EXHIBIT 99.1
ITEM 6. SELECTED FINANCIAL DATA
In connection with this Annual Report previously filed on Form 10-K we are
restating our historical consolidated financial statements as a result of
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment of Disposal of Long-Lived Assets" ("SFAS 144"). During 2003, we
classified the industrial building portfolio and certain office property located
in Long Island as held for sale and, in compliance with SFAS 144, have reported
revenues and expenses from these properties as income from discontinued
operations, net of minority interest, for each period presented in our Annual
Report on Form 10-K. This reclassification has no effect on our reported net
income or funds from operations.
We are also providing updated summary selected financial information, which is
included below reflecting the prior period reclassification as discontinued
operations of the properties classified as held for sale during 2003.
Reckson Associates Realty Corp.
For the Year Ended December 31,
(in thousands except per share data and property count)
---------------------------------------------------------
2002 2001 2000 1999 1998
--------- --------- --------- --------- ---------
OPERATING DATA:
Total revenues ............................................ $ 458,069 $ 467,819 $ 442,383 $ 351,654 $ 229,301
Total expenses ............................................ 375,395 356,138 333,732 264,940 167,488
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 .................................. 82,674 111,681 108,651 86,714 61,813
Minority interests ........................................ 23,221 8,822 20,459 15,527 10,539
Preferred dividends and distributions ..................... 23,123 23,977 28,012 27,001 14,244
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 2,148 1,836
Gain on sales of real estate .............................. 537 20,173 18,669 10,052 --
Discontinued operations (net of
minority interests' share) .............................. 18,888 9,687 4,194 4,446 699
Extraordinary loss (net of minority
interests' share) ....................................... 2,335 2,595 1,396 555 1,670
Net income (loss) allocable to Class A common
shareholders ............................................ 41,604 (44,243) 62,989 47,529 37,895
Net income (loss) allocable to Class B common
shareholders ............................................ 12,929 (13,624) 23,041 12,748 --
PER SHARE DATA - CLASS A COMMON SHAREHOLDERS:
Basic:
Basic net income (loss) before extraordinary loss ......... $ .57 $ (1.32) $ 1.14 $ .93 $ .98
Gain on sales or real estate .............................. .01 .29 .28 .17 --
Discontinued operations ................................... .29 .15 .07 .09 .02
Extraordinary loss ........................................ (.03) (.04) (.03) (.01) (.04)
Basic net income (loss) ................................... $ .84 $ (.92) $ 1.46 $ 1.18 $ .96
Weighted average shares outstanding ....................... 49,669 48,121 43,070 40,270 39,473
Cash dividends declared ................................... $ 1.70 $ 1.66 $ 1.53 $ 1.45 $ 1.33
Diluted:
Diluted net income (loss) before extraordinary loss ....... $ .57 $ (1.32) $ 1.12 $ .92 $ .97
Gain on sales or real estate .............................. .01 .29 .28 .17 --
Discontinued operations ................................... .29 .15 .07 .09 .02
Extraordinary loss ........................................ (.04) (.04) (.02) (.01) (.04)
Diluted net income (loss) ................................. $ .83 $ (.92) $ 1.45 $ 1.17 $ .95
Diluted weighted average shares outstanding ............... 49,968 48,121 43,545 40,676 40,010
PER SHARE DATA - CLASS B COMMON SHAREHOLDERS:
Basic:
Basic net income (loss) before extraordinary loss ......... $ .88 $ (1.91) $ 1.74 $ 1.50 $ --
Gain on sales or real estate .............................. .01 .42 .43 .27 --
Discontinued operations ................................... .44 .23 .11 .14 --
Extraordinary loss ........................................ (.05) (.06) (.04) (.02) --
Basic net Income (loss) ................................... $ 1.28 $ (1.32) $ 2.24 $ 1.89 $ --
Weighted average shares outstanding ....................... 10,122 10,284 10,284 6,744 --
Cash dividends declared ................................... $ 2.59 $ 2.55 $ 2.35 $ 1.54 $ --
Diluted:
Diluted net income (loss) before extraordinary loss ....... $ .87 $ (1.91) $ 1.53 $ 1.22 $ --
Gain on sales or real estate .............................. -- .42 .07 .03 --
Discontinued operations ................................... .07 .23 .02 .02 --
Extraordinary loss ........................................ (.04) (.06) (.03) (.01) --
Diluted net income (loss) ................................. $ .90 $ (1.32) $ 1.59 $ 1.26 $ --
Diluted weighted average shares outstanding ............... 10,122 10,284 10,284 6,744 --
1
ITEM 6. SELECTED FINANCIAL DATA (continued)
Reckson Associates Realty Corp.
For the Year Ended December 31,
--------------------------------------------------------------
2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA (PERIOD END):
Commercial real estate properties, before
accumulated depreciation ......................... $2,707,878 $2,643,045 $2,537,193 $2,017,170 $1,562,014
Cash and cash equivalents (4) ...................... 30,827 121,975 17,843 21,368 2,349
Total assets ....................................... 2,907,920 2,994,218 2,998,030 2,733,878 1,854,816
Mortgage notes payable ............................. 733,761 744,613 722,312 452,338 246,314
Unsecured credit facility (4) ...................... 267,000 271,600 216,600 297,600 465,850
Unsecured term loan ................................ -- -- -- 75,000 20,000
Senior unsecured notes ............................. 499,305 449,463 449,385 449,313 150,000
Market value of equity (1) ......................... 1,681,372 1,915,587 2,016,390 1,726,845 1,332,882
Total market capitalization including debt (1 and 2) 3,052,818 3,251,599 3,397,204 2,993,756 2,199,936
OTHER DATA:
Funds from operations (basic) (3) ................. $ 161,023 $ 179,687 $ 167,782 $ 130,820 $ 97,697
Funds from operations (diluted) (3) ............... $ 184,146 $ 206,288 $ 202,169 $ 161,681 $ 99,450
Total square feet (at end of period) .............. 20,284 20,611 21,291 21,385 21,000
Number of properties (at end of period) .......... 178 182 188 189 204
(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.
2
ITEM 7. SUPPLEMENT TO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ("MD&A")
The following discussion should be read in conjunction with the historical
financial statements of Reckson Associates Realty Corp. (the "Company") and
related notes and MD&A thereto appearing in Item 8 and 7 of the Company's Annual
Report on Form 10-K.
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 identified 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.
Current Developments
On September 10, 2003, the Company announced that it had entered into
agreements relating to the disposition of its Long Island industrial building
portfolio (the "Disposition") to members of the Rechler family for approximately
$315.5 million in cash and other consideration. The transactions contemplated by
the agreements were consummated on November 10 and November 12, 2003. As a
result, the Company has disposed of all but three of its 95 property, 5.9
million square foot, Long Island industrial building portfolio for approximately
$225.1 million in cash and debt assumption and 3,932,111 Class A common units of
limited partnership interest of Reckson Operating Partnership, L.P. valued at
approximately $90.4 million. Approximately $204 million of cash sales proceeds
from the Disposition were used to repay borrowings under the Company's unsecured
revolving credit facility (the "Credit Facility"). The remaining three
properties, two of which are subject to transfer pursuant to Section 1031 of the
Internal Revenue Code of 1986, as amended (the "Code"), are anticipated to close
within three to six months.
3
In addition, four of the five remaining options granted to the Company at
the time of the Company's IPO to purchase interests in properties owned by
Rechler family members (including three properties in which the Rechler family
members hold non-controlling interests and one industrial property) were
terminated along with the Company's management contracts relating to three of
such properties. In return the Company received an aggregate payment from the
Rechler family members of $972,000. Rechler family members also extended the
term of the remaining option on the property located at 225 Broadhollow Road,
Melville, New York (the Company's current headquarters) for five years and
released the Company from approximately 15,500 square feet under its lease at
this property. In connection with the restructuring of the remaining option the
Rechler family members paid the Company $1 million in return for the Company's
agreement not to exercise the option during the next three years. As part of the
agreement, the exercise price of the option payable by the Company was increased
by $1 million. In addition, as part of the transaction, the Rechler family
entity was granted rights of first refusal with respect to five vacant land
parcels located near the industrial properties for a period of five years.
On November 10, 2003, in connection with the Company's sale of its Long
Island industrial building portfolio and the settlement of the employment
contracts of the departing Rechler family members, the Company incurred the
following restructuring charges: (i) approximately $7.5 million related to
outstanding stock loans under the Company's historical long term incentive
program ("LTIP") were transferred to the entity that acquired the Long Island
industrial building portfolio and approximately $575,000 of loans related to
life insurance contracts were extinguished, (ii) approximately $2.9 million paid
to the departing Rechler family members in exchange for 127,689, or 100% of
their rights to receive shares of Class A common stock that were granted in 2002
and their rights that were granted in 2003 were forfeited in their entirety and
(iii) with respect to two of the departing Rechler family members participating
in the Company's March 2003 LTIP, each received 8,681 shares of the Company's
Class A common stock related to the service component of their core award which
was valued at $399,000 in the aggregate. In addition, if the Company attains its
annual performance measure in March 2004, these individuals will also be
entitled to each receive 26,041 shares of Class A common stock representing the
balance of the annual core award as if they had remained in continuous
employment with the Company. The remainder of their core awards, aggregating
208,334 shares of Class A common stock, was forfeited as was the entire amount
of their special outperformance component of the March 2003 LTIP.
In November 2003, the Company also disposed of a 181,000 square foot
office property located on Long Island for approximately $24.3 million. Net
proceeds from the sale were used to repay the Credit Facility.
In accordance with the provisions of FASB Statement No. 144, the Company
has separately identified and classified the assets and liabilities of the
aforementioned 95 industrial properties and the office property located on Long
Island ("Assets Disposed") on its consolidated balance sheets as held for sale.
In addition, income from the operations of these properties has been reflected
on the Company's consolidated statements of operations as income from
discontinued operations. Total revenues from the Assets Disposed, for the
periods owned, were $48.0, $46.8 and $40.9 million and total expenses, for the
periods owned, were $32.2, $36.9 and $37.7 million for the years ended December
31, 2002, 2001 and 2000, respectively. These revenues and expenses have been
included in discontinued operations on the Company's consolidated statements of
operations.
4
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.
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 ............................................ $ 82,674 $ 111,681 $ 108,651
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) ................................................... 18,888 9,687 4,194
Limited partners' minority interest ........................... -- 7,153 --
Less:
Minority partners' interests in consolidated partnerships ..... 18,730 15,975 9,120
Limited partners' minority interest ........................... 4,491 -- 11,339
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.
5
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is included in Section 15 of this Form 8-K.
6
ITEM 15. FINANCIAL STATEMENTS AND SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K
(a) (1 and 2) Financial Statements and Schedules
RECKSON ASSOCIATES REALTY CORP.
Report of Independent Auditors........................................................ 8
Consolidated Balance Sheets as of December 31, 2002 and December 31, 2001............. 9
Consolidated Statements of Operations for the years ended December 31, 2002, 2001
and 2000.......................................................................... 10-11
Consolidated Statements of Stockholders' Equity for the years ended December 31,
2002, 2001 and 2000............................................................... 12
Consolidated Statements of Cash Flows for the years ended December 31, 2002,
2001 and 2000 .................................................................... 13
Notes to Consolidated Financial Statements............................................ 14-53
Schedule III - Real Estate and Accumulated Depreciation............................... 54
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 accompanying financial statement schedule. 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.
/s/ ERNST & YOUNG LLP
New York, New York
February 27, 2003, except for
Notes 7, 11 and 16 as to which the dates are
January 14, 2004
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 ......................................................................................... $ 386,747 $ 380,835
Buildings and improvements ................................................................... 2,199,896 2,118,542
Developments in progress:
Land ......................................................................................... 92,924 69,365
Development costs ............................................................................ 28,311 74,303
Furniture, fixtures and equipment ................................................................. 12,203 6,333
----------- -----------
2,720,081 2,649,378
Less accumulated depreciation .............................................................. (382,022) (298,370)
----------- -----------
2,338,059 2,351,008
Properties and related assets held for sale, net of accumulated depreciation ...................... 196,954 193,997
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 ................................................................................ 12,529 7,407
Investments in service companies and affiliate loans and joint ventures (Note 8) ................. 73,332 79,184
Deferred rents receivable ......................................................................... 97,145 73,091
Prepaid expenses and other assets ................................................................. 32,966 41,935
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 65,205 59,861
----------- -----------
Total Assets ................................................................. $ 2,907,920 $ 2,994,218
=========== ===========
LIABILITIES
Mortgage notes payable (Note 2) ................................................................... $ 733,761 $ 744,613
Mortgage notes payable and other liabilities associated with properties held for sale ............. 10,722 10,075
Unsecured credit facility (Note 3) ................................................................ 267,000 271,600
Senior unsecured notes (Note 4) ................................................................... 499,305 449,463
Accrued expenses and other liabilities ............................................................ 89,312 84,072
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)
9
RECKSON ASSOCIATES REALTY CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share amounts)
For the year ended December 31,
-----------------------------------------
2002 2001 2000
--------- --------- ---------
REVENUES (Note 10):
Property operating revenues:
Base Rents ........................................................ $ 395,308 $ 392,824 $ 358,179
Tenant escalations and reimbursements ............................. 55,441 54,739 50,134
--------- --------- ---------
Total property operating revenues ...................................... 450,749 447,563 408,313
Interest income on mortgage notes and notes receivable (including
$4,287, $4,196 and $5,237, respectively from related parties) ..... 6,279 6,238 7,879
Investment and other income (including $85, $5,164 and
$21,455, respectively from related parties) ....................... 1,041 14,018 26,191
--------- --------- ---------
Total revenues ..................................................... 458,069 467,819 442,383
--------- --------- ---------
EXPENSES:
Property operating expenses ............................................ 163,031 155,977 146,537
Marketing, general and administrative .................................. 29,214 28,242 25,082
Interest ............................................................... 80,706 79,741 78,189
Depreciation and amortization .......................................... 102,444 92,178 83,924
--------- --------- ---------
Total expenses .................................................... 375,395 356,138 333,732
--------- --------- ---------
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 .......... 82,674 111,681 108,651
Minority partners' interests in consolidated partnerships .............. (18,730) (15,975) (9,120)
Limited partners' minority interest in the operating partnership ....... (4,491) 7,153 (11,339)
Distributions to preferred unit holders ................................ (1,288) (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) ........................ 1,113 2,087 4,383
Gain on sales of real estate (Note 6) .................................. 537 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 ........................... 59,815 (43,093) 108,603
Discontinued operations (net of limited partners' minority interest):
Income from discontinued operations ................................. 14,621 9,687 4,194
Gain on sales of real estate ........................................ 4,267 -- --
--------- --------- ---------
Income (loss) before extraordinary loss and dividends to preferred
shareholders ........................................................ 78,703 (33,406) 112,797
Extraordinary loss on extinguishment of debts (net of limited
partners' minority interest) ........................................ (2,335) (2,595) (1,396)
--------- --------- ---------
Net Income (loss) ...................................................... 76,368 (36,001) 111,401
Dividends to preferred shareholders .................................... (21,835) (21,866) (25,371)
--------- --------- ---------
Net income (loss) allocable to common shareholders ..................... $ 54,533 $ (57,867) $ 86,030
========= ========= =========
Net income (loss) allocable to:
Class A common shareholders ......................................... $ 41,604 $ (44,243) $ 62,989
Class B common shareholders ......................................... 12,929 (13,624) 23,041
--------- --------- ---------
Total .................................................................. $ 54,533 $ (57,867) $ 86,030
========= ========= =========
10
Basic net income (loss) per weighted average common share:
Class A common....................................................... $ .57 $ (1.32) $ 1.14
Gain on sales of real estate......................................... .01 .29 .28
Discontinued operations.............................................. .29 .15 .07
Extraordinary loss................................................... (.03) (.04) (.03)
----------- ----------- -----------
Basic net income (loss) per Class A common........................... $ .84 $ (.92) $ 1.46
=========== =========== ===========
Class B common....................................................... $ .88 $ (1.91) $ 1.74
Gain on sales of real estate......................................... .01 .42 .43
Discontinued operations.............................................. 44 23 .11
Extraordinary loss................................................... (.05) (.06) (.04)
----------- ----------- -----------
Basic net income (loss) per Class B common........................... $ 1.28 $ (1.32) $ 2.24
=========== =========== ===========
Basic weighted average common shares outstanding:
Class A common....................................................... 49,669,000 48,121,000 43,070,000
Class B common....................................................... 10,122,000 10,284,000 10,284,000
Diluted net income (loss) per weighted average common share:
Class A common....................................................... $ .83 $ (.92) $ 1.45
Class B common....................................................... $ .90 $ (1.32) $ 1.59
Diluted weighted average common shares outstanding:
Class A common....................................................... 49,968,000 48,121,000 43,545,000
Class B common....................................................... 10,122,000 10,284,000 10,284,000
(see accompanying notes to financial statements)
11
RECKSON ASSOCIATES REALTY CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
Preferred Stock Common Stock
----------------------- ----------------------- Treasury
Series A Series B Class A Class B Stock
---------- ---------- ---------- ---------- ----------
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) (63,954)
Repurchases of Series A preferred
stock............................. (4) -- -- -- --
Net income.......................... -- -- -- -- --
Dividends and distributions
paid and payable.................. -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Stockholders' equity
December 31, 2002................. $ 88 $ 20 $ 482 $ 99 $ (63,954)
========== ========== ========== ========== ==========
Limited
Additional Total Partners'
Paid in Retained Stockholders' Minority
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.................... -- -- (63,985) (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................. $1,005,494 $ -- $ 942,229 $ 71,420
========== ========== ========== ==========
(see accompanying notes to financial statements)
12
RECKSON ASSOCIATES REALTY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the year ended December 31,
-----------------------------------------
2002 2001 2002
--------- --------- ---------
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)
13
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.
14
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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.
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.
15
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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.
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 alternative minimum tax) and
16
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).
17
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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
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.
18
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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.
19
Derivative Instruments
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
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 December31, 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).
20
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 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.
21
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%
=========
- ------------------------
(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.
19. 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.
22
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Scheduled principal repayments to be made during the next five years
and thereafter, for mortgage notes payable outstanding at December 31, 2002, are
as follows (in thousands):
Scheduled principal Due at 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
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 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.
23
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.
24
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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 December 31, Land Leases Air Rights Operating 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
======== ======== ========
25
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, 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.
26
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
6. COMMERCIAL REAL ESTATE INVESTMENTS (continued)
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
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.
27
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
6. COMMERCIAL REAL ESTATE INVESTMENTS (continued)
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.
28
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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 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.
29
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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.
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.
30
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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 annual 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.
31
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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. The Company has 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.
Effective January 2003, the Company 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.
32
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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 ....... $ 59,815 $ (43,093) $ 108,603
Dividends to preferred shareholders ....................... (21,835) (21,866) (25,371)
Discontinued operations (net of share applicable to limited
partners and Class B common shareholders) ............... 14,421 7,319 3,073
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 ............................................ (9,018) 15,368 (22,284)
--------- --------- ---------
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
========= ========= =========
Basic net income (loss) per Class A common share:
Basic net income (loss) ................................. $ .57 $ (1.32) $ 1.14
Gain on sales of real estate ............................ .01 .29 .28
Discontinued operations ................................. .29 .15 .07
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) ............................... $ .57 $ (1.32) $ 1.12
Gain on sales of real estate ............................ .01 .29 .28
Discontinued operations ................................. .29 .15 .07
Extraordinary loss ...................................... (.04) (.04) (.02)
--------- --------- ---------
Diluted net income (loss) per Class A common share ...... $ .83 $ (.92) $ 1.45
========= ========= =========
33
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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 .................................................. $ 59,815 $ (43,093) $ 108,603
Dividends to preferred shareholders .................................... (21,835) (21,866) (25,371)
Discontinued operations (net of share applicable to limited partners and
Class A common shareholders) ......................................... 4,465 2,367 1,121
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 ................. (28,960) 49,592 (60,948)
--------- --------- ---------
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
========= ========= =========
Basic net income (loss) per Class B common share:
Basic net income (loss)................................................. $ .88 $ (1.91) $ 1.74
Gain on sales of real estate............................................ .01 .42 .43
Discontinued operations................................................. .44 .23 .11
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)............................................... $ .87 $ (1.91) $ 1.53
Gain on sales of real estate............................................ -- .42 .07
Discontinued operations................................................. .07 .23 .02
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.
34
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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:
Exercise price range
Class A Common Options granted --------------------
shares 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 Option 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.
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.
35
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Prior to 2002, the Company applied APB No. 25 and related interpretations
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.
36
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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
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.
37
PAGE>
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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.
38
AGE>
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
8. RELATED PARTY TRANSACTIONS (continued)
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 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.
39
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
8. RELATED PARTY TRANSACTIONS (continued)
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.
40
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, accounts payable and accrued expenses and accounts 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
==========
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.
41
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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.
42
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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 ............. $ 442,485 $ 8,264 $ 450,749
Other income .................................................. 380 6,940 7,320
----------- ----------- -----------
Total Revenues ............................................ 442,865 15,204 458,069
----------- ----------- -----------
EXPENSES:
Property expenses ............................................. 158,713 4,318 163,031
Marketing, general and administrative ......................... 16,322 12,892 29,214
Interest ...................................................... 44,028 36,678 80,706
Depreciation and amortization ................................. 94,167 8,277 102,444
----------- ----------- -----------
Total Expenses ............................................ 313,230 62,165 375,395
----------- ----------- -----------
Income (loss) from continuing operations 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 .... $ 129,635 $ (46,961) $ 82,674
=========== =========== ===========
Total assets................................................... $ 2,488,863 $ 419,057 $ 2,907,920
=========== =========== ===========
2001
------------------------------------------------------
Core Portfolio Other CONSOLIDATED TOTALS
-------------- ----------- -------------------
REVENUES:
Base rents, tenant escalations and reimbursements ............. $ 438,307 $ 9,256 $ 447,563
Other income................................................... 4,133 16,123 20,256
----------- ----------- -----------
Total Revenues............................................. 442,440 25,379 467,819
----------- ----------- -----------
EXPENSES:
Property expenses.............................................. 153,043 2,934 155,977
Marketing, general and administrative.......................... 18,155 10,087 28,242
Interest....................................................... 38,047 41,694 79,741
Depreciation and amortization.................................. 84,550 7,628 92,178
----------- ----------- -----------
Total Expenses............................................. 293,795 62,343 356,138
----------- ----------- -----------
Income (loss) from continuing operations 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..... $ 148,645 $ (36,964) $ 111,681
=========== =========== ===========
Total assets................................................... $ 2,569,774 $ 424,444 $ 2,994,218
=========== =========== ===========
43
PAGE>
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
2000
------------------------------------------------------
Core Portfolio Other CONSOLIDATED TOTALS
-------------- ----------- -------------------
REVENUES:
Base rents, tenant escalations and reimbursements ............. $ 398,562 $ 9,751 $ 408,313
Other income................................................... 473 33,597 34,070
----------- ----------- -----------
Total Revenues............................................. 399,035 43,348 442,383
----------- ----------- -----------
EXPENSES:
Property expenses.............................................. 144,011 2,526 146,537
Marketing, general and administrative.......................... 18,317 6,765 25,082
Interest....................................................... 22,317 55,872 78,189
Depreciation and amortization.................................. 75,778 8,146 83,924
----------- ----------- -----------
Total Expenses............................................. 260,423 73,309 333,732
----------- ----------- -----------
Income (loss) from continuing operations 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.......................... $ 138,612 $ (29,961) $ 108,651
=========== =========== ===========
Total assets................................................... $ 2,407,363 $ 590,667 $ 2,998,030
=========== =========== ===========
44
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
12. NON-CASH INVESTING AND FINANCING ACTIVITIES
Additional supplemental disclosures of non-cash investing and financing
activities are as follows:
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.
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.
45
PAGE>
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
13. COMMITMENTS AND CONTINGENCIES (continued)
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.
46
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
13. COMMITMENTS AND CONTINGENCIES (continued)
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 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.
47
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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
========= ========= =========
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:
Class A common stock 2002 (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%
====== ===== ====== ===== ====== =====
48
Class B common stock 2002 (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%
======= ===== ======= ===== ======= =====
49
PAGE>
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
15. QUARTERLY FINANCIAL DATA (Unaudited)
As a result of Statement No. 144, we are providing updated summary
selected quarterly financial information, which is included below reflecting the
prior period reclassification as discontinued operations of the properties
classified as held for sale during 2002.
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............ $ 112,234 $ 112,556 $ 116,863 $ 116,416
================= =================== =================== =================
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..... $ 24,210 $ 21,403 $ 19,000 $ 18,061
Preferred dividends and distributions................ (5,948) (5,767) (5,760) (5,648)
Minority interests................................... (6,628) (5,988) (5,292) (5,313)
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)................................. 3,476 3,998 8,082 3,332
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................................... $ .18 $ .15 $ .13 $ .13
Gain on sales of real estate..................... .01 -- -- --
Discontinued operations.......................... .05 .06 .12 .05
Extraordinary loss............................... -- -- -- (.04)
----------------- ------------------- ------------------- -----------------
Basic net income per weighted average Class A
common......................................... $ .24 $ .21 $ .25 $ .14
================= =================== =================== =================
Class B common................................... $ .28 $ .23 $ .19 $ .19
Gain on sales of real estate..................... .01 -- -- --
Discontinued operations.......................... .08 .09 .19 .08
Extraordinary loss............................... -- -- -- (.06)
----------------- ------------------- ------------------- -----------------
Basic net income per weighted average Class B
common......................................... $ .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
50
RECKSON ASSOCIATES REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
15. QUARTERLY FINANCIAL DATA (Unaudited) (continued)
2001
---------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
--------------- ------------------ ------------------- ----------------
Total revenues from continuing operations.............. $ 117,709 $ 118,940 $ 119,077 $ 112,093
=============== ================== =================== ================
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................................................. $ 31,762 $ 29,263 $ 26,622 $ 24,034
Preferred dividends and distributions.................. (6,085) (5,928) (5,996) (5,968)
Minority interests..................................... (8,058) (6,360) 11,952 (6,356)
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.................................... 398 801 505 383
Gain on sales of real estate........................... -- -- 972 19,201
Discontinued operations (net of limited partners'
minority interest)................................. 2,671 1,983 2,620 2,413
Extraordinary loss (net of limited partners'
minority interest)..................................... -- -- (2,595) --
--------------- ------------------ ------------------- ----------------
Net income (loss) allocable to common shareholders..... $ 20,688 $ 19,759 $ (128,920) $ 30,606
=============== ================== =================== ================
Net income (loss) allocable to:
Class A common shareholders........................ $ 15,308 $ 15,109 $ (97,944) $ 23,284
Class B common shareholders........................ 5,380 4,650 (30,976) 7,322
--------------- ------------------ ------------------- ----------------
Total.................................................. $ 20,688 $ 19,759 $ (128,920) $ 30,606
=============== ================== =================== ================
Basic net income (loss) per weighted average common
share:
Class A common..................................... $ .30 $ .29 $ (1.98) $ .17
Gain on sales of real estate....................... -- -- .01 .26
Discontinued operations............................ .04 .03 .04 .04
Extraordinary loss................................. -- -- (.04) --
--------------- ------------------ ------------------- ----------------
Basic net income (loss) per weighted average
Class A common................................ $ .34 $ .32 $ (1.97) $ .47
=============== ================== =================== ================
Class B common...................................... $ .45 $ .40 $ (3.03) $ .25
Gain on sales of real estate........................ -- -- .02 .40
Discontinued operations............................. .07 .05 .06 .06
Extraordinary loss.................................. -- -- (.06) --
--------------- ------------------ ------------------- ----------------
Basic net income (loss) per weighted average
Class B common................................. $ .52 $ .45 $ (3.01) $ .71
=============== ================== =================== ================
Basic weighted average common shares outstanding:
Class A common..................................... 45,483,544 47,221,917 49,715,423 49,994,025
Class B common..................................... 10,283,513 10,283,513 10,283,513 10,283,513
Diluted net income (loss) per weighted average common
share:
Class A common..................................... $ .33 $ .32 $ (1.97) $ .46
Class B common..................................... $ .37 $ .34 $ (3.01) $ .50
Diluted weighted average common shares outstanding:
Class A common..................................... 45,949,816 47,600,390 49,715,423 51,005,494
Class B common..................................... 10,283,513 10,283,513 10,283,513 10,283,513
51
16. SUBSEQUENT EVENTS
On September 10, 2003, the Company announced that it had entered into
agreements relating to the disposition of its Long Island industrial building
portfolio (the "Disposition") to members of the Rechler family for approximately
$315.5 million in cash and other consideration. The transactions contemplated by
the agreements were consummated on November 10 and November 12, 2003. As a
result, the Company has disposed of all but three of its 95 property, 5.9
million square foot, Long Island industrial building portfolio for approximately
$225.1 million in cash and debt assumption and 3,932,111 Class A common units of
limited partnership interest of Reckson Operating Partnership, L.P. valued at
approximately $90.4 million. Approximately $204 million of cash sales proceeds
from the Disposition were used to repay borrowings under the Company's unsecured
revolving credit facility (the "Credit Facility"). The remaining three
properties, two of which are subject to transfer pursuant to Section 1031 of the
Internal Revenue Code of 1986, as amended (the "Code"), are anticipated to close
within three to six months.
In addition, four of the five remaining options granted to the Company at
the time of the Company's IPO to purchase interests in properties owned by
Rechler family members (including three properties in which the Rechler family
members hold non-controlling interests and one industrial property) were
terminated along with the Company's management contracts relating to three of
such properties. In return the Company received an aggregate payment from the
Rechler family members of $972,000. Rechler family members also extended the
term of the remaining option on the property located at 225 Broadhollow Road,
Melville, New York (the Company's current headquarters) for five years and
released the Company from approximately 15,500 square feet under its lease at
this property. In connection with the restructuring of the remaining option the
Rechler family members paid the Company $1 million in return for the Company's
agreement not to exercise the option during the next three years. As part of the
agreement, the exercise price of the option payable by the Company was increased
by $1 million. In addition, as part of the transaction, the Rechler family
entity was granted rights of first refusal with respect to five vacant land
parcels located near the industrial properties for a period of five years.
On November 10, 2003, in connection with the Company's sale of its Long
Island industrial building portfolio and the settlement of the employment
contracts of the departing Rechler family members, the Company incurred the
following restructuring charges: (i) approximately $7.5 million related to
outstanding stock loans under the Company's historical long term incentive
program ("LTIP") were transferred to the entity that acquired the Long Island
industrial building portfolio and approximately $575,000 of loans related to
life insurance contracts were extinguished, (ii) approximately $2.9 million paid
to the departing Rechler family members in exchange for 127,689, or 100% of
their rights to receive shares of Class A common stock that were granted in 2002
and their rights that were granted in 2003 were forfeited in their entirety and
(iii) with respect to two of the departing Rechler family members participating
in the Company's March 2003 LTIP, each received 8,681 shares of the Company's
Class A common stock related to the service component of their core award which
was valued at $399,000 in the aggregate. In addition, if the Company attains its
annual performance measure in March 2004, these individuals will also be
entitled to each receive 26,041 shares of Class A common stock representing the
balance of the annual core award as if they had remained in continuous
employment with the Company. The remainder of their core awards, aggregating
208,334 shares of Class A common stock, was forfeited as was the entire amount
of their special outperformance component of the March 2003 LTIP.
In November 2003, the Company also disposed of a 181,000 square foot
office property located on Long Island for approximately $24.3 million. Net
proceeds from the sale were used to repay the Credit Facility.
52
In accordance with the provisions of FASB Statement No. 144, the Company
has separately identified and classified the assets and liabilities of the
aforementioned 95 industrial properties and the office property located on Long
Island on its consolidated balance sheets as held for sale. In addition, income
from the operations of these properties has been reflected on the Company's
consolidated statements of operations as income from discontinued operations.
During 2003, as a result of the Disposition and in compliance with
Statement No. 144, the Company has reported revenues and expenses from those
properties as income from discontinued operations in 2003. The Company has
revised the historical financial statements in connection with Statement No. 144
to reflect the Disposition and the sale of an office building in Long Island as
discontinued operations which had no impact on net income (loss) available to
common shareholders. Statement No. 144 only impacted the presentation of these
properties within the consolidated statements of operations.
53
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 December31, 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
================= ================= =================
54
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
55
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
56
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
57
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.
58