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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 2002
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
Commission File Number 1-13762
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RECKSON ASSOCIATES REALTY CORP.
(Exact name of registrant as specified in its charter)
MARYLAND 11-3233650
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
225 BROADHOLLOW ROAD, MELVILLE, NY 11747
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (631) 694-6900
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on Which
Title of each class Registered
--------------------------------------- -------------------------------
Class A common stock, $.01 par value New York Stock Exchange
Class B common stock, $.01 par value New York Stock Exchange
Class A preferred stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, or any
amendment to this Form 10-K. [ ]
The aggregate market value of the shares of Class A common stock and Class
B common stock held by non-affiliates was approximately $1,015 million based on
the closing prices on the New York Stock Exchange for such shares on March 13,
2003.
The Company has two classes of common stock, issued at $.01 par value per
share with 48,252,995 and 9,915,313 shares of Class A common stock and Class B
common stock outstanding, respectively as of March 13, 2003.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Shareholder's
Meeting to be held May 29, 2003 are incorporated by reference into Part III.
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TABLE OF CONTENTS
ITEM
NO. PAGE
---- ------
PART I
1. Business ..................................................................... I-1
2. Properties ................................................................... I-10
3. Legal Proceedings ............................................................ I-22
4. Submission of Matters to a Vote of Security Holders .......................... I-22
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters ........ II-1
6. Selected Financial Data ...................................................... II-3
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations ................................................................... II-5
7(a). Quantitative and Qualitative Disclosures about Market Risk ................... II-22
8. Financial Statements and Supplementary Data .................................. II-23
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure ................................................................... II-23
PART III
10. Directors and Executive Officers of the Registrant ........................... III-1
11. Executive Compensation ....................................................... III-1
12. Security Ownership of Certain Beneficial Owners and Management ............... III-1
13. Certain Relationships and Related Transactions ............................... III-1
14. Controls and Procedures ...................................................... III-1
16. Principal Accountant Fees and Services ....................................... III-1
PART IV
15. Financial Statements and Schedules, Exhibits and Reports on Form 8-K ......... IV-1
PART I
ITEM 1. BUSINESS
GENERAL
Reckson Associates Realty Corp. was incorporated in September 1994 and
commenced operations effective with the completion of its initial public
offering (the "IPO") on June 2, 1995. Reckson Associates Realty Corp., together
with Reckson Operating Partnership, L.P. (the"Operating Partnership"), and
their affiliates (collectively, the"Company") were formed for the purpose of
continuing the commercial real estate business of Reckson Associates, its
affiliated partnerships and other entities ("Reckson"). For more than 40 years,
Reckson has been engaged in the business of owning, developing, acquiring,
constructing, managing and leasing office and industrial properties in the New
York tri-state area (the "Tri-State Area"). Based on industry surveys,
management believes that the Company is one of the largest owners and operators
of Class A suburban and central business district ("CBD") office properties and
industrial properties in the Tri-State Area. The Company operates as a fully
integrated, self-administered and self-managed real estate investment trust
("REIT"). As of December 31, 2002 the Company owned 178 properties (inclusive
of 11 joint venture properties) in the Tri-State Area suburban and CBD markets,
encompassing approximately 20.3 million rentable square feet, all of which are
managed by the Company. These properties include 60 Class A suburban office
properties encompassing approximately 8.5 million rentable square feet, of
which 42 of these properties, or 74% as measured by square footage, are located
within the Company's ten office parks. Reckson has historically emphasized the
development and acquisition of properties that are part of large-scale suburban
office parks. The Company believes that owning properties in planned office and
industrial parks provides certain strategic advantages, including the
following: (i) certain tenants prefer being located in a park with other high
quality companies to enhance their corporate image, (ii) parks afford tenants
certain aesthetic amenities such as a common landscaping plan, standardization
of signage and common dining and recreational facilities, (iii) tenants may
expand (or contract) their business within a park, enabling them to centralize
business functions and (iv) a park provides tenants with access to other
tenants and may facilitate business relationships between tenants. The
properties also include 15 Class A CBD office properties encompassing
approximately 5.1 million rentable square feet. The CBD office properties
consist of five properties located in New York City, eight properties located
in Stamford, CT and two properties located in White Plains, NY. Additionally,
the properties include 101 industrial / R&D properties encompassing
approximately 6.7 million rentable square feet, of which 71 of these
properties, or 58% as measured by square footage, are located within the
Company's three industrial parks. The properties also include two retail
properties comprising approximately 20,000 rentable square feet. The Company
also owns a 355,000 square foot office property located in Orlando, Florida.
Through its ownership of properties in the key CBD and suburban office
markets in the Tri-State Area, the Company believes it has a unique competitive
advantage as the trend toward the regional decentralization of the workplace
increases. Due to the events of September 11, 2001, as well as technological
advances which further enable decentralization, companies are strategically
re-evaluating the benefits and feasibility of regional decentralization and
reassessing their long-term space needs. The Company believes this
multi-location regional decentralization will continue to take place,
increasing as companies begin to have better visibility as to the future of the
economy, further validating our regional strategy of maintaining a significant
market share in each of the key CBD and suburban office markets in the
Tri-State Area.
The Company also owns approximately 338 acres of land in 14 separate
parcels of which the Company can develop approximately 3.2 million square feet
of office space and approximately 470,000 square feet of industrial space. The
Company is currently evaluating alternative land uses for certain of the land
holdings to realize the highest economic value. These alternatives may include
rezoning certain land parcels from commercial to residential for potential
disposition. As of December 31, 2002, the Company had invested approximately
$121.2 million in these development projects. Management has made subjective
assessments as to the value and recoverability of these investments based on
current and proposed development plans, market comparable land values and
alternative use values. The Company
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has capitalized approximately $10.5 million for the year ended December 31,
2002 related to real estate taxes, interest and other carrying costs related to
these development projects. Since the IPO, the Company has developed,
redeveloped, renovated or repositioned 27 properties encompassing approximately
5.3 million square feet of office and industrial / R&D space.
The Company holds a $17.0 million note receivable which bears interest at
11.5% per annum and is secured by a minority partnership interest in Omni
Partners, L. P., owner of the Omni, a 579,000 square foot Class A office
property located in Uniondale, N.Y., effectively increasing its economic
interest in the property owning partnership (the "Omni Note"). The Company
currently owns a 60% majority partnership interest in Omni Partners, L.P. and
on March 14, 2007 may exercise an option to acquire the remaining 40% interest
for a price based on 90% of the fair market value of the property. The Company
also holds three other notes receivable aggregating $36.5 million which bear
interest at rates ranging from 10.5% to 12% per annum and are secured in part
by a minority partner's preferred unit interest in the Operating Partnership,
certain interest in real property and a personal guaranty (the "Other Notes"
and collectively with the Omni Note, the "Note Receivable Investments"). As of
December 31, 2002, management has made subjective assessments as to the
underlying security value on the Company's Note Receivable Investments. Based
on these assessments the Company's management believes there is no impairment
to the carrying value related to the Company's Note Receivable Investments. The
Company also owns a 355,000 square foot office building in Orlando, Florida.
This non-core real estate holding was acquired in May 1999 in connection with
the Company's initial New York City portfolio acquisition. This property is
cross collateralized under a $103 million mortgage note payable along with one
of the Company's New York City buildings.
The Company also owns a 60% non-controlling interest in a 172,000 square
foot office building located at 520 White Plains Road in White Plains, New York
(the "520JV") which it manages. The remaining 40% interest is owned by JAH
Realties L.P. Jon Halpern, the CEO and a director of HQ Global Workplaces, is a
partner in JAH Realties, L.P. As of December 31, 2002, the 520JV had total
assets of $21.0 million, a mortgage note payable of $12.5 million and other
liabilities of $197,000. The Company's allocable share of the 520JV mortgage
note payable is approximately $7.5 million. This mortgage note payable bears
interest at 8.85% per annum and matures on September 1, 2005. In addition, the
520JV had total revenues of $4.2 million and $4.0 million and total expenses of
$3.3 million and $3.3 million for the years ended December 31, 2002 and 2001,
respectively. The operating agreement of the 520JV requires joint decisions
from all members on all significant operating and capital decisions including
sale of the property, refinancing of the property's mortgage debt, development
and approval of leasing strategy and leasing of rentable space. As a result of
the decision-making participation relative to the operations of the property,
the Company accounts for the 520JV under the equity method of accounting. The
520JV contributed approximately $648,000 and $478,000 to the Company's equity
in earnings of real estate joint ventures for the year ended December 31, 2002
and 2001, respectively.
During July 1998, the Company formed Metropolitan Partners, LLC
("Metropolitan") for the purpose of acquiring Class A office properties in New
York City. Currently the Company owns, through Metropolitan, five Class A
office properties aggregating approximately 3.5 million square feet.
During September 2000, the Company formed a joint venture (the "Tri-State
JV") with Teachers Insurance and Annuity Association ("TIAA") and contributed
nine Class A suburban office properties aggregating approximately 1.5 million
square feet to the Tri-State JV for a 51% majority ownership interest. TIAA
contributed approximately $136 million for a 49% interest in the Tri-State JV
which was then distributed to the Company. The Company is responsible for
managing the day-to-day operations and business affairs of the Tri-State JV and
has substantial rights in making decisions affecting the properties such as
leasing, marketing and financing. The minority member has certain rights
primarily intended to protect its investment. For purposes of its financial
statements the Company consolidates the Tri-State JV.
On December 21, 2001, the Company formed a joint venture with the New York
State Teachers' Retirement Systems ("NYSTRS") (the "919JV") whereby NYSTRS
acquired a 49% indirect interest in the property located at 919 Third Avenue,
New York, NY for $220.5 million which included $122.1
I-2
million of its proportionate share of secured mortgage debt and approximately
$98.4 million of cash which was then distributed to the Company. The Company is
responsible for managing the day-to-day operations and business affairs of the
919JV and has substantial rights in making decisions affecting the property
such as developing a budget, leasing and marketing. The minority member has
certain rights primarily intended to protect its investment. For purposes of
its financial statements the Company consolidates the 919JV.
As of December 31, 2001, the Company has invested approximately $59.8
million in REIT-qualified joint ventures with Reckson Strategic Venture
Partners, LLC ("RSVP"), a real estate venture capital fund created in 1997 as a
research and development vehicle for the Company to invest in alternative real
estate sectors outside the Company's core office and industrial focus (see
Recent Developments-Other Investing Activities).
All of the Company's interests in its properties, land held for
development, the Note Receivable Investments and joint ventures are held
directly or indirectly by, and all of its operations are conducted through, the
Operating Partnership. Reckson Associates Realty Corp. controls the Operating
Partnership as the sole general partner and, as of December 31, 2002, owned
approximately 89.5% of the Operating Partnership's outstanding common units of
limited partnership interest ("OP Units") and Class B common units of limited
partnership interest.
The Company seeks to maintain cash reserves for normal repairs,
replacements, improvements, working capital and other contingencies. The
Company has established an unsecured credit facility (the "Credit Facility")
with a maximum borrowing amount of $500 million scheduled to mature on December
30, 2005. The Credit Facility requires the Company to comply with a number of
financial and other covenants on an ongoing basis.
The Company maintains access to unsecured debt markets through its
investment grade ratings. The Company's ratings as of December 31, 2002 from
the major rating organizations are as follows:
RATING ORGANIZATION RATING OUTLOOK
--------------------------------------- -------- --------
Moody's ............................. 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 every rating organization have
their own meaning within the organization's overall classification system. Each
rating should be evaluated independently of any other rating.
There are numerous commercial properties that compete with the Company in
attracting tenants and numerous companies that compete in selecting land for
development and properties for acquisition.
In order to protect the Company's ability to qualify as a REIT, ownership
of its common stock by any single stockholder is limited to 9%, subject to
certain exceptions.
The Company's principal executive offices are located at 225 Broadhollow
Road, Melville, New York 11747 and its telephone number at that location is
(631) 694-6900. At December 31, 2002, the Company had 303 employees.
The Company makes certain filings with the Securities and Exchange
Commission, including its annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and all amendments to those reports,
available free of charge through its website, www.reckson.com, as soon as
reasonably practicable after they are filed with the Securities and Exchange
Commission. The Company's annual report to shareholders, press releases and
recent presentations are also available free of charge on the website.
RECENT DEVELOPMENTS
Acquisitions, Dispositions and Investing Activities
On April 1, 2002, the Company paid approximately $23.8 million to acquire
52.7 acres of land located in Valhalla, NY on which the Company can develop
approximately 875,000 square feet of office space. The Company currently owns
and operates three buildings encompassing approximately 700,000 square
I-3
feet in the same office park in which this land parcel is located. This
acquisition was financed in part from the sales proceeds of an office property
being held by a qualified intermediary for the purposes of an exchange of real
property pursuant to Section 1031 of the Internal Revenue Code and from an
advance under the Credit Facility.
On August 7, 2002, the Company sold an industrial property on Long Island
aggregating approximately 32,000 square feet for approximately $1.8 million.
This property was sold to the sole tenant of the property through an option
contained in the tenant's lease. On August 8, 2002, the Company sold two Class
A office properties located in Westchester County, NY aggregating approximately
157,000 square feet for approximately $18.5 million. Net proceeds from these
sales were used to repay borrowings under the Credit Facility and for general
corporate purposes.
During February 2003, the Company, through Reckson Construction Group
Inc., entered into a contract with an affiliate of First Data Corp. to sell a
19.3-acre parcel of land located in Melville, New York and has been retained by
the purchaser to develop a build-to-suit 195,000 square foot office building
for aggregate consideration of approximately $47 million. This transaction is
scheduled to close during the first quarter of 2003 and construction of the
aforementioned office building is scheduled to commence shortly thereafter.
Other Investing Activities
During 1997, the Company formed FrontLine Capital Group, formerly Reckson
Service Industries, Inc. ("FrontLine") and RSVP. RSVP is a real estate venture
capital fund which invests primarily in real estate and real estate operating
companies outside the Company's core office and industrial focus and whose
common equity is held indirectly by FrontLine. In connection with the formation
and spin-off of FrontLine, the Operating Partnership established an unsecured
credit facility with FrontLine (the "FrontLine Facility") in the amount of $100
million for FrontLine to use in its investment activities, operations and other
general corporate purposes. The Company advanced approximately $93.4 million
under the FrontLine Facility. The Operating Partnership also approved the
funding of investments of up to $100 million relating to RSVP (the "RSVP
Commitment"), through RSVP-controlled joint ventures (for REIT-qualified
investments) or advances made to FrontLine under an unsecured loan facility
(the "RSVP Facility") having terms similar to the FrontLine Facility (advances
made under the RSVP Facility and the FrontLine Facility hereafter, the
"FrontLine Loans"). During March 2001, the Company increased the RSVP
Commitment to $110 million and as of December 31, 2002, approximately $109.1
million had been funded through the RSVP Commitment, of which $59.8 million
represents investments by the Company in RSVP-controlled (REIT-qualified) joint
ventures and $49.3 million represents loans made to FrontLine under the RSVP
Facility. As of December 31, 2002, interest accrued (net of reserves) under the
FrontLine Facility and the RSVP Facility was approximately $19.6 million. RSVP
retained the services of two managing directors to manage RSVP's day to day
operations. Prior to the spin off of Frontline, the Company guaranteed certain
salary provisions of their employment agreements with RSVP Holdings, LLC,
RSVP's common member. The term of these employment agreements is seven years
commencing March 5, 1998, provided however, that the term may be earlier
terminated after five years upon certain circumstances. The salary for each
managing director is $1 million in the first five years and $1.6 million in
years six and seven.
At June 30, 2001, the Company assessed the recoverability of the FrontLine
Loans and reserved approximately $3.5 million of the interest accrued during
the three-month period then ended. In addition, the Company formed a committee
of its Board of Directors, comprised solely of independent directors, to
consider any actions to be taken by the Company in connection with the
FrontLine Loans and its investments in joint ventures with RSVP. During the
third quarter of 2001, the Company noted a significant deterioration in
FrontLine's operations and financial condition and, based on its assessment of
value and recoverability and considering the findings and recommendations of
the committee and its financial advisor, the Company recorded a $163 million
valuation reserve charge, inclusive of anticipated costs, in its consolidated
statements of operations relating to its investments in the FrontLine Loans and
joint ventures with RSVP. The Company has discontinued the accrual of interest
income with respect to the FrontLine Loans. The Company has also reserved
against its share of GAAP equity in earnings from
I-4
the RSVP controlled joint ventures funded through the RSVP Commitment until
such income is realized through cash distributions. If the RSVP-controlled
joint ventures reported losses, the Company would record its proportionate
share of such losses.
At December 31, 2001, the Company, pursuant to Section 166 of the Code,
charged off for tax purposes $70 million of the aforementioned reserve directly
related to the FrontLine Facility, including accrued interest. On February 14,
2002, the Company charged off for tax purposes an additional $38 million of the
reserve directly related to the FrontLine Facility, including accrued interest,
and $47 million of the reserve directly related to the RSVP Facility, including
accrued interest.
FrontLine is in default under the FrontLine Loans from the Operating
Partnership and on June 12, 2002, filed a voluntary petition for relief under
Chapter 11 of the U.S. Bankruptcy Code.
As a result of the foregoing, the net carrying value of the Company's
investments in the FrontLine Loans and joint venture investments with RSVP,
inclusive of the Company's share of previously accrued GAAP equity in earnings
on those investments, is approximately $65 million which was reassessed with no
change by management as of December 31, 2002. Such amount has been reflected in
investments in service companies and affiliate loans and joint ventures on the
Company's consolidated balance sheet. The common and preferred members of RSVP
are currently in dispute over certain provisions of the RSVP operating
agreement. The members are currently negotiating to restructure the RSVP
operating agreement to settle the dispute. There can be no assurances that the
members will successfully negotiate a settlement.
Both the FrontLine Facility and the RSVP Facility terminate on June 15,
2003, are unsecured and advances thereunder are recourse obligations of
FrontLine. Notwithstanding the valuation reserve, under the terms of the credit
facilities, interest accrued on the FrontLine Loans at a rate equal to the
greater of (a) the prime rate plus two percent and (b) 12% per annum, with the
rate on amounts that were outstanding for more than one year increasing
annually at a rate of four percent of the prior year's rate. In March 2001, the
credit facilities were amended to provide that (i) interest is payable only at
maturity and (ii) the Company may transfer all or any portion of its rights or
obligations under the credit facilities to its affiliates. The Company
requested these changes as a result of changes in REIT tax laws. As a result of
FrontLine's default under the FrontLine Loans, interest on borrowings
thereunder accrue at default rates ranging between 13% and 14.5% per annum.
Scott H. Rechler, who serves as Co-Chief Executive Officer and a director
of the Company, serves as CEO and Chairman of the Board of Directors of
FrontLine.
The following table sets forth the Company's invested capital (before
valuation reserves) in RSVP controlled (REIT-qualified) joint ventures and
amounts which were advanced under the RSVP Commitment to FrontLine, for its
investment in RSVP controlled investments (in thousands):
RSVP CONTROLLED AMOUNTS
JOINT VENTURES ADVANCED TOTAL
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Privatization ..................... $21,480 $ 3,520 $ 25,000
Student Housing ................... 18,086 3,935 22,021
Medical Offices ................... 20,185 -- 20,185
Parking ........................... -- 9,091 9,091
Resorts ........................... -- 8,057 8,057
Net leased retail ................. -- 3,180 3,180
Other assets and overhead ......... -- 21,598 21,598
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$59,751 $49,381 $109,132
======= ======= ========
Included in these investments is approximately $16.5 million of cash that
has been contributed to the respective RSVP controlled joint ventures or
advanced under the RSVP Commitment to FrontLine and is being held, along with
cash contributed by the preferred investors.
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Leasing Activity
During the year ended December 31, 2002, the Company executed 255 leases
encompassing approximately 2.8 million square feet. The following table
summarizes the leasing activity by location and property type:
AVERAGE EFFECTIVE
NUMBER OF LEASES LEASED SQUARE FEET RENT (1)
------------------ -------------------- ------------------
CBD office properties
-----------------------------------------
Connecticut ......................... 21 131,441 $ 33.33
New York City ....................... 32 264,645 $ 42.73
Westchester ......................... 16 126,233 $ 23.21
-- -------
Subtotal / Weighted average ......... 69 522,319 $ 35.65
-- -------
Suburban office properties
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Long Island ......................... 55 355,304 $ 25.64
New Jersey .......................... 31 387,229 $ 24.31
Westchester ......................... 49 475,345 $ 21.58
--- ---------
Subtotal / Weighted average ......... 135 1,217,878 $ 23.63
--- ---------
Industrial properties
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Long Island ......................... 49 1,033,336 $ 7.05
New Jersey .......................... 2 5,750 $ 10.30
--- ---------
Subtotal / Weighted average ......... 51 1,039,086 $ 7.07
--- ---------
Total ............................... 255 2,779,283 $ 19.70
=== =========
(1) Base rent adjusted on a straight-line basis for free rent periods, tenant
improvements and leasing commissions
Financing Activities
The Company currently has a three year $500 million unsecured revolving
credit facility (the "Credit Facility") from JPMorgan Chase Bank, as
administrative agent, Wells Fargo Bank, National Association as syndication
agent and Citicorp North America, Inc. and Wachovia Bank, National Association
as co-documentation agents. The Credit Facility matures in December 2005,
contains options for a one year extension subject to a fee of 25 basis points
and, upon receiving additional lender commitments, increasing the maximum
revolving credit amount to $750 million. In addition, borrowings under the
Credit Facility are currently priced off LIBOR plus 90 basis points and the
Credit Facility carries a facility fee of 20 basis points per annum. In the
event of a change in the Operating Partnership's unsecured credit rating the
interest rates and facility fee are subject to change. The outstanding
borrowings under the Credit Facility were $267.0 million at December 31, 2002.
The following table sets forth the Company's Applicable Margin, pursuant
to the Credit Facility, which indicates the additional respective percentages
per annum applied to LIBOR based borrowings determined based on the Operating
Partnership's unsecured credit rating:
UNSECURED CREDIT RATING APPLICABLE
S&P / MOODY'S MARGIN
------------------------------------------------- -----------
A- /A3 ............................... .60%
BBB+ / Baa1 .......................... .625%
BBB / Baa2 ........................... .70%
BBB- / Baa3 .......................... .90%
Below BBB- / Baa3 or unrated ......... 1.20%
The Credit Facility replaced the Company's $575 million unsecured credit
facility (the "Prior Facility" and together with the Credit Facility, the
"Credit Facility"). As a result, certain deferred loan costs incurred in
connection with the Prior Facility were written off. Such amount is reflected
as an extraordinary loss in the Company's consolidated statements of
operations.
I-6
The Company utilizes the Credit Facility primarily to finance real estate
investments, fund its real estate development activities and for working
capital purposes. At December 31, 2002, the Company had availability under the
Credit Facility to borrow approximately an additional $203.0 million subject to
compliance with certain financial covenants.
On June 17, 2002, the Operating Partnership issued $50 million of
five-year 6.00% (6.125% effective rate) senior unsecured notes. Net proceeds of
approximately $49.4 million received from this issuance were used to repay
outstanding borrowings under the Prior Facility.
Stock and Other Equity Offerings
During the year ended December 31, 2002, approximately 11,303 preferred
units of limited partnership interest in the Operating Partnership, with a
liquidation preference value of approximately $11.3 million, were exchanged for
451,934 OP Units at an average price of $24.66 per OP Unit. In addition,
666,468 OP Units were exchanged for an equal number of shares of the Company's
Class A common stock.
The Board of Directors of the Company has authorized the purchase of up to
five million shares of the Company's Class A common stock and / or its Class B
common stock. It is anticipated that transactions conducted on the New York
Stock Exchange will 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.
As of December 31, 2002, under this buy-back program, the Company
purchased 368,200 shares of Class B common stock at an average price of $22.90
per Class B share and 2,698,400 shares of Class A common stock at an average
price of $21.60 per Class A share for an aggregate purchase price for both the
Class A and Class B common stock of approximately $66.7 million. As a result of
these purchases, annual common stock dividends will decrease by approximately
$5.5 million. Previously, under the Company's prior stock buy-back program, the
Company purchased and retired 1,410,804 shares of Class B common stock at an
average price of $21.48 per Class B share and 61,704 shares of Class A common
stock at an average price of $23.03 per Class A share for an aggregate purchase
price for both the Class A and Class B common stock of approximately $31.7
million.
The Board of Directors of the Company has formed a pricing committee to
consider purchases of up to $75 million of the Company's outstanding preferred
securities. During October 2002, the Company purchased and retired 357,500
shares of its Series A preferred stock at $22.29 per share for approximately
$8.0 million. As a result of this purchase, annual preferred dividends will
decrease by approximately $682,000.
CORPORATE STRATEGIES AND GROWTH OPPORTUNITIES
The Company's primary business objectives are to maximize current return
to stockholders through increases in distributable cash flow per share and to
increase stockholders' long-term total return through the appreciation in value
of its common stock. The Company's core business strategy is based on a
long-term outlook considering real estate is a cyclical business. The Company
seeks to accomplish long-term stability and success by developing and
maintaining an infrastructure and franchise that is modeled for success over
the long-term. This approach allows the Company to recognize different points
in the market cycle and adjust our strategy accordingly. Currently, the Company
remains cautious about the market environment. With this cautious bias we
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. The Company plans
to achieve these objectives by continuing Reckson's corporate strategies and
capitalizing on the internal and external growth opportunities as described
below.
Corporate Strategies. Management believes that throughout its 40-year
operating history, Reckson has created value in its properties through a
variety of market cycles by implementing the operating strategies described
below. These operating strategies include: (i) a multidisciplinary leasing
approach that involves architectural design and construction personnel as well
as leasing professionals, (ii)
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innovative marketing programs that strategically position the Company's
properties and distinguish its portfolio from the competition, increase brand
equity and gain market-share. These cost-effective, high-yield programs include
electronic web-casting, targeted outdoor and print media campaigns and sales
promotion that enhances broker relationships and influences tenant retention,
(iii) a comprehensive tenant service program and property amenities designed to
maximize tenant satisfaction and retention, (iv) cost control management and
systems that take advantage of economies of scale that arise from the Company's
market position and efficiencies attributable to the state-of-the-art energy
control systems at many of the office properties, (v) a fully integrated
infrastructure of proprietary and property management accounting systems which
encompasses technology advanced systems and tools that provides meaningful
information, on a real time basis, throughout the entire organization and (vi)
an acquisition and development strategy that is continuously adjusted in light
of anticipated changes in market conditions and that seeks to capitalize on
management's multidisciplinary expertise and market knowledge to modify,
upgrade and reposition a property in its marketplace in order to maximize
value.
The Company also intends to adhere to a policy of maintaining a stabilized
debt ratio over time (defined as the total debt of the Company as a percentage
of the sum of the Company's total debt and the market value of its equity) of
not more than 50%. As of December31, 2002, the Company's debt ratio was
approximately 44.9%. This calculation is net of minority partners'
proportionate share of joint venture debt and including the Company's share of
unconsolidated joint venture debt. This debt ratio is intended to provide the
Company with financial flexibility to select the optimal source of capital
(whether debt or equity) with which to finance external growth.
Growth Opportunities. The Company intends to achieve its primary business
objectives by applying its corporate strategies to the internal and external
growth opportunities described below.
Internal Growth. To the extent New York City, the Long Island,
Westchester, New Jersey and Southern Connecticut suburban office and industrial
markets stabilize and begin to recover with limited new supply, management
believes the Company is well positioned to benefit from rental revenue growth
through: (i) contractual annual compounding of 3-4% Base Rent increases
(defined as fixed gross rental amounts that excludes payments on account of
real estate taxes, operating expense escalations and base electrical charges)
on approximately 85% of existing leases from its Long Island properties, (ii)
periodic contractual increases in Base Rent on existing leases from its
Westchester properties, the New Jersey properties, the New York City properties
and the Southern Connecticut properties and (iii) the potential for increases
to Base Rents as leases expire and space is re-leased at the higher rents that
exist in the current market environment.
Through its ownership of properties in the key CBD and suburban office
markets in the Tri-State Area, the Company believes it has a unique competitive
advantage as the trend toward the regional decentralization of the workplace
increases. Due to the events of September 11, 2001 as well as technological
advances which further enable decentralization, companies are strategically
re-evaluating the benefits and feasibility of regional decentralization and
reassessing their long-term space needs. The Company believes this
multi-location regional decentralization will continue to take place,
increasing as companies begin to have better visibility as to the future of the
economy, further validating our regional strategy of maintaining a significant
market share in each of the key CBD and suburban office markets in the
Tri-State Area.
External Growth. The Company seeks to acquire multi-tenant ClassA office
buildings in New York City and the surrounding Tri-State Area core suburban and
CBD markets as well as industrial properties 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. The Company believes that
its (i) capital structure, in particular its Credit Facility providing for a
maximum borrowing amount of up to $500 million and access to unsecured debt
markets, (ii) ability to acquire a property for OP Units and thereby defer the
seller's income tax on gain, (iii) operating economies of scale, (iv)
relationships with financial institutions and private real estate owners, (v)
fully integrated operations in its five existing divisions and (vi) its
substantial position and franchise in the submarkets in which it owns
properties will enhance the Company's ability to identify and capitalize on
acquisition opportunities. The Company also intends to
I-8
selectively develop new ClassA suburban and CBD office and industrial
properties and to continue to redevelop existing properties as these
opportunities arise. The Company will concentrate its development activities on
industrial and ClassA suburban and CBD office properties within the Tri-State
Area. The Company's expansion into the New York City office market has provided
it with future opportunities to acquire interests in properties at attractive
yields. The Company also believes that the addition of its New York City
division provides additional leasing and operational capabilities and enhances
its overall franchise value by being the only real estate operating company in
the Tri-State Area with significant presence in both Manhattan and each of the
surrounding sub-markets.
In addition, when valuations for commercial real estate properties are
high, the Company will seek to sell certain properties or interests therein to
realize value and profit created. The Company will then seek opportunities to
reinvest the capital realized from these dispositions back into value-added
assets in the Company's core Tri-State Area markets, as well as pursue its
stock repurchase program.
ENVIRONMENTAL MATTERS
Under various Federal, state and local laws, ordinances and regulations,
an owner of real estate is liable for the costs of removal or remediation of
certain hazardous or toxic substances on or in such property. These laws often
impose such liability without regard to whether the owner knew of, or was
responsible for, the presence of such hazardous or toxic substances. The cost
of any required remediation and the 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, the Company may be considered an
owner or operator of such properties or as having arranged for the disposal or
treatment of hazardous or toxic substances and, therefore, potentially liable
for removal or remediation costs, as well as certain other related costs,
including governmental fines and injuries to persons and property.
All of the Company's office and industrial / R&D properties have been
subjected to a Phase I or similar environmental audit after April 1, 1994
(which involved general inspections without soil sampling, ground water
analysis or radon testing and, for the Company's properties constructed in 1978
or earlier, survey inspections to ascertain the existence of ACMs were
conducted) completed by independent environmental consultant companies (except
for 35 Pinelawn Road which was originally developed by Reckson and subjected to
a Phase 1 in April 1992). These environmental audits have not revealed any
environmental liability that would have a material adverse effect on the
Company's business.
I-9
ITEM 2. PROPERTIES
General
As of December 31, 2002 the Company owned 178 properties (including 11
joint venture properties) in the Tri-State Area suburban and CBD markets,
encompassing approximately 20.3 million rentable square feet, all of which are
managed by the Company. The properties include 60 Class A suburban office
properties encompassing approximately 8.5 million rentable square feet, of
which 42 of these properties, or 74% as measured by square footage, are located
within the Company's ten office parks. Reckson has historically emphasized the
development and acquisition of properties that are part of large-scale suburban
office parks. The Company believes that owning properties in planned office and
industrial parks provides certain strategic advantages, including the
following: (i) certain tenants prefer being located in a park with other high
quality companies to enhance their corporate image, (ii) parks afford tenants
certain aesthetic amenities such as a common landscaping plan, standardization
of signage and common dining and recreational facilities, (iii) tenants may
expand (or contract) their business within a park, enabling them to centralize
business functions and (iv) a park provides tenants with access to other
tenants and may facilitate business relationships between tenants. The
properties also include 15 Class A CBD office properties encompassing
approximately 5.1 million rentable square feet. The CBD office properties
consist of five properties located in New York City, eight properties located
in Stamford, CT and two properties located in White Plains, NY. Additionally,
the Company owns 101 industrial properties encompassing approximately 6.7
million rentable square feet, of which 71 of these properties, or 58% as
measured by square footage, are located within the Company's three industrial
parks. The properties also include two retail properties comprising
approximately 20,000 rentable square feet. The Company also owns a 355,000
square foot office property located in Orlando, Florida.
Set forth below is a summary of certain information relating to the
Company's properties, categorized by office and industrial properties, as of
December 31, 2002.
OFFICE PROPERTIES
General
As of December 31, 2002, the Company owned or had an interest in 60 Class
A suburban office properties encompassing approximately 8.5 million square feet
and 15 Class A CBD office properties encompassing approximately 5.1 million
square feet. As of December 31, 2002, the office properties were approximately
95.7% leased (percent leased excludes properties under development) to
approximately 979 tenants.
The office properties are Class A office buildings and are well-located,
well-maintained and professionally managed. In addition, these properties are
modern with high finishes and achieve among the highest rent, occupancy and
tenant retention rates within their sub-markets. Forty two of the 60 suburban
office properties are located within the Company's ten office parks. The
buildings in these office parks offer a full array of amenities including
health clubs, racquetball courts, sun decks, restaurants, computer controlled
HVAC access systems and conference centers. Management believes that the
location, quality of construction and amenities as well as the Company's
reputation for providing a high level of tenant service have enabled the
Company to attract and retain a national tenant base. The office tenants
include national companies representing all major industry groups including
consumer products, financial services, pharmaceuticals, health care,
telecommunication and technology and insurance and service companies, such as
"Big Four" accounting firms and major law firms. The 15 Class A CBD office
properties consist of five properties located in New York City, eight
properties located in Stamford, CT and two properties located in White Plains,
NY.
The office properties are leased to both national and local tenants.
Leases on the office properties are typically written for terms ranging from
five to ten years and require: (i) payment of a fixed gross rental amount that
excludes payments on account of real estate tax, operating expense escalations
and base electrical charges ("Base Rent"), (ii) payment of a base electrical
charge, (iii) payment of real estate tax escalations over a base year, (iv)
payment of compounded annual increases to Base Rent and/or payment of operating
expense escalations over a base year, (v) payment of overtime HVAC and electric
I-10
and (vi) payment of electric escalations over a base year. In virtually all
leases, the landlord is responsible for structural repairs. Renewal provisions
typically provide for renewal rates at market rates or a percentage thereof,
provided that such rates are not less than the most recent renewal rates.
The following table sets forth certain information as of December 31, 2002
for each of the office properties.
OWNERSHIP
INTEREST
(GROUND
LEASE LAND
PERCENTAGE EXPIRATION YEAR AREA
OWNERSHIP DATE) (1) CONSTRUCTED (ACRES)
------------ -------------- ------------- ---------
Leases Suburban Office Properties:
Huntington Melville Corporate Center
395 North Service Rd,
Melville, NY .......................... 100% Lease (2081) 1988 7.5
200 Broadhollow Rd,
Melville, NY .......................... 100% Fee 1981 4.6
48 South Service Rd,
Melville, NY .......................... 100% Fee 1986 7.3
35 Pinelawn Rd,
Melville, NY .......................... 100% Fee 1980 6.0
275 Broadhollow Rd,
Melville, NY .......................... 51% Fee 1970 5.8
58 South Service Rd,
Melville, NY .......................... 100% Fee 2000 16.5
1305 Old Walt Whitman Rd,
Melville, NY .......................... 51% Fee 1998(3) 18.1
----
Total- Huntington Meville Corporate
Center ................................ 65.8
North Shore Atrium
6800 Jericho Turnpike,
Syosset, NY ........................... 100% Fee 1977 13.0
6900 Jericho Turnpike,
Syosset, NY ........................... 100% Fee 1982 5.0
----
Total-North Shore Atrium ............... 18.0
Nassau West Corporate Center
50 Charles Lindbergh Blvd.,
Mitchel Field, NY ..................... 100% Lease (2082) 1984 9.1
60 Charles Lindbergh Blvd.,
Mitchel Field, NY ..................... 100% Lease (2082) 1989 7.8
51 Charles Lindbergh Blvd.,
Mitchel Field, NY ..................... 100% Lease (2084) 1989 6.6
55 Charles Lindbergh Blvd.,
Mitchel Field, NY ..................... 100% Lease (2082) 1982 10.0
333 Earl Ovington Blvd.,
Mitchel Field, NY ..................... 60% Lease (2088) 1991 30.6
90 Merrick Ave.,
Mitchel Field, NY ..................... 51% Lease (2084) 1985 13.2
----
Total-Nassau West Corporate Center...... 77.3
Tarrytown Corporate Center
505 White Plains Rd.,
Tarrytown, NY ......................... 100% Fee 1974 1.4
520 White Plains Rd.,
Tarrytown, NY ......................... 60% Fee (4) 1981 6.8
555 White Plains Rd.,
Tarrytown, NY ......................... 100% Fee 1972 4.2
560 White Plains Rd.,
Tarrytown, NY ......................... 100% Fee 1980 4.0
580 White Plains Rd.,
Tarrytown, NY ......................... 100% Fee 1977 6.1
660 White Plains Rd.,
Tarrytown, NY ......................... 100% Fee 1983 10.9
----
Total-Tarrytown Corporate Center ....... 33.4
Reckson Executive Park
1 International Dr.,
Ryebrook, NY .......................... 100% Fee 1983 N/A
2 International Dr.,
Ryebrook, NY .......................... 100% Fee 1983 N/A
3 International Dr.,
Ryebrook, NY .......................... 100% Fee 1983 N/A
4 International Dr.,
Ryebrook, NY .......................... 100% Fee 1986 N/A
5 International Dr.,
Ryebrook, NY .......................... 100% Fee 1986 N/A
6 International Dr.,
Ryebrook, NY .......................... 100% Fee 1986 N/A
----
Total-Reckson Executive Park ........... 44.4
ANNUAL
NUMBER RENT NUMBER
OF RENTABLE ANNUAL PER OF
FLOORS SQUARE PERCENT BASE LEASED TENANT
(FEET) FEET LEASED RENT (2) SQ. FT. LEASES
----------- ------------ ----------- ------------- ----------- -------
Leases Suburban Office Properties:
Huntington Melville Corporate Center
395 North Service Rd,
Melville, NY .......................... 4 185,094 100.0% $ 5,120,325 $ 27.66 4
200 Broadhollow Rd,
Melville, NY .......................... 4 67,895 100.0% $ 1,544,676 $ 22.75 14
48 South Service Rd,
Melville, NY .......................... 4 126,664 100.0% $ 2,955,872 $ 23.34 8
35 Pinelawn Rd,
Melville, NY .......................... 2 106,296 97.6% $ 1,986,613 $ 18.69 30
275 Broadhollow Rd,
Melville, NY .......................... 4 126,250 100.0% $ 3,019,668 $ 23.92 9
58 South Service Rd,
Melville, NY .......................... 4 281,279 74.1% $ 6,615,411 $ 23.52 6
1305 Old Walt Whitman Rd,
Melville, NY .......................... 3 164,166 100.0% $ 4,408,597 $ 26.85 6
------- ----- ----------- ------- --
Total- Huntington Meville Corporate
Center ................................ 1,057,644 92.9% $25,651,162 $ 24.25 77
North Shore Atrium
6800 Jericho Turnpike,
Syosset, NY ........................... 2 204,331 100.0% $ 4,043,134 $ 19.79 44
6900 Jericho Turnpike,
Syosset, NY ........................... 4 94,945 93.5% $ 1,966,100 $ 20.71 13
--------- ----- ----------- ------- --
Total-North Shore Atrium ............... 299,276 97.9% $ 6,009,233 $ 20.08 57
Nassau West Corporate Center
50 Charles Lindbergh Blvd.,
Mitchel Field, NY ..................... 6 213,006 93.7% $ 4,893,918 $ 22.98 20
60 Charles Lindbergh Blvd.,
Mitchel Field, NY ..................... 2 195,570 100.0% $ 4,923,880 $ 25.18 5
51 Charles Lindbergh Blvd.,
Mitchel Field, NY ..................... 1 108,000 100.0% $ 2,508,903 $ 23.23 1
55 Charles Lindbergh Blvd.,
Mitchel Field, NY ..................... 2 214,581 100.0% $ 2,757,057 $ 12.85 2
333 Earl Ovington Blvd.,
Mitchel Field, NY ..................... 10 578,798 94.9% $15,626,736 $ 27.00 28
90 Merrick Ave.,
Mitchel Field, NY ..................... 9 232,419 97.3% $ 5,926,057 $ 25.50 22
--------- ----- ----------- ------- --
Total-Nassau West Corporate Center...... 1,542,374 96.8% $36,636,550 $ 23.75 78
Tarrytown Corporate Center
505 White Plains Rd.,
Tarrytown, NY ......................... 2 26,319 88.3% $ 369,967 $ 14.06 20
520 White Plains Rd.,
Tarrytown, NY ......................... 6 156,034 100.0% $ 3,723,762 $ 23.87 2
555 White Plains Rd.,
Tarrytown, NY ......................... 5 121,815 90.8% $ 2,620,174 $ 21.51 10
560 White Plains Rd.,
Tarrytown, NY ......................... 6 124,049 84.5% $ 2,335,277 $ 18.83 17
580 White Plains Rd.,
Tarrytown, NY ......................... 6 169,446 100.0% $ 3,333,977 $ 19.68 18
660 White Plains Rd.,
Tarrytown, NY ......................... 6 253,226 89.8% $ 5,401,627 $ 21.33 36
--------- ----- ----------- ------- --
Total-Tarrytown Corporate Center ....... 850,889 93.0% $17,784,785 $ 20.90 103
Reckson Executive Park
1 International Dr.,
Ryebrook, NY .......................... 3 90,000 100.0% $ 1,260,000 $ 14.00 1
2 International Dr.,
Ryebrook, NY .......................... 3 90,000 100.0% $ 1,260,000 $ 14.00 1
3 International Dr.,
Ryebrook, NY .......................... 3 91,193 100.0% $ 2,128,033 $ 23.34 5
4 International Dr.,
Ryebrook, NY .......................... 3 87,805 90.7% $ 1,954,873 $ 22.26 8
5 International Dr.,
Ryebrook, NY .......................... 3 90,000 100.0% $ 2,332,500 $ 25.92 1
6 International Dr.,
Ryebrook, NY .......................... 3 94,753 79.3% $ 1,582,612 $ 16.70 8
--------- ----- ----------- ------- ---
Total-Reckson Executive Park ........... 543,751 94.9% $10,518,019 $ 19.34 24
I-11
OWNERSHIP
INTEREST
(GROUND
LEASE LAND
PERCENTAGE EXPIRATION YEAR AREA
OWNERSHIP DATE) (1) CONSTRUCTED (ACRES)
------------ ------------ ------------- ---------
Summit at Valhalla
100 Summit Dr.,
Valhalla, NY .......................... 100% Fee 1988 11.3
200 Summit Dr.,
Valhalla, NY .......................... 100% Fee 1990 18.0
500 Summit Dr.,
Valhalla, NY .......................... 100% Fee 1986 29.1
-----
Total-Summit at Valhalla ............... 58.4
Mt. Pleasant Corporate Center
115/117 Stevens Ave.,
Mt. Pleasant, NY ...................... 100% Fee 1984 5.0
-----
Total-Mt Pleasant Corporate Center ..... 5.0
Stand-alone Long Island properties:
400 Garden City Plaza,
Garden City, NY ....................... 51% Fee 1989 5.7
88 Duryea Road,
Melville, NY .......................... 100% Fee 1986 1.5
310 East Shore Rd.,
Great Neck, NY ........................ 100% Fee 1981 1.5
333 East Shore Rd., Lease
Great Neck, NY ........................ 100% (2030) 1976 1.5
520 Broadhollow Rd.,
Melville, NY .......................... 100% Fee 1978 7.0
1660 Walt Whitman Rd.,
Melville, NY .......................... 100% Fee 1980 6.5
150 Motor Parkway, Hauppauge, NY . 100% Fee 1984 11.3
120 Mineola Blvd.,
Mineola, NY ........................... 100% Fee 1989 0.7
538 Broadhollow Rd.,
Melville, NY .......................... 100% Fee 1986 7.5
50 Marcus Dr.,
Melville, NY .......................... 100% Fee 2000 12.9
-----
Total-Stand-alone Long Island .......... 56.1
Stand-alone Westchester
120 White Plains Rd.,
Tarrytown, NY ......................... 51% Fee 1984 9.7
80 Grasslands, Elmsford, NY ............ 100% Fee 1989 4.9
-----
Total-Stand-alone Westchester .......... 14.6
Executive Hill Office Park
100 Executive Dr.,
Rt. 280 Corridor, NJ .................. 100% Fee 1978 10.1
200 Executive Dr.,
Rt. 208 Corridor, NJ .................. 100% Fee 1980 8.2
300 Executive Dr.,
Rt. 280 Corridor, NJ .................. 100% Fee 1984 8.7
10 Rooney Circle,
Rt. 280 Corridor, NJ .................. 100% Fee 1971 5.2
-----
Total-Executive Hill Office Park ....... 32.2
University Square Princeton
100 Campus Dr.,
Princeton/Rt. 1 Corridor, NJ .......... 100% Fee 1987 N/A
104 Campus Dr.,
Princeton/Rt. 1 Corridor, NJ .......... 100% Fee 1987 N/A
115 Campus Dr.,
Princeton/Rt. 1 Corridor, NJ .......... 100% Fee 1987 N/A
-----
Total- University Square ............... 11.0
Short Hills Office Complex
101 John F. Kennedy Parkway,
Short Hills, NJ ....................... 100% Fee 1981 9.0
103 John F. Kennedy Parkway,
Short Hills, NJ (3) ................... 100% Fee 1981 6.0
51 John F Kennedy Parkway,
Short Hills, NJ ....................... 51% Fee 1988 11.0
-----
Total- Short Hills Office .............. 26.0
Stand-alone New Jersey Properties
99 Cherry Hill Road,
Parsippany, NJ ........................ 100% Fee 1982 8.8
119 Cherry Hill Rd,
Parsippany, NJ ........................ 100% Fee 1982 9.3
One Eagle Rock,
Hanover, NJ ........................... 100% Fee 1986 10.4
3 University Plaza,
Hackensack, NJ ........................ 100% Fee 1985 10.6
1255 Broad ST.,
Clifton, NJ ........................... 100% Fee 1968 11.1
492 River Rd.,
Nutley, NJ ............................ 100% Fee 1952 17.3
-----
Total- Stand-alone NJ Properties ....... 67.5
Total Suburban Office Properties ....... 509.7
ANNUAL
NUMBER RENT NUMBER
OF RENTABLE ANNUAL PER OF
FLOORS SQUARE PERCENT BASE LEASED TENANT
(FEET) FEET LEASED RENT (2) SQ. FT. LEASES
----------- ------------ --------- --------------- ----------- -------
Summit at Valhalla
100 Summit Dr.,
Valhalla, NY .......................... 4 248,174 87.3% $ 5,408,368 $ 21.79 7
200 Summit Dr.,
Valhalla, NY .......................... 4 233,391 100.0% $ 3,034,932 $ 13.00 12
500 Summit Dr.,
Valhalla, NY .......................... 4 208,660 100.0% $ 5,425,160 $ 26.00 1
------- ----- ------------ ------- --
Total-Summit at Valhalla ............... 690,225 95.4% $ 13,868,460 $ 20.09 20
Mt. Pleasant Corporate Center
115/117 Stevens Ave.,
Mt. Pleasant, NY ...................... 3 166,237 95.5% $ 3,444,106 $ 20.72 17
------- ----- ------------ ------- --
Total-Mt Pleasant Corporate Center ..... 166,237 95.5% $ 3,444,106 $ 20.72 17
Stand-alone Long Island properties:
400 Garden City Plaza,
Garden City, NY ....................... 5 172,757 100% $ 4,289,767 $ 24.83 23
88 Duryea Road,
Melville, NY .......................... 2 23,878 100% $ 475,195 $ 19.90 4
310 East Shore Rd.,
Great Neck, NY ........................ 4 50,108 98.1% $ 1,274,544 $ 25.44 18
333 East Shore Rd.,
Great Neck, NY ........................ 2 17,650 100.0% $ 358,772 $ 20.33 9
520 Broadhollow Rd.,
Melville, NY .......................... 1 85,784 100.0% $ 1,812,368 $ 21.13 3
1660 Walt Whitman Rd.,
Melville, NY .......................... 1 74,360 85.4% $ 1,182,684 $ 15.90 6
150 Motor Parkway, Hauppauge, NY . 4 185,475 90.4% $ 3,376,724 $ 18.21 26
120 Mineola Blvd.,
Mineola, NY ........................... 6 101,572 94.1% $ 2,275,057 $ 22.40 14
538 Broadhollow Rd.,
Melville, NY .......................... 4 180,281 69.2% $ 2,574,315 $ 14.28 7
50 Marcus Dr.,
Melville, NY .......................... 2 163,762 100.0% $ 2,125,904 $ 12.98 1
------- ----- ------------ ------- --
Total-Stand-alone Long Island .......... 1,055,627 91.4% $ 19,745,330 $ 18.70 111
Stand-alone Westchester
120 White Plains Rd.,
Tarrytown, NY ......................... 6 203,788 96.3% $ 4,367,366 $ 21.43 10
80 Grasslands, Elmsford, NY ............ 3 87,114 100.0% $ 1,847,983 $ 21.21 7
--------- ----- ------------ ------- ---
Total-Stand-alone Westchester .......... 290,902 97.4% $ 6,215,349 $ 21.37 17
Executive Hill Office Park
100 Executive Dr.,
Rt. 280 Corridor, NJ .................. 3 93,285 89.3% $ 1,606,181 $ 17.22 10
200 Executive Dr.,
Rt. 208 Corridor, NJ .................. 4 105,612 100.0% $ 1,919,584 $ 18.18 11
300 Executive Dr.,
Rt. 280 Corridor, NJ .................. 4 124,636 89.0% $ 2,610,373 $ 20.94 11
10 Rooney Circle,
Rt. 280 Corridor, NJ .................. 3 70,716 78.9% $ 1,348,889 $ 19.07 3
--------- ----- ------------ ------- ---
Total-Executive Hill Office Park ....... 394,249 90.2% $ 7,485,026 $ 18.99 35
University Square Princeton
100 Campus Dr.,
Princeton/Rt. 1 Corridor, NJ .......... 1 27,888 100.0% $ 648,433 $ 23.25 3
104 Campus Dr.,
Princeton/Rt. 1 Corridor, NJ .......... 1 70,239 100.0% $ 1,663,171 $ 23.68 2
115 Campus Dr.,
Princeton/Rt. 1 Corridor, NJ .......... 1 33,600 100.0% $ 834,759 $ 24.84 1
--------- ----- ------------ ------- ---
Total- University Square ............... 131,727 100.0% $ 3,146,363 $ 23.89 6
Short Hills Office Complex
101 John F. Kennedy Parkway,
Short Hills, NJ ....................... 6 195,000 100.0% $ 3,446,625 $ 17.68 1
103 John F. Kennedy Parkway,
Short Hills, NJ (3) ................... 4 123,000 100.0% $ 3,833,500 $ 31.17 1
51 John F Kennedy Parkway,
Short Hills, NJ ....................... 5 250,642 97.6% $ 8,971,534 $ 35.79 17
--------- ----- ------------ ------- ---
Total- Short Hills Office .............. 568,642 98.9% $ 16,251,659 $ 28.58 19
Stand-alone New Jersey Properties
99 Cherry Hill Road,
Parsippany, NJ ........................ 3 93,355 73.6% $ 1,595,179 $ 17.09 12
119 Cherry Hill Rd,
Parsippany, NJ ........................ 3 95,665 97.8% $ 1,441,617 $ 15.07 16
One Eagle Rock,
Hanover, NJ ........................... 3 142,438 100.0% $ 3,049,825 $ 21.41 8
3 University Plaza,
Hackensack, NJ ........................ 6 219,550 94.9% $ 4,730,404 $ 21.55 21
1255 Broad ST.,
Clifton, NJ ........................... 2 193,574 100.0% $ 4,259,924 $ 22.01 2
492 River Rd.,
Nutley, NJ ............................ 13 130,009 100.0% $ 2,177,651 $ 16.75 1
--------- ----- ------------ ------- ---
Total- Stand-alone NJ Properties ....... 874,591 95.7% $ 17,254,600 $ 19.73 60
Total Suburban Office Properties ....... 8,466,134 94.8% $184,010,642 $ 21.73 624
I-12
OWNERSHIP
INTEREST
(GROUND
LEASE LAND
PERCENTAGE EXPIRATION YEAR AREA
OWNERSHIP DATE) (1) CONSTRUCTED (ACRES)
------------ ------------ ------------- ---------
CBD Office Properties:
Landmark Square
One Landmark Sq.,
Stamford, CT ............................ 100% Fee 1973 N/A
Two Landmark Sq.,
Stamford, CT ............................ 100% Fee 1976 N/A
Three Landmark Sq.,
Stamford, CT ............................ 100% Fee 1978 N/A
Four Landmark Sq.,
Stamford, CT ............................ 100% Fee 1977 N/A
Five Landmark Sq.,
Stamford, CT ............................ 100% Fee 1976 N/A
Six Landmark Sq.,
Stamford, CT ............................ 100% Fee 1984 N/A
---
Total- Landmark Square ................... 7.2
Stamford Towers:
680 Washington Blvd,
Stamford, CT ............................ 51% Fee 1989 1.3
750 Washington Blvd,
Stamford, CT ............................ 51% Fee 1989 2.4
Total-Stamford Towers .................... 3.7
Stand-alone Westchester
360 Hamilton Ave.,
White Plains, NY ........................ 100% Fee 1977 1.5
140 Grand ST.,
White Plains, NY ........................ 100% Fee 1991 2.2
-----
Total-Stand-alone Westchester ............ 3.7
New York City Office Properties
120 W. 45th ST.,
New York, NY ............................ 100% Fee 1989 0.4
100 Wall ST.,
New York, NY ............................ 100% Fee 1969 0.5
810 Seventh Ave.,
New York, NY ............................ 100% Fee(5) 1970 0.6
919 Third Ave.,
New York, NY ............................ 100% Fee(6) 1971 1.5
1350 Ave. of the Americas,
New York, NY ............................ 100% Fee 1966 0.6
-----
Total-New York City Office Properties 3.6
Total CBD Office Properties .............. 18.2
Total-Office Properties .................. 527.9
ANNUAL
NUMBER RENT NUMBER
OF RENTABLE ANNUAL PER OF
FLOORS SQUARE PERCENT BASE LEASED TENANT
(FEET) FEET LEASED RENT (2) SQ. FT. LEASES
----------- ------------ --------- --------------- ----------- -------
CBD Office Properties:
Landmark Square
One Landmark Sq.,
Stamford, CT ............................ 22 280,661 98.3% $ 7,037,786 $ 25.08 59
Two Landmark Sq.,
Stamford, CT ............................ 3 36,889 83.2% $ 795,071 $ 21.55 8
Three Landmark Sq.,
Stamford, CT ............................ 6 128,887 95.8% $ 3,212,338 $ 24.92 14
Four Landmark Sq.,
Stamford, CT ............................ 5 98,054 95.3% $ 1,966,176 $ 20.05 13
Five Landmark Sq.,
Stamford, CT ............................ 3 58,000 100.0% $ 310,536 $ 5.35 3
Six Landmark Sq.,
Stamford, CT ............................ 10 168,180 99.5% $ 4,001,941 $ 23.80 8
------- ----- ------------ ------- --
Total- Landmark Square ................... 770,671 97.2% $ 17,323,849 $ 22.48 105
680 Washington Blvd,
Stamford, CT ............................ 11 132,759 100% $ 4,000,443 $ 30.13 7
750 Washington Blvd,
Stamford, CT ............................ 11 185,901 98.2% $ 4,555,349 $ 24.50 9
Total-Stamford Towers .................... 318,660 98.9% $ 8,555,792 $ 26.85 16
Stand-alone Westchester
360 Hamilton Ave.,
White Plains, NY ........................ 12 381,257 91.0% $ 8,505,931 $ 22.31 15
140 Grand ST.,
White Plains, NY ........................ 9 123,827 95.9% $ 2,943,592 $ 23.77 14
------- ----- ------------ ------- ---
Total-Stand-alone Westchester ............ 505,084 92.2% $ 11,449,523 $ 22.67 29
New York City Office Properties
120 W. 45th ST.,
New York, NY ............................ 40 441,175 97.0% $ 16,866,305 $ 38.23 33
100 Wall ST.,
New York, NY ............................ 29 457,678 100.0% $ 14,199,700 $ 31.03 29
810 Seventh Ave.,
New York, NY ............................ 42 690,977 97.0% $ 22,693,099 $ 32.84 34
919 Third Ave.,
New York, NY ............................ 47 1,355,239 100.0% $ 58,949,836 $ 43.50 21
1350 Ave. of the Americas,
New York, NY ............................ 35 543,415 91.9% $ 17,288,113 $ 31.81 70
--------- ----- ------------ ------- ---
Total-New York City Office Properties 3,488,484 97.8% $129,997,053 $ 37.26 187
Total CBD Office Properties .............. 5,082,899 97.2% $167,326,216 $ 32.92 337
Total-Office Properties .................. 13,549,033 95.7% $351,336,858 $ 25.93 961
------------------
(1) Ground lease expirations assume exercise of renewal options by the lessee.
(2) Represents Base Rent, net of electric reimbursement, of signed leases at
December 31, 2002 adjusted for scheduled contractual increases during the
12 months ending December 31, 2003. Total Base Rent for these purposes
reflects the effect of any lease expirations that occur during the
12-month period ending December 31, 2003. Amounts included in rental
revenue for financial reporting purposes have been determined on a
straight-line basis rather than on the basis of contractual rent as set
forth in the foregoing table.
(3) Year renovated.
(4) The actual fee interest in is held by the County of Westchester Industrial
Development Agency. The fee interest in 520 White Plains Road may be
acquired if the outstanding principal under certain loan agreements and
annual basic installments are prepaid in full.
(5) There is a ground lease in place on a small portion of the land which
expires in 2044.
(6) There is a ground lease in place on a small portion of the land which
expires in 2066.
I-13
INDUSTRIAL / R&D PROPERTIES
General
As of December 31, 2002, the Company owned or had an interest in 101
industrial / R&D properties that encompass approximately 6.7 million rentable
square feet. As of December 31, 2002, the industrial / R&D properties were
approximately 94.7% leased (percentage leased excludes properties under
development) to approximately 239 tenants. Many of these properties have been
constructed with high ceiling heights (i.e., above 18 feet), upscale office
building facades, parking in excess of zoning requirements, drive-in and / or
loading dock facilities and other features which permit them to be leased for
industrial and / or office purposes.
The industrial / R&D properties are leased to both national and local
tenants. These tenants utilize these properties for distribution, warehousing,
research and development and light manufacturing / assembly activities. Leases
on the industrial / R&D properties are typically written for terms ranging from
three to seven years and require: (i) payment of a Base Rent, (ii) payments of
real estate tax escalations over a base year, (iii) payments of compounded
annual increases to Base Rent and (iv) reimbursement of all operating expenses.
Electric costs are generally borne and paid directly by the tenant. Certain
leases are "triple net" (i.e., the tenant is required to pay in addition to
annual Base Rent, all operating expenses and real estate taxes). In virtually
all of the industrial / R&D leases, the landlord is responsible for structural
repairs. Renewal provisions typically provide for renewal rents at market
rates, provided that such rates are not less than the most recent rental rates.
Approximately 86%, as measured by square footage, of the industrial / R&D
properties, are located on Long Island. Fifty-eight percent of these
properties, as measured by square footage, are located in the following three
industrial parks developed by Reckson, the predecessor to the Company: (i)
Vanderbilt Industrial Park, (ii) Airport International Plaza and (iii) County
Line Industrial Center.
In addition to the industrial / R&D properties on Long Island, the Company
owns eight industrial properties encompassing approximately 912,000 square feet
in the other suburban markets.
The following table sets forth certain information as of December 31, 2002
for each of the industrial properties.
OWNERSHIP
INTEREST
(GROUND
LEASE LAND CLEARENCE
PERCENTAGE EXPIRATION YEAR AREA HEIGHT
OWNERSHIP DATE) (1) CONSTRUCTED (ACRES) (FEET)
------------ ------------ ------------- --------- -----------
LONG ISLAND INDUSTRIAL
Airport Industrial Plaza
110 Orville Dr.,
Islip, NY .............. 100.0% Fee 1979 6.4 24
1101 Lakeland Ave.,
Islip, NY .............. 100.0% Fee 1983 4.9 20
120 Wilbur Place,
Islip, NY .............. 100.0% Fee 1972 2.8 16
125 Wilbur Place,
Islip, NY .............. 100.0% Fee 1977 4.0 16
1385 Lakeland Ave.,
Islip, NY .............. 100.0% Fee 1973 2.4 16
140 Wilbur Place,
Islip, NY .............. 100.0% Fee 1973 3.1 20
160 Wilbur Place,
Islip, NY .............. 100.0% Fee 1978 3.9 16
170 Wilbur Place,
Islip, NY .............. 100.0% Fee 1979 4.9 16
180 Orville Dr.,
Islip, NY .............. 100.0% Fee 1982 2.3 16
20 Orville Dr.,
Islip, NY .............. 100.0% Fee 1978 1.0 16
2002 Orville Drive North,
Islip, NY .............. 100.0% Fee 2000 15.8 24
2004 Orville Drive North,
Islip, NY .............. 100.0% Fee 1998 7.4 24
2005 Orville Drive North,
Islip, NY .............. 100.0% Fee 1999 8.7 24
25 Orville Dr.,
Islip, NY .............. 100.0% Fee 1970 2.2 16
4040 Veterans Highway,
Islip, NY .............. 100.0% Fee 1972 1.0 14
50 Orville Dr.,
Islip, NY .............. 100.0% Fee 1976 1.6 15
ANNUAL
RESEARCH RENT NUMBER
AND RENTABLE ANNUAL PER OF
DEVELOPMENT SQUARE PERCENT BASE LEASED TENANT
FINISH FEET LEASED RENT (2) SQ. FT. LEASES
------------- ---------- ----------- ------------- --------- -------
LONG ISLAND INDUSTRIAL
Airport Industrial Plaza
110 Orville Dr.,
Islip, NY .............. 80% 110,000 100.0% $ 685,667 $ 6.23 1
1101 Lakeland Ave.,
Islip, NY .............. 65% 90,411 100.0% $ 567,419 $ 6.28 1
120 Wilbur Place,
Islip, NY .............. 62% 34,866 100.0% $ 251,070 $ 7.20 4
125 Wilbur Place,
Islip, NY .............. 45% 61,698 86.9% $ 304,521 $ 4.94 9
1385 Lakeland Ave.,
Islip, NY .............. 9% 35,000 78.6% $ 202,783 $ 5.79 3
140 Wilbur Place,
Islip, NY .............. 33% 48,500 100.0% $ 316,495 $ 6.53 2
160 Wilbur Place,
Islip, NY .............. 87% 62,710 100.0% $ 560,665 $ 8.94 2
170 Wilbur Place,
Islip, NY .............. 30% 72,203 100.0% $ 470,721 $ 6.52 5
180 Orville Dr.,
Islip, NY .............. 4% 37,612 100.0% $ 210,214 $ 5.59 2
20 Orville Dr.,
Islip, NY .............. 100% 12,900 100.0% $ 196,548 $ 15.24 1
2002 Orville Drive North,
Islip, NY .............. 11% 206,005 100.0% $1,797,445 $ 8.73 2
2004 Orville Drive North,
Islip, NY .............. 10% 106,515 100.0% $ 397,934 $ 3.74 1
2005 Orville Drive North,
Islip, NY .............. 20% 130,010 100.0% $1,023,169 $ 7.87 1
25 Orville Dr.,
Islip, NY .............. 100% 33,655 100.0% $ 523,115 $ 15.54 1
4040 Veterans Highway,
Islip, NY .............. 100% 2,800 100.0% $ 82,600 $ 29.50 1
50 Orville Dr.,
Islip, NY .............. 99% 27,943 100.0% $ 257,597 $ 9.22 3
I-14
OWNERSHIP
INTEREST
(GROUND
LEASE LAND CLEARENCE
PERCENTAGE EXPIRATION YEAR AREA HEIGHT
OWNERSHIP DATE) (1) CONSTRUCTED (ACRES) (FEET)
------------ ------------ ------------- --------- -----------
65 Orville Dr.,
Islip, NY .................... 100.0% Fee 1971 2.2 14
70 Orville Dr.,
Islip, NY .................... 100.0% Fee 1975 2.3 22
80 Orville Dr.,
Islip, NY .................... 100.0% Fee 1988 6.5 16
85 Orville Dr.,
Islip, NY .................... 100.0% Fee 1974 1.9 14
95 Orville Dr.,
Islip, NY .................... 100.0% Fee 1974 1.8 14
----
Airport Industrial Plaza Total 87.1
Hauppauge Industrial Park
100 Engineers Rd.,
Hauppauge, NY ................ 100.0% Fee 1968 5.0 14
104 Parkway Dr.,
Hauppauge, NY ................ 100.0% Fee 1985 1.8 15
110 Plant Ave.,
Hauppauge, NY ................ 100.0% Fee 1974 6.8 18
120 Ricefield Ln.,
Hauppauge, NY ................ 100.0% Fee 1983 2.0 15
125 Ricefield Ln.,
Hauppauge, NY ................ 100.0% Fee 1973 2.0 14
135 Ricefield Ln.,
Hauppauge, NY ................ 100.0% Fee 1981 2.1 15
150 Engineers Rd.,
Hauppauge, NY ................ 100.0% Fee 1969 6.8 22
180 Oser Ave., Lease
Hauppauge, NY ................ 100.0% (2009) 1978 3.4 16
185 Oser Ave,
Hauppauge, NY ................ 100.0% Fee 1974 2.0 18
20 Oser Ave.,
Hauppauge, NY ................ 100.0% Fee 1979 5.0 16
225 Oser Ave.,
Hauppauge, NY ................ 100.0% Fee 1977 1.2 14
25 Davids Dr.,
Hauppauge, NY ................ 100.0% Fee 1975 3.2 20
250 Kennedy Dr.,
Hauppauge, NY ................ 100.0% Fee 1979 7.0 16
30 Oser Ave.,
Hauppauge, NY ................ 100.0% Fee 1978 4.4 16
325 Rabro Dr.,
Hauppauge, NY ................ 100.0% Fee 1967 2.7 14
360 Motor Pk.,
Hauppauge, NY ................ 100.0% Fee 1967 4.2 16
360 Oser Ave.,
Hauppauge, NY ................ 100.0% Fee 1981 1.3 18
375 Oser Ave.,
Hauppauge, NY ................ 100.0% Fee 1981 1.2 18
390 Motor Parkway,
Hauppauge, NY ................ 100.0% Fee 1980 10.0 14
395 Oser Ave.,
Hauppauge, NY ................ 100.0% Fee 1980 6.1 14
40 Oser Ave.,
Hauppauge, NY ................ 100.0% Fee 1974 3.1 16
400 Moreland Rd.,
Hauppauge, NY ................ 100.0% Fee 1967 6.3 17
400 Oser Ave.,
Hauppauge, NY ................ 100.0% Fee 1982 9.5 16
410 Motor Pk.,
Hauppauge, NY ................ 100.0% Fee 1965 3.0 15
425 Rabro Dr.,
Hauppauge, NY ................ 100.0% Fee 1980 4.0 16
45 Adams Ave.,
Hauppauge, NY ................ 100.0% Fee 1979 2.1 18
50 Oser Ave.,
Hauppauge, NY ................ 100.0% Fee 1975 4.1 21
55 Engineers Rd.,
Hauppauge, NY ................ 100.0% Fee 1968 3.0 18
595 Old Willets Path,
Hauppauge, NY ................ 100.0% Fee 1968 3.5 14
60 Oser Ave.,
Hauppauge, NY ................ 100.0% Fee 1975 3.3 21
600 Old Willets Path ,
Hauppauge, NY ................ 100.0% Fee 1965 4.5 14
611 Old Willets Path,
Hauppauge, NY ................ 100.0% Fee 1963 3.0 14
63 Oser Ave.,
Hauppauge, NY ................ 100.0% Fee 1974 1.2 20
631/641 Old Willets Path,
Hauppauge, NY ................ 100.0% Fee 1965 1.9 14
65 Engineers Rd.,
Hauppauge, NY ................ 100.0% Fee 1969 1.8 22
65 Oser Ave.,
Hauppauge, NY ................ 100.0% Fee 1975 1.2 18
651/661 Old Willets Path,
Hauppauge, NY ................ 100.0% Fee 1966 2.0 14
ANNUAL
RESEARCH RENT NUMBER
AND RENTABLE ANNUAL PER OF
DEVELOPMENT SQUARE PERCENT BASE LEASED TENANT
FINISH FEET LEASED RENT (2) SQ. FT. LEASES
------------- ------------ ----------- ------------- --------- -------
65 Orville Dr.,
Islip, NY .................... 20% 32,000 100.0% $ 220,068 $ 6.88 2
70 Orville Dr.,
Islip, NY .................... 18% 41,508 100.0% $ 355,988 $ 8.58 2
80 Orville Dr.,
Islip, NY .................... 47% 92,684 100.0% $ 611,343 $ 6.60 8
85 Orville Dr.,
Islip, NY .................... 20% 25,091 100.0% $ 173,671 $ 6.92 2
95 Orville Dr.,
Islip, NY .................... 20% 25,300 100.0% $ 135,945 $ 5.37 1
--------- ----- ---------- ------- --
Airport Industrial Plaza Total 1,289,411 98.8% $9,344,978 $ 7.25 54
Hauppauge Industrial Park
100 Engineers Rd.,
Hauppauge, NY ................ 100% 40,880 100.0% $ 573,914 $ 14.04 1
104 Parkway Dr.,
Hauppauge, NY ................ 15% 27,600 100.0% $ 111,918 $ 4.06 1
110 Plant Ave.,
Hauppauge, NY ................ 2% 125,000 100.0% $ 488,194 $ 3.91 1
120 Ricefield Ln.,
Hauppauge, NY ................ 9% 33,100 100.0% $ 193,917 $ 5.86 1
125 Ricefield Ln.,
Hauppauge, NY ................ 20% 30,495 100.0% $ 201,844 $ 6.62 1
135 Ricefield Ln.,
Hauppauge, NY ................ 50% 32,340 100.0% $ 153,100 $ 4.73 1
150 Engineers Rd.,
Hauppauge, NY ................ 10% 135,000 100.0% $ 179,625 $ 1.33 1
180 Oser Ave.,
Hauppauge, NY ................ 50% 61,264 100.0% $ 507,518 $ 8.28 9
185 Oser Ave,
Hauppauge, NY ................ 50% 30,000 100.0% $ 219,834 $ 7.33 1
20 Oser Ave.,
Hauppauge, NY ................ 98% 42,000 100.0% $ 393,135 $ 9.36 2
225 Oser Ave.,
Hauppauge, NY ................ 85% 9,960 100.0% $ 130,891 $ 13.14 1
25 Davids Dr.,
Hauppauge, NY ................ 50% 40,000 100.0% $ 350,200 $ 8.75 1
250 Kennedy Dr.,
Hauppauge, NY ................ 10% 127,980 100.0% $ 455,298 $ 3.56 1
30 Oser Ave.,
Hauppauge, NY ................ 69% 41,851 100.0% $ 310,213 $ 7.41 4
325 Rabro Dr.,
Hauppauge, NY ................ 27% 35,473 32.9% $ 89,096 $ 2.51 1
360 Motor Pk.,
Hauppauge, NY ................ 100% 54,000 100.0% $ 306,060 $ 5.67 1
360 Oser Ave.,
Hauppauge, NY ................ 20% 23,000 100.0% $ 169,114 $ 7.35 1
375 Oser Ave.,
Hauppauge, NY ................ 60% 20,000 100.0% $ 160,633 $ 8.03 1
390 Motor Parkway,
Hauppauge, NY ................ 10% 181,060 100.0% $1,033,943 $ 5.71 1
395 Oser Ave.,
Hauppauge, NY ................ 100% 49,500 100.0% $ 464,805 $ 9.39 1
40 Oser Ave.,
Hauppauge, NY ................ 45% 59,850 100.0% $ 435,463 $ 7.28 13
400 Moreland Rd.,
Hauppauge, NY ................ 80% 57,050 100.0% $ 931,626 $ 16.33 1
400 Oser Ave.,
Hauppauge, NY ................ 36% 163,885 94.8% $1,252,016 $ 7.64 27
410 Motor Pk.,
Hauppauge, NY ................ 18% 41,784 100.0% $ 273,524 $ 6.55 3
425 Rabro Dr.,
Hauppauge, NY ................ 50% 65,421 100.0% $ 765,971 $ 11.71 1
45 Adams Ave.,
Hauppauge, NY ................ 75% 28,000 100.0% $ 270,667 $ 9.67 1
50 Oser Ave.,
Hauppauge, NY ................ 15% 60,000 100.0% $ 246,000 $ 4.10 1
55 Engineers Rd.,
Hauppauge, NY ................ 100% 36,000 100.0% $ 373,307 $ 10.37 1
595 Old Willets Path,
Hauppauge, NY ................ 39% 31,670 100.0% $ 218,811 $ 6.91 4
60 Oser Ave.,
Hauppauge, NY ................ 10% 48,000 100.0% $ 196,800 $ 4.10 1
600 Old Willets Path ,
Hauppauge, NY ................ 10% 69,654 100.0% $ 438,114 $ 6.29 1
611 Old Willets Path,
Hauppauge, NY ................ 5% 20,000 100.0% $ 172,329 $ 8.62 2
63 Oser Ave.,
Hauppauge, NY ................ 20% 23,000 100.0% $ 151,220 $ 6.57 1
631/641 Old Willets Path,
Hauppauge, NY ................ 28% 25,000 100.0% $ 177,624 $ 7.10 4
65 Engineers Rd.,
Hauppauge, NY ................ 10% 23,000 100.0% $ 149,500 $ 6.50 1
65 Oser Ave.,
Hauppauge, NY ................ 10% 20,000 100.0% $ 115,023 $ 5.75 1
651/661 Old Willets Path,
Hauppauge, NY ................ 54% 25,000 100.0% $ 189,845 $ 7.59 6
I-15
OWNERSHIP
INTEREST
(GROUND
LEASE LAND CLEARENCE
PERCENTAGE EXPIRATION YEAR AREA HEIGHT
OWNERSHIP DATE) (1) CONSTRUCTED (ACRES) (FEET)
------------ ------------ ------------- --------- -----------
681 Old Willets Path,
Hauppauge, NY ......................... 100.0% Fee 1961 1.3 14
73 Oser Ave.,
Hauppauge, NY ......................... 100.0% Fee 1974 1.2 20
740 Old Willets Path,
Hauppauge, NY ......................... 100.0% Fee 1965 3.5 14
80 Oser Ave.,
Hauppauge, NY ......................... 100.0% Fee 1974 1.1 18
85 Adams Dr.,
Hauppauge, NY ......................... 100.0% Fee 1980 1.8 15
85 Engineers Rd.,
Hauppauge, NY ......................... 100.0% Fee 1968 2.3 18
85 Nicon Ct.,
Hauppauge, NY ......................... 100.0% Fee 1978 6.1 30
90 Oser Ave.,
Hauppauge, NY ......................... 100.0% Fee 1973 1.1 16
90 Plant Ave.,
Hauppauge, NY ......................... 100.0% Fee 1972 4.3 16
-----
Hauppauge Industrial Park Total ........ 158.4
County Line Industrial Center,
Melville Long Island
5 Hub Dr.,
Melville, NY .......................... 100.0% Fee 1979 6.9 20
10 Hub Dr.,
Melville, NY .......................... 100.0% Fee 1975 6.6 20
265 Spagnoli Rd.,
Melville, NY .......................... 100.0% Fee 1978 6.0 20
30 Hub Dr.,
Melville, NY .......................... 100.0% Fee 1976 5.1 20
-----
County Line Total ...................... 24.6
Standalone Islip Long Island
135 Fell Ct.,
Islip, NY ............................. 100.0% Fee 1965 3.2 16
208 Blydenburgh Rd.,
Islandia, NY .......................... 100.0% Fee 1969 2.4 14
210 Blydenburgh Rd.,
Islandia, NY .......................... 100.0% Fee 1969 1.2 14
32 Windsor Pl.,
Islip, NY ............................. 100.0% Fee 1971 2.5 18
42 Windsor Pl.,
Islip, NY ............................. 100.0% Fee 1972 2.4 18
71 Hoffman Ln.,
Islandia, NY. ......................... 100.0% Fee 1970 5.8 16
-----
Islip Long Island Total ................ 17.5
Standalone Farmingdale Long Island
70 Schmitt Blvd.,
Farmingdale, NY ....................... 100.0% Fee 1975 4.4 18
105 Price Parkway,
Farmingdale, NY ....................... 100.0% Fee 1969 12.0 26
110 Bi County Blvd.,
Farmingdale, NY ....................... 100.0% Fee 1984 9.5 19
-----
Farmingdale Long Island Total .......... 25.9
Standalone Melville Long Island
20 Melville Park Road,
Melville, NY .......................... 100.0% Fee 1965 4.0 23
45 Melville Park Drive,
Melville, NY .......................... 100.0% Fee 1998 4.2 24
65 Marcus Drive,
Melville, NY .......................... 100.0% Fee 1968 5.0 16
70 Maxess Road,
Melville, NY .......................... 100.0% Fee 1969 9.3 15
-----
Melville Long Island Total ............. 22.5
Standalone Hauppauge Long Island
1516 Motor Pk.,
Hauppauge, NY ......................... 100.0% Fee 1981 7.9 24
300 Motor Pk.,
Hauppauge, NY ......................... 100.0% Fee 1979 4.2 14
-----
Hauppauge Long Island Total ............ 12.1
Standalone Other Long Island
100 Andrews Rd.,
Hicksville, NY ........................ 100.0% Fee 1954 11.7 25
110 Marcus Drive,
Huntington, NY ........................ 100.0% Fee 1980 6.1 20
19 Nicholas Dr.,
Yaphank, NY (3) ....................... 100.0% Fee 1989 29.6 24
35 Engle St.,
Hicksville, NY ........................ 100.0% Lease (4) 1966 4.0 24
48 Harbor Pk Dr.,
Port Washington, NY ................... 100.0% Fee 1976 2.7 16
85 S. Service Rd.,
Plainview, NY ......................... 100.0% Fee 1961 1.6 14
933 Motor Parkway,
Smithtown, NY ......................... 100.0% Fee 1973 5.6 20
-----
Standalone Other Long Island Total ..... 61.3
ANNUAL
RESEARCH RENT NUMBER
AND RENTABLE ANNUAL PER OF
DEVELOPMENT SQUARE PERCENT BASE LEASED TENANT
FINISH FEET LEASED RENT (2) SQ. FT. LEASES
------------- ------------ ----------- -------------- --------- -------
681 Old Willets Path,
Hauppauge, NY ......................... 10% 15,000 100.0% $ 110,634 $ 7.38 1
73 Oser Ave.,
Hauppauge, NY ......................... 10% 20,000 100.0% $ 139,873 $ 6.99 1
740 Old Willets Path,
Hauppauge, NY ......................... 50% 30,000 100.0% $ 29,670 $ 0.99 1
80 Oser Ave.,
Hauppauge, NY ......................... 40% 19,500 100.0% $ 74,425 $ 3.82 1
85 Adams Dr.,
Hauppauge, NY ......................... 100% 20,000 100.0% $ 280,000 $ 14.00 1
85 Engineers Rd.,
Hauppauge, NY ......................... 5% 40,800 100.0% $ 225,095 $ 5.52 2
85 Nicon Ct.,
Hauppauge, NY ......................... 10% 104,000 100.0% $ 634,400 $ 6.10 1
90 Oser Ave.,
Hauppauge, NY ......................... 40% 37,500 100.0% $ 144,375 $ 3.85 1
90 Plant Ave.,
Hauppauge, NY ......................... 19% 74,915 100.0% $ 162,117 $ 2.16 3
--------- ----- ----------- ------- ---
Hauppauge Industrial Park Total ........ 2,299,532 98.6% $14,651,684 $ 6.37 113
County Line Industrial Center,
Melville Long Island
5 Hub Dr.,
Melville, NY .......................... 47% 88,001 100.0% $ 577,634 $ 6.56 2
10 Hub Dr.,
Melville, NY .......................... 18% 95,671 100.0% $ 749,371 $ 7.83 3
265 Spagnoli Rd.,
Melville, NY .......................... 61% 85,555 100.0% $ 737,824 $ 8.62 2
30 Hub Dr.,
Melville, NY .......................... 10% 73,127 100.0% $ 516,326 $ 7.06 2
--------- ----- ----------- ------- ---
County Line Total ...................... 342,354 100.0% $ 2,581,155 $ 7.54 9
Standalone Islip Long Island
135 Fell Ct.,
Islip, NY ............................. 10% 30,124 100.0% $ 253,973 $ 8.43 1
208 Blydenburgh Rd.,
Islandia, NY .......................... 20% 24,000 100.0% $ 135,094 $ 5.63 3
210 Blydenburgh Rd.,
Islandia, NY .......................... 10% 20,000 100.0% $ 103,977 $ 5.20 2
32 Windsor Pl.,
Islip, NY ............................. 10% 43,000 100.0% $ 155,887 $ 3.63 1
42 Windsor Pl.,
Islip, NY ............................. 10% 65,000 100.0% $ 260,000 $ 4.00 1
71 Hoffman Ln.,
Islandia, NY. ......................... 10% 30,400 0.0% $ 0 $ 0.00 0
--------- ----- ----------- ------- ---
Islip Long Island Total ................ 212,524 85.7% $ 908,932 $ 4.28 8
Standalone Farmingdale Long Island
70 Schmitt Blvd.,
Farmingdale, NY ....................... 15% 76,312 100.0% $ 605,343 $ 7.93 1
105 Price Parkway,
Farmingdale, NY ....................... 10% 297,000 100.0% $ 1,517,267 $ 5.11 1
110 Bi County Blvd.,
Farmingdale, NY ....................... 81% 146,696 100.0% $ 1,441,847 $ 9.83 9
--------- ----- ----------- ------- ---
Farmingdale Long Island Total .......... 520,008 100.0% $ 3,564,457 $ 6.85 11
Standalone Melville Long Island
20 Melville Park Road,
Melville, NY .......................... 15% 67,922 100.0% $ 401,204 $ 5.91 1
45 Melville Park Drive,
Melville, NY .......................... 50% 40,247 100.0% $ 607,924 $ 15.10 1
65 Marcus Drive,
Melville, NY .......................... 20% 60,000 100.0% $ 675,462 $ 11.26 1
70 Maxess Road,
Melville, NY .......................... 40% 78,600 100.0% $ 750,300 $ 9.55 1
--------- ----- ----------- ------- ---
Melville Long Island Total ............. 246,769 100.0% $ 2,434,889 $ 9.87 4
Standalone Hauppauge Long Island
1516 Motor Pk.,
Hauppauge, NY ......................... 10% 140,000 100.0% $ 905,215 $ 6.47 1
300 Motor Pk.,
Hauppauge, NY ......................... 100% 54,154 91.5% $ 912,473 $ 16.85 6
--------- ----- ----------- ------- ---
Hauppauge Long Island Total ............ 194,154 97.6% $ 1,817,689 $ 9.36 7
Standalone Other Long Island
100 Andrews Rd.,
Hicksville, NY ........................ 10% 167,754 100.0% $ 1,232,628 $ 7.35 2
110 Marcus Drive,
Huntington, NY ........................ 40% 78,240 100.0% $ 547,418 $ 7.00 1
19 Nicholas Dr.,
Yaphank, NY (3) ....................... 5% 230,000 100.0% $ 1,391,968 $ 6.05 1
35 Engle St.,
Hicksville, NY ........................ 5% 120,283 100.0% $ 631,005 $ 5.25 1
48 Harbor Pk Dr.,
Port Washington, NY ................... 100% 35,000 100.0% $ 795,675 $ 22.73 1
85 S. Service Rd.,
Plainview, NY ......................... 10% 20,000 100.0% $ 137,395 $ 6.87 2
933 Motor Parkway,
Smithtown, NY ......................... 20% 48,000 50.0% $ 158,756 $ 3.31 1
--------- ----- ----------- ------- ---
Standalone Other Long Island Total ..... 699,277 96.6% $ 4,894,845 $ 7.00 9
I-16
OWNERSHIP
INTEREST
(GROUND
LEASE LAND CLEARENCE
PERCENTAGE EXPIRATION YEAR AREA HEIGHT
OWNERSHIP DATE) (1) CONSTRUCTED (ACRES) (FEET)
------------ ------------ ------------- --------- -----------
NEW JERSEY INDUSTRIAL
Western Morris and South Plainfield
100 Forge Way,
Rockaway, NJ ......................... 100.0% Fee 1986 3.5 24
200 Forge Way,
Rockaway, NJ ......................... 100.0% Fee 1989 12.7 28
300 Forge Way,
Rockaway, NJ ......................... 100.0% Fee 1989 4.2 24
400 Forge Way,
Rockaway, NJ ......................... 100.0% Fee 1989 12.8 28
40 Cragwood Rd.,
South Plainfield, NJ ................. 100.0% Fee 1965 13.5 16
-----
W. Morris S. Plainfield Total ......... 46.7
WESTCHESTER INDUSTRIAL
Elmsford Westchester
100 Grasslands Rd.,
Elmsford, NY ......................... 100.0% Fee 1964 3.6 16
500 Saw Mill Rd.,
Elmsford, NY ......................... 100.0% Fee 1968 7.3 22
-----
Elmsford Westchester Total ............ 10.9
CONNECTICUT INDUSTRIAL
Shelton Connecticut
710 Bridgeport,
Shelton, CT 100.0% Fee 1971-1979 36.1 22
-----
Shelton Connecticut Total ............. 36.1
TOTAL INDUSTRIAL ...................... 503.1
ANNUAL
RESEARCH RENT NUMBER
AND RENTABLE ANNUAL PER OF
DEVELOPMENT SQUARE PERCENT BASE LEASED TENANT
FINISH FEET LEASED RENT (2) SQ. FT. LEASES
------------- ------------ ----------- ------------- --------- -------
NEW JERSEY INDUSTRIAL
Western Morris and South Plainfield
100 Forge Way,
Rockaway, NJ ......................... 46% 20,150 100.0% $ 175,639 $ 8.72 5
200 Forge Way,
Rockaway, NJ ......................... 53% 72,118 100.0% $ 634,638 $ 8.80 2
300 Forge Way,
Rockaway, NJ ......................... 63% 24,200 100.0% $ 212,550 $ 8.78 2
400 Forge Way,
Rockaway, NJ ......................... 20% 73,000 100.0% $ 535,731 $ 7.34 3
40 Cragwood Rd.,
South Plainfield, NJ ................. 30% 130,793 69.3% $ 1,278,645 $ 9.78 4
------- ----- ----------- ------- --
W. Morris S. Plainfield Total ......... 320,261 87.5% $ 2,837,203 $ 8.86 16
WESTCHESTER INDUSTRIAL
Elmsford Westchester
100 Grasslands Rd.,
Elmsford, NY ......................... 100% 47,690 100.0% $ 924,818 $ 19.39 4
500 Saw Mill Rd.,
Elmsford, NY ......................... 20% 92,000 100.0% $ 920,000 $ 10.00 1
------- ----- ----------- ------- --
Elmsford Westchester Total ............ 139,690 100.0% $ 1,844,818 $ 13.21 5
CONNECTICUT INDUSTRIAL
Shelton Connecticut
710 Bridgeport,
Shelton, CT 29% 452,414 54.3% $ 2,032,502 $ 4.49 1
------- ----- ----------- ------- --
Shelton Connecticut Total ............. 452,414 54.3% $ 2,032,502 $ 4.49 1
TOTAL INDUSTRIAL ...................... 6,716,394 94.7% $46,913,152 $ 6.98 237
----------------
(1) Calculated as the difference from the lowest beam to floor.
(2) Represents Base Rent, net of electric reimbursement, of signed leases at
December 31, 2002 adjusted for scheduled contractual increases during the
12 months ending December 31, 2003. Total Base Rent for these purposes
reflects the effect of any lease expirations that occur during the 12
month period ending December 31, 2003. Amounts included in rental revenue
for financial reporting purposes have been determined on a straight-line
basis rather than on the basis of contractual rent as set forth in the
foregoing table.
(3) The actual fee interest is currently held by the Town of Brookhaven
Industrial Development Agency. The Company may acquire such fee interest
by making a nominal payment to the Town of Brookhaven Industrial
Development Agency.
(4) The Company has entered into a 20 year lease agreement in which it has the
right to sublease the premises.
RETAIL PROPERTIES
As of December 31, 2002, the Company owned two free-standing retail
properties encompassing approximately 10,000 square feet each located in Great
Neck and Huntington, New York. One of these properties is fully leased and one
property is approximately 70% leased.
DEVELOPMENTS IN PROGRESS
As of December 31, 2002, the Company had invested approximately $121.2
million in developments in progress. This amount includes approximately $5.4
million relating to a development currently under construction which when
completed will encompass approximately 71,000 square feet of new industrial /
R&D space. In addition, the Company has invested approximately $115.8 million
relating to 13 remaining parcels of land which it can develop approximately 3.6
million square feet of office and industrial / R&D space.
In February 2003, the Company, through Reckson Construction Group Inc.,
entered into a contract to sell a 19.3-acre development parcel located in
Melville, New York. In addition, Reckson Construction Group, Inc., has been
retained by the purchaser to develop a 195,000 square foot build-to-suit office
building on this development parcel.
THE OPTION PROPERTIES
In connection with the IPO, the Company was granted ten-year options to
acquire ten properties (the "Option Properties") which are either owned by
certain Rechler family members who are also executive officers of the Company,
or in which the Rechler family members own a non-controlling minority interest
at a price based upon an agreed upon formula. In years prior to 2001, one of
these properties was sold by the Rechler family members to a third party and
four of these properties were acquired by the Company for an aggregate purchase
price of approximately $35 million, which included the issuance of
approximately 475,000 OP Units valued at approximately $8.8 million.
I-17
Currently, certain Rechler family members retain their equity interests in
the five remaining Option Properties (the "Remaining Option Properties") which
were not contributed to the Company as part of the IPO. Such options provide
the Company the right to acquire fee interest in two of the Remaining Option
Properties and the Rechlers' minority interests in three Remaining Option
Properties. The Independent Directors of the Company's Board of Directors are
currently reviewing whether the Company should exercise one or more of the
options relating to the Remaining Option Properties.
HISTORICAL NON-INCREMENTAL REVENUE-GENERATING CAPITAL EXPENDITURES, TENANT
IMPROVEMENT COSTS AND LEASING COMMISSIONS
The following table sets forth annual and per square foot non-incremental
revenue-generating capital expenditures in which the Company paid or accrued,
during the respective periods, to retain revenues attributable to existing
leased space for the years ended 1998 through 2002 for the Company's office and
industrial/R&D properties other than One Orlando Center in Orlando, FL.:
NON-INCREMENTAL REVENUE
GENERATING
CAPITAL EXPENDITURES 1998 1999 2000 2001 2002
---- ---- ---- ---- ----
Suburban Office Properties
Total ...................... $ 2,004,976 $ 2,298,899 $ 3,289,116 $ 4,606,069 $ 5,283,674
Per square foot ............ $ 0.23 $ 0.23 $ 0.33 $ 0.45 $ 0.53
NYC Office Properties
Total ...................... N/A N/A $ 946,718 $ 1,584,501 $ 1,939,111
Per square foot ............ N/A N/A $ 0.38 $ 0.45 $ 0.56
Industrial/R&D Properties.....
Total ...................... $ 1,205,266 $ 1,048,688 $ 813,431 $ 711,666 $ 1,881,627
Per square foot ............ $ 0.12 $ 0.11 $ 0.11 $ 0.11 $ 0.28
The following table sets forth annual and per square foot non-incremental
revenue-generating tenant improvement costs and leasing commissions in which the
Company committed to perform, during the respective periods, to retain revenues
attributable to existing leased space for the years 1998 through 2002 for the
Company's office and industrial/R&D properties other than One Orlando Center in
Orlando, FL.:
NON-INCREMENTAL REVENUE
GENERATING TENANT COMMITTED
IMPROVEMENT COSTS AND ---------------------------------------------------------------------------------------
LEASING COMMISSIONS 1998 1999 2000 2001 2002
--------------- --------------- --------------- --------------- ---------------
Long Island Office Properties
Annual Tenant
Improvement Costs .............. $ 1,140,251 $ 1,009,357 $ 2,853,706 $ 2,722,457 $ 1,917,466
Per square foot improved ......... $ 3.98 $ 4.73 $ 6.99 $ 8.47 $ 7.81
Annual Leasing
Commissions .................... $ 418,191 $ 551,762 $ 2,208,604 $ 1,444,412 $ 1,026,970
Per square foot leased ........... $ 1.46 $ 2.59 $ 4.96 $ 4.49 $ 4.18
Total per square foot ............ $ 5.44 $ 7.32 $ 11.95 $ 12.96 $ 11.99
I-18
COMMITTED
-------------------------------------------------------------------------------------
1998 1999 2000 2001 2002
------------- --------------- --------------- --------------- ---------------
Westchester Office Properties
Annual Tenant
Improvement Costs .............. $ 711,160 $ 1,316,611 $ 1,860,027 $ 2,584,728 $ 6,391,589(1)
Per square foot improved ......... $ 4.45 $ 5.62 $ 5.72 $ 5.91 $ 15.05
Annual Leasing
Commissions .................... $ 286,150 $ 457,730 $ 412,226 $ 1,263,012 $ 1,975,850(1)
Per square foot leased ........... $ 1.79 $ 1.96 $ 3.00 $ 2.89 $ 4.65
Total per square foot ............ $ 6.24 $ 7.58 $ 8.72 $ 8.80 $ 19.70
Connecticut Office Properties
Annual Tenant
Improvement Costs .............. $ 202,880 $ 179,043 $ 385,531 $ 213,909 $ 491,435
Per square foot improved ......... $ 5.92 $ 4.88 $ 4.19 $ 1.46 $ 3.81
Annual Leasing
Commissions .................... $ 151,063 $ 110,252 $ 453,435 $ 209,322 $ 307,023
Per square foot leased ........... $ 4.41 $ 3.00 $ 4.92 $ 1.43 $ 2.38
Total per square foot ............ $ 10.33 $ 7.88 $ 9.11 $ 2.89 $ 6.19
New Jersey Office Properties
Annual Tenant
Improvement Costs .............. $ 654,877 $ 454,054 $ 1,580,323 $ 1,146,385 $ 2,842,521
Per square foot improved ......... $ 3.78 $ 2.29 $ 6.71 $ 2.92 $ 10.76
Annual Leasing
Commissions .................... $ 396,127 $ 787,065 $ 1,031,950 $ 1,602,962 $ 1,037,012
Per square foot leased ........... $ 2.08 $ 3.96 $ 4.44 $ 4.08 $ 3.92
Total per square foot ............ $ 5.86 $ 6.25 $ 11.15 $ 7.00 $ 14.68
New York Office Properties
Annual Tenant
Improvement Costs .............. N/A N/A $ 65,267 $ 788,930 $ 4,350,106
Per square foot improved ......... N/A N/A $ 1.79 $ 15.69 $ 18.39
Annual Leasing
Commissions .................... N/A N/A $ 418,185 $ 1,098,829 $ 2,019,837
Per square foot leased ........... N/A N/A $ 11.50 $ 21.86 $ 8.54
Total per square foot ............ N/A N/A $ 13.29 $ 37.55 $ 26.93
Industrial/R&D Properties
Annual Tenant
Improvement Costs .............. $ 283,842 $ 375,646 $ 650,216 $ 1,366,488 $ 1,850,812
Per square foot improved ......... $ 0.76 $ 0.25 $ 0.95 $ 1.65 $ 1.97
Annual Leasing
Commissions .................... $ 200,154 $ 835,108 $ 436,506 $ 354,572 $ 890,688
Per square foot leased ........... $ 0.44 $ 0.56 $ 0.64 $ 0.43 $ 0.95
Total per square foot ............ $ 1.20 $ 0.81 $ 1.59 $ 2.08 $ 2.92
As noted, incremental revenue-generating tenant improvement costs and
leasing commissions are excluded from the tables set forth above. The
historical capital expenditures, tenant improvement costs and leasing
commissions set forth above are not necessarily indicative of future
non-incremental revenue-generating capital expenditures or non-incremental
revenue-generating tenant improvement costs and leasing commissions that may be
incurred to retain revenues on leased space.
(1) Excludes tenant improvements and leasing commissions related to a 163,880
square foot leasing transaction with Fuji Photo Film U.S.A. Leasing
commissions on this transaction amounted to $5.33 per square foot and
tenant improvement allowance amounted to $40.88 per square foot.
I-19
The following table sets forth the Company's components of its paid or
accrued non-incremental and incremental revenue-generating capital
expenditures, tenant improvements and leasing costs for the year ended December
31, 2002 as reported on its Statements of Cash Flows - Investment Activities
contained in its consolidated financial statements (in thousands):
Capital expenditures:
Non-incremental ...................................... $ 9,104
Incremental .......................................... 7,911
Tenant improvements:
Non-incremental ...................................... 20,973
Incremental .......................................... 10,064
--------
Additions to commercial real estate properties ......... $ 48,052
========
Leasing costs:
Non-incremental ...................................... $ 10,483
Incremental .......................................... 5,931
--------
Payment of deferred leasing costs ...................... $ 16,414
========
Acquisition and development costs ...................... $ 41,896
========
The following table sets forth the Company's schedule of its top 25
tenants based on base rental revenue as of December 31, 2002:
PERCENT OF PRO-RATA PERCENT OF CONSOLIDATED
TOTAL SHARE OF ANNUALIZED ANNUALIZED BASE
TENANT NAME (1) TENANT TYPE SQUARE FEET BASE RENTAL REVENUE RENTAL REVENUE
------------------------------------- ------------------- ------------- --------------------- ------------------------
* Debevoise & Plimpton .............. Office 465,420 3.3% 5.6%
* American Express .................. Office 238,342 2.0% 1.8%
* WorldCom/MCI ...................... Office 335,242 1.8% 1.7%
Bell Atlantic ....................... Office 210,426 1.6% 1.4%
* Schulte Roth & Zabel .............. Office 238,052 1.4% 2.4%
* HQ Global ......................... Office/Industrial 201,900 1.2% 1.5%
United Distillers ................... Office 137,918 1.1% 1.0%
T.D. Waterhouse ..................... Office 139,211 1.1% 0.9%
* Prudential ........................ Office 127,153 0.9% 0.9%
* Banque Nationale De Paris ......... Office 145,834 0.9% 1.5%
* Kramer Levin Nessen Kamin ......... Office 158,144 0.9% 1.5%
Vytra Healthcare .................... Office 105,613 0.8% 0.7%
P.R. Newswire Associates ............ Office 67,000 0.8% 0.7%
Hoffmann-La Roche Inc. .............. Office 120,736 0.7% 0.6%
D.E. Shaw ........................... Office 89,526 0.7% 0.6%
Heller Ehrman White ................. Office 64,526 0.7% 0.6%
* State Farm ........................ Office/Industrial 164,175 0.7% 1.0%
EMI Entertainment World ............. Office 65,844 0.7% 0.6%
Laboratory Corp. of America ......... Office 108,000 0.7% 0.6%
Estee Lauder ........................ Industrial 374,578 0.7% 0.6%
* Draft Worldwide, Inc. ............. Office 124,008 0.7% 1.2%
Practicing Law Institute ............ Office 62,000 0.7% 0.6%
Lockheed Martin Corp. ............... Office 123,554 0.7% 0.6%
Towers Perrin Foster ................ Office 88,233 0.6% 0.6%
Radianz (Reuters) ................... Office 130,009 0.6% 0.5%
----------------
(1) Ranked by pro rata share of annualized base rental revenue adjusted for pro
rate share of joint venture interests and to reflect WorldCom/MCI leases
rejected to date.
* Part or all of space occupied by tenant is in a 51% or more owned joint
venture building.
I-20
The following table sets forth the Company's lease expiration table, as of
January 1, 2003 for its Total Portfolio of properties, its Office Portfolio and
its Industrial/R&D portfolio:
TOTAL PORTFOLIO (A)
NUMBER OF SQUARE % OF TOTAL CUMULATIVE
YEAR OF LEASES FEET PORTFOLIO % OF TOTAL
EXPIRATION EXPIRING EXPIRING SQ FT PORTFOLIO SQ FT
-------------------------------- ----------- ------------ ------------ ----------------
2003 ........................... 159 1,533,361 7.6% 7.6%
2004 ........................... 192 1,622,196 8.0% 15.6%
2005 ........................... 244 2,460,052 12.1% 27.7%
2006 ........................... 223 2,649,790 13.1% 40.7%
2007 ........................... 142 1,619,006 8.0% 48.7%
2008 ........................... 98 1,420,922 7.0% 55.7%
2009 and thereafter ............ 276 7,963,703 39.4% 95.0%
----- ---------- ---- ----
Total/Weighted Average ......... 1,334 19,269,030 95.0% --
===== ========== ==== ====
Total Portfolio Square Feet 20,283,964
OFFICE PORTFOLIO (A)
NUMBER OF SQUARE % OF TOTAL CUMULATIVE
YEAR OF LEASES FEET OFFICE % OF TOTAL
EXPIRATION EXPIRING EXPIRING SQ FT PORTFOLIO SQ FT
---------------------------------- ----------- ------------ ------------ ----------------
2003 ............................. 139 1,064,852 7.9% 7.9%
2004 ............................. 151 1,012,551 7.5% 15.3%
2005 ............................. 211 1,804,599 13.3% 28.7%
2006 ............................. 170 1,647,446 12.2% 40.8%
2007 ............................. 110 1,255,054 9.3% 50.1%
2008 ............................. 69 766,199 5.7% 55.7%
2009 and thereafter .............. 227 5,339,943 39.4% 95.2%
----- --------- ---- ----
Total/Weighted Average ........... 1,077 12,890,644 95.2% --
===== ========== ==== ====
Total Office Portfolio Square Feet 13,549,033
INDUSTRIAL/R&D PORTFOLIO
NUMBER OF SQUARE % OF TOTAL CUMULATIVE
YEAR OF LEASES FEET INDUSTRIAL/R&D % OF TOTAL
EXPIRATION EXPIRING EXPIRING SQ FT PORTFOLIO SQ FT
------------------------------------------ ----------- ------------ ---------------- ----------------
2003 ..................................... 20 468,509 7.0% 7.0%
2004 ..................................... 41 609,645 9.1% 16.0%
2005 ..................................... 33 655,453 9.7% 25.7%
2006 ..................................... 53 1,002,344 14.9% 40.6%
2007 ..................................... 32 363,952 5.4% 46.0%
2008 ..................................... 29 654,723 9.7% 55.7%
2009 and thereafter ...................... 49 2,623,760 39.0% 94.7%
--- --------- ---- ----
Total/Weighted Average ................... 257 6,378,386 94.7% --
=== ========= ==== ====
Total Industrial/R&D Portfolio Square Feet 6,734,931
(a) Excludes the 355,000 square foot office property located in Orlando,
Florida and three leases aggregating approximately 192,000 square feet,
occupied by WorldCom which were rejected by WorldCom in February 2003,
pursuant to their bankruptcy proceedings.
I-21
MORTGAGE INDEBTEDNESS
The following table sets forth certain information regarding the mortgage
debt of the Company, as of December 31, 2002.
PRINCIPAL
AMOUNT AMORTIZATION
PROPERTY OUTSTANDING INTEREST RATE MATURITY DATE SCHEDULE
-------- --------------- ------------------ ------------------- -------------
(IN THOUSANDS)
80 Orville Drive, Islip, NY ............................. $ 2,616 10.10% February 1, 2004 (3)
395 North Service Road, Melville, NY .................... 19,709 6.45% October 26, 2005 (2)
200 Summit Lake Drive, Valhalla, NY ..................... 19,373 9.25% January 1, 2006 25 year
1350 Avenue of the Americas, NY, NY ..................... 74,631 6.52% June 1, 2006 30 year
Landmark Square, Stamford, CT (5) ....................... 45,090 8.02% October 7, 2006 25 year
100 Summit Lake Drive, Valhalla, NY ..................... 19,101 8.50% April 1, 2007 15 year
333 Earl Ovington Blvd., Mitchell Field, NY (1) ......... 53,864 7.72% August 14, 2007 25 year
810 7th Avenue, NY, NY .................................. 82,854 7.73% August 1, 2009 25 year
100 Wall Street, NY, NY ................................. 35,904 7.73% August 1, 2009 25 year
6800 Jericho Turnpike, Syosset, NY ...................... 7,348 8.07% July 1, 2010 25 year
6900 Jericho Turnpike, Syosset, NY ...................... 13,922 8.07% July 1, 2010 25 year
580 White Plains Road, Tarrytown, NY .................... 12,685 7.86% September 1, 2010 25 year
919 3rd Avenue, NY, NY (6) .............................. 246,651 6.867% August 1, 2011 30 year
110 Bi-County Blvd., Farmingdale, NY. ................... 3,635 9.125% November 30, 2012 20 year
120 West 45th Street, NY, NY ............................ 38,366 6.82%(4) November 1, 2027 28 year
One Orlando Center, Orlando, FL ......................... 64,263 6.82%(4) November 1, 2027 28 year
---------
Total / Weighted average ................................ $ 740,012 7.26%
=========
----------------
(1) The Company has a 60% general partnership interest in this property and its
proportionate share of the aggregate principal amount of the mortgage debt
is approximately $32.3 million.
(2) Principal payments of $34,000 per month.
(3) Interest only.
(4) Subject to interest rate adjustment on November 1, 2004 to the greater of
8.82% per annum or the yield of noncallable U.S. Treasury obligations with
a term of fifteen years plus 2% per annum.
(5) Encompasses six Class A office properties.
(6) The Company has a 51% membership interest in this property and its
proportionate share of the aggregate principal amount of the mortgage debt
is approximately $125.8 million.
In addition, the Company has a 60% interest in an unconsolidated joint
venture property. The Company's pro-rata share of the mortgage debt at December
31, 2002 is approximately $7.5 million. This mortgage note payable bears
interest at 8.85% per annum and matures on September 1, 2005.
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently subject to any material litigation nor, to
the Company's knowledge, is any litigation threatened against the Company,
other than routine actions for negligence or other claims and administrative
proceedings arising in the ordinary course of business, some of which are
expected to be covered by liability insurance and all of which collectively are
not expected to have a material adverse effect on the liquidity, results of
operations or business or financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of stockholders during the fourth
quarter of the year ended December 31, 2002.
I-22
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
CLASS A COMMON STOCK
The Company's Class A common stock began trading on the New York Stock
Exchange ("NYSE") on May 25, 1995, under the symbol "RA". On March 13, 2003,
the reported closing price per share of the Company's Class A common stock on
the NYSE was $18.00, and there were approximately 572 holders of record of the
Company's Class A common stock.
The following table sets forth the quarterly high and low closing prices
per share of the Company's Class A common stock as reported on the NYSE and the
distributions paid by the Company for each respective quarter ended.
HIGH LOW DISTRIBUTION
----------- ----------- ---------------
March 31, 2001 .............. $ 25.88 $ 21.90 $ .3860
June 30, 2001 ............... $ 23.90 $ 21.14 $ .4246 (1)
September 30, 2001 .......... $ 24.15 $ 21.90 $ .4246
December 31, 2001 ........... $ 24.46 $ 22.15 $ .4246
March 31, 2002 .............. $ 24.68 $ 22.54 $ .4246
June 30, 2002 ............... $ 26.00 $ 24.18 $ .4246
September 30, 2002 .......... $ 24.92 $ 21.08 $ .4246
December 31, 2002 ........... $ 22.95 $ 20.10 $ .4246
(1) Commencing with the distribution for the quarter ending June 30, 2001, the
Board of Directors of the Company increased the quarterly distribution to
$.4246 per share, which is equivalent to an annual distribution of $1.6984
per share.
CLASS B COMMON STOCK
The Company's Class B common stock began trading on the NYSE on May 25,
1999 under the symbol "RA.B". On March 13, 2003, the reported closing price per
share of the Company's Class B common stock on the NYSE was $18.46, and there
were approximately 57 holders of record of the Company's Class B common stock.
The following table sets forth the quarterly high and low closing prices
per share of the Company's Class B common stock as reported on the NYSE and the
distributions paid by the Company for each respective quarter ended.
HIGH LOW DISTRIBUTION
----------- ----------- ---------------
March 31, 2001 .............. $ 27.50 $ 22.90 $ .6000
June 30, 2001 ............... $ 25.00 $ 22.40 $ .6164 (1)
September 30, 2001 .......... $ 25.60 $ 23.29 $ .6492
December 31, 2001 ........... $ 25.76 $ 23.55 $ .6492
March 31, 2002 .............. $ 25.76 $ 23.86 $ .6492
June 30, 2002 ............... $ 27.07 $ 25.30 $ .6485 (2)
September 30, 2002 .......... $ 25.95 $ 22.30 $ .6471
December 31, 2002 ........... $ 23.88 $ 20.70 $ .6471
(1) Commencing with the distribution for the three month period ended July 31,
2001, the Board of Directors of the Company increased the quarterly
distribution to $.6492 per share, which is equivalent to an annual
distribution of $2.5968 per share.
(2) Commencing with the distribution for the three month period ended July 31,
2002, the Board of Directors of the Company decreased the quarterly
distribution to $.6471 per share, which is equivalent to an annual
distribution of $2.5884 per share.
II-1
The following table sets forth the Company's stock option plan information
at December 31, 2002:
(A) (B) (C)
---------------------- ---------------------- -------------------------
NUMBER OF SECURITIES
REMAINING AVAILABLE
NUMBER OF SECURITIES FOR FUTURE ISSUANCE
TO BE ISSUED UPON WEIGHTED-AVERAGE UNDER EQUITY
EXERCISE OF EXERCISE PRICE OF COMPENSATION PLANS
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (A))
------------- ---------------------- ---------------------- -------------------------
Stock option plans approved by security holders . 5,051,604 $ 23.41 1,523,858 (1)
========
Stock option plan not approved by security
holders ........................................ 113,250 $ 23.89 155,496 (2)
--------- ======== ---------
Total ........................................... 5,164,854 $ 23.42 1,679,354
========= ======== =========
(1) Includes 1,384,102 shares available in connection with the core component
of the Company's 2003 long-term incentive program. Some or all of the
remaining shares may also be utilized for payments of the special
component of such plan. Such special component will be determined after
December 31, 2006 based upon the Company's performance over the prior four
years. (see Management's Discussion and Analysis of Financial Condition
and Results of Operations, Liquidity and Capital Resources - Other
Matters).
(2) Includes information relating to the Company's 1996 Employee Stock Option
Plan.
THE 1996 EMPLOYEE STOCK OPTION PLAN (THE "1996 PLAN")
The 1996 Plan was adopted by the Board of Directors of the Company on
November 7, 1996, and provides for the grant of awards of up to an aggregate of
200,000 shares of Class A common stock. The 1996 Plan is administered by the
Compensation Committee. Existing officers and directors of the Company are not
eligible to participate in the 1996 Plan. The 1996 Plan authorizes (i) the
grant of stock options that qualify as incentive stock options under Section
422 of the Code, (ii) the grant of "nonqualified" stock options, (iii) the
grant of shares of Class A common stock subject to certain restrictions on
transfer and certain risks of forfeiture and (iv) grants of unrestricted shares
of Class A common stock. The exercise price of stock options is determined by
the Compensation Committee, but may not be less than 100% of the fair market
value of the shares of Class A common stock on the date of grant. In any
calendar year, a person eligible for awards under the 1996 Plan may not be
granted options covering more than 75,000 shares of Class A common stock. The
1996 Plan shall terminate 10 years after its effective date. Additional
information related to the 1996 Plan is set forth in the Company's consolidated
financial statements and the notes thereto that are part of this Form 10-K.
II-2
ITEM 6. SELECTED FINANCIAL DATA
RECKSON ASSOCIATES REALTY CORP.
SELECTED FINANCIAL DATA
(in thousands except per share data and property count)
FOR THE YEAR ENDED DECEMBER
31,
---------------------------
2002 2001
-------------- ------------
OPERATING DATA:
Total revenues ................................................... $ 506,092 $ 514,646
Total expenses ................................................... 407,545 393,022
Income before minority interests, preferred dividends and
distributions, valuation reserves, equity in earnings of real
estate joint ventures and service companies, gain on sales of
real estate, discontinued operations and extraordinary loss ..... 98,547 121,624
Minority interests ............................................... 24,968 10,097
Preferred dividends and distributions ............................ 23,123 23,977
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 ....................................................... 1,113 2,087
Gain on sales of real estate ..................................... 537 20,173
Discontinued operations (net of minority interests' share) ....... 4,762 1,019
Extraordinary loss (net of minority interests' share) ............ 2,335 2,595
Net income (loss) allocable to Class A common shareholders ....... 41,604 (44,243)
Net income (loss) allocable to Class B common shareholders ....... 12,929 (13,624)
PER SHARE DATA - CLASS A COMMON SHAREHOLDERS:
Basic:
Basic net income (loss) before extraordinary loss ............... $ .79 $ (1.19)
Gain on sales or real estate .................................... .01 .29
Discontinued operations ......................................... .07 .02
Extraordinary loss .............................................. (.03) (.04)
Basic net income (loss) ......................................... $ .84 $ (.92)
Weighted average shares outstanding ............................. 49,669 48,121
Cash Dividends declared ......................................... $ 1.70 $ 1.66
Diluted:
Diluted net income (loss) before extraordinary loss ............. $ .79 $ (1.19)
Gain on sales or real estate .................................... .01 .29
Discontinued operations ......................................... .07 .02
Extraordinary loss .............................................. (.04) (.04)
Diluted net income (loss) ....................................... $ .83 $ (.92)
Diluted weighted average shares outstanding ..................... 49,968 48,121
PER SHARE DATA - CLASS B COMMON SHAREHOLDERS:
Basic:
Basic net income (loss) before extraordinary loss ............... $ 1.21 $ (1.70)
Gain on sales or real estate .................................... .01 .42
Discontinued operations ......................................... .11 .02
Extraordinary loss .............................................. (.05) (.06)
Basic net Income (loss) ......................................... $ 1.28 $ (1.32)
Weighted average shares outstanding ............................. 10,122 10,284
Cash Dividends declared ......................................... $ 2.59 $ 2.55
Diluted:
Diluted net income (loss) before extraordinary loss ............. $ .92 $ (1.70)
Gain on sales or real estate .................................... -- .42
Discontinued operations ......................................... .02 .02
Extraordinary loss .............................................. (.04) (.06)
Diluted net income (loss) ....................................... $ .90 $ (1.32)
Diluted weighted average shares outstanding ..................... 10,122 10,284
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------
2000 1999 1998
-------------- -------------- --------------
OPERATING DATA:
Total revenues ................................................... $ 483,298 $ 387,664 $ 261,327
Total expenses ................................................... 371,426 297,131 199,967
Income before minority interests, preferred dividends and
distributions, valuation reserves, equity in earnings of real
estate joint ventures and service companies, gain on sales of
real estate, discontinued operations and extraordinary loss ..... 111,872 90,533 61,360
Minority interests ............................................... 20,694 16,035 10,467
Preferred dividends and distributions ............................ 28,012 27,001 14,244
Valuation reserves on investments in affiliate loans and joint
ventures and other investments .................................. -- -- --
Equity in earnings of real estate joint ventures and service
companies ....................................................... 4,383 2,148 1,836
Gain on sales of real estate ..................................... 18,669 10,052 --
Discontinued operations (net of minority interests' share) ....... 1,208 1,135 1,080
Extraordinary loss (net of minority interests' share) ............ 1,396 555 1,670
Net income (loss) allocable to Class A common shareholders ....... 62,989 47,529 37,895
Net income (loss) allocable to Class B common shareholders ....... 23,041 12,748 --
PER SHARE DATA - CLASS A COMMON SHAREHOLDERS:
Basic:
Basic net income (loss) before extraordinary loss ............... $ 1.19 $ 1.00 $ .97
Gain on sales or real estate .................................... .28 .17 --
Discontinued operations ......................................... .02 .02 .03
Extraordinary loss .............................................. (.03) (.01) (.04)
Basic net income (loss) ......................................... $ 1.46 $ 1.18 $ 0.96
Weighted average shares outstanding ............................. 43,070 40,270 39,473
Cash Dividends declared ......................................... $ 1.53 $ 1.45 $ 1.33
Diluted:
Diluted net income (loss) before extraordinary loss ............. $ 1.17 $ .99 $ .96
Gain on sales or real estate .................................... .28 .17 --
Discontinued operations ......................................... .02 .02 .03
Extraordinary loss .............................................. (.02) (.01) (.04)
Diluted net income (loss) ....................................... $ 1.45 $ 1.17 $ .95
Diluted weighted average shares outstanding ..................... 43,545 40,676 40,010
PER SHARE DATA - CLASS B COMMON SHAREHOLDERS:
Basic:
Basic net income (loss) before extraordinary loss ............... $ 1.82 $ 1.60 $ --
Gain on sales or real estate .................................... .43 .27 --
Discontinued operations ......................................... .03 .04 --
Extraordinary loss .............................................. (.04) (.02) --
Basic net Income (loss) ......................................... $ 2.24 $ 1.89 $ --
Weighted average shares outstanding ............................. 10,284 6,744 --
Cash Dividends declared ......................................... $ 2.35 $ 1.54 $ --
Diluted:
Diluted net income (loss) before extraordinary loss ............. $ 1.54 $ 1.24 $ --
Gain on sales or real estate .................................... .07 .03 --
Discontinued operations ......................................... .01 -- --
Extraordinary loss .............................................. (.03) (.01) --
Diluted net income (loss) ....................................... $ 1.59 $ 1.26 $ --
Diluted weighted average shares outstanding ..................... 10,284 6,744 --
II-3
RECKSON ASSOCIATES REALTY CORP.
SELECTED FINANCIAL DATA--CONTINUED
(in thousands except per share data and property count)
FOR THE YEAR ENDED DECEMBER
31,
-----------------------------
2002 2001
-------------- --------------
BALANCE SHEET DATA (PERIOD END):
Commercial real estate properties, before accumulated
depreciation ............................................ $ 2,954,527 $ 2,880,879
Cash and cash equivalents (4) ............................ 30,827 121,975
Total assets ............................................. 2,907,920 2,994,218
Mortgage notes payable ................................... 740,012 751,077
Unsecured credit facility (4) ............................ 267,000 271,600
Unsecured term loan ...................................... -- --
Senior unsecured notes ................................... 499,305 449,463
Market value of equity (1) ............................... 1,681,372 1,915,587
Total market capitalization including debt (1 and 2) ..... 3,052,818 3,251,599
OTHER DATA:
Funds from operations (basic) (3) ........................ $ 161,023 $ 179,687
Funds from operations (diluted) (3) ...................... $ 184,146 $ 206,288
Total square feet (at end of period) ..................... 20,284 20,611
Number of properties (at end of period) .................. 178 182
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------
2000 1999 1998
-------------- -------------- --------------
BALANCE SHEET DATA (PERIOD END):
Commercial real estate properties, before accumulated
depreciation ............................................ $ 2,770,607 $ 2,208,399 $ 1,737,133
Cash and cash equivalents (4) ............................ 17,843 21,368 2,349
Total assets ............................................. 2,998,030 2,733,878 1,854,816
Mortgage notes payable ................................... 728,971 459,174 253,463
Unsecured credit facility (4) ............................ 216,600 297,600 465,850
Unsecured term loan ...................................... -- 75,000 20,000
Senior unsecured notes ................................... 449,385 449,313 150,000
Market value of equity (1) ............................... 2,016,390 1,726,845 1,332,882
Total market capitalization including debt (1 and 2) ..... 3,397,204 2,993,756 2,199,936
OTHER DATA:
Funds from operations (basic) (3) ........................ $ 167,782 $ 130,820 $ 97,697
Funds from operations (diluted) (3) ...................... $ 202,169 $ 161,681 $ 99,450
Total square feet (at end of period) ..................... 21,291 21,385 21,000
Number of properties (at end of period) .................. 188 189 204
(1) Based on the sum of: (i) the market value of the Company's Class A common
stock and operating partnership units (assuming conversion) of 55,522,307,
57,469,595, 53,046,928, 48,076,648 and 47,800,049 at December 31, 2002,
2001, 2000, 1999 and 1998, respectively (based on a per share/unit price
of $21.05, $23.36, $25.06, $20.50 and $22.19 at December 31, 2002, 2001,
2000, 1999 and 1998, respectively), (ii) the market value of the Company's
Class B common stock of 9,915,313, 10,283,513, 10,283,513 and 10,283,763
shares at December 31, 2002, 2001, 2000 and 1999, respectively (based on a
per share price of $22.40, $25.51, $27.19 and $22.75 at December 31, 2002,
2001, 2000 and 1999, respectively), (iii) the liquidation preference value
of 10,834,500, 11,192,000, 11,192,000 and 15,192,000 shares of the
Company's preferred stock at December 31, 2002, 2001, 2000 and 1999,
respectively (based on a per share value of $25.00), (iv) the liquidation
preference value of 19,662, 30,965, 42,518 and 42,518 of the operating
partnership's preferred units at December 31, 2002, 2001, 2000 and 1999,
respectively (based on a per unit value of $1,000) and (v) at December 31,
2000 and December 31, 1999, the contributed value of a minority partners'
preferred interest of $85 million.
(2) Debt amount is net of minority partners' proportionate share of joint
venture debt plus the Company's share of unconsolidated joint venture
debt.
(3) Management believes that funds from operations ("FFO") is an appropriate
measure of performance of an equity REIT. FFO is defined by the National
Association of Real Estate Investment Trusts ("NAREIT") as net income or
loss, excluding gains or losses from debt restructuring and sales of
properties plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. FFO does not represent
cash generated from operating activities in accordance with Generally
Accepted Accounting Principles and is not indicative of cash available to
fund cash needs. FFO should not be considered as an alternative to net
income as an indicator of the Company's operating performance or as an
alternative to cash flow as a measure of liquidity. FFO for the year ended
December 31, 2001 excludes $163 million of valuation reserves on
investments in affiliate loans and joint ventures. Since all companies and
analysts do not calculate FFO in a similar fashion, the Company's
calculation of FFO may not be comparable to similarly titled measures as
reported by other companies.
(4) On January 4, 2002, approximately $85 million of the cash proceeds received
from the sale of a 49% interest in the property located at 919 Third
Avenue, New York, NY, was used to pay down the Company's unsecured credit
facility.
II-4
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the historical
financial statements of Reckson Associates Realty Corp. (the "Company") and
related notes thereto.
The Company 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 Company'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
Company's operations, the ability to lease vacant space and the ability to
renew or relet space under expiring leases, involve risks and uncertainties.
Many of the forward-looking statements can be identifed by the use of words
such as "believes", "may", "expects", "anticipates", "intends" or similar
expressions. Although the Company 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 Company can give no assurance that its expectation will be
achieved. Among those risks, trends and uncertainties are: the general economic
climate, including the conditions affecting industries in which our principal
tenants compete; changes in the supply of and demand for office and industrial
/ R&D properties in the New York Tri-State area; changes in interest rate
levels; downturns in rental rate levels in our markets and our ability to lease
or re-lease space in a timely manner at current or anticipated rental rate
levels; the availability of financing to us or our tenants; financial condition
of our tenants; changes in operating costs, including utility, security and
insurance costs; repayment of debt owed to the Company by third parties
(including FrontLine Capital Group); risks associated with joint ventures;
liability for uninsured losses or environmental matters; and other risks
associated with the development and acquisition of properties, including risks
that development may not be completed on schedule, that the tenants will not
take occupancy or pay rent, or that development or operating costs may be
greater than anticipated. Consequently, such forward-looking statements should
be regarded solely as reflections of the Company's current operating and
development plans and estimates. These plans and estimates are subject to
revisions from time to time as additional information becomes available, and
actual results may differ from those indicated in the referenced statements.
CRITICAL ACCOUNTING POLICIES
The consolidated financial statements of the Company include accounts of the
Company and all majority-owned and controlled subsidiaries. The preparation of
financial statements in conformity with accounting principles generally
accepted in the United States ("GAAP") requires management to make estimates
and assumptions in certain circumstances that affect amounts reported in the
Company'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 Company's results of
operations to those of companies in similar businesses.
Revenue Recognition and Accounts Receivable
Rental revenue is recognized on a straight line basis, which averages minimum
rents over the terms of the leases. The excess of rents recognized over amounts
contractually due are included in deferred rents receivable on the Company's
balance sheets. The leases also typically provide for tenant reimbursements of
common area maintenance and other operating expenses and real estate taxes.
Ancillary and other property related income is recognized in the period earned.
II-5
The Company makes estimates of the collectibility of its accounts
receivables related to base rents, tenant escalations and reimbursements and
other revenue or income. The Company specifically analyzes tenant receivables
and analyzes historical bad debts, customer credit worthiness, current economic
trends and changes in customer payment terms when evaluating the adequacy of
its allowance for doubtful accounts. In addition, when tenants are in
bankruptcy the Company makes estimates of the expected recovery of pre-petition
administrative and damage claims. In some cases, the ultimate resolution of
those claims can exceed beyond a year. These estimates have a direct impact on
the Company's net income, because a higher bad debt reserve results in less net
income.
The Company records interest income on investments in mortgage notes and
notes receivable on an accrual basis of accounting. The Company does not accrue
interest on impaired loans where, in the judgment of management, collection of
interest according to the contractual terms is considered doubtful. Among the
factors the Company considers in making an evaluation of the collectibility of
interest are: (i) the status of the loan, (ii) the value of the underlying
collateral, (iii) the financial condition of the borrower and (iv) anticipated
future events.
Gain on sales of real estate are recorded when title is conveyed to the
buyer, subject to the buyer's financial commitment being sufficient to provide
economic substance to the sale and the Company having no substantial continuing
involvement with the buyer.
Real Estate
Land, buildings and improvements, furniture, fixtures and equipment are
recorded at cost. Tenant improvements, which are included in buildings and
improvements, are also stated at cost. Expenditures for 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 are amortized on a straight-line basis over the term of the
related leases.
The Company is required to make subjective assessments as to the useful
lives of its properties for purposes of determining the amount of depreciation
to reflect on an annual basis with respect to those properties. These
assessments have a direct impact on the Company's net income. Should the
Company lengthen the expected useful life of a particular asset, it would be
depreciated over more years, and result in less depreciation expense and higher
annual net income.
Assessment by the Company of certain other lease related costs must be
made when the Company has a reason to believe that the tenant will not be able
to execute under the term of the lease as originally expected.
Long Lived Assets
On a periodic basis, management assesses whether there are any indicators that
the value of the real estate properties may be impaired. A property's value is
impaired only if management's estimate of the aggregate future cash flows
(undiscounted and without interest charges) to be generated by the property are
less than the carrying value of the property. Such cash flows consider factors
such as expected future operating income, trends and prospects, as well as the
effects of demand, competition and other factors. To the extent impairment has
occurred, the loss will be measured as the excess of the carrying amount of the
property over the fair value of the property.
The Company is required to make subjective assessments as to whether there
are impairments in the value of its real estate properties and other
investments. These assessments have a direct impact on the Company's net
income, because taking an impairment results in an immediate negative
adjustment to net income. In determining impairment, if any, the Company has
adopted Financial Accounting Standards Board ("FASB") Statement No. 144,
"Accounting for the Impairment or Disposal of Long Lived Assets".
II-6
Stock-Based Compensation
Effective January 1, 2002 the Company has elected to follow FASB Statement No.
123, "Accounting for Stock Based Compensation" ("Statement No. 123"). Statement
No. 123 requires the use of option valuation models which determine the fair
value of the option on the date of the grant. All future employee stock option
grants will be expensed over the options' vesting periods based on the fair
value at the date of the grant in accordance with Statement No. 123. The
Company expects minimal financial impact from the adoption of Statement No.
123. To determine the fair value of the stock options granted, the Company uses
a Black-Scholes option pricing model. Historically, the Company had applied
Accounting Principles Board Opinion No. 25 and related interpretations in
accounting for its stock option plans and reported pro forma disclosures in its
Form 10-K filings by estimating the fair value of options issued and the
related expense in accordance with Statement No. 123. Accordingly, no
compensation cost had been recognized for its stock option plans prior to the
Company's adoption of Statement No. 123.
In December 2002, the FASB issued Statement No. 148, "Accounting for
Stock-Based Compensation--Transition and Disclosure" ("Statement No. 148").
Statement No. 148 amends Statement No. 123 to provide alternative methods of
transition for an entity that voluntarily adopts the fair value recognition
method of recording stock option expense. Statement No. 148 also amends the
disclosure provisions of Statement 123 and APB Opinion No. 28. "Interim
Financial Reporting" to require disclosure in the summary of significant
accounting policies of the effects of an entity's accounting policy with
respect to stock options on reported net income and earnings per share in
annual and interim financial statements.
OVERVIEW AND BACKGROUND
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 buildings, and also owned
certain 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 Company is a self-administered and self managed real estate investment
trust ("REIT") engaged in the ownership, acquisition, leasing, financing,
management and development of office and industrial properties and also owns
land for future development. The Company's growth strategy is focused on the
commercial real estate markets in and around the New York tri-state area (the
"Tri-State Area"). The Company owns all of its interests in its real
properties, directly or indirectly, through Reckson Operating Partnership, L.P.
(the "Operating Partnership").
In connection with the IPO, the Company was granted ten year options to
acquire ten properties (the "Option Properties") which are either owned by
certain Rechler family members who are also executive officers of the Company,
or in which the Rechler family members own a non-controlling minority interest
at a price based upon an agreed upon formula. In years prior to 2001, one
Option Property was sold by the Rechler family members to a third party and
four of the Option Properties were acquired by the Company for an aggregate
purchase price of approximately $35 million, which included the issuance of
approximately 475,000 OP Units valued at approximately $8.8 million. Currently,
certain Rechler family members retain their equity interests in the five
remaining Option Properties (the "Remaining Option Properties") which were not
contributed to the Company as part of the IPO. Such options provide the Company
the right to acquire fee interest in two of the Remaining Option Properties and
the Rechlers' minority interests in three Remaining Option Properties. The
Independent Directors are currently reviewing whether the Company should
exercise one or more of the options relating to the Remaining Option
Properties.
The Company conducts its management, leasing and construction related
services through taxable REIT subsidiaries as defined by the Internal Revenue
Code of 1986 (the "Code"). These services are currently provided by Reckson
Management Group, Inc., RANY Management Group, Inc., Reckson Construction Group
New York, Inc. and Reckson Construction Group, Inc. (collectively, the "Service
Companies") in which, as of September 30, 2002, the Operating Partnership owned
a 97%
II-7
non-controlling interest. An entity which is substantially owned by certain
Rechler family members who are also executive officers of the Company owned a
3% controlling interest in the Service Companies. In order to minimize the
potential for corporate conflicts of interests which became possible as a
result of changes to the Code that permit REITs to own 100% of taxable REIT
subsidiaries, the Independent Directors of the Company approved the purchase by
the Operating Partnership of the remaining 3% interest in the Service
Companies. On October 1, 2002, the Operating Partnership acquired such 3%
interests in the Service Companies for an aggregate purchase price of
approximately $122,000. Such amount was less than the total amount of capital
contributed to the Service Companies by the Rechler family members. As a result
of the acquisition of the remaining interests in the Service Companies, the
Operating Partnership commenced consolidating the operations of the Service
Companies. During 2002, Reckson Construction Group, Inc. billed approximately
$144,000 of market rate services and Reckson Management Group, Inc. billed
approximately $313,000 of market rate management fees to the Remaining Option
Properties. In addition, for the year ended December 31, 2002, Reckson
Construction Group, Inc. performed market rate services, aggregating
approximately $322,000 for a property in which certain executive officers
maintain an equity interest.
Reckson Management Group, Inc. leases 43,713 square feet of office and
storage space at a Remaining Option Property for its corporate offices located
in Melville, New York at an annual base rent of approximately $1.2 million.
Reckson Management Group, Inc. also leases 10,722 square feet of warehouse
space used for equipment, materials and inventory storage at a Remaining Option
Property located in Deer Park, New York at an annual base rent of approximately
$75,000.
A company affiliated with an Independent Director of the Company leases
15,566 square feet in a property owned by the Company at an annual base rent of
approximately $431,500. Reckson Strategic Venture Partners, LLC ("RSVP") leases
5,144 square feet in one of the Company's joint venture properties at an annual
base rent of approximately $176,000.
During July 1998, the Company formed Metropolitan Partners, LLC
("Metropolitan") for the purpose of acquiring Class A office properties in New
York City. Currently the Company owns, through Metropolitan, five Class A
office properties aggregating approximately 3.5 million square feet.
During September 2000, the Company formed a joint venture (the "Tri-State
JV") with Teachers Insurance and Annuity Association ("TIAA") and contributed
nine Class A suburban office properties aggregating approximately 1.5 million
square feet to the Tri-State JV for a 51% majority ownership interest. TIAA
contributed approximately $136 million for a 49% interest in the Tri-State JV
which was then distributed to the Company. The Company is responsible for
managing the day-to-day operations and business affairs of the Tri-State JV and
has substantial rights in making decisions affecting the properties such as
leasing, marketing and financing. The minority member has certain rights
primarliy intended to protect its investment. For purposes of its financial
statements the Company consolidates the Tri-State JV.
On December 21, 2001, the Company formed a joint venture with the New York
State Teachers' Retirement Systems ("NYSTRS") (the "919JV") whereby NYSTRS
acquired a 49% indirect interest in the property located at 919 Third Avenue,
New York, NY for $220.5 million which included $122.1 million of its
proportionate share of secured mortgage debt and approximately $98.4 million of
cash which was then distributed to the Company. The Company is responsible for
managing the day-to-day operations and business affairs of the 919JV and has
substantial rights in making decisions affecting the property such as
developing a budget, leasing and marketing. The minority member has certain
rights primarily intended to protect its investment. For purposes of its
financial statements the Company consolidates the 919JV.
As of December 31, 2002 the Company owned 178 properties (inclusive of 11
joint venture properties) in the Tri-State Area suburban and Central Business
District ("CBD") markets, encompassing approximately 20.3 million rentable
square feet, all of which are managed by the Company. These properties include
60 Class A suburban office properties encompassing approximately 8.5 million
rentable square feet, of which 42 of these properties, or 74% as measured by
square footage, are located within the Company's ten office parks. Reckson has
historically emphasized the development and
II-8
acquisition of properties that are part of large-scale suburban office parks.
The Company believes that owning properties in planned office and industrial
parks provides certain strategic advantages, including the following: (i)
certain tenants prefer being located in a park with other high quality
companies to enhance their corporate image, (ii) parks afford tenants certain
aesthetic amenities such as a common landscaping plan, standardization of
signage and common dining and recreational facilities, (iii) tenants may expand
(or contract) their business within a park, enabling them to centralize
business functions and (iv) a park provides tenants with access to other
tenants and may facilitate business relationships between tenants. The
properties also include 15 Class A CBD office properties encompassing
approximately 5.1 million rentable square feet. The CBD office properties
consist of five properties located in New York City, eight properties located
in Stamford, CT and two properties located in White Plains, NY. Additionally,
the properties include 101 industrial / R&D properties encompassing
approximately 6.7 million rentable square feet, of which 71 of these
properties, or 58% as measured by square footage, are located within the
Company's three industrial parks. The properties also include two retail
properties comprising approximately 20,000 rentable square feet. The Company
also owns a 355,000 square foot office property located in Orlando, Florida.
The Company also owns approximately 338 acres of land in 14 separate
parcels of which the Company can develop approximately 3.2 million square feet
of office space and approximately 470,000 square feet of industrial / R&D
space. The Company is currently evaluating alternative land uses for certain of
the land holdings to realize the highest economic value. These alternatives may
include rezoning certain land parcels from commercial to residential for
potential disposition. As of December 31, 2002, the Company had invested
approximately $121.2 million in these development projects. Management has made
subjective assessments as to the value and recoverability of these investments
based on current and proposed development plans, market comparable land values
and alternative use values. The Company has capitalized approximately $10.5
million during 2002 related to real estate taxes, interest and other carrying
costs related to these development projects. Since the IPO, the Company has
developed, redeveloped, renovated or repositioned 27 properties encompassing
approximately 5.3 million square feet of office and industrial / R&D space.
During February 2003, the Company, through Reckson Construction Group,
Inc., entered into a contract with an affiliate of First Data Corp. to sell a
19.3-acre parcel of land located in Melville, N.Y. and has been retained by the
purchaser to develop a build-to-suit 195,000 square foot office building for
aggregate consideration of approximately $47 million. This transaction is
scheduled to close during the first quarter of 2003 and construction of the
aforementioned office building is scheduled to commence shortly thereafter.
The Company holds a $17.0 million note receivable which bears interest at
11.5% per annum and is secured by a minority partnership interest in Omni
Partners, L.P., owner of the Omni, a 579,000 square foot Class A office
property located in Uniondale, N.Y. (the "Omni Note"). The Company currently
owns a 60% majority partnership interest in Omni Partners, L.P. and on March
14, 2007 may exercise an option to acquire the remaining 40% interest for a
price based on 90% of the fair market value of the property. The Company also
holds three other notes receivable aggregating $36.5 million which bear
interest at rates ranging from 10.5% to 12% per annum and are secured in part
by a minority partner's preferred unit interest in the Operating Partnership,
certain interest in real property and a personal guaranty (the "Other Notes"
and collectively with the Omni Note, the "Note Receivable Investments"). As of
December 31, 2002, management has made subjective assessments as to the
underlying security value on the Company's Note Receivable Investments. Based
on these assessments the Company's management believes there is no impairment
to the carrying value related to the Company's Note Receivable Investments. The
Company also owns a 355,000 square foot office building in Orlando, Florida.
This non-core real estate holding was acquired in May 1999 in connection with
the Company's initial New York City portfolio acquisition. This property is
cross collateralized under a $103 million mortgage note payable along with one
of the Company's New York City buildings.
The Company also owns a 60% non-controlling interest in a 172,000 square
foot office building located at 520 White Plains Road in White Plains, New York
(the "520JV") which it manages. The remaining 40% interest is owned by JAH
Realties L.P. Jon Halpern, the CEO and a director of HQ
II-9
Global Workplaces, is a partner in JAH Realties, L.P. As of December 31, 2002,
the 520JV had total assets of $21.0 million, a mortgage note payable of $12.5
million and other liabilities of $197,000. The Company's allocable share of the
520JV mortgage note payable is approximately $7.5 million. This mortgage note
payable bears interest at 8.85% per annum and matures on September 1, 2005. In
addition, the 520JV had total revenues of $4.2 million and $4.0 million and
total expenses of $3.3 million and $3.3 million for the years ended December
31, 2002 and 2001, respectively. The operating agreement of the 520JV requires
joint decisions from all members on all significant operating and capital
decisions including sale of the property, refinancing of the property's
mortgage debt, development and approval of leasing strategy and leasing of
rentable space. As a result of the decision-making participation relative to
the operations of the property, the Company accounts for the 520JV under the
equity method of accounting. The 520JV contributed approximately $648,000 and
$478,000 to the Company's equity in earnings of real estate joint ventures for
the year ended December 31, 2002 and 2001, respectively.
Through its ownership of properties in the key CBD and suburban office
markets in the Tri-State Area, the Company believes it has a unique competitive
advantage as the trend toward the regional decentralization of the workplace
increases. Due to the events of September 11, 2001, as well as technological
advances which further enable decentralization, companies are strategically
re-evaluating the benefits and feasibility of regional decentralization and
reassessing their long-term space needs. The Company believes this
multi-location regional decentralization will continue to take place,
increasing as companies begin to have better visibility as to the future of the
economy, further validating our regional strategy of maintaining a significant
market share in each of the key CBD and suburban office markets in the
Tri-State Area.
The Company's core business strategy is based on a long-term outlook
considering real estate is a cyclical business. The Company seeks to accomplish
long-term stability and success by developing and maintaining an infrastructure
and franchise that is modeled for success over the long-term. This approach
allows the Company to recognize different points in the market cycle and adjust
our strategy accordingly. Currently, the Company remains cautious about the
market environment. With this cautious bias we choose to maintain our
conservative operating strategy of focusing on retaining high occupancies,
controlling operating expenses, maintaining a high level of investment
discipline and preserving financial flexibility.
The market capitalization of the Company at December 31, 2002 was
approximately $3.1 billion. The Company's market capitalization is based on the
sum of (i) the market value of the Company's Class A common stock and common
units of limited partnership interest in the Operating Partnership ("OP Units")
(assuming conversion) of $21.05 per share / unit (based on the closing price of
the Company's Class A common stock on December 31, 2002), (ii) the market value
of the Company's Class B common stock of $22.40 per share (based on the closing
price of the Company's Class B common stock on December 31, 2002), (iii) the
liquidation preference value of the Company's Series A preferred and Series B
preferred stock of $25 per share, (iv) the liquidation preference value of the
Operating Partnership's preferred units of $1,000 per unit and (v)
approximately $1.4 billion (including its share of joint venture debt and net
of minority partners' interests share of joint venture debt) of debt
outstanding at December 31, 2002. As a result, the Company's total debt to
total market capitalization ratio at December 31, 2002 equaled approximately
44.9%.
During 1997, the Company formed FrontLine Capital Group, formerly Reckson
Service Industries, Inc. ("FrontLine") and RSVP. RSVP is a real estate venture
capital fund which invests primarily in real estate and real estate operating
companies outside the Company's core office and industrial focus and whose
common equity is held indirectly by FrontLine. In connection with the formation
and spin-off of FrontLine, the Operating Partnership established an unsecured
credit facility with FrontLine (the "FrontLine Facility") in the amount of $100
million for FrontLine to use in its investment activities, operations and other
general corporate purposes. The Company advanced approximately $93.4 million
under the FrontLine Facility. The Operating Partnership also approved the
funding of investments of up to $100 million relating to RSVP (the "RSVP
Commitment"), through RSVP-controlled joint ventures (for REIT-qualified
investments) or advances made to FrontLine under an unsecured loan facility
(the "RSVP Facility") having terms similar to the FrontLine Facility (advances
made under the RSVP Facility
II-10
and the FrontLine Facility hereafter, the "FrontLine Loans"). During March
2001, the Company increased the RSVP Commitment to $110 million and as of
December 31, 2002, approximately $109.1 million had been funded through the
RSVP Commitment, of which $59.8 million represents investments by the Company
in RSVP-controlled (REIT-qualified) joint ventures and $49.3 million represents
loans made to FrontLine under the RSVP Facility. As of December 31, 2002,
interest accrued (net of reserves) under the FrontLine Facility and the RSVP
Facility was approximately $19.6 million. RSVP retained the services of two
managing directors to manage RSVP's day to day operations. Prior to the spin
off of Frontline, the Company guaranteed certain salary provisions of their
employment agreements with RSVP Holdings, LLC, RSVP's common member. The term
of these employment agreements is seven years commencing March 5, 1998,
provided however, that the term may be earlier terminated after five years upon
certain circumstances. The salary for each managing director is $1 million in
the first five years and $1.6 million in years six and seven.
At June 30, 2001, the Company assessed the recoverability of the FrontLine
Loans and reserved approximately $3.5 million of the interest accrued during
the three-month period then ended. In addition, the Company formed a committee
of its Board of Directors, comprised solely of independent directors, to
consider any actions to be taken by the Company in connection with the
FrontLine Loans and its investments in joint ventures with RSVP. During the
third quarter of 2001, the Company noted a significant deterioration in
FrontLine's operations and financial condition and, based on its assessment of
value and recoverability and considering the findings and recommendations of
the committee and its financial advisor, the Company recorded a $163 million
valuation reserve charge, inclusive of anticipated costs, in its consolidated
statements of operations relating to its investments in the FrontLine Loans and
joint ventures with RSVP. The Company has discontinued the accrual of interest
income with respect to the FrontLine Loans. The Company has also reserved
against its share of GAAP equity in earnings from the RSVP controlled joint
ventures funded through the RSVP Commitment until such income is realized
through cash distributions. If the RSVP-controlled joint ventures reported
losses, the Company would record its proportionate share of such losses.
At December 31, 2001, the Company, pursuant to Section 166 of the Code,
charged off for tax purposes $70 million of the aforementioned reserve directly
related to the FrontLine Facility, including accrued interest. On February 14,
2002, the Company charged off for tax purposes an additional $38 million of the
reserve directly related to the FrontLine Facility, including accrued interest,
and $47 million of the reserve directly related to the RSVP Facility, including
accrued interest.
FrontLine is in default under the FrontLine Loans from the Operating
Partnership and on June 12, 2002, filed a voluntary petition for relief under
Chapter 11 of the U.S. Bankruptcy Code.
As a result of the foregoing, the net carrying value of the Company's
investments in the FrontLine Loans and joint venture investments with RSVP,
inclusive of the Company's share of previously accrued GAAP equity in earnings
on those investments, is approximately $65 million which was reassessed with no
change by management as of December 31, 2002. Such amount has been reflected in
investments in service companies and affiliate loans and joint ventures on the
Company's consolidated balance sheet. The common and preferred members of RSVP
are currently in dispute over certain provisions of the RSVP operating
agreement. The members are currently negotiating to restructure the RSVP
operating agreement to settle the dispute. There can be no assurances that the
members will successfully negotiate a settlement.
Both the FrontLine Facility and the RSVP Facility terminate on June 15,
2003, are unsecured and advances thereunder are recourse obligations of
FrontLine. Notwithstanding the valuation reserve, under the terms of the credit
facilities, interest accrued on the FrontLine Loans at a rate equal to the
greater of (a) the prime rate plus two percent and (b) 12% per annum, with the
rate on amounts that were outstanding for more than one year increasing
annually at a rate of four percent of the prior year's rate. In March 2001, the
credit facilities were amended to provide that (i) interest is payable only at
maturity and (ii) the Company may transfer all or any portion of its rights or
obligations under the credit facilities to its affiliates. The Company
requested these changes as a result of changes in REIT tax laws. As a result of
FrontLine's default under the FrontLine Loans, interest on borrowings
thereunder accrue at default rates ranging between 13% and 14.5% per annum.
II-11
Scott H. Rechler, who serves as Co-Chief Executive Officer and a director
of the Company, serves as CEO and Chairman of the Board of Directors of
FrontLine.
HQ Global Workplaces, Inc. ("HQ"), one of the largest providers of
flexible officing solutions in the world and which is controlled by FrontLine,
currently operates nine (formerly eleven) executive office centers in the
Company's properties, three of which are held through joint ventures. The
leases under which these office centers operate expire between 2008 and 2011,
encompass approximately 202,000 square feet and have current contractual annual
base rents of approximately $6.1 million. On March 13, 2002, as a result of
experiencing financial difficulties, HQ voluntarily filed a petition for relief
under Chapter 11 of the U.S. Bankruptcy Code. Subsequent to HQ filing for
bankruptcy protection it defaulted under their leases with the Company.
Further, effective March 13, 2002, the Bankruptcy Court granted HQ's petition
to reject two of its leases with the Company. The two rejected leases
aggregated approximately 23,900 square feet and provided for contractual base
rents of approximately $548,000 for the 2002 calendar year. Commencing April 1,
2002 and pursuant to the bankruptcy filing, HQ has been paying current rental
charges under its leases with the Company, other than under the two rejected
leases. The Company is in negotiation to restructure four of the leases and
leave the terms of the remaining five leases unchanged. All negotiations with
HQ are conducted through a committee designated by the Board and chaired by an
independent director. There can be no assurance as to whether any deal will be
consummated with HQ or if HQ will affirm or reject any or all of its remaining
leases with the Company. As a result of the foregoing, the Company has reserved
approximately $550,000 (net of minority partners' interests and including the
Company's share of unconsolidated joint venture interest), or 74%, of the
amounts due from HQ as of December 31, 2002. Scott H. Rechler serves as
non-executive Chairman of the Board of HQ and Jon Halpern is the Chief
Executive Officer and a director of HQ.
WorldCom/MCI and its affiliates ("WorldCom"), a telecommunications
company, which leased, as of December 31, 2002, approximately 527,000 square
feet in thirteen of the Company's properties located throughout the Tri-State
Area voluntarily filed a petition for relief under Chapter 11 of the U.S.
Bankruptcy Code on July 21, 2002. The total annualized base rental revenue from
these leases amounted to approximately $12.0 million, or 2.9% of the Company's
total 2002 annualized rental revenue, making it the Company's second largest
tenant based on base rental revenue earned on a consolidated basis. All of
WorldCom's leases were current on base rental charges through December 31, 2002
and the Company currently holds approximately $300,000 in security deposits
relating to these leases. In February 2003, the Bankruptcy Court granted
WorldCom's petition to reject three of its leases with the Company. The three
rejected leases aggregated approximately 192,000 square feet and provided for
contractual base rents of approximately $4.8 million for the 2002 calendar
year. The Company is currently in negotiations to restructure the remaining
WorldCom leases. There can be no assurance as to whether WorldCom will affirm
or reject any or all of its remaining leases with the Company. As a result of
the foregoing, the Company has written off approximately $1.1 million of
deferred rent receivable. In addition, the Company reserved an additional
$475,000 against the deferred rents receivable representing approximately 46%
of the outstanding deferred rents receivable attributable to the remaining
WorldCom leases.
MetroMedia Fiber Network Services, Inc. ("MetroMedia"), which leased
approximately 112,000 square feet in one property from the Company, voluntarily
filed a petition for relief under Chapter 11 of the U.S. Bankruptcy Code in May
2002. MetroMedia's lease with the Company provided for contractual base rent of
approximately $25 per square foot amounting to $2.8 million per calendar year
and expired in May 2010. In July 2002, the Bankruptcy Court granted
MetroMedia's petition to restructure and reduce space under its existing lease.
As a result, the lease was amended to reduce MetroMedia's space by 80,357
square feet to 31,718 square feet. Annual base rent on the 31,718 square feet
MetroMedia will continue to lease is $25 per square foot amounting to
approximately $793,000 per annum. Further, pursuant to the Bankruptcy Court
order MetroMedia is required to pay to the Company a surrender fee of
approximately $1.8 million. As a result of the foregoing, the Company wrote-off
approximately $388,000 of deferred rent receivable relating to this lease and
recognized the aforementioned surrender fee.
Arthur Andersen, LLP ("AA") leased approximately 38,000 square feet in one
of the Company's New York City buildings. AA's lease with the Company provided
for base rent of approximately $2
II-12
million on an annualized basis and expired in April 2004. AA has experienced
significant financial difficulties with its business and as a result has
entered into a lease termination agreement with the Company effective November
30, 2002. In October 2002, AA paid the Company for all base rental and other
charges through November 30, 2002 and a lease termination fee of approximately
$144,000. As a result of the foregoing, the Company has written off
approximately $130,000 of deferred rent receivable attributable to AA's lease.
RESULTS OF OPERATIONS
The Company's total revenues decreased by $8.6 million or 1.7% from 2001 to
2002 and increased by $31.3 million or 6.5% from 2000 to 2001. Property
operating revenues, which include base rents and tenant escalations and
reimbursements ("Property Operating Revenues") increased by $3.9 million or .8%
from 2001 to 2002 and $45.7 million or 10.2% from 2000 to 2001. The 2002
increase in Property Operating Revenues is attributable to net increases in
rental rates and lease termination fees in our "same store" properties of $8.2
million. In addition, Property Operating Revenues increased by $8.7 million
attributable to lease up of newly developed and redeveloped assets. These
increases were offset by $10.6 million of revenue attributable to six
properties that were sold in 2001 and an increase in reserves or write-offs of
$2.4 million related to tenant receivables and deferred rents receivable. The
2001 increase in Property Operating Revenues is primarily attributable to
increases in rental rates in our "same store" properties amounting to $29.3
million. In addition, $12.4 million of the increase was generated by the lease
up of newly developed and redeveloped properties added to the operating
portfolio. The increase in Property Operating Revenues offset the decrease of
$14.4 million in other revenues. This decrease is primarily due to a decrease
of $11.6 million related to interest earned on advances made under the
FrontLine Loans.
The Company's base rent reflects the positive impact of the straight-line
rent adjustment of $26.6 million in 2002, $41.6 million in 2001 and $38.8
million in 2000. The 2002, 2001 and 2000 straight-line rent adjustment includes
$9.4 million, $26.9 million and $23.3 million, respectively, generated from the
property located at 919 Third Avenue, New York, NY, which is primarily
attributable to rental abatement periods for the three largest tenants.
During the year ended December 31, 2002, the Company incurred
approximately $6.3 million of bad debt expense related to tenant receivables
and deferred rents receivable which accordingly reduced total revenues for the
year then ended.
Property operating expenses, real estate taxes and ground rents ("Property
Expenses") increased by $7.8 million or 4.6% from 2001 to 2002 and $11.2
million or 7.2% from 2000 to 2001. The 2002 increase in Property Expenses is
primarily due to a $5.3 million increase in property operating expenses and a
$5.9 million increase in real estate taxes related to our "same store"
properties. Included in the $5.3 million increase in property operating
expenses is $2.7 million and $1.4 million of increased insurance and security
costs, respectively. These increases result primarily from implications of the
events that occurred on September 11, 2001 and the security cost increases
relate primarily to our New York City properties. In addition, Property
Expenses increased by $2.0 million attributable to the lease up of newly
developed and redeveloped properties. These increases in Property Expenses were
offset by $5.4 million of expenses attributable to six properties that were
sold in 2001. The 2001 increase in Property Expenses is primarily due to an
increase in property operating expenses of $10.2 million in our "same-store"
properties which consists of a $6.2 million increase in property operating
expenses and a $4.0 million increase in real estate taxes. The increase in
Property Expenses is also attributable to increases in labor costs, maintenance
contracts and security costs. In addition, there was an increase in Property
Expenses of $2.7 million due to higher occupancy levels at our developed and
redeveloped properties.
Gross operating margins (defined as Property Operating Revenues less
Property Expenses, taken as a percentage of Property Operating Revenues) for
2002, 2001 and 2000 were 64.9%, 66.1% and 65.2%, respectively. The slight
decrease from 2001 to 2002 in gross operating margin percentages resulted
primarily from portfolio wide increases in real estate taxes and property and
liability insurance costs. The increase from 2000 to 2001 is primarily due to
an increase in rental rates.
II-13
Marketing, general and administrative expenses were $31.6 million in 2002,
$30.6 million in 2001 and $27.2 million in 2000. The increase in marketing,
general and administrative expenses is primarily due to the increased costs of
maintaining offices and infrastructure in each of the Company's five divisional
markets and costs associated with the growth of the Company. The Company's
business strategy has been to expand further into the Tri-State Area suburban
and CBD markets and the New York City market, to create a superior franchise
value by applying its standards for high quality office and industrial / R&D
space and premier tenant service to its five operating divisions. Over the past
three years the Company has supported this effort by increasing its marketing
programs and strengthening its resources and operating systems. The cost of
these efforts is reflected in both marketing, general and administrative
expenses as well as the revenue growth of the Company. To a lesser extent, in
2001, the increase in marketing, general and administrative costs was impacted
by legal and professional fees incurred in connection with certain cancelled
acquisition transactions and amortization of deferred compensation costs.
Marketing, general and administrative expenses as a percentage of operating
revenues from continuing operations were 6.2% in 2002, 5.9% in 2001 and 5.6% in
2000.
Interest expense was $88.6 million in 2002, $93.1 million in 2001 and
$96.3 million in 2000. The decrease of $4.5 million from 2001 to 2002 is
attributable to an overall decrease in interest rates on the Company's
unsecured credit facility amounting to approximately $8.7 million. This
decrease was offset by (i) increased interest expense of $1.7 million on the
Company's senior unsecured notes resulting from the issuance of $50 million of
five-year notes in June 2002, (ii) a net increase in mortgage interest expense
of approximately $520,000 which was primarily attributable to the $50 million
principal increase on the debt of 919 Third Avenue in July 2001 and the
satisfaction of three mortgage notes payable aggregrating approximately $24.3
million during 2001 and (iii) approximately a $2.0 million decrease in
capitalized interest attributable to a decrease in the level of development
projects. The decrease of $3.2 million from 2000 to 2001 is attributable to
lower interest rates and a decreased average balance on the Company's unsecured
credit facility. This was partially offset by an increase in the Company's
mortgage notes payable which was the result of the refinancing of the property
located at 919 Third Avenue, New York, NY. The weighted average balance
outstanding on the Company's unsecured credit facility was $284.5 million in
2001 and $416.5 million in 2000.
Included in depreciation and amortization expense is amortized financing
costs of $4.5 million in 2002, $4.5 million in 2001 and $4.1 million in 2000.
For the year ended December 31, 2001, the Company's consolidated statement
of operations includes valuation reserve charges of $166.1 million which is
comprised of the following: (i) valuation reserve charges, inclusive of
anticipated costs, of $163 million related to the Company's investments in the
FrontLine Loans and joint ventures with RSVP (see Overview and Background for a
further discussion of this valuation reserve charge), (ii) in November 1999,
the Company received 176,186 shares of the common stock of FrontLine as fees in
connection with the FrontLine Loans. As a result of certain tax rule provisions
included in the REIT Modernization Act, it was determined that the Company
could no longer maintain any equity position in FrontLine. As part of a
compensation program, the Company distributed these shares to certain
non-executive employees subject to recourse loans. The loans were scheduled to
be forgiven over time based on continued employment with the Company. Based on
the current value of FrontLine's common stock the Company has established a
valuation reserve charge relating to the outstanding balance of these loans in
the amount of $2.4 million and (iii) based on the Company's value assessment of
its investment in Captivate Network, Inc., an unrelated technology based
service company, the Company recorded a valuation reserve charge of
approximately $700,000.
Extraordinary losses, net of limited partners' minority interest, resulted
in a $2.4 million loss in 2002, a $2.6 million loss in 2001 and a $1.4 million
loss in 2000. The extraordinary losses were all attributable to the write-offs
of certain deferred loan costs incurred in connection with the Company's
refinancing of its debt.
LIQUIDITY AND CAPITAL RESOURCES
Historically, rental revenue has been the principal source of funds to pay
operating expenses, debt service and capital expenditures, excluding
non-recurring capital expenditures of the Company. The Company expects to meet
its short-term liquidity requirements generally through its net cash provided
by operating
II-14
activities along with the Credit Facility previously discussed. The Credit
Facility contains several financial covenants with which the Company must be in
compliance in order to borrow funds thereunder. During certain quarterly
periods, the Company may incur significant leasing costs as a result of
increased market demands from tenants and high levels of leasing transactions.
As a result, during these periods the Company's cash flow from operating
activities may not be sufficient to pay 100% of the quarterly dividends due on
its common stock. To meet the short-term funding requirements relating to these
leasing costs, the Company may use proceeds of property sales or borrowings
under its Credit Facility. The Company expects to meet certain of its financing
requirements through long-term secured and unsecured borrowings and the
issuance of debt and equity securities of the Company. There can be no
assurance that there will be adequate demand for the Company's equity at the
time or at the price in which the Company desires to raise capital through the
sale of additional equity. In addition, when valuations for commercial real
estate properties are high, the Company will seek to sell certain properties or
interests therein to realize value and profit created. The Company will then
seek opportunities to reinvest the capital realized from these dispositions
back into value-added assets in the Company's core Tri-State Area markets, as
well as pursue its stock repurchase program. The Company will refinance
existing mortgage indebtedness or indebtedness under the Credit Facility at
maturity or retire such debt through the issuance of additional debt securities
or additional equity securities. The Company anticipates that the current
balance of cash and cash equivalents and cash flows from operating activities,
together with cash available from borrowings and equity offerings, will be
adequate to meet the capital and liquidity requirements of the Company in both
the short and long-term.
As a result of current economic conditions, certain tenants have either
not renewed their leases upon expiration or have paid the Company to terminate
their leases. In addition, a number of U.S. companies have filed for protection
under federal bankruptcy laws. Certain of these companies are tenants of the
Company. The Company is subject to the risk that other companies that are
tenants of the Company may file for bankruptcy protection. This may have an
adverse impact on the financial results and condition of the Company. In
addition, vacancy rates in our markets have been trending higher and in some
instances our asking rents in our markets have been trending lower and
landlords are being required to grant greater concessions such as free rent and
tenant improvements. Additionally, the Company carries comprehensive liability,
fire, extended coverage and rental loss insurance on all of its properties.
Five of the Company's properties are located in New York City. As a result of
the events of September 11, 2001, insurance companies are limiting coverage for
acts of terrorism in all risk policies. In November 2002, the Terrorism Risk
Insurance Act of 2002 was signed into law which, among other things, requires
insurance companies to offer coverage for losses resulting from defined "acts
of terrorism" through 2004. The Company's current insurance coverage provides
for full replacement cost of its properties, except that the coverage for acts
of terrorism on its properties covers losses in an amount up to $300 million
per occurrence. As a result, the Company may suffer losses from acts of
terrorism that are not covered by insurance. In addition, the mortgage loans
which are secured by certain of the Company's properties contain customary
covenants, including covenants that require the Company to maintain property
insurance in an amount equal to replacement cost of the properties. There can
be no assurance that the lenders under these mortgage loans will not take the
position that exclusions from the Company's coverage for losses due to
terrorist acts is a breach of a covenant which, if uncured, could allow the
lenders to declare an event of default and accelerate repayment of the mortgage
loans. Other outstanding debt instruments contain standard cross default
provisions that would be triggered in the event of an acceleration of the
mortgage loans. This matter could adversely affect the Company's financial
results, its ability to finance and/or refinance its properties or to buy or
sell properties.
The terrorist attacks of September 11, 2001 in New York City may adversely
effect the value of the Company's New York City properties and its ability to
generate cash flow. There may be a decrease in demand in metropolitan areas
that are considered at risk for future terrorist attacks, and this decrease may
reduce the Company's revenues from property revenues.
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. The Company expects to use its cash flow from operating
activities for distributions to stockholders and for payment of recurring,
non-incremental revenue-generating expenditures. The Company intends to invest
amounts accumulated for distribution in short-term investments.
II-15
Summary of Cash Flows
Net cash provided by operating activities totaled $196.1 million in 2002,
$186.0 million in 2001 and $169.2 million in 2000. Increases for each year were
primarily attributable to the growth in cash flow provided by the acquisition
of properties and / or the increased occupancy levels of the Company's
development properties and the increase in rental rates in all of the Company's
markets. The lower level of increase in 2002 is attributable to a more
competitive operating environment in which the Company did not acquire
additional properties as well as a decrease in market rental rates and
occupancies in the Company's markets.
Net cash used in investing activities totaled $85.1 million in 2002, $87.5
million in 2001 and $261.3 million in 2000. The decrease in cash flows used in
investing activities over the past three years is primarily attributable to the
Company's decrease in property acquisitions. Cash used in investing activities
during 2002 related primarily to the Company's ongoing development of its
properties, the acquisition of approximately 52.7 acres of development land
located in Valhalla, NY and costs associated with creating tenant space
including the payment of leasing costs. Cash used in investing activities
during 2001 and 2000 related primarily to investments in real estate properties
including development costs. Included in these investing activities for the
2001 and 2000 periods is the Company's investments of approximately $18.7
million and $16.3 million, respectively, in RSVP-controlled (REIT qualified)
joint ventures. Cash used in investing activities for the 2001 and 2000 periods
was offset by proceeds from the redemption of the Company's preferred equity
investments in Keystone Property Trust as well as from sales of real estate,
securities and mortgage note receivable repayments in each of the years then
ended.
Net cash used in financing activities totaled $202.2 million in 2002. Net
cash provided by financing activities totaled $5.7 million in 2001 and $88.6
million in 2000. Cash used in financing activities during 2002 related
primarily to the Company's stock buy-back program and repurchases of its Series
A preferred stock aggregating approximately $75 million. In addition, during
2002 cash used in financing activities was impacted by principal payments on
secured borrowings and dividends and distributions. These uses of cash were
offset by the Company issuing $50 million of five-year senior unsecured notes.
Cash provided by financing activities during 2001 and 2000 related primarily to
proceeds from secured debt financings, minority partner contributions and
advances under the Company's unsecured credit facility. Cash provided by
financing activities for the 2001 and 2000 periods was offset by advances made
under the FrontLine Loans of approximately $7.2 million and $13.6 million,
respectively. Cash provided by financing activities during these years was also
offset by principal payments on secured borrowings and the unsecured credit
facility as well as loan and equity issuance costs and dividends and
distributions.
Investing Activities
On April 1, 2002, the Company paid approximately $23.8 million to acquire 52.7
acres of land located in Valhalla, NY on which the Company can develop
approximately 875,000 square feet of office space. The Company currently owns
and operates three buildings encompassing approximately 700,000 square feet in
the same office park in which this land parcel is located. This acquisition was
financed in part from the sales proceeds of an office property being held by a
qualified intermediary for the purposes of an exchange of real property
pursuant to Section 1031 of the Code and from an advance under the Credit
Facility.
On August 7, 2002, the Company sold an industrial property on Long Island
aggregating approximately 32,000 square feet for approximately $1.8 million.
This property was sold to the sole tenant of the property through an option
contained in the tenant's lease. On August 8, 2002, the Company sold two Class
A office properties located in Westchester County, NY aggregating approximately
157,000 square feet for approximately $18.5 million. Net proceeds from these
sales were used to repay borrowings under the Credit Facility and for general
corporate purposes.
II-16
The following table sets forth the Company's invested capital (before
valuation reserves) in RSVP controlled (REIT-qualified) joint ventures and
amounts which were advanced under the RSVP Commitment to FrontLine, for its
investment in RSVP controlled investments (in thousands):
RSVP CONTROLLED AMOUNTS
JOINT VENTURES ADVANCED TOTAL
----------------- ---------- ---------
Privatization ..................... $21,480 $ 3,520 $ 25,000
Student Housing ................... 18,086 3,935 22,021
Medical Offices ................... 20,185 -- 20,185
Parking ........................... -- 9,091 9,091
Resorts ........................... -- 8,057 8,057
Net leased retail ................. -- 3,180 3,180
Other assets and overhead ......... -- 21,598 21,598
------------------------------------ ------- ------- --------
$59,751 $49,381 $109,132
======= ======= ========
Included in these investments is approximately $16.5 million of cash that
has been contributed to the respective RSVP controlled joint ventures or
advanced under the RSVP Commitment to FrontLine and is being held, along with
cash contributed by the preferred investors.
Financing Activities
During 2002, the Company paid cash dividends on its Class A common stock of
approximately $1.70 per share and approximately $2.59 per share on its Class B
common stock.
The Board of Directors of the Company has authorized the purchase of up to
five million shares of the Company's Class A common stock and / or its Class B
common stock. It is anticipated that transactions conducted on the New York
Stock Exchange will 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.
As of December 31, 2002, under this buy-back program, the Company
purchased 368,200 shares of Class B common stock at an average price of $22.90
per Class B share and 2,698,400 shares of Class A common stock at an average
price of $21.60 per Class A share for an aggregate purchase price for both the
Class A and Class B common stock of approximately $66.7 million. As a result of
these purchases, annual common stock dividends will decrease by approximately
$5.5 million. Previously, under the Company's prior stock buy-back program, the
Company purchased and retired 1,410,804 shares of Class B common stock at an
average price of $21.48 per Class B share and 61,704 shares of Class A common
stock at an average price of $23.03 per Class A share for an aggregate purchase
price for both the Class A and Class B common stock of approximately $31.7
million.
The Board of Directors of the Company has formed a pricing committee to
consider purchases of up to $75 million of the Company's outstanding preferred
securities. During October 2002, the Company purchased and retired 357,500
shares of its Series A preferred stock at $22.29 per share for approximately
$8.0 million. As a result of this purchase, annual preferred dividends will
decrease by approximately $682,000.
During the year ended December 31, 2002, approximately 11,303 preferred
units of limited partnership interest in the Operating Partnership, with a
liquidation preference value of approximately $11.3 million, were exchanged for
451,934 OP Units at an average price of $24.66 per OP Unit. In addition,
666,468 OP Units were exchanged for an equal number of shares of the Company's
Class A common stock.
During the year ended December 31, 2001, approximately 11,553 preferred
units of limited partnership interest in the Operating Partnership, with a
liquidation preference value of approximately $11.6 million, were exchanged for
456,351 OP Units at an average price of $25.32 per OP Unit. In addition,
660,370 OP Units were exchanged for an equal number of shares of the Company's
Class A common stock.
II-17
In May 2001, a minority partner that owned an $85 million preferred equity
investment in Metropolitan converted its preferred equity investment into
3,453,881 shares of the Company's Class A common stock based on a conversion
price of $24.61 per share. As a result of the minority partner's conversion of
its preferred equity investment, the Company owns 100% of Metropolitan.
The Company currently has a three year $500 million unsecured revolving
credit facility (the "Credit Facility") from JPMorgan Chase Bank, as
administrative agent, Wells Fargo Bank, National Association as syndication
agent and Citicorp North America, Inc. and Wachovia Bank, National Association
as co-documentation agents. The Credit Facility matures in December 2005,
contains options for a one year extension subject to a fee of 25 basis points
and, upon receiving additional lender commitments, increasing the maximum
revolving credit amount to $750 million. In addition, borrowings under the
Credit Facility are currently priced off LIBOR plus 90 basis points and the
Credit Facility carries a facility fee of 20 basis points per annum. In the
event of a change in the Operating Partnership's unsecured credit rating the
interest rates and facility fee are subject to change. The outstanding
borrowings under the Credit Facility were $267.0 million at December 31, 2002.
The Credit Facility replaced the Company's $575 million unsecured credit
facility (the "Prior Facility" and together with the Credit Facility, the
"Credit Facility"). As a result, certain deferred loan costs incurred in
connection with the Prior Facility were written off. Such amount is reflected
as an extraordinary loss in the Company's consolidated statements of
operations.
The Company utilizes the Credit Facility primarily to finance real estate
investments, fund its real estate development activities and for working
capital purposes. At December 31, 2002, the Company had availability under the
Credit Facility to borrow approximately an additional $203.0 million subject to
compliance with certain financial covenants.
On June 17, 2002, the Operating Partnership issued $50 million of
five-year 6.00% (6.125% effective rate) senior unsecured notes. Net proceeds of
approximately $49.4 million received from this issuance were used to repay
outstanding borrowings under the Prior Facility.
Capitalization
The Company's indebtedness at December 31, 2002 totaled approximately $1.4
billion (including its share of joint venture debt and net of minority
partners' interests share of joint venture debt) and was comprised of $267.0
million outstanding under the Credit Facility, approximately $499.3 million of
senior unsecured notes and approximately $605.1 million of mortgage
indebtedness with a weighted average interest rate of approximately 7.3% and a
weighted average maturity of approximately 9.0 years. Based on the Company's
total market capitalization of approximately $3.1 billion at December 31, 2002
(calculated based on the sum of (i) the market value of the Company's Class A
common stock and OP Units, assuming conversion, (ii) the market value of the
Company's Class B common stock, (iii) the liquidation preference value of the
Company's preferred stock, (iv) the liquidation preference value of the
Operating Partnership's preferred units and (v) the $1.4 billion of debt), the
Company's debt represented approximately 44.9% of its total market
capitalization.
During 2002, the Company repurchased 2,698,400 shares of its Class A
common stock, 368,200 shares of its Class B common stock and 357,500 shares of
its Series A preferred stock for an aggregate price of approximately $75
million dollars. In addition, the Operating Partnership issued $50 million of
five-year, 6.00% senior unsecured notes. Net proceeds from this issuance were
used to repay outstanding borrowings under the Prior Facility.
On October 16, 2000, the Company's Board of Directors announced that it
adopted a Shareholder Rights Plan (the "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. A description of the Rights Plan is
included in the Notes to Financial Statements of the Company.
II-18
Contractual Obligations and Commercial Commitments
The following table sets forth the Company's significant debt obligations by
scheduled principal cash flow payments and maturity date and its commercial
commitments by scheduled maturity at December 31, 2002 (in thousands):
MATURITY DATE
-------------------------------------------------------------------
2003 2004 2005 2006 2007 THEREAFTER TOTAL
---------- ---------- ---------- ---------- ---------- ------------ -------------
Mortgage notes payable (1) ............. $12,300 $ 13,169 $ 14,167 $ 13,785 $ 11,305 $117,389 $ 182,115
Mortgage notes payable (2) (3) ......... -- 2,616 18,553 129,920 60,539 346,269 557,897
Senior unsecured notes ................. -- 100,000 -- -- 200,000 200,000 500,000
Unsecured credit facility .............. -- -- 267,000 -- -- -- 267,000
Land lease obligations ................. 2,707 2,811 2,814 2,795 2,735 43,276 57,138
Operating leases ....................... 1,368 1,313 1,359 1,407 1,455 683 7,585
All rights lease obligations ........... 369 379 379 379 379 4,280 6,165
---------------------------------------- ------- -------- -------- -------- -------- -------- ----------
$16,744 $120,288 $304,272 $148,286 $276,413 $711,897 $1,577,900
======= ======== ======== ======== ======== ======== ==========
(1) Scheduled principal amortization payments.
(2) Principal payments due at maturity.
(3) In addition, the Company has a 60% interest in an unconsolidated joint
venture property. The Company's pro rata share of the mortgage debt at
December 31, 2002 is approximately $7.5 million. This mortgage note
payable bears interest at 8.85% per annum and matures on September 1,
2005.
Certain of the mortgage notes payable are guaranteed by certain limited
partners in the Operating Partnership and/or the Company. In addition,
consistent with customary practices in non-recourse lending, certain
non-recourse mortgages may be recourse to the Company under certain limited
circumstances including environmental issues and breaches of material
representations.
At December 31, 2002, the Company had approximately $1.0 million in
outstanding undrawn standby letters of credit issued under the Credit Facility.
In addition, approximately $45.1 million, or 6.1%, of the Company's mortgage
debt is recourse to the Company.
Other Matters
Thirteen of the Company's office properties which were acquired by the issuance
of OP Units are subject to agreements limiting the Company's ability to
transfer them prior to agreed upon dates without the consent of the limited
partner who transferred the respective property to the Company. In the event
the Company transfers any of these properties prior to the expiration of these
limitations, the Company may be required to make a payment relating to taxes
incurred by the limited partner. The limitations on seven of the properties
expire prior to June 30, 2003. The limitations on the remaining properties
expire in 2013.
Eleven of the Company's office properties are held in joint ventures which
contain certain limitations on transfer. These limitations include requiring
the consent of the joint venture partner to transfer a property prior to
various specified dates ranging from 2003 to 2005, rights of first offer, and
buy / sell provisions.
The Company has historically structured long term incentive programs
("LTIP") using restricted stock and stock loans. In July 2002, as a result of
certain provisions of the Sarbanes Oxley legislation, the Company has
discontinued the use of stock loans in its LTIP. In connection with LTIP grants
made prior to the enactment of the Sarbanes Oxley legislation the Company made
stock loans to certain executive and senior officers to purchase 1,372,393
shares of its Class A common stock at market prices ranging from $18.44 per
share to $27.13 per share. The stock loans were set to bear interest at the
mid-term Applicable Federal Rate and were secured by the shares purchased. Such
stock loans (including accrued interest) vest and are ratably forgiven each
year on the anniversary of the grant date based upon vesting periods ranging
from four to ten years based on continued service and in part on attaining
certain annual performance measures. These stock loans had an initial aggregate
weighted average vesting period of approximately nine years. Approximately $4.5
million and $3.7 million of compensation expense was
II-19
recorded for the years ended December 31, 2002 and 2001, respectively, related
to these LTIP. Such amount has been included in marketing, general and
administrative expenses on the accompanying consolidated statements of
operations.
During 2002, approximately $3.9 million of stock loans made in prior years
in connection with the aforementioned LTIP matured. These stock loans were
secured by 155,418 shares of Class A common stock which were issued at prices
ranging from $22.50 per share to $27.13 per share. As a result of the Company
discontinuing the use of stock loans as part of its LTIP the stock loans were
satisfied with restricted stock held by the Company which secured the stock
loans. The aggregate market value of these shares on the maturity dates of the
stock loans was approximately $3.4 million. The aggregate difference between
the market value of these shares and the carrying value of the stock loans was
recorded as a loss on the accompanying consolidated statements of operations.
The 155,418 shares of Class A common stock were subsequently retired by the
Company.
The outstanding stock loan balances due from executive and senior officers
aggregated approximately $17.0 million and $24.3 million at December 31, 2002
and 2001, respectively, and have been included as a reduction of additional
paid in capital on the accompanying consolidated statements of stockholders'
equity. Other outstanding loans to executive and senior officers amounting to
approximately $1.0 million at December 31, 2002 and 2001, related to life
insurance contracts and approximately $1.0 million and $.9 million at December
31, 2002 and 2001, respectively, primarily related to tax payment advances on a
stock compensation award made to a non-executive officer.
In November 2002, the Company granted rights to 190,524 shares of its
Class A common stock to certain executive officers. These shares vest ratably
over a four year period and will be issued in ratable installments on each
anniversary date of the grant as compensation to the executive officer.
The Company has established a new LTIP for its executive and senior
officers. The four year plan has a core component which provides for annual
stock based compensation based upon continued service and in part based on
attaining certain annual performance measures. The plan has a special long term
component which provides for compensation to be earned at the end of a four
year period if the Company attains certain four year cumulative performance
measures. Amounts earned under the special long term component may be paid in
cash or stock at the discretion of the Compensation Committee of the Board.
Performance measures are based on total shareholder returns on a relative and
absolute basis.
Funds From Operations
Management believes that funds from operations ("FFO") is an appropriate
measure of performance of an equity REIT. FFO is defined by the National
Association of Real Estate Investment Trusts ("NAREIT") as net income or loss,
excluding gains or losses from debt restructuring and sales of properties plus
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. FFO does not represent cash generated from
operating activities in accordance with GAAP and is not indicative of cash
available to fund cash needs. FFO should not be considered as an alternative to
net income as an indicator of the Company's operating performance or as an
alternative to cash flow as a measure of liquidity. (See Selected Financial
Data). FFO for the year ended December 31, 2001 excludes $163 million of
valuation reserves on investments in affiliate loans and joint ventures.
Since all companies and analysts do not calculate FFO in a similar
fashion, the Company's calculation of FFO presented herein may not be
comparable to similarly titled measures as reported by other companies.
II-20
The following table presents the Company's FFO calculation for the years
ended December 31 (in thousands):
2002 2001 2000
----------- ------------ ------------
Income before minority interests, preferred dividends and distributions,
equity in earnings of real estate joint ventures and service companies,
gain on sales of real estate, valuation reserves, discontinued operations
and extraordinary loss ..................................................... $ 98,547 $ 121,624 $ 111,872
Add:
Equity in earnings of real estate joint ventures and service companies ..... 1,113 2,087 4,383
Gain on sales of real estate ............................................... 537 20,173 18,669
Discontinued operations (net of limited partners' minority interest) ....... 4,762 1,019 1,208
Limited partners' minority interest ........................................ -- 5,878 --
Less:
Minority partners' interests in consolidated partnerships .................. 18,730 15,975 9,120
Limited partners' minority interest ........................................ 6,238 -- 11,574
Preferred dividends and distributions ...................................... 23,123 23,977 28,012
Valuation reserves on investments in affiliate loans and joint ventures
and other investments .................................................... -- 166,101 --
Extraordinary loss, net of limited partners' minority interest ............. 2,335 2,595 1,396
----------------------------------------------------------------------------- --------- --------- ---------
Net income (loss) allocable to common shareholders .......................... 54,533 (57,867) 86,030
Adjustments for basic Funds From Operations
Add:
Limited partners' minority interest ........................................ 6,948 -- 11,669
Real estate depreciation and amortization .................................. 108,906 100,967 90,552
Minority partners' interests in consolidated partnerships .................. 18,730 15,975 9,120
Valuation reserves on investments in affiliate loans and joint ventures .... -- 163,000 --
Extraordinary loss, net of limited partners' minority interest ............. 2,335 2,595 1,396
Less:
Limited partners' minority interest ........................................ -- 5,727 --
Gain on sales of real estate ............................................... 5,433 20,173 18,669
Amounts distributable to minority partners in consolidated partnerships .... 24,996 19,083 12,316
----------------------------------------------------------------------------- --------- --------- ---------
Basic Funds From Operations ................................................. 161,023 179,687 167,782
Add:
Dividends and distributions on dilutive shares and units ................... 23,123 26,601 34,387
----------------------------------------------------------------------------- --------- --------- ---------
Diluted Funds From Operations ............................................... $ 184,146 $ 206,288 $ 202,169
============================================================================= ========= ========= =========
Weighted Average Shares/OP Units outstanding (1) ............................ 67,180 66,057 61,050
============================================================================= ========= ========= =========
Diluted Weighted Average Shares/OP Units outstanding (1) .................... 78,133 79,027 78,119
============================================================================= ========= ========= =========
(1) Assumes conversion of limited partnership units of the Operating
Partnership.
II-21
INFLATION
The office leases generally provide for fixed base rent increases or indexed
escalations. In addition, the office leases provide for separate escalations of
real estate taxes, operating expenses and electric costs over a base amount.
The industrial leases generally provide for fixed base rent increases, direct
pass through of certain operating expenses and separate real estate tax
escalations over a base amount. The Company believes that inflationary
increases in expenses will be offset by contractual rent increases and expense
escalations described above. As a result of the impact of the events of
September 11, 2001, the Company has realized increased insurance costs,
particularly relating to property and terrorism insurance, and security costs.
The Company has included these costs as part of its escalatable expenses. The
Company has billed these escalatable expense items to its tenants consistent
with the terms of the underlying leases and believes they are collectible. To
the extent the Company's properties contain vacant space, the Company will bear
such inflationary increases in expenses.
The Credit Facility bears interest at a variable rate, which will be
influenced by changes in short-term interest rates, and is sensitive to
inflation.
ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary market risk facing the Company is interest rate risk on its long
term debt, mortgage notes and notes receivable. The Company will, when
advantageous, hedge its interest rate risk using financial instruments. The
Company is not subject to foreign currency risk.
The Company manages its exposure to interest rate risk on its variable
rate indebtedness by borrowing on a short-term basis under its Credit Facility
until such time as it is able to retire the short-term variable rate debt with
either a long-term fixed rate debt offering, long term mortgage debt, equity
offerings or through sales or partial sales of assets.
The Company will recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges will be adjusted to fair value through
income. If a derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of the derivative will either be offset against the
change in fair value of the hedged asset, liability or firm commitment through
earnings, or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in
fair value will be immediately recognized in earnings. As of December 31, 2002,
the Company had no derivates.
The fair market value ("FMV") of the Company's long term debt, mortgage
notes and notes receivable is estimated based on discounting future cash flows
at interest rates that management believes reflects the risks associated with
long term debt, mortgage notes and notes receivable of similar risk and
duration.
The following table sets forth the Company's long term debt obligations by
scheduled principal cash flow payments and maturity date, weighted average
interest rates and estimated FMV at December 31, 2002 (dollars in thousands):
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2003 2004 2005 2006 2007
------------- -------------- ------------- -------------- --------------
Long term debt:
Fixed rate ............. $ 12,300 $ 115,785 $ 32,720 $ 143,705 $ 271,844
Weighted average
interest rate ......... 7.51% 7.47% 6.92% 7.38% 7.51%
Variable rate .......... $ -- $ -- $ 267,000 $ -- $ --
Weighted average
interest rate ......... --% --% 4.25% --% --%
THEREAFTER TOTAL (1) F M V
-------------- ---------------- --------------
Long term debt:
Fixed rate ............. $ 663,658 $ 1,240,012 $ 1,260,299
Weighted average
interest rate ......... 7.32% 7.37%
Variable rate .......... $ -- $ 267,000 $ 267,000
Weighted average
interest rate ......... --% 4.25%
(1) Includes aggregate unamortized issuance discounts of approximately $695 on
the senior unsecured notes issued during March 1999 and June 2002, which
are due at maturity.
II-22
In addition, the Company has assessed the market risk for its variable
rate debt, which is based upon LIBOR, and believes that a one percent increase
in the LIBOR rate would have an approximate $2.7 million annual increase in
interest expense based on $267.0 million of variable rate debt outstanding at
December 31, 2002.
The following table sets forth the Company's mortgage notes and notes
receivable by scheduled maturity date, weighted average interest rates and
estimated FMV at December 31, 2002 (dollars in thousands):
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2003 2004 2005 2006 2007 THEREAFTER TOTAL (2) F M V
--------- ------------- --------- --------- --------- ------------ ------------- -----------
Mortgage notes and notes receivable:
Fixed rate ......................... $ -- $ 36,500 $ -- $ -- $ -- $ 16,990 $ 53,490 $ 54,642
Weighted average interest rate ..... --% 10.23% --% --% --% 11.95% 10.77%
(2) Excludes interest receivables aggregating approximately $1.1 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is included in a separate section of this Form
10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
II-23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained in the section captioned "Proposal I: Election
of Directors" and "Section 16 Beneficial Ownership Reporting Compliance" of the
Company's definitive proxy statement for the 2003 annual meeting of
stockholders is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained in the section captioned "Executive
Compensation" of the Company's definitive proxy statement for the 2003 annual
meeting of stockholders is incorporated herein by reference, provided, however,
that the report on Executive Compensation set forth therein shall not be
incorporated by reference herein, in any of the Company's prior or future
filings under the Securities Act of 1933 or the Securities Exchange Act of
1934, except to the extent the Company specifically incorporates such report by
reference therein and shall not be otherwise deemed filed under either of such
Acts.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information contained in the section captioned "Principal and
Management Stockholders" of the Company's definitive proxy statement for the
2003 annual meeting of stockholders is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in the section captioned "Certain Relationships
and Related Transactions" of the Company's definitive proxy statement for the
2003 annual meeting of the stockholders is incorporated herein by reference.
ITEM 14. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures and internal controls
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 Securities and Exchange Commission's rules and forms. In this
regard, the Company has formed a Disclosure Committee currently comprised of
all of the Company's executive officers as well as certain other employees 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
the Company with the SEC and assists the Company's Co-Chief Executive Officers
and Chief Financial Officer in connection with their certifications contained
in the Company's SEC reports. The Committee meets regularly and reports to the
Audit Committee on a quarterly or more frequent basis. Our principal executive
and financial officers have evaluated our disclosure controls and procedures
within 90 days prior to the filing of this Annual Report on Form 10-K and have
determined that such disclosure controls and procedures are effective.
There have been no significant changes in internal controls or in other
factors that could significantly affect these controls subsequent to the date
of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
ITEM 16. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information contained in the section captioned "Proposal to:
Ratification of Selection of Indepdendent Auditors" of the Company's definitive
proxy statement for the 2003 annual meeting of stockholders is incorporated
herein by reference.
III-1
PART IV
ITEM 15. FINANCIAL STATEMENTS AND SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K
(a)(1 and 2) Financial Statements and Schedules
The following consolidated financial information is included as a separate
section of this annual report on Form 10-K:
PAGE
------
RECKSON ASSOCIATES REALTY CORP.
Report of Independent Auditors ............................................. IV-8
Consolidated Balance Sheets as of December 31, 2002 and December 31, 2001 .. IV-9
Consolidated Statements of Operations for the years ended December 31, 2002,
2001 and 2000 ............................................................ IV-10
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2002, 2001 and 2000. ........................................ IV-11
Consolidated Statements of Cash Flows for the years ended December 31, 2002,
2001 and 2000. ........................................................... IV-12
Notes to Consolidated Financial Statements ................................. IV-13
Schedule III -- Real Estate and Accumulated Depreciation ................... IV-39
All other schedules are omitted since the required information is not
present in amounts sufficient to require submission of the schedule or because
the information required is included in the financial statements and notes
thereto.
IV-1
(3) Exhibits
EXHIBIT FILING
NUMBER REFERENCE DESCRIPTION
--------- ---------- -----------------------------------------------------------------------------------
3.1 a Amended and Restated Articles of Incorporation of the Registrant
3.2 s Amended and Restated By-Laws of the Registrant
3.3 e Articles Supplementary of the Registrant Establishing and Fixing the Rights and
Preferences of a Series of Shares of Preferred Stock filed
with the Maryland State Department of Assessments and
Taxation on April 9, 1998
3.4 h Articles Supplementary of the Registrant Establishing and Fixing the Rights and
Preferences of a Class of Shares of Common Stock filed with the Maryland State
Department of Assessments and Taxation on May 24, 1999
3.5 g Articles Supplementary of the Registrant Establishing and Fixing the Rights and
Preferences of a Series of Shares of Preferred Stock filed with the Maryland State
Department of Assessments and Taxation on May 28, 1999
3.6 h Articles of Amendment of the Registrant filed with the Maryland State
Department of Assessments and Taxation on January 4, 2000
3.7 h Articles Supplementary of the Registrant filed with the Maryland State
Department of Assessments and Taxation on January 11, 2000
3.8 o Articles Supplementary of the Registrant Establishing and Fixing the Rights and
Preferences of a Series of Shares of Preferred Stock filed with the Maryland State
Department of Assessments and Taxation on November 2, 2000
4.1 b Specimen Share Certificate of Class A Common Stock
4.2 j Specimen Share Certificate of Class B Exchangeable Common Stock
4.3 e Specimen Share Certificate of Series A Preferred Stock
4.4 f Form of 7.40% Notes due 2004 of Reckson Operating Partnership, L.P. (the
"Operating Partnership")
4.5 f Form of 7.75% Notes due 2009 of the Operating Partnership
4.6 f Indenture, dated March 26, 1999, among the Operating Partnership, the Registrant,
and The Bank of New York, as trustee
4.7 i 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
4.8 q Form of 6.00% Notes due 2007 of the Operating Partnership
4.9 d Note Purchase Agreement for the Senior Unsecured Notes
10.1 a Amended and Restated Agreement of Limited Partnership of the Operating
Partnership
10.2 e Supplement to the Amended and Restated Agreement of Limited Partnership of
the Operating Partnership Establishing Series A Preferred Units of Limited
Partnership Interest
10.3 e Supplement to the Amended and Restated Agreement of Limited Partnership of
the Operating Partnership Establishing Series B Preferred Units of Limited
Partnership Interest
10.4 e Supplement to the Amended and Restated Agreement of Limited Partnership of
the Operating Partnership Establishing Series C Preferred Units of Limited
Partnership Interest
10.5 e Supplement to the Amended and Restated Agreement of Limited Partnership of
the Operating Partnership Establishing Series D Preferred Units of Limited
Partnership Interest
10.6 h Supplement to the Amended and Restated Agreement of Limited Partnership of
the Operating Partnership Establishing Series B Common Units of Limited
Partnership Interest
10.7 h Supplement to the Amended and Restated Agreement of Limited Partnership of
the Operating Partnership Establishing Series E Preferred Partnership Units of
Limited Partnership Interest
10.8 l Supplement to the Amended and Restated Agreement of Limited Partnership of
the Operating Partnership Establishing the Series F Junior Participating Preferred
Partnership Units
10.9 d Third Amended and Restated Agreement of Limited Partnership of Omni
Partners, L.P.
10.10 i Amendment and Restatement of Employment and Noncompetition Agreement,
dated as of August 15, 2000, between the Registrant and Donald Rechler
10.11 i Amendment and Restatement of Employment and Noncompetition Agreement,
dated as of August 15, 2000, between the Registrant and Scott Rechler
10.12 i Amendment and Restatement of Employment and Noncompetition Agreement,
dated as of August 15, 2000, between the Registrant and Mitchell Rechler
10.13 i Amendment and Restatement of Employment and Noncompetition Agreement,
dated as of August 15, 2000, between the Registrant and Gregg Rechler
10.14 i Amendment and Restatement of Employment and Noncompetition Agreement,
dated as of August 15, 2000, between the Registrant and Roger Rechler
10.15 i Amendment and Restatement of Employment and Noncompetition Agreement,
dated as of August 15, 2000, between the Registrant and Michael Maturo
10.16 i Amendment and Restatement of Employment and Noncompetition Agreement,
dated as of August 15, 2000, between the Registrant and Jason Barnett
10.17 a Purchase Option Agreements relating to the Reckson Option Properties
10.18 a Purchase Option Agreements relating to the Other Option Properties
10.19 k Amended and Restated 1995 Stock Option Plan
10.20 c 1996 Employee Stock Option Plan
10.21 b Ground Leases for certain of the properties
10.22 a Indemnity Agreement relating to 100 Oser Avenue
10.23 k Amended and Restated 1997 Stock Option Plan
10.24 d 1998 Stock Option Plan
10.25 i Amendment and Restatement of Severance Agreement, dated as of August 15,
2000, between the Registrant and Donald Rechler
10.26 i Amendment and Restatement of Severance Agreement, dated as of August 15,
2000, between the Registrant and Scott Rechler
10.27 i Amendment and Restatement of Severance Agreement, dated as of August 15,
2000, between the Registrant and Mitchell Rechler
10.28 i Amendment and Restatement of Severance Agreement, dated as of August 15,
2000, between the Registrant and Gregg Rechler
10.29 i Amendment and Restatement of Severance Agreement, dated as of August 15,
2000, between the Registrant and Roger Rechler
10.30 i Amendment and Restatement of Severance Agreement, dated as of August 15,
2000, between the Registrant and Michael Maturo
10.31 i Amendment and Restatement of Severance Agreement, dated as of August 15,
2000, between the Registrant and Jason Barnett
10.32 h Amended and Restated Credit Agreement dated as of August 4, 1999 between
Reckson Service Industries, Inc., as borrower, and the Operating Partnership, as
Lender, relating to Reckson Strategic Venture Partners, LLC ("RSVP Credit
Agreement")
IV-2
EXHIBIT FILING
NUMBER REFERENCE DESCRIPTION
---------- ----------- -------------------------------------------------------------------------------------
10.33 h Amended and Restated Credit Agreement dated as of August 4, 1999 between
Reckson Service Industries, Inc., as borrower, and the Operating Partnership, as
Lender, relating to the operations of Reckson Service Industries, Inc. ("RSI Credit
Agreement")
10.34 h Letter Agreement, dated November 30, 1999, amending the RSVP Credit
Agreement and the RSI Credit Agreement
10.35 m Second Amendment to the Amended and Restated Credit Agreement, dated
March 30, 2001, between the Operating Partnership and FrontLine Capital Group
10.36 n Loan Agreement, dated as of June 1, 2001, between 1350 LLC, as Borrower, and
Secore Financial Corporation, as Lender
10.37 n Loan Agreement, dated as of July 18, 2001, between Metropolitan 919 3rd Avenue,
LLC, as Borrower, and Secore Financial Corporation, as Lender
10.38 i Operating Agreement dated as of September 28, 2000 between Reckson Tri-State
Member LLC (together with its permitted successors and assigns) and TIAA
Tri-State LLC
10.39 l 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
10.40 l Consolidated, Amended and Restated Secured Promissory Note relating to
Metropolitan 810 7th Ave., LLC and 100 Wall Company LLC
10.41 p Amended and Restated Operating Agreement of 919 JV LLC
10.42 r 2002 Stock Option Plan
10.43 s Indemnification Agreement, dated as of May 23, 2002, between the Registrant and
Donald J. Rechler*
10.44 t Second Amended and Restated Credit Agreement, dated as of December 30, 2002,
among the Operating Partnership, the institutions from time to time party thereto
as Lenders and JPMorgan Chase Bank, as Administrative Agent
10.45 t Form of Guarantee Agreement to the Second Amended and Restated Credit
Agreement, between and among the Operating Partnership, the institutions from
time to time party thereto as Lenders and JPMorgan Chase Bank, as
Administrative Agent
10.46 t Form of Promissory Note to the Second Amended and Restated Credit
Agreement, between and among the Operating Partnership, the institutions from
time to time party thereto as Lenders and JPMorgan Chase Bank, as
Administrative Agent
10.47 t First Amendment to Second Amended and Restated Credit Agreement, dated as
of January 24, 2003, among the Operating Partnership, JPMorgan Chase Bank, as
Administrative Agent for the institutions from time to time party thereto as
Lenders and Key Bank, N.A., as New Lender
10.48 Long-Term Incentive Award Agreement, dated March 13, 2003, between the
Registrant and Scott H. Rechler**
10.49 Award Agreement, dated November 14, 2002, between the Registrant and
Scott H. Rechler***
10.50 Award Agreement, dated March 13, 2003, between the Registrant and Scott
H. Rechler****
12.1 Statement of Ratios of Earnings to Fixed Charges
21.1 Statement of Subsidiaries
23.1 Consent of Independent Auditors
24.1 Power of Attorney (included in Part IV of the Form 10-K)
99.1 Certification of Donald J. Rechler, Co-Chief Executive Officer of the Registrant,
pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
99.2 Certification of Scott H. Rechler, Co-Chief Executive Officer of the Registrant,
pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
99.3 Certification of Michael Maturo, Executive Vice President, Treasurer and Chief
Financial Officer of the Registrant, pursuant to Section 1350 of Chapter 63 of Title
18 of the United States Code
-----------------------
(a) Previously filed as an exhibit to the Registrant's Registration Statement Form S-11 (No. 333-1280)
and incorporated herein by reference.
(b) Previously filed as an exhibit to the Registrant's Registration Statement Form S-11 (No. 33-84324)
and incorporated herein by reference.
(c) Previously filed as an exhibit to the Registrant's Form 8-K report filed with the SEC on November 25,
1996 and incorporated herein by reference.
(d) Previously filed as an exhibit to the Registrant's Form 10-K filed with the SEC on March 26, 1998
and incorporated herein by reference.
(e) Previously filed as an exhibit to the Registrant's Form 8-K report filed with the SEC on March 1,
1999 and incorporated herein by reference.
(f) Previously filed as an exhibit to the Registrant's Form 8-K filed with SEC on March 26, 1999 and
incorporated herein by reference.
(g) Previously filed as an exhibit to the Registrant's Form 8-K filed with SEC on June 7, 1999 and
incorporated herein by reference.
(h) Previously filed as an exhibit to the Registrant's Form 10-K filed with the SEC on March 17, 2000
and incorporated herein by reference.
(i) Previously filed as an exhibit to the Registrant's Form 8-K filed with the SEC on October 17, 2000
and incorporated herein by reference.
(j) Previously filed as an exhibit to the Registrant's Form S-4 (No. 333-74285) and incorporated herein
by reference.
(k) Previously filed as an exhibit to the Registrant's Form 10-Q filed with the SEC on November 13, 2001
and incorporated herein by reference.
(l) Previously filed as an exhibit to the Registrant's Form 10-K filed with the SEC on March 21, 2001
and incorporated herein by reference.
(m) Previously filed as an exhibit to the Registrant's Form 10-Q filed with the SEC on May 14, 2001 and
incorporated herein by reference.
(n) Previously filed as an exhibit to the Registrant's Form 10-Q filed with the SEC on August 14, 2001
and incorporated herein by reference.
(o) Included as an exhibit to Exhibit 4.7.
(p) Previously filed as an exhibit to the Registrant's Form 8-K filed with the SEC on January 8, 2002 and
incorporated herein by reference.
(q) Previously filed as an exhibit to the Registrant's Form 8-K filed with the SEC on June 18, 2002 and
incorporated herein by reference.
(r) Previously filed as an exhibit to the Registrant's Form 10-Q filed with the SEC on August 14, 2002
and incorporated herein by reference.
(s) Previously filed as an exhibit to the Registrant's Form 10-Q filed with the SEC on November 12, 2002
and incorporated herein by reference.
(t) Previously filed as an exhibit to the Registrant's Current Report on 8-K filed with the SEC on
January 27, 2003 and incorporated herein by reference.
* Each of Scott H. Rechler, Mitchell D. Rechler, Gregg M. Rechler, Michael Maturo, Roger M.
Rechler, Jason M. Barnett, Herve A. Kevenides, John V.N. Klein, Lewis S. Ranieri and Conrad D.
Stephenson has entered into an Indemnification Agreement with the Registrant, dated May 23, 2002.
Each of Ronald H. Menaker and Peter Quick has entered into an Indemnification Agreement with
the Registrant dated May 1, 2002. These Agreements are identical in all material respects to the
Indemnification Agreement for Donald J. Rechler filed herewith.
** Each of Donald J. Rechler, Mitchell D. Rechler, Gregg M. Rechler, Michael Maturo, Roger M.
Rechler and Jason M. Barnett has entered into a Long-Term Incentive Award Agreement with the
Registrant, dated March 13, 2003. These Agreements are identical in all material respects to the
Long-Term Incentive Award Agreement for Scott H. Rechler filed herewith.
*** Each of Donald J. Rechler, Mitchell D. Rechler, Gregg M. Rechler, Michael Maturo and Roger M.
Rechler has been awarded certain rights to shares of Class A common stock of the Registrant,
pursuant to award agreements dated November 14, 2002. These Agreements are identical in all
material respects to the Agreement for Scott H. Rechler filed herewith, except that Donald J. Rechler
received rights to 46,983 shares each of Mitchell D. Rechler, Gregg M. Rechler and Michael Maturo
received rights to 27,588 shares and Roger M. Rechler received rights to 25,530 shares.
**** Each of Donald J. Rechler, Mitchell D. Rechler, Gregg M. Rechler, Michael Maturo, Roger M. Rechler
and Jason M. Barnett has been awarded certain rights to shares of Class A common stock of the
Registrant pursuant to award agreements dated March 13, 2003. These Agreements are identical in
all material respects to the Agreement for Scott H. Rechler filed herewith.
REPORTS ON FORM 8-K:
On November 5, 2002, the Registrant submitted a report on Form 8-K under Item 9
thereof in order to submit supplemental operating and financial data for the
quarter ended September 30, 2002.
On November 6, 2002, the Registrant submitted a report on Form 8-K under Item 9
thereof in order to submit its third quarter presentation.
IV-3
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on March 13, 2003.
RECKSON ASSOCIATES REALTY CORP.
By: /s/ Donald J. Rechler
------------------------------
Donald J. Rechler,
Chairman of the Board and
Co-Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Reckson Associates Realty Corp. hereby severally constitute and
appoint Scott H. Rechler, Mitchell D. 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 Associates Realty Corp.
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 13, 2003.
SIGNATURE TITLE SIGNATURE TITLE
----------------------- ------------------------------- ------------------------ --------
/s/ Donald J. Rechler Chairman of the Board, /s/ Ronald Menaker Director
----------------------- Co-Chief Executive Officer ------------------------
Donald J. Rechler and Director (Principal Ronald Menaker
Executive Officer)
/s/ Scott H. Rechler Co-Chief Executive Officer /s/ Peter Quick Director
----------------------- and Director ------------------------
Scott H. Rechler Peter Quick
/s/ Mitchell D. Rechler Co-President, Chief /s/ Herve A. Kevenides Director
---------------------- Administrative Officer and ------------------------
Mitchell D. Rechler Director Herve A. Kevenides
/s/ Gregg M. Rechler Co-President, Chief /s/ John V.N. Klein Director
----------------------- Operating Officer and ------------------------
Gregg M. Rechler Director John V.N. Klein
/s/ Michael Maturo Executive Vice President, /s/ Lewis S. Ranieri Director
----------------------- Treasurer and Chief ------------------------
Michael Maturo Financial Officer (Principal Lewis S. Ranieri
Financial Officer and
Principal Accounting
Officer)
/s/ Roger M. Rechler Executive Vice President, /s/ Conrad D. Stephenson Director
----------------------- Vice-Chairman of the ------------------------
Roger M. Rechler Board and Director Conrad D. Stephenson
IV-4
CERTIFICATION
I, Donald J. Rechler, certify that:
1. I have reviewed this annual report on Form 10-K of Reckson Associates Realty
Corp.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Registrant as of, and for, the periods presented in this annual report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to record,
process, summarize and report financial data and have identified for the
Registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 13, 2003
/s/ Donald J. Rechler
--------------------------
Donald J. Rechler
Co-Chief Executive Officer
IV-5
CERTIFICATION
I, Scott H. Rechler, certify that:
1. I have reviewed this annual report on Form 10-K of Reckson Associates Realty
Corp.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Registrant as of, and for, the periods presented in this annual report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to record,
process, summarize and report financial data and have identified for the
Registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 13, 2003
/s/ Scott H. Rechler
-------------------------------
Scott H. Rechler
Co-Chief Executive Officer
IV-6
CERTIFICATION
I, Michael Maturo, certify that:
1. I have reviewed this annual report on Form 10-K of Reckson Associates Realty
Corp.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Registrant as of, and for, the periods presented in this annual report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to record,
process, summarize and report financial data and have identified for the
Registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 13, 2003
/s/ Michael Maturo
-----------------------------------
Michael Maturo
Executive Vice President, Treasurer
and Chief Financial Officer
IV-7
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Reckson Associates Realty Corp.
We have audited the accompanying consolidated balance sheets of Reckson
Associates Realty Corp. as of December 31, 2002 and 2001, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2002. We have also
audited the financial statement schedule listed in the index at item 15(a).
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Reckson
Associates Realty Corp. at December 31, 2002 and 2001, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
ERNST & YOUNG LLP
New York, New York
February 27, 2003
IV-8
RECKSON ASSOCIATES REALTY CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31,
----------------------------
2002 2001
----------- -----------
ASSETS
Commercial real estate properties, at cost: (Notes 2, 3, 5 and 6)
Land .......................................................................... $ 418,040 $ 408,837
Buildings and improvements .................................................... 2,415,252 2,328,374
Developments in progress:
Land .......................................................................... 92,924 69,365
Development costs ............................................................. 28,311 74,303
Furniture, fixtures and equipment .............................................. 13,595 7,725
----------- -----------
2,968,122 2,888,604
Less accumulated depreciation ............................................... (454,018) (361,960)
----------- -----------
2,514,104 2,526,644
Investments in real estate joint ventures ...................................... 6,116 5,744
Investment in mortgage notes and notes receivable (Note 6) ..................... 54,547 56,234
Cash and cash equivalents (Note 9) ............................................. 30,827 121,975
Tenant receivables ............................................................. 14,050 9,633
Investments in service companies and affiliate loans and joint ventures (Note 8) 73,332 79,184
Deferred rents receivable ...................................................... 107,366 81,089
Prepaid expenses and other assets .............................................. 37,235 45,495
Contract and land deposits and pre-acquisition costs ........................... 240 3,782
Deferred leasing and loan costs, less accumulated amortization of $48,049 and
$41,411, respectively ......................................................... 70,103 64,438
----------- -----------
Total Assets ............................................................... $ 2,907,920 $ 2,994,218
=========== ===========
LIABILITIES
Mortgage notes payable (Note 2) ................................................ $ 740,012 $ 751,077
Unsecured credit facility (Note 3) ............................................. 267,000 271,600
Senior unsecured notes (Note 4) ................................................ 499,305 449,463
Accrued expenses and other liabilities ......................................... 93,783 87,683
Dividends and distributions payable ............................................ 31,575 32,988
----------- -----------
Total Liabilities .......................................................... 1,631,675 1,592,811
----------- -----------
Minority partners' interests in consolidated partnerships ...................... 242,934 242,698
Preferred unit interest in the operating partnership ........................... 19,662 30,965
Limited partners' minority interest in the operating partnership ............... 71,420 81,887
----------- -----------
334,016 355,550
----------- -----------
Commitments and contingencies (Notes 9,10 and 13) .............................. -- --
STOCKHOLDERS' EQUITY (NOTE 7)
Preferred Stock, $.01 par value, 25,000,000 shares authorized
Series A preferred stock, 8,834,500 and 9,192,000 shares issued and
outstanding, respectively ..................................................... 88 92
Series B preferred stock, 2,000,000 shares issued and outstanding ............. 20 20
Common Stock, $.01 par value, 100,000,000 shares authorized
Class A common stock, 48,246,083 and 49,982,377 shares issued and
outstanding, respectively ................................................... 482 500
Class B common stock, 9,915,313 and 10,283,513 shares issued and
outstanding, respectively ................................................... 99 103
Treasury Stock, Class A common, 2,698,400 and 0 shares, respectively and
Class B common, 368,200 and 0 shares, respectively ............................ (63,954) --
Additional paid in capital ..................................................... 1,005,494 1,045,142
----------- -----------
Total Stockholders' Equity ................................................. 942,229 1,045,857
----------- -----------
Total Liabilities and Stockholders' Equity ................................. $ 2,907,920 $ 2,994,218
=========== ===========
(see accompanying notes to financial statements)
IV-9
RECKSON ASSOCIATES REALTY CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
FOR THE YEAR
ENDED
DECEMBER 31,
------------
2002
------------
REVENUES (NOTE 10):
Property operating revenues:
Base Rents .............................................................................. $ 437,393
Tenant escalations and reimbursements ................................................... 60,689
------------
Total property operating revenues ........................................................ 498,082
Interest income on mortgage notes and notes receivable (including $4,287, $4,196 and
$5,237, respectively from related properties)............................................ 6,279
Investment and other income (including $85, $5,164 and $21,455, respectively from
related parties) ........................................................................ 1,731
------------
Total revenues .......................................................................... 506,092
------------
EXPENSES:
Property operating expenses .............................................................. 175,041
Marketing, general and administrative .................................................... 31,578
Interest ................................................................................. 88,585
Depreciation and amortization ............................................................ 112,341
------------
Total expenses .......................................................................... 407,545
------------
Income before minority interests, preferred dividends and distributions, equity in
earnings of real estate joint ventures and service companies, gain on sales of real
estate, valuation reserves, discontinued operations and extraordinary loss .............. 98,547
Minority partners' interests in consolidated partnerships ................................ (18,730)
Limited partners' minority interest in the operating partnership ......................... (6,238)
Distributions to preferred unit holders .................................................. (1,288)
Equity in earnings of real estate joint ventures and service companies (including $465,
$1,450 and $2,792, respectively from related parties).................................... 1,113
Gain on sales of real estate (Note 6) .................................................... 537
Valuation reserves on investments in affiliate loans and joint ventures and other
investments (Notes 8 and 13) ............................................................ --
------------
Income (loss) before discontinued operations, extraordinary loss and dividends to
preferred shareholders loss ............................................................. 73,941
Discontinued operations (net of limited partners' minority interest):
Income from discontinued operations ..................................................... 495
Gain on sales of real estate ............................................................ 4,267
------------
Income (loss) before extraordinary loss and dividends to preferred shareholders .......... 78,703
Extraordinary loss on extinguishment of debts (net of limited partners' minority (2,335)
------------
interest)
Net Income (loss) ........................................................................ 76,368
Dividends to preferred shareholders ...................................................... (21,835)
------------
Net income (loss) allocable to common shareholders ....................................... $ 54,533
============
Net income (loss) allocable to:
Class A common shareholders ............................................................. $ 41,604
Class B common shareholders ............................................................. 12,929
------------
Total .................................................................................... $ 54,533
============
Basic net income (loss) per weighted average common share:
Class A common .......................................................................... $ .79
Gain on sales of real estate ............................................................ .01
Discontinued operations ................................................................. .07
Extraordinary loss ...................................................................... (.03)
------------
Basic net income (loss) per Class A common .............................................. $ .84
============
Class B common .......................................................................... $ 1.21
Gain on sales of real estate ............................................................ .01
Discontinued operations ................................................................. .11
Extraordinary loss ...................................................................... (.05)
------------
Basic net income (loss) per Class B common .............................................. $ 1.28
============
Basic weighted average common shares outstanding:
Class A common .......................................................................... 49,669,000
Class B common .......................................................................... 10,122,000
Diluted net income (loss) per weighted average common share:
Class A common .......................................................................... $ .83
Class B common .......................................................................... $ .90
Diluted weighted average common shares outstanding:
Class A common .......................................................................... 49,968,000
Class B common .......................................................................... 10,122,000
FOR THE YEAR ENDED
DECEMBER 31,
---------------------------
2001 2000
----------- ------------
REVENUES (NOTE 10):
Property operating revenues:
Base Rents .............................................................................. $ 434,671 $ 394,019
Tenant escalations and reimbursements ................................................... 59,538 54,470
----------- ------------
Total property operating revenues ........................................................ 494,209 448,489
Interest income on mortgage notes and notes receivable (including $4,287, $4,196 and
$5,237, respectively from related properties)............................................ 6,238 8,212
Investment and other income (including $85, $5,164 and $21,455, respectively from
related parties) ........................................................................ 14,199 26,597
----------- ------------
Total revenues .......................................................................... 514,646 483,298
----------- ------------
EXPENSES:
Property operating expenses .............................................................. 167,291 156,103
Marketing, general and administrative .................................................... 30,553 27,179
Interest ................................................................................. 93,070 96,335
Depreciation and amortization ............................................................ 102,108 91,809
----------- ------------
Total expenses .......................................................................... 393,022 371,426
----------- ------------
Income before minority interests, preferred dividends and distributions, equity in
earnings of real estate joint ventures and service companies, gain on sales of real
estate, valuation reserves, discontinued operations and extraordinary loss .............. 121,624 111,872
Minority partners' interests in consolidated partnerships ................................ (15,975) (9,120)
Limited partners' minority interest in the operating partnership ......................... 5,878 (11,574)
Distributions to preferred unit holders .................................................. (2,111) (2,641)
Equity in earnings of real estate joint ventures and service companies (including $465,
$1,450 and $2,792, respectively from related parties).................................... 2,087 4,383
Gain on sales of real estate (Note 6) .................................................... 20,173 18,669
Valuation reserves on investments in affiliate loans and joint ventures and other
investments (Notes 8 and 13) ............................................................ (166,101) --
----------- ------------
Income (loss) before discontinued operations, extraordinary loss and dividends to
preferred shareholders loss ............................................................. (34,425) 111,589
Discontinued operations (net of limited partners' minority interest):
Income from discontinued operations ..................................................... 1,019 1,208
Gain on sales of real estate ............................................................ -- --
----------- ------------
Income (loss) before extraordinary loss and dividends to preferred shareholders .......... (33,406) 112,797
Extraordinary loss on extinguishment of debts (net of limited partners' minority
interest) .............................................................................. (2,595) (1,396)
----------- ------------
Net Income (loss) ........................................................................ (36,001) 111,401
Dividends to preferred shareholders ...................................................... (21,866) (25,371)
----------- ------------
Net income (loss) allocable to common shareholders ....................................... $ (57,867) $ 86,030
=========== ============
Net income (loss) allocable to:
Class A common shareholders ............................................................. $ (44,243) $ 62,989
Class B common shareholders ............................................................. (13,624) 23,041
----------- ------------
Total .................................................................................... $ (57,867) $ 86,030
=========== ============
Basic net income (loss) per weighted average common share:
Class A common .......................................................................... $ (1.19) $ 1.19
Gain on sales of real estate ............................................................ .29 .28
Discontinued operations ................................................................. .02 .02
Extraordinary loss ...................................................................... (.04) (.03)
----------- ------------
Basic net income (loss) per Class A common .............................................. $ (.92) $ 1.46
=========== ============
Class B common .......................................................................... $ (1.70) $ 1.82
Gain on sales of real estate ............................................................ .42 .43
Discontinued operations ................................................................. .02 .03
Extraordinary loss ...................................................................... (.06) (.04)
----------- ------------
Basic net income (loss) per Class B common .............................................. $ (1.32) $ 2.24
=========== ============
Basic weighted average common shares outstanding:
Class A common .......................................................................... 48,121,000 43,070,000
Class B common .......................................................................... 10,284,000 10,284,000
Diluted net income (loss) per weighted average common share:
Class A common .......................................................................... $ (.92) $ 1.45
Class B common .......................................................................... $ (1.32) $ 1.59
Diluted weighted average common shares outstanding:
Class A common .......................................................................... 48,121,000 43,545,000
Class B common .......................................................................... 10,284,000 10,284,000
(see accompanying notes to financial statements)
IV-10
RECKSON ASSOCIATES REALTY CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
PREFERRED STOCK COMMON STOCK
------------------- --------------------
SERIES A SERIES B CLASS A CLASS B
-------- -------- -------- --------
Stockholders' equity
January 1, 2000 ................ $ 92 $ 60 $ 404 $ 103
Conversion of Series B
Preferred Stock ................ -- (40) 42 --
Redemption of OP Units .......... -- -- -- --
Net proceeds from long term
compensation issuances ......... -- -- 8 --
Net income ...................... -- -- -- --
Dividends and distributions
paid and payable ............... -- -- -- --
---- ----- ----- -----
Stockholders' equity
December 31, 2000 .............. 92 20 454 103
Issuance of OP Units ............ -- -- -- --
Redemption of OP Units .......... -- -- 6 --
Net proceeds from long term
compensation issuances ......... -- -- 5 --
Issuance of Class A common
stock .......................... -- -- 35 --
Repurchases of Class A
common stock ................... -- -- -- --
Net loss ........................ -- -- -- --
Dividends and distributions
paid and payable ............... -- -- -- --
---- ----- ----- -----
Stockholders' equity
December 31, 2001 .............. 92 20 500 103
Issuance of OP Units ............ -- -- -- --
Redemption of OP Units .......... -- -- 7 --
Net proceeds from long term
compensation issuances ......... -- -- (2) --
Issuance of Class A common
stock .......................... -- -- 4 --
Repurchases of Class A and
Class B common stock ........... -- -- (27) (4)
Repurchases of Series A
preferred stock ................ (4) -- -- --
Net income ...................... -- -- -- --
Dividends and distributions
paid and payable ............... -- -- -- --
---- ----- ----- -----
Stockholders' equity
December 31, 2002 .............. $ 88 $ 20 $ 482 $ 99
==== ===== ===== =====
LIMITED
ADDITIONAL TOTAL PARTNERS'
TREASURY PAID IN RETAINED STOCKHOLDERS' MINORITY
STOCK CAPITAL EARNINGS EQUITY INTEREST
---------- ----------- ---------- ------------- ---------
Stockholders' equity
January 1, 2000 ................ $ -- $ 1,116,297 $ -- $ 1,116,956 $ 90,986
Conversion of Series B
Preferred Stock ................ -- (6,765) -- (6,763) 6,763
Redemption of OP Units .......... -- -- -- -- (125)
Net proceeds from long term
compensation issuances ......... -- 6,656 -- 6,664 --
Net income ...................... -- -- 86,030 86,030 11,494
Dividends and distributions
paid and payable ............... -- (4,198) (86,030) (90,228) (11,765)
---------- ----------- ---------- ----------- ---------
Stockholders' equity
December 31, 2000 .............. -- 1,111,990 -- 1,112,659 97,353
Issuance of OP Units ............ -- -- -- -- 11,557
Redemption of OP Units .......... -- 15,412 -- 15,418 (15,577)
Net proceeds from long term
compensation issuances ......... -- 6,423 -- 6,428 --
Issuance of Class A common
stock .......................... -- 77,777 -- 77,812 7,188
Repurchases of Class A
common stock ................... -- (1,421) -- (1,421) --
Net loss ........................ -- -- (57,867) (57,867) (6,030)
Dividends and distributions
paid and payable ............... -- (165,039) 57,867 (107,172) (12,604)
---------- ----------- ---------- ----------- ---------
Stockholders' equity
December 31, 2001 .............. -- 1,045,142 -- 1,045,857 81,887
Issuance of OP Units ............ -- 5,274 -- 5,274 6,135
Redemption of OP Units .......... -- 7,148 -- 7,155 (7,173)
Net proceeds from long term
compensation issuances ......... -- 3,988 -- 3,986 --
Issuance of Class A common
stock .......................... -- 7,065 -- 7,069 --
Repurchases of Class A and
Class B common stock ........... (63,954) -- -- (63,985) (2,738)
Repurchases of Series A
preferred stock ................ -- (7,041) -- (7,045) (924)
Net income ...................... -- -- 54,533 54,533 6,682
Dividends and distributions
paid and payable ............... -- (56,082) (54,533) (110,615) (12,449)
---------- ----------- ---------- ----------- ---------
Stockholders' equity
December 31, 2002 .............. $ (63,954) $ 1,005,494 $ -- $ 942,229 $ 71,420
========== =========== ========== =========== =========
(see accompanying notes to financial statements)
IV-11
RECKSON ASSOCIATES REALTY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------
2002 2001 2000
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) ................................................................... $ 76,368 $ (36,001) $ 111,401
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization ....................................................... 112,341 102,108 91,809
Extraordinary loss, net of limited partners' minority interest ...................... 2,335 2,595 1,396
Minority partners' interests in consolidated partnerships ........................... 18,730 15,975 9,120
Limited partners' minority interest in the operating partnership .................... 6,238 (5,878) 11,574
Gain on sales of real estate, securities and mortgage repayment ..................... (4,804) (19,199) (17,836)
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 .............. (1,113) (2,087) (4,383)
Changes in operating assets and liabilities:
Deferred rents receivable ........................................................... (26,277) (38,186) (35,798)
Prepaid expenses and other assets ................................................... 4,870 (4,925) (9,582)
Tenant and affiliate receivables .................................................... (4,417) 1,878 (6,394)
Accrued expenses and other liabilities .............................................. 11,878 3,607 17,857
---------- ---------- ----------
Net cash provided by operating activities ........................................... 196,149 185,988 169,164
---------- ---------- ----------
CASH FLOWS FROM INVESTMENT ACTIVITIES:
Purchases of commercial real estate properties ...................................... -- -- (190,548)
Increase in contract and land deposits and pre-acquisition costs .................... -- (3,267) (2,023)
Additions to developments in progress ............................................... (41,896) (8,260) (13,392)
Additions to commercial real estate properties ...................................... (48,052) (152,074) (89,818)
Payment of deferred leasing costs ................................................... (16,414) (10,513) (24,082)
Distributions from investments in real estate joint ventures ........................ 276 82 368
Acquisition of controlling interests in service companies ........................... (122) -- --
Additions to furniture, fixtures and equipment ...................................... (2,414) (635) (742)
Investments in affiliate joint ventures ............................................. -- (25,056) (10,780)
Proceeds from redemption of preferred securities .................................... 1,528 35,700 19,903
Proceeds from sales of real estate, securities and mortgage note receivable
repayments ......................................................................... 22,022 76,503 49,810
---------- ---------- ----------
Net cash used in investing activities ............................................... (85,072) (87,520) (261,304)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from secured borrowings .................................................... -- 325,000 297,163
Principal payments on secured borrowings ............................................ (11,065) (302,894) (27,367)
Proceeds from issuance of senior unsecured notes, net of issuance costs ............. 49,432 -- --
Payment of loan and equity issuance costs ........................................... (1,568) (6,252) (11,649)
Investments in affiliate loans and service companies ................................ -- (12,388) (12,516)
Proceeds from unsecured credit facility ............................................. 158,000 153,000 689,600
Principal payments on unsecured credit facility ..................................... (162,600) (98,000) (845,600)
Repurchases of common stock ......................................................... (66,723) (1,421) --
Repurchase of Series A preferred stock .............................................. (7,969) -- --
Proceeds from issuance of common stock and exercise of options, net of
issuance costs ..................................................................... 6,310 2,813 4,010
Contributions by minority partners in consolidated partnerships ..................... 1,343 101,832 135,975
Distributions to minority partners in consolidated partnerships ..................... (20,051) (16,458) (12,632)
Distributions to limited partners in the operating partnership ...................... (12,540) (12,395) (11,654)
Distributions to preferred unit holders ............................................. (1,320) (2,231) (2,641)
Dividends to common shareholders .................................................... (111,525) (103,118) (87,437)
Dividends to preferred shareholders ................................................. (21,949) (21,824) (26,637)
---------- ---------- ----------
Net cash (used in) provided by financing activities ................................. (202,225) 5,664 88,615
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents ................................ (91,148) 104,132 (3,525)
Cash and cash equivalents at beginning of period .................................... 121,975 17,843 21,368
---------- ---------- ----------
Cash and cash equivalents at end of period .......................................... $ 30,827 $ 121,975 $ 17,843
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest, including interest capitalized ............ $ 98,083 $ 105,087 $ 106,106
========== ========== ==========
(see accompanying notes to financial statements)
IV-12
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Reckson Associates Realty Corp. (the "Company") is a self-administered and
self managed real estate investment trust ("REIT") engaged in the ownership,
management, operation, leasing and development of commercial real estate
properties, principally office and industrial buildings and also owns land for
future development (collectively, the "Properties") located in the New York
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 Reckson Operating
Partnership, L.P. (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. All Properties acquired by the Company are held
by or through the Operating Partnership. In conjunction with the IPO, the
Operating Partnership executed various option and purchase agreements whereby
it issued common units of limited partnership interest in the Operating
Partnership ("OP Units") to certain continuing investors and assumed certain
indebtedness in exchange for (i) interests in certain property partnerships,
(ii) fee simple and leasehold interests in properties and development land,
(iii) certain other business assets and (iv) 100% of the non-voting preferred
stock of the management and construction companies. The Company's ownership
percentage in the Operating Partnership was approximately 89.5% and 89.2% at
December 31, 2002 and 2001, respectively.
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the
consolidated financial position of the Company and the Operating Partnership at
December 31, 2002 and 2001 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2002. The
Operating Partnership's investments in majority owned and controlled real
estate joint ventures are reflected in the accompanying financial statements on
a consolidated basis with a reduction for the minority partners' interest. The
Operating Partnership also invests in real estate joint ventures where it may
own less than a controlling interest. Such investments are also reflected in
the accompanying financial statements on the equity method of accounting. The
operating results of Reckson Management Group, Inc., RANY Management Group,
Inc., Reckson Construction Group New York, Inc. and Reckson Construction Group,
Inc. (collectively, the "Service Companies"), in which the Operating
Partnership owned a 97% non-controlling interest are reflected in the
accompanying financial statements on the equity method of accounting through
September 30, 2002. On October 1, 2002, the Operating Partnership acquired the
remaining 3% interests in the Service Companies for an aggregate purchase price
of approximately $122,000. As a result, the Operating Partnership commenced
consolidating the operations of 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 nine property suburban
office portfolio, a 40% non-affiliated interest in Omni Partners, L.P., owner
of a 579,000 square foot suburban office property and beginning December 21,
2001, a 49% non-affiliated interest in Metropolitan 919 Third Avenue, LLC,
owner of the property located at 919 Third Avenue, New York, NY. Limited
partners' minority interest in the Operating Partnership was approximately
10.5% and 10.8% at December 31, 2002 and 2001, respectively.
IV-13
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States ("GAAP") requires management
to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
REAL ESTATE
Land, buildings and improvements, furniture, fixtures and equipment are
recorded at cost. Tenant improvements, which are included in buildings and
improvements, are also stated at cost. Expenditures for ordinary maintenance
and repairs are expensed to operations as they are incurred. Renovations and /
or replacements, which improve or extend the life of the asset are capitalized
and depreciated over their estimated useful lives.
Depreciation is computed utilizing the straight-line method over the
estimated useful lives of ten to thirty years for buildings and improvements
and five to ten years for furniture, fixtures and equipment. Tenant
improvements, which are included in buildings and improvements, are amortized
on a straight-line basis over the term of the related leases.
LONG LIVED ASSETS
On a periodic basis, management assesses whether there are any indicators
that the value of the real estate properties may be impaired. A property's
value is impaired only if management's estimate of the aggregate future cash
flows (undiscounted and without interest charges) to be generated by the
property are less than the carrying value of the property. Such cash flows
consider factors such as expected future operating income, trends and
prospects, as well as the effects of demand, competition and other factors. To
the extent impairment has occurred, the loss will be measured as the excess of
the carrying amount of the property over the fair value of the property.
The Company is required to make subjective assessments as to whether there
are impairments in the value of its real estate properties and other
investments. These assessments have a direct impact on the Company's net
income, because taking an impairment results in an immediate negative
adjustment to net income. In determining impairment, if any, the Company has
adopted Financial Accounting Standards Board ("FASB") Statement No. 144,
"Accounting for the Impairment or Disposal of Long Lived Assets" (See Recent
Accounting Pronouncements).
CASH EQUIVALENTS
The Company considers highly liquid investments with a maturity of three
months or less when purchased, to be cash equivalents.
Tenant's lease security deposits aggregating approximately $5.6 million
and $5.1 million at December 31, 2002 and 2001, respectively have been included
in cash and cash equivalents on the accompanying balance sheets.
DEFERRED COSTS
Tenant leasing commissions and related costs incurred in connection with
leasing tenant space are capitalized and amortized over the life of the related
lease. In addition, loan costs incurred in obtaining financing are capitalized
and amortized over the term of the related loan.
Costs incurred in connection with equity offerings are charged to
stockholders equity when incurred.
IV-14
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
INCOME TAXES
Commencing with its taxable year ended December 31, 1995, the Company
elected to be taxed as a REIT under the Internal Revenue Code of 1986 (the
"Code"). To qualify as a REIT, the Company must meet a number of organizational
and operational requirements, including a requirement that it currently
distribute at least 90% of its adjusted taxable income to its stockholders. It
is management's current intention to adhere to these requirements and maintain
the Company's REIT status. As a REIT, the Company generally will not be subject
to corporate level federal income tax on taxable income it distributes
currently to its stockholders. If the Company fails to qualify as a REIT in any
taxable year, it will be subject to federal income taxes at regular corporate
rates (including any applicable al ternative minimum tax) and may not be able
to qualify as a REIT for the subsequent four taxable years. Even if the Company
qualifies for taxation as a REIT, the Company may be subject to certain state
and local taxes on its income and property, and to federal income and excise
taxes on its undistributed taxable income. In addition, taxable income from
non-REIT activities managed through the Service Companies as taxable REIT
subsidiaries are subject to federal, state and local income taxes. (See Note 14
for the Company's reconciliation of GAAP net income to taxable income, its
reconciliation of cash distributions to the dividends paid deduction and its
characterization of taxable distributions).
REVENUE RECOGNITION
Minimum rental income is recognized on a straight-line basis over the term
of a lease. The excess of rents recognized over amounts contractually due are
included in deferred rents receivable on the accompanying balance sheets.
Contractually due but unpaid rents are included in tenant receivables on the
accompanying balance sheets. Certain lease agreements provide for reimbursement
of real estate taxes, insurance, common area maintenance costs and indexed
rental increases, which are recorded on an accrual basis.
The Company records interest income on investments in mortgage notes and
notes receivable on an accrual basis of accounting. The Company does not accrue
interest on impaired loans where, in the judgment of management, collection of
interest according to the contractual terms is considered doubtful. Among the
factors the Company considers in making an evaluation of the collectibility of
interest are: (i) the status of the loan, (ii) the value of the underlying
collateral, (iii) the financial condition of the borrower and (iv) anticipated
future events.
Gain on sales of real estate are recorded when title is conveyed to the
buyer, subject to the buyer's financial commitment being sufficient to provide
economic substance to the sale and the Company having no substantial continuing
involvement with the buyer.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, "Earnings per Share" ("Statement No. 128") which replaced
the calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. The conversion of OP Units into
Class A common stock would not have a significant effect on per share amounts
as the OP Units share proportionately with the Class A common stock in the
results of the Operating Partnership's operations.
STOCK OPTIONS
Effective January 1, 2002 the Company has elected to follow FASB Statement
No. 123, "Accounting for Stock Based Compensation" ("Statement No. 123").
Statement No. 123 requires the use of option valuation models which determine
the fair value of the option on the date of the grant. All future
IV-15
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
employee stock option grants will be expensed over the options' vesting periods
based on the fair value at the date of the grant in accordance with Statement
No. 123. The Company expects minimal financial impact from the adoption of
Statement No. 123. To determine the fair value of the stock options granted,
the Company uses a Black-Scholes option pricing model. Historically, the
Company had applied Accounting Principles Board Opinion No. 25 ("APB No. 25")
and related interpretations in accounting for its stock option plans and
reported pro forma disclosures in its Form 10-K filings by estimating the fair
value of options issued and the related expense in accordance with Statement
No. 123 (see Note 7). Accordingly, no compensation cost had been recognized for
its stock option plans prior to the Company's adoption of Statement No. 123.
In December 2002, the FASB issued Statement No. 148, "Accounting for
Stock-Based Compensation--Transition and Disclosure" ("Statement No. 148").
Statement No. 148 amends Statement No. 123 to provide alternative methods of
transition for an entity that voluntarily adopts the fair value recognition
method of recording stock option expense. Statement No. 148 also amends the
disclosure provisions of Statement 123 and APB Opinion No. 28. "Interim
Financial Reporting" to require disclosure in the summary of significant
accounting policies of the effects of an entity's accounting policy with
respect to stock options on reported net income and earnings per share in
annual and interim financial statements.
The following table sets forth the Company's pro forma information for its
Class A common stockholders for the years ended December 31 (in thousands
except earnings per share data):
2002 2001 2000
-------- ---------- --------
Net income (loss) as reported ..................... $ 41,604 $ (44,243) $ 62,989
Add: Stock option expense included in net income
(loss) ........................................... 94 -- --
Less: Stock option expense determined under fair
value recognition method for all awards .......... (495) (476) (318)
-------- ---------- --------
Pro forma net income (loss) ....................... $ 41,203 $ (44,719) $ 62,671
======== ========== ========
Net income (loss) per share as reported:
Basic ............................................ $ .84 $ (.92) $ 1.46
======== ========== ========
Diluted .......................................... $ .83 $ (.92) $ 1.45
======== ========== ========
Pro forma net income (loss) per share:
Basic ............................................ $ .83 $ (.93) $ 1.46
======== ========== ========
Diluted .......................................... $ .82 $ (.93) $ 1.44
======== ========== ========
The fair value for those options was estimated at the date of grant using
a Black-Scholes option pricing model with the following weighted-average
assumptions for 2002, 2001 and 2000, respectively: risk-free interest rate of
3%, 5% and 5%; dividend yields of 7.38%, 7.52% and 7.31%; volatility factors of
the expected market price of the Company's Class A common stock of .198 and a
weighted-average expected life of the option of five years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period.
DERIVATIVE INVESTMENTS
FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which became effective January 1, 2001 requires the Company to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If a
IV-16
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
derivative is a hedge, depending on the nature of the hedge, changes in the
fair value of the derivative will either be offset against the change in fair
value of the hedged asset, liability, or firm commitment through earnings, or
recognized in accumulated other comprehensive income ("OCI") until the hedged
item is recognized in earnings. The ineffective portion of a derivative's
change in fair value will be immediately recognized in earnings. As of January
1, 2001, the carrying value of the Company's derivatives equaled their fair
value and as a result no cumulative effect changes were recorded. Additionally,
as of June 30, 2001, the fair value of the Company's derivatives equaled
approximately $3.7 million and was reflected in other assets and OCI on the
Company's balance sheet. On July 18, 2001, the mortgage note payable to which
these derivatives relate to was funded and their fair value at that time was
approximately $676,000 less than their carrying value. This amount is being
amortized to interest expense over the term of the mortgage note to which it
relates. Because of the Company's minimal use of derivatives, the adoption of
this Statement did not have a significant effect on earnings or the financial
position of the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("Statement No. 144"). Statement
No. 144 provides accounting guidance for financial accounting and reporting for
the impairment or disposal of long-lived assets. Statement No. 144 supersedes
FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of. It also supersedes the accounting and
reporting provisions of Accounting Principles Board Opinion No. 30, Reporting
the Results of Operations--Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions related to the disposal of a segment of a business. The Company
adopted Statement No. 144 on January 1, 2002. The adoption of this statement
did not have a material effect on the results of operations or the financial
position of the Company. The adoption of Statement No. 144 does not have an
impact on net income (loss) allocable to common shareholders. Statement No. 144
only impacts the presentation of the results of operations and gain (loss) on
sales of real estate for those properties sold during the period within the
consolidated statements of operations.
On January 1, 2002, the Company adopted the provisions of FASB Statement
No. 142, "Goodwill and Other Intangible Assets" ("Statement No. 142"). This
statement makes significant changes to the accounting for business
combinations, goodwill, and intangible assets. Among other provisions,
Statement No. 142 requires that a portion of the purchase price of real estate
acquisitions be assigned to the fair value of an intangible asset for above
market operating leases or to an intangible liability for below market
operating leases. Such intangible assets or liabilities are then required to be
amortized into revenue over the remaining life of the respective leases. The
adoption of this statement did not have an effect on the Company's results of
operations or financial condition for the year ended December 31, 2002.
In April 2002, the FASB issued Statement No. 145, ("Statement No. 145"),
which rescinded Statement No. 4, "Reporting Gains and Losses from
Extinguishment of Debt". Statement No. 145 is effective for fiscal years
beginning after May 15, 2002. The Company will adopt Statement No. 145 on
January 1, 2003 which will result in a change to reported net income (loss).
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees", Including Indirect
Guarantees of Indebtedness of Others ("FIN 45"). FIN 45 significantly changes
the current practice in the accounting for, and disclosure of, guarantees.
Guarantees and indemnification agreements meeting the characteristics described
in FIN 45 are required to be initially recorded as a liability at fair value.
FIN 45 also requires a guarantor to make significant new disclosures for
virtually all guarantees even if the likelihood of the guarantor having to make
payment
IV-17
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
under the guarantee is remote. The disclosure requirements within FIN 45 are
effective for financial statements for annual or interim periods ending after
December 15, 2002. The initial recognition and initial measurement provisions
are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The Company is currently evaluating the effects of FIN 45 on
the Company's results of operations or financial condition.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"), which explains how to identify variable
interest entities ("VIE") and how to assess whether to consolidate such
entities. The provisions of this interpretation are immediately effective for
VIE's formed after January 31, 2003. For VIE's formed prior to January 31,
2003, the provisions of this interpretation apply to the first fiscal year or
interim period beginning after June 15, 2003. Management has not yet determined
whether any of its consolidated or unconsolidated subsidiaries represent VIE's
pursuant to such interpretation. Such determination could result in a change in
the Company's consolidation policy related to such entities.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
current year presentation.
2. MORTGAGE NOTES PAYABLE
At December 31, 2002, there were 16 fixed rate mortgage notes payable with
an aggregate outstanding principal amount of approximately $740.0 million.
These mortgage notes are secured by properties with an aggregate carrying value
at December 31, 2002 of approximately $1.5 billion and which are pledged as
collateral against the mortgage notes payable. In addition, approximately $45.1
million of the $740.0 million is recourse to the Company. The mortgage notes
bear interest at rates ranging from 6.45% to 10.10%, and mature between 2004
and 2027. The weighted average interest rates on the outstanding mortgage notes
payable at December 31, 2002, 2001 and 2000 were approximately 7.3%, 7.3% and
7.8%, respectively. Certain of the mortgage notes payable are guaranteed by
certain limited partners in the Operating Partnership and / or the Company.
The following table sets forth the Company's mortgage notes payable at
December 31, 2002, by scheduled maturity date (dollars in thousands):
PRINCIPAL INTEREST MATURITY AMORTIZATION
PROPERTY OUTSTANDING RATE DATE TERM (YEARS)
--------------------------------------------------------- ----------- -------- --------------- -------------
80 Orville Drive, Islip, NY ............................. $ 2,616 10.10% February, 2004 Interest only
395 North Service Road, Melville, NY .................... 19,709 6.45% October, 2005 $34 per month
200 Summit Lake Drive, Valhalla, NY ..................... 19,373 9.25% January, 2006 25
1350 Avenue of the Americas, NY, NY ..................... 74,631 6.52% June, 2006 30
Landmark Square, Stamford, CT (a) ....................... 45,090 8.02% October, 2006 25
100 Summit Lake Drive, Valhalla, NY ..................... 19,101 8.50% April, 2007 15
333 Earle Ovington Blvd., Mitchel Field, NY (b) ......... 53,864 7.72% August, 2007 25
810 Seventh Avenue, NY, NY .............................. 82,854 7.73% August, 2009 25
100 Wall Street, NY, NY ................................. 35,904 7.73% August, 2009 25
6900 Jericho Turnpike, Syosset, NY ...................... 7,348 8.07% July, 2010 25
6800 Jericho Turnpike, Syosset, NY ...................... 13,922 8.07% July, 2010 25
580 White Plains Road, Tarrytown, NY .................... 12,685 7.86% September, 2010 25
919 Third Avenue, NY, NY (c) ............................ 246,651 6.867% August, 2011 30
110 Bi-County Blvd., Farmingdale, NY .................... 3,635 9.125% November, 2012 20
One Orlando Center, Orlando, FL (d) ..................... 38,366 6.82% November, 2027 28
120 West 45th Street, NY, NY (d) ........................ 64,263 6.82% November, 2027 28
---------
Total / Weighted average ................................ $ 740,012 7.26%
=========
IV-18
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. MORTGAGE NOTES PAYABLE - (CONTINUED)
(a) Encompasses six Class A office properties.
(b) The Company has a 60% general partnership interest in this property and its
proportionate share of the aggregate principal amount is approximately
$32.3 million.
(c) The Company has a 51% membership interest in this property and its
proportionate share of the aggregate principal amount is approximately
$125.8 million.
(d) Subject to interest rate adjustment on November 1, 2004 to the greater of
8.82% per annum or the yield on noncallable U.S. Treasury obligations with
a term of fifteen years plus 2% per annum.
In addition, the Company has a 60% interest in an unconsolidated joint
venture property. The Company's pro rata share of the mortgage debt at December
31, 2002 is approximately $7.5 million. This mortgage note payable bears
interest at 8.85% per annum and matures on September 1, 2005.
Scheduled principal repayments to be made during the next five years and
thereafter, for mortgage notes payable outstanding at Decem-ber 31, 2002, are
as follows (in thousands):
SCHEDULED DUE AT
PRINCIPAL MATURITY TOTAL
--------- --------- ---------
2003 ............... $ 12,300 $ -- $ 12,300
2004 ............... 13,169 2,616 15,785
2005 ............... 14,167 18,553 32,720
2006 ............... 13,785 129,920 143,705
2007 ............... 11,305 60,539 71,844
Thereafter ......... 117,389 346,269 463,658
--------- --------- ---------
$ 182,115 $ 557,897 $ 740,012
========= ========= =========
3. UNSECURED CREDIT FACILITY
The Company currently has a three year $500 million unsecured revolving
credit facility (the "Credit Facility") from JPMorgan Chase Bank, as
administrative agent, Wells Fargo Bank, National Association as syndication
agent and Citicorp North America, Inc. and Wachovia Bank, National Association
as co-documentation agents. The Credit Facility matures in December 2005,
contains options for a one year extension subject to a fee of 25 basis points
and, upon receiving additional lender commitments, increasing the maximum
revolving credit amount to $750 million. In addition, borrowings under the
Credit Facility are currently priced off LIBOR plus 90 basis points and the
Credit Facility carries a facility fee of 20 basis points per annum. In the
event of a change in the Operating Partnership's unsecured credit rating the
interests rates and facility fee are subject to change. The outstanding
borrowings under the Credit Facility were $267.0 million at December 31, 2002.
The Credit Facility replaced the Company's $575 million unsecured credit
facility (the "Prior Facility" and together with the Credit Facility, the
"Credit Facility"). As a result, certain deferred loan costs incurred in
connection with the Prior Facility were written off and are reflected as an
extraordinary loss in the accompanying consolidated statements of operations.
The Company utilizes the Credit Facility primarily to finance real estate
investments, fund its real estate development activities and for working
capital purposes. At December 31, 2002, the Company had availability under the
Credit Facility to borrow approximately an additional $203.0 million subject to
compliance with certain financial covenants.
The Company capitalized interest incurred on borrowings to fund certain
development projects in the amount of $8.3 million, $10.2 million and $11.5
million for the years ended December 31, 2002, 2001 and 2000, respectively.
IV-19
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. SENIOR UNSECURED NOTES
As of December 31, 2002, the Operating Partnership had outstanding
approximately $499.3 million (net of issuance discounts) of senior unsecured
notes (the "Senior Unsecured Notes"). The following table sets forth the
Operating Partnership's Senior Unsecured Notes and other related disclosures by
scheduled maturity date (dollars in thousands):
FACE COUPON
ISSUANCE AMOUNT RATE TERM MATURITY
------------------------- -------- ------- -------- ---------------
March 26, 1999 .......... $100,000 7.40% 5 years March 15, 2004
June 17, 2002 ........... $ 50,000 6.00% 5 years June 15, 2007
August 27, 1997 ......... $150,000 7.20% 10 years August 28, 2007
March 26, 1999 .......... $200,000 7.75% 10 years March 15, 2009
Interest on the Senior Unsecured Notes is payable semiannually with
principal and unpaid interest due on the scheduled maturity dates. In addition,
the Senior Unsecured Notes issued on March 26, 1999 and June 17, 2002 were
issued at aggregate discounts of $738,000 and $267,500, respectively. Such
discounts are being amortized over the term of the Senior Unsecured Notes to
which they relate.
On June 17, 2002, the Operating Partnership issued $50 million of 6.00%
(6.125% effective rate) Senior Unsecured Notes. Net proceeds of approximately
$49.4 million received from this issuance were used to repay outstanding
borrowings under the Prior Facility.
5. LAND LEASES, AIR RIGHTS AND OPERATING LEASES
The Company leases, pursuant to noncancellable operating leases, the land
on which twelve of its buildings were constructed. The leases, which contain
renewal options, expire between 2009 and 2084. The leases either contain
provisions for scheduled increases in the minimum rent at specified intervals
or for adjustments to rent based upon the fair market value of the underlying
land or other indexes at specified intervals. Minimum ground rent is recognized
on a straight-line basis over the terms of the leases. The excess of amounts
recognized over amounts contractually due is approximately $3.3 million and
$3.0 million at December 31, 2002 and 2001, respectively. These amounts are
included in accrued expenses and other liabilities on the accompanying balance
sheets.
In addition, the Company, through the acquisition of certain properties,
is subject to two air rights lease agreements. These lease agreements have
terms expiring between 2048 and 2073, including renewal options.
Reckson Management Group, Inc. is subject to operating leases for certain
of its management offices and warehouse storage space. These operating leases
expire between 2003 and 2009. (see Note 8).
Future minimum lease commitments relating to the land leases, air rights
lease agreements and operating leases during the next five years and thereafter
are as follows (in thousands):
YEAR ENDED LAND AIR OPERATING
DECEMBER 31, LEASES RIGHTS LEASES
----------------------- -------- ------- ---------
2003 ............... $ 2,707 $ 369 $ 1,368
2004 ............... 2,811 379 1,313
2005 ............... 2,814 379 1,359
2006 ............... 2,795 379 1,407
2007 ............... 2,735 379 1,455
Thereafter ......... 43,276 4,280 683
-------- ------- -------
$ 57,138 $ 6,165 $ 7,585
======== ======= =======
IV-20
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. COMMERCIAL REAL ESTATE INVESTMENTS
As of December 31, 2002, the Company owned and operated 75 office
properties (inclusive of eleven office properties owned through joint ventures)
comprising approximately 13.6 million square feet, 101 industrial properties
comprising approximately 6.7 million square feet and two retail properties
comprising approximately 20,000 square feet located in the Tri-State Area.
The Company also owns approximately 338 acres of land in 14 separate
parcels of which the Company can develop approximately 3.2 million square feet
of office space and approximately 470,000 square feet of industrial / R&D
space. Included in these development parcels is 52.7 acres of land located in
Valhalla, NY which the Company acquired in April 2002 for approximately $23.8
million and which it can develop approximately 875,000 square feet of office
space. The Company currently owns and operates three buildings encompassing
approximately 700,000 square feet in the same office park in which this land
parcel is located. This acquisition was financed in part from the sales
proceeds of an office property being held by a qualified intermediary for the
purposes of an exchange of real property pursuant to Section 1031 of the Code
and from an advance under the Credit Facility. The Company is currently
evaluating alternative land uses for certain of the land holdings to realize
the highest economic value. These alternatives may include rezoning certain
land parcels from commercial to residential for potential disposition. As of
December 31, 2002, the Company had invested approximately $121.2 million in
these development projects. Management has made subjective assessments as to
the value and recoverability of these investments based on current and proposed
development plans, market comparable land values and alternative use values.
The Company has capitalized approximately $10.5 million for the year ended
December 31, 2002 related to real estate taxes, interest and other carrying
costs related to these development projects.
During February 2003, the Company, through Reckson Construction Group,
Inc., entered into a contract with an affiliate of First Data Corp. to sell a
19.3-acre parcel of land located in Melville, N.Y. and has been retained by the
purchaser to develop a build-to-suit 195,000 square foot office building for
aggregate consideration of approximately $47 million. This transaction is
scheduled to close during the first quarter of 2003 and construction of the
aforementioned office building is scheduled to commence shortly thereafter.
The Company holds a $17.0 million note receivable which bears interest at
11.5% per annum and is secured by a minority partnership interest in Omni
Partners, L.P., owner of the Omni, a 579,000 square foot Class A office
property located in Uniondale, N.Y. (the "Omni Note"). The Company currently
owns a 60% majority partnership interest in Omni Partners, L.P. and on March
14, 2007 may exercise an option to acquire the remaining 40% interest for a
price based on 90% of the fair market value of the property. The Company also
holds three other notes receivable aggregating $36.5 million which bear
interest at rates ranging from 10.5% to 12% per annum and are secured in part
by a minority partner's preferred unit interest in the Operating Partnership,
certain interest in real property and a personal guaranty (the "Other Notes"
and collectively with the Omni Note, the "Note Receivable Investments"). As of
December 31, 2002, management has made subjective assessments as to the
underlying security value on the Company's Note Receivable Investments. Based
on these assessments the Company's management believes there is no impairment
to the carrying value related to the Company's Note Receivable Investments. The
Company also owns a 355,000 square foot office building in Orlando, Florida.
This non-core real estate holding was acquired in May 1999 in connection with
the Company's initial New York City portfolio acquisition. This property is
cross collateralized under a $103 million mortgage note payable along with one
of the Company's New York City buildings.
The Company also owns a 60% non-controlling interest in a 172,000 square
foot office building located at 520 White Plains Road in White Plains, New York
(the "520JV") which it manages. The remaining 40% interest is owned by JAH
Realties L.P. Jon Halpern, the CEO and a director of HQ Global Workplaces, is a
partner in JAH Realties, L.P. As of December 31, 2002, the 520JV had total
IV-21
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. COMMERCIAL REAL ESTATE INVESTMENTS - (CONTINUED)
assets of $21.0 million, a mortgage note payable of $12.5 million and other
liabilities of $197,000. The Company's allocable share of the 520JV mortgage
note payable is approximately $7.5 million. This mortgage note payable bears
interest at 8.85% per annum and matures on September 1, 2005. In addition, the
520JV had total revenues of $4.2 million and $4.0 million and total expenses of
$3.3 million and $3.3 million for the years ended December 31, 2002 and 2001,
respectively. The operating agreement of the 520JV requires joint decisions
from all members on all significant operating and capital decisions including
sale of the property, refinancing of the property's mortgage debt, development
and approval of leasing strategy and leasing of rentable space. As a result of
the decision-making participation relative to the operations of the property,
the Company accounts for the 520JV under the equity method of accounting. The
520JV contributed approximately $648,000 and $478,000 to the Company's equity
in earnings of real estate joint ventures for the year ended December 31, 2002
and 2001, respectively.
On August 7, 2002, the Company sold an industrial property on Long Island
aggregating approximately 32,000 square feet for approximately $1.8 million.
This property was sold to the sole tenant of the property through an option
contained in the tenant's lease. On August 8, 2002, the Company sold two Class
A office properties located in Westchester County, NY aggregating approximately
157,000 square feet for approximately $18.5 million. Net proceeds from these
sales were used to repay borrowings under the Credit Facility and for general
corporate purposes. The Company recorded an aggregate net gain of approximately
$4.9 million as a result of these sales. In addition, in accordance with
Statement No. 144, the operating results of these properties and the resulting
gain on sales of real estate have been reflected as discontinued operations for
all periods presented on the accompanying statements of operations.
During September 2000, the Company formed a joint venture (the "Tri-State
JV") with Teachers Insurance and Annuity Association ("TIAA") and contributed
nine Class A suburban office properties aggregating approximately 1.5 million
square feet to the Tri-State JV for a 51% majority ownership interest. TIAA
contributed approximately $136 million for a 49% interest in the Tri-State JV
which was then distributed to the Company. As a result, the Company realized a
gain of approximately $15.2 million. The Company is responsible for managing
the day-to-day operations and business affairs of the Tri-State JV and has
substantial rights in making decisions affecting the properties such as
leasing, marketing and financing. The minority member has certain rights
primarily intended to protect its investment. For purposes of its financial
statements the Company consolidates the Tri-State JV.
On December 21, 2001, the Company formed a joint venture with the New York
State Teachers' Retirement System ("NYSTRS") (the "919JV") whereby NYSTRS
acquired a 49% indirect interest in the property located at 919 Third Avenue,
New York, NY for $220.5 million which included $122.1 million of its
proportionate share of secured mortgage debt and approximately $98.4 million of
cash which was then distributed to the Company. As a result, the Company
realized a gain of approximately $18.9 million. The Company is responsible for
managing the day-to-day operations and business affairs of the 919JV and has
substantial rights in making decisions affecting the property such as
developing a budget, leasing and marketing. The minority member has certain
rights primarily intended to protect its investment. For purposes of its
financial statements the Company consolidates the 919JV.
7. STOCKHOLDERS' EQUITY
An OP Unit and a share of Class A common stock have essentially the same
economic characteristics as they effectively share equally in the net income or
loss and distributions of the Operating Partnership. Subject to certain holding
periods, OP Units may either be redeemed for cash or, at the election of the
Company, for shares of Class A common stock on a one-for-one basis.
On December 31, 2002, the Company had issued and outstanding 9,915,313
shares of Class B Exchangeable Common Stock, par value $.01 per share (the
"Class B common stock"). The dividend on
IV-22
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. STOCKHOLDERS' EQUITY - (CONTINUED)
the shares of Class B common stock is subject to adjustment annually based on a
formula which measures increases or decreases in the Company's Funds From
Operations, as defined, over a base year. The Class B common stock currently
receives an annual dividend of $2.5884 per share.
The shares of Class B common stock are exchangeable at any time, at the
option of the holder, into an equal number of shares of Class A common stock,
par value $.01 per share, of the Company subject to customary antidilution
adjustments. The Company, at its option, may redeem any or all of the Class B
common stock in exchange for an equal number of shares of the Company's Class A
common stock at any time following November 23, 2003.
The Board of Directors of the Company has authorized the purchase of up to
five million shares of the Company's Class A common stock and / or its Class B
common stock. It is anticipated that transactions conducted on the New York
Stock Exchange will 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.
As of December 31, 2002, under this buy-back program, the Company
purchased 368,200 shares of Class B common stock at an average price of $22.90
per Class B share and 2,698,400 shares of Class A common stock at an average
price of $21.60 per Class A share for an aggregate purchase price for both the
Class A and Class B common stock of approximately $66.7 million. As a result of
these purchases, annual common stock dividends will decrease by approximately
$5.5 million. Previously, under the Company's prior stock buy-back program, the
Company purchased and retired 1,410,804 shares of Class B common stock at an
average price of $21.48 per Class B share and 61,704 shares of Class A common
stock at an average price of $23.03 per Class A share for an aggregate purchase
price for both the Class A and Class B common stock of approximately $31.7
million.
The Board of Directors of the Company has formed a pricing committee to
consider purchases of up to $75 million of the Company's outstanding preferred
securities.
On December 31, 2002, the Company had issued and outstanding 8,834,500
shares of 7.625% Series A Convertible Cumulative Preferred Stock (the "Series A
preferred stock"). The Series A preferred stock is redeemable by the Company on
or after April 13, 2003 at a price of approximately $25.95 per share with such
price decreasing, at annual intervals, to $25.00 per share over a five year
period. In addition, the Series A preferred stock, at the option of the holder,
is convertible at anytime into the Company's Class A common stock at a price of
$28.51 per share. On October 14, 2002, the Company purchased and retired
357,500 shares of the Series A Preferred stock at $22.29 per share for
approximately $8.0 million. As a result of this purchase, annual preferred
dividends will decrease by approximately $682,000.
The Company currently has issued and outstanding two million shares of
Series B Convertible Cumulative Preferred Stock (the "Series B preferred
stock"). The Series B preferred stock is redeemable by the Company as follows:
(i) on or after March 2, 2002 to and including June 2, 2003, at an amount which
provides an annual rate of return in respect to such share of 15%, (ii) on or
after June 3, 2003 to and including June 2, 2004, $25.50 per share and (iii) on
or after June 3, 2004 and thereafter, $25.00 per share. In addition, the Series
B preferred stock, at the option of the holder, is convertible at anytime into
the Company's Class A common stock at a price of $26.05 per share. The Series B
preferred stock currently accumulates dividends at a rate of 8.85% per annum.
During the year ended December 31, 2002, approximately 11,303 preferred
units of limited partnership interest in the Operating Partnership, with a
liquidation preference value of approximately $11.3 million, were exchanged for
451,934 OP Units at an average price of $24.66 per OP Unit. In addition,
666,468 OP Units were exchanged for an equal number of shares of the Company's
Class A common stock.
IV-23
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. STOCKHOLDERS' EQUITY - (CONTINUED)
During the year ended December 31, 2001, approximately 11,553 preferred
units of limited partnership interest in the Operating Partnership, with a
liquidation preference value of approximately $11.6 million, were exchanged for
456,351 OP Units at an average price of $25.32 per OP Unit. In addition,
660,370 OP Units were exchanged for an equal number of shares of the Company's
Class A common stock.
In October 2000, the Company instituted a Shareholder Rights Plan (the
"Rights Plan") designed to protect shareholders from various abusive takeover
tactics, including attempts to acquire control of the Company at an inadequate
price. Under the Rights Plan, each shareholder receives one Right to acquire
one one-thousandth of a share of a series of junior participating preferred
stock at an initial purchase price of $84.44 for each share of the Company's
outstanding Class A common stock owned. The Rights will be exercisable only if
a person or group acquires, or announces an intention to acquire, 15% or more
of the Company's Class A common stock, or announces a tender offer which would
result in beneficial ownership by a person or group of 15% or more of the Class
A common stock. If any person acquires 15% or more of the outstanding shares of
Class A common stock or if the Company is acquired in a merger after such an
acquisition, all Rights holders except the acquiring person will be entitled to
purchase the Company's Class A common stock at a discounted price. The Rights
will expire at the close of business on October 13, 2010, unless earlier
redeemed by the Company.
During July 1998, the Company formed Metropolitan Partners, LLC
("Metropolitan") for the purpose of acquiring Class A office properties in New
York City. In May 2001, a minority partner that owned an $85 million preferred
equity investment in Metropolitan converted its preferred equity investment
into 3,453,881 shares of the Company's Class A common stock based on a
conversion price of $24.61 per share. As a result of the minority partner's
conversion of their preferred equity investment, the Company owns 100% of
Metropolitan.
The Company has historically structured long term incentive programs
("LTIP") using restricted stock and stock loans. In July 2002, as a result of
certain provisions of the Sarbanes Oxley legislation, the Company has
discontinued the use of stock loans in its LTIP. In connection with LTIP grants
made prior to the enactment of the Sarbanes Oxley legislation the Company made
stock loans to certain executive and senior officers to purchase 1,372,393
shares of its Class A common stock at market prices ranging from $18.44 per
share to $27.13 per share. The stock loans were set to bear interest at the
mid-term Applicable Federal Rate and were secured by the shares purchased. Such
stock loans (including accrued interest) vest and are ratably forgiven each
year on the anniversary of the grant date based upon vesting periods ranging
from four to ten years based on continued service and in part on attaining
certain annual performance measures. These stock loans had an initial aggregate
weighted average vesting period of approximately nine years. Approximately $4.5
million and $3.7 million of compensation expense was recorded for the years
ended December 31, 2002 and 2001, respectively, related to these LTIP. Such
amount has been included in marketing, general and administrative expenses on
the accompanying consolidated statements of operations.
During 2002, approximately $3.9 million of stock loans made in prior years
in connection with the aforementioned LTIP matured. These stock loans were
secured by 155,418 shares of Class A common stock which were issued at prices
ranging from $22.50 per share to $27.13 per share. As a result of the Company
discontinuing the use of stock loans as part of its LTIP the stock loans were
satisfied with restricted stock held by the Company which secured the stock
loans. The aggregate market value of these shares on the maturity dates of the
stock loans was approximately $3.4 million. The aggregate difference between
the market value of these shares and the carrying value of the stock loans was
recorded as a loss on the accompanying consolidated statements of operations.
The 155,418 shares of Class A common stock were subsequently retired by the
Company.
IV-24
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. STOCKHOLDERS' EQUITY - (CONTINUED)
The outstanding stock loan balances due from executive and senior officers
aggregated approximately $17.0 million and $24.3 million at December 31, 2002
and 2001, respectively, and have been included as a reduction of additional
paid in capital on the accompanying consolidated statements of stockholders'
equity. Other outstanding loans to executive and senior officers amounting to
approximately $1.0 million at December 31, 2002 and 2001, related to life
insurance contracts and approximately $1.0 million and $.9 million at December
31, 2002 and 2001, respectively, primarily related to tax payment advances on a
stock compensation award made to a non-executive officer.
In November 2002, the Company granted rights to 190,524 shares of its
Class A common stock to certain executive officers. These shares vest ratably
over a four year period and will be issued in ratable installments on each
anniversary date of the grant as compensation to the executive officer.
The Company has established a new LTIP for its executive and senior
officers. The four year plan has a core component which provides for annual
stock based compensation based upon continued service and in part based on
attaining certain annual performance measures. The plan has a special long term
component which provides for compensation to be earned at the end of a four
year period if the Company attains certain four year cumulative performance
measures. Amounts earned under the special long term component may be paid in
cash or stock at the discretion of the Compensation Committee of the Board.
Performance measures are based on total shareholder returns on a relative and
absolute basis.
The following table sets forth the Company's reconciliation of numerators
and denominators of the basic and diluted earnings per weighted average common
share and the computation of basic and diluted net income (loss) per weighted
average share for the Company's Class A common stock as required by Statement
No. 128 for the years ended December 31 (in thousands except for earnings per
share data):
2002 2001 2000
--------- ---------- ---------
Numerator:
Income (loss) before dividends to preferred shareholders,
discontinued operations, extraordinary loss and income
allocated to Class B shareholders ............................. $ 73,941 $ (34,425) $ 111,589
Dividends to preferred shareholders ............................ (21,835) (21,866) (25,371)
Discontinued operations (net of share applicable to limited
partners and Class B common shareholders) ..................... 3,641 770 885
Extraordinary loss (net of share applicable to limited
partners and Class B common shareholders) ..................... (1,779) (1,971) (1,032)
(Income) loss allocated to Class B common shareholders ......... (12,364) 13,249 (23,082)
--------- ---------- ---------
Numerator for basic and diluted net income (loss) per
share ......................................................... $ 41,604 $ (44,243) $ 62,989
========= ========== =========
Denominator:
Denominator for basic net income (loss) per share-
weighted average Class A common shares ........................ 49,669 48,121 43,070
Effect of dilutive securities:
Common stock equivalents ....................................... 299 -- 475
--------- ---------- ---------
Denominator for diluted net income (loss) per Class A
common share-adjusted weighted average shares and
assumed conversions ........................................... 49,968 48,121 43,545
========= ========== =========
IV-25
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. STOCKHOLDERS' EQUITY - (CONTINUED)
2002 2001 2000
------- --------- --------
Basic net income (loss) per Class A common share:
Basic net income (loss) .................................... $ .79 $ (1.19) $ 1.19
Gain on sales of real estate ............................... .01 .29 .28
Discontinued operations .................................... .07 .02 .02
Extraordinary loss ......................................... (.03) (.04) (.03)
------- --------- --------
Basic net income (loss) per Class A common share ........... $ .84 $ (.92) $ 1.46
======= ========= ========
Diluted net income (loss) per Class A common share:
Diluted net income (loss) .................................. $ .79 $ (1.19) $ 1.17
Gain on sales of real estate ............................... .01 .29 .28
Discontinued operations .................................... .07 .02 .02
Extraordinary loss ......................................... (.04) (.04) (.02)
------- --------- --------
Diluted net income (loss) per Class A common share ......... $ .83 $ (.92) $ 1.45
======= ========= ========
The following table sets forth the Company's reconciliation of numerators
and denominators of the basic and diluted earnings per weighted average common
share and the computation of basic and diluted net income (loss) per weighted
average share for the Company's Class B common stock as required by Statement
No. 128 for the years ended December 31 (in thousands except for earnings per
share data):
2002 2001 2000
--------- ---------- ---------
Numerator:
Income (loss) before dividends to preferred shareholders, discontinued
operations, extraordinary loss and income allocated to Class A
common shareholders ........................................................ $ 73,941 $ (34,425) $ 111,589
Dividends to preferred shareholders ......................................... (21,835) (21,866) (25,371)
Discontinued operations (net of share applicable to limited partners and
Class A common shareholders) ............................................... 1,121 249 323
Extraordinary loss (net of share applicable to limited partners and Class
A common shareholders) ..................................................... (556) (624) (364)
(Income) loss allocated to Class A common shareholders ...................... (39,742) 43,042 (63,136)
--------- ---------- ---------
Numerator for basic net income (loss) per share ............................. 12,929 (13,624) 23,041
Add back:
Net income allocated to Class A common shareholders ......................... 41,604 -- 62,989
Limited partners' minority interest in the operating partnership ............ 6,238 -- 11,574
--------- ---------- ---------
Numerator for diluted net income (loss) per share ........................... $ 60,771 $ (13,624) $ 97,604
========= ========== =========
Denominator:
Denominator for basic net income (loss) per share-weighted average
Class B common shares ...................................................... 10,122 10,284 10,284
Effect of dilutive securities:
Weighted average Class A common shares outstanding .......................... 49,669 -- 43,070
Weighted average OP Units outstanding ....................................... 7,389 -- 7,696
Common stock equivalents .................................................... 299 -- 475
--------- ---------- ---------
Denominator for diluted net income (loss) per Class B common share-
adjusted weighted average shares and assumed conversions ................... 67,479 10,284 61,525
========= ========== =========
IV-26
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. STOCKHOLDERS' EQUITY - (CONTINUED)
2002 2001 2000
-------- --------- --------
Basic net income (loss) per Class B common share:
Basic net income (loss) ................................... $ 1.21 $ (1.70) $ 1.82
Gain on sales of real estate .............................. .01 .42 .43
Discontinued operations ................................... .11 .02 .03
Extraordinary loss ........................................ (.05) (.06) (.04)
Basic net income (loss) per Class B common share ........... $ 1.28 $ (1.32) $ 2.24
======== ========= ========
Diluted net income (loss) per Class B common share:
Diluted net income (loss) ................................. $ .92 $ (1.70) $ 1.54
Gain on sales of real estate .............................. -- .42 .07
Discontinued operations ................................... .02 .02 .01
Extraordinary loss ........................................ (.04) (.06) (.03)
-------- --------- --------
Diluted net income (loss) per Class B common share ......... $ .90 $ (1.32) $ 1.59
======== ========= ========
The Company's computation for purposes of calculating the diluted weighted
average Class B common shares outstanding is based on the assumption that the
Class B common stock is converted to the Company's Class A common stock.
Employee Stock Option Plans and Related Disclosures
The Company has five outstanding stock option plans (the "Plans") for the
purpose of attracting and retaining executive officers, directors and other key
employees.
The following table sets forth the authorized shares of Class A common
stock which have been reserved for issuance under the Plans, the options
granted under the Plans and their corresponding exercise price range per share
as of December 31, 2002:
CLASS A
COMMON OPTIONS EXERCISE PRICE RANGE
SHARES GRANTED -----------------------
RESERVED (1) (2) FROM (1) TO (1)
--------- --------- -------- --------
Amended and Restated 1995 Stock
Option Plan ............................ 1,500,000 1,545,038 $ 12.04 $ 25.56
1996 Employee Stock Option Plan ......... 400,000 269,600 $ 19.67 $ 26.13
Amended and Restated 1997 Stock
Option Plan ............................ 3,000,000 2,525,965 $ 22.67 $ 27.04
1998 Stock Optoin Plan .................. 3,000,000 2,280,501 $ 17.75 $ 25.67
2002 Stock Option Plan .................. 1,500,000 -- -- --
--------- ---------
Total ................................... 9,400,000 6,621,104
========= =========
----------------
(1) Exercise prices have been split adjusted, where applicable.
(2) Inclusive of options subsequently forfeited by grantees and exclusive of
share grants.
Options granted to employees generally vest in three equal installments on
the first, second and third anniversaries of the date of the grant.
The independent directors of the Company have been granted options to
purchase 116,000 shares of Class A common stock pursuant to the Amended and
Restated 1995 Stock Option Plan at exercise prices ranging from $12.04 to
$25.56 per share and options to purchase 43,000 shares of Class A common stock
pursuant to the Amended and Restated 1997 Stock Option Plan at exercise prices
ranging from $24.70 to $25.23 per share. The options granted to the independent
directors were exercisable on the date of the grant.
IV-27
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. STOCKHOLDERS' EQUITY - (CONTINUED)
Two former independent directors of the Company were previously granted
options to purchase 62,500 shares of Class A common stock pursuant to the
Amended and Restated 1995 Stock Option Plan. During 2002, these former
independent directors exercised 26,000 options resulting in proceeds to the
Company of approximately $422,000.
During 2002 and 2001, employees exercised 389,283 and 182,596 options,
respectively resulting in proceeds to the Company of approximately $5.9 million
and $2.8 million, respectively.
Prior to 2002, the Company applied APB No. 25 and related interpretation
in accounting for its Plans and reported only pro forma information regarding
net income and earnings per share determined as if the Company had accounted
for its Plans under the fair value method as required by Statement No. 123 in
the footnotes to its financial statements.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's Plans have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
The following table summarizes the Company's stock option activity and
related information:
WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
--------- ----------------
Outstanding - January 1, 2000 ........... 5,173,921 $ 22.17
Granted ................................ 737,750 $ 22.86
Exercised .............................. (280,087) $ 13.00
Forfeited .............................. (145,000) $ 22.50
---------
Outstanding - December 31, 2000 ......... 5,486,584 $ 22.70
Granted ................................ 177,500 $ 22.61
Exercised .............................. (182,596) $ 15.41
Forfeited .............................. (118,133) $ 22.84
---------
Outstanding - December 31, 2001 ......... 5,363,355 $ 23.16
Granted ................................ 47,500 $ 24.87
Exercised .............................. (415,283) $ 15.20
Forfeited .............................. (82,002) $ 23.95
---------
Outstanding - December 31, 2002 ......... 4,913,570 $ 24.17
=========
The following table sets forth the weighted average fair value of options
granted for the years ended December 31, and the weighted average per share
exercise price and vested options exercisable at December 31:
2002 2001 2000
---------- ---------- ----------
Weighted average fair
value of options granted ..... $ 1.43 $ 1.94 $ 2.15
Weighted average per
share exercise price ......... $ 22.85 $ 22.70 $ 22.17
Vested options
exercisable .................. 4,575,181 4,498,828 5,137,588
IV-28
RECKSON ASSOCIATES REALTY CORP.
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)
Exercise prices for options outstanding, under all Plans, as of December
31, 2002 ranged from $12.04 per share to $27.04 per share. The weighted-average
remaining contractual life of those options is approximately 5.81 years.
8. RELATED PARTY TRANSACTIONS
In connection with the IPO, the Company was granted ten year options to
acquire ten properties (the "Option Properties") which are either owned by
certain Rechler family members who are also executive officers of the Company,
or in which the Rechler family members own a non-controlling minority interest
at a price based upon an agreed upon formula. In years prior to 2001, one
Option Property was sold by the Rechler family members to a third party and
four of the Option Properties were acquired by the Company for an aggregate
purchase price of approximately $35 million, which included the issuance of
approximately 475,000 OP Units valued at approximately $8.8 million. Currently,
certain Rechler family members retain their equity interests in the five
remaining Option Properties (the "Remaining Option Properties") which were not
contributed to the Company as part of the IPO. Such options provide the Company
the right to acquire fee interest in two of the Remaining Option Properties and
the Rechler's minority interests in three Remaining Option Properties. The
Independent Directors are currently reviewing whether the Company should
exercise one or more of the options relating to the Remaining Option
Properties.
The Company conducts its management, leasing and construction related
services through taxable REIT subsidiaries as defined by the Code. These
services are currently provided by the Service Companies in which, as of
September 30, 2002, the Operating Partnership owned a 97% non-controlling
interest. An entity which is substantially owned by certain Rechler family
members who are also executive officers of the Company owned a 3% controlling
interest in the Service Companies. In order to minimize the potential for
corporate conflicts of interests which became possible as a result of changes
to the Code that permit REITs to own 100% of taxable REIT subsidiaries, the
Independent Directors of the Company approved the purchase by the Operating
Partnership of the remaining 3% interest in the Service Companies. On October
1, 2002, the Operating Partnership acquired such 3% interests in the Service
Companies for an aggregate purchase price of approximately $122,000. Such
amount was less than the total amount of capital contributed to the Service
Companies by the Rechler family members. As a result of the acquisition of the
remaining interests in the Service Companies, the Operating Partnership
commenced consolidating the operations of the Service Companies. During 2002,
Reckson Construction Group, Inc. billed approximately $144,000 of market rate
services and Reckson Management Group, Inc. billed approximately $313,000 of
market rate management fees to the Remaining Option Properties. In addition,
for the year ended December 31, 2002, Reckson Construction Group, Inc.
performed market rate services, aggregating approximately $322,000 for a
property in which certain executive officers maintain an equity interest.
Reckson Management Group, Inc. leases 43,713 square feet of office and
storage space at a Remaining Option Property for its corporate offices located
in Melville, New York at an annual base rent of approximately $1.2 million.
Reckson Management Group, Inc. also leases 10,722 square feet of warehouse
space used for equipment, materials and inventory storage at a Remaining Option
Property located in Deer Park, New York at an annual base rent of approximately
$75,000.
A company affiliated with an Independent Director of the Company leases
15,566 square feet in a property owned by the Company at an annual base rent of
approximately $431,500. Reckson Strategic Venture Partners, LLC ("RSVP") leases
5,144 square feet in one of the Company's joint venture properties at an annual
base rent of approximately $176,000.
During 1997, the Company formed FrontLine Capital Group, formerly Reckson
Service Industries, Inc. ("FrontLine") and RSVP. RSVP is a real estate venture
capital fund which invests primarily in real estate and real estate operating
companies outside the Company's core office and industrial focus and whose
common equity is held indirectly by FrontLine. In connection with the formation
and spin-off of
IV-29
RECKSON ASSOCIATES REALTY CORP.
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)
8. RELATED PARTY TRANSACTIONS - (CONTINUED)
FrontLine, the Operating Partnership established an unsecured credit facility
with FrontLine (the "FrontLine Facility") in the amount of $100 million for
FrontLine to use in its investment activities, operations and other general
corporate purposes. The Company advanced approximately $93.4 million under the
FrontLine Facility. The Operating Partnership also approved the funding of
investments of up to $100 million relating to RSVP (the "RSVP Commitment"),
through RSVP-controlled joint ventures (for REIT-qualified investments) or
advances made to FrontLine under an unsecured loan facility (the "RSVP
Facility") having terms similar to the FrontLine Facility (advances made under
the RSVP Facility and the FrontLine Facility hereafter, the "FrontLine Loans").
During March 2001, the Company increased the RSVP Commitment to $110 million
and as of December 31, 2002, approximately $109.1 million had been funded
through the RSVP Commitment, of which $59.8 million represents investments by
the Company in RSVP-controlled (REIT-qualified) joint ventures and $49.3
million represents loans made to FrontLine under the RSVP Facility. As of
December 31, 2002, interest accrued (net of reserves) under the FrontLine
Facility and the RSVP Facility was approximately $19.6 million. RSVP retained
the services of two managing directors to manage RSVP's day to day operations.
Prior to the spin off of Frontline, the Company guaranteed certain salary
provisions of their employment agreements with RSVP Holdings, LLC, RSVP's
common member. The term of these employment agreements is seven years
commencing March 5, 1998, provided however, that the term may be earlier
terminated after five years upon certain circumstances. The salary for each
managing director is $1 million in the first five years and $1.6 million in
years six and seven.
At June 30, 2001, the Company assessed the recoverability of the FrontLine
Loans and reserved approximately $3.5 million of the interest accrued during
the three-month period then ended. In addition, the Company formed a committee
of its Board of Directors, comprised solely of independent directors, to
consider any actions to be taken by the Company in connection with the
FrontLine Loans and its investments in joint ventures with RSVP. During the
third quarter of 2001, the Company noted a significant deterioration in
FrontLine's operations and financial condition and, based on its assessment of
value and recoverability and considering the findings and recommendations of
the committee and its financial advisor, the Company recorded a $163 million
valuation reserve charge, inclusive of anticipated costs, in its consolidated
statements of operations relating to its investments in the FrontLine Loans and
joint ventures with RSVP. The Company has discontinued the accrual of interest
income with respect to the FrontLine Loans. The Company has also reserved
against its share of GAAP equity in earnings from the RSVP controlled joint
ventures funded through the RSVP Commitment until such income is realized
through cash distributions. If the RSVP- controlled joint ventures reported
losses the Company would record its proportionate share of such losses.
At December 31, 2001, the Company, pursuant to Section 166 of the Code,
charged off for tax purposes $70 million of the aforementioned reserve directly
related to the FrontLine Facility, including accrued interest. On February 14,
2002, the Company charged off for tax purposes an additional $38 million of the
reserve directly related to the FrontLine Facility, including accrued interest,
and $47 million of the reserve directly related to the RSVP Facility, including
accrued interest.
FrontLine is in default under the FrontLine Loans from the Operating
Partnership and on June 12, 2002, filed a voluntary petition for relief under
Chapter 11 of the U.S. Bankruptcy Code.
As a result of the foregoing, the net carrying value of the Company's
investments in the FrontLine Loans and joint venture investments with RSVP,
inclusive of the Company's share of previously accrued GAAP equity in earnings
on those investments, is approximately $65 million which was reassessed with no
change by management as of December 31, 2002. Such amount has been reflected in
investments in service companies and affiliate loans and joint ventures on the
Company's consolidated balance sheet. The common and preferred members of RSVP
are currently in dispute over certain provisions of the RSVP operating
agreement. The members are currently negotiating to restructure the RSVP
operating agreement to settle the dispute. There can be no assurances that the
members will successfully negotiate a settlement.
IV-30
RECKSON ASSOCIATES REALTY CORP.
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)
8. RELATED PARTY TRANSACTIONS - (CONTINUED)
Both the FrontLine Facility and the RSVP Facility terminate on June 15,
2003, are unsecured and advances thereunder are recourse obligations of
FrontLine. Notwithstanding the valuation reserve, under the terms of the credit
facilities, interest accrued on the FrontLine Loans at a rate equal to the
greater of (a) the prime rate plus two percent and (b) 12% per annum, with the
rate on amounts that were outstanding for more than one year increasing
annually at a rate of four percent of the prior year's rate. In March 2001, the
credit facilities were amended to provide that (i) interest is payable only at
maturity and (ii) the Company may transfer all or any portion of its rights or
obligations under the credit facilities to its affiliates. The Company
requested these changes as a result of changes in REIT tax laws. As a result of
FrontLine's default under the FrontLine Loans, interest on borrowings
thereunder accrue at default rates ranging between 13% and 14.5% per annum.
Scott H. Rechler, who serves as Co-Chief Executive Officer and a director
of the Company, serves as CEO and Chairman of the Board of Directors of
FrontLine.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with FASB Statement No. 107, "Disclosures About Fair Value
of Financial Instruments", management has made the following disclosures of
estimated fair value at December 31, 2002 as required by FASB Statement No.
107.
Cash equivalents, accounts receivable, accounts payable and accrued
expenses and variable rate debt are carried at amounts which reasonably
approximate their fair values.
The fair value of the Company's long-term debt, mortgage notes and notes
receivable is estimated based on discounting future cash flows at interest
rates that management believes reflects the risks associated with long-term
debt, mortgage notes and notes receivable of similar risk and duration. At
December 31, 2002, the estimated aggregate fair value of the Company's notes
and mortgage notes receivable exceeded their carrying value by approximately
$1.2 million and the aggregate fair value of the Company's long term debt
exceeded its carrying value by approximately $20.3 million.
Considerable judgment is necessary to interpret market data and develop
estimated fair value. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
10. RENTAL INCOME
The Company's office and industrial / R&D properties are being leased to
tenants under operating leases. The minimum rental amount due under certain
leases are generally either subject to scheduled fixed increases or indexed
escalations. In addition, the leases generally also require that the tenants
reimburse the Company for increases in certain operating costs and real estate
taxes above base year costs.
Expected future minimum rents to be received over the next five years and
thereafter from leases in effect at December 31, 2002 are as follows (in
thousands):
2003 ............... $ 409,143
2004 ............... 395,029
2005 ............... 355,969
2006 ............... 309,136
2007 ............... 267,376
Thereafter ......... 1,291,328
-----------------------------------
$ 3,027,981
===================================
IV-31
RECKSON ASSOCIATES REALTY CORP.
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)
10. RENTAL INCOME - (CONTINUED)
Minimum rental income is recognized on a straight-line basis over the term
of the lease. The excess of rents recognized over amounts contractually due are
included in deferred rents receivable on the accompanying balances sheets.
Contractually due but unpaid rents are included in tenant receivables on the
accompanying balance sheets. During the year ended December 31, 2002, the
Company incurred approximately $6.3 million of bad debt expense related to
tenant receivables and deferred rents receivable which accordingly reduced
total operating revenues on the accompanying statements of operations.
11. SEGMENT DISCLOSURE
The Company owns all of the interests in its real estate properties directly or
indirectly through the Operating Partnership. The Company's portfolio consists
of Class A office properties located within the New York City metropolitan area
and Class A suburban office and industrial / R&D properties located and
operated within the Tri-State Area (the "Core Portfolio"). The Company's
portfolio also includes one office property located in Orlando, Florida. The
Company has Managing Directors who report directly to the Co-Presidents 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.
The Company does not consider (i) interest incurred on its Credit Facility
and Senior Unsecured Notes, (ii) the operating performance of the office
property located in Orlando, Florida, (iii) the operating performance of those
properties reflected as discontinued operations on the Company's consolidated
statements of operations and (iv) the operating results of the Service
Companies as part of its Core Portfolio's property operating performance for
purposes of its component disclosure set forth below.
The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies.
The following tables set forth the components of the Company's 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):
2002
--------------------------------------------------
CORE PORTFOLIO OTHER CONSOLIDATED TOTALS
-------------- --------- -------------------
Revenues:
Base rents, tenant escalations and reimbursements ........................... $ 489,818 $ 8,264 $ 498,082
Other income ................................................................ 1,070 6,940 8,010
----------------------------------------------------------------------------------------------------------------------------
Total Revenues .............................................................. 490,888 15,204 506,092
----------------------------------------------------------------------------------------------------------------------------
Expenses:
Property expenses ........................................................... 170,723 4,318 175,041
Marketing, general and administrative ....................................... 18,686 12,892 31,578
Interest .................................................................... 51,907 36,678 88,585
Depreciation and amortization ............................................... 104,064 8,277 112,341
----------------------------------------------------------------------------------------------------------------------------
Total Expenses .............................................................. 345,380 62,165 407,545
----------------------------------------------------------------------------------------------------------------------------
Income (loss) before minority interests, preferred dividends and
distributions, valuation reserves, equity in earnings of real estate joint
ventures and service companies, gain on sales of real estate, discontinued
operations and extraordinary loss .......................................... $ 145,508 $ (46,961) $ 98,547
============================================================================================================================
Total assets ................................................................ $2,685,817 $ 222,103 $2,907,920
============================================================================================================================
IV-32
RECKSON ASSOCIATES REALTY CORP.
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)
10. RENTAL INCOME - (CONTINUED)
2001
---------------------------------------------------
Core Portfolio Other Consolidated Totals
-------------- ---------- -------------------
Revenues:
Base rents, tenant escalations and reimbursements ........................... $ 484,953 $ 9,256 $ 494,209
Other income ................................................................ 4,314 16,123 20,437
------------------------------------------------------------------------------------------------------------------------------
Total Revenues .............................................................. 489,267 25,379 514,646
------------------------------------------------------------------------------------------------------------------------------
Expenses:
Property expenses ........................................................... 164,357 2,934 167,291
Marketing, general and administrative ....................................... 20,466 10,087 30,553
Interest .................................................................... 51,376 41,694 93,070
Depreciation and amortization ............................................... 94,480 7,628 102,108
------------------------------------------------------------------------------------------------------------------------------
Total Expenses .............................................................. 330,679 62,343 393,022
------------------------------------------------------------------------------------------------------------------------------
Income (loss) before minority interests, preferred dividends and
distributions, valuation reserves, equity in earnings of real estate joint
ventures and service companies, gain on sales of real estate, discontinued
operations and extraordinary loss .......................................... $ 158,588 $ (36,964) $ 121,624
==============================================================================================================================
Total assets ................................................................ $2,763,771 $ 230,447 $ 2,994,218
==============================================================================================================================
2000
--------------
Core Portfolio
--------------
Revenues:
Base rents, tenant escalations and reimbursements ................................ $ 438,738
Other income ..................................................................... 1,212
------------------------------------------------------------------------------------------------
Total Revenues ................................................................... 439,950
------------------------------------------------------------------------------------------------
Expenses:
Property expenses ................................................................ 153,577
Marketing, general and administrative ............................................ 20,414
Interest ......................................................................... 40,463
Depreciation and amortization .................................................... 83,663
------------------------------------------------------------------------------------------------
Total Expenses ................................................................... 298,117
------------------------------------------------------------------------------------------------
Income (loss) before minority interests, preferred dividends and distributions,
equity in earnings of real estate joint ventures and service companies, gain on
sales of real estate, discontinued operations and extraordinary loss ............ $ 141,833
================================================================================================
Total assets ..................................................................... $2,604,494
================================================================================================
2000
---------------------------------
Other Consolidated Totals
---------- -------------------
Revenues:
Base rents, tenant escalations and reimbursements ................................ $ 9,751 $ 448,489
Other income ..................................................................... 33,597 34,809
------------------------------------------------------------------------------------------------------------------
Total Revenues ................................................................... 43,348 483,298
------------------------------------------------------------------------------------------------------------------
Expenses:
Property expenses ................................................................ 2,526 156,103
Marketing, general and administrative ............................................ 6,765 27,179
Interest ......................................................................... 55,872 96,335
Depreciation and amortization .................................................... 8,146 91,809
------------------------------------------------------------------------------------------------------------------
Total Expenses ................................................................... 73,309 371,426
------------------------------------------------------------------------------------------------------------------
Income (loss) before minority interests, preferred dividends and distributions,
equity in earnings of real estate joint ventures and service companies, gain on
sales of real estate, discontinued operations and extraordinary loss ............ $ (29,961) $ 111,872
==================================================================================================================
Total assets ..................................................................... $ 393,536 $ 2,998,030
==================================================================================================================
12. NON-CASH INVESTING AND FINANCING ACTIVITIES
Additional supplemental disclosures of non-cash investing and financing
activities are as follows:
During the year ended December 31, 2002, approximately 11,303 preferred
units of limited partnership interest in the Operating Partnership, with a
liquidation preference value of approximately $11.3 million, were exchanged for
451,934 OP Units at an average price of $24.66 per OP Unit. In addition,
666,468 OP Units were exchanged for an equal number of shares of the Company's
Class A common stock.
During the year ended December 31, 2001, approximately 11,553 preferred
units of limited partnership interest in the Operating Partnership, with a
liquidation preference value of approximately $11.6 million, were exchanged for
456,351 OP Units at an average price of $25.32 per OP Unit. In addition,
660,370 OP Units were exchanged for an equal number of shares of the Company's
Class A common stock.
IV-33
RECKSON ASSOCIATES REALTY CORP.
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES
The Company has entered into amended and restated employment and
noncompetition agreements with its chairman and six executive officers. The
agreements are for five years and expire on August 15, 2005.
The Company had outstanding undrawn letters of credit against its Credit
Facility of approximately $1.0 million and $37.4 million at December 31, 2002
and 2001, respectively.
The Company sponsors a defined contribution savings plan pursuant to
Section 401(k) of the Code. Under such plan, there are no prior service costs.
Employees are generally eligible to participate in the plan after six months of
service. Employer contributions are based on a discretionary amount determined
by the Company's management. As of December 31, 2002, the Company has not made
any contributions to the plan.
HQ Global Workplaces, Inc. ("HQ"), one of the largest providers of
flexible officing solutions in the world and which is controlled by FrontLine,
currently operates nine (formerly eleven) executive office centers in the
Company's properties, three of which are held through joint ventures. The
leases under which these office centers operate expire between 2008 and 2011,
encompass approximately 202,000 square feet and have current contractual annual
base rents of approximately $6.1 million. On March 13, 2002, as a result of
experiencing financial difficulties, HQ voluntarily filed a petition for relief
under Chapter 11 of the U.S. Bankruptcy Code. Subsequent to HQ filing for
bankruptcy protection it defaulted under their leases with the Company.
Further, effective March 13, 2002, the Bankruptcy Court granted HQ's petition
to reject two of its leases with the Company. The two rejected leases
aggregated approximately 23,900 square feet and provided for contractual base
rents of approximately $548,000 for the 2002 calendar year. Commencing April 1,
2002 and pursuant to the bankruptcy filing, HQ has been paying current rental
charges under its leases with the Company, other than under the two rejected
leases. The Company is in negotiation to restructure four of the leases and
leave the terms of the remaining five leases unchanged. All negotiations with
HQ are conducted through a committee designated by the Board and chaired by an
independent director. There can be no assurance as to whether any deal will be
consummated with HQ or if HQ will affirm or reject any or all of its remaining
leases with the Company. As a result of the foregoing, the Company has reserved
approximately $550,000 (net of minority partners' interests and including the
Company's share of unconsolidated joint venture interest), or 74%, of the
amounts due from HQ as of December 31, 2002. Scott H. Rechler serves as the
non-Executive Chairman of the Board and Jon Halpern is the Chief Executive
Officer and a director of HQ.
WorldCom/MCI and its affiliates ("WorldCom"), a telecommunications
company, which leased, as of December 31, 2002, approximately 527,000 square
feet in thirteen of the Company's properties located throughout the Tri-State
Area voluntarily filed a petition for relief under Chapter 11 of the U.S.
Bankruptcy Code on July 21, 2002. The total annualized base rental revenue from
these leases amounted to approximately $12.0 million, or 2.9% of the Company's
total 2002 annualized rental revenue, making it the Company's second largest
tenant based on base rental revenue earned on a consolidated basis. All of
WorldCom's leases were current on base rental charges through December 31, 2002
and the Company currently holds approximately $300,000 in security deposits
relating to these leases. In February 2003, the Bankruptcy Court granted
WorldCom's petition to reject three of its leases with the Company. The three
rejected leases aggregated approximately 192,000 square feet and provided for
contractual base rents of approximately $4.8 million for the 2002 calendar
year. The Company is currently in negotiations to restructure the remaining
WorldCom leases. There can be no assurance as to whether WorldCom will affirm
or reject any or all of its remaining leases with the Company. As a result of
the foregoing, the Company has written off approximately $1.1 million of
deferred rent receivable. In addition, the Company reserved an additional
$475,000 against the deferred rents receivable representing approximately 46%
of the outstanding deferred rents receivable attributable to the remaining
WorldCom leases.
MetroMedia Fiber Network Services, Inc. ("MetroMedia"), which leased
approximately 112,000 square feet in one property from the Company, voluntarily
filed a petition for relief under Chapter 11 of the U.S. Bankruptcy Code in May
2002. MetroMedia's lease with the Company provided for contractual base rent of
IV-34
RECKSON ASSOCIATES REALTY CORP.
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
approximately $25 per square foot amounting to $2.8 million per calendar year
and expired in May 2010. In July 2002, the Bankruptcy Court granted
MetroMedia's petition to restructure and reduce space under its existing lease.
As a result, the lease was amended to reduce MetroMedia's space by 80,357
square feet to 31,718 square feet. Annual base rent on the 31,718 square feet
MetroMedia will continue to lease is $25 per square foot amounting to
approximately $793,000 per annum. Further, pursuant to the Bankruptcy Court
order MetroMedia is required to pay to the Company a surrender fee of
approximately $1.8 million. As a result of the foregoing the Company wrote-off
approximately $388,000 of deferred rent receivable relating to this lease and
recognized the aforementioned surrender fee.
Arthur Andersen, LLP ("AA") leased approximately 38,000 square feet in one
of the Company's New York City buildings. AA's lease with the Company provided
for base rent of approximately $2 million on an annualized basis and expired in
April 2004. AA has experienced significant financial difficulties with its
business and as a result has entered into a lease termination agreement with
the Company effective November 30, 2002. In October 2002, AA paid the Company
for all base rental and other charges through November 30, 2002 and a lease
termination fee of approximately $144,000. As a result of the foregoing, the
Company has written off approximately $130,000 of deferred rent receivable
attributable to AA's lease.
14. INCOME TAXES
The following table sets forth the Company's reconciliation of GAAP net
income to taxable income for the years ended December 31 (in thousands and
unaudited):
2002
(ESTIMATED) 2001 2000
----------- ---------- ---------
GAAP net income (loss) ............................... $ 76,368 $ (36,001) $ 111,401
Minority interests and distributions to preferred unit
holders ............................................. 26,256 12,208 23,335
Extraordinary loss on extinguishment of debts (net of
limited partners' minority interest) ................ 2,335 2,595 1,396
Add: GAAP depreciation and amortization .............. 112,341 102,108 91,809
Less: Tax depreciation and amortization .............. (61,380) (73,330) (57,293)
GAAP/tax difference on gains / losses from capital
transactions ........................................ 5,024 (5,828) (8,255)
Straight-line rental income adjustment ............... (26,567) (41,489) (38,785)
GAAP / tax difference on reserve charge-off .......... (85,000) 97,056 --
Other GAAP / tax differences, net .................... (18,418) 8,463 7,278
----------------------------------------------------------------------------------------------------
Taxable income before minority interests ............. 30,959 65,782 130,886
Minority interests ................................... (20,810) (20,451) (31,083)
----------------------------------------------------------------------------------------------------
Taxable income to REIT ............................... $ 10,149 $ 45,331 $ 99,803
====================================================================================================
IV-35
RECKSON ASSOCIATES REALTY CORP.
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)
14. INCOME TAXES - (CONTINUED)
The following table sets forth the Company's reconciliation of cash
distributions to the dividends paid deduction for the years ended December 31
(in thousands):
2002
(ESTIMATED) 2001 2000
----------- --------- ---------
Total cash distributions .......................... $ 134,976 $ 124,942 $ 114,074
Less: Cash distributions on restricted shares ..... (1,476) (1,560) (1,059)
Return of capital ................................. (123,450) (74,691) --
----------------------------------------------------------------------------------------------
Cash dividends paid ............................... 10,050 48,691 113,015
Less: dividends designated to prior year .......... -- -- (8,688)
Add: dividends designated from following year ..... -- -- --
----------------------------------------------------------------------------------------------
Dividends paid deduction .......................... $ 10,050 $ 48,691 $ 104,327
==============================================================================================
The following tables set forth the characterization of the Company's
taxable distributions per share on its Class A common and Class B common stock
for the years ended December 31:
2002
CLASS A COMMON STOCK (ESTIMATED) 2001 2000
------------------------------------------------------------------------------------------------------------------------
Ordinary income ........................ $ -- -- $ .349 21.5% $ 1.364 90.0%
Return of capital ...................... 1.698 100.0% 1.192 73.5% -- --
Long-term rate capital gains ........... -- -- .019 1.2% 0.086 5.7%
Unrecaptured Section 1250 gain ......... -- -- .061 3.8% 0.065 4.3%
------------------------------------------------------------------------------------------------------------------------
Totals ................................. 1.698 100.0% $ 1.621 100.0% $ 1.515 100.0%
========================================================================================================================
2002
CLASS B COMMON STOCK (ESTIMATED) 2001 2000
------------------------------------------------------------------------------------------------------------------------
Ordinary income ........................ $ -- -- $ .537 21.5% $ 2.090 90.0%
Return of capital ...................... 2.593 100.0% 1.838 73.5% -- --
Long-term rate capital gains ........... -- -- .029 1.2% 0.131 5.7%
Unrecaptured Section 1250 gain ......... -- -- .094 3.8% 0.099 4.3%
------------------------------------------------------------------------------------------------------------------------
Totals ................................. $ 2.593 100.0% $ 2.498 100.0% $ 2.320 100.0%
========================================================================================================================
IV-36
RECKSON ASSOCIATES REALTY CORP.
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following summary represents the Company's results of operations for
each fiscal quarter during 2002 and 2001 (in thousands, except share amounts):
2002
--------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
Total revenues from continuing operations ...................... $ 123,794 $ 124,778 $ 128,678 $ 128,842
-------------------------------------------------------------------------------------------------------------------------------
Income before preferred dividends and distributions,
minority interests, equity in earnings of real estate joint
ventures and service companies, gain on sales of real
estate, discontinued operations and extraordinary loss ........ $ 27,878 $ 25,737 $ 22,778 $ 22,154
Preferred dividends and distributions .......................... (5,948) (5,767) (5,760) (5,648)
Minority interests ............................................. (7,024) (6,456) (5,695) (5,793)
Equity in earnings of real estate joint ventures and service
companies ..................................................... 335 159 104 515
Gain on sales of real estate ................................... 537 -- -- --
Discontinued operations (net of limited partners' minority
interest) ..................................................... 204 132 4,707 (281)
Extraordinary loss (net of limited partners' minority
interest) ..................................................... -- -- -- (2,335)
-------------------------------------------------------------------------------------------------------------------------------
Net income allocable to common shareholders .................... $ 15,982 $ 13,805 $ 16,134 $ 8,612
-------------------------------------------------------------------------------------------------------------------------------
Net income allocable to:
Class A common shareholders ................................... $ 12,159 $ 10,548 $ 12,334 $ 6,563
Class B common shareholders ................................... 3,823 3,257 3,800 2,049
-------------------------------------------------------------------------------------------------------------------------------
Total .......................................................... $ 15,982 $ 13,805 $ 16,134 $ 8,612
-------------------------------------------------------------------------------------------------------------------------------
Basic net income per weighted average common share:
Class A common ................................................ $ .23 $ .21 $ .18 $ .18
Gain on sales of real estate .................................. .01 -- -- --
Discontinued operations ....................................... -- -- .07 --
Extraordinary loss ............................................ -- -- -- (.04)
-------------------------------------------------------------------------------------------------------------------------------
Basic net income per weighted average Class A common
share ........................................................ $ .24 $ .21 $ .25 $ .14
-------------------------------------------------------------------------------------------------------------------------------
Class B common ................................................ $ .36 $ .32 $ .27 $ .27
Gain on sales of real estate .................................. .01 -- -- --
Discontinued operations ....................................... -- -- .11 --
Extraordinary loss ............................................ -- -- -- (.06)
-------------------------------------------------------------------------------------------------------------------------------
Basic net income per weighted average Class B common
share ........................................................ $ .37 $ .32 $ .38 $ .21
-------------------------------------------------------------------------------------------------------------------------------
Basic weighted average common shares outstanding:
Class A common ................................................ 50,013,140 50,775,300 49,525,372 48,383,554
Class B common ................................................ 10,283,513 10,283,513 10,010,423 9,915,313
Diluted net income per weighted average common share:
Class A common ................................................ $ .24 $ .21 $ .25 $ .14
Class B common ................................................ $ .26 $ .22 $ .26 $ .15
Diluted weighted average common shares outstanding:
Class A common ................................................ 50,350,189 51,164,788 49,825,400 48,551,222
Class B common ................................................ 10,283,513 10,283,513 10,010,423 9,915,313
-------------------------------------------------------------------------------------------------------------------------------
IV-37
RECKSON ASSOCIATES REALTY CORP.
NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)
15. QUARTERLY FINANCIAL DATA (UNAUDITED) - (CONTINUED)
2001
-------------
First Quarter
-------------
Total revenues from continuing operations ........................ $ 129,559
--------------------------------------------------------------------------------
Income before preferred dividends and distributions,
minority interests, valuation reserves, equity in earnings
of real estate joint ventures and service companies, gain
on sales of real estate, discontinued operations and
extraordinary loss .............................................. $ 34,523
Preferred dividends and distributions ............................ (6,085)
Minority interests ............................................... (8,423)
Valuation reserves on investments in affiliate loans and joint
ventures and other investments .................................. --
Equity in earnings of real estate joint ventures and service
companies ....................................................... 398
Gain on sales of real estate ..................................... --
Discontinued operations (net of limited partners' minority
interest) ....................................................... 275
Extraordinary loss (net of limited partners' minority
interest) ....................................................... --
--------------------------------------------------------------------------------
Net income (loss) allocable to common shareholders ............... $ 20,688
--------------------------------------------------------------------------------
Net income (loss) allocable to:
Class A common shareholders ..................................... $ 15,308
Class B common shareholders ..................................... 5,380
--------------------------------------------------------------------------------
Total ............................................................ $ 20,688
--------------------------------------------------------------------------------
Basic net income (loss) per weighted average common
share:
Class A common .................................................. $ .34
Gain on sales of real estate .................................... --
Discontinued operations ......................................... --
Extraordinary loss .............................................. --
--------------------------------------------------------------------------------
Basic net income (loss) per weighted average Class A
common share ................................................... $ .34
--------------------------------------------------------------------------------
Class B common .................................................. $ .52
Gain on sales of real estate .................................... --
Discontinued operations ......................................... --
Extraordinary loss .............................................. --
--------------------------------------------------------------------------------
Basic net income (loss) per weighted average Class B
common share ................................................... $ .52
--------------------------------------------------------------------------------
Basic weighted average common shares outstanding:
Class A common .................................................. 45,483,544
Class B common .................................................. 10,283,513
Diluted net income (loss) per weighted average common
share:
Class A common .................................................. $ .33
Class B common .................................................. $ .37
Diluted weighted average common shares outstanding:
Class A common .................................................. 45,949,816
Class B common .................................................. 10,283,513
--------------------------------------------------------------------------------
2001
-----------------------------------------------
Second Quarter Third Quarter Fourth Quarter
-------------- ------------- --------------
Total revenues from continuing operations ........................ $ 130,754 $ 130,695 $ 123,638
-----------------------------------------------------------------------------------------------------------------
Income before preferred dividends and distributions,
minority interests, valuation reserves, equity in earnings
of real estate joint ventures and service companies, gain
on sales of real estate, discontinued operations and
extraordinary loss .............................................. $ 31,304 $ 29,395 $ 26,402
Preferred dividends and distributions ............................ (5,928) (5,996) (5,968)
Minority interests ............................................... (6,644) 11,619 (6,649)
Valuation reserves on investments in affiliate loans and joint
ventures and other investments .................................. -- (163,000) (3,101)
Equity in earnings of real estate joint ventures and service
companies ....................................................... 801 505 383
Gain on sales of real estate ..................................... -- 972 19,201
Discontinued operations (net of limited partners' minority
interest) ....................................................... 226 180 338
Extraordinary loss (net of limited partners' minority
interest) ....................................................... -- (2,595) --
-----------------------------------------------------------------------------------------------------------------
Net income (loss) allocable to common shareholders ............... $ 19,759 $ (128,920) $ 30,606
-----------------------------------------------------------------------------------------------------------------
Net income (loss) allocable to:
Class A common shareholders ..................................... $ 15,109 $ (97,944) $ 23,284
Class B common shareholders ..................................... 4,650 (30,976) 7,322
------------------------------------------------------------------- ------------ ----------- ------------
Total ............................................................ $ 19,759 $ (128,920) $ 30,606
-----------------------------------------------------------------------------------------------------------------
Basic net income (loss) per weighted average common
share:
Class A common .................................................. $ .32 $ (1.94) $ .20
Gain on sales of real estate .................................... -- .01 .26
Discontinued operations ......................................... -- -- .01
Extraordinary loss .............................................. -- (.04) --
-----------------------------------------------------------------------------------------------------------------
Basic net income (loss) per weighted average Class A
common share ................................................... $ .32 $ (1.97) $ .47
-----------------------------------------------------------------------------------------------------------------
Class B common .................................................. $ .45 $ (2.97) $ .30
Gain on sales of real estate .................................... -- .02 .40
Discontinued operations ......................................... -- -- .01
Extraordinary loss .............................................. -- (.06) --
-----------------------------------------------------------------------------------------------------------------
Basic net income (loss) per weighted average Class B
common share ................................................... $ .45 $ (3.01) $ .71
-----------------------------------------------------------------------------------------------------------------
Basic weighted average common shares outstanding:
Class A common .................................................. 47,221,917 49,715,423 49,994,025
Class B common .................................................. 10,283,513 10,283,513 10,283,513
Diluted net income (loss) per weighted average common
share:
Class A common .................................................. $ .32 $ (1.97) $ .46
Class B common .................................................. $ .34 $ (3.01) $ .50
Diluted weighted average common shares outstanding:
Class A common .................................................. 47,600,390 49,715,423 51,005,494
Class B common .................................................. 10,283,513 10,283,513 10,283,513
-----------------------------------------------------------------------------------------------------------------
IV-38
RECKSON ASSOCIATES REALTY CORP.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2002
(IN THOUSANDS)
COLUMN A COLUMN B COLUMN C
-------- -------- --------
INITIAL COST
--------------------------
BUILDINGS AND
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS
----------- ----------- ---- -------------
Vanderbilt Industrial Park, Hauppauge, New York
(27 buildings in an industrial park) ................ -- $ 1,940 $ 9,955
85 Nicon Court Hauppauge, New York .................. -- 797 2,818
104 Parkway Drive So., Hauppauge, New York .......... -- 54 804
125 Ricefield Lane Hauppauge, New York .............. -- 13 852
120 Ricefield Lane Hauppauge, New York .............. -- 16 1,051
135 Ricefield Lane Hauppauge, New York .............. -- 24 906
1997 Portfolio Acquisition, Hauppauge, New York
(10 additional buildings in Vanderbilt Industrial
Park) .............................................. -- 930 (B) 20,619
425 Rabro Drive Hauppauge, New York ................. -- 665 3,489
600 Old Willets Path Hauppauge, New York ............ -- 295 3,521
Airport International Plaza, Islip, New York
(17 buildings in an industrial park) ................ 2,616 (C) 1,263 13,608
120 Wilbur Place Islip, New York .................... -- 202 1,154
2004 Orville Drive North Islip, New York ............ -- 633 4,226
2005 Orville Drive North Islip, New York ............ -- 984 5,410
County Line Industrial Center, Melville, New York
(3 buildings in an industrial park) ................. -- 628 3,686
30 Hub Drive Melville, New York ..................... -- 469 1,571
32 Windsor Place, Islip, New York ................... -- 32 321
42 Windsor Place Islip, New York .................... -- 48 327
505 Walt Whitman Rd., Huntington, New York .......... -- 140 42
1170 Northern Blvd., N. Great Neck, New York ........ -- 30 99
50 Charles Lindbergh Blvd., Mitchel Field, New
York .............................................. -- (A) 12,089
200 Broadhollow Road Melville, New York ............. -- 338 3,354
48 South Service Road Melville, New York ............ -- 1,652 10,245
395 North Service Road Melville, New York ........... 19,709 (A) 15,551
6800 Jericho Turnpike Syosset, New York ............. 13,922 582 6,566
6900 Jericho Turnpike Syosset, New York ............. 7,348 385 4,228
COLUMN A COLUMN D COLUMN E COLUMN F
-------- -------- -------- --------
COST CAPITALIZED,
SUBSEQUENT TO GROSS AMOUNT AT WHICH
ACQUISITION CARRIED AT CLOSE OF PERIOD
-------------------- ------------------------------
BUILDINGS AND BUILDINGS AND ACCUMULATED
DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL DEPRECIATION
------------------------------------------------------ ----- ------------- ----- ------------- ----- ------------
Vanderbilt Industrial Park, Hauppauge, New York
(27 buildings in an industrial park) ................ 173 14,258 2,113 24,213 26,326 16,514
85 Nicon Court Hauppauge, New York .................. -- 243 797 3,061 3,858 684
104 Parkway Drive So., Hauppauge, New York .......... -- 236 54 1,040 1,094 232
125 Ricefield Lane Hauppauge, New York .............. -- 332 13 1,184 1,197 425
120 Ricefield Lane Hauppauge, New York .............. -- 422 16 1,473 1,489 320
135 Ricefield Lane Hauppauge, New York .............. -- 473 24 1,379 1,403 529
1997 Portfolio Acquisition, Hauppauge, New York
(10 additional buildings in Vanderbilt Industrial
Park) .............................................. -- 4,011 930 24,630 25,560 5,385
425 Rabro Drive Hauppauge, New York ................. -- 398 665 3,887 4,552 732
600 Old Willets Path Hauppauge, New York ............ -- 727 295 4,248 4,543 788
Airport International Plaza, Islip, New York
(17 buildings in an industrial park) ................ -- 11,814 1,263 25,422 26,685 17,794
120 Wilbur Place Islip, New York .................... 8 247 210 1,401 1,611 234
2004 Orville Drive North Islip, New York ............ -- 1,431 633 5,657 6,290 1,689
2005 Orville Drive North Islip, New York ............ -- 1,176 984 6,586 7,570 1,071
County Line Industrial Center, Melville, New York
(3 buildings in an industrial park) ................. -- 2,848 628 6,534 7,162 5,264
30 Hub Drive Melville, New York ..................... -- 324 469 1,895 2,364 525
32 Windsor Place, Islip, New York ................... -- 46 32 367 399 367
42 Windsor Place Islip, New York .................... -- 700 48 1,027 1,075 857
505 Walt Whitman Rd., Huntington, New York .......... -- 59 140 101 241 88
1170 Northern Blvd., N. Great Neck, New York ........ -- 187 30 286 316 133
50 Charles Lindbergh Blvd., Mitchel Field, New
York .............................................. -- 5,973 0 18,062 18,062 11,458
200 Broadhollow Road Melville, New York ............. -- 3,562 338 6,916 7,254 4,726
48 South Service Road Melville, New York ............ -- 5,611 1,652 15,856 17,508 9,189
395 North Service Road Melville, New York ........... -- 7,575 0 23,126 23,126 13,405
6800 Jericho Turnpike Syosset, New York ............. -- 10,092 582 16,658 17,240 11,083
6900 Jericho Turnpike Syosset, New York ............. -- 3,931 385 8,159 8,544 5,035
COLUMN A COLUMN G COLUMN H COLUMN I
-------- -------- -------- --------
LIFE ON WHICH
DATE OF DATE DEPRECIATION
DESCRIPTION CONSTRUCTION ACQUIRED IS COMPUTED
----------- ------------ -------- -------------
Vanderbilt Industrial Park, Hauppauge, New York
(27 buildings in an industrial park) ................ 1961-1979 1961-1979 10 - 30 Years
85 Nicon Court Hauppauge, New York .................. 1984 1995 10 - 30 Years
104 Parkway Drive So., Hauppauge, New York .......... 1985 1996 10 - 30 Years
125 Ricefield Lane Hauppauge, New York .............. 1973 1996 10 - 30 Years
120 Ricefield Lane Hauppauge, New York .............. 1983 1996 10 - 30 Years
135 Ricefield Lane Hauppauge, New York .............. 1981 1996 10 - 30 Years
1997 Portfolio Acquisition, Hauppauge, New York
(10 additional buildings in Vanderbilt Industrial
Park) .............................................. 1974-1982 1997 10 - 30 Years
425 Rabro Drive Hauppauge, New York ................. 1980 1997 10 - 30 Years
600 Old Willets Path Hauppauge, New York ............ 1999 1999 10 - 30 Years
Airport International Plaza, Islip, New York
(17 buildings in an industrial park) ................ 1970-1988 1970-1988 10 - 30 Years
120 Wilbur Place Islip, New York .................... 1972 1998 10 - 30 Years
2004 Orville Drive North Islip, New York ............ 1998 1996 10 - 30 Years
2005 Orville Drive North Islip, New York ............ 1999 1996 10 - 30 Years
County Line Industrial Center, Melville, New York
(3 buildings in an industrial park) ................. 1975-1979 1975-1979 10 - 30 Years
30 Hub Drive Melville, New York ..................... 1976 1996 10 - 30 Years
32 Windsor Place, Islip, New York ................... 1971 1971 10 - 30 Years
42 Windsor Place Islip, New York .................... 1972 1972 10 - 30 Years
505 Walt Whitman Rd., Huntington, New York .......... 1950 1968 10 - 30 Years
1170 Northern Blvd., N. Great Neck, New York ........ 1947 1962 10 - 30 Years
50 Charles Lindbergh Blvd., Mitchel Field, New
York .............................................. 1984 1984 10 - 30 Years
200 Broadhollow Road Melville, New York ............. 1981 1981 10 - 30 Years
48 South Service Road Melville, New York ............ 1986 1986 10 - 30 Years
395 North Service Road Melville, New York ........... 1988 1988 10 - 30 Years
6800 Jericho Turnpike Syosset, New York ............. 1977 1978 10 - 30 Years
6900 Jericho Turnpike Syosset, New York ............. 1982 1982 10 - 30 Years
Continued
IV-39
RECKSON ASSOCIATES REALTY CORP.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2002
(IN THOUSANDS)
COLUMN A COLUMN B COLUMN C
-------- -------- --------
INITIAL COST
-------------------------
BUILDINGS AND
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS
----------- ----------- ---- --------------
300 Motor Parkway Hauppauge, New York ................ -- 276 1,136
88 Duryea Road Melville, New York .................... -- 200 1,565
210 Blydenburgh Road Islandia, New York .............. -- 11 158
208 Blydenburgh Road Islandia, New York .............. -- 12 192
71 Hoffman Lane Islandia, New York ................... -- 19 260
933 Motor Parkway Hauppauge, New York ................ -- 106 375
85 South Service Road Plainview, New York ............ -- 24 145
333 Earl Ovington Blvd., (Omni) Mitchel Field, New
York ................................................ 53,864 (A) 67,221
135 Fell Court Islip, New York ....................... -- 462 1,265
40 Cragwood Road South Plainfield, New Jersey ........ -- 725 7,131
110 Marcus Drive Huntington, New York ................ -- 390 1,499
333 East Shore Road Great Neck, New York ............. -- (A) 564
310 East Shore Road Great Neck, New York ............. -- 485 2,009
70 Schmitt Blvd. Farmingdale, New York ............... -- 727 3,408
19 Nicholas Drive Yaphank, New York .................. -- 160 7,399
1516 Motor Parkway Hauppauge, New York ............... -- 603 6,722
35 Pinelawn Road Melville, New York .................. -- 999 7,073
520 Broadhollow Road Melville, New York .............. -- 457 5,572
1660 Walt Whitman Road Melville, New York ............ -- 370 5,072
70 Maxess Road Melville, New York .................... -- 367 1,859
20 Melville Park Rd., Melville, New York ............. -- 391 2,650
105 Price Parkway Farmingdale, New York .............. -- 2,030 6,327
48 Harbor Park Drive Port Washington, New York ....... -- 1,304 2,247
60 Charles Lindbergh Mitchel Field, New York ......... -- (A) 20,800
505 White Plains Road Tarrytown, New York ............ -- 210 1,332
555 White Plains Road Tarrytown, New York ............ -- 712 4,133
560 White Plains Road Tarrytown, New York ............ -- 1,521 8,756
580 White Plains Road Tarrytown, New York ............ 12,685 2,414 14,595
660 White Plains Road Tarrytown, New York ............ -- 3,929 22,640
Landmark Square Stamford, Connecticut ................ 45,090 11,603 64,466
COLUMN A COLUMN D COLUMN E
-------- -------- --------
COST CAPITALIZED,
SUBSEQUENT TO GROSS AMOUNT AT WHICH
ACQUISITION CARRIED AT CLOSE OF PERIOD
----------------------- --------------------------------
BUILDINGS AND BUILDINGS AND
DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL
----------- ---- ------------- ---- ------------- -----
300 Motor Parkway Hauppauge, New York ................ -- 1,833 276 2,969 3,245
88 Duryea Road Melville, New York .................... -- 823 200 2,388 2,588
210 Blydenburgh Road Islandia, New York .............. -- 175 11 333 344
208 Blydenburgh Road Islandia, New York .............. -- 188 12 380 392
71 Hoffman Lane Islandia, New York ................... -- 206 19 466 485
933 Motor Parkway Hauppauge, New York ................ -- 411 106 786 892
85 South Service Road Plainview, New York ............ -- 13 24 158 182
333 Earl Ovington Blvd., (Omni) Mitchel Field, New
York ................................................ -- 22,053 0 89,274 89,274
135 Fell Court Islip, New York ....................... -- 273 462 1,538 2,000
40 Cragwood Road South Plainfield, New Jersey ........ -- 6,034 725 13,165 13,890
110 Marcus Drive Huntington, New York ................ -- 107 390 1,606 1,996
333 East Shore Road Great Neck, New York ............. -- 456 0 1,020 1,020
310 East Shore Road Great Neck, New York ............. -- 2,344 485 4,353 4,838
70 Schmitt Blvd. Farmingdale, New York ............... -- 33 727 3,441 4,168
19 Nicholas Drive Yaphank, New York .................. 5 6,160 165 13,559 13,724
1516 Motor Parkway Hauppauge, New York ............... -- 472 603 7,194 7,797
35 Pinelawn Road Melville, New York .................. -- 2,786 999 9,859 10,858
520 Broadhollow Road Melville, New York .............. (1) 2,794 456 8,366 8,822
1660 Walt Whitman Road Melville, New York ............ -- 1,102 370 6,174 6,544
70 Maxess Road Melville, New York .................... 95 2,957 462 4,816 5,278
20 Melville Park Rd., Melville, New York ............. -- 106 391 2,756 3,147
105 Price Parkway Farmingdale, New York .............. -- 469 2,030 6,796 8,826
48 Harbor Park Drive Port Washington, New York ....... -- 520 1,304 2,767 4,071
60 Charles Lindbergh Mitchel Field, New York ......... -- 4,198 0 24,998 24,998
505 White Plains Road Tarrytown, New York ............ -- 342 210 1,674 1,884
555 White Plains Road Tarrytown, New York ............ 51 4,656 763 8,789 9,552
560 White Plains Road Tarrytown, New York ............ (1) 4,479 1,520 13,235 14,755
580 White Plains Road Tarrytown, New York ............ -- 3,553 2,414 18,148 20,562
660 White Plains Road Tarrytown, New York ............ 45 6,431 3,974 29,071 33,045
Landmark Square Stamford, Connecticut ................ 832 31,464 12,435 95,930 108,365
COLUMN A COLUMN F COLUMN G COLUMN H COLUMN I
-------- -------- -------- -------- --------
LIFE ON WHICH
ACCUMULATED DATE OF DATE DEPRECIATION
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
----------- ------------ ------------ -------- -------------
300 Motor Parkway Hauppauge, New York ................ 1,775 1979 1979 10 - 30 Years
88 Duryea Road Melville, New York .................... 1,496 1980 1980 10 - 30 Years
210 Blydenburgh Road Islandia, New York .............. 315 1969 1969 10 - 30 Years
208 Blydenburgh Road Islandia, New York .............. 344 1969 1969 10 - 30 Years
71 Hoffman Lane Islandia, New York ................... 433 1970 1970 10 - 30 Years
933 Motor Parkway Hauppauge, New York ................ 692 1973 1973 10 - 30 Years
85 South Service Road Plainview, New York ............ 153 1961 1961 10 - 30 Years
333 Earl Ovington Blvd., (Omni) Mitchel Field, New
York ................................................ 30,782 1990 1995 10 - 30 Years
135 Fell Court Islip, New York ....................... 509 1965 1992 10 - 30 Years
40 Cragwood Road South Plainfield, New Jersey ........ 8,397 1970 1983 10 - 30 Years
110 Marcus Drive Huntington, New York ................ 1,310 1980 1980 10 - 30 Years
333 East Shore Road Great Neck, New York ............. 700 1976 1976 10 - 30 Years
310 East Shore Road Great Neck, New York ............. 2,277 1981 1981 10 - 30 Years
70 Schmitt Blvd. Farmingdale, New York ............... 845 1965 1995 10 - 30 Years
19 Nicholas Drive Yaphank, New York .................. 2,556 1989 1995 10 - 30 Years
1516 Motor Parkway Hauppauge, New York ............... 1,737 1981 1995 10 - 30 Years
35 Pinelawn Road Melville, New York .................. 2,802 1980 1995 10 - 30 Years
520 Broadhollow Road Melville, New York .............. 2,723 1978 1995 10 - 30 Years
1660 Walt Whitman Road Melville, New York ............ 1,417 1980 1995 10 - 30 Years
70 Maxess Road Melville, New York .................... 1,239 1967 1995 10 - 30 Years
20 Melville Park Rd., Melville, New York ............. 603 1965 1996 10 - 30 Years
105 Price Parkway Farmingdale, New York .............. 1,632 1969 1996 10 - 30 Years
48 Harbor Park Drive Port Washington, New York ....... 563 1976 1996 10 - 30 Years
60 Charles Lindbergh Mitchel Field, New York ......... 6,078 1989 1996 10 - 30 Years
505 White Plains Road Tarrytown, New York ............ 497 1974 1996 10 - 30 Years
555 White Plains Road Tarrytown, New York ............ 3,554 1972 1996 10 - 30 Years
560 White Plains Road Tarrytown, New York ............ 3,606 1980 1996 10 - 30 Years
580 White Plains Road Tarrytown, New York ............ 5,294 1997 1996 10 - 30 Years
660 White Plains Road Tarrytown, New York ............ 7,976 1983 1996 10 - 30 Years
Landmark Square Stamford, Connecticut ................ 19,337 1973-1984 1996 10 - 30 Years
Continued
IV-40
RECKSON ASSOCIATES REALTY CORP.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2002
(IN THOUSANDS)
COLUMN A COLUMN B COLUMN C
-------- -------- --------
INITIAL COST
-------------------------
BUILDINGS AND
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS
----------- ----------- ---- -------------
110 Bi -County Blvd. Farmingdale, New York ............ 3,635 2,342 6,665
One Eagle Rock, East Hanover, New Jersey .............. -- 803 7,563
710 Bridgeport Avenue Shelton, Connecticut ............ -- 5,405 21,620
101 JFK Expressway Short Hills, New Jersey ............ -- 7,745 43,889
10 Rooney Circle West Orange, New Jersey .............. -- 1,302 4,615
Executive Hill Office Park West Orange, New Jersey -- 7,629 31,288
3 University Plaza Hackensack, New Jersey ............. -- 7,894 11,846
150 Motor Parkway Hauppauge, New York ................. -- 1,114 20,430
Reckson Executive Park Ryebrook, New York ............. -- 18,343 55,028
University Square Princeton, New Jersey ............... -- 3,288 8,888
100 Andrews Road Hicksville, New York ................. -- 2,337 1,711
80 Grasslands Elmsford, New York ...................... -- 1,208 6,728
65 Marcus Drive Melville, New York .................... -- 295 1,966
100 Forge Way Rockaway, New Jersey .................... -- 315 902
200 Forge Way Rockaway, New Jersey .................... -- 1,128 3,228
300 Forge Way Rockaway, New Jersey .................... -- 376 1,075
400 Forge Way Rockaway, New Jersey .................... -- 1,142 3,267
51 -- 55 Charles Lindbergh Blvd. Mitchel Field, New
York ................................................. -- (A) 27,975
100 Summit Drive Valhalla, New York ................... 19,101 3,007 41,351
115/117 Stevens Avenue Valhalla, New York ............. -- 1,094 22,490
200 Summit Lake Drive Valhalla, New York .............. 19,373 4,343 37,305
140 Grand Street White Plains, New York ............... -- 1,932 18,744
500 Summit Lake Drive Valhalla, New York .............. -- 7,052 37,309
99 Cherry Hill Road Parsippany, New Jersey ............ -- 2,360 7,508
119 Cherry Hill Road Parsippany, New Jersey ........... -- 2,512 7,622
45 Melville Park Road Melville, New York .............. -- 355 1,487
500 Saw Mill River Road Elmsford, New York ............ -- 1,542 3,796
120 W.45th Street New York, New York .................. 64,263 28,757 162,809
1255 Broad Street Clifton, New Jersey ................. -- 1,329 15,869
810 7th Avenue New York, New York ..................... 82,854 26,984 (A) 152,767
COLUMN A COLUMN D COLUMN E
-------- -------- --------
COST CAPITALIZED,
SUBSEQUENT TO GROSS AMOUNT AT WHICH
ACQUISITION CARRIED AT CLOSE OF PERIOD
------------------------------- --------------------------------
BUILDINGS AND BUILDINGS AND
DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL
----------- ---- ------------- ---- ------------- -----
110 Bi -County Blvd. Farmingdale, New York ............ -- 406 2,342 7,071 9,413
One Eagle Rock, East Hanover, New Jersey .............. -- 3,151 803 10,714 11,517
710 Bridgeport Avenue Shelton, Connecticut ............ 7 946 5,412 22,566 27,978
101 JFK Expressway Short Hills, New Jersey ............ (3,098) (16,116) 4,647 27,773 32,420
10 Rooney Circle West Orange, New Jersey .............. 1 1,002 1,303 5,617 6,920
Executive Hill Office Park West Orange, New Jersey 4 2,778 7,633 34,066 41,699
3 University Plaza Hackensack, New Jersey ............. -- 2,684 7,894 14,530 22,424
150 Motor Parkway Hauppauge, New York ................. -- 3,479 1,114 23,909 25,023
Reckson Executive Park Ryebrook, New York ............. -- 4,550 18,343 59,578 77,921
University Square Princeton, New Jersey ............... (1) 1,694 3,287 10,582 13,869
100 Andrews Road Hicksville, New York ................. 151 5,742 2,488 7,453 9,941
80 Grasslands Elmsford, New York ...................... -- 606 1,208 7,334 8,542
65 Marcus Drive Melville, New York .................... 56 954 351 2,920 3,271
100 Forge Way Rockaway, New Jersey .................... -- 98 315 1,000 1,315
200 Forge Way Rockaway, New Jersey .................... -- 483 1,128 3,711 4,839
300 Forge Way Rockaway, New Jersey .................... -- 254 376 1,329 1,705
400 Forge Way Rockaway, New Jersey .................... -- 187 1,142 3,454 4,596
51 -- 55 Charles Lindbergh Blvd. Mitchel Field, New
York ................................................. -- 4,292 0 32,267 32,267
100 Summit Drive Valhalla, New York ................... -- 4,879 3,007 46,230 49,237
115/117 Stevens Avenue Valhalla, New York ............. -- 1,911 1,094 24,401 25,495
200 Summit Lake Drive Valhalla, New York .............. -- 4,010 4,343 41,315 45,658
140 Grand Street White Plains, New York ............... (1) 300 1,931 19,044 20,975
500 Summit Lake Drive Valhalla, New York .............. -- 7,837 7,052 45,146 52,198
99 Cherry Hill Road Parsippany, New Jersey ............ 5 1,330 2,365 8,838 11,203
119 Cherry Hill Road Parsippany, New Jersey ........... 6 1,097 2,518 8,719 11,237
45 Melville Park Road Melville, New York .............. (1) 1,825 354 3,312 3,666
500 Saw Mill River Road Elmsford, New York ............ -- 205 1,542 4,001 5,543
120 W.45th Street New York, New York .................. 7,721 (D) 3,756 36,478 166,565 203,043
1255 Broad Street Clifton, New Jersey ................. -- 4,077 1,329 19,946 21,275
810 7th Avenue New York, New York ..................... 117 13,920 27,101 166,687 193,788
COLUMN A COLUMN F COLUMN G COLUMN H COLUMN I
-------- -------- -------- -------- --------
LIFE ON WHICH
ACCUMULATED DATE OF DATE DEPRECIATION
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
----------- ------------ ------------ -------- -------------
110 Bi -County Blvd. Farmingdale, New York ............ 1,508 1984 1997 10 - 30 Years
One Eagle Rock, East Hanover, New Jersey .............. 3,087 1986 1997 10 - 30 Years
710 Bridgeport Avenue Shelton, Connecticut ............ 4,493 1971-1979 1997 10 - 30 Years
101 JFK Expressway Short Hills, New Jersey ............ 5,132 1981 1997 10 - 30 Years
10 Rooney Circle West Orange, New Jersey .............. 1,096 1971 1997 10 - 30 Years
Executive Hill Office Park West Orange, New Jersey 6,337 1978-1984 1997 10 - 30 Years
3 University Plaza Hackensack, New Jersey ............. 3,136 1985 1997 10 - 30 Years
150 Motor Parkway Hauppauge, New York ................. 5,028 1984 1997 10 - 30 Years
Reckson Executive Park Ryebrook, New York ............. 10,587 1983-1986 1997 10 - 30 Years
University Square Princeton, New Jersey ............... 1,774 1987 1997 10 - 30 Years
100 Andrews Road Hicksville, New York ................. 1,897 1954 1996 10 - 30 Years
80 Grasslands Elmsford, New York ...................... 1,389 1989/1964 1997 10 - 30 Years
65 Marcus Drive Melville, New York .................... 724 1968 1996 10 - 30 Years
100 Forge Way Rockaway, New Jersey .................... 190 1986 1998 10 - 30 Years
200 Forge Way Rockaway, New Jersey .................... 630 1989 1998 10 - 30 Years
300 Forge Way Rockaway, New Jersey .................... 328 1989 1998 10 - 30 Years
400 Forge Way Rockaway, New Jersey .................... 580 1989 1998 10 - 30 Years
51 -- 55 Charles Lindbergh Blvd. Mitchel Field, New
York ................................................. 7,035 1981 1998 10 - 30 Years
100 Summit Drive Valhalla, New York ................... 8,114 1988 1998 10 - 30 Years
115/117 Stevens Avenue Valhalla, New York ............. 3,928 1984 1998 10 - 30 Years
200 Summit Lake Drive Valhalla, New York .............. 6,718 1990 1998 10 - 30 Years
140 Grand Street White Plains, New York ............... 3,078 1991 1998 10 - 30 Years
500 Summit Lake Drive Valhalla, New York .............. 7,159 1986 1998 10 - 30 Years
99 Cherry Hill Road Parsippany, New Jersey ............ 1,340 1982 1998 10 - 30 Years
119 Cherry Hill Road Parsippany, New Jersey ........... 1,425 1982 1998 10 - 30 Years
45 Melville Park Road Melville, New York .............. 763 1998 1998 10 - 30 Years
500 Saw Mill River Road Elmsford, New York ............ 670 1968 1998 10 - 30 Years
120 W.45th Street New York, New York .................. 20,103 1998 1999 10 - 30 Years
1255 Broad Street Clifton, New Jersey ................. 2,922 1999 1999 10 - 30 Years
810 7th Avenue New York, New York ..................... 20,037 1970 1999 10 - 30 Years
Continued
IV-41
RECKSON ASSOCIATES REALTY CORP.
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2002
(IN THOUSANDS)
COLUMN A COLUMN B COLUMN C
-------- -------- --------
INITIAL COST
--------------------------
BUILDINGS AND
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS
----------- ----------- ---- -------------
120 Mineola Blvd. Mineola, New York ................. -- 1,869 10,603
100 Wall Street New York, New York .................. 35,904 11,749 66,517
One Orlando Orlando, Florida ........................ 38,366 9,386 51,136
1350 Avenue of the Americas New York, New York 74,631 19,222 109,168
919 3rd. Avenue New York, New York .................. 246,651 101,644 (A) 205,736
538 Broadhollow Road Melville, New York ............. -- 3,900 21,413
360 Hamilton Avenue White Plains, New York .......... -- 2,838 34,606
492 River Road Nutley, New Jersey ................... -- 2,615 5,102
275 Broadhollow Road Melville, New York ............. -- 3,850 12,958
400 Garden City Plaza Garden City, New York ......... -- 9,081 17,004
90 Merrick Avenue East Meadow, New York ............. -- (A) 23,804
120 White Plains Road Tarrytown, New York ........... -- 3,852 24,861
100 White Plains Road Tarrytown, New York ........... -- 79 472
51 JFK Parkway Short Hills, New Jersey .............. -- 10,053 62,504
680 Washington Blvd Stamford, Connecticut ........... -- 4,561 23,698
750 Washington Blvd Stamford, Connecticut ........... -- 7,527 31,940
1305 Walt Whitman Road Melville, New York ........... -- 3,934 24,040
50 Marcus Drive Melville, New York .................. -- 930 13,600
100 Grasslands Road Elmsford, New York .............. -- 289 3,382
2002 Orville Drive North Bohemia, New York .......... -- 1,950 9,959
390 Motor Parkway Hauppauge, New York ............... -- 240 5,787
58 South Service Road Melville, New York ............ -- 1,061
400 Moreland Road Commack, New York ................. -- 343 1,219
103 JFK Parkway Short Hills, New Jersey ............. -- 3,098 18,011
Land held for development ........................... -- 92,924 --
Developments in progress ............................ -- -- 28,311
Other property ...................................... -- -- --
-------- ----------- ----------
Total ............................................... $740,012 $ 483,555 $1,968,635
======== =========== ==========
COLUMN A COLUMN D COLUMN E
-------- -------- --------
COST CAPITALIZED,
SUBSEQUENT TO GROSS AMOUNT AT WHICH
ACQUISITION CARRIED AT CLOSE OF PERIOD
---------------------- ------------------------------------
BUILDINGS AND BUILDINGS AND
DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL
----------- ---- ------------- ---- ------------- -----
120 Mineola Blvd. Mineola, New York ................. 5 1,041 1,874 11,644 13,518
100 Wall Street New York, New York .................. 93 9,798 11,842 76,315 88,157
One Orlando Orlando, Florida ........................ 32 3,779 9,418 54,915 64,333
1350 Avenue of the Americas New York, New York -- 18,037 19,222 127,205 146,427
919 3rd. Avenue New York, New York .................. 12,795 86,412 114,439 292,148 406,587
538 Broadhollow Road Melville, New York ............. -- 1,038 3,900 22,451 26,351
360 Hamilton Avenue White Plains, New York .......... -- 21,351 2,838 55,957 58,795
492 River Road Nutley, New Jersey ................... -- 4,145 2,615 9,247 11,862
275 Broadhollow Road Melville, New York ............. -- 312 3,850 13,270 17,120
400 Garden City Plaza Garden City, New York ......... -- 667 9,081 17,671 26,752
90 Merrick Avenue East Meadow, New York ............. -- 1,111 0 24,915 24,915
120 White Plains Road Tarrytown, New York ........... -- 359 3,852 25,220 29,072
100 White Plains Road Tarrytown, New York ........... -- 79 79 551 630
51 JFK Parkway Short Hills, New Jersey .............. 1 824 10,054 63,328 73,382
680 Washington Blvd Stamford, Connecticut ........... -- 168 4,561 23,866 28,427
750 Washington Blvd Stamford, Connecticut ........... -- 139 7,527 32,079 39,606
1305 Walt Whitman Road Melville, New York ........... -- 41 3,934 24,081 28,015
50 Marcus Drive Melville, New York .................. 65 4,912 995 18,512 19,507
100 Grasslands Road Elmsford, New York .............. -- 1,214 289 4,596 4,885
2002 Orville Drive North Bohemia, New York .......... -- 254 1,950 10,213 12,163
390 Motor Parkway Hauppauge, New York ............... -- 833 240 6,620 6,860
58 South Service Road Melville, New York ............ 6,886 42,218 7,947 42,218 50,165
400 Moreland Road Commack, New York ................. 1,141 1,510 1,484 2,729 4,213
103 JFK Parkway Short Hills, New Jersey ............. 217 9,585 3,315 27,596 30,911
Land held for development ........................... -- -- 92,924 92,924
Developments in progress ............................ -- -- 28,311 28,311
Other property ...................................... -- 18,650 18,650 18,650
------- -------- ---------- ----------
Total ............................................... $27,409 $474,928 $510,964 $2,443,563 $2,954,527
======= ======== ======== ========== ==========
COLUMN A COLUMN F COLUMN G COLUMN H COLUMN I
-------- -------- -------- -------- --------
LIFE ON WHICH
ACCUMULATED DATE OF DATE DEPRECIATION
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
----------- ------------ ------------ -------- -------------
120 Mineola Blvd. Mineola, New York ................. 1,500 1977 1999 10 - 30 Years
100 Wall Street New York, New York .................. 9,382 1969 1999 10 - 30 Years
One Orlando Orlando, Florida ........................ 6,566 1987 1999 10 - 30 Years
1350 Avenue of the Americas New York, New York 12,397 1966 2000 10 - 30 Years
919 3rd. Avenue New York, New York .................. 16,375 1970 2000 10 - 30 Years
538 Broadhollow Road Melville, New York ............. 1,802 2000 2000 10 - 30 Years
360 Hamilton Avenue White Plains, New York .......... 6,319 2000 2000 10 - 30 Years
492 River Road Nutley, New Jersey ................... 924 2000 2000 10 - 30 Years
275 Broadhollow Road Melville, New York ............. 1,813 1970 1997 10 - 30 Years
400 Garden City Plaza Garden City, New York ......... 2,166 1989 1997 10 - 30 Years
90 Merrick Avenue East Meadow, New York ............. 3,563 1985 1997 10 - 30 Years
120 White Plains Road Tarrytown, New York ........... 3,076 1984 1997 10 - 30 Years
100 White Plains Road Tarrytown, New York ........... 39 1984 1997 10 - 30 Years
51 JFK Parkway Short Hills, New Jersey .............. 7,619 1988 1998 10 - 30 Years
680 Washington Blvd Stamford, Connecticut ........... 2,883 1989 1998 10 - 30 Years
750 Washington Blvd Stamford, Connecticut ........... 3,738 1989 1998 10 - 30 Years
1305 Walt Whitman Road Melville, New York ........... 3,043 1999 1999 10 - 30 Years
50 Marcus Drive Melville, New York .................. 1,106 2001 1998 10 - 30 Years
100 Grasslands Road Elmsford, New York .............. 460 2001 1997 10 - 30 Years
2002 Orville Drive North Bohemia, New York .......... 919 2001 1996 10 - 30 Years
390 Motor Parkway Hauppauge, New York ............... 1,046 2001 1997 10 - 30 Years
58 South Service Road Melville, New York ............ 1,308 2001 1998 10 - 30 Years
400 Moreland Road Commack, New York ................. 41 2002 1997 10 - 30 Years
103 JFK Parkway Short Hills, New Jersey ............. 2,854 2002 1997 10 - 30 Years
Land held for development ........................... N/A Various N/A
Developments in progress ............................ --
Other property ...................................... 2,713
--------
Total ............................................... $445,029
========
----------
A These land parcels, or a portion of the land parcels, on which the building
and improvements were constructed are subject to a ground lease.
B The land parcel on which the building and improvements were constructed for
one property is subject to a ground lease.
C The Encumbrance of $2,616 is related to one property.
D Includes costs incurred to acquire the lessor's rights to an air rights
lease agreement.
The aggregate cost of Federal Income Tax purposes was approximately $2,191
million at December 31, 2002.
IV-42
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, 2002 are as follows:
2002 2001 2000
----------- ----------- ------------
Real estate balance at beginning of period ................ $ 2,880,879 $ 2,770,607 $ 2,208,399
Improvements / revaluations ............................... 91,900 193,492 166,260
Disposal, including write-off of fully depreciated building
improvements ............................................. (18,252) (83,220) (52,092)
Acquisitions .............................................. -- -- 448,040
----------- ----------- -----------
Balance at end of period .................................. $ 2,954,527 $ 2,880,879 $ 2,770,607
=========== =========== ===========
The changes in accumulated depreciation, exclusive of amounts relating to
equipment, autos, furniture and fixtures, for each of the periods in the three
years ended December 31, 2002 are as follows:
2002 2001 2000
--------- --------- ---------
Balance at beginning of period ............................ $ 357,112 $ 284,315 $ 215,112
Depreciation for period ................................... 91,940 83,316 71,478
Disposal, including write-off of fully depreciated building
improvements ............................................. (4,023) (10,519) (2,275)
--------- --------- ---------
Balance at end of period .................................. $ 445,029 $ 357,112 $ 284,315
========= ========= =========
IV-43
EXHIBIT INDEX
EXHIBIT FILING
NUMBER REFERENCE DESCRIPTION
--------- ---------- -----------------------------------------------------------------------------------
3.1 a Amended and Restated Articles of Incorporation of the Registrant
3.2 s Amended and Restated By-Laws of the Registrant
3.3 e Articles Supplementary of the Registrant Establishing and Fixing the Rights and
Preferences of a Series of Shares of Preferred Stock filed
with the Maryland State Department of Assessments and
Taxation on April 9, 1998
3.4 h Articles Supplementary of the Registrant Establishing and Fixing the Rights and
Preferences of a Class of Shares of Common Stock filed with the Maryland State
Department of Assessments and Taxation on May 24, 1999
3.5 g Articles Supplementary of the Registrant Establishing and Fixing the Rights and
Preferences of a Series of Shares of Preferred Stock filed with the Maryland State
Department of Assessments and Taxation on May 28, 1999
3.6 h Articles of Amendment of the Registrant filed with the Maryland State
Department of Assessments and Taxation on January 4, 2000
3.7 h Articles Supplementary of the Registrant filed with the Maryland State
Department of Assessments and Taxation on January 11, 2000
3.8 o Articles Supplementary of the Registrant Establishing and Fixing the Rights and
Preferences of a Series of Shares of Preferred Stock filed with the Maryland State
Department of Assessments and Taxation on November 2, 2000
4.1 b Specimen Share Certificate of Class A Common Stock
4.2 j Specimen Share Certificate of Class B Exchangeable Common Stock
4.3 e Specimen Share Certificate of Series A Preferred Stock
4.4 f Form of 7.40% Notes due 2004 of Reckson Operating Partnership, L.P. (the
"Operating Partnership")
4.5 f Form of 7.75% Notes due 2009 of the Operating Partnership
4.6 f Indenture, dated March 26, 1999, among the Operating Partnership, the Registrant,
and The Bank of New York, as trustee
4.7 i 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
4.8 q Form of 6.00% Notes due 2007 of the Operating Partnership
4.9 d Note Purchase Agreement for the Senior Unsecured Notes
10.1 a Amended and Restated Agreement of Limited Partnership of the Operating
Partnership
10.2 e Supplement to the Amended and Restated Agreement of Limited Partnership of
the Operating Partnership Establishing Series A Preferred Units of Limited
Partnership Interest
10.3 e Supplement to the Amended and Restated Agreement of Limited Partnership of
the Operating Partnership Establishing Series B Preferred Units of Limited
Partnership Interest
10.4 e Supplement to the Amended and Restated Agreement of Limited Partnership of
the Operating Partnership Establishing Series C Preferred Units of Limited
Partnership Interest
10.5 e Supplement to the Amended and Restated Agreement of Limited Partnership of
the Operating Partnership Establishing Series D Preferred Units of Limited
Partnership Interest
10.6 h Supplement to the Amended and Restated Agreement of Limited Partnership of
the Operating Partnership Establishing Series B Common Units of Limited
Partnership Interest
10.7 h Supplement to the Amended and Restated Agreement of Limited Partnership of
the Operating Partnership Establishing Series E Preferred Partnership Units of
Limited Partnership Interest
10.8 l Supplement to the Amended and Restated Agreement of Limited Partnership of
the Operating Partnership Establishing the Series F Junior Participating Preferred
Partnership Units
10.9 d Third Amended and Restated Agreement of Limited Partnership of Omni
Partners, L.P.
10.10 i Amendment and Restatement of Employment and Noncompetition Agreement,
dated as of August 15, 2000, between the Registrant and Donald Rechler
10.11 i Amendment and Restatement of Employment and Noncompetition Agreement,
dated as of August 15, 2000, between the Registrant and Scott Rechler
10.12 i Amendment and Restatement of Employment and Noncompetition Agreement,
dated as of August 15, 2000, between the Registrant and Mitchell Rechler
10.13 i Amendment and Restatement of Employment and Noncompetition Agreement,
dated as of August 15, 2000, between the Registrant and Gregg Rechler
10.14 i Amendment and Restatement of Employment and Noncompetition Agreement,
dated as of August 15, 2000, between the Registrant and Roger Rechler
10.15 i Amendment and Restatement of Employment and Noncompetition Agreement,
dated as of August 15, 2000, between the Registrant and Michael Maturo
10.16 i Amendment and Restatement of Employment and Noncompetition Agreement,
dated as of August 15, 2000, between the Registrant and Jason Barnett
10.17 a Purchase Option Agreements relating to the Reckson Option Properties
10.18 a Purchase Option Agreements relating to the Other Option Properties
10.19 k Amended and Restated 1995 Stock Option Plan
10.20 c 1996 Employee Stock Option Plan
10.21 b Ground Leases for certain of the properties
10.22 a Indemnity Agreement relating to 100 Oser Avenue
10.23 k Amended and Restated 1997 Stock Option Plan
10.24 d 1998 Stock Option Plan
10.25 i Amendment and Restatement of Severance Agreement, dated as of August 15,
2000, between the Registrant and Donald Rechler
10.26 i Amendment and Restatement of Severance Agreement, dated as of August 15,
2000, between the Registrant and Scott Rechler
10.27 i Amendment and Restatement of Severance Agreement, dated as of August 15,
2000, between the Registrant and Mitchell Rechler
10.28 i Amendment and Restatement of Severance Agreement, dated as of August 15,
2000, between the Registrant and Gregg Rechler
10.29 i Amendment and Restatement of Severance Agreement, dated as of August 15,
2000, between the Registrant and Roger Rechler
10.30 i Amendment and Restatement of Severance Agreement, dated as of August 15,
2000, between the Registrant and Michael Maturo
10.31 i Amendment and Restatement of Severance Agreement, dated as of August 15,
2000, between the Registrant and Jason Barnett
10.32 h Amended and Restated Credit Agreement dated as of August 4, 1999 between
Reckson Service Industries, Inc., as borrower, and the Operating Partnership, as
Lender, relating to Reckson Strategic Venture Partners, LLC ("RSVP Credit
Agreement")
IV-44
EXHIBIT FILING
NUMBER REFERENCE DESCRIPTION
---------- ----------- -------------------------------------------------------------------------------------
10.33 h Amended and Restated Credit Agreement dated as of August 4, 1999 between
Reckson Service Industries, Inc., as borrower, and the Operating Partnership, as
Lender, relating to the operations of Reckson Service Industries, Inc. ("RSI Credit
Agreement")
10.34 h Letter Agreement, dated November 30, 1999, amending the RSVP Credit
Agreement and the RSI Credit Agreement
10.35 m Second Amendment to the Amended and Restated Credit Agreement, dated
March 30, 2001, between the Operating Partnership and FrontLine Capital Group
10.36 n Loan Agreement, dated as of June 1, 2001, between 1350 LLC, as Borrower, and
Secore Financial Corporation, as Lender
10.37 n Loan Agreement, dated as of July 18, 2001, between Metropolitan 919 3rd Avenue,
LLC, as Borrower, and Secore Financial Corporation, as Lender
10.38 i Operating Agreement dated as of September 28, 2000 between Reckson Tri-State
Member LLC (together with its permitted successors and assigns) and TIAA
Tri-State LLC
10.39 l 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
10.40 l Consolidated, Amended and Restated Secured Promissory Note relating to
Metropolitan 810 7th Ave., LLC and 100 Wall Company LLC
10.41 p Amended and Restated Operating Agreement of 919 JV LLC
10.42 r 2002 Stock Option Plan
10.43 s Indemnification Agreement, dated as of May 23, 2002, between the Registrant and
Donald J. Rechler*
10.44 t Second Amended and Restated Credit Agreement, dated as of December 30, 2002,
among the Operating Partnership, the institutions from time to time party thereto
as Lenders and JPMorgan Chase Bank, as Administrative Agent
10.45 t Form of Guarantee Agreement to the Second Amended and Restated Credit
Agreement, between and among the Operating Partnership, the institutions from
time to time party thereto as Lenders and JPMorgan Chase Bank, as
Administrative Agent
10.46 t Form of Promissory Note to the Second Amended and Restated Credit
Agreement, between and among the Operating Partnership, the institutions from
time to time party thereto as Lenders and JPMorgan Chase Bank, as
Administrative Agent
10.47 t First Amendment to Second Amended and Restated Credit Agreement, dated as
of January 24, 2003, among the Operating Partnership, JPMorgan Chase Bank, as
Administrative Agent for the institutions from time to time party thereto as
Lenders and Key Bank, N.A., as New Lender
10.48 Long-Term Incentive Award Agreement, dated March 13, 2003, between the
Registrant and Scott H. Rechler**
10.49 Award Agreement, dated November 14, 2002, between the Registrant and
Scott H. Rechler***
10.50 Award Agreement, dated March 13, 2003, between the Registrant and Scott
H. Rechler****
12.1 Statement of Ratios of Earnings to Fixed Charges
21.1 Statement of Subsidiaries
23.1 Consent of Independent Auditors
24.1 Power of Attorney (included in Part IV of the Form 10-K)
99.1 Certification of Donald J. Rechler, Co-Chief Executive Officer of the Registrant,
pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
99.2 Certification of Scott H. Rechler, Co-Chief Executive Officer of the Registrant,
pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
99.3 Certification of Michael Maturo, Executive Vice President, Treasurer and Chief
Financial Officer of the Registrant, pursuant to Section 1350 of Chapter 63 of Title
18 of the United States Code
-----------------------
(a) Previously filed as an exhibit to the Registrant's Registration Statement Form S-11 (No. 333-1280)
and incorporated herein by reference.
(b) Previously filed as an exhibit to the Registrant's Registration Statement Form S-11 (No. 33-84324)
and incorporated herein by reference.
(c) Previously filed as an exhibit to the Registrant's Form 8-K report filed with the SEC on November 25,
1996 and incorporated herein by reference.
(d) Previously filed as an exhibit to the Registrant's Form 10-K filed with the SEC on March 26, 1998
and incorporated herein by reference.
(e) Previously filed as an exhibit to the Registrant's Form 8-K report filed with the SEC on March 1,
1999 and incorporated herein by reference.
(f) Previously filed as an exhibit to the Registrant's Form 8-K filed with SEC on March 26, 1999 and
incorporated herein by reference.
(g) Previously filed as an exhibit to the Registrant's Form 8-K filed with SEC on June 7, 1999 and
incorporated herein by reference.
(h) Previously filed as an exhibit to the Registrant's Form 10-K filed with the SEC on March 17, 2000
and incorporated herein by reference.
(i) Previously filed as an exhibit to the Registrant's Form 8-K filed with the SEC on October 17, 2000
and incorporated herein by reference.
(j) Previously filed as an exhibit to the Registrant's Form S-4 (No. 333-74285) and incorporated herein
by reference.
(k) Previously filed as an exhibit to the Registrant's Form 10-Q filed with the SEC on November 13, 2001
and incorporated herein by reference.
(l) Previously filed as an exhibit to the Registrant's Form 10-K filed with the SEC on March 21, 2001
and incorporated herein by reference.
(m) Previously filed as an exhibit to the Registrant's Form 10-Q filed with the SEC on May 14, 2001 and
incorporated herein by reference.
(n) Previously filed as an exhibit to the Registrant's Form 10-Q filed with the SEC on August 14, 2001
and incorporated herein by reference.
(o) Included as an exhibit to Exhibit 4.7.
(p) Previously filed as an exhibit to the Registrant's Form 8-K filed with the SEC on January 8, 2002 and
incorporated herein by reference.
(q) Previously filed as an exhibit to the Registrant's Form 8-K filed with the SEC on June 18, 2002 and
incorporated herein by reference.
(r) Previously filed as an exhibit to the Registrant's Form 10-Q filed with the SEC on August 14, 2002
and incorporated herein by reference.
(s) Previously filed as an exhibit to the Registrant's Form 10-Q filed with the SEC on November 12, 2002
and incorporated herein by reference.
(t) Previously filed as an exhibit to the Registrant's Current Report on 8-K filed with the SEC on
January 27, 2003 and incorporated herein by reference.
* Each of Scott H. Rechler, Mitchell D. Rechler, Gregg M. Rechler, Michael Maturo, Roger M.
Rechler, Jason M. Barnett, Herve A. Kevenides, John V.N. Klein, Lewis S. Ranieri and Conrad D.
Stephenson has entered into an Indemnification Agreement with the Registrant, dated May 23, 2002.
Each of Ronald H. Menaker and Peter Quick has entered into an Indemnification Agreement with
the Registrant dated May 1, 2002. These Agreements are identical in all material respects to the
Indemnification Agreement for Donald J. Rechler filed herewith.
** Each of Donald J. Rechler, Mitchell D. Rechler, Gregg M. Rechler, Michael Maturo, Roger M.
Rechler and Jason M. Barnett has entered into a Long-Term Incentive Award Agreement with the
Registrant, dated March 13, 2003. These Agreements are identical in all material respects to the
Long-Term Incentive Award Agreement for Scott H. Rechler filed herewith.
*** Each of Donald J. Rechler, Mitchell D. Rechler, Gregg M. Rechler, Michael Maturo and Roger M.
Rechler has been awarded certain rights to shares of Class A common stock of the Registrant,
pursuant to award agreements dated November 14, 2002. These Agreements are identical in all
material respects to the Agreement for Scott H. Rechler filed herewith, except that Donald J. Rechler
received rights to 46,983 shares each of Mitchell D. Rechler, Gregg M. Rechler and Michael Maturo
received rights to 27,588 shares and Roger M. Rechler received rights to 25,530 shares.
**** Each of Donald J. Rechler, Mitchell D. Rechler, Gregg M. Rechler, Michael Maturo, Roger M. Rechler
and Jason M. Barnett has been awarded certain rights to shares of Class A common stock of the
Registrant pursuant to award agreements dated March 13, 2003. These Agreements are identical in
all material respects to the Agreement for Scott H. Rechler filed herewith.
IV-45