances a refinancing of the mortgage debt encumbering the Omni and the right to approve any sale of the Omni made on or before March 13, 2007 (the “Acquisition Date”). The Operating Partnership will continue to act as the sole managing partner of the Omni Partnership unless certain conditions specified in the Omni Partnership Agreement shall occur. Upon the occurrence of any of these conditions, the Operating Partnership’s general partnership interest shall convert to a limited partnership interest and an affiliate of Odyssey shall be the sole managing partner, or, at the option of Odyssey, the Operating Partnership shall be a co-managing partner with an affiliate of Odyssey. In addition, on the Acquisition Date, the Operating Partnership will have the right to purchase Odyssey’s interest in the Omni Partnership at a price (the “Option Price”) based on 90% of its fair market value. The Option Price shall apply to the payment of all sums due
under a loan made by the Operating Partnership in March 1997 to Odyssey in the amount of approximately $17 million. The Odyssey loan matures on the Acquisition Date and is secured by a pledge of Odyssey’s interest in the Omni Partnership.
Our formation of a joint venture with Reckson New York Property Trust (“Reckson LPT”) subjects us to certain risks. On September 21, 2005, we announced the completion of the public offering in Australia of approximately A$263 million (approximately US$202 million) of units in a newly-formed Company-sponsored Australian listed property trust, Reckson LPT, which is traded on the Australian Stock Exchange, and the closing of the first of three tranches of this transaction. Reckson LPT contributed the net proceeds of the offering to Reckson Australia Operating Company, LLC, a newly-formed joint venture (the “RAOC JV”), in exchange for a 75% indirect interest therein. Simultaneously, the RAOC JV acquired from us 17 properties for a transaction price of approximately $367 million (including the assumption of approximately $196 million in mortgage debt). In return, we received a 25% interest in the RAOC JV and
approximately $128 million in cash. In tranche II, which closed on January 6, 2006, we transferred an additional three properties to the RAOC JV for approximately $84.6 million (including the assignment of approximately $20.1 million in mortgage debt) and maintained our 25% interest in the RAOC JV. We have agreed to transfer to the RAOC JV an additional five properties for approximately $111.8 million in the third tranche of the transaction, which is expected to close in October 2006.
In connection with these transactions,
we arranged for approximately $320 million of debt to encumber the properties
transferred to the RAOC JV. In August and September 2005, we entered into
loan agreements with UBS Real Estate Investments Inc. for an aggregate of
approximately $248 million, which were secured by nine of the properties
transferred to the RAOC JV in September 2005, and three of the properties
scheduled to be transferred to the RAOC JV during October 2006. In January
2006, the RAOC JV entered into a loan agreement with Citigroup Global Markets
Realty Corp. for approximately $72 million, which was secured by two of the
properties transferred to the RAOC JV in January 2006 and five of the properties
transferred in the first tranche. In connection with the August 2005 loan,
we have provided guarantees covering customary exceptions from the non-recourse
nature of the indebtedness, as well as certain obligations relating to the
potential termination of a number of leases at four of the properties. We
have also guaranteed to the lender certain capital requirements related to
certain of the properties. The loan agreement provides that we will be relieved
of (i) the customary non-recourse exceptions and capital requirements upon
transfer of the respective properties to the RAOC JV and the RAOC JV meeting
a net worth test of at least $100 million and (ii) all but two of the lease-related
obligations upon transfer of the respective properties to the RAOC JV and
the RAOC JV meeting a net worth test of at least $200.00 million. The RAOC
JV has agreed to indemnify us for any loss, cost or damage it may incur pursuant
to our guaranty of these obligations. As of December 31, 2005, the RAOC JV
met the $100 million net worth threshold and there remain approximately $18
million of aggregate guarantees outstanding.
I-19
Reckson LPT is managed by Reckson Australia Management Limited (“RAML”), an Australian licensed “Responsible Entity” which is wholly-owned by the Operating Partnership. If RAML fails to maintain its license as a “Responsible Entity” it could no longer manage Reckson LPT. RAML is managed by a six member board that includes three independent directors from Australia. Reckson Australia LPT Corporation, which is wholly-owned by Reckson LPT, serves as the managing member of the RAOC JV, and has substantial rights in making decisions affecting the RAOC JV, other than with respect to certain identified “major decisions,” including but not limited to a merger or consolidation involving the RAOC JV, a disposition of all or substantially all of its assets, or its liquidation or dissolution. Such major decisions require the prior written consent of a majority of the non-managing members. We, through
RAML, will have obligations to the RAOC JV, Reckson LPT and its unitholders in connection with the management of Reckson LPT.
Certain members of our management, including
Mr. Scott Rechler, the Chief Executive Officer, President and Chairman
of the Board of Directors of the Company, will be involved with the management
and operation of the RAOC JV and will devote time and attention to
matters relating to the RAOC JV.
The completion of the third tranche of this transaction is subject to conditions typical for transactions of this nature and, as a result, there can be no assurance that the third tranche will be completed on the terms described above or at all. There also can be no assurance that the RAOC JV will perform as we anticipate.
Our joint venture in One Court Square,
Long Island City, New York, includes the risks that we cannot enter into
large leases or refinance or dispose of the property in our sole discretion
and we could be removed as administrative member. On November
30, 2005, we formed a joint venture (the “Court Square JV”)
with a group of institutional investors (the “JV Partners”)
led by JPMorgan Investment Management, whereby the JV Partners acquired
a 70% interest in our 1.4 million square foot, 50-story, Class A office
tower located at One Court Square, Long Island City, for approximately
$329.7 million, including the assumption of approximately $220.5 million
of debt. Pursuant to the terms of the operating agreement governing the
Court Square JV, the Court Square JV will be managed by a two-person
management committee composed of one representative from each of the
Company and
the JV Partners. We have been designated as the administrative member
of the Court Square JV. The operating agreement of the Court Square JV
requires approvals from members on certain decisions including annual
budgets, sale of the property, refinancing of the property’s mortgage
debt and material renovations to the property. In addition, after September
20, 2009 the members each have the right to recommend the sale of the
property, subject to the terms of the property level debt, and to dissolve
the Court Square JV. We may be removed as administrative member if (i)
we become bankrupt, (ii) we are found to have committed fraud, willful
misconduct or gross negligence in the conduct of our duties, (iii) we
make an unpermitted transfer under the agreement or (iv) the Operating
Partnership holds, directly or indirectly, less than a 10% interest in
the Court Square JV.
The operating agreement grants to each of the Company and the JV Partners a right of first offer to acquire the other member’s interest in the Court Square JV at any time after November 30, 2007. In addition, after September 20, 2009, either the Company or the JV Partners may recommend the sale of One Court Square (or 100% of the interest in the Court Square JV) to a third party at the price at which such member would be willing to sell the property. The non-recommending member may either approve the proposed marketing of the property or may purchase the property at an equivalent price. Also, either member may initiate a buy-sell process at any time after (i) November 30, 2007, if a dispute with respect to a “major decision” arises, or (ii) September 20, 2009. In the event the JV Partners exercise their right to recommend the sale of the property or initiate a buy-sell process, we may not be able to finance our acquisition of the
property and it may be sold to a third party.
I-20
• Investments in mortgage debt could lead to losses.
We hold investments in mortgages secured by office or other types of properties. We may acquire the mortgaged properties through foreclosure proceedings or negotiated settlements. In addition to the risks associated with investments in commercial properties, investments in mortgage indebtedness present additional risks, including the risk that the fee owners of such properties may not make payments of interest and principal in a timely fashion or at all, and we may not realize our anticipated return or sustain losses relating to the investments. Moreover, to the extent that we make investments in mortgages that are secured by properties other than office properties, we are less experienced with the financing and operations of these other property types and therefore may not properly evaluate the risks involved in such investments. Although we currently have no intention to originate mortgage loans as a significant part of our business, we may make
loans to a seller in connection with our purchase of real estate. The underwriting criteria we would use for these loans would be based upon the credit and value of the underlying real estate.
• Investments in mezzanine loans involve greater risks of loss than senior loans secured by properties.
We may invest in mezzanine loans relating to office or other types of properties in the Tri-State Area. Investments in mezzanine loans take the form of subordinated loans secured by second mortgages on the underlying property or loans secured by a pledge of the ownership interests in the entity that directly or indirectly owns the property. These types of investments involve a higher degree of risk than a senior mortgage loan because the investment may become unsecured as a result of foreclosure by the senior lender. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of the property owning entity, or the assets of the entity may not be sufficient to satisfy our mezzanine loan. If a borrower defaults on our mezzanine loan or debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt
is paid in full. Where debt senior to our loan exists, the presence of intercreditor arrangements may limit our ability to amend our loan documents, assign our loans, accept prepayments, exercise our remedies and control decisions made in bankruptcy proceedings relating to borrowers. As a result, we may not recover some or all of our investment, which could result in losses. In addition, mezzanine loans may have higher loan to value ratios than conventional mortgage loans, resulting in less equity in the property and increasing the risk of loss of principal. Moreover, to the extent that we make investments in mezzanine loans that relate to properties other than office properties, we are less experienced with the financing and operations of these other property types and therefore may not properly evaluate the risks involved in such investments. There is no limitation under our organizational documents as to the amount of mezzanine debt in which we may invest.
• Environmental problems are possible
Under various Federal, state and local laws, ordinances and regulations, an owner of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances on or in such property. These laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous or toxic substances. The cost of any required remediation and the owner’s liability therefor as to any property is generally not limited under such enactments and could exceed the value of the property and/or the aggregate assets of the owner. The presence of such substances, or the failure to properly remediate such substances, may adversely affect the owner’s ability to sell or rent such property or to borrow using such property as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of such
substances at a disposal or treatment facility, whether or not such facility is owned or operated by such person. Even if more than one person was responsible for the contamination, each person covered by the environmental laws may be held responsible for the clean-up costs incurred. In addition, third parties may sue the owner or operator of a site for damages and costs resulting from environmental contamination emanating from that site. Certain environmental laws also govern the removal, encapsulation or disturbance of asbestos-containing materials (“ACMs”) when such materials are in poor condition, or in the event of renovation or demolition. Such laws impose liability for release of ACMs into the air and third parties may seek recovery from owners or operators of real properties for personal injury associated with ACMs. In connection with the ownership (direct or indirect), operation, management and development of real properties, we may be considered an owner or operator
of such properties or as having arranged for the disposal or treatment of hazardous or toxic substances and, therefore, potentially liable for removal or remediation costs, as well as certain other related costs, including governmental fines and injuries to persons and property.
All of our properties have been subjected
to a Phase I or similar environmental audit (which involved general inspections
without soil sampling, ground water analysis or radon testing) completed
by independent environmental consultant companies. These Phase I, or similar
environmental audits have revealed limited environmental issues which we
are currently addressing at the affected properties. These environmental
audits
have not
revealed any environmental liability that we believe would have a material
adverse effect on our business.
I-21
• Failure by the Company to qualify as a REIT would be costly
The Company has operated (and intends to operate) so as to qualify as a REIT under the Code beginning with its taxable year ended December 31, 1995. Under the terms of our partnership agreement we operate in a manner to facilitate the Company’s ability to qualify as a REIT. Although our management believes that the Company is organized and operated in a manner to so qualify, no assurance can be given that the Company will continue to qualify or remain qualified as a REIT.
If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate rates. Moreover, unless entitled to relief under certain statutory provisions, it also will be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost. This treatment would significantly reduce net earnings available to service indebtedness, make investments or pay distributions to equityholders because of the additional tax liability of the REIT for the years involved. Also, the Company would not then be required to pay dividends to its stockholders. These circumstances would likely also have a negative impact on the Operating Partnership as the REIT, as our general partner, might cause us to cease the payment of regular quarterly distributions.
• We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of the Company’s shares of common stock
At any time, the federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be amended. Any of those new laws or interpretations may take effect retroactively and could adversely affect the Company and us. Effective generally for taxable years 2003 through 2008, the maximum rate of tax applicable to individuals on qualified dividend income from regular C corporations is 15%. This reduces substantially the so-called “double taxation” (that is, taxation at both the corporate and stockholder levels) that has generally applied to corporations that are not taxed as REITs. Dividends from REITs generally will not qualify for the 15% dividend tax rate because, as a result of the dividends-paid deduction to which REITs are entitled, REITs generally do not pay corporate level tax on income that they distribute to stockholders. The lower rates of taxation of qualified dividend income may cause individual investors to view stocks of non-REIT corporations as more attractive relative to stocks of REITs. We cannot predict what impact these tax rates, or future changes in the laws or regulations governing REITs, may have on the value of the Company’s shares of common stock or our units.
• Limits on changes in control may deter changes in management and third party acquisition proposals
Supermajority Vote for Removal of Directors. In the Company’s charter, the Company has opted into a provision of the Maryland General Corporation Law (the “MGCL”) requiring a vote of two-thirds of the common stock to remove one or more directors.
Majority of Votes Required to Call Special Meetings of Stockholders. The Company’s bylaws provide that a special meeting of stockholders need only be called if requested by holders of the majority of votes eligible to be cast at such meeting.
The Company has adopted a stockholder rights plan which could delay, defer or prevent a change in control. The Company’s charter authorizes the Board of Directors to issue up to 25 million shares of preferred stock, to reclassify unissued shares of capital stock, and to establish the preferences, conversion and other rights, voting powers, restrictions, limitations and restrictions on ownership, limitations as to dividends or other distributions, qualifications, and terms and conditions of redemption for each class or series of any capital stock issued.
In October 2000, the Company’s Board of Directors adopted a Stockholder Rights Plan designed to protect its stockholders from various abusive takeover tactics, including attempts to acquire control at an inadequate price, depriving stockholders of the full value of their investment. The Rights Plan is designed to allow the Board of Directors to secure the best available transaction for all of its stockholders. The Rights Plan was not adopted in response to any known effort to acquire control the Company.
Under the Rights Plan, each of the Company’s stockholders received a dividend of one Right for each share of the Company’s outstanding common stock owned. The Rights are exercisable only if a person or group acquires, or announces their intent to acquire, 15% or more of the Company’s common stock, or announces a tender offer the consummation of which would result in beneficial ownership by a person or group of 15% or more of the Company’s common stock. Each Right entitles the holder to purchase one one-thousandth of a share of a series of the Company’s junior participating preferred stock at an initial exercise price of $84.44.
If any person acquires beneficial ownership of 15% or more of the outstanding shares of the Company’s common stock, then all Rights holders except the acquiring person are entitled to purchase the Company’s common stock at a price discounted from the then market price. If the Company is acquired in a merger after such an acquisition, all Rights holders except the acquiring person are also entitled to purchase stock in the buyer at a discount in accordance with the Rights Plan.
I-22
The Operating Partnership has adopted a similar plan which will be triggered in an event the Company’s Rights Plan is triggered.
Limitations on acquisition of and changes in control pursuant to Maryland law. The Company has opted out of certain provisions of the MGCL referred to as the “control share acquisition statute,” which eliminates the voting rights of shares acquired in a Maryland corporation in quantities so as to constitute “control shares,” as defined under the MGCL and the “business combination statute,” which generally limits business combinations between a Maryland corporation and any 10% owners of the corporation’s stock or any affiliate thereof. However, the Board of Directors may eliminate the provision exempting acquisitions from the control share acquisition statute and/or cause the business combination statute to be applicable without, in either case, obtaining the approval of the Company’s stockholders. If the Board of Directors took such action(s), these provisions could have the effect of inhibiting a third party from making an acquisition proposal for the Company or of delaying, deferring or preventing a change in control of the Company under circumstances that otherwise could provide the holders of shares of common stock with the opportunity to realize a premium over the then-prevailing market price.
• The value of our securities could decrease in the event we do not maintain our current distribution rate and also as a result of our performance and market perception
Effect of earnings and cash dividends. The value of the equity securities of the Company may be based primarily upon the market’s perception of its growth potential and its current and future cash dividends, and may be secondarily based upon the real estate market value of the underlying assets. During the prior two years, we have incurred significant leasing costs, in the form of tenant improvement costs, leasing commissions and free rent, as a result of market demands from tenants and high levels of leasing transactions that result from the re-tenanting of scheduled expirations or space vacated due to early terminations of leases. We are also expending costs on tenants that are renewing or extending their leases earlier than scheduled. As a result of these and/or other operating factors, our cash available for distribution from operating activities was not sufficient to pay 100% of the dividends paid on our common equity during 2004 and 2005. To meet the short-term funding requirements relating to the higher leasing costs, we have used proceeds from property sales or borrowings under our credit facility. Based on our forecasted leasing, we anticipate that we will continue to incur shortfalls during 2006. We currently intend to fund any shortfalls with proceeds from sales of non-income producing assets or borrowings under our credit facility. We periodically review our dividend policy to determine the appropriateness of our dividend rate relative to our cash flows. We adjust our distribution rate based on such factors as leasing activity, market conditions and forecasted increases and decreases in our cash flow as well as required distributions of taxable income to maintain REIT status. There can be no assurance that we will maintain the current quarterly distribution level on our common equity.
Adverse impact of rising interest rates. One factor which influences the price of securities is the dividend or interest rate on the securities relative to market interest rates. Rising interest rates may lead potential buyers of our equity securities to expect a higher dividend rate, which would adversely affect the market price of the securities. In addition, rising interest rates would result in increased expense, thereby adversely affecting cash flow and the ability of the Operating Partnership to service its indebtedness.
• Transactions by the Operating Partnership or the Company could adversely affect debt holders
Except with respect to a covenant limiting the incurrence of indebtedness, a covenant requiring the Operating Partnership to maintain a certain percentage of unencumbered assets and a covenant requiring any successor in a business combination with the Operating Partnership to assume all of the obligations of the Operating Partnership under the indenture pursuant to which the debt securities will be issued, the indenture does not contain any provisions that would protect holders of debt securities in the event of (i) a highly leveraged or similar transaction involving the Operating Partnership, the management of the Operating Partnership or the Company, or any affiliate of any these parties, (ii) a change in control or (iii) certain reorganizations, restructuring, mergers or similar transactions involving the Operating Partnership or the Company.
| • | No market exists for our equity securities |
| No market exists for our equity securities, nor is it expected that one will develop. In addition, transfers of any interest generally require the consent of the Company as general partner which it may withhold in its sole discretion |
|
ITEM 1B.
|
UNRESOLVED STAFF COMMENTS
|
We have not received any comments from the Securities and Exchange Commission that remain unresolved.
|
ITEM 2.
|
PROPERTIES
|
General
As of December 31, 2005 we owned 103 properties (including twenty-five office properties owned through joint ventures) in the Tri-State Area CBD and suburban markets, encompassing approximately 20.3 million rentable square feet, all of which are managed by us. The properties include 17 Class A CBD office properties encompassing approximately 7.2 million rentable square feet. The CBD office properties consist of six properties located in New York City, nine properties located in Stamford, CT and two properties located in White Plains, NY. The CBD office properties comprised 52.1% of our net operating income
I-23
(property operating revenues less property operating expenses) for the three months ended December 31, 2005. The properties also include 78 Class A suburban office properties encompassing approximately 12.2 million rentable square feet, of which 59 of these properties, or 46.8% as measured by square footage, are located within our 14 office parks. We have historically emphasized the development and acquisition of suburban office properties in large-scale office parks. We believe that owning properties in planned office parks provides strategic and synergistic advantages, including the following: (i) certain tenants prefer locating in a park with other high quality companies to enhance their corporate image, (ii) parks afford tenants certain aesthetic amenities such as a common landscaping plan, standardization of signage and common dining and recreational facilities, (iii) tenants may expand (or contract) their business within a park,
enabling them to centralize business functions and (iv) a park provides tenants with access to other tenants and may facilitate business relationships between tenants. The properties also include eight flex properties encompassing approximately 863,000 rentable square feet.
Set forth below is a summary of certain information relating to our properties, categorized by office and flex properties, as of December 31, 2005.
Office Properties
General
As of December 31, 2005, we owned or had an interest in 17 Class A CBD office properties encompassing approximately 7.2 million square feet and 78 Class A suburban office properties encompassing approximately 12.2 million square feet. As of December 31, 2005, the office properties were approximately 92.3% leased (excluding properties under development) to approximately 1,000 tenants.
The office properties are Class A office buildings and are well-located, well-maintained and professionally managed. In addition, these properties are modern with high finishes and achieve among the highest rent, occupancy and tenant retention rates within their sub-markets. The 17 Class A CBD office properties consist of six properties located in New York City, nine properties located in Stamford, CT and two properties located in White Plains, NY. 59 of the 78 suburban office properties are located within our 14 office parks. The buildings in these office parks offer a full array of amenities including health clubs, racquetball courts, restaurants, computer controlled HVAC access systems and conference centers. Management believes that the location, quality of construction and amenities as well as our reputation for providing a high level of tenant service have enabled us to attract and retain a national tenant base. The office tenants include
companies representing all major industry groups including consumer products, financial services, commercial banks and legal services.
The office properties are leased to both national and local tenants. Leases on the office properties are typically written for terms ranging from five to ten years and require: (i) payment of base rent, (ii) payment of a base electrical charge, (iii) payment of real estate tax escalations over a base year, (iv) payment of compounded annual increases to base rent and/or payment of operating expense escalations over a base year, (v) payment of overtime HVAC and electric, and (vi) payment of electric escalations over a base year. In virtually all leases, the landlord is responsible for structural repairs. Renewal provisions typically provide for renewal rates at market rates or a percentage thereof, provided that such rates are not less than the most recent renewal rates.
The following table sets forth certain information as of December 31, 2005 for each of the office properties.
I-24
| Percentage Ownership |
Ownership Interest (Ground Lease Expiration Date) (1) |
Land Area (Acres) |
Number of Floors |
Rentable Square Feet |
Percent Leased |
Annual Base Rent (2) |
Annual Base Rent Per Leased Square Ft. |
Number of Tenant Leases |
|||||||||||||||||||
Suburban Office Properties: |
|||||||||||||||||||||||||||
Huntington Melville Corporate Center |
|||||||||||||||||||||||||||
395 North Service Road, Melville, NY |
100 | % | Lease (2081 | ) | 7.5 | 4 | 188,233 | 100.0 | % | $ | 5,719,140 | $ | 30.38 | 6 | |||||||||||||
35 Pinelawn Road, Melville, NY |
25 | % | Fee | 6.0 | 2 | 108,747 | 98.7 | % | 2,394,465 | 22.31 | 35 | ||||||||||||||||
200 Broadhollow Road, Melville, NY |
25 | % | Fee | 4.6 | 4 | 68,760 | 97.3 | % | 1,651,424 | 24.69 | 13 | ||||||||||||||||
275 Broadhollow Road, Melville, NY |
100 | % | Fee | 5.8 | 4 | 126,770 | 100.0 | % | 3,288,246 | 25.94 | 1 | ||||||||||||||||
300 Broadhollow Road, Melville, NY |
100 | % | Fee | 14.7 | 4 | 238,628 | 95.8 | % | 4,009,946 | 17.54 | 22 | ||||||||||||||||
48 South Service Road, Melville, NY |
100 | % | Fee | 7.3 | 4 | 128,024 | 99.7 | % | 3,355,261 | 26.30 | 12 | ||||||||||||||||
58 South Service Road, Melville, NY |
100 | % | Fee | 18.8 | 4 | 278,503 | 95.2 | % | 8,924,530 | 33.66 | 11 | ||||||||||||||||
68 South Service Road, Melville, NY |
100 | % | Fee | 14.8 | 4 | 300,198 | 67.5 | % | 1,211,335 | 5.98 | 1 | ||||||||||||||||
1305 Old Walt Whitman Road, Melville, NY |
51 | % | Fee | 18.1 | 3 | 164,166 | 100.0 | % | 4,654,013 | 28.35 | 3 | ||||||||||||||||
Total Huntington Melville Corporate Center |
97.6 | 1,602,029 | 92.2 | % | 35,208,360 | 23.83 | 104 | ||||||||||||||||||||
North Shore Atrium |
|||||||||||||||||||||||||||
6800 Jericho Turnpike, Syosset, NY (6) |
100 | % | Fee | 13.0 | 2 | 206,403 | 96.3 | % | 4,424,695 | 22.27 | 42 | ||||||||||||||||
6900 Jericho Turnpike, Syosset, NY (6) |
100 | % | Fee | 5.0 | 4 | 95,227 | 100.0 | % | 2,365,671 | 24.84 | 13 | ||||||||||||||||
Total North Shore Atrium |
18.0 | 301,630 | 97.5 | % | 6,790,366 | 23.10 | 55 | ||||||||||||||||||||
Nassau West Corporate Center |
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50 Charles Lindbergh Boulevard, Mitchel Field, NY |
100 | % | Lease (2082 | ) | 9.1 | 6 | 218,043 | 94.7 | % | 5,241,259 | 25.37 | 21 | |||||||||||||||
60 Charles Lindbergh Boulevard, Mitchel Field, NY |
100 | % | Lease (2082 | ) | 7.8 | 2 | 219,066 | 100.0 | % | 5,581,769 | 25.48 | 1 | |||||||||||||||
51 Charles Lindbergh Boulevard, Mitchel Field, NY |
100 | % | Lease (2081 | ) | 6.6 | 1 | 108,000 | 100.0 | % | 2,904,370 | 26.89 | 1 | |||||||||||||||
55 Charles Lindbergh Boulevard, Mitchel Field, NY |
25 | % | Lease (2081 | ) | 10.0 | 2 | 214,581 | 100.0 | % | 3,006,783 | 14.01 | 2 | |||||||||||||||
Reckson Plaza, Mitchel Field, NY |
100 | % | Lease (2083 | ) | 28.2 | 15 | 1,064,828 | 90.7 | % | 26,060,544 | 26.98 | 38 | |||||||||||||||
333 Earle Ovington Boulevard, Mitchel Field, NY |
60 | % | Lease (2088 | ) | 30.6 | 10 | 580,317 | 95.0 | % | 17,534,070 | 31.79 | 31 | |||||||||||||||
90 Merrick Avenue, Mitchel Field, NY |
100 | % | Lease (2084 | ) | 13.2 | 9 | 234,202 | 92.7 | % | 5,677,439 | 26.15 | 22 | |||||||||||||||
Total Nassau West Corporate Center |
105.5 | 2,639,037 | 94.1 | % | 66,006,234 | 26.59 | 116 | ||||||||||||||||||||
Stand-alone Long Island Properties |
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88 Duryea Road, Melville, NY |
25 | % | Fee | 1.5 | 2 | 23,878 | 100.0 | % | 429,453 | 17.99 | 4 | ||||||||||||||||
520 Broadhollow Road, Melville, NY |
100 | % | Fee | 7.0 | 1 | 87,780 | 100.0 | % | 1,932,331 | 22.01 | 3 | ||||||||||||||||
1660 Walt Whitman Road, Melville, NY |
100 | % | Fee | 6.5 | 1 | 77,872 | 83.0 | % | 1,477,072 | 22.85 | 9 | ||||||||||||||||
150 Motor Parkway, Hauppauge, NY |
25 | % | Fee | 11.3 | 4 | 186,220 | 88.3 | % | 3,453,594 | 21.00 | 29 | ||||||||||||||||
300 Motor Parkway, Hauppauge, NY |
25 | % | Fee | 4.2 | 1 | 54,284 | 100.0 | % | 1,059,038 | 19.51 | 7 | ||||||||||||||||
50 Marcus Drive, Melville, NY |
100 | % | Fee | 12.9 | 2 | 163,762 | 100.0 | % | 4,198,852 | 25.64 | 1 | ||||||||||||||||
Total Stand-alone Long Island |
43.4 | 593,796 | 94.1 | % | 12,550,340 | 22.46 | 53 | ||||||||||||||||||||
Tarrytown Corporate Center |
|||||||||||||||||||||||||||
505 White Plains Road, Tarrytown, NY |
25 | % | Fee | 1.4 | 2 | 26,320 | 100.0 | % | 547,872 | 20.82 | 22 | ||||||||||||||||
520 White Plains Road, Tarrytown, NY |
100 | % | Fee(3) | 6.8 | 6 | 157,970 | 75.7 | % | 2,461,198 | 20.59 | 4 | ||||||||||||||||
555 White Plains Road, Tarrytown, NY |
25 | % | Fee | 4.2 | 5 | 121,730 | 98.2 | % | 2,224,234 | 18.60 | 8 | ||||||||||||||||
560 White Plains Road, Tarrytown, NY |
25 | % | Fee | 4.0 | 6 | 124,140 | 89.1 | % | 2,443,671 | 22.10 | 17 | ||||||||||||||||
580 White Plains Road, Tarrytown, NY |
100 | % | Fee | 6.1 | 6 | 169,483 | 65.2 | % | 2,111,156 | 19.12 | 15 | ||||||||||||||||
660 White Plains Road, Tarrytown, NY |
25 | % | Fee | 10.9 | 6 | 253,283 | 89.0 | % | 5,152,504 | 22.86 | 38 | ||||||||||||||||
Total Tarrytown Corporate Center |
33.4 | 852,926 | 83.5 | % | 14,940,635 | 20.99 | 104 | ||||||||||||||||||||
I-25
| Percentage Ownership |
Ownership Interest (Ground Lease Expiration Date) (1) |
Land Area (Acres) |
Number of Floors |
Rentable Square Feet |
Percent Leased |
Annual Base Rent (2) |
Annual Base Rent Per Leased Square Ft. |
Number of Tenant Leases |
|||||||||||||||||||
Reckson Executive Park |
|||||||||||||||||||||||||||
1 International Drive, Ryebrook, NY |
100 | % | Fee | N/A | 3 | 90,000 | 100.0 | % | 630,000 | 7.00 | 1 | ||||||||||||||||
2 International Drive, Ryebrook, NY |
100 | % | Fee | N/A | 3 | 90,000 | 100.0 | % | 630,000 | 7.00 | 1 | ||||||||||||||||
3 International Drive, Ryebrook, NY |
100 | % | Fee | N/A | 3 | 91,193 | 59.8 | % | 1,289,689 | 23.64 | 5 | ||||||||||||||||
4 International Drive, Ryebrook, NY |
100 | % | Fee | N/A | 3 | 87,547 | 98.4 | % | 2,297,209 | 26.65 | 8 | ||||||||||||||||
5 International Drive, Ryebrook, NY |
100 | % | Fee | N/A | 3 | 90,000 | 56.6 | % | 1,195,846 | 23.47 | 2 | ||||||||||||||||
6 International Drive, Ryebrook, NY |
100 | % | Fee | N/A | 3 | 95,097 | 100.0 | % | 2,102,839 | 22.11 | 8 | ||||||||||||||||
Total Reckson Executive Park |
44.4 | 543,837 | 85.8 | % | 8,145,583 | 17.45 | 25 | ||||||||||||||||||||
Summit at Valhalla |
|||||||||||||||||||||||||||
100 Summit Lake Drive, Valhalla, NY |
100 | % | Fee | 11.3 | 4 | 249,297 | 100.0 | % | 5,280,791 | 21.18 | 8 | ||||||||||||||||
200 Summit Lake Drive, Valhalla, NY |
100 | % | Fee | 18.0 | 4 | 233,585 | 99.4 | % | 6,164,075 | 26.56 | 9 | ||||||||||||||||
500 Summit Lake Drive, Valhalla, NY |
100 | % | Fee | 29.1 | 4 | 227,902 | 100.0 | % | 5,842,480 | 25.64 | 1 | ||||||||||||||||
Total Summit at Valhalla |
58.4 | 710,784 | 99.8 | % | 17,287,346 | 24.37 | 18 | ||||||||||||||||||||
Mt. Pleasant Corporate Center |
|||||||||||||||||||||||||||
115 / 117 Stevens Avenue, Mt. Pleasant, NY |
100 | % | Fee | 5.0 | 3 | 168,667 | 75.5 | % | 2,460,547 | 19.33 | 16 | ||||||||||||||||
Total Mt. Pleasant Corporate Center |
5.0 | 168,667 | 75.5 | % | 2,460,547 | 19.33 | 16 | ||||||||||||||||||||
Purchase Park |
|||||||||||||||||||||||||||
2500 Westchester Avenue, White Plains, NY |
100 | % | Fee | N/A | 4 | 166,144 | 52.6 | % | 2,162,273 | 24.72 | 13 | ||||||||||||||||
2700 Westchester Avenue, White Plains, NY |
100 | % | Fee | N/A | 4 | 115,930 | 54.6 | % | 1,290,623 | 20.37 | 15 | ||||||||||||||||
Total Purchase Park |
24.6 | 282,074 | 53.5 | % | 3,452,896 | 22.90 | 28 | ||||||||||||||||||||
Rockledge Center |
|||||||||||||||||||||||||||
925 Westchester Avenue, White Plains, NY |
100 | % | Fee | N/A | 5 | 92,207 | 79.2 | % | 1,682,884 | 23.04 | 10 | ||||||||||||||||
1025 Westchester Avenue, White Plains, NY |
100 | % | Fee | N/A | 5 | 89,761 | 88.5 | % | 1,844,381 | 23.21 | 12 | ||||||||||||||||
Total Rockledge Center |
12.0 | 181,968 | 83.8 | % | 3,527,265 | 23.13 | 22 | ||||||||||||||||||||
Westchester Corporate Park |
|||||||||||||||||||||||||||
105 Corporate Park Drive, White Plains, NY |
100 | % | Fee | 10.4 | (7) | 3 | 85,845 | 91.5 | % | 1,906,038 | 24.26 | 5 | |||||||||||||||
106 Corporate Park Drive, White Plains, NY |
100 | % | Fee | 20.4 | (8) | 4 | 102,599 | 73.6 | % | 1,692,746 | 22.43 | 19 | |||||||||||||||
108 Corporate Park Drive, White Plains, NY |
100 | % | Fee | NA | (8) | 5 | 107,179 | 75.8 | % | 1,841,112 | 22.65 | 12 | |||||||||||||||
110 Corporate Park Drive, White Plains, NY |
100 | % | Fee | NA | (8) | 2 | 38,827 | 81.0 | % | 643,833 | 20.48 | 10 | |||||||||||||||
3 Gannett Drive, White Plains, NY |
100 | % | Fee | 10.6 | 5 | 160,896 | 78.5 | % | 2,890,047 | 22.89 | 5 | ||||||||||||||||
Total Westchester Corporate Park |
41.4 | 495,346 | 79.3 | % | 8,973,776 | 22.83 | 51 | ||||||||||||||||||||
White Plains Office Park |
|||||||||||||||||||||||||||
701 Westchester Avenue, White Plains, NY |
100 | % | Fee | 13.5 | 3 | 157,894 | 78.1 | % | 2,381,160 | 19.30 | 19 | ||||||||||||||||
707 Westchester Avenue, White Plains, NY |
100 | % | Fee | 21.3 | (9) | 5 | 123,822 | 76.6 | % | 2,109,311 | 22.25 | 19 | |||||||||||||||
709 Westchester Avenue, White Plains, NY |
100 | % | Fee | NA | (9) | 5 | 121,145 | 69.0 | % | 889,233 | 10.64 | 6 | |||||||||||||||
711 Westchester Avenue, White Plains, NY |
100 | % | Fee | 10.0 | 4 | 117,936 | 94.4 | % | 2,667,915 | 23.97 | 18 | ||||||||||||||||
777 Westchester Avenue, White Plains, NY |
100 | % | Fee | 10.0 | 5 | 121,190 | 82.4 | % | 2,768,687 | 27.71 | 9 | ||||||||||||||||
Total White Plains Office Park |
54.8 | 641,987 | 79.9 | % | 10,816,306 | 21.09 | 71 | ||||||||||||||||||||
I-26
| Percentage Ownership |
Ownership Interest (Ground Lease Expiration Date) (1) |
Land Area (Acres) |
Number of Floors |
Rentable Square Feet |
Percent Leased |
Annual Base Rent (2) |
Annual Base Rent Per Leased Square Ft. |
Number of Tenant Leases |
|||||||||||||||||||
Stand-alone Westchester |
|||||||||||||||||||||||||||
100 / 120 White Plains Road, Tarrytown, NY |
51 | % | Fee | 9.7 | 6 | 209,822 | 97.9 | % | 5,286,773 | 25.75 | 12 | ||||||||||||||||
80 Grasslands Road, Elmsford, NY |
25 | % | Fee | 4.9 | 3 | 87,114 | 100.0 | % | 1,889,883 | 21.69 | 5 | ||||||||||||||||
Total Stand-alone Westchester |
14.6 | 296,936 | 98.5 | % | 7,176,656 | 24.54 | 17 | ||||||||||||||||||||
Executive Hill Office Park |
|||||||||||||||||||||||||||
100 Executive Drive, West Orange, NJ |
25 | % | Fee | 10.1 | 3 | 93,665 | 85.6 | % | 1,753,626 | 21.87 | 10 | ||||||||||||||||
200 Executive Drive, West Orange, NJ |
25 | % | Fee | 8.2 | 4 | 105,649 | 94.9 | % | 2,134,175 | 21.29 | 9 | ||||||||||||||||
300 Executive Drive, West Orange, NJ |
100 | % | Fee | 8.7 | 4 | 124,777 | 88.9 | % | 1,743,463 | 15.72 | 11 | ||||||||||||||||
10 Rooney Circle, West Orange, NJ |
25 | % | Fee | 5.2 | 3 | 70,716 | 86.3 | % | 1,531,278 | 25.08 | 4 | ||||||||||||||||
Total Executive Hill Office Park |
32.2 | 394,807 | 89.3 | % | 7,162,542 | 20.33 | 34 | ||||||||||||||||||||
University Square Princeton |
|||||||||||||||||||||||||||
100 Campus Drive, Princeton, NJ |
100 | % | Fee | N/A | 1 | 27,888 | 65.9 | % | 216,029 | 11.76 | 2 | ||||||||||||||||
104 Campus Drive, Princeton, NJ |
100 | % | Fee | N/A | 1 | 70,239 | 87.0 | % | 1,581,216 | 25.86 | 2 | ||||||||||||||||
115 Campus Drive, Princeton, NJ |
100 | % | Fee | N/A | 1 | 33,600 | 100.0 | % | 928,669 | 27.64 | 0 | ||||||||||||||||
Total University Square |
11.0 | 131,727 | 85.9 | % | 2,725,914 | 24.10 | 4 | ||||||||||||||||||||
Short Hills Office Park |
|||||||||||||||||||||||||||
101 John F. Kennedy Parkway, Short Hills, NJ |
100 | % | Fee | 9.0 | 6 | 190,071 | 100.0 | % | 5,731,190 | 30.15 | 6 | ||||||||||||||||
103 John F. Kennedy Parkway, Short Hills, NJ |
100 | % | Fee | 6.0 | 4 | 123,000 | 100.0 | % | 4,182,000 | 34.00 | 1 | ||||||||||||||||
51 John F. Kennedy Parkway, Short Hills, NJ |
51 | % | Fee | 11.0 | 5 | 252,892 | 100.0 | % | 9,773,611 | 38.65 | 19 | ||||||||||||||||
Total Short Hills Office Park |
26.0 | 565,963 | 100.0 | % | 19,686,801 | 34.78 | 26 | ||||||||||||||||||||
Giralda Farms Office Park |
|||||||||||||||||||||||||||
1 Giralda Farms, Madison, NJ |
100 | % | Fee | 24.4 | 4 | 150,000 | 100.0 | % | 1,562,500 | 10.42 | 1 | ||||||||||||||||
3 Giralda Farms, Madison, NJ |
100 | % | Fee | 21 | 4 | 141,000 | 100.0 | % | 4,152,450 | 29.45 | 1 | ||||||||||||||||
7 Giralda Farms, Madison, NJ |
100 | % | Fee | 20 | 3 | 203,258 | 100.0 | % | 4,958,009 | 24.39 | 4 | ||||||||||||||||
Total Giralda Farms Office Park |
65.4 | 494,258 | 100.0 | % | 10,672,959 | 21.59 | 6 | ||||||||||||||||||||
Stand-alone New Jersey Properties |
|||||||||||||||||||||||||||
99 Cherry Hill Road, Parsippany, NJ |
100 | % | Fee | 8.8 | 3 | 91,446 | 78.4 | % | 1,398,563 | 19.51 | 8 | ||||||||||||||||
119 Cherry Hill Road, Parsippany, NJ |
100 | % | Fee | 9.3 | 3 | 95,179 | 54.0 | % | 936,681 | 18.23 | 8 | ||||||||||||||||
44 Whippany Road, Morristown, NJ |
100 | % | Fee | 20 | 3 | 215,037 | 100.0 | % | 4,891,361 | 22.75 | 5 | ||||||||||||||||
72 Eagle Rock, East Hanover, NJ |
100 | % | Fee | 10.4 | 3 | 144,587 | 55.6 | % | 1,692,387 | 21.05 | 3 | ||||||||||||||||
3 University Plaza, Hackensack, NJ |
100 | % | Fee | 10.6 | 6 | 219,796 | 86.5 | % | 3,865,856 | 20.34 | 19 | ||||||||||||||||
1255 Broad Street, Clifton, NJ |
100 | % | Fee | 11.1 | 2 | 193,574 | 62.4 | % | 2,414,234 | 20.00 | 1 | ||||||||||||||||
492 River Road, Nutley, NJ |
25 | % | Fee | 17.3 | 3 | 130,009 | 100.0 | % | 2,382,100 | 18.32 | 1 | ||||||||||||||||
Total Stand-alone NJ Properties |
87.5 | 1,089,628 | 78.9 | % | 17,581,182 | 20.46 | 45 | ||||||||||||||||||||
Stand-alone Connecticut Properties |
|||||||||||||||||||||||||||
225 Highridge Road, Stamford, CT |
25 | % | Fee | 14.1 | 3 | 227,966 | 98.6 | % | 6,323,600 | 28.12 | 9 | ||||||||||||||||
Total Stand-alone CT Properties |
14.1 | 227,966 | 98.6 | % | 6,323,600 | 28.12 | 9 | ||||||||||||||||||||
Total Suburban Office Properties |
789.3 | 12,215,366 | 89.6 | % | $ | 261,489,308 | $ | 23.90 | 804 | ||||||||||||||||||
I-27
| Percentage Ownership |
Ownership Interest (Ground Lease Expiration Date) (1) |
Land Area (Acres) |
Number of Floors |
Rentable Square Feet |
Percent Leased |
Annual Base Rent (2) |
Annual Base Rent Per Leased Square Ft. |
Number of Tenant Leases |
|||||||||||||||||||
CBD Office Properties: |
|||||||||||||||||||||||||||
Landmark Square |
|||||||||||||||||||||||||||
1 Landmark Square, Stamford, CT |
100 | % | Fee | N/A | 22 | 280,636 | 83.0 | % | $ | 5,637,478 | $ | 24.21 | 47 | ||||||||||||||
2 Landmark Square, Stamford, CT |
100 | % | Fee | N/A | 3 | 35,689 | 85.8 | % | 730,546 | 23.86 | 8 | ||||||||||||||||
3 Landmark Square, Stamford, CT |
100 | % | Fee | N/A | 6 | 128,745 | 84.9 | % | 2,556,143 | 23.40 | 14 | ||||||||||||||||
4 Landmark Square, Stamford, CT |
100 | % | Fee | N/A | 5 | 101,908 | 66.4 | % | 1,752,619 | 25.91 | 13 | ||||||||||||||||
5 Landmark Square, Stamford, CT |
100 | % | Fee | N/A | 3 | 58,000 | 100.0 | % | 249,932 | 4.31 | 3 | ||||||||||||||||
6 Landmark Square, Stamford, CT |
100 | % | Fee | N/A | 10 | 163,263 | 74.8 | % | 1,881,137 | 15.40 | 4 | ||||||||||||||||
Total Landmark Square |
7.2 | 768,241 | 80.8 | % | 12,807,855 | 20.64 | 89 | ||||||||||||||||||||
Stand-alone Connecticut |
|||||||||||||||||||||||||||
1055 Washington Boulevard, Stamford, CT |
100 | % | Lease (2090 | ) | 1.5 | 10 | 178,000 | 83.3 | % | 4,267,247 | 28.79 | 21 | |||||||||||||||
680 Washington Boulevard, Stamford, CT |
51 | % | Fee | 1.3 | 11 | 132,759 | 100.0 | % | 3,699,043 | 27.86 | 7 | ||||||||||||||||
750 Washington Boulevard, Stamford, CT |
51 | % | Fee | 2.4 | 11 | 186,148 | 100.0 | % | 4,677,717 | 25.13 | 10 | ||||||||||||||||
Total Stand-alone Connecticut |
5.2 | 496,907 | 94.0 | % | 12,644,007 | 27.07 | 38 | ||||||||||||||||||||
Stand-alone Westchester |
|||||||||||||||||||||||||||
360 Hamilton Avenue, White Plains, NY |
100 | % | Fee | 1.5 | 12 | 381,626 | 98.2 | % | 10,165,611 | 27.14 | 16 | ||||||||||||||||
140 Grand Street, White Plains, NY |
100 | % | Fee | 2.2 | 9 | 122,050 | 100.0 | % | 2,693,436 | 22.07 | 9 | ||||||||||||||||
Total Stand-alone Westchester |
3.7 | 503,676 | 98.6 | % | 12,859,047 | 25.89 | 25 | ||||||||||||||||||||
New York City Office Properties |
|||||||||||||||||||||||||||
120 West 45th Street, New York, NY |
100 | % | Fee | 0.4 | 40 | 441,140 | 100.0 | % | 19,770,577 | 44.83 | 30 | ||||||||||||||||
1 Court Square, Long Island City, NY |
30 | % | Fee | 1.5 | 50 | 1,401,609 | 100.0 | % | 30,638,660 | 21.86 | 1 | ||||||||||||||||
810 Seventh Avenue, New York, NY |
100 | % | Fee(4 | ) | 0.6 | 42 | 690,675 | 97.8 | % | 28,000,477 | 41.47 | 36 | |||||||||||||||
919 Third Avenue, New York, NY |
51 | % | Fee(5 | ) | 1.5 | 47 | 1,366,516 | 100.0 | % | 64,522,251 | 47.22 | 16 | |||||||||||||||
1185 Avenue of the Americas, New York, NY |
100 | % | Lease (2043 | ) | 1.0 | 42 | 1,034,338 | 100.0 | % | 45,787,196 | 44.27 | 30 | |||||||||||||||
1350 Avenue of the Americas, New York, NY |
100 | % | Fee | 0.6 | 35 | 554,643 | 94.9 | % | 19,097,782 | 36.28 | 63 | ||||||||||||||||
Total New York City Office Properties |
5.6 | 5,488,921 | 99.2 | % | 207,816,943 | 38.17 | 176 | ||||||||||||||||||||
Total CBD Office Properties |
21.7 | 7,257,745 | 96.9 | % | 246,127,852 | 35.01 | 328 | ||||||||||||||||||||
Total Office Properties |
811.0 | 19,473,111 | 92.3 | % | $ | 507,617,160 | $ | 28.25 | 1,132 | ||||||||||||||||||
| (1) | Ground lease expirations assume exercise of renewal options by the lessee. |
| (2) | Represents Base Rent, net of electric reimbursement, of signed leases at December 31, 2005 adjusted for scheduled contractual increases during the 12 months ending December 31, 2006. Total Base Rent for these purposes reflects the effect of any lease expirations that occur during the 12-month period ending December 31, 2006. Amounts
included in rental revenue for financial reporting purposes have been determined on a straight-line basis rather than on the basis of contractual rent as set forth in the foregoing table. |
| (3) | The actual fee interest in is held by the County of Westchester Industrial Development Agency. The fee interest in 520 White Plains Road may be acquired if the outstanding principal under certain loan agreements and annual basic installments are prepaid in full. |
| (4) | There are air right agreements associated with this property which expire in 2044 and 2048. |
| (5) | There is a ground lease in place on a small portion of the land which expires in 2066. |
| (6) | These assets were sold to Reckson Australia Operating Company Janaury 2006. As of March 2006 Reckson owns a 25% interest in this property |
| (7) | 103 Corporate Park Drive (a development asset) and 105 Corporate Park Drive are on one lot which is 10.4 acres. |
| (8) | The three buildings, 106/108/110 Corporate Park Drive are on one lot which is 20.4 acres. |
| (9) | The two buildings, 707/709 Westchester Avenue are on one lot which is 21.3 acres. |
I-28
Flex Properties
As of December 31, 2005, we owned eight flex properties that encompass approximately 863,000 rentable square feet. As of December 31, 2005, the flex properties were approximately 75.0% leased to 18 tenants.
Developments in Progress and Land Holdings
As of December 31, 2005, exclusive of assets classified as held for sale on our balance sheet, we had invested approximately $99.6 million in developments in progress and approximately $123.8 million relating to 10 parcels of land on which we can, based on current estimates, develop approximately 3.6 million square feet of office space. Management has made subjective assessments as to the value and recoverability of these investments based on current and proposed development plans, market comparable land values and alternative use values.
The following table sets forth our projects under development or repositioning, projects in planning and land holdings at December 31, 2005:
|
Projects under Development or Repositioning (square footage):
|
|
|
|
|
|
|
|
|
|
|
|
68 South Service Road, Melville
|
|
|
305,000
|
|
|
6 Landmark Square, Stamford, CT
|
|
|
161,578
|
|
|
7 Landmark Square, Stamford, CT
|
|
|
36,868
|
|
|
University Square, Princeton, NJ
|
|
|
316,000
|
|
|
103 Corporate Park Drive, White Plains, NY
|
|
|
67,207
|
|
|
|
|
|
|
|
|
Total Projects under Development or Repositioning
|
|
|
886,653
|
|
|
|
|
|
|
|
|
Projects in Planning (square footage):
|
|
|
|
|
|
|
|
|
|
|
|
Reckson Executive Park – Building 7, Ryebrook, NY
|
|
|
315,000
|
|
|
Giralda Farms, Madison Township, NJ
|
|
|
443,000
|
|
|
Giralda Farms, Chatham Township, NJ
|
|
|
125,000
|
|
|
600 Summit Lake Drive, Valhalla, NY
|
|
|
250,000
|
|
|
|
|
|
|
|
|
Total Projects in Planning
|
|
|
1,133,000
|
|
|
|
|
|
|
|
|
Land Holdings (acres):
|
|
|
|
|
|
|
|
|
|
|
|
Airport International Plaza – 45, Bohemia, NY
|
|
|
4.1
|
|
|
Eagle Rock III, East Hanover, NJ
|
|
|
15.2
|
|
|
East Patchogue, NY
|
|
|
25.2
|
|
|
Reckson Plaza Land, Mitchel Field, NY
|
|
|
8.2
|
|
|
Giralda Farms, Chatham Township, NJ
|
|
|
111.6
|
|
|
Valhalla, NY
|
|
|
39.5
|
|
|
|
|
|
|
|
|
Total Land Holdings
|
|
|
203.8
|
|
|
|
|
|
|
|
Historical Non-Incremental Revenue-Generating Capital Expenditures, Tenant Improvement Costs and Leasing Commissions
The following table sets forth annual and per square foot non-incremental revenue-generating capital expenditures in which we paid or accrued, during the respective periods, to retain revenues attributable to existing leased space (at 100% of cost) for the years ended 2001 through 2005 for our office and industrial / flex properties, other than One Orlando Centre in Orlando, Florida which was sold on March 7, 2006:
|
|
|
2001
|
|
2002
|
|
2003
|
|
2004
|
|
Average
2001-2004 |
|
2005
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Suburban Markets - Office Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,606,069
|
|
$
|
5,283,674
|
|
$
|
6,791,336
|
|
$
|
7,034,054
|
|
$
|
5,928,783
|
|
$
|
8,402,935
|
|
|
|
Per Square Foot
|
|
$
|
0.45
|
|
$
|
0.53
|
|
$
|
0.67
|
|
$
|
0.69
|
|
$
|
0.59
|
|
$
|
0.78(2
|
)
|
|
|
NYC Office Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,584,501
|
|
$
|
1,939,111
|
|
$
|
1,922,209
|
|
$
|
2,515,730
|
|
$
|
1,990,388
|
|
$
|
2,017,360
|
|
|
|
Per Square Foot
|
|
$
|
0.45
|
|
$
|
0.56
|
|
$
|
0.55
|
|
$
|
0.56
|
|
$
|
0.53
|
|
$
|
0.42(3
|
)
|
|
|
Industrial / Flex Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
711,666
|
|
$
|
1,881,627
|
|
$
|
1,218,401 (1
|
)
|
$
|
207,028
|
|
$
|
1,004,681
|
|
$
|
38,723
|
|
|
|
Per Square Foot
|
|
$
|
0.11
|
|
$
|
0.28
|
|
$
|
0.23
|
|
$
|
0.23
|
|
$
|
0.22
|
|
$
|
0.05
|
|
|
|
|
||||||||||||||||||||
|
(1)
|
Excludes non-incremental capital expenditures of $435,140 incurred during the fourth quarter 2003 for the industrial / flex properties which were sold during the period.
|
|||||||||||||||||||
|
(2)
|
Per square foot calculations for suburban markets – office properties exclude 68 South Service Road and the Eastridge Portfolio.
|
|||||||||||||||||||
|
(3)
|
Per square foot calculations for NYC office properties exclude One Court Square, a 1,401,609 square foot, triple net leased building.
|
|||||||||||||||||||
I-29
The following table sets forth annual and per square foot non-incremental revenue-generating tenant improvement costs and leasing commissions (at 100% of cost) which we committed to perform, during the respective periods, to retain revenues attributable to existing leased space for the years 2001 through 2005 for our consolidated office and industrial / flex properties, other than One Orlando Centre in Orlando, Florida which was sold on March 7, 2006:
|
|
|
|
2001
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
Average 2001-2004
|
|
|
2005
|
|
|
New
|
|
|
Renewal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Island Office Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant Improvements
|
|
$
|
2,722,457
|
|
$
|
1,917,466
|
|
$
|
3,774,722
|
|
$
|
4,856,604
|
|
$
|
3,317,812
|
|
$
|
4,768,833
|
|
$
|
2,987,031
|
|
$
|
1,781,802
|
|
|
Per Square Foot Improved
|
|
$
|
8.47
|
|
$
|
7.81
|
|
$
|
7.05
|
|
$
|
8.78
|
|
$
|
8.03
|
|
$
|
11.25
|
|
$
|
12.74
|
|
$
|
9.40
|
|
|
Leasing Commissions
|
|
$
|
1,444,412
|
|
$
|
1,026,970
|
|
$
|
2,623,245
|
|
$
|
2,345,325
|
|
$
|
1,859,988
|
|
$
|
1,546,354
|
|
$
|
1,057,469
|
|
$
|
488,885
|
|
|
Per Square Foot Leased
|
|
$
|
4.49
|
|
$
|
4.18
|
|
$
|
4.90
|
|
$
|
4.24
|
|
$
|
4.45
|
|
$
|
3.65
|
|
$
|
4.51
|
|
$
|
2.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Per Square Foot
|
|
$
|
12.96
|
|
$
|
11.99
|
|
$
|
11.95
|
|
$
|
13.02
|
|
$
|
12.48
|
|
$
|
14.90
|
|
$
|
17.25
|
|
$
|
11.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Westchester Office Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant Improvements
|
|
$
|
2,584,728
|
|
$
|
6,391,589
|
(1)
|
$
|
3,732,370
|
|
$
|
6,323,134
|
|
$
|
4,757,955
|
|
$
|
5,296,662
|
|
$
|
3,294,755
|
|
$
|
2,001,907
|
|
|
Per Square Foot Improved
|
|
$
|
5.91
|
|
$
|
15.05
|
|
$
|
15.98
|
|
$
|
11.95
|
|
$
|
12.22
|
|
$
|
12.37
|
|
$
|
25.32
|
|
$
|
6.72
|
|
|
Leasing Commissions
|
|
$
|
1,263,012
|
|
$
|
1,975,850
|
(1)
|
$
|
917,487
|
|
$
|
2,671,548
|
|
$
|
1,706,974
|
|
$
|
1,923,552
|
|
$
|
953,883
|
|
$
|
969,669
|
|
|
Per Square Foot Leased
|
|
$
|
2.89
|
|
$
|
4.65
|
|
$
|
3.93
|
|
$
|
5.05
|
|
$
|
4.13
|
|
$
|
4.49
|
|
$
|
7.33
|
|
$
|
3.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Per Square Foot
|
|
$
|
8.80
|
|
$
|
19.70
|
|
$
|
19.91
|
|
$
|
17.00
|
|
$
|
16.35
|
|
$
|
16.86
|
|
$
|
32.65
|
|
$
|
9.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Connecticut Office Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant Improvements
|
|
$
|
213,909
|
|
$
|
491,435
|
|
$
|
588,087
|
|
$
|
3,051,833
|
|
$
|
1,086,316
|
|
$
|
3,895,369
|
|
$
|
2,751,908
|
|
$
|
1,143,461
|
|
|
Per Square Foot Improved
|
|
$
|
1.46
|
|
$
|
3.81
|
|
$
|
8.44
|
|
$
|
12.71
|
|
$
|
6.60
|
|
$
|
11.86
|
|
$
|
27.80
|
|
$
|
4.98
|
|
|
Leasing Commissions
|
|
$
|
209,322
|
|
$
|
307,023
|
|
$
|
511,360
|
|
$
|
1,493,664
|
|
$
|
630,342
|
|
$
|
1,819,504
|
|
$
|
712,303
|
|
$
|
1,107,201
|
|
|
Per Square Foot Leased
|
|
$
|
1.43
|
|
$
|
2.38
|
|
$
|
7.34
|
|
$
|
6.22
|
|
$
|
4.34
|
|
$
|
5.54
|
|
$
|
7.20
|
|
$
|
4.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Per Square Foot
|
|
$
|
2.89
|
|
$
|
6.19
|
|
$
|
15.78
|
|
$
|
18.93
|
|
$
|
10.94
|
|
$
|
17.40
|
|
$
|
35.00
|
|
$
|
9.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Jersey Office Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant Improvements
|
|
$
|
1,146,385
|
|
$
|
2,842,521
|
|
$
|
4,327,295
|
|
$
|
1,379,362
|
|
$
|
2,423,891
|
|
$
|
2,421,779
|
|
$
|
2,103,408
|
|
$
|
318,371
|
|
|
Per Square Foot Improved
|
|
$
|
2.92
|
|
$
|
10.76
|
|
$
|
11.57
|
|
$
|
7.12
|
|
$
|
8.09
|
|
$
|
15.49
|
|
$
|
22.15
|
|
$
|
5.19
|
|
|
Leasing Commissions
|
|
$
|
1,602,962
|
|
$
|
1,037,012
|
|
$
|
1,892,635
|
|
$
|
832,658
|
|
$
|
1,341,317
|
|
$
|
1,394,470
|
|
$
|
1,008,362
|
|
$
|
386,108
|
|
|
Per Square Foot Leased
|
|
$
|
4.08
|
|
$
|
3.92
|
|
$
|
5.06
|
|
$
|
4.30
|
|
$
|
4.34
|
|
$
|
8.92
|
|
$
|
10.63
|
|
$
|
6.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Per Square Foot
|
|
$
|
7.00
|
|
$
|
14.68
|
|
$
|
16.63
|
|
$
|
11.42
|
|
$
|
12.43
|
|
$
|
24.41
|
|
$
|
32.78
|
|
$
|
11.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Suburban Markets - Office Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant Improvements
|
|
$
|
6,667,479
|
|
$
|
11,643,011
|
|
$
|
12,422,474
|
|
$
|
15,610,933
|
|
$
|
11,585,974
|
|
$
|
16,382,643
|
|
$
|
11,137,102
|
|
$
|
5,245,541
|
|
|
Per Square Foot Improved
|
|
$
|
5.14
|
|
$
|
10.95
|
|
$
|
10.24
|
|
$
|
10.30
|
|
$
|
9.10
|
|
$
|
12.25
|
|
$
|
19.94
|
|
$
|
6.74
|
|
|
Leasing Commissions
|
|
$
|
4,519,708
|
|
$
|
4,346,855
|
|
$
|
5,944,728
|
|
$
|
7,343,194
|
|
$
|
5,538,621
|
|
$
|
6,683,880
|
|
$
|
3,732,017
|
|
$
|
2,951,863
|
|
|
Per Square Foot Leased
|
|
$
|
3.48
|
|
$
|
4.09
|
|
$
|
4.90
|
|
$
|
4.84
|
|
$
|
4.35
|
|
$
|
5.00
|
|
$
|
6.68
|
|
$
|
3.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Per Square Foot
|
|
$
|
8.62
|
|
$
|
15.04
|
|
$
|
15.14
|
|
$
|
15.14
|
|
$
|
13.45
|
|
$
|
17.25
|
|
$
|
26.62
|
|
$
|
10.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New York City Office Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant Improvements
|
|
$
|
788,930
|
|
$
|
4,350,106
|
|
$
|
5,810,017
|
(2)(3)
|
$
|
9,809,822
|
(3)(4)
|
$
|
5,189,719
|
|
$
|
10,648,442
|
(2)
|
$
|
9,995,554
|
(2)
|
$
|
652,888
|
|
|
Per Square Foot Improved
|
|
$
|
15.69
|
|
$
|
18.39
|
|
$
|
32.84
|
|
$
|
23.21
|
|
$
|
22.53
|
|
$
|
28.20
|
|
$
|
33.87
|
|
$
|
7.91
|
|
|
Leasing Commissions
|
|
$
|
1,098,829
|
|
$
|
2,019,837
|
|
$
|
2,950,330
|
(2)(3)
|
$
|
3,041,141
|
(4)
|
$
|
2,277,534
|
|
$
|
4,418,706
|
(2)
|
$
|
3,998,549
|
(2)
|
$
|
420,157
|
|
|
Per Square Foot Leased
|
|
$
|
21.86
|
|
$
|
8.54
|
|
$
|
16.68
|
|
$
|
7.19
|
|
$
|
13.57
|
|
$
|
11.70
|
|
$
|
13.55
|
|
$
|
5.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Per Square Foot
|
|
$
|
37.55
|
|
$
|
26.93
|
|
$
|
49.52
|
|
$
|
30.40
|
|
$
|
36.10
|
|
$
|
39.90
|
|
$
|
47.42
|
|
$
|
13.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial / Flex Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant Improvements
|
|
$
|
1,366,488
|
|
$
|
1,850,812
|
|
$
|
1,249,200
|
|
$
|
310,522
|
|
$
|
1,194,256
|
|
$
|
112,781
|
|
$
|
99,293
|
|
$
|
13,488
|
|
|
Per Square Foot Improved
|
|
$
|
1.65
|
|
$
|
1.97
|
|
$
|
2.42
|
|
$
|
2.27
|
|
$
|
2.08
|
|
$
|
2.46
|
|
$
|
5.90
|
|
$
|
0.46
|
|
|
Leasing Commissions
|
|
$
|
354,572
|
|
$
|
890,688
|
|
$
|
574,256
|
|
$
|
508,198
|
|
$
|
581,928
|
|
$
|
65,740
|
|
$
|
19,938
|
|
$
|
45,802
|
|
|
Per Square Foot Leased
|
|
$
|
0.43
|
|
$
|
0.95
|
|
$
|
1.11
|
|
$
|
3.71
|
|
$
|
1.55
|
|
$
|
1.43
|
|
$
|
1.18
|
|
$
|
1.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Per Square Foot
|
|
$
|
2.08
|
|
$
|
2.92
|
|
$
|
3.53
|
|
$
|
5.98
|
|
$
|
3.63
|
|
$
|
3.89
|
|
$
|
7.08
|
|
$
|
2.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Excludes tenant improvements and leasing commissions related to a 163,880 square foot leasing transaction with Fuji Photo Film U.S.A. Leasing commissions on this transaction amounted to $5.33 per square foot and tenant improvement allowance amounted to $40.88 per square foot.
|
|
(2)
|
Excludes $15.5 million of tenant improvements and $2.2 million of leasing commissions related to a 121,108 square foot lease to Debevoise & Plimpton that was signed during the third quarter of 2003 with a lease commencement date in 2005.
|
|
(3)
|
2003 numbers exclude tenant improvements of $0.2 million for Sandler O’Neil & Partners (7,446 square feet) for expansion space with a lease commencement date in the second quarter of 2004.
|
|
(4)
|
Excludes 86,800 square foot WestPoint Stevens early renewal. There were no tenant improvement or leasing costs associated with this transaction. Also excludes $1.4 million of tenant improvements and $1.2 million of leasing commissions related to a 74,293 square foot lease to Harper Collins Publishers with a lease commencement date in 2006. Also excludes Bank of America retail lease with $0.6 million of tenant improvements and $0.8 million of leasing commissions.
|
As noted, incremental revenue-generating tenant improvement costs and leasing commissions are excluded from the tables set forth above. The historical capital expenditures, tenant improvement costs and leasing commissions set forth above are not necessarily indicative of future non-incremental revenue-generating capital expenditures or non-incremental revenue-generating tenant improvement costs and leasing commissions that may be incurred to retain revenues on leased space.
I-30
The following table sets forth the components of our paid or accrued non-incremental and incremental revenue-generating capital expenditures, tenant improvements and leasing costs for the years ended December 31, 2005 and 2004 as reported on our Statements of Cash Flows – Investment Activities contained in our consolidated financial statements (in thousands):
|
|
|
Year ended
December 31, |
|
||||
|
|
|
|
|
||||
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
Non-incremental
|
|
$
|
11,028
|
|
$
|
9,767
|
|
|
Incremental
|
|
|
10,350
|
|
|
4,190
|
|
|
Tenant improvements:
|
|
|
|
|
|
|
|
|
Non-incremental
|
|
|
40,192
|
|
|
21,610
|
|
|
Incremental
|
|
|
19,865
|
|
|
5,846
|
|
|
|
|
|
|
|
|
|
|
|
Additions to commercial real estate properties
|
|
$
|
81,435
|
|
$
|
41,413
|
|
|
|
|
|
|
|
|
|
|
|
Leasing costs:
|
|
|
|
|
|
|
|
|
Non-incremental
|
|
$
|
14,379
|
|
$
|
15,491
|
|
|
Incremental
|
|
|
6,165
|
|
|
9,241
|
|
|
|
|
|
|
|
|
|
|
|
Payment of deferred leasing costs
|
|
$
|
20,544
|
|
$
|
24,732
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of real property and development costs
|
|
$
|
1,074,405
|
|
$
|
195,608
|
|
|
|
|
|
|
|
|
|
|
I-31
The following table sets forth our schedule of top 25 tenants based on base rental revenue as of December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant Name (1) (2) (3)
|
|
Weighted
Average Term Remaining (years) |
|
Total
Square Feet |
|
Percent of Pro-Rata
Share of Annualized Base Rental Revenue |
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Citigroup / Citibank
|
|
|
12.4
|
|
|
2,015,381
|
|
|
4.2
|
%
|
|
|
* Debevoise & Plimpton
|
|
|
16.0
|
|
|
586,528
|
|
|
3.6
|
%
|
|
|
Amerada Hess Corporation
|
|
|
16.1
|
|
|
180,822
|
|
|
2.0
|
%
|
|
|
King & Spalding
|
|
|
8.2
|
|
|
148,675
|
|
|
1.7
|
%
|
|
|
* Verizon Communications Inc.
|
|
|
1.5
|
|
|
271,384
|
|
|
1.7
|
%
|
|
|
* American Express
|
|
|
7.8
|
|
|
129,147
|
|
|
1.6
|
%
|
|
|
* Schulte Roth & Zabel
|
|
|
14.9
|
|
|
279,746
|
|
|
1.6
|
%
|
|
|
D.E. Shaw
|
|
|
8.0
|
|
|
192,837
|
|
|
1.5
|
%
|
|
|
County of Nassau
|
|
|
15.8
|
|
|
219,066
|
|
|
1.4
|
%
|
|
|
* Fuji Photo Film USA
|
|
|
6.7
|
|
|
194,984
|
|
|
1.2
|
%
|
|
|
* Bank of America / Fleet Bank
|
|
|
4.7
|
|
|
209,919
|
|
|
1.1
|
%
|
|
|
* MCI
|
|
|
1.1
|
|
|
240,430
|
|
|
1.1
|
%
|
|
|
Arrow Electronics Inc.
|
|
|
8.0
|
|
|
163,762
|
|
|
1.0
|
%
|
|
|
Dun & Bradstreet Corp.
|
|
|
6.8
|
|
|
123,000
|
|
|
1.0
|
%
|
|
|
Daiichi Pharmaceuticals
|
|
|
11.8
|
|
|
141,000
|
|
|
1.0
|
%
|
|
|
* Schering-Plough Corporation
|
|
|
0.5
|
|
|
152,970
|
|
|
0.9
|
%
|
|
|
* JP Morgan Chase
|
|
|
5.2
|
|
|
100,636
|
|
|
0.9
|
%
|
|
|
Westpoint Stevens
|
|
|
1.0
|
|
|
86,800
|
|
|
0.8
|
%
|
|
|
Westdeutsche Landesbank
|
|
|
10.3
|
|
|
53,000
|
|
|
0.8
|
%
|
|
|
Washington Mutual
|
|
|
1.2
|
|
|
127,465
|
|
|
0.8
|
%
|
|
|
* HQ Global
|
|
|
3.4
|
|
|
157,892
|
|
|
0.8
|
%
|
|
|
North Fork Bank
|
|
|
13.0
|
|
|
126,770
|
|
|
0.8
|
%
|
|
|
Practicing Law Institute
|
|
|
8.2
|
|
|
77,500
|
|
|
0.8
|
%
|
|
|
Vytra Healthcare
|
|
|
2.0
|
|
|
105,613
|
|
|
0.8
|
%
|
|
|
* Banque Nationale De Paris
|
|
|
10.6
|
|
|
145,834
|
|
|
0.8
|
%
|
|
|
|
|
|
(1)
|
Ranked by pro-rata share of annualized base rental revenue adjusted for pro rata share of joint venture interests.
|
|
(2)
|
Excludes One Orlando Centre in Orlando, Florida which was sold on March 7, 2006.
|
|
(3)
|
Total square footage is based on currently leased space and excludes expansions or leases with future start dates.
|
|
*
|
Part or all of space occupied by tenant
is in a joint venture building.
|
I-32
The following table sets forth our lease expiration table, as adjusted for pre-leased space and inclusive of joint venture interests, at January 1, 2006 for our total portfolio of properties, our office portfolio and our flex portfolio:
Total Portfolio
|
Year of
Expiration |
|
Number of
Leases Expiring |
|
Square
Feet Expiring |
|
Percentage of Total
Portfolio Square Footage |
|
Cumulative
Percentage of Total Portfolio Square Footage |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
235
|
|
|
1,598,979
|
|
|
7.8
|
%
|
|
7.8
|
%
|
|
2007
|
|
|
168
|
|
|
1,622,543
|
|
|
8.0
|
%
|
|
15.8
|
%
|
|
2008
|
|
|
180
|
|
|
1,404,446
|
|
|
6.9
|
%
|
|
22.7
|
%
|
|
2009
|
|
|
147
|
|
|
1,356,228
|
|
|
6.7
|
%
|
|
29.4
|
%
|
|
2010
|
|
|
183
|
|
|
2,170,611
|
|
|
10.6
|
%
|
|
40.0
|
%
|
|
2011 and thereafter
|
|
|
433
|
|
|
10,398,704
|
|
|
51.1
|
%
|
|
91.1
|
%
|
|
Total/Weighted Average
|
|
|
1,346
|
|
|
18,551,511
|
|
|
91.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Portfolio Square Feet
|
|
|
|
|
|
20,336,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office Portfolio
|
Year of
Expiration |
|
Number of
Leases Expiring |
|
Square
Feet Expiring |
|
Percentage of Total
Office Square Footage |
|
Cumulative
Percentage of Total Portfolio Square Footage |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
233
|
|
|
1,538,920
|
|
|
7.9
|
%
|
|
7.9
|
%
|
|
2007
|
|
|
165
|
|
|
1,570,021
|
|
|
8.1
|
%
|
|
16.0
|
%
|
|
2008
|
|
|
178
|
|
|
1,372,203
|
|
|
7.0
|
%
|
|
23.0
|
%
|
|
2009
|
|
|
146
|
|
|
1,311,247
|
|
|
6.7
|
%
|
|
29.7
|
%
|
|
2010
|
|
|
179
|
|
|
1,903,915
|
|
|
9.8
|
%
|
|
39.5
|
%
|
|
2011 and thereafter
|
|
|
425
|
|
|
10,207,558
|
|
|
52.4
|
%
|
|
91.9
|
%
|
|
Total/Weighted Average
|
|
|
1,326
|
|
|
17,903,864
|
|
|
91.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Office Portfolio Square Feet
|
|
|
|
|
|
19,473,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flex Portfolio
|
Year of
Expiration |
|
Number of
Leases Expiring |
|
Square
Feet Expiring |
|
Percentage of Total
Flex Square Footage |
|
Cumulative
Percentage of Total Portfolio Square Footage |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2
|
|
|
60,059
|
|
|
7.0
|
%
|
|
7.0
|
%
|
|
2007
|
|
|
3
|
|
|
52,522
|
|
|
6.1
|
%
|
|
13.1
|
%
|
|
2008
|
|
|
2
|
|
|
32,243
|
|
|
3.7
|
%
|
|
16.8
|
%
|
|
2009
|
|
|
1
|
|
|
44,981
|
|
|
5.2
|
%
|
|
22.0
|
%
|
|
2010
|
|
|
4
|
|
|
266,696
|
|
|
30.9
|
%
|
|
52.9
|
%
|
|
2011 and thereafter
|
|
|
8
|
|
|
191,146
|
|
|
22.1
|
%
|
|
75.0
|
%
|
|
Total/Weighted Average
|
|
|
20
|
|
|
647,647
|
|
|
75.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Flex Portfolio Square Feet
|
|
|
|
|
|
863,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I-33
Mortgage Indebtedness
The following table sets forth certain information regarding our mortgage debt at December 31, 2005.
|
Property
|
|
|
Principal Amount
Outstanding |
|
Interest Rate
|
|
Maturity Date
|
|
Amortization
Term (Years) |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
||
|
1350 Avenue of the Americas, NY, NY
|
|
|
$
|
72,108
|
|
|
6.52
|
%
|
|
June, 2006
|
|
30
|
|
|
|
Landmark Square, Stamford, CT
|
|
(a)
|
|
41,634
|
|
|
8.02
|
%
|
|
October, 2006
|
|
25
|
|
|
|
100 Summit Lake Drive, Valhalla, NY
|
|
|
|
14,572
|
|
|
8.50
|
%
|
|
April, 2007
|
|
15
|
|
|
|
333 Earle Ovington Blvd., Mitchel Field, NY
|
|
(b)
|
|
50,635
|
|
|
7.72
|
%
|
|
August, 2007
|
|
25
|
|
|
|
810 Seventh Avenue, NY, NY
|
|
(c)
|
|
77,854
|
|
|
7.73
|
%
|
|
August, 2009
|
|
25
|
|
|
|
275 Broadhollow Road, Melville, NY
|
|
(c)
|
|
15,151
|
|
|
7.73
|
%
|
|
August, 2009
|
|
25
|
|
|
|
90 Merrick Avenue, Merrick, NY
|
|
(c)
|
|
18,586
|
|
|
7.73
|
%
|
|
August, 2009
|
|
25
|
|
|
|
6900 Jericho Turnpike, Syosset, NY
|
|
(d)
|
|
6,959
|
|
|
8.07
|
%
|
|
July, 2010
|
|
25
|
|
|
|
6800 Jericho Turnpike, Syosset, NY
|
|
(d)
|
|
13,185
|
|
|
8.07
|
%
|
|
July, 2010
|
|
25
|
|
|
|
580 White Plains Road, Tarrytown, NY
|
|
(e)
|
|
12,006
|
|
|
7.86
|
%
|
|
September, 2010
|
|
25
|
|
|
|
520 Broadhollow Road, Melville, NY
|
|
(f)
|
|
11,869
|
|
|
5.20
|
%
|
|
October, 2010
|
|
Interest Only
|
|
|
|
50 Marcus Avenue, Melville, NY
|
|
(f)
|
|
28,277
|
|
|
5.20
|
%
|
|
October, 2010
|
|
Interest Only
|
|
|
|
1660 Walt Whitman Road, Melville, NY
|
|
(f)
|
|
11,386
|
|
|
5.20
|
%
|
|
October, 2010
|
|
Interest Only
|
|
|
|
919 Third Avenue, NY, NY
|
|
(g)
|
|
238,316
|
|
|
6.87
|
%
|
|
August, 2011
|
|
30
|
|
|
|
711 Westchester Avenue, White Plains, NY
|
|
|
|
12,525
|
|
|
5.36
|
%
|
|
January, 2015
|
|
30 (h)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total / Weighted average
|
|
|
$
|
625,063
|
|
|
7.06
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Encompasses six Class A office properties.
|
|
(b)
|
At December 31, 2005, we had a 60% general partnership interest in this property and our proportionate share of the aggregate principal amount of the mortgage was approximately $30.4 million.
|
|
(c)
|
These mortgages are cross-collateralized.
|
|
(d)
|
The properties subject to these mortgages were sold to the RAOC JV in January 2006.
|
|
(e)
|
The property subject to this mortgage is contracted to be sold to the RAOC JV in October 2006.
|
|
(f)
|
These mortgages are cross-collateralized by properties and are contracted to be sold, subject to the mortgages, to the RAOC JV in October 2006.
|
|
(g)
|
We have a 51% membership interest in this property and our proportionate share of the aggregate principal amount of the mortgage is approximately $121.5 million.
|
|
(h)
|
This mortgage note is interest only through January 2007 and then amortizes over a 30-year period.
|
I-34
|
ITEM 3.
|
LEGAL PROCEEDINGS
|
In the fall of 2003, nine shareholder derivative
actions were filed, purportedly on behalf of the Company, against members
of the Board of Directors and others, concerning the disposition of our Long
Island industrial portfolio. The complaints alleged, among other things,
that the process by which the directors agreed to the transaction was not
sufficiently independent of the Rechler family and did not involve a “market
check” or
third-party auction process, and, as a result, was not for adequate consideration.
Pursuant to a Stipulation of Settlement dated March 14, 2005, the Company
and the other parties to the actions agreed to a settlement requiring various
changes to the Company’s corporate governance policies, as well as
certain other concessions, and the Company’s payment of plaintiffs’ counsels’ fees
of $2.15 million. In January 2006, we paid the plaintiffs’ counsels’ fees,
and on February 14, 2006, the Board implemented the required changes to
our corporate governance policies.
The Company incurred approximately $1.9
million in fees and expenses associated with the defense of these actions.
Although
we believe that these fees and expenses, as well as the $2.15 million paid
to plaintiffs’ counsel,
are covered by the Company’s insurance, subject to a $500,000 deductible,
thus far, our insurance carrier has not reimbursed our fees and expenses and
has asserted that it is not responsible for payment of the plaintiffs’ counsel’s
fees. The Company intends to pursue its rights under the insurance policy.
Except as provided above, we are not presently subject to any material litigation nor, to our knowledge, is any litigation threatened against us, 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 our liquidity, results of operations or businesses or financial condition.
|
ITEM 4.
|
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
No matters were submitted to a vote of
the Company’s stockholders during the fourth quarter of the year ended December
31, 2005.
I-35
Part II
|
ITEM 5.
|
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
There is no established trading market
for the Registrant’s common equity. As of March 17, 2006, there were
approximately 60 holders of the Registrant’s common equity.
Common Units
The following table sets forth for the
periods indicated, the distributions declared by the Operating Partnership
for each respective quarter ended. LTIP Units
receive the same quarterly distributions as Class A OP Units.
|
|
|
Class A
Distribution |
|
Class C
Distribution |
|
||
|
|
|
|
|
|
|
|
|
|
March 31, 2004
|
|
$
|
0.4246
|
|
$
|
0.4664
|
|
|
June 30, 2004
|
|
$
|
0.4246
|
|
$
|
0.4664
|
|
|
September 30, 2004
|
|
$
|
0.4246
|
|
$
|
0.4664
|
|
|
December 31, 2004
|
|
$
|
0.4246
|
|
$
|
0.4664
|
|
|
March 31, 2005
|
|
$
|
0.4246
|
|
$
|
0.4664
|
|
|
June 30, 2005
|
|
$
|
0.4246
|
|
$
|
0.4664
|
|
|
September 30, 2005
|
|
$
|
0.4246
|
|
$
|
0.4664
|
|
|
December 31, 2005
|
|
$
|
0.4246
|
|
$
|
0.4664
|
|
As of December 31, 2005, the Company had
approximately 1.4 million shares of its common stock reserved for issuance
under its stock option plans, in certain cases subject to vested terms, at
a weighted average exercise price of $24.70 per option. In addition,
the Company has approximately 2.4 million shares of its common stock reserved
for future issuance under its stock option plans.
The Operating Partnership issues additional units to the Company, and thereby increases the Company’s general partnership interest in the Operating Partnership, with terms similar to the terms of any securities (i.e., common stock or preferred stock) issued by the Company (including any securities issued by the Company upon the exercise of stock options). Any consideration received by the Company in respect of the issuance of its securities is contributed to the Operating Partnership. In addition, the Operating Partnership or a subsidiary funds the compensation of personnel, including any amounts payable under the Company’s LTIP.
Unregistered Sales of Equity Securities and Use of Proceeds
We did not sell any OP Units in the three
months ended December 31, 2005 that were not registered under the Securities
Act
of 1933.
We made no repurchases of our OP Units
during
the three months ended December 31, 2005.
II-1
|
ITEM 6.
|
SELECTED FINANCIAL DATA (in thousands except per unit data and property count)
|
The following table sets forth our selected financial data and should be read in conjunction with our Financial Statements and notes thereto included in Item 8, “Financial Statements and Supplementary Data” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-K.
In connection with this Annual Report on Form 10-K, we are restating our historical audited consolidated financial statements as a result of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”). In compliance with SFAS No. 144, we have reported revenues and expenses from those properties as discontinued operations, net of minority interests, for each period presented in our Annual Report on Form 10-K. This reclassification has no effect on our reported net income (loss) or funds from operations.
|
|
|
For the year ended December 31,
|
|
|||||||||||||
|
|
|
|
|
|||||||||||||
|
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
2001
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
572,053
|
|
$
|
512,424
|
|
$
|
434,866
|
|
$
|
420,535
|
|
$
|
429,632
|
|
|
Total expenses
|
|
|
516,732
|
|
|
440,506
|
|
|
387,501
|
|
|
350,628
|
|
|
332,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interests, preferred distributions, valuation reserves, equity in earnings of real estate joint ventures, gains on sales of real estate and discontinued operations
|
|
|
55,321
|
|
|
71,918
|
|
|
47,365
|
|
|
69,907
|
|
|
97,480
|
|
|
Minority interests
|
|
|
16,698
|
|
|
18,507
|
|
|
16,857
|
|
|
17,653
|
|
|
10,933
|
|
|
Preferred distributions
|
|
|
—
|
|
|
12,777
|
|
|
22,360
|
|
|
23,123
|
|
|
23,977
|
|
|
Redemption charges on Series A preferred units
|
|
|
—
|
|
|
15,812
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Valuation reserves on investments in affiliate loans and joint ventures and other investments
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
166,101
|
|
|
Equity in earnings of real estate joint ventures and service companies
|
|
|
1,371
|
|
|
603
|
|
|
30
|
|
|
1,113
|
|
|
2,087
|
|
|
Gains on sales of real estate
|
|
|
92,130
|
|
|
—
|
|
|
—
|
|
|
537
|
|
|
20,173
|
|
|
Discontinued operations (net of minority interests):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
7,929
|
|
|
6,834
|
|
|
21,397
|
|
|
25,539
|
|
|
21,328
|
|
|
Gains on sales of real estate
|
|
|
63,039
|
|
|
12,424
|
|
|
126,789
|
|
|
4,895
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) allocable to common unitholders
|
|
$
|
203,092
|
|
$
|
44,683
|
|
$
|
156,364
|
|
$
|
61,215
|
|
$
|
(59,943
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER UNIT DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per weighted average common unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss)
|
|
$
|
.48
|
|
$
|
.35
|
|
$
|
.10
|
|
$
|
.42
|
|
$
|
(1.43
|
)
|
|
Gain on sales of real estate
|
|
|
1.08
|
|
|
—
|
|
|
—
|
|
|
.01
|
|
|
.28
|
|
|
Discontinued operations
|
|
|
.84
|
|
|
.27
|
|
|
2.37
|
|
|
.42
|
|
|
.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common unit
|
|
$
|
2.40
|
|
$
|
.62
|
|
$
|
2.47
|
|
$
|
.85
|
|
$
|
(.85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss)
|
|
$
|
—
|
|
$
|
—
|
|
$
|
.30
|
|
$
|
.64
|
|
$
|
(2.09
|
)
|
|
Gain on sales of real estate
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
.01
|
|
|
.42
|
|
|
Discontinued operations
|
|
|
—
|
|
|
—
|
|
|
1.64
|
|
|
.63
|
|
|
.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B common unit
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1.94
|
|
$
|
1.28
|
|
$
|
(1.23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss)
|
|
$
|
.52
|
|
$
|
.40
|
|
$
|
.01
|
|
$
|
—
|
|
$
|
—
|
|
|
Gain on sales of real estate
|
|
|
1.19
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Discontinued operations
|
|
|
.92
|
|
|
.30
|
|
|
5.73
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class C common unit
|
|
$
|
2.63
|
|
$
|
.70
|
|
$
|
5.74
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common units outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common units
|
|
|
84,100
|
|
|
71,964
|
|
|
55,786
|
|
|
57,059
|
|
|
55,773
|
|
|
Class B common units
|
|
|
—
|
|
|
—
|
|
|
8,910
|
|
|
10,122
|
|
|
10,284
|
|
|
Class C common units
|
|
|
466
|
|
|
466
|
|
|
188
|
|
|
—
|
|
|
—
|
|
|
Cash distributions declared per unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common units
|
|
$
|
1.70
|
|
$
|
1.70
|
|
$
|
1.70
|
|
$
|
1.70
|
|
$
|
1.66
|
|
|
Class B common units
|
|
$
|
—
|
|
$
|
—
|
|
$
|
2.12
|
|
$
|
2.59
|
|
$
|
2.55
|
|
|
Class C common units
|
|
$
|
1.87
|
|
$
|
1.87
|
|
$
|
.28
|
|
$
|
—
|
|
$
|
—
|
|
II-2
|
|
|
As of or for the year ended December 31,
|
|
|||||||||||||
|
|
|
|
|
|||||||||||||
|
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
2001
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET DATA (period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate properties, before accumulated depreciation (1)
|
|
$
|
3,476,415
|
|
$
|
2,759,972
|
|
$
|
2,258,805
|
|
$
|
2,187,125
|
|
$
|
2,112,657
|
|
|
Cash and cash equivalents
|
|
|
17,468
|
|
|
25,137
|
|
|
23,013
|
|
|
30,576
|
|
|
121,975
|
|
|
Total assets
|
|
|
3,816,459
|
|
|
3,171,366
|
|
|
2,750,680
|
|
|
2,912,052
|
|
|
2,998,782
|
|
|
Mortgage notes payable (1)
|
|
|
541,382
|
|
|
576,719
|
|
|
641,718
|
|
|
652,681
|
|
|
662,453
|
|
|
Unsecured credit facility
|
|
|
419,000
|
|
|
235,500
|
|
|
169,000
|
|
|
267,000
|
|
|
271,600
|
|
|
Senior unsecured notes
|
|
|
980,085
|
|
|
697,974
|
|
|
499,445
|
|
|
499,305
|
|
|
449,463
|
|
|
Market value of equity (2)
|
|
|
3,060,612
|
|
|
2,763,734
|
|
|
1,792,895
|
|
|
1,681,372
|
|
|
1,915,587
|
|
|
Total market capitalization including debt (2 and 3)
|
|
|
5,106,303
|
|
|
4,175,060
|
|
|
3,050,142
|
|
|
3,052,818
|
|
|
3,251,599
|
|
|
OTHER DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations (4)
|
|
$
|
175,244
|
|
$
|
144,990
|
|
$
|
134,889
|
|
$
|
158,422
|
|
$
|
180,743
|
|
|
Total square feet (at end of period) (5)
|
|
|
20,337
|
|
|
15,922
|
|
|
14,733
|
|
|
20,284
|
|
|
20,611
|
|
|
Number of properties (at end of period) (5)
|
|
|
103
|
|
|
87
|
|
|
89
|
|
|
178
|
|
|
182
|
|
|
|
|
|
(1)
|
Excludes book value of real estate properties, before accumulated depreciation and mortgage notes payable related to properties classified as held for sale.
|
|
(2)
|
Based on the market value of the Operating Partnership’s common units and the stated value of the Operating Partnership’s preferred units outstanding at the end of the period.
|
|
(3)
|
Debt amount is net of minority partners’ interests’ share of consolidated joint venture debt and including our share of unconsolidated joint venture debt.
|
|
(4)
|
Funds from Operations (“FFO”)
is defined by the National Association of Real Estate Investment Trusts
(“NAREIT”) as net income or loss, excluding gains or losses
from sales of depreciable properties plus real estate depreciation and
amortization, and after adjustments for unconsolidated partnerships and
joint ventures. We present FFO because we consider it an important supplemental
measure of our operating performance and believe it is frequently used
by securities analysts, investors and other interested parties in the evaluation
of REITs, many of which present FFO when reporting their results. FFO is
intended to exclude GAAP historical cost depreciation and amortization
of real estate and related assets, which assumes that the value of real
estate diminishes ratably over time. Historically, however, real estate
values have risen or fallen with market conditions. As a result, FFO provides
a performance measure that, when compared year over year, reflects the
impact to operations from trends in occupancy rates, rental rates, operating
costs, development activities, interest costs and other matters without
the inclusion of depreciation and amortization, providing perspective that
may not necessarily be apparent from net income. We compute FFO in accordance
with the standards established by NAREIT. FFO does not represent cash generated
from operating activities in accordance with GAAP and is not indicative
of cash available to fund cash needs. FFO should not be considered as an
alternative to net income as an indicator of our 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, our calculation
of FFO presented herein may not be comparable to similarly titled measures
as reported by other companies. A reconciliation of FFO to net income allocable
to
common equityholders, the GAAP measure we believe to be the most directly
comparable, is contained in Item 7 of this Form 10-K.
|
|
(5)
|
Excludes properties under development and 800 North Magnolia Avenue, a 354,000 square foot non-core office building located in Orlando, Florida. This property was sold on March 7, 2006.
|
II-3
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The following discussion should be read in conjunction with the historical financial statements of Reckson Operating Partnership, L.P. (the “Operating Partnership”) and related notes thereto.
CRITICAL ACCOUNTING POLICIES
The consolidated financial statements of the Operating Partnership include accounts of the Operating Partnership and all majority-owned and controlled subsidiaries. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“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
Minimum 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 our balance sheets. Contractually due but unpaid rents are included in tenant receivables on our balance sheets. Certain lease agreements also provide for reimbursement of real estate taxes, insurance, common area maintenance costs and indexed rental increases, which are recorded on an accrual basis. Ancillary and other property related income is recognized in the period earned.
We make estimates of the collectibility of our accounts receivables related to base rents, tenant escalations and reimbursements and other revenue or income. We specifically analyze tenant receivables and historical bad debts, customer credit worthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of its allowance for doubtful accounts. In addition, when tenants are in bankruptcy, we make 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 our net income because a higher bad debt reserve results in less net income.
We incurred approximately $3.0 million, $831,000 and $1.9 million of bad debt expense for the years ended December 31, 2005, 2004 and 2003, respectively, related to tenant receivables which accordingly reduced total revenues and reported net income during the period.
We record interest income on investments in notes receivable on the accrual basis of accounting. We do 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 we consider 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.
Reckson Construction & Development LLC and Reckson Construction Group New York, Inc. use the percentage-of-completion method for recording amounts earned on their contracts. This method records amounts earned as revenue in the proportion that actual costs incurred to date bear to the estimate of total costs at contract completion.
Gain on the sale of real estate is recorded when title is conveyed to the buyer, subject to the buyer’s financial commitment being sufficient to provide economic substance to the sale and us having no substantial continuing involvement with the buyer. Additionally, in connection with the sale of real estate, if we retain certain risks in the form of guarantees, the profit recognized on that sale shall be reduced and deferred by the maximum exposure to loss, until such exposure is relieved.
We follow the guidance provided for under the Financing Accounting Standards Board (“FASB”) Statement No. 66 “Accounting for Sales of Real Estate” (“Statement No. 66”), which provides guidance on sales contracts that are accompanied by agreements which require the seller to develop the property in the future. Under Statement No. 66, profit is recognized and allocated to the sale of the land and the later development or construction work on the basis of estimated costs of each activity; the same rate of profit is attributed to each activity. As a result, profits are recognized and reflected over the improvement period on the basis of costs incurred (including land) as a percentage of total costs estimated to be incurred. We use the percentage of completion method, as future costs of development and profit are reliably estimated.
II-4
Real Estate
Land, buildings and improvements, furniture, fixtures and equipment are recorded at cost. Tenant improvements, which are included in buildings and improvements, are also stated at cost. Expenditures for ordinary maintenance and repairs are expensed to operations as they are incurred. Renovations and / or replacements, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives.
Depreciation is computed utilizing the straight-line method over the estimated useful lives of ten to thirty years for buildings and improvements and five to ten years for furniture, fixtures and equipment. Tenant improvements, which are included in buildings and improvements, are amortized on a straight-line basis over the term of the related leases.
We are required to make subjective assessments as to the useful lives of our 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 our net income. Should we 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 us of certain other lease related costs must be made when we have a reason to believe that the tenant will not be able to execute under the term of the lease as originally expected.
On July 1, 2001 and January 1, 2002, we adopted FASB Statement No.141, “Business Combinations” and FASB Statement No. 142, “Goodwill and Other Intangibles”, respectively. As part of the acquisition of real estate assets, the fair value of the real estate acquired is allocated to the acquired tangible assets, consisting of land, building and building improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, other value of in-place leases, and value of tenant relationships, based in each case on their fair values.
We allocate a portion of the purchase price to tangible assets including the fair value of the building and building improvements on an as-if-vacant basis and to land determined either by real estate tax assessments, independent appraisals or other relevant data. Additionally, we assess fair value of identified intangible assets and liabilities based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information.
Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market/economic conditions that may affect the property. If we incorrectly estimate the values at acquisition or the undiscounted cash flows, initial allocation of purchase price and future impairment charges may be different.
Long Lived Assets
We are required to make subjective assessments
as to whether there are impairments in the value of our real estate properties
and other investments. An investment’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 investment are less than the carrying value
of the investment. Such assessments consider factors such as cash flows,
expected future operating income, trends and prospects, as well as the effects
of demand, competition and other factors. To the extent impairment has occurred
it will be measured as the excess of the carrying amount of the property
over the fair value of the property. These assessments have a direct impact
on our net income, as a recognition of an impairment results in an immediate
negative adjustment to net income. In determining impairment, if any, we
have followed FASB Statement No. 144, “Accounting for
the Impairment or Disposal of Long Lived Assets” (“Statement No. 144”).
Statement No. 144 did not have an impact on net income allocable to common unitholders.
Statement No. 144 only impacts the presentation of the results of operations
and gains on sales of real estate assets for those properties sold during the
period within the consolidated statements of income.
In accordance with the provisions of Statement
No. 144, and Emerging Issues Task Force (“EITF”) 87-24, we allocated
approximately $7.6 million of our unsecured interest expense to
discontinued operations for the year ended December 31, 2003. EITF 87-24
states that “interest on debt that is required to be repaid as a result
of the disposal transaction should be allocated to discontinued operations”.
Pursuant to the terms of our unsecured credit facility (the “Credit
Facility”), we were required to repay the Credit Facility to the extent
of the net proceeds, as defined, received from the sales of unencumbered
properties. As such, we had allocated to discontinued operations the interest
expense incurred on the portion of our Credit Facility, which was required
to be repaid. In August 2004, we amended and extended our Credit Facility,
whereby such repayment requirement was eliminated.
II-5
Accumulated Other Comprehensive Income (Loss)
We report comprehensive income or loss in accordance with the provisions of FASB Statement No. 130, “Reporting Comprehensive Income”, which establishes standards for reporting comprehensive income and its components in the financial statements. The components of other comprehensive income (loss) (“OCI”) consist of unrealized gains and losses on derivative instruments.
Derivative Instruments
FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“Statement No. 133”), as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities.
The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.
As required by Statement No. 133, we record all derivatives on our balance sheet at fair value. For effective hedges, depending on the nature of the hedge, changes in the fair value of the derivative will be offset against the corresponding change in fair value of the hedged asset, liability, or firm commitment through earnings or recognized in OCI until the hedged item is recognized in earnings.
For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in OCI and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. We assess the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction. For derivatives not designated as hedges, changes in fair value are recognized in earnings.
We do not enter into derivative financial instruments for trading or speculative purposes. However, in the normal course of our business and to help us manage our debt issuances and maturities, we do use derivative financial instruments in the form of cash flow hedges to protect ourselves against potentially rising interest rates.
Variable Interest Entities
In January 2003, the FASB issued Interpretation
No. 46, “Consolidation of Variable Interest Entities” (“FIN
46”), which explains how to identify variable interest entities (“VIEs”)
and how to assess whether to consolidate such entities. VIEs are primarily
entities that lack sufficient equity to finance their activities without
additional financial support from other parties or whose equity holders lack
adequate decision making ability. All VIEs with which we are involved must
be evaluated to determine the primary beneficiary of the risks and rewards
of
the VIE.
The primary beneficiary is required to consolidate the VIE for financial
reporting purposes. The initial determination of whether an entity qualifies
as a VIE shall be made as of the date at which a primary beneficiary becomes
involved with the entity and reconsidered as of the date of a triggering
event, as defined. The provisions of this interpretation are immediately
effective for VIEs formed after January 31, 2003. In December 2003 the FASB
issued FIN 46R, deferring the effective date until the period ending March
31, 2004 for interests held by public companies in VIEs created before February
1, 2003, which were non-special purpose entities. We adopted
FIN 46R during the period ended March 31, 2004 and has determined that its
consolidated
and unconsolidated subsidiaries do not represent VIEs pursuant to such interpretation.
We will continue to monitor any changes in circumstances relating to certain
of its consolidated and unconsolidated joint ventures which could result
in a change in our consolidation policy.
Finite Life Joint Venture Agreements
In May 2003, the FASB issued Statement No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“Statement No. 150”). Statement No. 150 establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. Statement No. 150 is effective for all financial instruments created or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. We adopted Statement No. 150 on July 1, 2003, which
II-6
had no effect on our financial statements. Statement No. 150 also requires the disclosure of the estimated settlement values of non-controlling interests in joint ventures that have finite lives.
Two of our consolidated joint ventures are subject to finite life joint venture agreements. In accordance with Statement No. 150, we have estimated the settlement value of these non-controlling interests at December 31, 2005 and 2004 to be approximately $153.2 million and $145.1 million, respectively. The carrying value of these non-controlling interests, which is included in minority partners’ interests in consolidated partnerships on our consolidated balance sheets, was approximately $109.2 million and $110.9 million at December 31, 2005 and 2004, respectively.
Current pronouncements
In June 2005, the FASB ratified the consensus in EITF Issue No. 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights” (“Issue 04-5”), which provides guidance in determining whether a general partner controls a limited partnership. Issue 04-5 states that the general partner in a limited partnership is presumed to control that limited partnership. The presumption may be overcome if the limited partners have either (1) the substantive ability to dissolve the limited partnership or otherwise remove the general partner without cause or (2) substantive participating rights, which provide the limited partners with the ability to effectively participate in significant decisions that would be expected to be made in the ordinary course of the limited partnership’s business and
thereby preclude the general partner from exercising unilateral control over the partnership. The adoption of Issue 04-5 by us for new or modified limited partnership arrangements is effective June 30, 2005 and for existing limited partnership arrangements effective January 1, 2006. We do not expect that we will be required to consolidate our current unconsolidated joint venture investments nor do we expect Issue 04-5 to have a material effect on our consolidated financial statements.
In May 2005, the FASB issued Statement No. 154, “Accounting Changes and Error Corrections” (“Statement No. 154”). Statement No. 154, which replaces APB Opinion No. 20, “Accounting Changes” and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements”, changes the requirements for the accounting for and reporting of a change in accounting principle. The statement requires retrospective application of changes in accounting principle to prior periods’ financial statements unless it is impracticable to determine the period-specific effects or the cumulative effect of the change. Statement No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of Statement No. 154 is not expected to have a material impact on our consolidated financial position, results of operations or cash flows.
In March 2005, FASB issued Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (“FIN 47”), which became effective December 31, 2005. Under FIN 47, a conditional asset retirement obligation (“CARO”) must be recorded if the liability can be reasonably estimated. A CARO is an obligation that is settled at the time an asset is retired or disposed of an for which the timing and/or method of settlement are conditional on future events. We own certain properties that currently have asbestos which under certain conditions must be remediated. As a result of adopting FIN 47, we will increase the value of our recorded tangible assets at the time we recognize the associated conditional retirement obligation.
As a result, we have recorded approximately $2.0 million which represents the fair value of the CARO related to asbestos removal in tenant spaces. In addition, for certain limited areas of our properties, management is unable to reasonably determine the fair value of potential remediation costs as there is an indeterminate settlement date for the asset retirement obligation because the range of time over which way we may choose to remediate this condition may not be estimated with any level of precision which would lend itself to a meaningful estimate.
Overview and Background
The Operating Partnership commenced operations
on June 2, 1995. Reckson Associates Realty Corp. (the “Company”),
which serves as the sole general partner of the Operating Partnership, is
a fully integrated, self administered and self managed real estate investment
trust (“REIT”). The Operating Partnership and the Company
were formed for the purpose of continuing the commercial real estate business
of Reckson Associates, the predecessor of the Operating Partnership, its
affiliated partnerships and other entities (“Reckson”). Unless
the context requires otherwise, the terms “Company”, “we”, “us”, “our” and
similar terms include Reckson Associates Realty Corp., Reckson Operating
Partnership, L. P. and their wholly-owned subsidiaries.
The Operating Partnership is engaged in the ownership, management, operation, acquisition, leasing, financing and development of commercial real estate properties, principally office and to a lesser extent flex properties and also owns land for future development located in the New York City tri-state area (the “Tri-State Area”).
II-7
The Reckson Group, the predecessor to the Company, was engaged in the ownership, management, operation, leasing and development of commercial real estate properties, principally office and industrial / R&D buildings, and also owned undeveloped land located primarily on Long Island, New York. In June 1995, the Company completed an initial public offering (the “IPO”), succeeded to the Reckson Group’s real estate business and commenced operations.
The Operating Partnership’s growth
strategy is focused on the commercial real estate markets in and around the
Tri-State Area. All
of our interests in our real properties, land held for development and investments
in notes receivable are held directly or indirectly by, and all of our operations
are conducted through the Operating Partnership.
In connection with the IPO, we were granted ten-year options to acquire ten properties (the “Option Properties”) which were either owned by certain Rechler family members who were also executive officers of the Company, or in which the Rechler family members owned a non-controlling minority interest, at prices based upon an agreed upon formula. During November, 2003, in connection with the sale of all but three of our Long Island industrial building portfolio to members of the Rechler family, four of the five remaining options (the “Remaining Option Properties”) were terminated, along with management contracts relating to three of the properties.
The Operating Partnership conducts its management, leasing and construction related services through the Company’s taxable REIT subsidiaries as defined by the Internal Revenue Code of 1986, as amended (the “Code”). These services are currently provided by Reckson Management Group, Inc. (“RMG”), RANY Management Group, Inc., Reckson Construction and Development LLC (“RCD”) and Reckson Construction Group New York, Inc. (collectively, the “Service Companies”). During the years ended December 31, 2005 and 2004, RCD billed approximately $31,000 and $859,000, respectively, of market rate services and RMG billed approximately $285,000 and $280,000, respectively, of market rate management fees to the Remaining Option Properties.
RMG leases approximately 26,000 square feet of office space at the Remaining Option Property located at 225 Broadhollow Road, Melville, New York for its corporate offices at an annual base rent of approximately $809,000. During 2005, RMG exercised a termination option for its corporate offices allowing us to terminate the lease on November 30, 2006 without penalty. RMG also leases 10,722 square feet of warehouse space used for equipment, materials and inventory storage at a property owned by certain members of the Rechler family at an annual base rent of approximately $79,000. In addition, commencing April 1, 2004, RCD has been leasing approximately 17,000 square feet of space at 225 Broadhollow Road, Melville, New York, which is scheduled to terminate on September 30, 2006. Base rent of approximately $495,000 and $360,000 was paid by RCD during the years ended December 31, 2005 and 2004, respectively. Commencing
in April 2005, RCD sub-let the entire 17,000 square feet to a third party for approximately $35,000 per month through RCD’s September 2006 lease termination date.
On March 28, 2005, an entity (“REP”) owned by members of the Rechler family (excluding Scott Rechler, but including his father, Roger, and brother, Gregg) exercised a Right of First Refusal (which was granted in connection with the 2003 sale of the industrial portfolio by us) to acquire a vacant parcel of land for a purchase price of $2.0 million. We have agreed to provide REP with the option to defer the closing on the purchase until September 2006, for a non-refundable deposit of $400,000 and a fee of $10,666 per month for each month that the closing is deferred. In connection therewith, REP agreed to settle a dispute concerning an easement on a separate parcel of land owned by us adjacent to one of the properties transferred to REP in November 2003.
A company affiliated with an independent director of the Company leases 15,566 square feet in a property owned by us at an annual base rent of approximately $430,000.
During November 2005 we purchased 11 pieces of art which have historically been on display in certain of our buildings for approximately $170,000 from an entity owned by certain members of the Rechler family. The purchase prices were reviewed by an independent art dealer and approved by the independent directors.
As of December 31, 2005 we owned and operated 103 properties (inclusive of twenty-five office properties owned through joint ventures) in the Tri-State Area Central Business District (“CBD”) and suburban markets, encompassing approximately 20.3 million rentable square feet, all of which are managed by us. The properties include 17 Class A CBD office properties encompassing approximately 7.2 million rentable square feet. The CBD office properties consist of six properties located in New York City, nine properties located in Stamford, CT and two properties located in White Plains, NY. The CBD office properties comprised 52.1% of our net operating income (property operating revenues less property operating expenses) for the three months ended December 31, 2005. These properties also include 78 Class A suburban office properties encompassing approximately 12.2 million rentable square feet, of which 59 of these
properties, or 46.8% as measured by square footage, are located within our 14 office parks. We have historically emphasized the development and acquisition of suburban office
II-8
properties in large-scale office parks. We believe that owning properties in planned office parks provides strategic and synergistic advantages, including the following: (i) certain tenants prefer locating in a park with other high quality companies to enhance their corporate image, (ii) parks afford tenants certain aesthetic amenities such as a common landscaping plan, standardization of signage and common dining and recreational facilities, (iii) tenants may expand (or contract) their business within a park, enabling them to centralize business functions and (iv) a park provides tenants with access to other tenants and may facilitate business relationships between tenants. Additionally, the properties include eight flex properties encompassing approximately 863,000 rentable square feet.
Through our ownership of properties in the key CBD and suburban office markets in the Tri-State Area, we believe we have a unique competitive advantage as the trend toward the regional decentralization of the workplace increases. Subsequent to the events of September 11, 2001, as well as the impact of technological advances, which further enable decentralization, companies are strategically re-evaluating the benefits and feasibility of regional decentralization and reassessing their long-term space needs. We believe this multi-location regional decentralization will continue to take place, increasing as companies begin to have better visibility as to the future of the economy, further validating our regional strategy of maintaining a significant market share in the key CBD and suburban office markets in the Tri-State Area.
At December 31, 2005, we also owned a
354,000 square foot office building located in Orlando, Florida. This
non-core real estate holding was acquired in May 1999 in connection with
our initial New York City portfolio acquisition. This property was
cross-collateralized under a $99.7 million mortgage note payable along with
one of our New York City office buildings. On November 1, 2004, we
exercised our right to prepay this note in its entirety, without penalty. This
property was sold on March 7, 2006 for aggregate consideration of approximately
$70.0 million.
We also own certain land parcels throughout our markets in the Tri-State Area which we hold for current and future development (the “Development Parcels”). During July 2004, we commenced the ground-up development on one of the Development Parcels of a 300,000 square foot Class A office building located within our existing three building executive office park in Melville, NY with a total anticipated investment of approximately $64.0 million. This development was recently completed and is approximately 67% leased. During July 2005, we commenced the ground-up development on one of the Development Parcels of a 37,000 square foot Class A retail property located within our existing six building Landmark Square office park in Stamford, Connecticut with a total anticipated investment of approximately $10.1 million. In August 2005, we recommenced the ground-up development of one of the Development Parcels of a 316,000 square foot Class A
office building located within our existing three building office park located in Princeton, NJ with an anticipated incremental investment of approximately $47.0 million. There can be no assurances that the actual cost of these ground-up development projects will not exceed their anticipated amounts. Further, one of the Development Parcels, aggregating approximately 4.1 acres, is classified as held for sale on our balance sheets and is expected to close during September 2006 for aggregate consideration of $2.0 million. In addition, as previously discussed, in May 2005, we entered into a contract to sell approximately 60 acres of vacant land in Chatham Township, NJ, subject to a change in zoning and other conditions. There can be no assurances that such conditions will be met or that the transaction will be consummated. Excluding the foregoing, at December 31, 2005 our inventory of Development Parcels aggregated approximately 309 acres of land in 10 separate parcels of which we can,
based on current estimates, develop approximately 3.6 million square feet of office space and which we had invested approximately $123.8 million.
Management has made subjective assessments as to the value and recoverability of our investments in the Development Parcels based on current and proposed development plans, market comparable land values and alternative use values. We are currently evaluating alternative land uses for certain of the remaining Development Parcels to realize their highest economic value. These alternatives may include rezoning certain Development Parcels from commercial to residential for potential disposition.
Our core business strategy is based on a long-term outlook considering real estate as a cyclical business. We seek to accomplish long-term stability and success by developing and maintaining an infrastructure and franchise that is modeled for success over the long-term. This approach allows us to recognize different points in the market cycle and adjust our strategy accordingly. We are reasonably optimistic about the prospects for continued economic recovery in our markets. We still choose to maintain our conservative operating strategy of focusing on retaining high occupancies, controlling operating expenses, maintaining a high level of investment discipline and preserving financial flexibility.
Our market capitalization at December 31, 2005 was approximately $5.1 billion. Our market capitalization is based on the sum of (i) the market value of the Company’s common stock and units of limited partnership in the Operating Partnership (“OP Units”) (assuming conversion) of $35.98 per share / unit (based on the closing price of the Company’s common stock on December 31, 2005), (ii) the liquidation preference value of the Operating Partnership’s preferred units of $1,000 per unit and (iii) approximately $2.0 billion (including our share of consolidated and unconsolidated joint venture debt and net of minority partners’ interests’
II-9
share of consolidated joint venture debt) of debt outstanding at December 31, 2005. As a result, our total debt to total market capitalization ratio at December 31, 2005 equaled approximately 40.1%.
Results of Operations
The following table is a comparison of the results of operations for the year ended December 31, 2005 to the year ended December 31, 2004:
|
|
|
Year ended December 31,
|
|
||||||||||
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
Change
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
2005
|
|
2004
|
|
Dollars
|
|
Percent
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Operating Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base rents
|
|
$
|
468,034
|
|
$
|
422,012
|
|
$
|
46,022
|
|
|
10.9
|
%
|
|
Tenant escalations and reimbursements
|
|
|
78,114
|
|
|
71,369
|
|
|
6,745
|
|
|
9.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property operating revenues
|
|
$
|
546,148
|
|
$
|
493,381
|
|
$
|
52,767
|
|
|
10.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
$
|
131,289
|
|
$
|
118,278
|
|
$
|
13,011
|
|
|
11.0
|
%
|
|
Real estate taxes
|
|
|
87,752
|
|
|
80,855
|
|
|
6,897
|
|
|
8.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property operating expenses
|
|
$
|
219,041
|
|
$
|
199,133
|
|
$
|
19,908
|
|
|
10.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income
|
|
$
|
118,035
|
|
$
|
19,043
|
|
$
|
98,992
|
|
|
519.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense
|
|
$
|
110,891
|
|
$
|
95,920
|
|
$
|
14,971
|
|
|
15.6
|
%
|
|
Amortization of deferred financing costs
|
|
|
4,166
|
|
|
3,721
|
|
|
445
|
|
|
12.0
|
%
|
|
Marketing, general and administrative
|
|
|
32,438
|
|
|
29,967
|
|
|
2,471
|
|
|
8.2
|
%
|
|
Long term incentive compensation expense
|
|
|
23,534
|
|
|
—
|
|
|
23,534
|
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
$
|
171,029
|
|
$
|
129,608
|
|
$
|
41,421
|
|
|
32.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our property operating revenues, which include base rents and tenant escalations and reimbursements (“Property Operating Revenues”), increased by $52.8 million or 10.7% for the year ended December 31, 2005 as compared to the 2004 period. Property Operating Revenues increased by $49.1 million attributable to properties acquired during 2005 and $24.3 million from built in rent increases and straight line rental revenue increases in our same store properties. These increases were offset by a $14.6 million revenue decrease from properties sold during 2005 and $6.0 million decrease in termination fees.
The 2004 increase in property operating expenses, real estate taxes and ground rents (“Property Expenses”) increased by $19.9 million or 10.0% for the year ended December 31, 2005 as compared to the 2004 period. The increase is due to a $14.7 million increase in real estate taxes and operating expenses related to our same store properties. Properties acquired during 2005 increased property expenses by $10.4 million. These increases were offset by a $5.2 million decrease for properties sold during 2005. The increase in real estate taxes is attributable to the increases levied by certain municipalities, particularly in New York City and Westchester County, New York. The increase in utilities was the effect of rising fuel prices throughout the United States as a result of Hurricane Katrina.
Gross operating margins (defined as Property Operating Revenues less Property expenses, taken as a percentage of Property Operating Revenues) for 2005 and 2004 were 59.9% and 59.6%, respectively.
Other income, consisting of gains on sales of real estate, interest income on notes receivable, investment income and other increased by $99.0 million for the year ended December 31, 2005 as compared to the 2004 period. This increase is primarily attributable to gains on sales of real estate recognized in the 2005 period of $92.1 million from the sales of 17 of our suburban office properties to the RAOC JV ($86.7 million) and the sale of a 70% interest in One Court Square to the Court Square JV ($5.4 million). Interest income on notes receivable increased by $7.0 million for the year ended December 31, 2005 as compared to the 2004 period due to a weighted average increase and our Note Receivable Investments of $62.7 million from the 2004 period. These increases were off-set by a net decrease in investment and other income of approximately $100,000. This net decrease is comprised of the following: $4.6 million in transactional, property and asset
management fees earned during the 2005 period related to the RAOC JV, an increase of $4.0 million earned through our Service Companies, an increase of $2.3 million related to tenant-related services and other income, a decrease of $5.0 million to the gain recognized and related tenant work on a land sale and build-to-suit transaction earned in 2004 with no such gain recognized in the 2005 period, a $1.2 million decrease related to real estate tax and other non-tenant related recoveries, a decrease in income tax refunds of $1.0 million recorded in the 2004
II-10
period through a Service Company and a decrease of $3.8 million received in the 2004 period in consideration for the assignment of certain mortgage indebtedness.
Interest expense incurred increased by $15.0 million or 15.6% for the year ended December 31, 2005 as compared to the 2004 period. This increase is attributable to an increase of $10.3 million attributable to a net increase of $50.0 million in the Operating Partnership’s senior unsecured notes and its issuance of $287.5 million of senior unsecured debentures during the 2005 period. Interest expense increased by $5.1 million incurred under an unsecured bridge facility, which was funded in May 2005 for the acquisition of One Court Square (the “Bridge Facility”), $1.6 million incurred from our financing of twelve properties during the 2005 period related to the RAOC JV, approximately $300,000 incurred from the assumption of mortgage debt on two of our acquisitions during the 2005 period and $9.1 million incurred under our unsecured credit facility. The increase in interest expense incurred under our unsecured credit facility is a
result of an increase in the weighted average balance outstanding and an increase in the weighted average interest rate from 3.6% to 4.6%. The weighted average balance outstanding under our unsecured credit facility was $314.0 million for the year ended December 31, 2005 as compared to $143.9 million for the year ended December 31, 2004. During the 2005 period we also incurred $5.1 million of interest expense related to the permanent financing of One Court Square prior to the sale of a 70% interest in the property on November 30, 2005. These aggregate increases of $31.5 million were off-set by decreases in interest expense of approximately $1.1 million incurred under our same store mortgage portfolio, by decreases in interest expense of $12.3 million resulting from the payoff of four mortgage notes during 2004 and 2005 and an increase of $3.4 million in capitalized interest expense due to increase in development activities.
Amortization of deferred financing costs
increased by approximately $445,000 from 2004 to 2005 primarily as a result
of costs attributable to the permanent financing of One Court Square prior
to the sale of a 70% interest in the property on November 30, 2005 of approximately
$369,000. To a lesser extent the increase was attributable to the issuance
of the Operating Partnership’s senior unsecured debentures during 2005
and from the financing of certain properties during the 2005 period related
to the RAOC JV.
Marketing, general and administrative
expenses before a $23.5 million charge related to our long term incentive
compensation plan increased by $2.5 million for the year ended December 31,
2005 as compared to the 2004 period. This overall net increase is attributable
to increased costs of maintaining offices and infrastructure in each of our
five divisional markets, higher compensation costs including amortization
expense related to restricted stock awards to executive and non-executive
officers, increases in charitable contributions to organizations that operate
within our market places, increased costs related to our directors and officers
insurance premiums and higher accounting fees related to maintaining compliance
with the requirements of the Sarbanes-Oxley Act of 2002. Marketing, general
and administrative costs represented 5.7% of total revenues from continuing
operations (excluding gains on sales of depreciable real estate assets) in
the 2005 period as compared to 5.8% in the 2004 period. For further discussion
on the aforementioned $23.5 million charge please see “Other Matters” of
this Item 7.
Discontinued operations net of minority interests increased by $50.6 million for the year ended December 31, 2005 as compared to the 2004 period. This increase is attributable to an increase in the gains on sales of $49.7 million related to properties sold during the 2005 period as compared to the 2004 period and approximately $900,000 of income from discontinued operations for those properties classified as held for sale.
II-11
The following table is a comparison of the results of operations for the year ended December 31, 2004 to the year ended December 31, 2003:
|
|
|
Year ended December 31,
|
|
||||||||||
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
Change
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
2004
|
|
2003
|
|
Dollars
|
|
Percent
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Operating Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base rents
|
|
$
|
422,012
|
|
$
|
353,654
|
|
$
|
68,358
|
|
|
19.3
|
%
|
|
Tenant escalations and reimbursements
|
|
|
71,369
|
|
|
57,003
|
|
|
14,366
|
|
|
25.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property operating revenues
|
|
$
|
493,381
|
|
$
|
410,657
|
|
$
|
82,724
|
|
|
20.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
$
|
118,278
|
|
$
|
98,837
|
|
$
|
19,441
|
|
|
19.7
|
%
|
|
Real estate taxes
|
|
|
80,855
|
|
|
66,094
|
|
|
14,761
|
|
|
22.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property operating expenses
|
|
$
|
199,133
|
|
$
|
164,931
|
|
$
|
34,202
|
|
|
20.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income
|
|
$
|
19,043
|
|
$
|
24,209
|
|
$
|
(5,166
|
)
|
|
(21.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense
|
|
$
|
95,920
|
|
$
|
78,580
|
|
$
|
17,340
|
|
|
22.1
|
%
|
|
Amortization of deferred financing costs
|
|
|
3,721
|
|
|
3,239
|
|
|
482
|
|
|
14.9
|
%
|
|
Marketing, general and administrative
|
|
|
29,967
|
|
|
31,442
|
|
|
(1,475
|
)
|
|
(4.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
$
|
129,608
|
|
$
|
113,261
|
|
$
|
16,347
|
|
|
14.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Operating Revenues increased by $82.7 million from 2003 to 2004. Property Operating Revenues increased by $64.5 million attributable to newly acquired properties during 2004, $11.8 million resulting from an increase in weighted average occupancies and an increase of straight-line rental revenues in our same store properties. In addition, Property Operating Revenues increased by $6.4 million in termination fees and $2.6 million resulting in the recovery of bad debts previously written off. These increases were offset by a $2.6 million decrease in escalations and reimbursements related to our same store properties. This was a result of the modest increase of escalatable operating expenses and new base years for renewing tenants.
The 2004 increase in Property Expenses of $34.2 million is due to a $4.2 million increase in real estate taxes and operating expenses related to our same store properties. Newly acquired properties in 2004 increased Property Expenses by $30.0 million. Included in the increased operating expenses are increases in utilities, security and ground rent. These increases were mitigated by lower costs related to insurance and repairs and maintenance. The increase in real estate taxes is attributable to the significant increases levied by certain municipalities, particularly in New York City and Westchester County, New York, which have experienced severe fiscal budget issues. Increases in utility costs relate to rate increases per energy unit and increases in security relate to the heightened terror alerts in New York City.
Gross operating margins for 2004 and 2003 were 59.6% and 59.8%, respectively.
Other income decreased by $5.2 million. This decrease is primarily attributable to a gain recognized on a land sale and build-to-suit construction contract of approximately $18.8 million from the 2003 period as compared to a $5.0 million gain recognized in the 2004 period. This decrease was off-set by an increase in property tax and utility refunds of approximately $1.9 million, sales proceeds during 2004 related to certain mortgage assignments on two of our New York City properties totaling approximately $3.8 million, income tax refunds related to a Service Company of $1.1 million and an increase in Service Company income of approximately $1.9 million.
Interest expense incurred increased by
$17.3 million or 22.1% for the year ended December 31, 2004 as compared to
the 2003 period. This increase is attributable to $4.8 million of additional
interest expense from a net increase during 2004 of $200 million in the Operating
Partnership’s senior unsecured notes, an increase of $8.0 million of
interest expense incurred on the mortgage debt on 1185 Avenue of the Americas
which was acquired in January 2004 and $8.9 million of unsecured interest
expense which was allocated to discontinued operations during the 2003 period
with no such allocation in the 2004 period. This allocation resulted in an
increase in interest expense from continuing operations in the 2004 period.
These aggregate increases of approximately $21.7 million were mitigated by
a decrease in mortgage interest expense of $800,000 resulting from the satisfaction
of a mortgage note payable during 2004, a decrease in mortgage interest
expense of $800,000 under our same store
II-12
mortgage portfolio and a decrease of $2.8 million incurred under the Credit Facility as a result of a decrease in the weighted average balance outstanding. The weighted average balance outstanding under the Credit Facility was $143.9 million for the 2004 period and $308.1 million for the 2003 period.
Marketing, general and administrative expenses decreased by $1.5 million for the year ended December 31, 2004 as compared to the 2003 period. This decrease is primarily attributable to the efficiencies we achieved as a result of the November 2003 restructuring and the related termination of certain employees and settlement of the employment contracts of certain former executive officers of the Company. These cost savings were impacted by our initiative to comply with the provisions of section 404 of the Sarbanes-Oxley Act of 2002 in the amount of approximately $700,000 with no such costs applicable to the comparative period of 2003. These costs included additional directors and independent accounting and legal fees. Marketing, general and administrative expenses as a percentage of total property operating revenues were 5.8% in 2004 and 7.2% in 2003.
Liquidity and Capital Resources
Historically, rental revenue has been
the principal source of funds to pay operating expenses, debt service and
non-incremental capital expenditures, excluding incremental capital expenditures. We
expect to meet our short-term liquidity requirements generally through our
net cash provided by operating activities along with our $500 million unsecured
credit facility (the “Credit Facility”) described below. The
Credit Facility contains several financial covenants with which we must be
in compliance in order to borrow funds thereunder. During the prior
two years, we have incurred significant leasing costs in the form of tenant
improvement costs, leasing commissions and free rent. This trend is
a result of market demands from tenants and high levels of leasing transactions
to re-tenant scheduled expirations or space vacated due to early terminations
of leases. We are also expending costs on tenants that are
renewing or extending their leases earlier than scheduled. For the years
ended December 31, 2005 and 2004, we paid or accrued approximately $67.7 million
and $52.2 million, respectively, for tenanting costs including tenant improvement
costs and leasing commissions. As a result of these and / or other operating
factors, our cash available for distribution from operating activities was not
sufficient to cover 100% of the distributions paid on our common equity. However,
we are beginning to experience a moderation in the cost of re-tenanting our properties,
primarily in terms of free rent concessions and costs to renew existing tenants. We
are not yet experiencing significant reductions in the cost of re-leasing vacant
or vacated space. Recently we have experienced an economic recovery in
our markets, including an accelerated recovery in our New York City and Long
Island markets. This is resulting in rental rate increases which is positively
impacting our cash flow. To meet the short-term funding requirements
relating to the higher leasing costs, we have used proceeds from property sales
or borrowings under our Credit Facility. Based on our forecasted leasing,
we anticipate that we will continue to incur shortfalls during 2006. We
currently intend to fund any shortfalls with proceeds from sales of non-income
producing assets or borrowings under our Credit Facility. We
periodically review our distribution policy to determine the appropriateness
of
our
distribution
rate relative to our cash flows. We adjust our distribution rate based
on such factors as leasing activity, market conditions and forecasted increases
and decreases in our cash flow as well as required distributions of taxable income
to maintain the Company’s REIT status. There can be no assurance that
we will maintain
the current quarterly distribution level on our common equity.
We expect to meet most of our financing
requirements through long-term unsecured borrowings and the issuance of debt
and equity securities of the Company. In certain situations, primarily
in joint venture transactions, we use secured debt in connection with the
acquisition of properties. During the year ended December 31, 2004,
the Company issued approximately $436.2 million of common stock and the Operating
Partnership issued $300 million of senior unsecured debt securities. In
addition, during June 2005, the Operating Partnership issued $287.5 million
of exchangeable senior debentures. There can be no assurance that there
will be adequate demand for the Company’s equity at the time or at the
price in which the Company desires to raise capital through the sale of additional
equity. Similarly, there can be no assurance that the Operating Partnership
will be able to access the unsecured debt markets at the time when the Operating
Partnership desires to sell its unsecured notes. In addition, when
valuations for commercial real estate properties are high, we will seek to
sell non-core operating properties or certain land inventory to realize value
and profit created. We will then seek opportunities to reinvest the
capital realized from these dispositions back into value-added assets in
our core Tri-State Area markets. However, there can be no assurances
that we will be able to identify such opportunities that meet our underwriting
criteria. Additionally, we have been actively seeking joint venture
relationships to access new sources of equity capital. In September
2005 we completed a series of transactions whereby we sponsored the IPO of
Reckson LPT, a newly-formed Australian listed property trust which is traded
on the Australian Stock Exchange. Proceeds received from the IPO were used
to form a joint venture with us, the RAOC JV, and purchase 17 of our properties.
In addition, we have sold or are under contract to sell an additional eight
of our properties to the RAOC JV during 2006. It is our intention to
purchase additional assets, within our markets, with Reckson LPT through
the RAOC JV. Joint ventures often involve relinquishing sole decision
making authority relating to material events such as sale and financing. Loss
of control of these decisions may adversely affect our financial flexibility. There
can be no assurances that we will be able to successfully execute this strategy.
II-13
We expect to refinance existing mortgage indebtedness, senior unsecured notes or indebtedness under our Credit Facility at maturity through the issuance of unsecured debt securities or additional equity securities. We anticipate that the current balance of cash and cash equivalents and cash flows from operating activities, together with cash available from borrowings, equity offerings and proceeds from sales of land and non-income producing assets, will be adequate to meet our capital and liquidity requirements in both the short and long-term. Our senior unsecured debt is currently investment grade rated “BBB-” by Fitch Ratings, “BBB-” by Standard & Poor’s and “Baa3” by Moody’s Investors Service. The rating agencies review the ratings assigned to an issuer such as us on an ongoing basis. Negative changes in our ratings may result in increases in our borrowing costs, including
borrowings under our Credit Facility.
Our markets are currently in the recovery stage in the economic cycle. As a result of current economic conditions, we have experienced higher renewal rates and a lower number of lease terminations. Our results reflect improving vacancy rates in our markets and our asking rents in our markets have stabilized and in some instances have begun to trend higher. Landlords are still required to grant concessions such as free rent and tenant improvements but generally at a more moderate rate than had been experienced in the prior year, particularly on renewal space. Our markets continue to experience higher real estate taxes and utility rates. The recent volatility in the energy markets have had a substantial impact on cost of utilities in the northeast where we own our properties. In certain of our markets, the increase in real estate taxes and utility costs will be included as part of expenses subject to
escalation above a “base year” and billed to tenants consistent with the terms of their underlying leases. We are also experiencing a similar increase in cost of building materials to fit out tenant space, maintain our buildings and in new development costs. We believe that trends are moving positively from a landlord’s perspective particularly in terms of increased demand and limited new supply and that the above average tenant costs relating to leasing are moderating. This trend is supported by increased occupancy and reduced vacancy rates in most of our markets, the general economic recovery in the market resulting in job growth, and the scarcity of available land in which to develop a new supply of office space.
We carry comprehensive liability, fire, extended coverage and rental loss insurance on all of our properties. Six of our properties are located in New York City. As a result of the events of September 11, 2001, insurance companies were limiting coverage for acts of terrorism in “all risk” policies. In November 2002, the Terrorism Risk Insurance Act (“TRIA”) of 2002 was signed into law, which, among other things, requires insurance companies to offer coverage for losses resulting from defined “acts of terrorism” through 2005. The TRIA was subsequently extended, with certain modifications, through 2007 with the enactment of the Terrorism Insurance Extension Act of 2005. Our current property insurance coverage, which expires on June 2, 2006, provides for full replacement cost of our properties, including for acts of terrorism up to $540.0 million on a per occurrence basis. There can
be no assurances that we will be able to replace these coverages at commercially reasonably rates or at all.
The potential impact of terrorist attacks in the New York City and Tri-State Area may adversely affect the value of our properties and our ability to generate cash flow. As a result, there may be a decrease in demand for office space in metropolitan areas that are considered at risk for future terrorist attacks, and this decrease may reduce our revenues from property rentals.
In order to qualify as a REIT for federal
income tax purposes, the Company is required to make distributions to its
stockholders of at least 90% of REIT taxable income. As a result, it
is anticipated that the Operating Partnership will make distributions in
amounts sufficient to meet this requirement. We expect to use our
cash flow from operating activities for distributions to the Company’s
stockholders, the Operating Partnership’s partners and for payment
of recurring, non-incremental revenue-generating expenditures. We intend
to invest amounts accumulated for distribution in short-term investments.
Summary of Cash Flows
Net cash provided by operating activities totaled $199.6 million in 2005, $172.3 million in 2004 and $160.7 million in 2003. Cash provided by operating activities during 2005 is primarily attributable to increased occupancies and leasing in our portfolio and an increase of approximately 1.5 million rentable square feet during 2005 resulting from net property acquisitions and the lease up of two development properties. Cash provided by operating activities during 2004 is primarily attributable to increased occupancies and leasing in our portfolio and an increase of approximately 1.2 million rentable square feet during 2004 resulting from property acquisitions and the lease up of a development property.
Net cash used in investing activities totaled $1.0 billion in 2005 and $226.9 million in 2004. Net cash provided by investing activities totaled $109.5 million in 2003. Cash flows used in investing activities during 2005 related primarily to our acquisition of 20 office properties and one land parcel aggregating approximately $1.0 billion, ongoing development and improvements to our existing portfolio of properties including related leasing costs of approximately $152.3 million and additional investments in notes receivable of approximately $124.2 million. These uses of cash were offset by proceeds received from the sale of 22 of our office properties or interests therein and one parcel of land aggregating approximately $247.0 million as well as proceeds received from the repayment of notes receivable of approximately $36.4 million. Cash flows used in investing activities during 2004 related primarily to our acquisition of
five office properties (including one property from its joint venture partner, TIAA)
II-14
aggregating approximately $160.7 million, ongoing development and improvements to our existing portfolio of properties including related leasing costs of approximately $101.1 million and additional net investments in notes receivable of approximately $31.6 million. These uses of cash were offset by proceeds received from the sale of five commercial properties, certain non-core land holdings and a retail property aggregating approximately $67.3 million. Cash provided by investing activities in 2003 is primarily attributable to proceeds from the sale of the Long Island industrial building portfolio, which was offset by the purchase of assets and investments in developments and commercial real estate properties.
Net cash provided by financing activities
totaled $816.9 million in 2005 and $56.9 million in 2004. Net cash
used in financing activities totaled $278.2 million in 2003. Cash
provided by financing activities in 2005 is primarily attributable to the
net issuance of senior unsecured notes in the amount of approximately $281.8
million, the issuance of common stock (including the exercising of stock
options) of approximately $14.1 million, proceeds received from secured borrowings
of approximately $562.6 million and net advances made under the Credit Facility
of $183.5 million. These sources of cash provided by financing activities
were offset by the repayment of three outstanding mortgage notes payable,
along with principal repayments on our mortgage notes payables in the amount
of approximately $59.6 million and distributions paid to our equity holders
in the amount of $158.7 million. Cash
provided by financing activities in 2004 is primarily attributable to the
net issuance of senior unsecured notes in the amount of approximately $200
million, the issuance of common stock (including the exercising of stock
options) of approximately $500 million and net advances made under the Credit
Facility of $66.5 million. These
sources of cash provided by financing activities were offset by the repayment
of three outstanding mortgage notes payable in the amount of $362.2 million,
the repurchases of Series A preferred units of $178.7 million and distributions
paid to our equity holders in the amount of $169.7 million. Cash
used in financing activities for 2003 primarily resulted from secured debt amortization
payments and the repayment of outstanding borrowings on the Credit Facility from
proceeds from the sale of the Long Island industrial building portfolio.
Investing Activities
During January 2005, we acquired, in two separate transactions, two Class A office properties located at One and Seven Giralda Farms in Madison, New Jersey for total consideration of approximately $78 million. One Giralda Farms encompasses approximately 150,000 rentable square feet and Seven Giralda Farms encompasses approximately 203,000 rentable square feet. We made these acquisitions through advances under our Credit Facility.
In May 2005, we acquired a 1.4 million square foot, 50-story, Class A office tower located at One Court Square, Long Island City, NY, for approximately $471.0 million, inclusive of transfer taxes and transactional costs. One Court Square is 100% leased to the seller, Citibank N.A., under a 15-year net lease. The lease contains partial cancellation options effective during 2011 and 2012 for up to 20% of the leased space and in 2014 and 2015 for up to an additional 20% of the originally leased space, subject to notice and the payment of early termination penalties. On November 30, 2005, we sold a 70% joint venture interest in One Court Square (the “Court Square JV”) to certain institutional funds advised by JPMorgan Investment Management (the “JPM Investor”) for approximately $329.7 million, including the assumption of $220.5 million of the property’s mortgage debt. The operating agreement of the
Court Square JV requires approvals from members on certain decisions including annual budgets, sale of the property, refinancing of the property’s mortgage debt and material renovations to the property. In addition, after September 20, 2009, the members each have the right to recommend the sale of the property, subject to the terms of the mortgage debt, and to dissolve the Court Square JV. We have evaluated the impact of FIN 46R on our accounting for the Court Square JV and have concluded that the Court Square JV is not a VIE. We account for the Court Square JV under the equity method of accounting. We have also evaluated, under Issue 04-05, that the JPM Investor has substantive participating rights in the ordinary course of the Court Square JV’s business In accordance with the equity method of accounting, our proportionate share of the Court Square JV income was approximately $45,000 for the period November 30 through December 31, 2005.
On May 26, 2005, we entered into a contract to sell approximately 60 acres of vacant land located in Chatham Township, NJ for up to approximately $30.0 million, which is based upon a final approved site plan. The closing is anticipated to occur upon receiving final re-zoning approvals and other customary due diligence and approvals. The sale is contingent upon due diligence, environmental assessment, re-zoning and other customary approvals. There can be no assurances that any of the aforementioned contingences will be achieved and the sale ultimately completed.
On June 8, 2005, we sold a three-acre
vacant land parcel located on Long Island for approximately $1.4 million
which resulted in a net gain of approximately $179,000.
On June 20, 2005, we acquired our joint venture partner’s 40% interest in a 172,000 square foot office property located at 520 White Plains Road, Tarrytown, NY for approximately $8.1 million which consisted of the issuance of 127,510 OP Units valued at $31.37 per OP Unit and the assumption of approximately $4.1 million of secured mortgage indebtedness of the joint venture.
II-15
On July 14, 2005, we acquired two adjacent Class A suburban office buildings aggregating approximately 228,000 square feet located at 225 High Ridge Road in Stamford, CT for approximately $76.3 million. This acquisition was made through a borrowing under our Credit Facility. On August 26, 2005 this property was encumbered, along with eight other properties, with an interest only mortgage in the amount of approximately $55.3 million and on September 21, 2005 was sold to the RAOC JV for approximately $76.5 million which included the assignment of the property’s mortgage debt.
On August 18, 2005, we entered into (i) an underwriting agreement relating to the public offering in Australia of approximately A$263.0 million (approximately US$202.0 million) of units (“LPT Units”) in a newly-formed Reckson-sponsored Australian listed property trust, Reckson New York Property Trust (“Reckson LPT”), a newly-formed listed property trust which is traded on the Australian Stock Exchange and (ii) contribution and sale agreements pursuant to which, among other things, we agreed to transfer 25 of our properties for an aggregate purchase price of approximately $563.0 million and containing an aggregate of 3.4 million square feet, in three separate tranches, to the RAOC JV in exchange for a 25% interest in the RAOC JV and approximately $502.0 million in cash (inclusive of proceeds from mortgage debt to be assumed by the RAOC JV). On September 21, 2005, Reckson LPT completed its public offering and the closing of
the first of three tranches (“Tranche I”) of this transaction.
In connection with the Tranche I closing,
the RAOC JV acquired from us 17 of our suburban office properties containing
approximately 2.0 million square feet for approximately $367.0 million (including
the assumption of approximately $196.1 million in mortgage debt which had
been incurred by us in August 2005). In return, we received a 25% interest
in the RAOC JV and approximately $128.1 million in cash resulting in an aggregate
gain of approximately $103.6 million. As discussed below relating to certain
guarantees we have made, approximately $18 million of the aggregate gain
has been deferred to future periods pursuant to Statement No. 66 to coincide
with the release of the guarantees. As
a result, gains on sales of real estate, related to Tranche I reported in
the current period is approximately $86.1 million. Approximately $22.0 million of the cash received was used
to repay certain of our secured mortgage indebtedness on September 30, 2005
and approximately $105.7 million of the cash received was used to establish
an escrow account with a qualified intermediary for a future exchange of
real property pursuant to Section 1031 of the Code (a “Section 1031
Exchange”). A Section 1031 Exchange allows for the deferral
of taxes related to the gain attributable to the sale of property if a qualified
replacement property is identified within 45 days and such qualified replacement
property is acquired within 180 days from the initial sale. As described
below, on October 7, 2005 we acquired a qualified replacement property for
purposes of this Section 1031 Exchange and thereby deferred a portion of
the tax gain from the Tranche I sale.
In connection with the foregoing, on September 21, 2005, Reckson Australia Holdings LLC (“Reckson Holdings”), a wholly-owned subsidiary of the Operating Partnership, and Reckson Australia LPT Corporation (“LPT REIT”), a U.S. real estate investment trust which is wholly-owned by Reckson LPT, entered into the Amended and Restated Limited Liability Company Agreement governing the RAOC JV (the “Operating Agreement”). Pursuant to the Operating Agreement, LPT REIT holds a 75% interest in, and acts as the managing member for, the RAOC JV, and Reckson Holdings holds a 25% non-managing member interest therein. The Operating Agreement provides that, if at any time additional capital contributions are made to the RAOC JV, Reckson Holdings will have a right to make additional capital contributions up to an amount necessary to maintain its 25% interest therein on the same terms and conditions as such other capital
contributions.
As the managing member of the RAOC JV, LPT REIT has the sole responsibility for managing its business and affairs on a day-to-day basis, other than with respect to certain identified “major decisions,” including but not limited to a merger or consolidation involving the RAOC JV, a disposition of all or substantially all of its assets, or the liquidation or dissolution of the RAOC JV. Such major decisions require the prior written consent of a majority of the non-managing members. As a result of the foregoing, we are accounting for our 25% non-managing member interest in the RAOC JV under the equity method of accounting.
On January 6, 2006, Reckson LPT completed the second Tranche of this transaction (“Tranche II”) whereby the RAOC JV acquired three of our suburban office properties; 6800 and 6900 Jericho Turnpike, Jericho, NY and 710 Bridgeport Avenue, Shelton, CT, aggregating approximately 761,000 square feet for approximately $84.6 million, including the assignment of approximately $20.1 million of mortgage debt. Approximately $25.1 million of sales proceeds was used to establish an escrow account for the purpose of a future Section 1031 Exchange. The balance of the cash proceeds was used to fund our development activities and for general corporate purposes.
The Tranche III closing (“Tranche III”), consisting of five of our properties valued at approximately $111.8 million, is scheduled to close in October 2006 and will include the assumption of approximately $51.5 million of existing mortgage debt. The Tranche III closing is subject to customary closing conditions.
Our Service Companies provide asset management, property management, leasing, construction and other services to the RAOC JV and affiliates of ours are entitled to transaction fees and ongoing fees for providing services to the RAOC JV. As of
II-16
December 31, 2005, we earned and received approximately $3.6 million in transaction related fees and approximately $966,000 of ongoing fees from the RAOC JV. Such amount is included in investment income and other on our consolidated statements of income. In addition, we also formed Reckson Australia Management Limited (“RAML”), a wholly owned subsidiary, that will manage Reckson LPT and serve as its “Responsible Entity”. The Responsible Entity will be managed by a six member board that includes three independent directors domiciled in Australia. To address and mitigate any potential conflicts of interest with Reckson LPT or its affiliates the Company has adopted the following policies: (i) all transactions between the Company and Reckson LPT or its affiliates shall require the approval of a majority of the independent directors of both the Company and Reckson LPT, (ii) executive officers and directors of the Company are
prohibited from owning equity in the Reckson LPT, and (iii) the adoption of an express policy which mandates that property services and leasing decisions shall be made without regard to the Company’s percentage ownership of any property.
Under the Operating Agreement, Reckson Holdings will have the right, beginning September 21, 2007, to require LPT REIT to redeem all or a portion of Reckson Holdings’ membership interest in the RAOC JV for cash or, at LPT REIT’s option, shares of LPT REIT’s common stock (which may be exchanged for LPT Units) on a one-for-one basis. Reckson Holdings also has the right to cause the liquidation of the RAOC JV in the event that RAML is replaced as Reckson LPT’s Responsible Entity. In addition, the Operating Agreement contains a right of first refusal granting Reckson Holdings the right to acquire any asset of the RAOC JV, at fair market value, in the event of an attempted sale of such asset or the exercise of Reckson Holdings’ right to liquidate the RAOC JV.
In connection with the Tranche I closing, on September 21, 2005 the Company, RAOC JV and LPT REIT entered into an Option Agreement (the “Option Agreement”) pursuant to which we granted RAOC JV options to acquire ten additional properties from the Operating Partnership over a two year period, beginning January 1, 2006. The properties contain an aggregate of approximately 1.2 million square feet and will be priced based on the fair market value at the time of each transfer to RAOC JV. The Option Agreement contains a right of first refusal granting RAOC JV the right to acquire any option property from Reckson in the event we receive, and are amenable to, an offer from a third party to purchase such option property. The Option Agreement will terminate under certain circumstances, including if (i) RAOC JV sends notice of its intent to exercise its option but fails to close as obligated, (ii) RAOC JV is in default under the
Option Agreement, the contribution agreement or the sale agreement or (iii) RAML or an affiliate of ours is no longer the Responsible Entity of Reckson LPT.
In connection with the mortgage indebtedness securing nine of the Tranche I properties, which were transferred to the RAOC JV on September 21, 2005, and three of the Tranche III properties scheduled to be transferred to the RAOC JV during October 2006, we have guaranteed to the lender certain customary non-recourse carve-outs, as well as certain obligations relating to the potential termination of a number of leases at four of these properties. We have also guaranteed to the lender certain capital requirements related to these properties. We will be relieved of the customary non-recourse carve-outs and capital requirements upon transfer of the respective properties to the RAOC JV and the RAOC JV meeting a net worth test of at least $100.0 million. We will be relieved of all but two of the lease related obligations upon transfer of the respective properties to the RAOC JV and the RAOC JV meeting a net worth test of at least $200.0 million. The
RAOC JV has agreed to indemnify us for any loss, cost or damage it may incur pursuant to our guaranty of these obligations. As of December 31, 2005, the RAOC JV met the $100.0 million net worth threshold and there remain approximately $18 million of aggregate guarantees outstanding.
In accordance with FASB Statement No. 144, the assets and liabilities of the properties transferred and to be transferred, excluding the option properties, to the RAOC JV are classified as held for sale on our consolidated balance sheets, for all periods presented.
During September 2005, we entered
into a letter of intent with an entity owned by the owner of the New York
Islanders professional hockey team to enter into a 50 / 50 joint venture
to potentially develop over five million square feet of office, residential,
retail and hotel space located on 77 acres in the Mitchel Field, Long Island
sub-market in and around Nassau County’s Veterans Memorial Coliseum
where we are currently the largest owner of office properties. In March 2006,
the joint venture was selected by the County Executive for the development
of the 77 acre site. The development remains subject to certain conditions
and governmental approvals, including legislative, zoning and other customary
approvals. In addition, there can be no assurances that we will enter into
the aforementioned joint venture, that all applicable conditions will be
satisfied or that all required approvals can be obtained.
On September 22, 2005, we sold two suburban
office properties, aggregating approximately 69,000 square feet, located
at 310 and 333 East Shore Road in Great Neck, Long Island for aggregate consideration
of approximately $17.3 million. As
a result, we recorded an aggregate gain of approximately $14.0 million. For
federal income tax purposes, we recognized a tax gain of approximately $12.6
million. Such tax gain did not affect the Company’s REIT distribution
II-17
requirements. Pursuant to FASB Statement No. 144, the operating results of these properties are classified within discontinued operations, for all periods presented, on our consolidated statements of income.
On October 7, 2005, we acquired a 1.1 million square foot Class A office complex located in Uniondale, NY, commonly referred to as “EAB Plaza”, for approximately $240 million and changed the name of the complex to Reckson Plaza. The property is encumbered by a long-term ground lease which has a remaining term in excess of 75 years, including renewal options. The acquisition of Reckson Plaza was financed, in part, (i) from sales proceeds being held by a qualified intermediary pursuant to a Section 1031 Exchange as the property was an identified, qualified replacement property, (ii) a borrowing under our Credit Facility, (iii) the satisfaction of our $27.6 million junior participating mezzanine loan which was secured by a pledge of an indirect interest of an entity which owned the ground leasehold estate and (iv) cash on hand. In connection with this acquisition we also acquired an adjoining 8.2 acre development site for
approximately $19.0 million which was financed through a borrowing under our Credit Facility.
On October 20, 2005, we acquired a 118,000 square foot suburban office property situated on ten acres of land located at 711 Westchester Avenue in White Plains, NY for approximately $24.8 million. This acquisition was financed through the assumption of approximately $12.5 million of existing debt on the property and a borrowing under our Credit Facility.
On December 20, 2005, we sold our property
located at 48 Harbor Park Drive, Port Washington, NY for approximately $6.4
million and recorded a gain on sales of real estate of approximately $2.7
million. Pursuant to FASB Statement No. 144, this property has been reflected
as held for sale on our balance sheets and its operating results are classified
within discontinued operations, for all periods presented, on our consolidated
statements of income.
On December 20, 2005, we sold our property
located at 100 Wall Street, New York, NY for approximately $134.0 million
and recorded
a gain on sales of real estate of approximately $46.1 million. The property
was secured by a first mortgage and cross collateralized with another one
of our New York City properties. In order to effectuate the sale and not
incur prepayment penalties which would be due under a prepayment of the mortgage,
we provided the lender with replacement collateral and assigned this mortgage
debt to the replacement collateral properties. In connection with the assignment,
we paid a substitution of collateral fee and other costs aggregating approximately
$2.0 million. In addition, we provided the purchaser with a mezzanine
loan in the amount of $30.0 million which bears interest at 15.0% per annum,
requires payments of interest only and has a term of two years. Cash proceeds
of approximately $100.9 million were used, in part, to acquire a 14 building
suburban office portfolio as discussed below. We have evaluated the
purchaser’s financial commitment as being sufficient to provide substance
to this sale and us having no substantial continuing involvement with the
purchaser pursuant to Statement No. 66 and as such have recognized the aforementioned
gain in its entirety. In addition, pursuant to FASB Statement No. 144, this
property has been reflected as held for sale on our balance sheets and its
operating results are classified within discontinued operations, for all
periods presented, on our consolidated statements of net income.
On December 29, 2005, we acquired a 1.6 million square foot suburban office portfolio, consisting of 14 buildings, concentrated within five business parks, located in Westchester County, for approximately $255.0 million. We made this acquisition through a borrowing under a $250 million term loan from Goldman Sachs Mortgage Company (the “Term Loan”) and cash sales proceeds from the sale of our property located at 100 Wall Street, New York, NY.
Notes Receivable Investment Activity
On March 16, 2005, a wholly owned subsidiary of the Operating Partnership advanced under separate mezzanine loan agreements, each of which bears interest at 9% per annum, (i) approximately $8.0 million which matures in April 2010 and is secured, in part, by indirect ownership interests in ten suburban office properties located in adjacent office parks in Long Island, NY and (ii) approximately $20.4 million which matures in April 2012 and is secured, in part, by indirect ownership interests in twenty-two suburban office properties located in adjacent office parks in Long Island, NY. Each mezzanine loan is additionally secured by other guaranties, pledges and assurances and is pre-payable without penalty after 18 months from the initial funding. We made these investments through a borrowing under our Credit Facility.
In May 2005, we acquired a 65% interest in an $85 million, 15-year loan secured by an indirect interest in a 550,000 square foot condominium in a Class A office tower located at 1166 Avenue of the Americas, New York, NY for approximately $55.3 million. The loan accrues interest compounded at 9.0% and pays interest at an annual rate of 6.0% through March 2010, 8.5% thereafter through March 2015 and 11.0% thereafter through maturity in 2020. The loan is pre-payable only under certain circumstances and, in any case, not before 2009. Upon a capital event related to the indirect interest in the property which secures the loan, we are entitled to participate in 30% of the net proceeds derived from such capital event. This investment replaced our $34.0 million mezzanine loan, including accrued and unpaid interest, to one of the partners owning such condominium interest. We also acquired an approximately 5% indirect ownership interest in
the property for a purchase price of approximately $6.2 million. The
II-18
property is currently 100% leased. The balance of these investments was funded through a borrowing under our Credit Facility and cash on hand.
On September 30, 2005, we advanced $20.0 million to entities that are each controlled by Cappelli Enterprises under a junior mezzanine loan. This mezzanine loan bore interest at 15.0% per annum, was secured by a subordinate pledge of an indirect ownership interest in a 550,000 square foot office condominium in a Class A office tower located at 1166 Avenue of the Americas, New York, NY and had a scheduled maturity date of March 31, 2006. As described above, during May 2005, we made a $55.3 million participating loan investment secured by interests in this property (including the interests securing this new mezzanine loan). We also advanced a $10.0 million bridge loan to Louis Cappelli, an affiliate, under a promissory note (the “Promissory Note”) in anticipation of closing a longer-term structured finance transaction. The Promissory Note bore interest at 4.86% per annum, matured on November 30, 2005, was secured by a
security interest in a reserve account owned by the borrower and was pre-payable in whole or in part without penalty. These investments were funded through a borrowing under our Credit Facility. On November 30, 2005, the Promissory Note was repaid, we advanced an additional $5.0 million under the mezzanine loan and adjusted its interest rate to 17.5% per annum and extended its maturity date to November 30, 2009. The refinanced junior mezzanine loan is secured by interests in the 1166 Avenue of the Americas condominium and guaranteed by Mr. Cappelli.
On October 7, 2005, a wholly owned subsidiary of the Operating Partnership advanced under a second mortgage loan agreement $10.0 million to an entity which owns a 60,000 square foot office property located on Madison Avenue in New York City which is currently slated for residential conversion. The borrower is an affiliate of the seller of EAB Plaza which we acquired on October 7, 2005. This mortgage loan bears interest at 20.0% per annum, requires monthly payments of interest only, matures on October 7, 2007 and is secured by the underlying property. The mortgage loan is not pre-payable until the earlier of January 10, 2007 or the sale of the underlying property and upon notice. In addition to this mortgage loan, RCD entered into a development agreement with the owner of the property to perform certain predevelopment, development and / or other services with respect to the property. In exchange for its services, RCD will receive a
development fee of $2.0 million which is payable in equal monthly installments over a two-year period. Interest due under the mortgage note during its term and the entire development fee are currently being held in a segregated account under our control.
At December 31, 2005, we had invested approximately $93.4 million in mezzanine loans and approximately $55.3 million in a participating loan investment. In general these investments are secured by a pledge of either a direct or indirect ownership interest in the underlying real estate or leasehold, other guaranties, pledges and assurances.
The following table sets forth the terms of the mezzanine loans at December 31, 2005 (in thousands):
|
Property
|
|
Amount
|
|
Interest Rate
|
|
Funding
|
|
Maturity
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Island office portfolio
|
|
$
|
8,031
|
|
|
9.00
|
%
|
|
Mar., 2005
|
|
|
Apr., 2010
|
(a)
|
|
Long Island office portfolio
|
|
|
20,356
|
|
|
9.00
|
%
|
|
Mar., 2005
|
|
|
Apr., 2012
|
(a)
|
|
72 Madison Avenue, NY, NY
|
|
|
10,000
|
|
|
20.00
|
%
|
|
Oct., 2005
|
|
|
Oct., 2007
|
|
|
1166 Avenue of the Americas, NY, NY (b)
|
|
|
25,000
|
|
|
17.50
|
%
|
|
Nov., 2005
|
|
|
Nov., 2009
|
|
|
100 Wall Street, NY, NY
|
|
|
30,000
|
|
|
15.00
|
%
|
|
Dec., 2005
|
|
|
Dec., 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
93,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Prepayable without penalty after 18 months from initial funding.
|
|
(b)
|
Junior mezzanine loan secured by interests in a 550,000 square foot condominium interest.
|
At December 31, 2005, we also held a $17.0 million note receivable, which bore interest at 12% per annum and was secured by a minority partnership interest in Omni Partners, L.P., owner of the Omni, a 579,000 square foot Class A office property located in Uniondale, NY (the “Omni Note”).
As of December 31, 2005, we held one other note receivable, which aggregated $1.0 million and carried an interest rate of 10.50% per annum (the “Other Note”) and collectively with the Omni Note, our mezzanine loans and preferred loan investments (the “Note Receivable Investments”). The Other Note matures on January 31, 2010 and is secured in part by a minority partner’s preferred unit interest in the Operating Partnership.
As of December 31, 2005, management has made subjective assessments as to the underlying security value on the Note Receivable Investments. These assessments indicate an excess of market value over the carrying value and, based on these assessments, we believe there is no impairment to their carrying value.
II-19
Financing and Equity Activities
During 2005, the Operating Partnership paid cash distributions on its Class A OP Units and Class C OP Units of approximately $1.70 per unit and $1.87 per unit, respectively.
During 2005, we received approximately $14.1 million of proceeds from the exercise of 571,194 Company stock options.
During 2005 and 2004, the Operating Partnership issued 127,510 and 33,843 OP Units, respectively, in connection with property acquisitions. In addition, during 2005, certain limited partners in the Operating Partnership exchanged approximately 1.6 million OP Units for an equal number of shares of the Company’s common stock.
During June 2005, the Operating Partnership
issued $287.5 million aggregate principal amount of 4.00% exchangeable senior
debentures due June 15, 2025. The debentures were issued at 98% of par and
are exchangeable for shares of common stock of the Company on or after June
15, 2024 at an initial exchange rate of 24.6124 common shares per $1,000
of principal amount of debentures. The debentures are also exchangeable: (i)
if the market price of the Company’s common stock over a specified
period of time is more than 125% of the exchange price per share then in
effect; (ii) if the trading price of the debentures over a specified period
of time is less than 98% of the product of the closing price of the Company’s
shares multiplied by the applicable exchange rate; (iii) during a specified
period of time, for any debentures that have been called for redemption;
(iv) under certain circumstances, upon the occurrence of a distribution to
holders of the Company’s shares of (a)
rights to purchase the Company’s common stock at a price below the market
price of the Company’s shares or (b) assets, debt securities or rights
to purchase the Company’s securities or securities of the Operating Partnership
that have a per share/OP Unit value exceeding 10% of the market price of the
Company’s shares; or (v) if the Company’s common stock is not listed
on a national or regional securities exchange or quoted on NASDAQ for 30 consecutive
trading
days.
The initial exchange price of $40.63 represents a premium of approximately 25% to the closing price of the Company’s common stock on the issuance date of $32.50 per share. If exchanged in accordance with their terms, the debentures will be settled in cash up to their principal amount and any remaining exchange value will be settled, at our option, in cash, the Company’s common stock or a combination thereof. In accordance with the exchange rate terms of the debentures the Company has reserved approximately 8.8 million shares of its authorized common stock, $.01 par value, for potential future issuance upon the exchange of the debentures. Such amount is based on an exchange rate of 30.7692 common shares per $1,000 of principal amount of debentures. Although we have reserved these shares pursuant to the exchange rate terms, we believe the issuance of the Company’s shares, if any, would be significantly less than 8.8 million shares. The deben
tures
are guaranteed by the Company. We have the option to redeem the debentures beginning June 18, 2010 for the principal amount plus accrued and unpaid interest. Holders of the debentures have the right to require us to repurchase their debentures at 100% of the principal amount thereof plus accrued and unpaid interest on June 15, 2010, June 15, 2015 and June 15, 2020 or, in the event of certain change in control transactions, prior to June 15, 2010.
The Board of Directors of the Company initially authorized the purchase of up to 5.0 million shares of the Company’s common stock. Transactions conducted on the New York Stock Exchange have been, and will continue to be, effected in accordance with the safe harbor provisions of the Securities Exchange Act of 1934 and may be terminated by the Company at any time. Since the Board’s initial authorization, the Company has purchased 3,318,600 shares of its common stock for an aggregate purchase price of approximately $71.3 million. In June 2004, the Board of Directors re-set the Company’s common stock repurchase program back to 5.0 million shares. No purchases have been made since March 2003.
The Operating Partnership has issued and outstanding 1,200 preferred units of limited partnership interest with a liquidation preference value of $1,000 per unit with a stated distribution rate of 7.0%, which is subject to reduction based upon terms of their initial issuance (the “Preferred Units”). The terms of the Preferred Units provide for this reduction in distribution rate in order to address the effect of certain mortgages with above market interest rates, which were assumed by the Operating Partnership in connection with properties contributed to the Operating Partnership in 1998. As a result of the aforementioned reduction, there are currently no distributions being made on the Preferred Units.
On May 13, 2005, we obtained a $470.0 million unsecured bridge facility (the “Bridge Facility”) from Citibank, N.A. During August 2005, we repaid $303.5 million of outstanding borrowings under the Bridge Facility with net proceeds received from the secured debt financing of the property located at One Court Square, Long Island City, NY. In addition, in September 2005, we repaid the remaining balance outstanding under the Bridge Facility of $166.5 million with proceeds received from the secured debt financing of a pool of nine of our suburban office properties. As a result of the foregoing, the Bridge Facility has been retired and is no longer available for borrowings thereunder.
On June 20, 2005, in connection with the acquisition of our joint venture partner’s 40% interest in the property located at 520 White Plains Road, Tarrytown, NY, we assumed approximately $4.1 million of secured mortgage indebtedness of the joint
II-20
venture. As a result, our total secured debt related to this property was approximately $11.1 million. On September 1, 2005, the mortgage note’s scheduled maturity date, we repaid the then outstanding balance of approximately $10.9 million with proceeds received from the August 26, 2005 mortgage financings discussed below, resulting in the satisfaction of this note.
On August 3, 2005, we placed a first mortgage in the amount of $315.0 million on the property located at One Court Square, Long Island City, a sub-market of New York City. The mortgage note bears interest at a fixed rate of 4.905% per annum, requires monthly payments of interest only through September 1, 2015, the anticipated repayment date (“ARD”). In the event the mortgage is not satisfied on the ARD, all excess cash flow, as defined, shall be applied to amortize the loan and the interest rate shall be reset to 2% plus the greater of 4.905% and the then-current ten-year U.S. Treasury yield. The final maturity date of the loan is May 1, 2020. The mortgage note is secured by the property and is otherwise non-recourse except in limited circumstances regarding breaches of material representations. As additional collateral for the loan, the lender under certain circumstances may require letters of credit for
their benefit, in the amount of $10.0 million each, during September 2013, March 2014 and September 2014 if Citibank, N.A., the property’s current sole tenant, exercises its second cancellation option for up to 20% of its leased space during 2014 and 2015 and the space has not been re-leased. Proceeds received from this financing, net of mortgage recording tax and other costs, of approximately $303.5 million, were used to repay a portion of the Bridge Facility. On November 30, 2005, we sold a 70% interest in this property to a group of institutional investors led by JPMorgan Investment Management which included their assumption of $220.5 million of the mortgage debt.
On August 26, 2005, we encumbered a pool of nine of our suburban office properties with interest only mortgages in the aggregate amount of approximately $196.1 million. Proceeds received, net of costs and required escrows, of approximately $188.3 million were used to repay borrowings under our Credit Facility, the remaining balance outstanding under our Bridge Facility and for the repayment of the secured property debt on 520 White Plains Road, Tarrytown, NY. On September 21, 2005, these properties and related underlying mortgages were sold to the RAOC JV. The mortgage notes bear interest at a fixed interest rate of 5.20% per annum and mature in September 2010. These mortgage notes are cross-collateralized by the nine properties in the pool.
On September 12, 2005 we encumbered three of our suburban office properties with interest only mortgages in the aggregate amount of approximately $51.5 million. Proceeds received, net of costs and required escrows, of approximately $50.2 million were used to repay borrowings under our Credit Facility and for general corporate purposes. The mortgage notes bear interest at a fixed interest rate of 5.20% per annum and mature in October 2010. We have contracted to sell these properties to the RAOC JV, subject to the mortgage notes, in October 2006. These mortgage notes are cross-collateralized by the three properties in the pool.
Pursuant to the terms of the mortgage note encumbering the property located at 200 Summit Lake Drive in Valhalla, NY, the note was prepayable, without penalty, subsequent to September 1, 2005. On September 30, 2005, we repaid the outstanding balance of approximately $18.1 million with proceeds received from the RAOC JV which resulted in the satisfaction of this note.
The mortgage debt on the property located at 395 North Service Road in Melville, NY was scheduled to mature on October 28, 2005. Pursuant to the terms of the note, we prepaid the mortgage debt on September 30, 2005, at which time the outstanding balance was approximately $18.6 million. We funded this prepayment with a borrowing under our Credit Facility and proceeds received from the sale of properties to the RAOC JV which resulted in the satisfaction of this note.
On October 20, 2005, in connection with our acquisition of 711 Westchester Avenue in White Plains, NY we assumed an existing first mortgage debt on the property of approximately $12.5 million. The mortgage bears interest at approximately 5.4% per annum, requires monthly payments of interest only through January 2007 and monthly payments of interest and principal based on a 30 year amortization schedule commencing in February 2007. The mortgage matures on January 1, 2015.
On December 20, 2005, in connection with the sale of our mortgaged property located at 100 Wall Street, New York, NY, we exercised our right under the mortgage note to replace collateral and assign the related mortgage debt to two of our suburban office properties; 275 Broadhollow Road, Melville, NY and 90 Merrick Avenue, Merrick, NY. In connection with the assignment, we paid a substitution of collateral fee and other costs totalling approximately $2.0 million. Such costs are being amortized to expense over the remaining term of the mortgage.
At December 31, 2005, we had 15 fixed rate mortgage notes payable with an aggregate outstanding principal amount of approximately $625.1 million. These mortgage notes are secured by properties with an aggregate cost basis at December 31, 2005 of approximately $1.2 billion and which are pledged as collateral against the mortgage notes payable. In addition, approximately $41.6 million of the $625.1 million is recourse to the Company. The mortgage notes bear interest at rates ranging from 5.20% to 8.50%, and mature between 2006 and 2015. The weighted average interest rates on the outstanding mortgage notes payable at December 31, 2005, 2004 and 2003 were approximately 7.1%, 7.3%, and 7.2%, respectively.
II-21
At December 31, 2005, our unconsolidated joint ventures had total indebtedness of approximately $751.1 million, which was comprised of $13.0 million of floating rate unsecured debt and approximately $738.1 million of fixed rate mortgage indebtedness with a weighted average interest rate of approximately 5.1% and a weighted average maturity of approximately 8.3 years. Our aggregate pro-rata share of the unconsolidated joint venture debt was approximately $158.6 million.
On January 6, 2006, we sold two of our suburban office properties; 6800 and 6900 Jericho Turnpike, Jericho, NY to the RAOC JV, subject to their mortgage debt of approximately $20.1 million. The RAOC JV subsequently pre-paid the mortgage notes with proceeds from an unrelated financing transaction.
We currently maintain our $500 million Credit Facility with JPMorgan Chase Bank, as administrative agent, Wells Fargo Bank, National Association as syndication agent and Citicorp North America, Inc. and Wachovia Bank, National Association as co-documentation agents. The Credit Facility matures in August 2008, provides for a one-year extension subject to a fee of 25 basis points and, upon receiving additional lender commitments, for an increase to the maximum revolving credit amount to $750 million. In addition, borrowings under the Credit Facility accrue interest at a rate of LIBOR plus 80 basis points and the Credit Facility carries a facility fee of 20 basis points per annum. In the event of a change in the Operating Partnership’s senior unsecured credit ratings the interest rates and facility fee are subject to change. At December 31, 2005, the outstanding borrowings under the Credit Facility aggregated $419.0
million and carried a weighted average interest rate of 5.17% per annum. A description of certain of the covenants contained in our Credit Facility is set forth in Item 1A, Risk Factors.
We utilize the Credit Facility primarily to finance real estate investments, fund our real estate development activities and for working capital purposes. On December 29, 2005, we borrowed $150.0 million under the Credit Facility and with cash available acquired a 1.6 million square foot suburban office portfolio, consisting of 14 buildings, located in Westchester County, New York. On January 13, 2006, we repaid $254.0 million of outstanding borrowings under the Credit Facility primarily from the proceeds of the Term Loan. As a result, our availability to borrow additional funds increased to $335.0 million. At December 31, 2005, we had availability under the Credit Facility to borrow approximately an additional $81.0 million, subject to compliance with certain financial covenants.
We capitalized interest incurred on borrowings to fund certain development projects in the amount of $11.4 million, $8.1 million and $8.0 million for the years ended December 31, 2005, 2004 and 2003, respectively.
In connection with the acquisition of certain properties, contributing partners of such properties have provided guarantees on certain of our indebtedness. As a result, we maintain certain outstanding balances on our Credit Facility.
On January 13, 2006, we obtained our $250.0 million Term Loan from Goldman Sachs Mortgage Company. The Term Loan is for an initial term of three months and we have the option for a three month extension upon paying a one-time fee of 25 basis points on the amount then outstanding. The Term Loan has terms, including interest rates and financial covenants, substantially similar to our Credit Facility. Proceeds from the Term Loan were used to repay outstanding borrowings under our Credit Facility.
Capitalization
Our indebtedness at December 31, 2005 totaled approximately $2.0 billion (including our share of consolidated and unconsolidated joint venture debt and net of minority partners’ interests’ share of consolidated joint venture debt) and was comprised of $422.3 million outstanding under the Credit Facility, approximately $980.1 million of senior unsecured notes and approximately $643.4 million of mortgage indebtedness with a weighted average interest rate of approximately 6.6% and a weighted average maturity of approximately 3.8 years. Based on our total market capitalization of approximately $5.1 billion at December 31, 2005 (calculated based on the sum of (i) the market value of the Company’s common stock and OP Units, assuming conversion, (ii) the liquidation preference value of the Operating Partnership’s preferred units and (iii) the $2.0 billion of debt), our debt represented approximately 40.1% of our total
market capitalization.
On October 16, 2000, our Board of Directors announced that it adopted a Shareholder Rights Plan designed to protect shareholders from various abusive takeover tactics, including attempts to acquire control of the Company at an inadequate price, depriving shareholders of the full value of their investment. The Operating Partnership has adopted a similar rights plan (the “Rights Plan”) which would be triggered in the event the Company’s Shareholders Rights Plan is triggered. The Rights Plan was not adopted in response to any known effort to acquire control of the Operating Partnership or the Company.
II-22
Contractual Obligations and Commercial Commitments
The following table sets forth our significant consolidated debt obligations by scheduled principal cash flow payments and maturity date and our commercial commitments by scheduled maturity at December 31, 2005 (in thousands):
|
|
|
Maturity Date
|
|
|
|
|
||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
Thereafter
|
|
Total
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage notes payable (1)
|
|
$
|
11,439
|
|
$
|
8,994
|
|
$
|
7,887
|
|
$
|
7,335
|
|
$
|
4,963
|
|
$
|
3,236
|
|
$
|
43,854
|
|
|
Mortgage notes payable (2)
|
|
|
112,030
|
|
|
60,535
|
|
|
—
|
|
|
100,254
|
|
|
79,955
|
|
|
228,435
|
|
|
581,209
|
|
|
Senior unsecured notes
|
|
|
—
|
|
|
200,000
|
|
|
—
|
|
|
200,000
|
|
|
287,500
|
|
|
300,000
|
|
|
987,500
|
|
|
Credit facility
|
|
|
—
|
|
|
—
|
|
|
419,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
419,000
|
|
|
Land lease obligations (3)
|
|
|
12,285
|
|
|
12,302
|
|
|
12,329
|
|
|
12,475
|
|
|
12,398
|
|
|
330,973
|
|
|
392,762
|
|
|
Air rights lease obligations
|
|
|
362
|
|
|
362
|
|
|
362
|
|
|
362
|
|
|
362
|
|
|
3,257
|
|
|
5,067
|
|
|
Capital leases
|
|
|
410
|
|
|
410
|
|
|
410
|
|
|
410
|
|
|
410
|
|
|
1,887
|
|
|
3,937
|
|
|
Operating leases
|
|
|
1,319
|
|
|
194
|
|
|
196
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
1,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
137,845
|
|
$
|
282,797
|
|
$
|
440,184
|
|
$
|
320,850
|
|
$
|
385,588
|
|
$
|
867,788
|
|
$
|
2,435,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Scheduled principal amortization payments.
|
|
(2)
|
Principal payments due at maturity.
|
|
(3)
|
We lease, pursuant to noncancellable operating leases, the land on which ten of our buildings were constructed. The leases, certain of which contain renewal options at our direction, expire between 2043 and 2090. The leases either contain provisions for scheduled increases in the minimum rent at specified intervals or for adjustments to rent based upon the fair market value of the underlying land or other indices at specified intervals. Minimum ground rent is recognized on a straight-line basis over the terms of the leases and includes lease renewals if reasonably assured that we will exercise that option.
|
Certain of the mortgage notes payable
are guaranteed by certain limited partners in the Operating Partnership and
/ or by the Company. In addition, consistent with customary practices
in non-recourse lending, certain non-recourse mortgages may be recourse to
the Company under certain limited circumstances including environmental issues
and breaches of material representations.
At December 31, 2005, approximately $41.6 million, or 6.7%, of our mortgage debt was recourse to the Company.
The following table sets forth our significant consolidated interest expense obligations on our fixed rate debt by scheduled cash flow payments at December 31, 2005, excluding interest expense obligations related to those properties classified as held for sale on our consolidated balance sheet (in thousands):
|
|
|
Year ended December 31,
|
|
|
|
|
||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
Thereafter
|
|
Total
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage notes payable
|
|
$
|
36,114
|
|
$
|
28,422
|
|
$
|
24,782
|
|
$
|
21,633
|
|
$
|
16,105
|
|
$
|
10,041
|
|
$
|
137,097
|
|
|
Senior unsecured notes
|
|
|
45,838
|
|
|
40,612
|
|
|
32,038
|
|
|
19,767
|
|
|
16,537
|
|
|
32,267
|
|
|
187,059
|
|
|
Exchangeable debentures(a)
|
|
|
11,500
|
|
|
11,500
|
|
|
11,500
|
|
|
11,500
|
|
|
11,500
|
|
|
166,271
|
|
|
223,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
93,452
|
|
$
|
80,534
|
|
$
|
68,320
|
|
$
|
52,900
|
|
$
|
44,142
|
|
$
|
208,579
|
|
$
|
547,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Callable after June 17, 2010 at par.
|
Interest expense from those properties classified as held for sale on our consolidated balance sheet at December 31, 2005 over the next five years and thereafter aggregated approximately $24.0 million.
Interest expense incurred under our variable rate Credit Facility amounted to approximately $14.3 million for the year ended December 31, 2005 and was based on a weighted average balance and interest rate of $314.0 million and 4.6%, respectively. In addition, interest expense incurred under our variable rate Bridge Facility amounted to approximately $5.0 million for the year ended December 31, 2005 and was based on a weighted average balance and interest rate of $118.7 million and 4.2%, respectively. The Bridge Facility was repaid and retired during 2005.
Our rental revenues are our principal source of funds along with our net cash provided by operating activities to meet these and future interest obligations.
We had undrawn letters of credit outstanding of approximately $100,000 and $1.2 million at December 31, 2005 and 2004, respectively.
During the quarterly period ended June 30, 2005 we entered into anticipatory interest rate hedge instruments totaling $250.0 million to protect ourselves against potentially rising interest rates. These instruments were settled prior to their maturity in
II-23
exchange for a mortgage rate lock agreement in connection with a 15-year permanent financing on the property located at One Court Square, Long Island City, NY which closed on August 3, 2005. Costs related to the terminated instruments of approximately $1.4 million were incorporated into the final fixed mortgage rate of 4.905% per annum. The other comprehensive loss is being amortized as a yield adjustment of the fixed rate mortgage.
We also entered into an additional $200.0 million of anticipatory interest rate hedge instruments during the quarterly period ended June 30, 2005, which were scheduled to coincide with our August 26, 2005 and September 12, 2005 financings on twelve of our office properties. These hedge instruments were settled on August 1, 2005 realizing proceeds of approximately $1.1 million. The proceeds received from settlement of the instruments were used to buy-down the fixed mortgage rates to 5.20% per annum. The gain resulting from this settlement has been recorded to OCI and is being amortized as a yield adjustment of the fixed-rate mortgage. Nine of these properties were sold to the RAOC JV, subject to their mortgage notes, on September 21, 2005 at which time we reclassified the proportionate share of the gain from OCI to earnings. The remaining three office properties are under contract to be sold to the RAOC JV, subject to the mortgage notes, in
October 2006, at which time we will reclassify the proportionate share of the gain from OCI to earnings.
Corporate Governance
In February 2006 the Company amended its Bylaws to implement certain corporate governance policies, including (i) a requirement that at least two-thirds of the members of the Board of Directors consist of independent directors and (ii) the establishment of an Affiliate Transaction Committee, which consists of all of the independent directors.
The corporate governance policies implemented by the amendments to the Bylaws supplement the Company’s previously-enacted corporate governance enhancements, which include: (i) the de-staggering of the Board of Directors so that shareholders can vote on the entire slate of directors each year; (ii) the establishment of an independent lead director position; (iii) the mandatory rotation of at least one independent director every three years; (iv) a requirement that independent directors own a minimum equity stake in the Company of $100,000 of common stock; (v) a requirement that a substantial portion of directors’ compensation be in the Company’s equity, which equity must be held during each director’s tenure on the Board; (vi) opting out of the Maryland Business Combination Statute; and (vii) modifying the Company’s “five or fewer” limitation on the ownership of its common stock so that such limitation may
only be used to protect the Company’s REIT status and not for anti-takeover purposes.
Other Matters
Nine of our office properties, which were acquired by the issuance of OP Units, are subject to agreements limiting our ability to transfer them prior to agreed upon dates without the consent of the limited partner who transferred the respective property to us. In the event we transfer any of these properties prior to the expiration of these limitations, we may be required to make a payment relating to taxes incurred by the limited partner. These limitations expire between 2011 and 2015.
Two of our properties that are held in joint ventures 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, rights of first offer, and buy / sell provisions.
In connection with the establishment of Reckson LPT the Company, RAOC JV and LPT REIT entered into an Option Agreement (the “Option Agreement”) pursuant to which we granted RAOC JV options to acquire ten additional properties from the Operating Partnership over a two year period, beginning January 1, 2006. The properties contain an aggregate of approximately 1.2 million square feet and will be priced based on the fair market value at the time of each transfer to RAOC JV. The Option Agreement contains a right of first refusal granting RAOC JV the right to acquire any option property in the event we receive, and are amenable to, an offer from a third party to purchase such option property. The Option Agreement will terminate under certain circumstances, including if (i) RAOC JV sends notice of its intent to exercise its option but fails to close as obligated, (ii) RAOC JV is in default under the Option Agreement, the
contribution agreement or the sale agreement or (iii) RAML or an affiliate of ours is no longer the Responsible Entity of Reckson LPT.
In July 2002, as a result of certain provisions
of the Sarbanes-Oxley Act of 2002, we discontinued the use of stock loans
in our Long Term Incentive Programs (“LTIP”). In connection
with LTIP grants made prior to the enactment of the Sarbanes-Oxley Act of
2002, we currently have stock loans outstanding to certain executive officers
which were used to purchase 385,000 shares of the Company’s common stock.
The stock loans were priced at the market prices of the Company’s common
stock at the time of issuance, bear interest at the mid-term Applicable Federal
Rate and are secured by the shares purchased. Such stock loans (including
accrued interest) are scheduled to vest and be ratably forgiven each year
on the anniversary of the grant date based upon initial vesting periods ranging
from seven to ten years. Such forgiveness is based on continued service
and in part on the Company attaining
II-24
certain annual performance measures. These stock loans had an initial aggregate weighted average vesting period of approximately nine years. As of December 31, 2005, there remains 180,714 shares of common stock subject to the original stock loans which are anticipated to vest between 2006 and 2011. Approximately $2.3 million, $2.1 million and $3.1 million of compensation expense was recorded for each of the years ended December 31, 2005, 2004 and 2003, respectively, related to these loans. Such amounts have been included in marketing, general and administrative expenses on our consolidated statements of income.
The outstanding stock loan balances due from executive officers aggregated approximately $3.8 million and $4.7 million at December 31, 2005 and December 31, 2004, respectively, and have been included as a reduction of additional paid in capital on our consolidated balance sheets. Other outstanding loans to executive and senior officers at December 31, 2005 and December 31, 2004 amounted to approximately $2.5 million and $2.7 million, respectively, and are included in investments in affiliate loans and joint ventures on our consolidated balance sheets and are primarily related to tax payment advances on stock compensation awards and life insurance contracts made to certain executive and non-executive officers.
In November 2002 and March 2003, an award
of rights was granted to certain executive officers of the Company (the “2002
Rights” and “2003 Rights”, respectively, and collectively,
the “Rights”). Each Right represents the right to receive,
upon vesting, one share of the Company’s common stock if shares are
then available for grant under one of the Company’s stock option plans
or, if shares are not so available, an amount of cash equivalent to the
value of such stock on the vesting date. The 2002 Rights vest in
four equal annual installments beginning on November 14, 2003 (and shall
be fully vested on November 14, 2006). The 2003 Rights were earned
on March 13, 2005 and vest in three equal annual installments beginning
on March 13, 2005 (and shall be fully vested on March 13, 2007). Dividends
on the shares will be held by the Company until such shares become vested,
and will be distributed thereafter to
the applicable officer. The 2002 Rights also entitle the holder thereof
to cash payments in respect of taxes payable by the holder resulting from the
2002 Rights. The 2002 Rights aggregate 62,835 shares of the Company’s
common stock and the 2003 Rights aggregate 26,040 shares of common stock. As
of December 31, 2005, there remains 15,709 shares of common stock reserved related
to the 2002 Rights and 17,360 shares of common stock reserved related to the
2003 Rights. Approximately $465,000, $403,000 and $855,000 of compensation
expense was recorded for each of the years ended December 31, 2005, 2004 and
2003, respectively, related to the Rights. Such amounts have been included
in marketing, general and administrative expenses on our consolidated statements
of income.
In March 2003, the Company established a new LTIP for its executive and senior officers (the “2003 LTIP”). The four-year plan has a core award, which provides for annual stock based compensation based upon continued service and in part based on the Company attaining certain annual performance measures. The plan also has a special outperformance component in the form of a bonus pool equal to 10% of the total return in excess of a 9% cumulative and compounded annual total return on the Company’s common equity for the period through the four-year anniversary after the date of grant (the “Special Outperformance Pool”). The aggregate amount payable to such officers from the Special Outperformance Pool is capped at an amount calculated based upon a total cumulative and compounded annual return on the common equity of 15%. An officer’s special outperformance award represents an allocation of the
Special Outperformance Pool and will become vested on the fourth anniversary of the date of grant, provided that the officer remains in continuous employment with the Company or any of its affiliates until such date, and the Company has achieved on a cumulative and compounded basis, during the four fiscal years completed on the applicable anniversary date, a total return to holders of the common equity that (i) is at or above the 60th percentile of the total return to stockholders achieved by members of the peer group during the same period and (ii) equals at least 9% per annum. Special outperformance awards will be paid in cash; however, the Compensation Committee, in its sole discretion, may elect to pay such an award in shares of common stock, valued at the date of vesting, if shares are available at such time under any of the Company’s existing stock option plans. The LTIP provides that no dividends or dividend equivalent payments will accrue with respect
to the special outperformance awards. On March 13, 2003, the Company made available 827,776 shares of its common stock under its existing stock option plans in connection with the core award of the 2003 LTIP for certain of its executive and senior officers. During May 2003, the special outperformance awards of the 2003 LTIP were amended to increase the per share base price above which the four year cumulative return is measured from $18.00 to $22.40.
The Board of Directors approved an amendment to the 2003 LTIP to revise the peer group used to measure relative performance. The amendment eliminated the mixed office and industrial companies and added certain other “pure office” companies in order to revise the peer group to office sector companies. The Board has also approved the revision of the performance measurement dates for future vesting under the core component of the 2003 LTIP from the anniversary of the date of grant to December 31 of each year. This was done in order to have the performance measurement coincide with the performance period that the Company believes many investors use to judge the performance of the Company.
On December 27, 2004, the Operating Partnership entered into definitive agreements with certain executive and senior officers of the Company to revise their incentive awards under the 2003 LTIP. The revised agreements provide for (i) the rescission of
II-25
the unvested portion of their core awards and (ii) an award in exchange for the rescinded core awards of an equal number of units of a new class of limited partnership interests (“LTIP Units”) of the Operating Partnership.
Each executive and senior officer participating in the 2003 LTIP was offered the option to retain all or a portion of his core awards or to rescind them in exchange for new awards of LTIP Units. On December 27, 2004, certain executive and senior officers accepted such offer and thereby amended their Amended and Restated Long-Term Incentive Award Agreement to cancel, in the aggregate, 362,500 shares of restricted stock of the Company representing all or a portion of their unvested core award, and received an equal number of LTIP Units.
The revised awards under the 2003 LTIP were designed to provide the potential for executives to retain a greater equity interest in the Company by eliminating the need for executives to sell a portion of the core awards immediately upon vesting in order to satisfy personal income taxes which are due upon vesting under the original core awards.
With respect to the 2003 LTIP, the Company met its annual performance measure with respect to the 2005, 2004 and 2003 annual measurement periods, respectively. As a result, the Company issued to the participants of the 2003 LTIP 86,111, 102,779 and 206,944 shares of its common stock, respectively, related to the core component of the 2003 LTIP.
The terms of each award of LTIP Units are substantially similar to those of the core awards under the 2003 LTIP. The vesting, performance hurdles and timing for vesting remain unchanged. However, an LTIP Unit represents an equity interest in the Operating Partnership, rather than the Company. At issuance, the LTIP Unit has no value but may over time accrete to a value equal to (but never greater than) the value of one share of common stock of the Company (a “REIT Share”). Initially, LTIP Units will not have full parity with OP Units with respect to liquidating distributions. Upon the occurrence of certain “triggering events,” the Operating Partnership will revalue its assets for the purpose of the capital accounts of its partners and any increase in valuation of the Operating Partnership’s assets from the date of the issuance of the LTIP Units through the “triggering event” will
be allocated to the capital accounts of holders of LTIP Units until their capital accounts are equivalent to the capital accounts of holders of OP Units. If such equivalence is reached, LTIP Units would achieve full parity with OP Units for all purposes, and therefore accrete to an economic value equivalent to REIT Shares on a one-for-one basis. After two years from the date of grant, if such parity is reached, vested LTIP Units may be redeemed for cash in an amount equal to the then fair market value of an equal number of REIT Shares or converted into an equal number of OP Units, as determined by the Company’s Compensation Committee. However, there are circumstances under which such economic equivalence would not be reached. Until and unless such economic equivalence is reached, the value that the officers will realize for vested LTIP Units will be less than the value of an equal number of REIT Shares. In addition, unlike core awards under the 2003
LTIP (wherein dividends that accumulate are paid upon vesting), LTIP Units will receive the same quarterly distributions as OP Units on a current basis, thus providing full dividend equivalence with REIT Shares. At the scheduled March 2005 vesting date, the specified performance hurdles were met, and officers that received LTIP Units received a one-time cash payment that represented payment of the full vested amount of the accrued unpaid dividends under the core award of the 2003 LTIP through December 27, 2004, the issuance date of the LTIP Units. In addition, the officers, in the aggregate, vested in 104,167 LTIP Units. At the scheduled March 2006 vesting date, the specified performance hurdles were met and officers that received LTIP Units, in the aggregate, vested in 120,833 LTIP Units. In order to more closely replicate the terms of the core awards being rescinded, the Company also entered into agreements with three executive officers, which provide that in
the event of a change of control the executive shall receive the equivalent value of one REIT Share for each LTIP Unit.
In March 2005, following the recommendation of the Compensation Committee, eight senior and executive officers of the Company were awarded, in the aggregate, 272,100 LTIP Units to continue to incentivize them for the long-term (the “2005 LTIP Unit Grants”). Each such LTIP Unit awarded is deemed equivalent to an award of one share of common stock reserved under one of the Company’s stock option plans, reducing availability for other equity awards on a one-for-one basis. The terms of the 2005 LTIP Unit Grants are generally consistent with the terms of the 2003 LTIP, including with respect to the impact upon vesting in the event of a change of control.
As a result of the foregoing, there remains 69,443 shares of common stock reserved for future issuance under the core award of the 2003 LTIP and 409,600 shares of common stock reserved for issuance with respect to the issuance of LTIP Units. With respect to the core award of the 2003 LTIP, the Company recorded approximately $1.2 million, $2.8 million and $2.6 million of compensation expense for each of the years ended December 31, 2005, 2004 and 2003, respectively. In addition, with respect to the LTIP Units and the 2005 LTIP Unit Grants, the Company recorded compensation expense of approximately $2.9 million for the year ended December 31, 2005. Such amounts have been included in marketing, general and administrative expenses on our consolidated statements of income. Based on the terms of the 2003 LTIP, potential outcomes of the Special Outperformance Pool are estimated to range from $0, assuming the requisite four year
cumulative performance measures are not met, to a maximum of approximately $34.0 million, assuming relative peer group performance measures are met and a 15% cumulative and compounded return on common equity. During the three months ended December 31, 2005, we recorded
II-26
approximately $23.5 million of compensation
expense with respect to the Special Outperformance Pool. This amount is calculated
on the closing stock price of the Company’s common stock on December 31, 2005 and is
based on management’s determination of the probability of the requisite
performance measures being met. The accrual represents approximately 70%
of the total estimated Special Outperformance Pool reflecting the service
period through December 31, 2005.
Compensation expense with respect to the core component of the 2003 LTIP, which relates to the Company attaining certain annual performance measures, is recognized in accordance with paragraph 26 of Statement No. 123 as a “target stock price” plan. Under this type of plan, compensation expense is recognized for the target stock price awards whether or not the targeted stock price condition is achieved as long as the underlying service conditions are achieved. Accordingly, we obtained an independent third party valuation of the 2003 LTIP awards and recognize compensation expense on a straight-line basis through the vesting period for awards to employees who remain in service over the requisite period regardless of whether the target stock price has been reached.
Compensation expense with respect to the core component of the 2003 LTIP, which relates to the continued service of the grantee, is recognized in accordance with Statement No. 123 in which compensation expense is recognized on a straight-line basis through the vesting period based on the fair market value of the stock on the date of grant.
As a result of the election of certain executive and senior officers to exchange all or a portion of their 2003 LTIP into an equal number of LTIP Units we again obtained an independent third party valuation of the newly granted LTIP Units and determined that the fair value of the LTIP Units was not greater than the exchanged 2003 LTIP awards on the date of the exchange. As such, compensation expense to be recognized, on a straight-lined basis, over the vesting period of the LTIP Units equals the amount of unamortized compensation expense cost for the 2003 LTIP awards as of the exchange date.
As of December 31, 2005, the Company had
approximately 1.4 million shares of its common stock reserved for issuance
under its stock option plans, in certain cases subject to vested terms, at
a weighted average exercise price of $24.70 per option. In addition,
the Company has approximately 2.4 million shares of its common stock reserved
for future issuance under its stock option plans.
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.
The Operating Partnership issues additional units to the Company, and thereby increases the Company’s general partnership interest in the Operating Partnership, with terms similar to the terms of any securities (i.e., common stock or preferred stock) issued by the Company (including any securities issued by the Company upon the exercise of stock options). Any consideration received by the Company in respect of the issuance of its securities is contributed to the Operating Partnership. In addition, the Operating Partnership or a subsidiary funds the compensation of personnel, including any amounts payable under the Company’s LTIP.
Under various Federal, state and local laws, ordinances and regulations, an owner of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances on or in such property. These laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous or toxic substances. The cost of any required remediation and the owner’s liability therefore as to any property is generally not limited under such enactments and could exceed the value of the property and/or the aggregate assets of the owner. The presence of such substances, or the failure to properly remediate such substances, may adversely affect the owner’s ability to sell or rent such property or to borrow using such property as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of
removal or remediation of such substances at a disposal or treatment facility, whether or not such facility is owned or operated by such person. Certain environmental laws govern the removal, encapsulation or disturbance of asbestos-containing materials (“ACMs”) when such materials are in poor condition, or in the event of renovation or demolition. Such laws impose liability for release of ACMs into the air and third parties may seek recovery from owners or operators of real properties for personal injury associated with ACMs. In connection with the ownership (direct or indirect), operation, management and development of real properties, we may be considered an owner or operator of such properties or as having arranged for the disposal or treatment of hazardous or toxic substances and, therefore, potentially liable for removal or remediation costs, as well as certain other related costs, including governmental fines and injuries to persons and
property.
II-27
All of our properties have been subjected to a Phase I or similar environmental audit (which involved general inspections without soil sampling, ground water analysis or radon testing) completed by independent environmental consultant companies. These environmental audits have not revealed any environmental liability that would have a material adverse effect on our business.
II-28
Off Balance Sheet Arrangements
During 1997, the Company formed FrontLine Capital Group (“FrontLine”) and Reckson Strategic Venture Partners, LLC (“RSVP”), a real estate venture capital fund whose common equity is held indirectly by FrontLine. In connection with the formation and subsequent spin-off of FrontLine, the Operating Partnership established an unsecured credit facility with FrontLine (the “FrontLine Facility”) in the amount of $100.0 million. The Operating Partnership also approved the funding of investments of up to $110.0 million relating to REIT–qualified investments through RSVP-controlled joint ventures or advances made to FrontLine under an additional 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”). To date, approximately $59.8 million has been funded to
RSVP-controlled joint ventures and $142.7 million through the FrontLine Loans (collectively, the “RSVP / FLCG Investments”) on which we accrued interest (net of reserves) of approximately $19.6 million.
A committee of the Board of Directors, comprised solely of independent directors, considers any actions to be taken by the Company in connection with the RSVP / FLCG Investments and during 2001, based on our assessment of value and recoverability of the RSVP / FLCG Investments and considering the findings and recommendations of the committee and its financial advisor, we recorded a $163.0 million valuation reserve charge, inclusive of anticipated costs against the carrying cost of the RSVP / FLCG Investments. In addition, we have discontinued the accrual of interest income with respect to the FrontLine Loans and have also reserved against our share of GAAP equity in earnings, if any, from the RSVP-controlled joint ventures funded until such income is realized through cash distributions.
FrontLine is in default under the FrontLine Loans and on June 12, 2002, filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code.
In September 2003, RSVP completed the restructuring of its capital structure and management arrangements whereby a management company formed by its former managing directors, whose contracts as managing directors were terminated, has been retained to manage RSVP pursuant to a management agreement. The management agreement, which has a term of three years and is subject to early termination in the event of the disposition of all of the assets of RSVP, provides for an annual base management fee and disposition fees equal to 2% of the net proceeds received by RSVP on asset sales (the “Fees”). The Fees are subject to a maximum over the term of the agreement of $7.5 million. In addition, the former managing directors of RSVP retained a one-third residual interest in RSVP’s assets which is subordinated to the distribution of an aggregate amount of $75.0 million to RSVP and/or us in respect of RSVP-controlled joint ventures.
In connection with RSVP’s capital restructuring, RSVP and certain of its affiliates obtained a $60.0 million secured loan (the “RSVP Secured Loan”). On November 3, 2005, the outstanding balance of the RSVP Secured Loan was repaid primarily with proceeds received from the sale of certain assisted living related assets.
The net carrying value of our investments in the RSVP / FLCG Investments of approximately $55.2 million was reassessed with no change by management as of December 31, 2005. Such amount is included in investments in affiliate loans and joint ventures on our consolidated balance sheet.
Scott H. Rechler, who serves as Chief
Executive Officer, President and Chairman of the Board of the Company, serves
as CEO and Chairman of the Board of Directors of FrontLine and is its sole
board
member. Scott
H. Rechler also serves as a member of the management committee of RSVP and
serves as a member of the Board of Directors of American Campus Communities,
a company formally owned by RSVP.
In November 2004, a joint venture in which RSVP owns approximately 47% executed a binding agreement to contribute its Catskills, NY resort properties (excluding residentially zoned land) to Empire Resorts Inc. (NASDAQ: NYNY) (“Empire”) for consideration of 18.0 million shares of Empire’s common stock and the right to appoint five members of their Board of Directors. On December 29, 2005, the agreement was terminated and the joint venture received options to purchase approximately 5.2 million options of common stock of Empire at a price of $7.50 per share. The options will be exercisable until December 29, 2006.
In addition to the foregoing, our off-balance sheet arrangements are our approximate 5% indirect ownership interest in a joint venture that owns an investment in a New York City Class A office tower where our share of unconsolidated joint venture debt is approximately $11.8 million with an interest rate of 6.35% per annum and a remaining term of approximately 15 years, our 25% joint venture interest in the RAOC JV where our share of unconsolidated joint venture debt is approximately $52.3 million with a weighted average interest rate of 5.26% per annum and a weighted average term of 4.6 years and our 30% joint venture interest in the property located at One Court Square, Long Island City, NY where our share of unconsolidated joint venture debt is $94.5 million with an interest rate of 4.91% per annum and a remaining term of approximately 9.7 years.
II-29
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 flex leases generally provide for fixed base rent increases, direct pass through of certain operating expenses and separate real estate tax escalations over a base amount. We believe that inflationary increases in expenses will be mitigated by contractual rent increases and expense escalations described above. As a result of the impact of the events of September 11, 2001, we have realized increased insurance costs, particularly relating to property and terrorism insurance, and security costs. We have included these costs as part of our escalatable expenses and have billed them to our tenants consistent with the terms of the underlying leases and believe they are collectible. To the extent
our properties contain vacant space, we will bear such inflationary increases in expenses.
The Credit Facility and Term Loan bear interest at variable rates, which will be influenced by changes in short-term interest rates, and are sensitive to inflation.
Funds From Operations
Funds from Operations (“FFO”) is defined by the National Association of Real Estate Investment Trusts (“NAREIT”) as net income or loss, excluding gains or losses from sales of depreciable properties plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. We present FFO because we consider it an important supplemental measure of our operating performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results. FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. As a result, FFO provides a performance
measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities, interest costs and other matters without the inclusion of depreciation and amortization, providing perspective that may not necessarily be apparent from net income.
We compute FFO in accordance with the standards established by NAREIT. FFO does not represent cash generated from operating activities in accordance with GAAP and is not indicative of cash available to fund cash needs. FFO should not be considered as an alternative to net income as an indicator of our 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, our calculation of FFO presented herein may not be comparable to similarly titled measures as reported by other companies. FFO for the years ended December 31, 2004 and 2003 includes gains from the sales of land and a build-to-suit transaction in the amount of $6.1 million and $18.8 million, respectively.
II-30
The following table presents the Company’s FFO calculation for the years ended December 31 (in thousands):
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interests, preferred distributions, equity in earnings of real estate joint ventures, and discontinued operations
|
|
$
|
147,451
|
|
$
|
71,918
|
|
$
|
47,365
|
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of real estate joint ventures
|
|
|
1,371
|
|
|
603
|
|
|
30
|
|
|
Discontinued operations (net of minority interests)
|
|
|
70,968
|
|
|
19,258
|
|
|
148,186
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
Minority partners’ and
other interests in consolidated partnerships
|
|
|
16,698
|
|
|
18,507
|
|
|
16,857
|
|
|
Redemption charges on Series A preferred units
|
|
|
—
|
|
|
15,812
|
|
|
—
|
|
|
Preferred distributions
|
|
|
—
|
|
|
12,777
|
|
|
22,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocable to common unitholders
|
|
|
203,092
|
|
|
44,683
|
|
|
156,364
|
|
|
Adjustments for basic Funds From Operations
|
|
|
|
|
|
|
|
|
|
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
Real estate depreciation and amortization
|
|
|
121,649
|
|
|
107,945
|
|
|
101,435
|
|
|
Minority partners’ interests in consolidated partnerships
|
|
|
27,763
|
|
|
30,427
|
|
|
30,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
Gains on sales of depreciable real estate
|
|
|
154,216
|
|
|
11,322
|
|
|
126,789
|
|
|
Amounts distributable to minority partners in consolidated partnerships
|
|
|
23,044
|
|
|
26,743
|
|
|
26,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds
From Operations
|
|
$
|
175,244
|
|
$
|
144,990
|
|
$
|
134,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares/OP Units outstanding (1)
|
|
|
84,566
|
|
|
72,430
|
|
|
64,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Assumes conversion of limited partnership units of the Operating Partnership.
|
ITEM 7(A). Quantitative and Qualitative Disclosures about Market Risk
The primary market risk facing us is interest rate risk on our long-term debt and notes receivable. We do not enter into derivative financial instruments for trading or speculative purposes. However, in the normal course of our business and to help us manage our debt issuances and maturities, we do use derivative financial instruments in the form of cash flow hedges to protect ourselves against potentially rising interest rates. We are not subject to foreign currency risk.
The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.
As required by Statement No. 133, we record all derivatives on our balance sheet at fair value. For effective hedges, depending on the nature of the hedge, changes in the fair value of the derivative will be offset against the corresponding change in fair value of the hedged asset, liability, or firm commitment through earnings or recognized in OCI on our balance sheet until the hedged item is recognized in earnings.
For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in OCI and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. We assess the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction. For derivatives not designated as hedges, changes in fair value are recognized in earnings.
The fair market value (“FMV”) of our long term debt and Note Receivable Investments is estimated based on discounting future cash flows at interest rates that we believe reflects the risks associated with long term debt and notes receivable of similar risk and duration.
The following table sets forth our long-term debt obligations by scheduled principal cash flow payments and maturity date, weighted average interest rates and estimated FMV at December 31, 2005 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
Thereafter
|
|
Total (1)
|
|
FMV
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
$
|
123,469
|
|
$
|
269,529
|
|
$
|
7,887
|
|
$
|
307,589
|
|
$
|
372,418
|
|
$
|
531,671
|
|
$
|
1,612,563
|
|
$
|
1,677,396
|
|
|
|
Weighted average interest rate
|
|
|
7.11
|
%
|
|
7.14
|
%
|
|
7.28
|
%
|
|
7.71
|
%
|
|
4.51
|
%
|
|
6.07
|
%
|
|
6.29
|
%
|
|
|
|
|
|
Variable rate
|
|
$
|
—
|
|
$
|
—
|
|
$
|
419,000
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
419,000
|
|
$
|
419,000
|
|
|
|
Weighted average interest rate
|
|
|
—
|
%
|
|
—
|
%
|
|
5.17
|
%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
5.17
|
%
|
|
|
|
|
|
|
||||||||||||||||||||||||||
|
(1)
|
Includes aggregate unamortized issuance discounts of approximately $7.4 million on the senior unsecured notes which are due at maturity.
|
|||||||||||||||||||||||||
In addition, we have assessed the market risk of our variable rate debt, which is based upon LIBOR, and believe that a one percent increase in the LIBOR rate would have an approximate $4.2 million annual increase in interest expense based on $419.0 million of variable rate debt outstanding at December 31, 2005.
II-31
The following table sets forth our Notes Receivable Investments by scheduled maturity date, weighted average interest rates and estimated FMV at December 31, 2005 (dollars in thousands):
|
|
|
For the Year Ended December 31,
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
Thereafter
|
|
Total (1)
|
|
FMV
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
$
|
16,990
|
|
$
|
40,000
|
|
$
|
—
|
|
$
|
25,000
|
|
$
|
8,031
|
|
$
|
97,760(2
|
)
|
$
|
187,781
|
|
$
|
187,781
|
(2)
|
|
|
Weighted average interest rate
|
|
|
12.00
|
%
|
|
16.25
|
%
|
|
—
|
%
|
|
17.50
|
%
|
|
9.00
|
%
|
|
9.02
|
%
|
|
10.87
|
%
|
|
|
|
|
|
Variable rate
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
500
|
|
$
|
—
|
|
$
|
—
|
|
$
|
500
|
|
$
|
500
|
|
|
|
Weighted average Interest rate
|
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
4.35
|
%
|
|
—
|
%
|
|
—
|
%
|
|
4.35
|
%
|
|
|
|
|
|
|
||||||||||||||||||||||||||
| (1) | Excludes interest receivables and unamortized acquisition costs aggregating approximately $7.5 million. | |||||||||||||||||||||||||
|
(2)
|
Our investment balance, with respect to a participating loan investment, includes approximately $21.2 million of accretive interest which is due at maturity. The FMV calculation considers only accretive interest recorded through December 31, 2005. | |||||||||||||||||||||||||
In addition, we have assessed the market risk of our variable rate note receivable, which is based on LIBOR, and believe that a one percent increase in the LIBOR rate would have a $5,000 annual increase in interest income based on a $500,000 variable rate note receivable outstanding at December 31, 2005.
ITEM 8. Financial Statements and Supplementary Data
The response to this item is included in a separate section of this Form 10-K.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
ITEM 9A. Controls and Procedures
Evaluation of Disclosure Controls and
Procedures. We maintain disclosure controls and procedures
designed to ensure that information required to be disclosed in our filings
under the Securities Exchange Act of 1934 is reported within the time periods
specified in the SEC’s rules and forms. In this regard, we
have formed a Disclosure Committee currently comprised of all of our executive
officers as well as certain other members of senior management with knowledge
of information that may be considered in the SEC reporting process. The
Committee has responsibility for the development and assessment of the financial
and non-financial information to be included in the reports filed by us with
the SEC and supports the Chief Executive Officer and Chief Financial Officer
of the Company in connection with their certifications contained in our SEC
reports. The
Committee meets regularly and reports to the Audit Committee on a quarterly
or more frequent basis. The Chief Executive Officer and Chief Financial
Officer of the Company have evaluated, with the participation of our senior
management, our disclosure controls and procedures as of the end of the period
covered
by this Annual Report on Form 10-K. Based upon the evaluation, the
Chief Executive Officer and Chief Financial Officer of the Company concluded
that such disclosure controls and procedures are effective.
Managements Report on Internal Control Over Financial Reporting. Management’s Report on Internal Control Over Financial Reporting and the attestation report of Ernst & Young LLP, our independent registered public accounting firm, on management’s assessment of our internal control over financial reporting are included in Part IV, item 15(a) of the Form 10-K, and are incorporated herein by reference.
Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
II-32
ITEM 9B. Other information
On January 13, 2006, the Operating Partnership obtained a $250.0 million term loan (the “Term Loan”) from Goldman Sachs Mortgage Company. The Term Loan is for an initial term of three months and we have the option for a three month extension upon paying a one-time fee of 25 basis points on the amount then outstanding. The Term Loan has terms, including interest rates and financial covenants, substantially similar to our Credit Facility. Proceeds from the Term Loan were used to repay outstanding borrowings under our Credit Facility which were used primarily to acquire a 1.6 million square foot suburban office portfolio, consisting of 14 buildings, located in Westchester County, NY on December 29, 2005. An affiliate of the lender has performed investment banking and advisory services for us from time to time for which it has received customary fees and expenses.
II-33
Part III
ITEMS 10, 11, 12, 13 and 14.
The Company is the sole general partner
of the
Operating Partnership. All of the Company’s business is conducted
through the Operating Partnership. As a result, the information required
by Items 10, 11, 12, 13 and 14 is identical to the information contained in
Items
10, 11, 12, 13 and 14 of the Company’s Form 10-K, which incorporates by
reference information appearing in the Company’s Proxy Statement furnished
to shareholders in connection with the Company’s 2006 Annual Meeting. Such
information is incorporated by reference in this Form 10-K.
III-1
Part IV
ITEM 15. Exhibits and Financial Statement Schedules
(a)(1 and 2) Financial Statement Schedules
The following consolidated financial information is included as a separate section of this annual report on Form 10-K:
|
|
PAGE
|
|
|
|
|
Reckson Operating Partnership, L.P.
|
|
|
Management’s Report on Internal Control Over Financial Reporting
|
F-1
|
|
Reports of Independent Registered Public Accounting Firm
|
F-2
|
|
Consolidated Balance Sheets as of December 31, 2005 and December 31, 2004
|
F-4
|
|
Consolidated Statements of Income for the years ended December 31, 2005, 2004, and 2003
|
F-5
|
|
Consolidated Statements of Partners’ Capital for the years ended December 31, 2005, 2004, and 2003.
|
F-6
|
|
Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004, and 2003
|
F-7
|
|
Notes to Consolidated Financial Statements
|
F-8
|
|
Schedule III Real Estate and Accumulated Depreciation
|
S-1
|
All other schedules are omitted since the required information is not present in amounts sufficient to require submission of the schedule or because the information required is included in the financial statements and notes thereto.
(3) Exhibits: The following exhibits are filed as part of, or incorporated by reference into, this Form 10-K.
|
|
|
|
|
Incorporated by Reference
|
|
|
||||||
|
|
|
|
|
|
|
|
||||||
|
Exhibit Number
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing Date
|
|
Filed
Herewith |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.1
|
|
Amended and Restated Agreement of Limited Partnership of the Registrant
|
|
S-11*
|
|
333-1280
|
|
10.1
|
|
2/12/96
|
|
|
|
3.2
|
|
Supplement to the Amended and Restated Agreement of Limited Partnership of the Registrant Establishing Series A Preferred Units of Limited Partnership Interest
|
|
8-K*
|
|
|
|
10.1
|
|
3/1/99
|
|
|
|
3.3
|
|
Supplement to the Amended and Restated Agreement of Limited Partnership of the Registrant Establishing Series B Preferred Units of Limited Partnership Interest
|
|
8-K*
|
|
|
|
10.2
|
|
3/1/99
|
|
|
|
3.4
|
|
Supplement to the Amended and Restated Agreement of Limited Partnership of the Registrant Establishing Series C Preferred Units of Limited Partnership Interest
|
|
8-K*
|
|
|
|
10.3
|
|
3/1/99
|
|
|
|
3.5
|
|
Supplement to the Amended and Restated Agreement of Limited Partnership of the Registrant Establishing Series D Preferred Units of Limited Partnership Interest
|
|
8-K*
|
|
|
|
10.4
|
|
3/1/99
|
|
|
|
3.6
|
|
Supplement to the Amended and Restated Agreement of Limited Partnership of the Registrant Establishing Series B Common Units of Limited Partnership Interest
|
|
10-K*
|
|
|
|
10.6
|
|
3/17/00
|
|
|
|
3.7
|
|
Supplement to the Amended and Restated Agreement of Limited Partnership of the Registrant Establishing Series E Preferred Partnership Units of Limited Partnership Interest
|
|
10-K*
|
|
|
|
10.7
|
|
3/17/00
|
|
|
|
3.8
|
|
Supplement to the Amended and Restated Agreement of Limited Partnership of the Registrant Establishing the Series F Junior Participating Preferred Partnership Units
|
|
10-K*
|
|
|
|
10.8
|
|
3/21/01
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
|
||||||
|
|
|
|
|
|
|
|
||||||
|
Exhibit Number
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing Date
|
|
Filed
Herewith |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.9
|
|
Supplement to the Amended and Restated Agreement of Limited Partnership of the Registrant Establishing the Series C Common Units of Limited Partnership Interest
|
|
10-Q*
|
|
|
|
10.4
|
|
8/13/03
|
|
|
|
3.10
|
|
Supplement to the Amended and Restated Agreement of Limited Partnership of the Registrant Establishing LTIP Units of Limited Partnership Interest
|
|
8-K
|
|
|
|
10.4
|
|
12/29/04
|
|
|
|
3.11
|
|
Supplement to the Amended and Restated Agreement of Limited Partnership of the Registrant Establishing 2005 LTIP Units of Limited Partnership Interest
|
|
10-K*
|
|
|
|
10.11
|
|
3/10/06
|
|
|
|
4.1
|
|
Form of 7.75% Notes due 2009 of the Registrant
|
|
8-K
|
|
|
|
4.2
|
|
3/26/99
|
|
|
|
4.2
|
|
Indenture, dated March 26, 1999, among the Registrant, the Company, and The Bank of New York, as trustee
|
|
8-K
|
|
|
|
4.3
|
|
3/26/99
|
|
|
|
4.3
|
|
Rights Agreement, dated as of October 13, 2000, between the Registrant and American Stock Transfer & Trust Company, as Rights Agent, which includes, as Exhibit A thereto, the Form of Articles Supplementary, as Exhibit B thereto, the Form of Right Certificate, and as Exhibit C thereto, the Summary of Rights to Purchase Preferred Shares
|
|
8-K
|
|
|
|
4
|
|
10/17/00
|
|
|
|
4.4
|
|
Form of 6.00% Notes due 2007 of the Registrant
|
|
8-K
|
|
|
|
4.1
|
|
6/18/02
|
|
|
|
4.5
|
|
Note Purchase Agreement for the Senior Unsecured Notes due 2007
|
|
10-K*
|
|
|
|
10.23
|
|
3/26/98
|
|
|
|
4.6
|
|
Form of 5.15% Notes due 2011 of the Registrant
|
|
8-K
|
|
|
|
4.1
|
|
1/21/04
|
|
|
|
4.7
|
|
Form of 5.875% Notes due 2014 of the Registrant
|
|
8-K
|
|
|
|
4.1
|
|
8/12/04
|
|
|
|
4.8
|
|
4.00% Exchangeable Senior Debentures due 2025 of the Registrant
|
|
8-K
|
|
|
|
4.1
|
|
6/27/05
|
|
|
|
10.1
|
|
Third Amended and Restated Agreement of Limited Partnership of Omni Partners, L.P.
|
|
10-K*
|
|
|
|
10.2
|
|
3/26/98
|
|
|
|
10.2
|
|
Amendment and Restatement of Employment and Noncompetition Agreement, dated as of August 15, 2000, between the Company and Scott Rechler
|
|
8-K
|
|
|
|
10.13
|
|
10/17/00
|
|
|
|
10.3
|
|
Amendment and Restatement of Employment and Noncompetition Agreement, dated as of August 15, 2000, between the Company and Michael Maturo
|
|
8-K
|
|
|
|
10.9
|
|
10/17/00
|
|
|
|
10.4
|
|
Amendment and Restatement of Employment and Noncompetition Agreement, dated as of August 15, 2000, between the Company and Jason Barnett
|
|
8-K
|
|
|
|
10.17
|
|
10/17/00
|
|
|
|
10.5
|
|
Employment and Noncompetition Agreement, dated as of July 16, 2001, between the Company and F.D. Rich
|
|
10-K*
|
|
|
|
10.14
|
|
3/9/04
|
|
|
|
10.6
|
|
Employment and Noncompetition Agreement, dated as of November 20, 2002, among the Company, Metropolitan Partners LLC and Philip Waterman III
|
|
10-K*
|
|
|
|
10.15
|
|
3/9/04
|
|
|
|
10.7
|
|
Agreement for Extension of Employment and Noncompetition Agreement, dated as of September 27, 2005, by and between the Company and Scott Rechler(1)
|
|
8-K
|
|
|
|
10.3
|
|
9/27/05
|
|
|
IV-2
|
|
|
|
|
Incorporated by Reference
|
|
|
||||||
|
|
|
|
|
|
|
|
||||||
|
Exhibit Number
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing Date
|
|
Filed
Herewith |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.8
|
|
Agreement for Extension of Employment and Noncompetition Agreement, dated as of December 6, 2005, by and between the Company and Scott Rechler(2)
|
|
8-K
|
|
|
|
10.2
|
|
12/6/05
|
|
|
|
10.9
|
|
Agreement for Extension of Employment and Noncompetition Agreement, dated as of February 14 , 2006, by and between the Company and Scott Rechler(3)
|
|
8-K
|
|
|
|
10.1
|
|
2/21/06
|
|
|
|
10.10
|
|
Purchase Option Agreement relating to 225 Broadhollow Road
|
|
S-11*
|
|
333-1280
|
|
10.14
|
|
2/12/96
|
|
|
|
10.11
|
|
Amended and Restated 1995 Stock Option Plan
|
|
10-Q*
|
|
|
|
10.1
|
|
8/13/03
|
|
|
|
10.12
|
|
1996 Employee Stock Option Plan
|
|
8-K*
|
|
|
|
10.2
|
|
11/25/96
|
|
|
|
10.13
|
|
Ground Leases for certain of the properties
|
|
S-11*
|
|
33-84324
|
|
10.17
|
|
2/3/95
|
|
|
|
10.14
|
|
Amended and Restated 1997 Stock Option Plan
|
|
10-Q*
|
|
|
|
10.2
|
|
8/13/03
|
|
|
|
10.15
|
|
1998 Stock Option Plan
|
|
10-K*
|
|
|
|
10.20
|
|
3/26/98
|
|
|
|
10.16
|
|
Amended and Restated 2002 Stock Option Plan
|
|
10-Q
|
|
|
|
10.3
|
|
8/13/03
|
|
|
|
10.17
|
|
2005 Stock Option Plan
|
|
10-Q
|
|
|
|
10.1
|
|
8/9/05
|
|
|
|
10.18
|
|
Amendment and Restatement of Severance Agreement, dated as of August 15, 2000, between the Company and Scott Rechler
|
|
8-K
|
|
|
|
10.14
|
|
10/17/00
|
|
|
|
10.19
|
|
Amendment and Restatement of Severance Agreement, dated as of August 15, 2000, between the Company and Michael Maturo
|
|
8-K
|
|
|
|
10.10
|
|
10/17/00
|
|
|
|
10.20
|
|
Amendment and Restatement of Severance Agreement, dated as of August 15, 2000, between the Company and Jason Barnett
|
|
8-K
|
|
|
|
10.18
|
|
10/17/00
|
|
|
|
10.21
|
|
Loan Agreement, dated as of June 1, 2001, between 1350 LLC, as Borrower, and Secore Financial Corporation, as Lender
|
|
10-Q
|
|
|
|
10.1
|
|
8/14/01
|
|
|
|
10.22
|
|
Loan Agreement, dated as of July 18, 2001, between Metropolitan 919 3rd Avenue, LLC, as Borrower, and Secore Financial Corporation, as Lender
|
|
10-Q
|
|
|
|
10.2
|
|
8/14/01
|
|
|
|
10.23
|
|
Operating Agreement, dated as of September 28, 2000, between Reckson Tri-State Member LLC (together with its permitted successors and assigns) and TIAA Tri-State LLC
|
|
8-K
|
|
|
|
10.3
|
|
10/17/00
|
|
|
|
10.24
|
|
Agreement of Spreader, Consolidation and Modification of Mortgage Security Agreement among Metropolitan 810 7th Ave., LLC, 100 Wall Company LLC and Monumental Life Insurance Company
|
|
10-K*
|
|
|
|
10.51
|
|
3/21/01
|
|
|
|
10.25
|
|
Consolidated, Amended and Restated Secured Promissory Note relating to Metropolitan 810 7th Ave., LLC and 100 Wall Company LLC
|
|
10-K*
|
|
|
|
10.52
|
|
3/21/01
|
|
|
|
10.26
|
|
Amended and Restated Operating Agreement of 919 JV LLC
|
|
8-K
|
|
|
|
10.1
|
|
1/8/02
|
|
|
|
10.27
|
|
Indemnification Agreement, dated as of May 23, 2002, between the Company and Scott H. Rechler(4)
|
|
10-K*
|
|
|
|
10.33
|
|
3/14/05
|
|
|
IV-3
|
|
|
|
|
Incorporated by Reference
|
|
|
||||||
|
|
|
|
|
|
|
|
||||||
|
Exhibit Number
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing Date
|
|
Filed
Herewith |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.28
|
|
Award Agreement, dated as of November 14, 2002, between the Company and Scott H. Rechler(5)
|
|
10-K*
|
|
|
|
10.49
|
|
3/24/03
|
|
|
|
10.29
|
|
Award Agreement, dated as of March 13, 2003, between the Company and Scott H. Rechler(6)
|
|
10-K*
|
|
|
|
10.50
|
|
3/24/03
|
|
|
|
10.30
|
|
Amendment Agreement, dated as of September 10, 2003, by and between the Registrant, the Company and Scott Rechler
|
|
8-K
|
|
|
|
10.7
|
|
9/18/03
|
|
|
|
10.31
|
|
Third Amended and Restated Credit Agreement, dated August 6, 2004, between the Registrant, as Borrower, and the Institutions from time to time party thereto
|
|
10-Q*
|
|
|
|
10.1
|
|
8/9/04
|
|
|
|
10.32
|
|
Amended and Restated Long-Term Incentive Award Agreement, dated as of May 28, 2003, between the Company and Scott H. Rechler(7)
|
|
10-K*
|
|
|
|
10.49
|
|
3/14/05
|
|
|
|
10.33
|
|
Form of First Amendment to Amended and Restated Long-Term Incentive Award Agreement
|
|
8-K
|
|
|
|
10.1
|
|
12/29/04
|
|
|
|
10.34
|
|
Form of Long-Term Incentive Plan OP Unit Award Agreement
|
|
8-K
|
|
|
|
10.2
|
|
12/29/04
|
|
|
|
10.35
|
|
Form of Change-in-Control Bonus Agreement
|
|
8-K
|
|
|
|
10.3
|
|
12/29/04
|
|
|
|
10.36
|
|
Long-Term Incentive Plan OP Unit Award Agreement, dated as of March 11, 2005, between the Company and Scott H. Rechler(8)
|
|
10-K*
|
|
|
|
10.47
|
|
3/10/06
|
|
|
|
10.37
|
|
Long-Term Incentive Plan OP Unit Award Agreement, dated as of March 11, 2005, between the Company and Salvatore Campofranco(9)
|
|
10-K*
|
|
|
|
10.48
|
|
3/10/06
|
|
|
|
10.38
|
|
Change-in-Control Agreement, dated as of March 11, 2005, between the Company and Scott H. Rechler(10)
|
|
10-K*
|
|
|
|
10.49
|
|
3/10/06
|
|
|
|
10.39
|
|
Purchase and Sale Agreement, dated as of May 4, 2005, by and between Citibank, N.A. and Reckson Court Square, LLC
|
|
10-Q*
|
|
|
|
10.1
|
|
5/9/05
|
|
|
|
10.40
|
|
Term Loan Agreement, dated as of May 12, 2005, among the Registrant, the institution from time to time party thereto as lenders, Citicorp North America, Inc., as administrative agent, and Citigroup Global Markets Inc., as lead arranger and sole bookrunner
|
|
8-K
|
|
|
|
10.3
|
|
5/18/05
|
|
|
|
10.41
|
|
Amendment No. 1 to Third Amended and Restated Credit Agreement, dated as of May 12, 2005, by and among the Registrant, the Lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent
|
|
8-K
|
|
|
|
10.4
|
|
5/18/05
|
|
|
|
10.42
|
|
Amendment No. 2 to Third Amended and Restated Credit Agreement, dated as of June 20, 2005, among the Registrant, the Lenders party thereto and JPMorgan Chase Bank, N.A.
|
|
8-K
|
|
|
|
10.1
|
|
6/27/05
|
|
|
|
10.43
|
|
Amendment No. 1 to Term Loan Agreement, dated as of June 20, 2005, among the Registrant, the Lenders party thereto and Citicorp. North America, Inc., as administrative agent
|
|
8-K
|
|
|
|
10.2
|
|
6/27/05
|
|
|
|
10.44
|
|
Contract of Sale, dated as of July 8, 2005, between Galaxy LI Associates LLC, as seller, and Reckson EAB LLC, as buyer
|
|
10-Q*
|
|
|
|
10.2
|
|
8/9/05
|
|
|
IV-4
|
|
|
|
|
Incorporated by Reference
|
|
|
||||||
|
|
|
|
|
|
|
|
||||||
|
Exhibit Number
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing Date
|
|
Filed
Herewith |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.45
|
|
Note, dated as of August 3, 2005, by Reckson Court Square, LLC (Borrower), in favor of German American Capital Corporation (Lender)
|
|
10-Q*
|
|
|
|
10.3
|
|
8/9/05
|
|
|
|
10.46
|
|
Loan and Security Agreement, dated as of August 3, 2005, between Reckson Court Square, LLC and German American Capital Corporation
|
|
10-Q*
|
|
|
|
10.4
|
|
8/9/05
|
|
|
|
10.47
|
|
Sale Agreement, dated as of August 12, 2005, by and among the Registrant and certain of its subsidiaries, Reckson Australia Operating Company LLC and Reckson Australia LPT Corporation
|
|
8-K
|
|
|
|
10.3
|
|
8/18/05
|
|
|
|
10.48
|
|
Contribution Agreement,
dated as of August 12, 2005, by and among the Registrant, and certain of its
subsidiaries, Reckson Australia Operating Company LLC and Reckson Australia
LPT Corporation
|
|
8-K
|
|
|
|
10.2
|
|
8/18/05
|
|
|
|
10.49
|
|
Loan Agreement, dated as of August 26, 2005, among UBS Real Estate Investments Inc. and RA 492 River Road LLC, RA 100 Executive Drive LLC, RA 200 Executive Drive LLC, RA 35 Pinelawn Road LLC, RA 80 Grasslands Road LLC, RA 100 Grasslands Road LLC, RA 150 Motor Parkway LLC, RA 660 White Plains Road LLC and RA 225 High Ridge LLC (the “UBS Borrowers”)
|
|
8-K
|
|
|
|
10.1
|
|
9/1/05
|
|
|
|
10.50
|
|
Promissory Note, dated as of August 26, 2005, among UBS Real Estate Investments Inc. and the UBS Borrowers
|
|
8-K
|
|
|
|
10.2
|
|
9/1/05
|
|
|
|
10.51
|
|
Guaranty of Recourse Obligations (Pool A), dated as of August 26, 2005, between the Registrant and UBS Real Estate Investments Inc.
|
|
8-K
|
|
|
|
10.3
|
|
9/1/05
|
|
|
|
10.52
|
|
Amended and Restated Limited Liability Company Agreement, dated as of September 21, 2005, by and between Reckson Australia Holdings LLC and Reckson Australia LPT Corporation
|
|
8-K
|
|
|
|
10.1
|
|
9/27/05
|
|
|
|
10.53
|
|
Option Agreement, dated as of September 21, 2005, by and between the Registrant, Reckson Australia Operating Company LLC and Reckson Australia LPT Corporation
|
|
8-K
|
|
|
|
10.2
|
|
9/27/05
|
|
|
|
10.54
|
|
Amended and Restated Operating Agreement of One Court Square Holdings LLC, dated as of November 30, 2005, by and between One Court Square Member LLC and One Court Square Investor, LLC
|
|
8-K
|
|
|
|
10.1
|
|
12/6/05
|
|
|
|
10.55
|
|
Term Loan, dated as of January 13, 2006, among the Registrant,
the Institutions From Time to Time Party Thereto as Lenders, Goldman Sachs Management Company,
as Administrative Agent, and Goldman Sachs Management Company, as Lead Arranger and Sole
Bookrunner
|
|
10-K*
|
|
|
|
10.66
|
|
3/10/06
|
|
|
|
12.1
|
|
Statement of Ratios of Earnings to Fixed Charges
|
|
|
|
|
|
|
|
|
|
X
|
|
14.1
|
|
Reckson Associates Realty Corp. Code of Ethics and Business Conduct
|
|
10-K*
|
|
|
|
14.1
|
|
3/9/04
|
|
|
|
21.1
|
|
Statement of Subsidiaries
|
|
|
|
|
|
|
|
|
|
X
|
IV-5
|
|
|
|
|
Incorporated by Reference
|
|
|
||||||
|
|
|
|
|
|
|
|
||||||
|
Exhibit Number
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing Date
|
|
Filed
Herewith |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.1
|
|
Consent of Independent Registered Public Accounting Firm
|
|
|
|
|
|
|
|
|
|
X
|
|
24.1
|
|
Power of Attorney (included in Part IV of the Form 10-K)
|
|
|
|
|
|
|
|
|
|
|
|
31.1
|
|
Certification of Scott H. Rechler, Chief Executive Officer and President of the Company, the sole general partner of the Registrant, pursuant to Rule 13a–14(a) or Rule 15(d)–14(a)
|
|
|
|
|
|
|
|
|
|
X
|
|
31.2
|
|
Certification of Michael Maturo, Executive Vice President, Treasurer and Chief Financial Officer of the Company, the sole general partner of the Registrant, pursuant to Rule 13a–14(a) or Rule 15(d)–14(a)
|
|
|
|
|
|
|
|
|
|
X
|
|
32.1
|
|
Certification of Scott H. Rechler, Chief Executive Officer and President of the Company, the sole general partner of the Registrant, pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
|
|
|
|
|
|
|
|
|
|
X
|
|
32.2
|
|
Certification of Michael Maturo, Executive Vice President, Treasurer and Chief Financial Officer of the Company, the sole general partner of the Registrant, pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
*
|
Previously filed as an exhibit to the Company’s filing with the SEC and incorporated herein by reference.
|
|
(1)
|
Each of Michael Maturo and Jason Barnett has entered into an Agreement for Extension of Employment and Noncompetition Agreement, dated as of September 27, 2005, with the Company. These agreements are identical in all material respects to the Agreement for Extension of Employment and Noncompetition Agreement for Scott Rechler incorporated by reference herein.
|
|
(2)
|
Each of Michael Maturo and Jason Barnett has entered into an Agreement for Extension of Employment and Noncompetition Agreement, dated as of December 6, 2005, with the Company. These agreements are identical in all material respects to the Agreement for Extension of Employment and Noncompetition Agreement for Scott Rechler incorporated by reference herein.
|
|
(3)
|
Each of Michael Maturo and Jason Barnett has entered into an Agreement for Extension of Employment and Noncompetition Agreement, dated as of February 14, 2006, with the Company. These agreements are identical in all material respects to the Agreement for Extension of Employment and Noncompetition Agreement for Scott Rechler incorporated by reference herein.
|
|
(4)
|
Each of Michael Maturo, Jason M. Barnett and Lewis S. Ranieri has entered into an Indemnification Agreement with the Company, dated as of May 23, 2002. Each of Ronald H. Menaker and Peter Quick has entered into an Indemnification Agreement with the Company dated as of May 1, 2002. Each of Douglas Crocker and Stanley Steinberg has entered into an Indemnification Agreement with the Company dated as of February 5, 2004. Elizabeth McCaul has entered into an Indemnification Agreement with the Company dated as of February 25, 2004 and John Ruffle has entered into an Indemnification Agreement with the Company dated as of March 30, 2004. These Agreements are identical in all material respects to the Indemnification Agreement for Scott H. Rechler incorporated by reference herein.
|
|
(5)
|
Michael Maturo has been awarded certain rights to shares of common stock of the Company, pursuant to an Award Agreement dated November 14, 2002. This Agreement is identical in all material respects to the Agreement for Scott H. Rechler incorporated by reference herein, except that Michael Maturo received rights to 27,588 shares.
|
|
(6)
|
Each of Michael Maturo and Jason M. Barnett has been awarded certain rights to shares of common stock of the Company pursuant to Award Agreements dated March 13, 2003. These Agreements are identical in all material respects to the Agreement for Scott H. Rechler incorporated by reference herein.
|
|
(7)
|
Each of Michael Maturo and Jason Barnett has entered into an Amended and Restated Long-Term Incentive Award Agreement, dated as of May 28, 2003, with the Company. These Agreements are identical in all material respects to the Amended and Restated Long-Term Incentive Award Agreement for Scott H. Rechler incorporated by reference herein.
|
|
(8)
|
Each of Michael Maturo and Jason Barnett has entered into a Long-Term Incentive Plan OP Unit Award Agreement, dated as of March 11, 2005, with the Company. These agreements are identical in all material respects to the Long-Term Incentive Plan OP Unit Award Agreement for Scott H. Rechler incorporated herein by reference.
|
|
(9)
|
Each of F. D. Rich III and Philip Waterman III has entered into a Long-Term Incentive Plan OP Unit Award Agreement, dated as of March 11, 2005, with the Company. These agreements are identical in all material respects to the Long-Term Incentive Plan OP Unit Award Agreement for Salvatore Campofranco incorporated herein by reference.
|
IV-6
|
(10)
|
Each of Michael Maturo and Jason Barnett has entered into a Change-in-Control Agreement, dated as of March 11, 2005, with the Company. These agreements are identical in all material respects to the Change-in-Control Agreement for Scott H. Rechler incorporated herein by reference.
|
IV-7
SIGNATURES
Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized on March 17, 2006.
|
|
RECKSON OPERATING PARTNERSHIP, L.P.
|
|
|
|
|
|
|
|
BY: RECKSON ASSOCIATES REALTY CORP.
|
|
|
|
|
|
|
|
By:
|
/s/ Scott H. Rechler
|
|
|
|
|
|
|
|
Scott H. Rechler,
|
|
|
|
Chairman of the Board,
|
|
|
|
Chief Executive Officer, President and Director
|
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and directors of Reckson Associates Realty Corp., the corporate general partner of the Registrant, hereby severally constitute and appoint Scott H. Rechler and Michael Maturo, and each of them singly, our true and lawful attorneys-in-fact with full power to them, and each of them singly, to sign for us and in our names in the capacities indicated below, the Form 10-K filed herewith and any and all amendments to said Form 10-K, and generally to do all such things in our names and in our capacities as officers and directors to enable Reckson Operating Partnership, L.P. to comply with the provisions of the Securities Exchange Act of 1934, and all requirements of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or any of them, to said Form 10-K and any and all amendments thereto.
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities indicated on March
17, 2006.
|
Signature
|
|
Title
|
|
|
|
|
|
|
|
|
|
/s/ Scott H. Rechler
|
|
Chairman of the Board, Chief Executive Officer, President and
|
|
|
|
Director
|
|
Scott H. Rechler
|
|
|
|
|
|
|
|
/s/ Michael Maturo
|
|
Executive Vice President, Treasurer and Chief Financial Officer
|
|
|
|
(Principal Financial Officer and Principal Accounting Officer)
|
|
Michael Maturo
|
|
|
|
|
|
|
|
/s/ Peter Quick
|
|
Lead Independent Director
|
|
|
|
|
|
Peter Quick
|
|
|
|
|
|
|
|
/s/ Ronald H. Menaker
|
|
Director
|
|
|
|
|
|
Ronald H. Menaker
|
|
|
|
|
|
|
|
/s/ Lewis S. Ranieri
|
|
Director
|
|
|
|
|
|
Lewis S. Ranieri
|
|
|
|
|
|
|
|
/s/ Douglas Crocker II
|
|
Director
|
|
|
|
|
|
Douglas Crocker II
|
|
|
|
|
|
|
|
/s/ John F. Ruffle
|
|
Director
|
|
|
|
|
|
John F. Ruffle
|
|
|
|
|
|
|
|
/s/ Stanley Steinberg
|
|
Director
|
|
|
|
|
|
Stanley Steinberg
|
|
|
|
|
|
|
|
/s/ Elizabeth McCaul
|
|
Director
|
|
|
|
|
|
Elizabeth McCaul
|
|
|
IV-8
Management’s Report on Internal Control Over Financial Reporting
The management of Reckson Operating Partnership, L.P. is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Under the supervision and with the participation
of management, including the Company’s principal executive officer and
principal financial officer, we conducted an evaluation of the effectiveness
of internal control over financial reporting based on the framework in Internal
Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our evaluation
under the framework in Internal Control – Integrated Framework,
management concluded that our internal control over financial reporting was
effective as of December 31, 2005. Management’s assessment of
the effectiveness of our internal control over financial reporting as of
December 31, 2005 has been audited by Ernst & Young LLP, an independent
registered public accounting firm, as stated in their report which is included
herein.
F-1
Report of Independent Registered Public Accounting Firm
To the Partners of
Reckson Operating Partnership, L.P.
Reckson Operating Partnership, L.P.
We have audited the accompanying consolidated balance sheets of Reckson Operating Partnership, L.P. as of December 31, 2005 and 2004, and the related consolidated statements of income, partners’ capital, and cash flows for each of the three years in the period ended December 31, 2005. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Reckson Operating Partnership, L.P. at December 31, 2005 and 2004, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
We also have audited, in accordance with
the standards of the Public Company Accounting Oversight Board (United States),
the effectiveness of Reckson Operating Partnership, L.P.’s internal
control over financial reporting as of December 31, 2005, based on criteria
established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 15, 2006 expressed an unqualified opinion
thereon.
Ernst & Young LLP
New York, New York
March 15, 2006
F-2
Report of Independent Registered Public Accounting Firm
To the Partners of Reckson Operating Partnership, L.P.
We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Reckson Operating Partnership, L.P. maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Reckson Operating Partnership, L.P.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that Reckson Operating Partnership, L.P. maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Reckson Operating Partnership, L.P. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the COSO criteria.
We also have audited, in accordance with
the standards of the Public Company Accounting Oversight Board (United States),
the 2005 consolidated financial statements of Reckson Operating Partnership,
L.P. and our report dated March 15, 2006 expressed an unqualified opinion
thereon.
Ernst & Young LLP
New York, New York
March 15, 2006
F-3
Reckson Operating Partnership, L.P.
Consolidated Balance Sheets
Consolidated Balance Sheets
(in thousands, except share amounts)
|
|
|
December 31,
|
|
||||
|
|
|
|
|
||||
|
|
|
2005
|
|
2004
|
|
||
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Commercial real estate properties, at cost: (Notes 2, 3, 5 and 6)
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
430,064
|
|
$
|
353,408
|
|
|
Buildings and improvements
|
|
|
2,823,020
|
|
|
2,273,419
|
|
|
Developments in progress:
|
|
|
|
|
|
|
|
|
Land
|
|
|
123,761
|
|
|
90,976
|
|
|
Development costs
|
|
|
99,570
|
|
|
42,169
|
|
|
Furniture, fixtures and equipment
|
|
|
12,738
|
|
|
11,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,489,153
|
|
|
2,771,581
|
|
|
Less accumulated depreciation
|
|
|
(532,152
|
)
|
|
(434,112
|
)
|
|
|
|
|
|
|
|
|
|
|
Investments in real estate, net of accumulated depreciation
|
|
|
2,957,001
|
|
|
2,337,469
|
|
|
Properties and related assets held for sale, net of accumulated depreciation (Note 6)
|
|
|
194,297
|
|
|
405,353
|
|
|
Investments in real estate joint ventures (Note 6)
|
|
|
61,526
|
|
|
6,657
|
|
|
Investments in notes receivable (Note 6)
|
|
|
174,612
|
|
|
85,855
|
|
|
Cash and cash equivalents
|
|
|
17,468
|
|
|
25,137
|
|
|
Tenant receivables
|
|
|
20,196
|
|
|
9,427
|
|
|
Investments in affiliate loans and joint ventures (Note 8)
|
|
|
64,954
|
|
|
65,186
|
|
|
Deferred rents receivable
|
|
|
138,990
|
|
|
108,791
|
|
|
Prepaid expenses and other assets
|
|
|
108,820
|
|
|
58,648
|
|
|
Contract and land deposits and pre-acquisition costs
|
|
|
184
|
|
|
121
|
|
|
Deferred leasing and loan costs, net of accumulated amortization of $45,332 and $53,021, respectively
|
|
|
78,411
|
|
|
68,722
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
3,816,459
|
|
$
|
3,171,366
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Mortgage notes payable (Note 2)
|
|
$
|
541,382
|
|
$
|
576,719
|
|
|
Mortgage notes payable and other liabilities associated with properties held for sale (Note 6)
|
|
|
84,572
|
|
|
35,638
|
|
|
Unsecured credit facility (Note 3)
|
|
|
419,000
|
|
|
235,500
|
|
|
Senior unsecured notes (Note 4)
|
|
|
980,085
|
|
|
697,974
|
|
|
Accrued expenses and other liabilities
|
|
|
118,661
|
|
|
68,231
|
|
|
Deferred revenues and tenant security deposits (Note 6)
|
|
|
75,903
|
|
|
47,535
|
|
|
Distributions payable
|
|
|
36,398
|
|
|
35,924
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
2,256,001
|
|
|
1,697,521
|
|
|
|
|
|
|
|
|
|
|
|
Minority
partners’ interests in consolidated partnerships and other interests
|
|
|
219,358
|
|
|
211,178
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Notes 10 and 13)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Partners’ Capital (Note 7)
|
|
|
|
|
|
|
|
|
Preferred capital 1,200 units issued and outstanding
|
|
|
1,200
|
|
|
1,200
|
|
|
General Partners’ Capital:
|
|
|
|
|
|
|
|
|
Class A common units, 82,995,931 and 80,618,339 units outstanding, respectively
|
|
|
1,306,236
|
|
|
1,206,447
|
|
|
Limited Partners’ Capital:
|
|
|
|
|
|
|
|
|
Class A common
units, 1,569,142 and 3,113,756 units issued and outstanding, respectively
|
|
|
24,555
|
|
|
46,450
|
|
|
Class C common units, 465,845 units issued and outstanding
|
|
|
7,290
|
|
|
6,781
|
|
|
Accumulated other comprehensive income
|
|
|
1,819
|
|
|
1,789
|
|
|
|
|
|
|
|
|
|
|
|
Total Partners’ Capital
|
|
|
1,341,100
|
|
|
1,262,667
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Partners’ Capital
|
|
$
|
3,816,459
|
|
$
|
3,171,366
|
|
|
|
|
|
|
|
|
|
|
(see accompanying notes to financial statements)
F-4
Reckson
Operating Partnership, L.P.
Consolidated Statements of Income
(in thousands, except share amounts)
| For the year ended December 31, | |||||||||
| 2005 | 2004 | 2003 | |||||||
| Property operating revenues (Note 10): | |||||||||
| Base Rents | $ | 468,034 | $ | 422,012 | $ | 353,654 | |||
| Tenant escalations and reimbursements | 78,114 | 71,369 | 57,003 | ||||||
Total property operating revenues |
546,148 | 493,381 | 410,657 | ||||||
| Operating Expenses: | |||||||||
| Property operating expenses | 219,041 | 199,133 | 164,931 | ||||||
| Marketing, general and administrative | 32,438 | 29,967 | 31,442 | ||||||
| Depreciation and amortization | 126,662 | 111,765 | 97,729 | ||||||
Total operating expenses |
378,141 | 340,865 | 294,102 | ||||||
Operating income |
168,007 | 152,516 | 116,555 | ||||||
| Non-operating income and expenses: | |||||||||
| Gains on sales of real estate | 92,130 | — | — | ||||||
Interest income
on notes receivable (including $2,308 $1,816 and $3,865, respectively from
related parties) |
14,118 | 7,129 | 6,568 | ||||||
| Investment income and other | 11,787 | 11,914 | 17,641 | ||||||
| Interest: | |||||||||
Expense |
(110,891 | ) | (95,920 | ) | (78,580 | ) | |||
Amortization of deferred financing costs |
(4,166 | ) | (3,721 | ) | (3,239 | ) | |||
| Long term incentive compensation expense (Note 7) | (23,534 | ) | — | — | |||||
| Restructuring charges – net (Note 8) | — | — | (11,580 | ) | |||||
Total non-operating income and expenses |
(20,556 | ) | (80,598 | ) | (69,190 | ) | |||
Income before minority interests, preferred distributions, equity in earnings of real estate
joint ventures and discontinued operations |
147,451 | 71,918 | 47,365 | ||||||
Minority partners’ interests in consolidated partnerships and other interests |
(16,698 | ) | (18,507 | ) | (16,857 | ) | |||
| Equity in earnings of real estate joint ventures | 1,371 | 603 | 30 | ||||||
| Income before discontinued operations and preferred distributions | 132,124 | 54,014 | 30,538 | ||||||
| Discontinued operations (net of minority interests): | |||||||||
Income
from discontinued operations
|
7,929 | 6,834 | 21,397 | ||||||
Gains on sales of real estate |
63,039 | 12,424 | 126,789 | ||||||
| Net Income | 203,092 | 73,272 | 178,724 | ||||||
| Preferred distributions | — | (12,777 | ) | (22,360 | ) | ||||
| Redemption charges on Series A preferred units | — | (15,812 | ) | — | |||||
| Net income allocable to common unitholders | $ | 203,092 | $ | 44,683 | $ | 156,364 | |||
| Net income allocable to: | |||||||||
Common unitholders |
$ | 201,865 | $ | 44,356 | $ | 137,996 | |||
Class B common unitholders |
— | — | 17,288 | ||||||
Class C common unit holders |
1,227 | 327 | 1,080 | ||||||
| Total | $ | 203,092 | $ | 44,683 | $ | 156,364 | |||
| Net income per weighted average common units: | |||||||||
Income from continuing operations |
$ | .48 | $ | .35 | $ | .10 | |||
Gains on sales of real estate |
1.08 | — | — | ||||||
Discontinued operations |
.84 | .27 | 2.37 | ||||||
Basic net income per common unit |
$ | 2.40 | $ | .62 | $ | 2.47 | |||
Class B common – income from continuing operations |
$ | — | $ | — | $ | .30 | |||
Discontinued operations |
— | — | 1.64 | ||||||
Basic net income per ClassB common unit |
$ | — | $ | — | $ | 1.94 | |||
Class C common – income from continuing operations |
$ | .52 | $ | .40 | $ | .01 | |||
Gains on sales of real estate |
1.19 | — | — | ||||||
Discontinued operations |
.92 | .30 | 5.73 | ||||||
Basic net income per Class C common unit |
$ | 2.63 | $ | .70 | $ | 5.74 | |||
| Weighted average common units outstanding: | |||||||||
Common units |
84,100,000 | 71,964,000 | 55,786,000 | ||||||
Class B common units |
— | — | 8,910,000 | ||||||
Class C common units |
466,000 | 466,000 | 188,000 | ||||||
(see accompanying notes to financial statements)
F-5
Reckson Operating Partnership, L. P.
Consolidated Statements of Partners’ Capital
(in thousands)
Consolidated Statements of Partners’ Capital
(in thousands)
|
|
|
General Partners’ Capital
|
|
Limited Partners’ Capital
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
|
|
Preferred
Capital |
|
Class B
Common units |
|
Class A
Common units |
|
Class A
Common units |
|
Class C
Common units |
|
Accumulated
Other Comprehensive Income |
|
Total
Partners’ Capital |
|
Comprehensive
Income |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2003
|
|
$
|
281,690
|
|
$
|
209,675
|
|
$
|
478,121
|
|
$
|
71,420
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1,040,906
|
|
$
|
—
|
|
|
Net income
|
|
|
—
|
|
|
17,288
|
|
|
124,966
|
|
|
13,030
|
|
|
1,080
|
|
|
—
|
|
|
156,364
|
|
$
|
156,364
|
|
|
Contributions
|
|
|
—
|
|
|
—
|
|
|
17,602
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17,602
|
|
|
—
|
|
|
Issuance of units
|
|
|
—
|
|
|
—
|
|
|
203,833
|
|
|
6,008
|
|
|
5,172
|
|
|
—
|
|
|
215,013
|
|
|
—
|
|
|
Distributions
|
|
|
—
|
|
|
(23,130
|
)
|
|
(83,367
|
)
|
|
(11,656
|
)
|
|
(347
|
)
|
|
—
|
|
|
(118,500
|
)
|
|
—
|
|
|
Retirement / redemption of units (Note 7)
|
|
|
—
|
|
|
(203,833
|
)
|
|
(58,983
|
)
|
|
(40,189
|
)
|
|
—
|
|
|
—
|
|
|
(303,005
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2003
|
|
|
281,690
|
|
|
—
|
|
|
682,172
|
|
|
38,613
|
|
|
5,905
|
|
|
—
|
|
|
1,008,380
|
|
$
|
156,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
—
|
|
|
42,380
|
|
|
1,976
|
|
|
327
|
|
|
—
|
|
|
44,683
|
|
$
|
44,683
|
|
|
Net unrealized gains on derivative instruments
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,789
|
|
|
1,789
|
|
|
1,789
|
|
|
Contributions
|
|
|
—
|
|
|
—
|
|
|
586,052
|
|
|
13,927
|
|
|
2,095
|
|
|
—
|
|
|
602,074
|
|
|
—
|
|
|
Distributions
|
|
|
—
|
|
|
—
|
|
|
(123,994
|
)
|
|
(5,269
|
)
|
|
(869
|
)
|
|
—
|
|
|
(130,132
|
)
|
|
—
|
|
|
Issuance of units
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,521
|
|
|
—
|
|
|
—
|
|
|
16,521
|
|
|
—
|
|
|
Retirement / redemption of units (Note 7)
|
|
|
(280,490
|
)
|
|
—
|
|
|
19,837
|
|
|
(19,318
|
)
|
|
(677
|
)
|
|
—
|
|
|
(280,648
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2004
|
|
|
1,200
|
|
|
—
|
|
|
1,206,447
|
|
|
46,450
|
|
|
6,781
|
|
|
1,789
|
|
|
1,262,667
|
|
$
|
46,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
—
|
|
|
197,641
|
|
|
4,224
|
|
|
1,227
|
|
|
—
|
|
|
203,092
|
|
$
|
203,092
|
|
|
Net unrealized gains on derivative instruments
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(186
|
)
|
|
(186
|
)
|
|
(186
|
)
|
|
Reckson’s share of joint venture’s net unrealized gains on derivative instruments
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
216
|
|
|
216
|
|
|
216
|
|
|
Contributions
|
|
|
—
|
|
|
—
|
|
|
17,735
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17,735
|
|
|
—
|
|
|
Distribution.
|
|
|
—
|
|
|
—
|
|
|
(140,773
|
)
|
|
(2,854
|
)
|
|
(860
|
)
|
|
—
|
|
|
(144,487
|
)
|
|
—
|
|
|
Issuance of units
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,000
|
|
|
—
|
|
|
—
|
|
|
4,000
|
|
|
—
|
|
|
Retirement / redemption of units (Note 7)
|
|
|
—
|
|
|
—
|
|
|
25,186
|
|
|
(27,265
|
)
|
|
142
|
|
|
—
|
|
|
(1,937
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2005
|
|
$
|
1,200
|
|
$
|
—
|
|
$
|
1,306,236
|
|
$
|
24,555
|
|
$
|
7,290
|
|
$
|
1,819
|
|
$
|
1,341,100
|
|
$
|
203,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(see accompanying notes to financial statements)
F-6
Reckson Operating Partnership,
L.P.
Consolidated Statements of Cash
Flows
(in thousands)
| For the year ended December 31, | |||||||||
| 2005 | 2004 | 2003 | |||||||
| Cash Flows From Operating Activities: | |||||||||
| Net Income | $ | 203,092 | $ | 73,272 | $ | 178,724 | |||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||
Depreciation and amortization (including discontinued operations) |
137,480 | 121,285 | 116,633 | ||||||
Minority partners’ interests in consolidated partnerships and other interests |
17,224 | 21,040 | 17,972 | ||||||
Gains on sales of real estate |
(155,640 | ) | (14,787 | ) | (126,789 | ) | |||
Undistributed earnings from real estate joint ventures |
(1,330 | ) | (908 | ) | (30 | ) | |||
| Changes in operating assets and liabilities: | |||||||||
Deferred rents receivable |
(31,474 | ) | (20,984 | ) | (6,444 | ) | |||
Prepaid expenses and other assets |
(4,610 | ) | (12,734 | ) | (5,225 | ) | |||
Tenant and affiliate receivables |
(10,738 | ) | 2,192 | 1,919 | |||||
Accrued expenses and other liabilities |
39,603 | 1,094 | (15,762 | ) | |||||
Tenant security deposits |
6,007 | 2,617 | 124 | ||||||
| Net cash provided by operating activities | 199,614 | 172,087 | 161,122 | ||||||
| Cash Flows From Investment Activities: | |||||||||
Purchases of commercial real estate properties |
(1,003,528 | ) | (160,695 | ) | (40,500 | ) | |||
Increase in contract and land deposits and pre-acquisition costs |
(90 | ) | — | (20,000 | ) | ||||
Additions to Note Receivable Investments |
(124,162 | ) | (49,500 | ) | (15,000 | ) | |||
Repayments of Note Receivable Investments |
36,444 | 17,908 | — | ||||||
Additions to developments in progress |
(70,877 | ) | (34,913 | ) | (24,391 | ) | |||
Additions to commercial real estate properties |
(81,435 | ) | (41,413 | ) | (43,341 | ) | |||
Payment of deferred leasing costs |
(20,544 | ) | (24,732 | ) | (16,086 | ) | |||
Investments in real estate joint ventures |
(6,216 | ) | — | — | |||||
Distributions from (contributions to) investments in a real estate joint ventures |
— | (150 | ) | 243 | |||||
Additions to furniture, fixtures and equipment |
(881 | ) | (636 | ) | (196 | ) | |||
Proceeds from sales of real estate |
247,033 | 67,259 | 268,757 | ||||||
| Net cash (used in) provided by investing activities | (1,024,256 | ) | (226,872 | ) | 109,486 | ||||
| Cash Flows From Financing Activities: | |||||||||
| Proceeds from secured borrowings | 562,601 | — | — | ||||||
| Principal payments on secured borrowings | (59,571 | ) | (362,117 | ) | (12,300 | ) | |||
| Proceeds from issuance of senior unsecured notes, net of issuance costs | 281,750 | 298,529 | — | ||||||
| Repayment of senior unsecured notes | — | (100,000 | ) | — | |||||
| Payment of loan and equity issuance costs | (7,633 | ) | (5,249 | ) | (156 | ) | |||
| Distribution from an affiliated joint venture | — | 10,603 | — | ||||||
| Proceeds from unsecured credit facility | 682,000 | 627,998 | 132,000 | ||||||
| Principal payments on unsecured credit facility | (498,500 | ) | (561,498 | ) | (230,000 | ) | |||
| Proceeds from unsecured bridge facility | 470,000 | — | — | ||||||
| Principal payments on unsecured bridge facility | (470,000 | ) | — | — | |||||
| Repurchases of common units | — | — | (4,538 | ) | |||||
| Repurchases and redemption of preferred units | — | (178,738 | ) | — | |||||
| Contributions | 14,102 | 497,090 | 1,028 | ||||||
| Contribution by a minority partner in a consolidated partnership | 924 | — | — | ||||||
| Distributions to minority partners in consolidated partnerships | (11,671 | ) | (34,281 | ) | (22,189 | ) | |||
| Distributions | (147,029 | ) | (135,428 | ) | (142,016 | ) | |||
| Net cash provided by (used in) financing activities | 816,973 | 56,909 | (278,171 | ) | |||||
| Net increase (decrease) in cash and cash equivalents | (7,669 | ) | 2,124 | (7,563 | ) | ||||
| Cash and cash equivalents at beginning of period | 25,137 | 23,013 | 30,576 | ||||||
| Cash and cash equivalents at end of period | $ | 17,468 | $ | 25,137 | $ | 23,013 | |||
| Supplemental Disclosure of Cash Flow Information: | |||||||||
| Cash paid during the period for interest, including interest capitalized | $ | 121,648 | $ | 102,259 | $ | 97,644 | |||
(see accompanying notes to financial statements)
F-7
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
1. Description of Business and Significant Accounting Policies
Description of Business
Reckson Operating Partnership, L.P. (the “Operating
Partnership”) commenced operations on June 2, 1995. Reckson Associates
Realty Corp. (the “Company”), which serves as the sole general
partner of the Operating Partnership, is a fully integrated, self administered
and self managed real estate investment trust (“REIT”). The
Operating Partnership and the Company were formed for the purpose of continuing
the commercial real estate business of Reckson Associates, the predecessor
of the Operating Partnership, its affiliated partnerships and other entities. Unless
the context requires otherwise, the terms “Company”, “we”, “us”, “our” and
similar terms include Reckson Associates Realty Corp., Reckson Operating
Partnership, L. P. and their wholly-owned subsidiaries.
The Operating Partnership is engaged in the ownership, management, operation, acquisition, leasing, financing and development of commercial real estate properties, principally office and to a lesser extent flex properties and also owns land for future development located in the New York City tri-state area (the “Tri-State Area”).
Organization and Formation of the Company
The Company was incorporated in Maryland in September 1994. In June 1995, the Company completed an Initial Public Offering (the “IPO”) and commenced operations.
The Company became the sole general partner of the Operating Partnership by contributing substantially all of the net proceeds of the IPO in exchange for an approximate 73% interest in the Operating Partnership. The remaining 27% interest in the Operating Partnership was owned primarily by continuing investors who contributed properties or interests in properties to the Operating Partnership in exchange for common units of limited partnership interest in the Operating Partnership (“OP Units”). Since the IPO the Company has completed numerous equity transactions, contributing net proceeds received to the Operating Partnership and thereby increasing its general partnership interest. The Company’s ownership percentage in the Operating Partnership was approximately 96.8% and 95.7% at December 31, 2005 and 2004, respectively. All properties acquired by the Company are held by or through the Operating
Partnership.
Basis of Presentation and Summary of Significant Accounting Policies
The accompanying consolidated financial
statements include the consolidated financial position of the Operating Partnership
and the Service Companies (as defined below) at December 31, 2005 and 2004
and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 2005. The
Operating Partnership’s investments in majority owned and controlled
real estate joint ventures are reflected in the accompanying financial statements
on a consolidated basis with a reduction for the minority partners’ interests. The
Operating Partnership’s investments in real estate joint ventures,
where it owns less than a controlling interest, are reflected in the accompanying
financial statements on the equity method of accounting. The Service
Companies, which provide management, development and construction services
to the Company and the Operating Partnership and to third parties, include
Reckson Management Group, Inc., RANY Management Group, Inc., Reckson Construction & Development
LLC and Reckson Construction Group New York, Inc. (collectively, the “Service
Companies”). All significant intercompany balances and transactions
have been eliminated in the consolidated financial statements.
Minority partners’ interests in consolidated partnerships represent a 49% non-affiliated interest in RT Tri-State LLC, owner of a six property suburban office portfolio located within the Tri-State Area, a 40% non-affiliated interest in Omni Partners, L.P., owner of a 579,000 square foot suburban office property and a 49% non-affiliated interest in Metropolitan 919 Third Avenue, LLC, owner of the property located at 919 Third Avenue, New York, NY.
F-8
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
At December 31, 2005, the Operating Partnership’s investments in unconsolidated real estate joint ventures consisted of a 30% interest in the 1.4 million square foot Class A office tower located at One Court Square, Long Island City, NY (the “Court Square JV”), a 25% interest in a 17 suburban office property portfolio, located within the Tri-State Area, containing approximately 2.0 million square feet (the “RAOC JV”) and an approximate 5% indirect ownership interest in a 550,000 square foot office condominium in a Class A office tower located in New York City.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes thereto. Actual results could differ from those estimates.
Real Estate
Land, buildings and improvements, furniture, fixtures and equipment are recorded at cost. Tenant improvements, which are included in buildings and improvements, are also stated at cost. Expenditures for ordinary maintenance and repairs are expensed to operations as they are incurred. Renovations and / or replacements, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives.
Depreciation is computed utilizing the straight-line method over the estimated useful lives of ten to thirty years for buildings and improvements and five to ten years for furniture, fixtures and equipment. Tenant improvements, which are included in buildings and improvements, are amortized on a straight-line basis over the term of the related leases. Depreciation expense, net of discontinued operations, for each of the three years ended December 31, 2005 amounted to approximately $92.5 million, $79.9 million and $58.5 million, respectively.
We are required to make subjective assessments as to the useful lives of our 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 our net income. Should we 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 us of certain other lease related costs must be made when we have a reason to believe that the tenant will not be able to execute under the term of the lease as originally expected.
On July 1, 2001 and January 1, 2002, we adopted Financial Accounting Standards Board (“FASB”) Statement No.141, “Business Combinations” and FASB Statement No. 142, “Goodwill and Other Intangibles”, respectively. As part of the acquisition of real estate assets, the fair value of the real estate acquired is allocated to the acquired tangible assets, consisting of land, building and building improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, other value of in-place leases, and value of tenant relationships, based in each case on their fair values.
We allocate a portion of a property’s purchase price to tangible assets including the fair value of the building and building improvements on an as-if-vacant basis and to land determined either by real estate tax assessments, independent appraisals or other relevant data. Additionally, we assess fair value of identified intangible assets and liabilities based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information.
Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market/economic conditions that may affect the property. If we incorrectly estimate the values at acquisition or the undiscounted cash flows, initial allocation of purchase price and future impairment charges may be different.
F-9
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Long Lived Assets
We are required to make subjective assessments
as to whether there are impairments in the value of our real estate properties
and other investments. An investment’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 investment are less than the carrying value
of the investment. Such assessments consider factors such as cash
flows, expected future operating income, trends and prospects, as well as
the effects of demand, competition and other factors. To the extent
impairment has occurred it will be measured as the excess of the carrying
amount of the property over the fair value of the property. These assessments
have a direct impact on our net income, as a recognition of an impairment
results in an immediate negative adjustment to net income. In determining
impairment, if any, we have followed FASB Statement No.
144, “Accounting for the Impairment or Disposal of Long Lived Assets” (“Statement
No. 144”). Statement
No. 144 did not have an impact on net income allocable to common unitholders. Statement
No. 144 only impacts the presentation of the results of operations and gains
on sales of real estate assets for those properties sold during the period within
the consolidated statements of income.
In accordance with the provisions of Statement
No. 144, and Emerging Issues Task Force (“EITF”)
87-24, we allocated approximately $7.6 million of our unsecured interest
expense to discontinued operations for the year ended December 31, 2003. EITF
87-24 states that “interest on debt that is required to be repaid as
a result of the disposal transaction should be allocated to discontinued
operations”. Pursuant to the terms of our unsecured credit facility
(the “Credit Facility”), we were required to repay the Credit
Facility to the extent of the net proceeds, as defined, received from the
sales of unencumbered properties. As such, we had allocated to discontinued
operations the interest expense incurred on the portion of our Credit Facility,
which was required to be repaid. In August 2004, we amended and extended
our Credit Facility, whereby such repayment requirement was
eliminated.
Cash Equivalents
We consider highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Tenants’ lease security deposits aggregating approximately $5.5 million and $4.5 million at December 31, 2005 and 2004, respectively, have been included in cash and cash equivalents on the accompanying balance sheets.
Deferred Costs
Tenant leasing commissions and related costs incurred in connection with leasing tenant space are capitalized and amortized over the life of the related lease. In addition, loan costs incurred in obtaining financing are capitalized and amortized over the term of the related loan.
Costs incurred in connection with equity
offerings are charged to partners’ capital when incurred.
Income Taxes
No provision has been made for income taxes in the accompanying consolidated financial statements since such taxes, if any, are the responsibility of the individual partners.
F-10
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Revenue Recognition & Accounts Receivable
Minimum 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 accompanying balance sheets. Contractually due but unpaid rents are included in tenant receivables on the accompanying balance sheets. Certain lease agreements also provide for reimbursement of real estate taxes, insurance, common area maintenance costs and indexed rental increases, which are recorded on an accrual basis. Ancillary and other property related income is recognized in the period earned.
We make estimates of the collectibility of our accounts receivables related to base rents, tenant escalations and reimbursements and other revenue or income. We specifically analyze tenant receivables and historical bad debts, customer credit worthiness, current economic trends and changes in tenant payment terms when evaluating the adequacy of our allowance for doubtful accounts. In addition, when tenants are in bankruptcy, we make 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 our net income because a higher bad debt reserve results in lower annual net income.
We incurred approximately $3.0 million, $831,000 and $1.9 million of bad debt expense for the years ended December 31, 2005, 2004 and 2003, respectively, related to tenant receivables which accordingly reduced total revenues and reported net income during the period.
We record interest income on our investments in notes receivable on the accrual basis of accounting. We do 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 we consider 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.
Reckson Construction & Development LLC and Reckson Construction Group New York, Inc. use the percentage-of-completion method for recording amounts earned on their contracts. This method records amounts earned as revenue in the proportion that actual costs incurred to date bear to the estimate of total costs at contract completion.
Gain on the sale of real estate is recorded when title is conveyed to the buyer, subject to the buyer’s financial commitment being sufficient to provide economic substance to the sale and us having no substantial continuing involvement with the buyer. Additionally, in connection with a sale of real estate, if we retain certain risks in the form of guarantees, the profit recognized on that sale shall be reduced and deferred by the maximum exposure to loss, until such exposure is relieved.
We follow the guidance provided for under FASB Statement No. 66 “Accounting for Sales of Real Estate” (“Statement No. 66”), which provides guidance on sales contracts that are accompanied by agreements which require the seller to develop the property in the future. Under Statement No. 66, profit is recognized and allocated to the sale of the land and the later development or construction work on the basis of estimated costs of each activity; the same rate of profit is attributed to each activity. As a result, profits are recognized and reflected over the improvement period on the basis of costs incurred (including land) as a percentage of total costs estimated to be incurred. We use the percentage of completion method, as future costs of development and profit are reliably estimated.
Accumulated Other Comprehensive Income (Loss)
We report comprehensive income or loss in accordance with the provisions of FASB Statement No. 130, “Reporting Comprehensive Income”, which establishes standards for reporting comprehensive income and its components in the financial statements. The components of other comprehensive income (loss) (“OCI”) consist of unrealized gains and losses on derivative instruments. OCI is presented in the accompanying consolidated statements of partners’ capital.
F-11
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Derivative Instruments
FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“Statement No. 133”), as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities.
The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.
As required by Statement No. 133, we record all derivatives on our balance sheet at fair value. For effective hedges, depending on the nature of the hedge, changes in the fair value of the derivative will be offset against the corresponding change in fair value of the hedged asset, liability, or firm commitment through earnings or recognized in OCI until the hedged item is recognized in earnings.
For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in OCI and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. We assess the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction. For derivatives not designated as hedges, changes in fair value are recognized in earnings.
We do not enter into derivative financial instruments for trading or speculative purposes. However, in the normal course of our business and to help us manage our debt issuances and maturities, we do use derivative financial instruments in the form of cash flow hedges to protect ourselves against potentially rising interest rates.
Variable Interest Entities
In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”), which explains how to identify variable interest entities (“VIEs”) and how to assess whether to consolidate such entities. VIEs are primarily entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision making ability. All VIEs with which we are involved must be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes. The initial determination of whether an entity qualifies as a VIE shall be made as of the date at which a primary beneficiary becomes involved with the entity and reconsidered as of the date of a triggering event, as defined. The
provisions of this interpretation are immediately effective for VIEs formed after January 31, 2003. In December 2003 the FASB issued FIN 46R, deferring the effective date until the period ended March 31, 2004 for interests held by public companies in VIEs created before February 1, 2003, which were non-special purpose entities. We adopted FIN 46R during the period ended March 31, 2004 and have determined that our unconsolidated subsidiaries do not represent VIEs pursuant to such interpretation. We will continue to monitor any changes in circumstances relating to certain of our consolidated and unconsolidated joint ventures which could result in a change in our consolidation policy.
Finite Life Joint Venture Agreements
In May 2003, the FASB issued Statement No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“Statement No. 150”). Statement No. 150 establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. Statement No. 150 is effective for all financial instruments created or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. We adopted Statement No. 150 on July 1, 2003, which had no effect on our financial statements. Statement No. 150 also requires the disclosure of the estimated settlement values of non-controlling interests in joint ventures that have finite lives.
F-12
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Finite Life Joint Venture Agreements (continued)
Two of our consolidated joint ventures are subject to finite life joint venture agreements. In accordance with Statement No. 150, we have estimated the settlement value of these non-controlling interests at December 31, 2005 and 2004 to be approximately $153.2 million and $145.1 million, respectively. The carrying value of these non-controlling interests, which is included in minority partners’ interests in consolidated partnerships on our consolidated balance sheets, was approximately $109.2 million and $110.9 million at December 31, 2005 and 2004, respectively.
Current pronouncements
On December 16, 2004, the FASB issued Statement No. 123 (revised 2004), “Share-Based Payment” (“Statement No. 123R”), which is a revision of FASB Statement No. 123, “Accounting for Stock-Based Compensation” (“Statement No. 123”). Statement No. 123R supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, and amends FASB Statement No. 95, “Statement of Cash Flows.” Generally, the approach in Statement No. 123R is similar to the approach described in Statement No. 123. However, Statement No. 123R requires all share-based payments to employees, including grants of employee stock options by the Company, to be recognized in the income statement based on their fair values. The Company adopted Statement No. 123R on January 1, 2006. The adoption of Statement No. 123R by the Company will not have a material impact on our consolidated financial statements.
In June 2005, the FASB ratified the consensus in EITF Issue No. 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights” (“Issue 04-5”), which provides guidance in determining whether a general partner controls a limited partnership. Issue 04-5 states that the general partner in a limited partnership is presumed to control that limited partnership. The presumption may be overcome if the limited partners have either (1) the substantive ability to dissolve the limited partnership or otherwise remove the general partner without cause or (2) substantive participating rights, which provide the limited partners with the ability to effectively participate in significant decisions that would be expected to be made in the ordinary course of the limited partnership’s business and
thereby preclude the general partner from exercising unilateral control over the partnership. The adoption of Issue 04-5 by us for new or modified limited partnership arrangements is effective June 30, 2005 and for existing limited partnership arrangements effective January 1, 2006. We do not expect that we will be required to consolidate our current unconsolidated joint venture investments nor do we expect Issue 04-5 to have a material effect on our consolidated financial statements.
In May 2005, the FASB issued Statement No. 154, “Accounting Changes and Error Corrections” (“Statement No. 154”). Statement No. 154, which replaces APB Opinion No. 20, “Accounting Changes” and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements”, changes the requirements for the accounting for and reporting of a change in accounting principle. The statement requires retrospective application of changes in accounting principle to prior periods’ financial statements unless it is impracticable to determine the period-specific effects or the cumulative effect of the change. Statement No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of Statement No. 154 is not expected to have a material impact on our consolidated financial position, results of operations or cash flows.
In March 2005, FASB issued Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (“FIN 47”), which became effective December 31, 2005. Under FIN 47, a conditional asset retirement obligation (“CARO”) must be recorded if the liability can be reasonably estimated. A CARO is an obligation that is settled at the time an asset is retired or disposed of and for which the timing and/or method of settlement are conditional on future events. We own certain properties that currently have asbestos which under certain conditions must be remediated. As a result of adopting FIN 47, we will increase the value of our recorded tangible assets at the time we recognize the associated conditional retirement obligation.
As a result, we have recorded approximately $2.0 million which represents the fair value of the CARO related to asbestos removal in tenant spaces. In addition, for certain limited areas of our properties, management is unable to reasonably determine the fair value of potential remediation costs as there is an indeterminate settlement date for the asset retirement obligation because the range of time over which way we may choose to remediate this condition may not be estimated with any level of precision which would lend itself to a meaningful estimate.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
F-13
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
2. Mortgage Notes Payable
On August 3, 2005, we placed a first mortgage in the amount of $315.0 million on the property located at One Court Square, Long Island City, a sub-market of New York City. The mortgage note bears interest at a fixed rate of 4.905% per annum, requires monthly payments of interest only through September 1, 2015, the anticipated repayment date (“ARD”). In the event the mortgage is not satisfied on the ARD, all excess cash flow, as defined, shall be applied to amortize the loan and the interest rate shall be reset to 2% plus the greater of 4.905% and the then-current ten-year U.S. Treasury yield. The final maturity date of the loan is May 1, 2020. The mortgage note is secured by the property and is otherwise non-recourse except in limited circumstances regarding breaches of material representations. As additional collateral for the loan, the lender under certain circumstances may require letters of credit for
their benefit, in the amount of $10.0 million each, during September 2013, March 2014 and September 2014 if Citibank, N.A., the property’s current sole tenant, exercises its second cancellation option for up to 20% of its leased space during 2014 and 2015 and the space has not been re-leased. Proceeds received from this financing, net of mortgage recording tax and other costs, of approximately $303.5 million, were used to repay a portion of our unsecured bridge facility as discussed in Note 3. On November 30, 2005, we sold a 70% interest in this property to a group of institutional investors led by JPMorgan Investment Management which included their assumption of $220.5 million of the mortgage debt.
On August 26, 2005, we encumbered a pool of nine of our suburban office properties with interest only mortgages in the aggregate amount of approximately $196.1 million. Proceeds received, net of costs and required escrows, of approximately $188.3 million were used to repay borrowings under our Credit Facility, the remaining balance outstanding under our unsecured bridge facility and for the repayment of the secured property debt on 520 White Plains Road, Tarrytown, NY. On September 21, 2005, these properties and related underlying mortgages were sold to the RAOC JV (see Note 6). The mortgage notes bear interest at a fixed interest rate of 5.20% per annum and mature in September 2010. These mortgage notes are cross-collateralized by the nine properties in the pool.
On June 20, 2005, in connection with the acquisition of our joint venture partner’s 40% interest in the property located at 520 White Plains Road, Tarrytown, NY, we assumed approximately $4.1 million of secured mortgage indebtedness of the joint venture. As a result, our total secured debt related to this property was approximately $11.1 million. On September 1, 2005, the mortgage note’s scheduled maturity date, we repaid the then outstanding balance of approximately $10.9 million with proceeds received from the aforementioned August 26, 2005 mortgage financings, resulting in the satisfaction of this note.
On September 12, 2005 we encumbered three of our suburban office properties with interest only mortgages in the aggregate amount of approximately $51.5 million. Proceeds received, net of costs and required escrows, of approximately $50.2 million were used to repay borrowings under our Credit Facility and for general corporate purposes. The mortgage notes bear interest at a fixed interest rate of 5.20% per annum and mature in October 2010. We have contracted to sell these properties to the RAOC JV, subject to the mortgage notes, in October 2006. These mortgage notes are cross-collateralized by the three properties in the pool.
Pursuant to the terms of the mortgage note encumbering the property located at 200 Summit Lake Drive in Valhalla, NY, the note was prepayable, without penalty, subsequent to September 1, 2005. On September 30, 2005, we repaid the outstanding balance of approximately $18.1 million with proceeds received from the RAOC JV which resulted in the satisfaction of this note.
The mortgage debt on the property located at 395 North Service Road in Melville, NY was scheduled to mature on October 28, 2005. Pursuant to the terms of the note, we prepaid the mortgage debt on September 30, 2005, at which time the outstanding balance was approximately $18.6 million. We funded this prepayment with a borrowing under our Credit Facility and proceeds received from the sale of properties to the RAOC JV which resulted in the satisfaction of this note.
On October 20, 2005, in connection with our acquisition of 711 Westchester Avenue in White Plains, NY we assumed an existing first mortgage debt on the property of approximately $12.5 million. The mortgage bears interest at approximately 5.4% per annum, requires monthly payments of interest only through January 2007 and monthly payments of interest and principal based on a 30 year amortization schedule commencing in February 2007. The mortgage matures on January 1, 2015.
F-14
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
2. Mortgage Notes Payable (continued)
At December 31, 2005, we had 15 fixed rate mortgage notes payable with an aggregate outstanding principal amount of approximately $625.1 million. These mortgage notes are secured by properties with an aggregate cost basis at December 31, 2005 of approximately $1.2 billion and which are pledged as collateral against the mortgage notes payable. In addition, approximately $41.6 million of the $625.1 million is recourse to the Company. The mortgage notes bear interest at rates ranging from 5.20% to 8.50%, and mature between 2006 and 2015. The weighted average interest rates on the outstanding mortgage notes payable at December 31, 2005, 2004 and 2003 were approximately 7.1%, 7.3%, and 7.2%, respectively.
Certain of the mortgage notes payable
are guaranteed by certain limited partners in the Operating Partnership and
/ or by the Company. In addition, consistent with customary practices
in non-recourse lending, certain non-recourse mortgages may be recourse to
the Company under certain limited circumstances including environmental issues
and breaches of material representations.
The following table sets forth our mortgage notes payable at December 31, 2005, by scheduled maturity date (dollars in thousands):
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Property
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|
Principal Amount
Outstanding |
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Interest Rate
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|
Maturity Date
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Amortization Term (Years)
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(in thousands)
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1350 Avenue of the Americas, NY, NY
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$
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72,108
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|
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6.52
|
%
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June, 2006
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|
30
|
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Landmark Square, Stamford, CT
|
(a)
|
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41,634
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|
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8.02
|
%
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October, 2006
|
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25
|
|
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100 Summit Lake Drive, Valhalla, NY
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|
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14,572
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|
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8.50
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%
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April, 2007
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15
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333 Earle Ovington Blvd., Mitchel Field, NY
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(b)
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50,635
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7.72
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%
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August, 2007
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25
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810 Seventh Avenue, NY, NY
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(c)
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77,854
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7.73
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%
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August, 2009
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25
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275 Broadhollow Road, Melville, NY
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(c)
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15,151
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7.73
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%
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August, 2009
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25
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90 Merrick Avenue, Merrick, NY
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(c)
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18,586
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|
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7.73
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%
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August, 2009
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25
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6900 Jericho Turnpike, Syosset, NY
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(d)
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6,959
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|
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8.07
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%
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July, 2010
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25
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6800 Jericho Turnpike, Syosset, NY
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(d)
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13,185
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8.07
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%
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July, 2010
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25
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580 White Plains Road, Tarrytown, NY
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(e)
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12,006
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7.86
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%
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September, 2010
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25
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520 Broadhollow Road, Melville, NY
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(f)
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11,869
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5.20
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%
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October, 2010
|
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Interest Only
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50 Marcus Avenue, Melville, NY
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(f)
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28,277
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|
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5.20
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%
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October, 2010
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Interest Only
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1660 Walt Whitman Road, Melville, NY
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(f)
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11,386
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5.20
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%
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October, 2010
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Interest Only
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919 Third Avenue, NY, NY
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(g)
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238,316
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6.87
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%
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August, 2011
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30
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711 Westchester Avenue, White Plains, NY
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12,525
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5.36
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%
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January, 2015
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30
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(h)
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Total / Weighted average
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$
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625,063
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|
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7.06
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%
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(a)
|
Encompasses six Class A office properties.
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(b)
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At December 31, 2005, we had a 60% general partnership interest in this property and our proportionate share of the aggregate principal amount of the mortgage was approximately $30.4 million.
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(c)
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These mortgages are cross-collateralized.
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(d)
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The properties subject to these mortgages were sold to the RAOC JV in January 2006.
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(e)
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The property subject to this mortgage is contracted to be sold to the RAOC JV in October 2006.
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(f)
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These mortgages are cross-collateralized by properties that are contracted to be sold, subject to the mortgages, to the RAOC JV in October 2006.
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(g)
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We have a 51% membership interest in this property and our proportionate share of the aggregate principal amount of the mortgage is approximately $121.5 million.
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(h)
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This mortgage note is interest only through January 2007 and then amortizes over a 30-year period.
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F-15
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
2. Mortgage Notes Payable (continued)
Scheduled principal repayments to be made during the next five years and thereafter, for mortgage notes payable outstanding at December 31, 2005, are as follows (in thousands):
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Principal
Amortization |
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Due at
Maturity |
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Total
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|||
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2006
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$
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11,439
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$
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112,030
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$
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123,469
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2007
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8,994
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|
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60,535
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|
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69,529
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2008
|
|
|
7,887
|
|
|
—
|
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7,887
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2009
|
|
|
7,335
|
|
|
100,254
|
|
|
107,589
|
|
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2010
|
|
|
4,963
|
|
|
79,955
|
|
|
84,918
|
|
|
Thereafter
|
|
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3,236
|
|
|
228,435
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|
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231,671
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|
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|
|
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$
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43,854
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$
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581,209
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$
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625,063
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At December 31, 2005, our unconsolidated joint ventures had total indebtedness of approximately $751.1 million, which was comprised of $13.0 million of floating rate unsecured debt and approximately $738.1 million of fixed rate mortgage indebtedness with a weighted average interest rate of approximately 5.1% and a weighted average maturity of approximately 8.3 years. Our aggregate pro-rata share of the unconsolidated joint venture debt was approximately $158.6 million.
On December 20, 2005, in connection with the sale of our mortgaged property located at 100 Wall Street, New York, NY, we exercised our right under the mortgage note to replace collateral and assign the related mortgage debt to two of our suburban office properties; 275 Broadhollow Road, Melville, NY and 90 Merrick Avenue, Merrick, NY. In connection with the assignment, we paid a substitution of collateral fee and other costs totalling approximately $2.0 million. Such costs are being amortized to expense over the remaining term of the mortgage.
On January 6, 2006, we sold two of our suburban office properties; 6800 and 6900 Jericho Turnpike, Jericho, NY to the RAOC JV, subject to their mortgage debt of approximately $20.1 million. The RAOC JV subsequently pre-paid the mortgage notes with proceeds from an unrelated financing transaction.
During the quarterly period ended June 30, 2005 we entered into anticipatory interest rate hedge instruments totaling $250.0 million to protect ourselves against potentially rising interest rates. These instruments were settled prior to their maturity in exchange for a mortgage rate lock agreement in connection with a 15-year permanent financing on the property located at One Court Square, Long Island City, NY which closed on August 3, 2005. Costs related to the terminated instruments of approximately $1.4 million were incorporated into the final fixed mortgage rate of 4.905% per annum. The other comprehensive loss is being amortized as a yield adjustment of the fixed rate mortgage.
We also entered into an additional $200.0 million of anticipatory interest rate hedge instruments during the quarterly period ended June 30, 2005, which were scheduled to coincide with our August 26, 2005 and September 12, 2005 financings on twelve of our office properties. These hedge instruments were settled on August 1, 2005 realizing proceeds of approximately $1.1 million. The proceeds received from settlement of the instruments were used to buy-down the fixed mortgage rates to 5.20% per annum. The gain resulting from this settlement has been recorded to accumulated other comprehensive income (“OCI”) and is being amortized as a yield adjustment of the fixed-rate mortgage. Nine of these properties were sold to the RAOC JV, subject to their mortgage notes, on September 21, 2005 at which time we reclassified the proportionate share of the gain from OCI to earnings. The remaining three office properties are under contract to be sold to
the RAOC JV, subject to the mortgage notes, in October 2006, at which time we will reclassify the proportionate share of the gain from OCI to earnings.
F-16
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
3. Unsecured Credit Facility, Bridge Facility and Term Loan
On May 13, 2005, we obtained a $470.0 million unsecured bridge facility (the “Bridge Facility”) from Citibank, N.A. During August 2005, we repaid $303.5 million of outstanding borrowings under the Bridge Facility with net proceeds received from the secured debt financing of the property located at One Court Square, Long Island City, NY. In addition, in September 2005, we repaid the remaining balance outstanding under the Bridge Facility of $166.5 million with proceeds received from the secured debt financing of a pool of nine of our suburban office properties which were subsequently sold to the RAOC JV, subject to the mortgages. As a result of the foregoing, the Bridge Facility has been retired and is no longer available for borrowings thereunder.
We currently maintain our $500 million Credit Facility with JPMorgan Chase Bank, as administrative agent, Wells Fargo Bank, National Association as syndication agent and Citicorp, North America, Inc. and Wachovia Bank, National Association as co-documentation agents. The Credit Facility matures in August 2008, provides for a one-year extension subject to a fee of 25 basis points and, upon receiving additional lender commitments, for an increase to the maximum revolving credit amount to $750 million. In addition, borrowings under the Credit Facility accrue interest at a rate of LIBOR plus 80 basis points and the Credit Facility carries a facility fee of 20 basis points per annum. In the event of a change in the Operating Partnership’s senior unsecured credit ratings the interest rates and facility fee are subject to change. At December 31, 2005, the outstanding borrowings under the Credit Facility aggregated $419.0 million
and carried a weighted average interest rate of 5.17% per annum.
We utilize the Credit Facility primarily to finance real estate investments, fund our real estate development activities and for working capital purposes. On December 29, 2005, we borrowed $150.0 million under the Credit Facility and with cash available acquired a 1.6 million square foot suburban office portfolio, consisting of 14 buildings, located in Westchester County, New York.
On January 13, 2006, we repaid $254.0 million of outstanding borrowings under the Credit Facility primarily from the proceeds from a $250.0 million term loan as discussed below. As a result, our availability to borrow additional funds increased to $335.0 million. At December 31, 2005, we had availability under the Credit Facility to borrow approximately an additional $81.0 million, subject to compliance with certain financial covenants.
We capitalized interest incurred on borrowings to fund certain development projects in the amount of $11.4 million, $8.1 million and $8.0 million for the years ended December 31, 2005, 2004 and 2003, respectively.
In connection with the acquisition of certain properties, contributing partners of such properties have provided guarantees on certain of our indebtedness. As a result, we maintain certain outstanding balances on our Credit Facility.
On January 13, 2006, we obtained a $250.0
million term loan (the “Term Loan”) from Goldman Sachs Mortgage
Company. The Term Loan is for an initial term of three months and
we have the option for a three month extension upon paying a one-time fee
of 25 basis points on the amount then outstanding. The Term Loan has
terms, including interest rates and financial covenants, substantially similar
to our Credit Facility. Proceeds from the Term Loan were used to repay
outstanding borrowings under the Credit Facility.
4. Senior Unsecured Notes
During June 2005, the Operating Partnership
issued $287.5 million aggregate principal amount of 4.00% exchangeable senior
debentures due June 15, 2025. Interest on the debentures will be payable
semi-annually on June 15 and December 15, commencing December 15, 2005. The
debentures are callable after June 17, 2010 at 100% of par. In addition,
the debentures can be put to us, at the option of the holder at par, on June
15, 2010, 2015 and 2020. The net proceeds from the offering, after
the underwriter’s
discounts and expenses, were approximately $281.6 million and were used for
the repayment of amounts outstanding under the Credit Facility. (See Note
7, Partners’ Capital, regarding the terms of the debentures’ exchange
into
our
common
stock of the Company).
As of December 31, 2005, the Operating Partnership had outstanding approximately $980.1 million (net of unamortized issuance discounts) of senior unsecured notes (the “Senior Unsecured Notes”).
F-17
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
4. Senior Unsecured Notes (continued)
The following table sets forth the Operating Partnership’s Senior Unsecured Notes and other related disclosures by scheduled maturity date (dollars in thousands):
|
Issuance
|
|
Face Amount
|
|
Coupon Rate
|
|
Term (in Years)
|
|
|
Maturity
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 17, 2002
|
|
$
|
50,000
|
|
|
6.00
|
%
|
|
5
|
|
|
June 15, 2007
|
|
|
August 27, 1997
|
|
|
150,000
|
|
|
7.20
|
%
|
|
10
|
|
|
August 28, 2007
|
|
|
March 26, 1999
|
|
|
200,000
|
|
|
7.75
|
%
|
|
10
|
|
|
March 15, 2009
|
|
|
January 22, 2004
|
|
|
150,000
|
|
|
5.15
|
%
|
|
7
|
|
|
January 15, 2011
|
|
|
August 13, 2004
|
|
|
150,000
|
|
|
5.875
|
%
|
|
10
|
|
|
August 15, 2014
|
|
|
June 27, 2005
|
|
|
287,500
|
|
|
4.00
|
%
|
|
20
|
|
|
June 15, 2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
987,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on the Senior Unsecured Notes is payable semiannually with principal and unpaid interest due on the scheduled maturity dates. In addition, certain of the Senior Unsecured Notes were issued at discounts aggregating approximately $8.3 million. Such discounts are being amortized to interest expense over the term of the Senior Unsecured Notes to which they relate. Through December 31, 2005, approximately $900,000 of the aggregate discounts have been amortized.
5. Land Leases, Air Rights and Operating Leases
We lease, pursuant to noncancellable operating leases, the land on which ten of our buildings were constructed. The leases, certain of which contain renewal options at our direction, expire between 2043 and 2090. The leases either contain provisions for scheduled increases in the minimum rent at specified intervals or for adjustments to rent based upon the fair market value of the underlying land or other indexes at specified intervals. Minimum ground rent is recognized on a straight-line basis over the terms of the leases and includes lease renewals if reasonably assured that we will exercise our option. Excess of amounts recognized over amounts contractually due are reflected as a deferred ground rent liability and included in accrued expenses and other liabilities on the accompanying balance sheets.
On September 21, 2005, our property located at 55 Charles Lindbergh Boulevard located on Long Island, New York which was subject to a land lease, was sold to the RAOC JV subject to the land lease.
Amounts recognized as deferred ground rent liabilities aggregated approximately $12.2 million and $7.5 million at December 31, 2005 and 2004, respectively.
In addition, our property located at 810 7th Avenue, New York, NY is subject to certain air rights lease agreements. These lease agreements have terms expiring in 2044 and 2048, including renewal options.
Reckson Management Group, Inc. is subject to operating leases for certain of its management offices and warehouse storage space. These operating leases expire, pursuant to their terms, during 2008 and 2009. During 2005, we exercised a termination option on one of the management office space leases allowing us to terminate the affected lease on November 30, 2006 without penalty.
As of December 31, 2005, we leased certain building equipment at two of our suburban office properties which are classified as capital leases. This equipment has a cost basis and cumulative amortization of approximately $2.9 million and $129,000, respectively, at December 31, 2005.
F-18
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
5. Land Leases, Air Rights and Operating Leases (continued)
Future minimum lease commitments relating to the land leases, air rights lease agreements and operating leases during the next five years and thereafter are as follows (in thousands):
|
Year ended December 31,
|
|
Land
Leases |
|
Air
Rights |
|
Operating
Leases |
|
Capital
Leases |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
$
|
12,285
|
|
$
|
362
|
|
$
|
1,319
|
|
$
|
410
|
|
|
2007
|
|
|
12,302
|
|
|
362
|
|
|
194
|
|
|
410
|
|
|
2008
|
|
|
12,329
|
|
|
362
|
|
|
196
|
|
|
410
|
|
|
2009
|
|
|
12,475
|
|
|
362
|
|
|
14
|
|
|
410
|
|
|
2010
|
|
|
12,398
|
|
|
362
|
|
|
—
|
|
|
410
|
|
|
Thereafter
|
|
|
330,973
|
|
|
3,257
|
|
|
—
|
|
|
1,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
392,762
|
|
$
|
5,067
|
|
$
|
1,723
|
|
|
3,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less amounts representing interest
|
|
|
|
|
|
|
|
|
|
|
|
(1,121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum lease payments
|
|
|
|
|
|
|
|
|
|
|
$
|
2,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts contractually due and expensed under our land leases, air rights and operating leases for each of the three years ended December 31, 2005, 2004 and 2003 amounted to $6.1 million, $5.4 million and $4.8 million, respectively.
6. Commercial Real Estate Investments
During January 2005, we acquired, in two separate transactions, two Class A office properties located at One and Seven Giralda Farms in Madison, New Jersey for total consideration of approximately $78.0 million. One Giralda Farms encompasses approximately 150,000 rentable square feet and Seven Giralda Farms encompasses approximately 203,000 rentable square feet. We made these acquisitions through borrowings under our Credit Facility.
In May 2005, we acquired a 1.4 million square foot, 50-story, Class A office tower located at One Court Square, Long Island City, NY, for approximately $471.0 million, inclusive of transfer taxes and transactional costs. One Court Square is 100% leased to the seller, Citibank N.A., under a 15-year net lease. The lease contains partial cancellation options effective during 2011 and 2012 for up to 20% of the leased space and in 2014 and 2015 for up to an additional 20% of the originally leased space, subject to notice and the payment of early termination penalties. On November 30, 2005, we sold a 70% joint venture interest in One Court Square to certain institutional funds advised by JPMorgan Investment Management (the “JPM Investor”) for approximately $329.7 million, including the assumption of $220.5 million of the property’s mortgage debt. The operating agreement of the Court Square JV requires approvals from members
on certain decisions including annual budgets, sale of the property, refinancing of the property’s mortgage debt and material renovations to the property. In addition, after September 20, 2009 the members each have the right to recommend the sale of the property, subject to the terms of the mortgage debt, and to dissolve the Court Square JV. We have evaluated the impact of FIN 46R on our accounting for the Court Square JV and have concluded that the Court Square JV is not a VIE. We account for the Court Square JV under the equity method of accounting. We have also evaluated, under Issue 04-05, that the JPM Investor has substantive participating rights in the ordinary course of the Court Square JV’s business In accordance with the equity method of accounting, our proportionate share of the Court Square JV income was approximately $45,000 for the period November 30 through December 31, 2005.
In May 2005, we completed mandatory arbitration proceedings relating to the re-setting of the rent under the ground lease pursuant to which we own an approximately 1.1 million square foot Class A office tower located at 1185 Avenue of the Americas, New York, NY. The rent was re-set, and is not subject to further increase, for the remaining 37 years of the ground lease (inclusive of a 20-year extension at our option) to approximately $6.9 million per annum. Such re-set is retroactive to June 2004.
F-19
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
6. Commercial Real Estate Investments (continued)
On May 26, 2005, we entered into a contract to sell approximately 60 acres of vacant land located in Chatham Township, NJ for up to approximately $30.0 million, which is based upon a final approved site plan. The closing is anticipated to occur upon receiving final re-zoning approvals and other customary due diligence and approvals. The sale is contingent upon due diligence, environmental assessment, re-zoning and other customary approvals. There can be no assurances that any of the aforementioned contingences will be achieved and the sale ultimately completed.
On June 8, 2005, we sold a three-acre
vacant land parcel located on Long Island for approximately $1.4 million
which resulted in a net gain of approximately $179,000. Such gain is reflected
as a component of discontinued operations on our consolidated statements
of income.
On June 20, 2005, we acquired our joint venture partner’s 40% interest in a 172,000 square foot office property located at 520 White Plains Road, Tarrytown, NY for approximately $8.1 million which consisted of the issuance of 127,510 OP Units valued at $31.37 per OP Unit and the assumption of approximately $4.1 million of secured mortgage indebtedness of the joint venture. Prior to us acquiring this interest, we accounted for the joint venture under the equity method of accounting. In accordance with the equity method of accounting, our proportionate share of the joint venture’s income was approximately $176,000 for the period January 1, 2005 through June 19, 2005 and $603,000 and $30,000 for the years ended December 31, 2004 and 2003, respectively.
On July 14, 2005, we acquired two adjacent Class A suburban office buildings aggregating approximately 228,000 square feet located at 225 High Ridge Road in Stamford, CT for approximately $76.3 million. This acquisition was made through a borrowing under our Credit Facility. On August 26, 2005 this property was encumbered, along with eight other properties, with an interest only mortgage in the amount of approximately $55.3 million and on September 21, 2005 was sold to the RAOC JV discussed below for approximately $76.5 million which included the assignment of the property’s mortgage debt.
On August 18, 2005, we entered into (i) an underwriting agreement relating to the public offering in Australia of approximately A$263.0 million (approximately US$202.0 million) of units (“LPT Units”) in a newly-formed Reckson-sponsored Australian listed property trust, Reckson New York Property Trust (“Reckson LPT”), a newly-formed listed property trust which is traded on the Australian Stock Exchange and (ii) contribution and sale agreements pursuant to which, among other things, we agreed to transfer 25 of our properties for an aggregate purchase price of approximately $563.0 million and containing an aggregate of 3.4 million square feet, in three separate tranches, to the RAOC JV in exchange for a 25% interest in the RAOC JV and approximately $502.0 million in cash (inclusive of proceeds from mortgage debt to be assumed by the RAOC JV). On September 21, 2005, Reckson LPT completed its public offering and the closing of
the first of three tranches (“Tranche I”) of this transaction.
In connection with the Tranche I closing,
the RAOC JV acquired from us 17 of our suburban office properties containing
approximately 2.0 million square feet for approximately $367.0 million (including
the assumption of approximately $196.1 million in mortgage debt which had
been incurred by us in August 2005 – see Note 2). In return, we
received a 25% interest in the RAOC JV and approximately $128.1 million in
cash resulting in an aggregate gain of approximately $103.6 million. As discussed
below relating to certain guarantees we have made, approximately $18 million
of the aggregate gain has been deferred to future periods pursuant to Statement
No. 66 to coincide with the release of the guarantees. As
a result, gains on sales of real estate, related to Tranche I reported in
the current period is approximately $86.1 million. Approximately $22.0 million
of the cash received was used to repay certain of our secured mortgage indebtedness
on September 30,
2005 and approximately $105.7 million of the cash received was used to establish
an escrow account with a qualified intermediary for a future exchange of
real property pursuant to Section 1031 of the Code (a “Section 1031
Exchange”). A Section 1031 Exchange allows for the deferral of
taxes related to the gain attributable to the sale of property if a qualified
replacement property is identified within 45 days and such qualified replacement
property is acquired within 180 days from the initial sale. As described
below, on October 7, 2005 we acquired a qualified replacement property for
purposes of this Section 1031 Exchange and thereby deferred a portion of
the tax gain from the Tranche I sale.
F-20
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
6. Commercial Real Estate Investments (continued)
In connection with the foregoing, on September 21, 2005, Reckson Australia Holdings LLC (“Reckson Holdings”), a wholly-owned subsidiary of the Operating Partnership, and Reckson Australia LPT Corporation (“LPT REIT”), a U.S. real estate investment trust which is wholly-owned by Reckson LPT, entered into the Amended and Restated Limited Liability Company Agreement governing the RAOC JV (the “Operating Agreement”). Pursuant to the Operating Agreement, LPT REIT holds a 75% interest in, and acts as the managing member for, the RAOC JV, and Reckson Holdings holds a 25% non-managing member interest therein. The Operating Agreement provides that, if at any time additional capital contributions are made to the RAOC JV, Reckson Holdings will have a right to make additional capital contributions up to an amount necessary to maintain its 25% interest therein on the same terms and conditions as such other capital
contributions.
As the managing member of the RAOC JV, LPT REIT has the sole responsibility for managing its business and affairs on a day-to-day basis, other than with respect to certain identified “major decisions,” including but not limited to a merger or consolidation involving the RAOC JV, a disposition of all or substantially all of its assets, or the liquidation or dissolution of the RAOC JV. Such major decisions require the prior written consent of a majority of the non-managing members. As a result of the foregoing, we are accounting for our 25% non-managing member interest in the RAOC JV under the equity method of accounting. In accordance with the equity method of accounting, our proportionate share of the RAOC JV’s income was approximately $863,000 for the period September 21, 2005 through December 31, 2005.
On January 6, 2006, Reckson LPT completed the second Tranche of this transaction (“Tranche II”) whereby the RAOC JV acquired three of our suburban office properties; 6800 and 6900 Jericho Turnpike, Jericho, NY and 710 Bridgeport Avenue, Shelton, CT, aggregating approximately 761,000 square feet for approximately $84.6 million, including the assignment of approximately $20.1 million of mortgage debt. Approximately $25.1 million of sales proceeds was used to establish an escrow account for the purpose of a future Section 1031 Exchange. The balance of the cash proceeds was used to fund our development activities and for general corporate purposes.
The Tranche III closing (“Tranche III”), consisting of five of our properties valued at approximately $111.8 million, is scheduled to close in October 2006 and will include the assumption of approximately $51.5 million of existing mortgage debt. The Tranche III closing is subject to customary closing conditions.
Our Service Companies provide asset management, property management, leasing, construction and other services to the RAOC JV and affiliates of ours are entitled to transaction fees and ongoing fees for providing services to the RAOC JV. As of December 31, 2005, we earned and received approximately $3.6 million in transaction related fees and approximately $966,000 of ongoing fees from the RAOC JV. Such amount is included in investment income and other on our consolidated statements of income. In addition, we also formed Reckson Australia Management Limited (“RAML”), a wholly owned subsidiary, that will manage Reckson LPT and serve as its “Responsible Entity”. The Responsible Entity will be managed by a six member board that includes three independent directors domiciled in Australia. To address and mitigate any potential conflicts of interest with Reckson LPT or its affiliates the Company has adopted the following
policies: (i) all transactions between the Company and Reckson LPT or its affiliates shall require the approval of a majority of the independent directors of both the Company and Reckson LPT, (ii) executive officers and directors of the Company are prohibited from owning equity in the Reckson LPT, and (iii) the adoption of an express policy which mandates that property services and leasing decisions shall be made without regard to the Company’s percentage ownership of any property.
Under the Operating Agreement, Reckson Holdings will have the right, beginning September 21, 2007, to require LPT REIT to redeem all or a portion of Reckson Holdings’ membership interest in the RAOC JV for cash or, at LPT REIT’s option, shares of LPT REIT’s common stock (which may be exchanged for LPT Units) on a one-for-one basis. Reckson Holdings also has the right to cause the liquidation of the RAOC JV in the event that RAML is replaced as Reckson LPT’s Responsible Entity. In addition, the Operating Agreement contains a right of first refusal granting Reckson Holdings the right to acquire any asset of the RAOC JV, at fair market value, in the event of an attempted sale of such asset or the exercise of Reckson Holdings’ right to liquidate the RAOC JV.
F-21
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
6. Commercial Real Estate Investments (continued)
In connection with the Tranche I closing, on September 21, 2005 the Company, RAOC JV and LPT REIT entered into an Option Agreement (the “Option Agreement”) pursuant to which we granted RAOC JV options to acquire ten additional properties from the Operating Partnership over a two year period, beginning January 1, 2006. The properties contain an aggregate of approximately 1.2 million square feet and will be priced based on the fair market value at the time of each transfer to RAOC JV. The Option Agreement contains a right of first refusal granting RAOC JV the right to acquire any option property from Reckson in the event we receive, and are amenable to, an offer from a third party to purchase such option property. The Option Agreement will terminate under certain circumstances, including if (i) RAOC JV sends notice of its intent to exercise its option but fails to close as obligated, (ii) RAOC JV is in default under the
Option Agreement, the contribution agreement or the sale agreement or (iii) RAML or an affiliate of ours is no longer the Responsible Entity of Reckson LPT.
In connection with the mortgage indebtedness securing nine of the Tranche I properties, which were transferred to the RAOC JV on September 21, 2005, and three of the Tranche III properties scheduled to be transferred to the RAOC JV during October 2006, we have guaranteed to the lender certain customary non-recourse carve-outs, as well as certain obligations relating to the potential termination of a number of leases at four of these properties. We have also guaranteed to the lender certain capital requirements related to these properties. We will be relieved of the customary non-recourse carve-outs and capital requirements upon transfer of the respective properties to the RAOC JV and the RAOC JV meeting a net worth test of at least $100.0 million. We will be relieved of all but two of the lease related obligations upon transfer of the respective properties to the RAOC JV and the RAOC JV meeting a net worth test of at least $200.0 million. The
RAOC JV has agreed to indemnify us for any loss, cost or damage it may incur pursuant to our guaranty of these obligations. As of December 31, 2005, the RAOC JV met the $100.0 million net worth threshold and there remain approximately $18 million of aggregate guarantees outstanding.
In accordance with FASB Statement No. 144, the assets and liabilities of the properties transferred and to be transferred, excluding the option properties, to the RAOC JV are classified as held for sale on our consolidated balance sheets, for all periods presented.
During September 2005, we entered into
a letter of intent with an entity owned by the owner of the New York Islanders
professional
hockey team to enter into a 50 / 50 joint venture to potentially develop
over five million square feet of office, residential, retail and hotel space
located on 77 acres in the Mitchel Field, Long Island sub-market in and around
Nassau County’s Veterans Memorial Coliseum where we are currently the
largest owner of office properties. In March 2006, the joint venture was
selected by the County Executive for the development of the 77 acre site.
The development remains subject to certain conditions and governmental approvals,
including legislative, zoning and other customary approvals. In addition,
there can be no assurances that we will enter into the aforementioned joint
venture, that all applicable conditions will be satisfied or that all required
approvals can be obtained.
On September 22, 2005, we sold two suburban
office properties, aggregating approximately 69,000 square feet, located
at 310 and 333 East Shore Road in Great Neck, Long Island for aggregate consideration
of approximately $17.3 million. As
a result, we recorded an aggregate gain of approximately $14.0 million. For
federal income tax purposes we recognized a tax gain of approximately $12.6
million. Such tax gain did not affect the Company’s REIT distribution requirements. Pursuant
to FASB Statement No. 144, these properties have been reflected as held for sale
on our balance sheets and their operating results are classified within discontinued
operations, for all periods presented, on our consolidated statements of income.
On October 7, 2005, we acquired a 1.1 million square foot Class A office complex located in Uniondale, NY, commonly referred to as “EAB Plaza”, for approximately $240 million and changed the name of the complex to Reckson Plaza. The property is encumbered by a long-term ground lease which has a remaining term in excess of 75 years, including renewal options. The acquisition of Reckson Plaza was financed, in part, (i) from sales proceeds being held by a qualified intermediary pursuant to a Section 1031 Exchange as the property was an identified, qualified replacement property, (ii) a borrowing under our Credit Facility, (iii) the satisfaction of our $27.6 million junior participating mezzanine loan which was secured by a pledge of an indirect interest of an entity which owned the ground leasehold estate and (iv) cash on hand. In connection with this acquisition we also acquired an adjoining 8.2 acre development site for
approximately $19.0 million which was financed through a borrowing under our Credit Facility.
F-22
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
6. Commercial Real Estate Investments (continued)
On October 20, 2005, we acquired a 118,000 square foot suburban office property situated on ten acres of land located at 711 Westchester Avenue in White Plains, NY for approximately $24.8 million. This acquisition was financed through the assumption of approximately $12.5 million of existing debt on the property and a borrowing under our Credit Facility.
On December 20, 2005, we sold our property
located at 48 Harbor Park Drive, Port Washington, NY for approximately $6.4
million and recorded a gain on sales of real estate of approximately $2.7 million. Pursuant to FASB Statement No. 144, this property has been reflected as held for sale on our balance sheets and its operating results are classified within discontinued operations, for all periods presented, on our consolidated statements of income.
On December 20, 2005, we sold our property
located at 100 Wall Street, New York, NY for approximately $134.0 million
and recorded
a gain on sales of real estate of approximately $46.1 million. The property
was secured by a first mortgage and cross collateralized with another one
of our New York City properties.
In order to effectuate the sale and not incur prepayment penalties which
would be due under a prepayment of the mortgage, we provided the lender with
replacement collateral and assigned this mortgage debt to the replacement
collateral properties. In connection with the assignment, we paid a substitution
of collateral fee and other costs aggregating approximately $2.0 million. In
addition, we provided the purchaser with a mezzanine loan in the amount of
$30.0 million which bears interest at 15.0% per annum, requires payments
of interest only and has a term of two years. Cash proceeds of approximately
$100.9 million were used, in part, to acquire a 14 building suburban office
portfolio as discussed below. We have evaluated the purchaser’s
financial commitment as being sufficient to provide substance to this sale
and us having no substantial continuing involvement with the purchaser pursuant
to Statement No. 66 and as such have recognized the aforementioned gain in
its entirety. In addition, pursuant to FASB Statement No. 144, this property
has been reflected as held for sale on our balance sheets and its operating
results are classified within discontinued operations, for all periods presented,
on our consolidated statements of net income.
On December 29, 2005, we acquired a 1.6 million square foot suburban office portfolio, consisting of 14 buildings, concentrated within five business parks, located in Westchester County, for approximately $255.0 million. We made this acquisition through a borrowing under our Term Loan and cash sales proceeds from the sale of our property located at 100 Wall Street, New York, NY.
As of December 31 2005, we owned and operated 103 office properties (inclusive of twenty-five office properties owned through joint ventures) comprising approximately 20.3 million square feet and eight flex properties comprising approximately 863,000 square feet located in the Tri-State Area.
We also own certain land parcels throughout our markets in the Tri-State Area which we hold for current and future development (the “Development Parcels”). We recently completed the ground-up development on one of the Development Parcels of a 300,000 square foot Class A office building which commenced in July 2004 and is located within our existing three building executive office park in Melville, NY with a total investment of approximately $64.0 million. During July 2005, we commenced the ground-up development on one of the Development Parcels of a 37,000 square foot Class A retail property located within our existing six building Landmark Square office park in Stamford, Connecticut. In August 2005, we recommenced the ground-up development of one of the Development Parcels of a 316,000 square foot Class A office building located within our existing three building office park located in Princeton, NJ. Further, one of the
Development Parcels, aggregating approximately 4.1 acres, is classified as held for sale on our balance sheets and is expected to close during September 2006 for aggregate consideration of $2.0 million. In addition, as previously discussed, in May 2005, we entered into a contract to sell approximately 60 acres of vacant land in Chatham Township, NJ, subject to a change in zoning and other conditions. There can be no assurances that such conditions will be met or that the transaction will be consummated. Excluding the foregoing, at December 31, 2005 our inventory of Development Parcels aggregated approximately 309 acres of land in 10 separate parcels which we had invested approximately $123.8 million.
Management has made subjective assessments as to the value and recoverability of our investments in the Development Parcels based on current and proposed development plans, market comparable land values and alternative use values. We are currently evaluating alternative land uses for certain of the remaining Development Parcels to realize their highest economic value. These alternatives may include rezoning certain Development Parcels from commercial to residential for potential disposition.
F-23
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
6. Commercial Real Estate Investments (continued)
At December 31, 2005, we also owned a 354,000 square foot office building in Orlando, Florida. This non-core real estate holding was acquired in May 1999 in connection with our initial New York City portfolio acquisition. This property was sold on March 7, 2006 for aggregate consideration of approximately $70.0 million. Net proceeds were used to establish an escrow account with a qualified intermediary for a future Section 1031 Exchange.
Discontinued Operations
At December 31, 2005, we had identified ten of our operating properties and one parcel of land as held for sale in accordance with Statement No. 144. We have classified the assets and liabilities for these properties and parcel of land at December 31, 2005, for all periods presented, on our consolidated balance sheets as held for sale. In addition, where we will not have a continuing interest in their operations, we have classified their results of operations and gains from their sales, for all periods presented, as discontinued operations on our consolidated statements of income.
In addition, during 2005 we sold 21 of our operating properties and one parcel of land. We have classified the assets and liabilities for these properties and parcel of land at December 31, 2004 on our consolidated balance sheet as held for sale. In addition, where we will not have a continuing interest in their operations, we have classified their results of operations, for all periods presented, and gains from their sales, as discontinued operations on our consolidated statements of income.
The following table sets forth those assets and liabilities classified on our balances sheets as held for sale (in thousands):
|
|
|
December 31, 2005
|
|
December 31, 2004
|
|
||||||||
|
|
|
|
|
|
|
||||||||
|
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties held for sale at December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eight operating properties to be sold to the RAOC JV
|
|
$
|
101,740
|
|
$
|
84,326
|
|
$
|
102,752
|
|
$
|
33,236
|
|
|
One operating property located in Westchester County, New York (a)
|
|
|
31,977
|
|
|
190
|
|
|
—
|
|
|
—
|
|
|
One Orlando Centre located in Orlando, Florida
|
|
|
59,457
|
|
|
56
|
|
|
59,328
|
|
|
29
|
|
|
Land parcel located in Long Island, New York
|
|
|
1,123
|
|
|
—
|
|
|
1,027
|
|
|
—
|
|
|
Properties sold during 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seventeen properties sold to the RAOC JV
|
|
|
—
|
|
|
—
|
|
|
146,890
|
|
|
1,398
|
|
|
310 / 333 East Shore Road, Great Neck, New York
|
|
|
—
|
|
|
—
|
|
|
3,188
|
|
|
24
|
|
|
48 Harbor Park Drive, Port Washington, New York
|
|
|
—
|
|
|
—
|
|
|
3,569
|
|
|
—
|
|
|
100 Wall Street, New York, New York
|
|
|
—
|
|
|
—
|
|
|
87,616
|
|
|
951
|
|
|
Land parcel located in Long Island, New York
|
|
|
—
|
|
|
—
|
|
|
983
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
194,297
|
|
$
|
84,572
|
|
$
|
405,353
|
|
$
|
35,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Property was acquired during 2005.
|
F-24
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Discontinued Operations (continued)
The following table sets forth the income from discontinued operations and the related net gains on sales of real estate for those properties sold during the years ended December 31, 2005, 2004 and 2003 (in thousands and net of minority and limited partners interests):
|
|
|
Year ended December 31,
|
|
|||||||
|
|
|
|
|
|||||||
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
310 / 333 East Shore Road, Great Neck, New York
|
|
$
|
361
|
|
$
|
566
|
|
$
|
616
|
|
|
48 Harbor Park Drive, Port Washington, New York
|
|
|
375
|
|
|
333
|
|
|
317
|
|
|
100 Wall Street, New York, New York
|
|
|
6,409
|
|
|
6,040
|
|
|
3,882
|
|
|
One Orlando Centre located in Orlando, Florida
|
|
|
764
|
|
|
(782
|
)
|
|
(623
|
)
|
|
One operating property located in Westchester County, New York (a)
|
|
|
20
|
|
|
—
|
|
|
—
|
|
|
Properties sold during 2004 and 2003
|
|
|
—
|
|
|
677
|
|
|
17,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income from discontinued operations
|
|
|
7,929
|
|
|
6,834
|
|
|
21,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on sales of real estate:
|
|
|
|
|
|
|
|
|
|
|
|
One parcel of land located in Long Island, New York
|
|
|
179
|
|
|
—
|
|
|
—
|
|
|
310 / 333 East Shore Road, Great Neck, New York
|
|
|
13,965
|
|
|
—
|
|
|
—
|
|
|
48 Harbor Park Drive, Port Washington, New York
|
|
|
2,747
|
|
|
—
|
|
|
—
|
|
|
100 Wall Street, New York, New York
|
|
|
46,148
|
|
|
—
|
|
|
—
|
|
|
Properties sold during 2004 and 2003
|
|
|
—
|
|
|
12,424
|
|
|
126,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains on sales of real estate – discontinued operations
|
|
|
63,039
|
|
|
12,424
|
|
|
126,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total discontinued operations
|
|
$
|
70,968
|
|
$
|
19,258
|
|
$
|
148,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Property was acquired during 2005.
|
Note Receivable Investments
On March 16, 2005, a wholly owned subsidiary of the Operating Partnership advanced under separate mezzanine loan agreements, each of which bears interest at 9% per annum, (i) approximately $8.0 million which matures in April 2010 and is secured, in part, by indirect ownership interests in ten suburban office properties located in adjacent office parks in Long Island, NY and (ii) approximately $20.4 million which matures in April 2012 and is secured, in part, by indirect ownership interests in twenty-two suburban office properties located in adjacent office parks in Long Island, NY. Each mezzanine loan is additionally secured by other guaranties, pledges and assurances and is pre-payable without penalty after 18 months from the initial funding. We made these investments through a borrowing under our Credit Facility.
In May 2005, we acquired a 65% interest in an $85 million, 15-year loan secured by an indirect interest in a 550,000 square foot condominium in a Class A office tower located at 1166 Avenue of the Americas, New York, NY for approximately $55.3 million. The loan accrues interest compounded at 9.0% and pays interest at an annual rate of 6.0% through March 2010, 8.5% thereafter through March 2015 and 11.0% thereafter through maturity in 2020. The loan is pre-payable only under certain circumstances and, in any case, not before 2009. Upon a capital event related to the indirect interest in the property which secures the loan, we are entitled to participate in 30% of the net proceeds derived from such capital event. This investment replaced our $34.0 million mezzanine loan, including accrued and unpaid interest, to one of the partners owning such condominium interest. We also acquired an approximately 5% indirect ownership interest in
the property for a purchase price of approximately $6.2 million. The balance of these investments was funded through a borrowing under our Credit Facility and cash on hand.
F-25
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note Receivable Investments (continued)
On September 30, 2005, we advanced $20.0 million to entities that are each controlled by Cappelli Enterprises under a junior mezzanine loan. This mezzanine loan bore interest at 15.0% per annum, was secured by a subordinate pledge of an indirect ownership interest in a 550,000 square foot office condominium in a Class A office tower located at 1166 Avenue of the Americas, New York, NY and had a scheduled maturity date of March 31, 2006. As described above, during May 2005, we made a $55.3 million participating loan investment secured by interests in this property (including the interests securing this new mezzanine loan). We also advanced a $10.0 million bridge loan to Louis Cappelli, an affiliate, under a promissory note (the “Promissory Note”) in anticipation of closing a longer-term structured finance transaction. The Promissory Note bore interest at 4.86% per annum, matured on November 30, 2005, was secured by a
security interest in a reserve account owned by the borrower and was pre-payable in whole or in part without penalty. These investments were funded through a borrowing under our Credit Facility. On November 30, 2005, the Promissory Note was repaid, we advanced an additional $5.0 million under the mezzanine loan and adjusted its interest rate to 17.5% per annum and extended its maturity date to November 30, 2009. The refinanced junior mezzanine loan is secured by interests in the 1166 Avenue of the Americas condominium and guaranteed by Mr. Cappelli.
On October 7, 2005, a wholly owned subsidiary of the Operating Partnership advanced under a second mortgage loan agreement $10.0 million to an entity which owns a 60,000 square foot office property located on Madison Avenue in New York City which is currently slated for residential conversion. The borrower is an affiliate of the seller of EAB Plaza which we acquired on October 7, 2005. This mortgage loan bears interest at 20.0% per annum, requires monthly payments of interest only, matures on October 7, 2007 and is secured by the underlying property. The mortgage loan is not pre-payable until the earlier of January 10, 2007 or the sale of the underlying property and upon notice. In addition to this mortgage loan, Reckson Construction and Development, LLC (“RCD”) entered into a development agreement with the owner of the property to perform certain predevelopment, development and / or other services with respect to the property. In
exchange for its services, RCD will receive a development fee of $2.0 million which is payable in equal monthly installments over a two-year period. Interest due under the mortgage note during its term and the entire development fee are currently being held in a segregated account under our control.
At December 31, 2005, we had invested approximately $93.4 million in mezzanine loans and approximately $55.3 million in a participating loan investment. In general these investments are secured by a pledge of either a direct or indirect ownership interest in the underlying real estate or leasehold, other guaranties, pledges and assurances.
The following table sets forth the terms of the mezzanine loans at December 31, 2005 (in thousands):
|
Property
|
|
|
Amount
|
|
|
Interest Rate
|
|
|
Funding
|
|
|
Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Island office portfolio
|
|
$
|
8,031
|
|
|
9.00
|
%
|
|
Mar., 2005
|
|
|
Apr., 2010
|
(a)
|
|
Long Island office portfolio
|
|
|
20,356
|
|
|
9.00
|
%
|
|
Mar., 2005
|
|
|
Apr., 2012
|
(a)
|
|
72 Madison Avenue, NY, NY
|
|
|
10,000
|
|
|
20.00
|
%
|
|
Oct., 2005
|
|
|
Oct., 2007
|
|
|
1166 Avenue of the Americas, NY, NY (b)
|
|
|
25,000
|
|
|
17.50
|
%
|
|
Nov., 2005
|
|
|
Nov., 2009
|
|
|
100 Wall Street, NY, NY
|
|
|
30,000
|
|
|
15.00
|
%
|
|
Dec., 2005
|
|
|
Dec., 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
93,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Prepayable without penalty after 18 months from initial funding.
|
|
(b)
|
Junior mezzanine loan secured by interests in a 550,000 square foot condominium interest.
|
At December 31, 2005, we also held a $17.0 million note receivable, which bore interest at 12% per annum and was secured by a minority partnership interest in Omni Partners, L.P., owner of the Omni, a 579,000 square foot Class A office property located in Uniondale, NY (the “Omni Note”).
As of December 31, 2005, we held one other note receivable, which aggregated $1.0 million and carried an interest rate of 10.50% per annum (the “Other Note”) and collectively with the Omni Note, our mezzanine loans and preferred loan investments (the “Note Receivable Investments”). The Other Note matures on January 31, 2010 and is secured in part by a minority partner’s preferred unit interest in the Operating Partnership.
F-26
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note Receivable Investments (continued)
The following table sets forth the changes in our Note Receivable Investments for each of the periods in the three years ended December 31, 2005 (in thousands):
|
|
|
2005
|
|
2004
|
|
2003
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of period
|
|
$
|
85,855
|
|
$
|
54,986
|
|
$
|
54,547
|
|
|
Additions during the period:
|
|
|
|
|
|
|
|
|
|
|
|
New investments
|
|
|
148,637
|
|
|
31,500
|
|
|
15,000
|
|
|
Interest receivables and related investment costs
|
|
|
4,212
|
|
|
1,777
|
|
|
439
|
|
|
Deductions during the period:
|
|
|
|
|
|
|
|
|
|
|
|
Collections / satisfaction of principal
|
|
|
64,092
|
|
|
2,408
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
174,612
|
|
$
|
85,855
|
|
$
|
54,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2005, management has made subjective assessments as to the underlying security value on the Note Receivable Investments. These assessments indicate an excess of market value over the carrying value and, based on these assessments, we believe there is no impairment to their carrying value.
7. Partners’ Capital
A Class A OP Unit and a share of common stock have similar economic characteristics as they effectively share equally in the net income or loss and distributions of the Operating Partnership. As of December 31, 2005, the Operating Partnership had issued and outstanding 1,569,142 Class A OP Units and 465,845 Class C OP Units. The Class A OP Units and the Company’s common stock currently receive a quarterly distribution of $0.4246 per unit/share. The Class C OP Units were issued in August 2003 in connection with the contribution of real property to the Operating Partnership and currently receive a quarterly distribution of $0.4664 per unit. Subject to certain holding periods, OP Units may either be redeemed for cash or, at the election of the Company, exchanged for shares of common stock on a one-for-one basis.
The Operating Partnership issues additional units to the Company, and thereby increases the Company’s general partnership interest in the Operating Partnership, with terms similar to the terms of any securities (i.e., common stock or preferred stock) issued by the Company (including any securities issued by the Company upon the exercise of stock options). Any consideration received by the Company in respect of the issuance of its securities is contributed to the Operating Partnership. In addition, the Operating Partnership or a subsidiary funds the compensation of personnel, including any amounts payable under the Company’s LTIP.
The limited partners’ interest in the Operating Partnership (“Limited Partner Capital”), which is reflected on the accompanying consolidated statements of partners’ capital, is reported at an amount equal to the limited partners’ ownership percentage of the net equity of the Operating Partnership at the end of reporting period. The Limited Partner Capital is adjusted at the end of the period to reflect the ownership percentages at that time.
During 2005 and 2004, we received approximately $14.1 million and $62.2 million from the exercise of 571,194 Company stock options and 2,706,378 Company stock options, respectively.
During 2005 and 2004, the Operating Partnership issued 127,510 and 33,843 OP Units, respectively, in connection with property acquisitions. In addition, during 2005, certain limited partners in the Operating Partnership exchanged approximately 1.6 million OP Units for an equal number of shares of the Company’s common stock.
During June 2005, the Operating Partnership
issued $287.5 million aggregate principal amount of 4.00% exchangeable senior
debentures due June 15, 2025. The debentures were issued at 98% of par and
are exchangeable for shares of common stock of the Company on or after June
15, 2024 at an initial exchange rate of 24.6124 common shares per $1,000
of principal amount of debentures. The debentures are also exchangeable: (i)
if the market price of the Company’s common stock over a specified
period of time is more than 125% of the exchange price per share then in
effect; (ii) if the trading price of the debentures over a specified period
of time is less than 98% of the product of the closing price of the Company’s
shares multiplied by the applicable exchange rate; (iii) during a specified
period of time, for any debentures that have been called for redemption;
(iv) under certain circumstances, upon the occurrence of a distribution to
holders of the Company’s shares of (a)
rights to purchase the Company’s common stock at a price below the market
price of the Company’s shares or (b) assets, debt securities or rights
to purchase the Company’s securities or securities of the Operating Partnership
that have a per share/OP Unit value exceeding 10% of the market price of the
Company’s shares; or (v) if the Company’s common stock is not listed
on a national or regional securities exchange or quoted on NASDAQ for 30 consecutive
trading
days.
F-27
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
7. Partners’ Capital (continued)
The initial exchange price of $40.63 represents a premium of approximately 25% to the closing price of the Company’s common stock on the issuance date of $32.50 per share. If exchanged in accordance with their terms, the debentures will be settled in cash up to their principal amount and any remaining exchange value will be settled, at our option, in cash, the Company’s common stock or a combination thereof. In accordance with the exchange rate terms of the debentures the Company has reserved approximately 8.8 million shares of its authorized common stock, $.01 par value, for potential future issuance upon the exchange of the debentures. Such amount is based on an exchange rate of 30.7692 common shares per $1,000 of principal amount of debentures. Although we have reserved these shares pursuant to the exchange rate terms, we believe the issuance of the Company’s shares, if any, would be significantly less than 8.8 million shares. The deben
tures
are guaranteed by the Company. We have the option to redeem the debentures beginning June 18, 2010 for the principal amount plus accrued and unpaid interest. Holders of the debentures have the right to require us to repurchase their debentures at 100% of the principal amount thereof plus accrued and unpaid interest on June 15, 2010, June 15, 2015 and June 15, 2020 or, in the event of certain change in control transactions, prior to June 15, 2010.
The following table sets forth the Operating Partnership’s annual distribution rates and distributions paid on each class of its common and preferred units for each of the years ended December 31:
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
A OP Unit:
|
|
|
|
|
|
|
|
|
|
|
|
Distribution rate
|
|
$
|
1.698
|
|
$
|
1.698
|
|
$
|
1.698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions paid (in thousands)
|
|
$
|
143,274
|
|
$
|
116,320
|
|
$
|
93,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
B OP Unit (a):
|
|
|
|
|
|
|
|
|
|
|
|
Distribution rate
|
|
$
|
—
|
|
$
|
—
|
|
$
|
2.588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions paid (in thousands)
|
|
$
|
—
|
|
$
|
1,744
|
|
$
|
25,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
C OP Unit (b):
|
|
|
|
|
|
|
|
|
|
|
|
Distribution rate
|
|
$
|
1.866
|
|
$
|
1.866
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions paid (in thousands)
|
|
$
|
860
|
|
$
|
866
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A preferred unit (c):
|
|
|
|
|
|
|
|
|
|
|
|
Distribution rate
|
|
$
|
—
|
|
$
|
1.906
|
|
$
|
1.906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions paid (in thousands)
|
|
$
|
—
|
|
$
|
14,988
|
|
$
|
16,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B preferred unit (d):
|
|
|
|
|
|
|
|
|
|
|
|
Distribution rate
|
|
$
|
—
|
|
$
|
—
|
|
$
|
2.213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions paid (in thousands)
|
|
$
|
—
|
|
$
|
787
|
|
$
|
4,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
On November 25, 2003, the Company elected to exchange all of its then outstanding Class B common stock for an equal number of shares of its common stock. Final cash dividends on the Class B common stock were paid during January 2004, which relate to the period from November 1, 2003 through November 25, 2003.
|
|
(b)
|
Class C OP Units were issued in August
2003 in connection with the contribution of real property to the Operating
Partnership.
|
|
(c)
|
During 2004, the Company purchased or redeemed 6,947,567 shares of its Series A preferred stock for approximately $181.0 million, including accumulated and unpaid dividends. In addition, 1,886,933 shares of Series A preferred stock were exchanged for common stock of the Company at the election of the Series A preferred stockholders. As a result of these transactions, there was no Series A preferred stock outstanding at December 31, 2004. The dividend rate of $1.906 represents the annualized per share dividend rate without regard to the aforementioned transactions. In addition, the dividends paid of approximately $15.0 million during 2004 excludes cash redemption charges of approximately $5.2 million.
|
|
(d)
|
In January 2004, the Company exercised its option to redeem 2.0 million shares, or 100%, of its then outstanding Series B preferred stock for approximately 1,958,000 shares of its common stock. Final cash dividends on the Series B preferred stock were paid during January 2004, which related to the period from November 1, 2003 through January 4, 2004.
|
F-28
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
7. Partners’ Capital (continued)
The Board of Directors of the Company initially authorized the purchase of up to 5.0 million shares of the Company’s common stock. Transactions conducted on the New York Stock Exchange have been, and will continue to be, effected in accordance with the safe harbor provisions of the Securities Exchange Act of 1934 and may be terminated by the Company at any time. Since the Board’s initial authorization, the Company has purchased 3,318,600 shares of its common stock for an aggregate purchase price of approximately $71.3 million. In June 2004, the Board of Directors re-set the Company’s common stock repurchase program back to 5.0 million shares. No purchases have been made since March 2003.
The Operating Partnership has issued and outstanding 1,200 preferred units of limited partnership interest with a liquidation preference value of $1,000 per unit and a stated distribution rate of 7.0%, which is subject to reduction based upon the terms of their initial issuance (the “Preferred Units”). The terms of the Preferred Units provide for this reduction in distribution rate in order to address the effect of certain mortgages with above market interest rates which were assumed by the Operating Partnership in connection with properties contributed to the Operating Partnership in 1998. As a result of the aforementioned reduction, there are currently no distributions being made on the Preferred Units.
On October 16, 2000, the Company’s Board of Directors announced that it adopted a Shareholder Rights Plan designed to protect its shareholders from various abusive takeover tactics, including attempts to acquire control of the Company at an inadequate price, depriving its shareholders of the full value of their investment. The Operating Partnership has adopted a similar rights plan (the “Rights Plan”) which would be triggered in the event the Company’s Shareholders Rights Plan is triggered. The Rights Plan was not adopted in response to any known effort to acquire control of the Operating Partnership or the Company.
In July 2002, as a result of certain provisions
of the Sarbanes-Oxley Act of 2002, we discontinued the use of stock loans
in our Long Term Incentive Programs (“LTIP”). In connection
with LTIP grants made prior to the enactment of the Sarbanes-Oxley Act of
2002, we currently have stock loans outstanding to certain executive officers
which were used to purchase 385,000 shares of the Company’s common stock.
The stock loans were priced at the market prices of the Company’s common
stock at the time of issuance, bear interest at the mid-term Applicable Federal
Rate and are secured by the shares purchased. Such stock loans (including
accrued interest) are scheduled to vest and be ratably forgiven each year
on the anniversary of the grant date based upon initial vesting periods ranging
from seven to ten years. Such forgiveness is based on continued service
and in part on the Company attaining certain annual performance measures. These
stock loans had an initial aggregate weighted average vesting period of
approximately nine years. As of December 31, 2005, there remains 180,714
shares of common stock subject to the original stock loans which are anticipated
to vest between 2006 and 2011. Approximately $2.3 million, $2.1 million
and $3.1 million of compensation expense was recorded for each of the years
ended December 31, 2005, 2004 and 2003, respectively, related to these loans. Such
amounts have been included in marketing, general and administrative expenses
on the accompanying consolidated statements of income.
The outstanding stock loan balances due from executive officers aggregated approximately $3.8 million and $4.7 million at December 31, 2005 and December 31, 2004, respectively, and have been included as a reduction of additional paid in capital on the accompanying consolidated balance sheets. Other outstanding loans to executive and senior officers at December 31, 2005 and December 31, 2004 amounted to approximately $2.5 million and $2.7 million, respectively, and are included in investments in affiliate loans and joint ventures on the accompanying consolidated balance sheets and are primarily related to tax payment advances on stock compensation awards and life insurance contracts made to certain executive and non-executive officers.
F-29
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
7. Partners’ Capital (continued)
In November 2002 and March 2003, an award
of rights was granted to certain executive officers of the Company’s
(the “2002
Rights” and “2003 Rights”, respectively, and collectively,
the “Rights”). Each Right represents the right to receive,
upon vesting, one share of the Company’s common stock if shares are
then available for grant under one of the Company’s stock option plans
or, if shares are not so available, an amount of cash equivalent to the
value of such stock on the vesting date. The 2002 Rights vest in
four equal annual installments beginning on November 14, 2003 (and shall
be fully vested on November 14, 2006). The 2003 Rights were earned
on March 13, 2005 and vest in three equal annual installments beginning
on March 13, 2005 (and shall be fully vested on March 13, 2007). Dividends
on the shares will be held by the Company until such shares become vested,
and will be distributed thereafter to
the applicable officer. The 2002 Rights also entitle the holder thereof
to cash payments in respect of taxes payable by the holder resulting from the
2002 Rights. The 2002 Rights aggregate 62,835 shares of the Company’s
common stock and the 2003 Rights aggregate 26,040 shares of common stock. As
of December 31, 2005, there remains 15,709 shares of common stock reserved related
to the 2002 Rights and 17,360 shares of common stock reserved related to the
2003 Rights. Approximately $465,000, $403,000 and $855,000 of compensation
expense was recorded for each of the years ended December 31, 2005, 2004 and
2003, respectively, related to the Rights. Such amounts have been included
in marketing, general and administrative expenses on the accompanying consolidated
statements of income.
In March 2003, the Company established a new LTIP for its executive and senior officers (the “2003 LTIP”). The four-year plan has a core award, which provides for annual stock based compensation based upon continued service and in part based on the Company attaining certain annual performance measures. The plan also has a special outperformance component in the form of a bonus pool equal to 10% of the total return in excess of a 9% cumulative and compounded annual total return on the Company’s common equity for the period through the four-year anniversary after the date of grant (the “Special Outperformance Pool”). The aggregate amount payable to such officers from the Special Outperformance Pool is capped at an amount calculated based upon a total cumulative and compounded annual return on the common equity of 15%. An officer’s special outperformance award represents an allocation of the
Special Outperformance Pool and will become vested on the fourth anniversary of the date of grant, provided that the officer remains in continuous employment with the Company or any of its affiliates until such date, and the Company has achieved on a cumulative and compounded basis, during the four fiscal years completed on the applicable anniversary date, a total return to holders of the common equity that (i) is at or above the 60th percentile of the total return to stockholders achieved by members of the peer group during the same period and (ii) equals at least 9% per annum. Special outperformance awards will be paid in cash; however, the Compensation Committee, in its sole discretion, may elect to pay such an award in shares of common stock, valued at the date of vesting, if shares are available at such time under any of the Company’s existing stock option plans. The LTIP provides that no dividends or dividend equivalent payments will accrue with respect
to the special outperformance awards. On March 13, 2003, the Company made available 827,776 shares of its common stock under its existing stock option plans in connection with the core award of the 2003 LTIP for certain of its executive and senior officers. During May 2003, the special outperformance awards of the 2003 LTIP were amended to increase the per share base price above which the four year cumulative return is measured from $18.00 to $22.40.
The Board of Directors approved an amendment to the 2003 LTIP to revise the peer group used to measure relative performance. The amendment eliminated the mixed office and industrial companies and added certain other “pure office” companies in order to revise the peer group to office sector companies. The Board has also approved the revision of the performance measurement dates for future vesting under the core component of the 2003 LTIP from the anniversary of the date of grant to December 31 of each year. This was done in order to have the performance measurement coincide with the performance period that the Company believes many investors use to judge the performance of the Company.
On December 27, 2004, the Operating Partnership entered into definitive agreements with certain executive and senior officers of the Company to revise their incentive awards under the 2003 LTIP. The revised agreements provide for (i) the rescission of the unvested portion of their core awards and (ii) an award in exchange for the rescinded core awards of an equal number of units of a new class of limited partnership interests (“LTIP Units”) of the Operating Partnership.
Each executive and senior officer participating in the 2003 LTIP was offered the option to retain all or a portion of his core awards or to rescind them in exchange for new awards of LTIP Units. On December 27, 2004, certain executive and senior officers accepted such offer and thereby amended their Amended and Restated Long-Term Incentive Award Agreement to cancel, in the aggregate, 362,500 shares of restricted stock of the Company representing all or a portion of their unvested core award, and received an equal number of LTIP Units.
F-30
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
7. Partners’ Capital (continued)
The revised awards under the 2003 LTIP were designed to provide the potential for executives to retain a greater equity interest in the Company by eliminating the need for executives to sell a portion of the core awards immediately upon vesting in order to satisfy personal income taxes which are due upon vesting under the original core awards.
With respect to the 2003 LTIP, the Company met its annual performance measure with respect to the 2005, 2004 and 2003 annual measurement periods, respectively. As a result, the Company issued to the participants of the 2003 LTIP 86,111, 102,779 and 206,944 shares of its common stock, respectively, related to the core component of the 2003 LTIP.
The terms of each award of LTIP Units are substantially similar to those of the core awards under the 2003 LTIP. The vesting, performance hurdles and timing for vesting remain unchanged. However, an LTIP Unit represents an equity interest in the Operating Partnership, rather than the Company. At issuance, the LTIP Unit has no value but may over time accrete to a value equal to (but never greater than) the value of one share of common stock of the Company (a “REIT Share”). Initially, LTIP Units will not have full parity with OP Units with respect to liquidating distributions. Upon the occurrence of certain “triggering events,” the Operating Partnership will revalue its assets for the purpose of the capital accounts of its partners and any increase in valuation of the Operating Partnership’s assets from the date of the issuance of the LTIP Units through the “triggering event” will be
allocated to the capital accounts of holders of LTIP Units until their capital accounts are equivalent to the capital accounts of holders of OP Units. If such equivalence is reached, LTIP Units would achieve full parity with OP Units for all purposes, and therefore accrete to an economic value equivalent to REIT Shares on a one-for-one basis. After two years from the date of grant, if such parity is reached, vested LTIP Units may be redeemed for cash in an amount equal to the then fair market value of an equal number of REIT Shares or converted into an equal number of OP Units, as determined by the Company’s Compensation Committee. However, there are circumstances under which such economic equivalence would not be reached. Until and unless such economic equivalence is reached, the value that the officers will realize for vested LTIP Units will be less than the value of an equal number of REIT Shares. In addition, unlike core awards under the 2003 LTIP (wherein
dividends that accumulate are paid upon vesting), LTIP Units will receive the same quarterly distributions as OP Units on a current basis, thus providing full dividend equivalence with REIT Shares. At the scheduled March 2005 vesting date, the specified performance hurdles were met, and officers that received LTIP Units received a one-time cash payment that represented payment of the full vested amount of the accrued unpaid dividends under the core award of the 2003 LTIP through December 27, 2004, the issuance date of the LTIP Units. In addition, the officers, in the aggregate, vested in 104,167 LTIP Units. At the scheduled March 2006 vesting date, the specified performance hurdles were met and officers that received LTIP Units, in the aggregate, vested in 120,833 LTIP Units. In order to more closely replicate the terms of the core awards being rescinded, the Company also entered into agreements with three executive officers, which provide that in the event of a change
of control the executive shall receive the equivalent value of one REIT Share for each LTIP Unit.
In March 2005, following the recommendation of the Compensation Committee, eight senior and executive officers of the Company were awarded, in the aggregate, 272,100 LTIP Units to continue to incentivize them for the long-term (the “2005 LTIP Unit Grants”). Each such LTIP Unit awarded is deemed equivalent to an award of one share of common stock reserved under one of the Company’s stock option plans, reducing availability for other equity awards on a one-for-one basis. The terms of the 2005 LTIP Unit Grants are generally consistent with the terms of the 2003 LTIP, including with respect to the impact upon vesting in the event of a change of control.
F-31
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
7. Partners’ Capital (continued)
As a result of the foregoing, there remains
69,443 shares of common stock reserved for future issuance under the core
award of the 2003 LTIP and 409,600 shares of common stock reserved for issuance
with respect to the issuance of LTIP Units. With respect to the core
award of the 2003 LTIP, the Company recorded approximately $1.2 million,
$2.8 million and $2.6 million of compensation expense for each of the years
ended December 31, 2005, 2004 and 2003, respectively. In addition, with respect
to the LTIP Units and the 2005 LTIP Unit Grants, the Company recorded compensation
expense of approximately $2.9 million for the year ended December 31, 2005. Such
amount has been included in marketing, general and administrative expenses
on the accompanying consolidated statements of income. Based on the terms
of the 2003 LTIP, potential outcomes of the Special Outperformance Pool are
estimated to range from $0, assuming the requisite four year cumulative
performance measures are not met, to a maximum of approximately $35.0 million,
assuming relative peer group performance measures are met and a 15% cumulative
and compounded return on common equity. During the three months ended December
31, 2005, we recorded approximately $23.5 million of compensation expense
with respect to the Special Outperformance Pool. This amount is calculated
on the closing stock price of the Company’s common stock on December
31, 2005 and is based on management’s determination of the probability
of requisite performance measures being met. The accrual represents approximately
70% of the total estimated Special Outperformance Pool reflecting the service
period through December 31, 2005.
Compensation expense with respect to the core component of the 2003 LTIP, which relates to the Company attaining certain annual performance measures, is recognized in accordance with paragraph 26 of Statement No. 123 as a “target stock price” plan. Under this type of plan, compensation expense is recognized for the target stock price awards whether or not the targeted stock price condition is achieved as long as the underlying service conditions are achieved. Accordingly, we obtained an independent third party valuation of the 2003 LTIP awards and recognize compensation expense on a straight-line basis through the vesting period for awards to employees who remain in service over the requisite period regardless of whether the target stock price has been reached.
Compensation expense with respect to the core component of the 2003 LTIP, which relates to the continued service of the grantee, is recognized in accordance with Statement No. 123 in which compensation expense is recognized on a straight-line basis through the vesting period based on the fair market value of the stock on the date of grant.
As a result of the election of certain executive and senior officers to exchange all or a portion of their 2003 LTIP into an equal number of LTIP Units we again obtained an independent third party valuation of the newly granted LTIP Units and determined that the fair value of the LTIP Units was not greater than the exchanged 2003 LTIP awards on the date of the exchange. As such, compensation expense to be recognized, on a straight-lined basis, over the vesting period of the LTIP Units equals the amount of unamortized compensation expense cost for the 2003 LTIP awards as of the exchange date.
As of December 31, 2005, the Company had
approximately 1.4 million shares of its common stock reserved for issuance
under its stock option plans, in certain cases subject to vested terms, at
a weighted average exercise price of $24.70 per option. In addition,
the Company has approximately 2.4 million shares of its common stock reserved
for future issuance under its stock option plans.
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.
F-32
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
8. Related Party Transactions
In connection with our IPO, we were granted ten-year options to acquire ten properties (the “Option Properties”) which were either owned by certain Rechler family members who were also executive officers of the Company, or in which the Rechler family members owned a non-controlling minority interest, at prices based upon an agreed upon formula. During November 2003, in connection with the sale of all but three of our 95 property, 5.9 million square foot, Long Island industrial building portfolio to members of the Rechler family, four of the five remaining options (the “Remaining Option Properties”) were terminated along with management contracts relating to three of the properties. During November 2003, we sold all but three of the properties included in our Long Island industrial building portfolio to members of the Rechler family for approximately $315.5 million. As a result we recorded a gain of approximately
$115 million. Approximately $204 million of cash sales proceeds received were used to repay borrowings under our Credit Facility. In connection with this closing and the settlement of the employment contracts of the departing Rechler family members, we incurred net restructuring charges of approximately $11.6 million.
The Operating Partnership conducts its management, leasing and construction related services through the Company’s taxable REIT subsidiaries as defined by the Code. These services are currently provided by the Service Companies. During the years ended December 31, 2005 and 2004, RCD billed approximately $31,000 and $859,000, respectively, of market rate services and Reckson Management Group, Inc. (“RMG”) billed approximately $285,000 and $280,000, respectively, of market rate management fees to the Remaining Option Properties.
RMG leases approximately 26,000 square feet of office space at the Remaining Option Property located at 225 Broadhollow Road, Melville, NY for its corporate offices at an annual base rent of approximately $809,000. During 2005, RMG exercised a termination option for its corporate offices allowing us to terminate the lease on November 30, 2006 without penalty. RMG also leases 10,722 square feet of warehouse space used for equipment, materials and inventory storage at a property owned by certain members of the Rechler family at an annual base rent of approximately $79,000. In addition, commencing April 1, 2004, RCD has been leasing approximately 17,000 square feet of space at 225 Broadhollow Road, Melville, NY, which is scheduled to terminate on September 30, 2006. Base rent of approximately $495,000 and $360,000 was paid by RCD during the years ended December 31, 2005 and 2004, respectively. Commencing in April 2005,
RCD sub-let the entire 17,000 square feet to a third party for approximately $35,000 per month through RCD’s September 2006 lease termination date.
On March 28, 2005, an entity (“REP”) owned by members of the Rechler family (excluding Scott Rechler, but including his father, Roger, and brother, Gregg) exercised a Right of First Refusal (which was granted in connection with the 2003 sale of the industrial portfolio by us) to acquire a vacant parcel of land for a purchase price of $2.0 million. We have agreed to provide REP with the option to defer the closing on the purchase until September 2006, for a non-refundable deposit of $400,000 and a fee of $10,666 per month for each month that the closing is deferred. In connection therewith, REP agreed to settle a dispute concerning an easement on a separate parcel of land owned by us adjacent to one of the properties transferred to REP in November 2003.
A company affiliated with an independent director of the Company leases 15,566 square feet in a property owned by us at an annual base rent of approximately $430,000.
During November 2005 we purchased 11 pieces of art which have historically been on display in certain of our buildings for approximately $170,000 from an entity owned by certain members of the Rechler family. The purchase prices were reviewed by an independent art dealer and approved by the independent directors.
During 1997, the Company formed FrontLine Capital Group (“FrontLine”) and Reckson Strategic Venture Partners, LLC (“RSVP”), a real estate venture capital fund whose common equity is held indirectly by FrontLine. In connection with the formation and subsequent spin-off of FrontLine, the Operating Partnership established an unsecured credit facility with FrontLine (the “FrontLine Facility”) in the amount of $100.0 million. The Operating Partnership also approved the funding of investments of up to $110.0 million relating to REIT–qualified investments through RSVP-controlled joint ventures or advances made to FrontLine under an additional 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”). To date, approximately $59.8 million has been funded to
RSVP-controlled joint ventures and $142.7 million through the FrontLine Loans (collectively, the “RSVP / FLCG Investments”) on which we accrued interest (net of reserves) of approximately $19.6 million.
F-33
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
8. Related Party Transactions (continued)
A committee of the Board of Directors, comprised solely of independent directors, considers any actions to be taken by the Company in connection with the RSVP / FLCG Investments and during 2001, based on our assessment of value and recoverability of the RSVP / FLCG Investments and considering the findings and recommendations of the committee and its financial advisor, we recorded a $163.0 million valuation reserve charge, inclusive of anticipated costs against the carrying cost of the RSVP / FLCG Investments. In addition, we have discontinued the accrual of interest income with respect to the FrontLine Loans and have also reserved against our share of GAAP equity in earnings, if any, from the RSVP-controlled joint ventures funded until such income is realized through cash distributions.
FrontLine is in default under the FrontLine Loans and on June 12, 2002, filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code.
In September 2003, RSVP completed the restructuring of its capital structure and management arrangements whereby a management company formed by its former managing directors, whose contracts as managing directors were terminated, has been retained to manage RSVP pursuant to a management agreement. The management agreement, which has a term of three years and is subject to early termination in the event of the disposition of all of the assets of RSVP, provides for an annual base management fee and disposition fees equal to 2% of the net proceeds received by RSVP on asset sales (the “Fees”). The Fees are subject to a maximum over the term of the agreement of $7.5 million. In addition, the former managing directors of RSVP retained a one-third residual interest in RSVP’s assets which is subordinated to the distribution of an aggregate amount of $75.0 million to RSVP and/or us in respect of RSVP-controlled joint ventures.
In connection with RSVP’s capital restructuring, RSVP and certain of its affiliates obtained a $60.0 million secured loan (the “RSVP Secured Loan”). On November 3, 2005, the outstanding balance of the RSVP Secured Loan was repaid primarily with proceeds received from the sale of certain assisted living related assets.
The net carrying value of our investments in the RSVP / FLCG Investments of approximately $55.2 million was reassessed with no change by management as of December 31, 2005. Such amount is included in investments in affiliate loans and joint ventures on our consolidated balance sheet.
Scott H. Rechler, who serves as Chief
Executive Officer, President and Chairman of the Board of the Company, serves
as CEO and Chairman of the Board of Directors of FrontLine and is its sole
board
member. Scott
H. Rechler also serves as a member of the management committee of RSVP and
serves as a member of the Board of Directors of American Campus Communities,
a company formally owned by RSVP.
In November 2004, a joint venture in which RSVP owns approximately 47% executed a binding agreement to contribute its Catskills, NY resort properties (excluding residentially zoned land) to Empire Resorts Inc. (NASDAQ: NYNY) (“Empire”) for consideration of 18.0 million shares of Empire’s common stock and the right to appoint five members of their Board of Directors. On December 29, 2005, the agreement was terminated and the joint venture received options to purchase approximately 5.2 million options of common stock of Empire at a price of $7.50 per share. The options will be exercisable until December 29, 2006.
F-34
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
9. Fair Value of Financial Instruments
In accordance with FASB Statement No. 107, “Disclosures About Fair Value of Financial Instruments”, management has made the following disclosures of estimated fair value at December 31, 2005 as required by FASB Statement No. 107.
Cash and cash equivalents, tenant receivables, deferred rents receivable, prepaid expenses and other assets, accrued expenses and other liabilities, deferred revenues and tenant security deposits and variable rate debts are carried at amounts which reasonably approximate their fair values.
The fair value of our long-term debt and Notes Receivable Investments is estimated based on discounting future cash flows at interest rates that management believes reflects the risks associated with long-term debt and notes receivable of similar risk and duration. At December 31, 2005, the estimated aggregate fair value of our Notes Receivable Investments approximated their carrying value and the aggregate fair value of our long term debt exceeded its carrying value by approximately $72.2 million.
Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
10. Rental Income
Our properties are being leased to tenants under operating leases. The minimum rental amount due under certain leases is generally either subject to scheduled fixed increases or indexed escalations. In addition, the leases generally also require that the tenants reimburse us for increases in certain operating costs and real estate taxes above base year costs.
Contractual future minimum rents, excluding those future minimum rents from properties classified as held for sale, to be received over the next five years and thereafter from leases in effect at December 31, 2005 are as follows (in thousands):
|
|
|
|
|
|
|
2006
|
|
$
|
425,551
|
|
|
2007
|
|
|
406,981
|
|
|
2008
|
|
|
379,703
|
|
|
2009
|
|
|
358,186
|
|
|
2010
|
|
|
321,211
|
|
|
Thereafter
|
|
|
1,852,637
|
|
|
|
|
|
|
|
|
|
|
$
|
3,744,269
|
|
|
|
|
|
|
|
Future minimum rents from those properties classified as held for sale at December 31, 2005 over the next five years and thereafter aggregated approximately $51.0 million.
F-35
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
11. Segment Disclosure
We own all of the interests in our real estate properties directly or indirectly through the Operating Partnership. Our portfolio consists of Class A office properties located within the New York City metropolitan area and Class A suburban office and flex properties located and operated within the Tri-State Area (the “Core Portfolio”). We have formed an Operating Committee that reports directly to the President and Chief Financial Officer who have been identified as the Chief Operating Decision Makers due to their final authority over resource allocation, decisions and performance assessment.
We do not consider (i) interest incurred on our Credit Facility, Bridge Facility and Senior Unsecured Notes, (ii) the operating performance of those properties reflected as discontinued operations on our consolidated statements of income, (iii) the operating results of the Service Companies and (iv) restructuring charges as part of our Core Portfolio’s property operating performance for purposes of our component disclosure set forth below.
The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. In addition, historical amounts have been adjusted to give effect to our discontinued operations in accordance with Statement No. 144.
The following tables set forth the components of our revenues and expenses and other related disclosures, as required by FASB Statement No. 131, “Disclosures About Segments of an Enterprise and Related Information”, for the years ended December 31 (in thousands):
|
|
|
2005
|
|
|||||||
|
|
|
|
|
|||||||
|
|
|
Core Portfolio
|
|
Other
|
|
Consolidated
Totals |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Operating Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Base rents, tenant escalations and reimbursements
|
|
$
|
546,148
|
|
$
|
—
|
|
$
|
546,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses
|
|
|
219,041
|
|
|
—
|
|
|
219,041
|
|
|
Marketing, general and administrative
|
|
|
17,511
|
|
|
14,927
|
|
|
32,438
|
|
|
Depreciation and amortization
|
|
|
125,213
|
|
|
1,449
|
|
|
126,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
361,765
|
|
|
16,376
|
|
|
378,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
184,383
|
|
|
(16,376
|
)
|
|
168,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Operating Income and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
Gains on sales of real estate
|
|
|
92,130
|
|
|
—
|
|
|
92,130
|
|
|
Investment income and other
|
|
|
4,645
|
|
|
21,260
|
|
|
25,905
|
|
|
Interest:
|
|
|
|
|
|
|
|
|
|
|
|
Expense
|
|
|
(39,464
|
)
|
|
(71,427
|
)
|
|
(110,891
|
)
|
|
Amortization of deferred financing costs
|
|
|
(1,426
|
)
|
|
(2,740
|
)
|
|
(4,166
|
)
|
|
Long term incentive compensation expense
|
|
|
—
|
|
|
(23,534
|
)
|
|
(23,534
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-operating income and expenses
|
|
|
55,885
|
|
|
(76,441
|
)
|
|
(20,556
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority interests, equity in earnings of real estate joint ventures and discontinued operations
|
|
$
|
240,268
|
|
$
|
(92,817
|
)
|
$
|
147,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,268,531
|
|
$
|
547,928
|
|
$
|
3,816,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-36
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
11. Segment Disclosure (continued)
|
|
|
2004
|
|
|||||||
|
|
|
|
|
|||||||
|
|
|
Core Portfolio
|
|
Other
|
|
Consolidated
Totals |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Operating Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Base rents, tenant escalations and reimbursements
|
|
$
|
493,381
|
|
$
|
—
|
|
$
|
493,381
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses
|
|
|
199,133
|
|
|
—
|
|
|
199,133
|
|
|
Marketing, general and administrative
|
|
|
16,469
|
|
|
13,498
|
|
|
29,967
|
|
|
Depreciation and amortization
|
|
|
110,210
|
|
|
1,555
|
|
|
111,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
325,812
|
|
|
15,053
|
|
|
340,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
167,569
|
|
|
(15,053
|
)
|
|
152,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Operating Income and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
Investment income and other
|
|
|
9,459
|
|
|
9,584
|
|
|
19,043
|
|
|
Interest:
|
|
|
|
|
|
|
|
|
|
|
|
Expense
|
|
|
(56,978
|
)
|
|
(38,942
|
)
|
|
(95,920
|
)
|
|
Amortization of deferred financing costs
|
|
|
(1,021
|
)
|
|
(2,700
|
)
|
|
(3,721
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-operating income and expenses
|
|
|
(48,540
|
)
|
|
(32,058
|
)
|
|
(80,598
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before minority interests, preferred
distributions, equity in earnings of a real estate joint venture and discontinued operations |
|
$
|
119,029
|
|
$
|
(47,111
|
)
|
$
|
71,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,524,825
|
|
$
|
646,541
|
|
$
|
3,171,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|||||||
|
|
|
|
|
|||||||
|
|
|
Core Portfolio
|
|
Other
|
|
Consolidated
Totals |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Operating Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Base rents, tenant escalations and reimbursements
|
|
$
|
410,657
|
|
$
|
—
|
|
$
|
410,657
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses
|
|
|
164,931
|
|
|
—
|
|
|
164,931
|
|
|
Marketing, general and administrative
|
|
|
15,124
|
|
|
16,318
|
|
|
31,442
|
|
|
Depreciation and amortization
|
|
|
93,741
|
|
|
3,988
|
|
|
97,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
273,796
|
|
|
20,306
|
|
|
294,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
136,861
|
|
|
(20,306
|
)
|
|
116,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Operating Income and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
Investment income and other
|
|
|
2,974
|
|
|
21,235
|
|
|
24,209
|
|
|
Interest:
|
|
|
|
|
|
|
|
|
|
|
|
Expense
|
|
|
(49,796
|
)
|
|
(28,784
|
)
|
|
(78,580
|
)
|
|
Amortization of deferred financing costs
|
|
|
(1,077
|
)
|
|
(2,162
|
)
|
|
(3,239
|
)
|
|
Restructuring charges – net
|
|
|
—
|
|
|
(11,580
|
)
|
|
(11,580
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-operating income and expenses
|
|
|
(47,899
|
)
|
|
(21,291
|
)
|
|
(69,190
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before minority interests, preferred
distributions, equity in earnings of a real estate joint venture and discontinued operations |
|
$
|
88,962
|
|
$
|
(41,597
|
)
|
$
|
47,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,037,097
|
|
$
|
713,583
|
|
$
|
2,750,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-37
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
12. Non-Cash Investing and Financing Activities
Additional supplemental disclosures of non-cash investing and financing activities are as follows:
On January 1, 2005 and March 14, 2005, certain limited partners in the Operating Partnership exchanged 263,340 OP Units and 513,259 OP Units, respectively, for an equal number of shares of the Company’s common stock which were valued at approximately $24.8 million, in the aggregate.
In May 2005, we acquired an approximate $55.3 million interest in a 15-year loan secured by an indirect interest in a 550,000 square foot condominium in a Class A office tower located at 1166 Avenue of the Americas, New York, NY. This investment replaced our $34.0 million mezzanine loan, including accrued and unpaid interest, to one of the partners owning such condominium interest.
During June 2005, a limited partner exchanged 841,992 OP Units for an equal number of shares of the Company’s common stock, which were priced at $31.60 per share.
On June 20, 2005, as part of the consideration to acquire our joint venture partner’s 40% interest in the property located at 520 White Plains Road, Tarrytown, NY, we issued 127,510 OP Units valued at $31.37 per OP Unit and assumed approximately $4.1 million of secured mortgage indebtedness of the joint venture.
On September 21, 2005, in connection with the Tranche I closing of the RAOC JV, we received non-cash consideration, in the form of (i) LPT Units valued at approximately $42.7 million and (ii) the assignment of approximately $196.1 million of secured mortgage debt.
On September 30, 2005, in connection with a $20.0 million junior mezzanine loan investment, we withheld from the funding approximately $1.6 million to establish an interest reserve which remains under our control.
On November 30, 2005, in connection with the sale of a 70% joint venture interest in One Court Square we received non-cash consideration of $220.5 million related to our joint venture partner’s assumption of 70% of the property’s mortgage debt.
On December 20, 2005, in connection with our sale of 100 Wall Street, we provided the purchaser with mezzanine financing in the amount of $30.0 million.
13. Commitments and Contingencies
The Company has extended the terms of its amended and restated employment and noncompetition agreements with three executive officers, which were scheduled to expire on August 15, 2005, in all respects through April 30, 2006. The Company has also entered into an employment agreement with one additional officer prior to his appointment as an executive officer. This agreement expires in December 2006.
We had undrawn letters of credit outstanding against our Credit Facility of approximately $100,000 and $1.2 million at December 31, 2005 and 2004, respectively.
In connection with the mortgage indebtedness securing nine of the Tranche I properties, which were transferred to the RAOC JV on September 21, 2005, and three of the Tranche III properties scheduled to be transferred to the RAOC JV during October 2006, we have guaranteed to the lender certain customary non-recourse carve-outs, as well as certain obligations relating to the potential termination of a number of leases at four of these properties. We have also guaranteed to the lender certain capital requirements related to these properties. We will be relieved of the customary non-recourse carve-outs and capital requirements upon transfer of the respective properties to the RAOC JV and the RAOC JV meeting a net worth test of at least $100.0 million. We will be relieved of all but two of the lease related obligations upon transfer of the respective properties to the RAOC JV and the RAOC JV meeting a net worth test of at least $200.0 million. The
RAOC JV has agreed to indemnify us for any loss, cost or damage it may incur pursuant to our guaranty of these obligations. As of December 31, 2005, the RAOC JV met the $100.0 million net worth threshold and there remain approximately $18 million of aggregate guarantees outstanding.
F-38
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
14. Quarterly Financial Data (Unaudited)
The following summary represents our results
of operations for each fiscal quarter during 2005 and 2004 (in thousands,
except unit amounts):
|
|
|
2005
|
|
||||||||||
|
|
|
|
|
||||||||||
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property operating revenues as previously reported
|
|
$
|
135,884
|
|
$
|
141,802
|
|
$
|
145,293
|
|
$
|
136,840
|
|
|
Property operating revenues from discontinued operations (a)
|
|
|
(5,696
|
)
|
|
(6,431
|
)
|
|
(1,544
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property operating revenues (b)
|
|
$
|
130,188
|
|
$
|
135,371
|
|
$
|
143,749
|
|
$
|
136,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interests, equity in earnings of real estate joint ventures and discontinued operations
|
|
$
|
19,606
|
|
$
|
20,154
|
|
$
|
105,270
|
|
$
|
2,421
|
|
|
Minority interests
|
|
|
(3,857
|
)
|
|
(3,971
|
)
|
|
(4,497
|
)
|
|
(4,373
|
)
|
|
Equity in earnings of real estate joint ventures
|
|
|
151
|
|
|
83
|
|
|
248
|
|
|
889
|
|
|
Discontinued operations (net of minority interests)
|
|
|
2,153
|
|
|
2,070
|
|
|
15,459
|
|
|
51,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income allocable to common unitholders
|
|
$
|
18,053
|
|
$
|
18,336
|
|
$
|
116,480
|
|
$
|
50,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income allocable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common unitholders
|
|
$
|
17,944
|
|
$
|
18,225
|
|
$
|
115,777
|
|
$
|
49,919
|
|
|
Class C common
unitholders
|
|
|
109
|
|
|
111
|
|
|
703
|
|
|
304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
|
$
|
18,053
|
|
$
|
18,336
|
|
$
|
116,480
|
|
$
|
50,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income per weighted average common unit: | |||||||||||||
|
Common
|
|
$
|
0.21
|
|
$
|
0.22
|
|
$
|
1.38
|
|
$
|
0.59
|
|
|
Class C Common
|
|
$
|
0.23
|
|
$
|
0.24
|
|
$
|
1.51
|
|
$
|
0.65
|
|
| Weighted average common units outstanding: | |||||||||||||
|
Common
|
|
83,847,000
|
|
83,999,000
|
|
84,162,000
|
|
84,386,000
|
|
||||
|
Class
C Common
|
|
466,000
|
|
466,000
|
|
466,000
|
|
466,000
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Excludes revenues from discontinued operations which were previously excluded from total revenues as previously reported.
|
|
(b)
|
Amounts have been adjusted to give effect to our discontinued operations in accordance with Statement No. 144.
|
F-39
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
14.Quarterly Financial Data (Unaudited)
|
|
|
2004
|
|
||||||||||
|
|
|
|
|
||||||||||
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property operating revenues as previously reported
|
|
$
|
129,305
|
|
$
|
127,243
|
|
$
|
130,777
|
|
$
|
132,666
|
|
|
Property operating revenues from discontinued operations (a)
|
|
|
(6,981
|
)
|
|
(6,953
|
)
|
|
(6,697
|
)
|
|
(5,979
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property operating revenues (b)
|
|
$
|
122,324
|
|
$
|
120,290
|
|
$
|
124,080
|
|
$
|
126,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before preferred distributions,
minority interests, equity in earnings of a real estate joint venture and discontinued operations |
|
$
|
20,163
|
|
$
|
16,918
|
|
$
|
19,815
|
|
$
|
15,022
|
|
|
Preferred dividends and distributions
|
|
|
(4,533
|
)
|
|
(4,399
|
)
|
|
(3,478
|
)
|
|
(367
|
)
|
|
Redemption
charges on Series A preferred units
|
|
|
—
|
|
|
—
|
|
|
(6,717
|
)
|
|
(9,095
|
)
|
|
Minority interests
|
|
|
(6,181
|
)
|
|
(4,422
|
)
|
|
(4,135
|
)
|
|
(3,769
|
)
|
|
Equity in earnings of real estate joint ventures
|
|
|
114
|
|
|
294
|
|
|
112
|
|
|
83
|
|
|
Discontinued operations (net of minority interests)
|
|
|
7,337
|
|
|
5,353
|
|
|
3,698
|
|
|
2,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income allocable to common unitholders
|
|
$
|
16,900
|
|
$
|
13,744
|
|
$
|
9,295
|
|
$
|
4,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income allocable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common unitholders
|
|
$
|
16,767
|
|
$
|
13,644
|
|
$
|
9,231
|
|
$
|
4,714
|
|
|
Class C common
unitholders
|
|
|
133
|
|
|
100
|
|
|
64
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
|
$
|
16,900
|
|
$
|
13,744
|
|
$
|
9,295
|
|
$
|
4,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income per weighted average common unit: | |||||||||||||
|
Common
|
|
$
|
0.26
|
|
$
|
0.19
|
|
$
|
0.13
|
|
$
|
0.06
|
|
|
Common C common
|
|
$
|
0.29
|
|
$
|
0.21
|
|
$
|
0.14
|
|
$
|
0.06
|
|
| Weighted average common units outstanding: | |||||||||||||
|
Common
|
|
|
64,448,000
|
|
|
69,977,000
|
|
|
73,323,000
|
|
|
80,005,000
|
|
|
Class
C common
|
|
466,000
|
|
466,000
|
|
466,000
|
|
466,000
|
|
||||
|
|
|
|
(a)
|
Excludes revenues from discontinued operations which were previously excluded from total revenues as previously reported.
|
|
(b)
|
Amounts have been adjusted to give effect to our discontinued operations in accordance with Statement No. 144.
|
15. Pro Forma Results (Unaudited)
The following table presents our unaudited
pro forma results for the year ended December 31, 2005 as if the property
acquisitions and dispositions made during 2005 had occurred on January 1,
2005. Unaudited pro forma financial information is presented for informational
purposes only and may not be indicative of what our actual results of operations
would have been had the events occurred on January 1, 2005, nor does it purport
to represent the results of operations for future periods (in thousands except
per unit data):
|
Total revenues
|
|
$
|
603,019
|
|
|
|
|
|
|
|
|
Income before minority interests, equity in earnings of real estate joint ventures and discontinued operations
|
|
$
|
168,965
|
|
|
|
|
|
|
|
|
Net income available to common unitholders
|
|
$
|
221,804
|
|
|
|
|
|
|
|
|
Net income per common unit
|
|
$
|
2.62
|
|
|
|
|
|
|
|
| Net income per Class C common unit | $ | 2.88 | ||
|
|
|
F-40
RECKSON ASSOCIATES REALTY CORP.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
(IN THOUSANDS)
The changes in real estate for each of the periods in the three years ended December 31, 2005 are as follows:
| 2005 | 2004 | 2003 | ||||||||
Real estate balance at beginning of period |
$ | 3,195,064 | $ | 2,689,812 | $ | 2,604,542 | ||||
Improvements/revaluations |
216,443 | 91,903 | 73,495 | |||||||
Disposals, including write-off of fully depreciated building improvements |
(798,361 | ) | (2,641 | ) | (19,862 | ) | ||||
Properties held for sale |
(171,352 | ) | (35 | ) | — | |||||
Acquisitions |
1,034,621 | 416,025 | 31,637 | |||||||
Balance at end of period |
$ | 3,476,415 | $ | 3,195,064 | $ | 2,689,812 | ||||
The changes in accumulated depreciation exclusive of amounts relating to equipment, autos, furniture and fixtures, for each of the periods in the three years ended December 31, 2005 are as follows:
| 2005 | 2004 | 2003 | ||||||||
Balance at beginning of period |
$ | 551,018 | $ | 449,043 | $ | 364,390 | ||||
Depreciation for period |
120,756 | 103,745 | 91,028 | |||||||
Disposals, including write-off of fully depreciated building improvements |
(93,862 | ) | (1,330 | ) | (6,375 | ) | ||||
Accumulated depreciation on assets held for sale |
(54,918 | ) | (440 | ) | — | |||||
Balance at end of period |
$ | 522,994 | $ | 551,018 | $ | 449,043 | ||||
S-1
RECKSON ASSOCIATES REALTY CORP.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2005
(IN THOUSANDS)
Column A |
Column B | Column C | Column D | Column E | Column F | Column G | Column H | Column I | |||||||||||||||||||||||||||||
| Initial Cost |
Cost Capitalized, Subsequent to Acquisition |
Gross Amount At Which Carried At Close of Period |
|||||||||||||||||||||||||||||||||||
Description |
Encum- brance |
Land | Buildings and Improve- ments |
Land | Buildings and Improve- ments |
Land | Buildings and Improv- ements |
Total | Accumu- lated Depre- ciation |
Date of Constru- ction |
Date Acquired |
Life On Which Depreciation is Computed |
|||||||||||||||||||||||||
50 Charles Lindbergh
Boulevard Mitchel Field, New York |
— | — | 12,089 | — | 8,701 | — | 20,790 | 20,790 | 13,943 | 1984 | 1984 | 10 - 30 Years | |||||||||||||||||||||||||
48 South Service Road Melville, New York |
— | 1,652 | 10,245 | — | 8,172 | 1,652 | 18,417 | 20,069 | 10,881 | 1986 | 1986 | 10 - 30 Years | |||||||||||||||||||||||||
395 North Service Road Melville, New York |
18,893 | — | 15,551 | — | 8,193 | — | 23,744 | 23,744 | 15,470 | 1988 | 1988 | 10 - 30 Years | |||||||||||||||||||||||||
333 Earle Ovington Bou-
levard Mitchel Field, New York |
51,795 | — | 67,221 | — | 26,618 | — | 93,839 | 93,839 | 41,134 | 1990 | 1995 | 10 - 30 Years | |||||||||||||||||||||||||
40 Cragwood Road South Plainfield, New Jersey |
— | 725 | 7,131 | — | 6,584 | 725 | 13,715 | 14,440 | 10,093 | 1970 | 1983 | 10 - 30 Years | |||||||||||||||||||||||||
60 Charles Lindbergh
Boulevard Mitchel Field, New York |
— | — | 20,800 | — | 10,805 | — | 31,605 | 31,605 | 7,687 | 1989 | 1996 | 10 - 30 Years | |||||||||||||||||||||||||
1 - 6 Landmark Square Stamford, Connecticut |
42,879 | 11,603 | 64,466 | (1,633 | ) | 24,427 | 9,970 | 88,893 | 98,863 | 26,428 | 1973-1984 | 1996 | 10 - 30 Years | ||||||||||||||||||||||||
72 Eagle Rock Avenue East Hanover, New Jersey |
— | 803 | 7,563 | — | 5,457 | 803 | 13,020 | 13,823 | 5,183 | 1986 | 1997 | 10 - 30 Years | |||||||||||||||||||||||||
3 University Plaza Hackensack, New Jersey |
— | 7,894 | 11,846 | — | 3,375 | 7,894 | 15,221 | 23,115 | 5,178 | 1985 | 1997 | 10 - 30 Years | |||||||||||||||||||||||||
Reckson Executive Park Ryebrook, New York |
— | 18,343 | 55,028 | — | 10,538 | 18,343 | 65,566 | 83,909 | 17,392 | 1983-1986 | 1997 | 10 - 30 Years | |||||||||||||||||||||||||
100 Forge Way Rockaway, New Jersey |
— | 315 | 902 | — | 168 | 315 | 1,070 | 1,385 | 309 | 1986 | 1998 | 10 - 30 Years | |||||||||||||||||||||||||
200 Forge Way Rockaway, New Jersey |
— | 1,128 | 3,227 | — | 594 | 1,128 | 3,821 | 4,949 | 1,152 | 1989 | 1998 | 10 - 30 Years | |||||||||||||||||||||||||
300 Forge Way Rockaway, New Jersey |
— | 376 | 1,075 | — | 470 | 376 | 1,545 | 1,921 | 516 | 1989 | 1998 | 10 - 30 Years | |||||||||||||||||||||||||
400 Forge Way Rockaway, New Jersey |
— | 1,142 | 3,267 | — | 321 | 1,142 | 3,588 | 4,730 | 936 | 1989 | 1998 | 10 - 30 Years | |||||||||||||||||||||||||
51 Charles Linderbergh
Boulevard Mitchel Field, New York |
— | — | 12,185 | — | 310 | — | 12,495 | 12,495 | 3,558 | 1981 | 1998 | 10 - 30 Years | |||||||||||||||||||||||||
100 Summit Lake Drive Valhalla, New York |
16,211 | 3,007 | 41,351 | — | 6,375 | 3,007 | 47,726 | 50,733 | 13,417 | 1988 | 1998 | 10 - 30 Years | |||||||||||||||||||||||||
115/117 Stevens Avenue Valhalla, New York |
— | 1,094 | 22,490 | — | 2,576 | 1,094 | 25,066 | 26,160 | 6,709 | 1984 | 1998 | 10 - 30 Years | |||||||||||||||||||||||||
200 Summit Lake Drive Valhalla, New York |
18,460 | 4,343 | 37,305 | — | 11,850 | 4,343 | 49,155 | 53,498 | 13,799 | 1990 | 1998 | 10 - 30 Years | |||||||||||||||||||||||||
140 Grand Street White Plains, New York |
— | 1,932 | 18,744 | — | 1,060 | 1,932 | 19,804 | 21,736 | 4,958 | 1991 | 1998 | 10 - 30 Years | |||||||||||||||||||||||||
500 Summit Lake Drive Valhalla, New York |
— | 7,052 | 37,309 | — | 8,021 | 7,052 | 45,330 | 52,382 | 14,833 | 1986 | 1998 | 10 - 30 Years | |||||||||||||||||||||||||
S-2
RECKSON ASSOCIATES REALTY CORP.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2005
(IN THOUSANDS)
Column A |
Column B | Column C | Column D | Column E | Column F | Column G | Column H | Column I | |||||||||||||||||||||||||||||
| Initial Cost |
Cost Capitalized, Subsequent to Acquisition |
Gross Amount At Which Carried At Close of Period |
|||||||||||||||||||||||||||||||||||
Description |
Encum- brance |
Land | Buildings and Improve- ments |
Land | Buildings and Improve- ments |
Land | Buildings and Improve- ments |
Total | Accumu- lated Depre- ciation |
Date of Construc- tion |
Date Acquired |
Life On Which Depreciation is Computed |
|||||||||||||||||||||||||
120 West 45th Street New York, New York |
— | 28,757 | 162,809 | 7,676 | 10,582 | 36,433 | 173,391 | 209,824 | 38,044 | 1998 | 1999 | 10 - 30 Years | |||||||||||||||||||||||||
1255 Broad Street Clifton, New Jersey |
— | 1,329 | 15,869 | — | 3,785 | 1,329 | 19,654 | 20,983 | 5,072 | 1999 | 1999 | 10 - 30 Years | |||||||||||||||||||||||||
810 7th Avenue New York, New York |
79,651 | 26,984 | 152,767 | 117 | 23,343 | 27,101 | 176,110 | 203,211 | 38,122 | 1970 | 1999 | 10 - 30 Years | |||||||||||||||||||||||||
1350 Avenue of the
Americas New York, New York |
73,009 | 19,222 | 109,168 | — | 23,282 | 19,222 | 132,450 | 151,672 | 26,720 | 1966 | 2000 | 10 - 30 Years | |||||||||||||||||||||||||
919 Third Avenue New York, New York |
241,305 | 101,644 | 205,736 | 12,795 | 104,084 | 114,439 | 309,820 | 424,259 | 49,921 | 1970 | 2000 | 10 - 30 Years | |||||||||||||||||||||||||
360 Hamilton Avenue White Plains, New York |
— | 2,838 | 34,606 | — | 24,453 | 2,838 | 59,059 | 61,897 | 14,318 | 2000 | 2000 | 10 - 30 Years | |||||||||||||||||||||||||
275 Broadhollow Road Melville, New York |
— | 3,850 | 12,958 | 972 | 9,841 | 4,822 | 22,799 | 27,621 | 3,454 | 1970 | 1997 | 10 - 30 Years | |||||||||||||||||||||||||
90 Merrick Avenue East Meadow, New York |
— | — | 23,804 | — | 8,866 | — | 32,670 | 32,670 | 6,635 | 1985 | 1997 | 10 - 30 Years | |||||||||||||||||||||||||
120 White Plains Road Tarrytown, New York |
— | 3,852 | 24,861 | — | 4,933 | 3,852 | 29,794 | 33,646 | 6,538 | 1984 | 1997 | 10 - 30 Years | |||||||||||||||||||||||||
100 White Plains Road Tarrytown, New York |
— | 79 | 472 | — | 79 | 79 | 551 | 630 | 95 | 1984 | 1997 | 10 - 30 Years | |||||||||||||||||||||||||
51 JFK Parkway Short Hills, New Jersey |
— | 10,053 | 62,504 | — | 1,899 | 10,053 | 64,403 | 74,456 | 14,433 | 1988 | 1998 | 10 - 30 Years | |||||||||||||||||||||||||
680 Washington Boule-
vard Stamford, Connecticut |
— | 4,561 | 23,698 | 1,137 | 649 | 5,698 | 24,347 | 30,045 | 5,497 | 1989 | 1998 | 10 - 30 Years | |||||||||||||||||||||||||
750 Washington Boule-
vard Stamford, Connecticut |
— | 7,527 | 31,940 | — | 293 | 7,527 | 32,233 | 39,760 | 7,009 | 1989 | 1998 | 10 - 30 Years | |||||||||||||||||||||||||
1305 Walt Whitman
Road Melville, New York |
— | 3,934 | 24,040 | — | 853 | 3,934 | 24,893 | 28,827 | 6,208 | 1999 | 1999 | 10 - 30 Years | |||||||||||||||||||||||||
58 South Service Road Melville, New York |
— | 1,061 | — | 6,888 | 46,209 | 7,949 | 46,209 | 54,158 | 7,779 | 2001 | 1998 | 10 - 30 Years | |||||||||||||||||||||||||
103 JFK Parkway Short Hills, New Jersey |
— | 3,098 | 18,011 | 217 | 11,383 | 3,315 | 29,394 | 32,709 | 6,743 | 2002 | 1997 | 10 - 30 Years | |||||||||||||||||||||||||
1055 Washington Bou-
levard Stamford, Connecticut |
— | — | 31,637 | — | 1,738 | — | 33,375 | 33,375 | 2,629 | 1987 | 2003 | 10 - 30 Years | |||||||||||||||||||||||||
3 Giralda Farms Madison, New Jersey |
— | 5,675 | 17,028 | — | 5,945 | 5,675 | 22,973 | 28,648 | 252 | 1990 | 2004 | 10-30 Years | |||||||||||||||||||||||||
44 Whippany Road Chattam, New Jersey |
— | 7,500 | 22,006 | — | 764 | 7,500 | 22,770 | 30,270 | 975 | 1985 | 2004 | 10-30 Years | |||||||||||||||||||||||||
1185 Avenue of the
Americas New York, New York |
— | — | 322,180 | — | 31,969 | — | 354,149 | 354,149 | 22,866 | 1969 | 2004 | 10-30 Years | |||||||||||||||||||||||||
300 Broadhollow Road Melville, New York |
— | 10,250 | 31,386 | — | 2,944 | 10,250 | 34,330 | 44,580 | 1,396 | 1989 | 2004 | 10-30 Years | |||||||||||||||||||||||||
S-3
RECKSON ASSOCIATES REALTY CORP.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2005
(IN THOUSANDS)
Column A |
Column B | Column C | Column D | Column E | Column F | Column G | Column H | Column I | |||||||||||||||||||||||||||||
| Initial Cost |
Cost Capitalized, Subsequent to Acquisition |
Gross Amount At Which Carried At Close of Period |
|||||||||||||||||||||||||||||||||||
Description |
Encum- brance |
Land | Buildings and Improve- ments |
Land | Buildings and Improve- ments |
Land | Buildings and Improve- ments |
Total | Accumu- lated Depreciation |
Date of Construc- tion |
Date Acquired |
Life On Which Depreciation is Computed |
|||||||||||||||||||||||||
32 Windsor Place Islip, New York |
— | 32 | 321 | — | 50 | 32 | 371 | 403 | 367 | 1971 | 1971 | 10-30 Years | |||||||||||||||||||||||||
101 JFK Expressway Short Hills, New Jersey |
— | 4,647 | 25,878 | 274 | 17,605 | 4,921 | 43,483 | 48,404 | 9,735 | 1981 | 1997 | 10-30 Years | |||||||||||||||||||||||||
7 Giralda Farms Madison, New Jersey |
— | 16,110 | 34,314 | — | — | 16,110 | 34,314 | 50,424 | 1,053 | 1997 | 2005 | 10-30 Years | |||||||||||||||||||||||||
Reckson Plaza Mitchel Field, New York |
— | — | 223,500 | — | 378 | — | 223,878 | 223,878 | 1,862 | 1984 | 2005 | 10-30 Years | |||||||||||||||||||||||||
711 Westchester Avenue White Plains, New York |
— | 5,650 | 18,202 | — | — | 5,650 | 18,202 | 23,852 | 108 | 1978 | 2005 | 10-30 Years | |||||||||||||||||||||||||
701 Westchester Avenue White Plains, New York |
— | 6,316 | 20,193 | — | — | 6,316 | 20,193 | 26,509 | — | 1981 | 2005 | 10-30 Years | |||||||||||||||||||||||||
707 Westchester Avenue White Plains, New York |
— | 5,356 | 15,722 | — | — | 5,356 | 15,722 | 21,078 | — | 1978 | 2005 | 10-30 Years | |||||||||||||||||||||||||
709 Westchester Avenue White Plains, New York |
— | 4,870 | 13,992 | — | — | 4,870 | 13,992 | 18,862 | — | 1979 | 2005 | 10-30 Years | |||||||||||||||||||||||||
777 Westchester Avenue White Plains, New York |
— | 4,864 | 15,606 | — | — | 4,864 | 15,606 | 20,470 | — | 1971 | 2005 | 10-30 Years | |||||||||||||||||||||||||
1025 Westchester Avenue White Plains, New York |
— | 3,709 | 10,664 | — | — | 3,709 | 10,664 | 14,373 | — | 1977 | 2005 | 10-30 Years | |||||||||||||||||||||||||
925 Westchester Avenue White Plains, New York |
— | 3,704 | 11,101 | — | — | 3,704 | 11,101 | 14,805 | — | 1977 | 2005 | 10-30 Years | |||||||||||||||||||||||||
2500 Westchester Avenue White Plains, New York |
— | 6,626 | 18,838 | — | — | 6,626 | 18,838 | 25,464 | — | 1984 | 2005 | 10-30 Years | |||||||||||||||||||||||||
2700 Westchester Avenue White Plains, New York |
— | 4,654 | 13,082 | — | — | 4,654 | 13,082 | 17,736 | — | 1984 | 2005 | 10-30 Years | |||||||||||||||||||||||||
105 Corporate Park Drive White Plains, New York |
— | 3,434 | 10,927 | — | — | 3,434 | 10,927 | 14,361 | — | 1985 | 2005 | 10-30 Years | |||||||||||||||||||||||||
106 Corporate Park Drive White Plains, New York |
— | 4,108 | 12,423 | — | — | 4,108 | 12,423 | 16,531 | — | 1974 | 2005 | 10-30 Years | |||||||||||||||||||||||||
108 Corporate Park Drive White Plains, New York |
— | 4,287 | 13,159 | — | — | 4,287 | 13,159 | 17,446 | — | 1973 | 2005 | 10-30 Years | |||||||||||||||||||||||||
110 Corporate Park Drive White Plains, New York |
— | 1,553 | 4,347 | — | — | 1,553 | 4,347 | 5,900 | — | 1977 | 2005 | 10-30 Years | |||||||||||||||||||||||||
1 Giralda Farms Madison, New Jersey |
— | 6,062 | 18,188 | — | 449 | 6,062 | 18,637 | 24,699 | 563 | 1982 | 2005 | 10-30 Years | |||||||||||||||||||||||||
100 Campus Drive Princeton, New Jersey |
— | 670 | 1,813 | — | 675 | 670 | 2,488 | 3,158 | 926 | 1987 | 1997 | 10-30 Years | |||||||||||||||||||||||||
104 Campus Drive Princeton, New Jersey |
— | 1,819 | 4,917 | — | 1,221 | 1,819 | 6,138 | 7,957 | 1,626 | 1987 | 1997 | 10-30 Years | |||||||||||||||||||||||||
115 Campus Drive Princeton, New Jersey |
— | 798 | 2,158 | — | 362 | 798 | 2,520 | 3,318 | 687 | 1987 | 1997 | 10-30 Years | |||||||||||||||||||||||||
S-4
RECKSON ASSOCIATES REALTY CORP.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2005
(IN THOUSANDS)
Column A |
Column B | Column C | Column D | Column E | Column F | Column G | Column H | Column I | |||||||||||||||||||||||||||||
| Initial Cost |
Cost Capitalized, Subsequent to Acquisition |
Gross Amount At Which Carried At Close of Period |
|||||||||||||||||||||||||||||||||||
Description |
Encum- brance |
Land | Buildings and Improve- ments |
Land | Buildings and Improve- ments |
Land | Buildings and Improve- ments |
Total | Accumu- lated Depre- ciation |
Date of Construc- tion |
Date Acquired |
Life On Which Depreciation is Computed |
|||||||||||||||||||||||||
99 Cherry Hill
Road Parsippany, New Jersey |
— | 2,360 | 7,508 | 5 | 2,380 | 2,365 | 9,888 | 12,253 | 2,660 | 1982 | 1998 | 10-30 Years | |||||||||||||||||||||||||
119 Cherry Hill
Road Parsippany, New Jersey |
— | 2,512 | 7,622 | 6 | 1,886 | 2,518 | 9,508 | 12,026 | 2,619 | 1982 | 1998 | 10-30 Years | |||||||||||||||||||||||||
520 White Plains Tarrytown, New York |
— | 3,462 | 19,617 | 387 | 5,188 | 3,849 | 24,805 | 28,654 | 7,877 | 1981 | 1996 | 10-30 Years | |||||||||||||||||||||||||
Land held for de-
velopment |
— | 123,761 | — | — | — | 123,761 | — | 123,761 | — | N/A | Various | N/A | |||||||||||||||||||||||||
Developments in
progress |
— | — | 99,570 | — | — | — | 99,570 | 99,570 | — | ||||||||||||||||||||||||||||
Other property |
— | — | — | 28,947 | — | 28,947 | 28,947 | 14,629 | |||||||||||||||||||||||||||||
Total |
$ | 542,203 | $ | 524,987 | $ | 2,400,937 | $ | 28,841 | $ | 521,650 | $ | 553,828 | $ | 2,922,587 | $ | 3,476,415 | $ | 522,994 | |||||||||||||||||||
| A | These land parcels, or a portion of the land parcels, on which the building and improvements were constructed are subject to a ground lease. |
| B | Includes costs incurred to acquire the lessor’s rights to an air rights lease agreement. |
The aggregate cost for Federal Income Tax purposes was approximately $3,237 million at December 31, 2005.
S-5
EXHIBIT 12.1 RECKSON OPERATING PARTNERSHIP, L. P. RATIOS OF EARNINGS TO FIXED CHARGES AND RATIOS OF EARNINGS TO FIXED CHARGES, PREFERRED DIVIDENDS AND PREFERRED DISTRIBUTIONS The following table sets forth the Operating Partnership's consolidated ratios of earnings to fixed charges for the years ended December 31: 2005 2004 2003 2002 2001 - --------------------- ----------------- ------------------- ----------------- ------------------ 2.03x 1.57x 1.43x 1.65x 2.12x The following table sets forth the Operating Partnership's consolidated ratios of earnings to fixed charges and preferred distributions for the years ended December 31: 2005 2004 2003 2002 2001 - ------------------- ----------------- ------------------- ----------------- ------------------ 2.03x 1.25x 1.15x 1.33x 1.67x The above ratios were calculated in accordance with Item 503 of Regulation S-K. As a result, all years prior to 2005 have been restated to exclude income from discontinued operations and, for years 2002 and 2001, include certain costs associated with losses from extinguishment of debt in accordance with FASB Statement No. 145 which was adopted by the Operating Partnership on January 1, 2003. These costs were previously reported as extraordinary losses and excluded from prior reported ratios.
EXHIBIT 21.1 RECKSON OPERATING PARTNERSHIP, L. P. STATEMENT OF SUBSIDIARIES Name State of Organization - --------------------------------------------------- ------------------------ 100 Wall Company LLC Delaware 100 Wall Mezz Lender LLC Delaware 100 Wall MM LLC Delaware 1055 Washington Boulevard LLC Delaware 1166 Junior Mezz Lender LLC Delaware 1305 Walt Whitman LLC Delaware 1325 Class B Holder LLC Delaware 1325 Mezz Lender LLC Delaware 1350 Corp LLC Delaware 1350 LLC Delaware 1350 Mezzanine Corp. Delaware 1350 Mezzanine LLC Delaware 275 Broadhollow LLC Delaware 360 Hamilton Plaza, L.L.C. Delaware 400 Garden City LLC Delaware 520 L.L.C. Delaware 72 Madison Mezz Lender LLC Delaware 90 Merrick LLC Delaware 919 JV LLC Delaware 919 Member LLC Delaware 919 Property Manager LLC Delaware 919 Third Avenue LLC Delaware BEC EAB LLC Delaware Cragwood LLC Delaware Magnolia Associates, LTD Florida Metropolitan 810 7th Ave MM, LLC Delaware Metropolitan 810 7th Ave, LLC Delaware Metropolitan 919 3rd Ave LLC Delaware Metropolitan 919 Manager LLC Delaware Metropolitan 919 MM LLC Delaware Metropolitan Mineola GP LLC Delaware Metropolitan Operating Partnership, L.P. Delaware Metropolitan Orlando GP LLC Delaware Metropolitan Partners LLC Delaware Omni Partners, L.P. Delaware One Court Square Holdings LLC Delaware One Court Square Member LLC Delaware RA 10 Rooney Circle LLC Delaware RA 10 Rooney Circle Owner LLC Delaware RA 100 Executive Drive LLC Delaware RA 100 Grasslands Road LLC Delaware RA 119 Cherry Hill Road LLC Delaware RA 150 Motor Parkway LLC Delaware RA 1660 Walt Whitman Road LLC Delaware RA 200 Broadhollow Road LLC Delaware RA 200 Broadhollow Road Owner LLC Delaware RA 200 Executive Drive LLC Delaware RA 225 High Ridge LLC Delaware RA 300 Executive Drive LLC Delaware RA 300 Motor Parkway LLC Delaware RA 35 Pinelawn Road LLC Delaware RA 492 River Road LLC Delaware RA 50 Marcus Drive LLC Delaware RA 505 White Plains Road LLC Delaware RA 520 Broadhallow Road LLC Delaware RA 55 Charles Lindenbergh Boulevard LLC Delaware RA 55 CLB LLC Delaware RA 555 White Plains Road LLC Delaware RA 555 White Plains Road Owner LLC Delaware RA 560 White Plains Road LLC Delaware RA 560 White Plains Road Owner LLC Delaware RA 580 White Plains Road LLC Delaware RA 660 White Plains Road LLC Delaware RA 6800 Jericho Turnpike LLC Delaware RA 6900 Jericho Turnpike LLC Delaware RA 710 Bridgeport Avenue LLC Delaware RA 72 Eagle Rock Avenue LLC Delaware RA 80 Grasslands Road LLC Delaware RA 88 Duryea Road LLC Delaware RA 99 Cherry Hill Road LLC Delaware
Name State of Organization - --------------------------------------------------- ------------------------ RANY Management Group Delaware RANY Management Group, Inc. Delaware RCG Holdings Inc. Delaware RCG Kennedy Drive LLC Delaware Reckson 1 Giralda LLC Delaware Reckson 1166 Bridge LLC Delaware Reckson 1185 Avenue of the Americas LLC Delaware Reckson 120 White Plains Road LLC New York Reckson 300 Broadhollow LLC Delaware Reckson 520 Holdings LLC Delaware Reckson 7 Giralda LLC Delaware Reckson 7 Giralda Owner LLC Delaware Reckson 711Westchester Avenue LLC Delaware Reckson Acquisition LLC Delaware Reckson Associates Realty Corp. Delaware Reckson Australia Asset Manager LLC Delaware Reckson Australia Holdings LLC Delaware Reckson Australia LPT Corporation Maryland Reckson Australia Operating Company LLC Delaware Reckson Australian RE Holdings Inc Delaware Reckson Construction & Development LLC Delaware Reckson Construction Group New York, Inc. New York Reckson Court Square LLC Delaware Reckson Cross Westchester IV LLC Delaware Reckson Cross Westchester LLC Delaware Reckson Cross Westchester V LLC Delaware Reckson Cross Westchester II LLC Delaware Reckson Cross Westchester III LLC Delaware Reckson EAB, LLC Delaware Reckson Finance, Inc. Delaware Reckson Financing LLC Delaware Reckson FS Limited Partnership Delaware Reckson Management Group, Inc. New York Reckson Management Partners, L.L.C. New York Reckson Mezz 1185 Avenue of the Americas LLC Delaware Reckson Mezz. LLC New York Reckson MHC LLC Delaware Reckson Plaza LLC Delaware Reckson Protective TRS Corp Delaware Reckson Short Hills, LLC Delaware Reckson Tilles Mezz Lender LLC Delaware Reckson Tri-State Member LLC Delaware Reckson/Stamford Towers, LLC Delaware RM Square, LLC New York ROP EAB Funding LLC Delaware ROP Mezzanine Holdings, LLC Delaware RT Tri-State LLC Delaware Tower Mineola L.P. Delaware Reckson Australian Management Limited Victoria, AU
EXHIBIT 23.1 RECKSON OPERATING PARTNERSHIP, L. P. CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the Registration Statement Form S-3 (No. 333-115997) and in the related Prospectus of Reckson Operating Partnership L.P., of our reports dated March 15, 2006, with respect to the consolidated financial statements and schedule of Reckson Operating Partnership L.P., Reckson Operating Partnership L.P. management's assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Reckson Operating Partnership L.P., included in this Annual Report Form 10-K for the year ended December 31, 2005. Ernst & Young LLP New York, New York March 15, 2006
RECKSON OPERATING PARTNERSHIP, L. P. EXHIBIT 31.1 CERTIFICATION OF SCOTT H. RECHLER, CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND PRESIDENT OF RECKSON ASSOCIATES REALTY CORP., THE SOLE GENERAL PARTNER OF THE REGISTRANT, PURSUANT TO RULE 13a - 14(a)/15(d) - 14(a) I, Scott H. Rechler, certify that: 1. I have reviewed this annual report on Form 10-K of Reckson Operating Partnership, L. P.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: March 17, 2006 /s/ Scott H. Rechler --------------------- Scott H. Rechler Chairman of the Board, Chief Executive Officer and President of Reckson Associates Realty Corp., the sole general partner of the Registrant
RECKSON OPERATING PARTNERSHIP, L. P EXHIBIT 31.2 CERTIFICATION OF MICHAEL MATURO, EXECUTIVE VICE PRESIDENT, TREASURER AND CHIEF FINANCIAL OFFICER OF RECKSON ASSOCIATES REALTY CORP., THE SOLE GENERAL PARTNER OF THE REGISTRANT, PURSUANT TO RULE 13a - 14(a)/15(d) - 14(a) I, Michael Maturo, certify that: 1. I have reviewed this annual report on Form 10-K of Reckson Operating Partnership, L. P.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: March 17, 2006 /s/ Michael Maturo ------------------- Michael Maturo Executive Vice President, Treasurer and Chief Financial Officer of Reckson Associates Realty Corp., the sole general partner of the Registrant
RECKSON OPERATING PARTNERSHIP, L. P. EXHIBIT 32.1 CERTIFICATION OF SCOTT H. RECHLER, CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND PRESIDENT OF RECKSON ASSOCIATES REALTY CORP., THE SOLE GENERAL PARTNER OF THE REGISTRANT, PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE I, Scott H. Rechler, Chairman of the Board, Chief Executive Officer and President 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 Annual Report on Form 10-K of the Company for the annual period ended December 31, 2005 (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: March 17, 2006 By /s/ Scott H. Rechler --------------------------------------- Scott H. Rechler Chairman of the Board, Chief Executive Officer and President of Reckson Associates Realty Corp., the sole general partner of the Registrant A signed original of this written statement required by section 906 has been provided to Reckson Operating Partnership, L. P. and will be furnished to the Securities and Exchange Commission or its staff upon request.
RECKSON OPERATING PARTNERSHIP, L. P. EXHIBIT 32.2 CERTIFICATION OF MICHAEL MATURO, EXECUTIVE VICE PRESIDENT, TREASURER AND CHIEF FINANCIAL OFFICER OF RECKSON ASSOCIATES REALTY CORP., THE SOLE GENERAL PARTNER OF THE REGISTRANT, PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE I, Michael Maturo, Executive Vice President, Treasurer and Chief Financial Officer 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 Annual Report on Form 10-K of the Company for the annual period ended December 31, 2005 (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: March 17, 2006 By /s/ Michael Maturo --------------------------------------------- Michael Maturo Executive Vice President, Treasurer and Chief Financial Officer of Reckson Associates Realty Corp., the sole general partner of the Registrant A signed original of this written statement required by section 906 has been provided to Reckson Operating Partnership, L. P. and will be furnished to the Securities and Exchange Commission or its staff upon request.