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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 2002
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 333-57103-01
Mack-Cali Realty, L.P.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-3315804
- ------------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
11 Commerce Drive, Cranford, New Jersey 07016-3501
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(Address or principal executive office)
(Zip Code)
(908) 272-8000
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(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or such shorter period that the
Registrant was required to file such report) YES /X/ NO / / and (2) has been
subject to such filing requirements for the past ninety (90) days
YES /X/ NO / /.
MACK-CALI REALTY, L.P.
FORM 10-Q
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 2002
and December 31, 2001 4
Consolidated Statements of Operations for the three and six month
periods ended June 30, 2002 and 2001 5
Consolidated Statement of Changes in Partners' Capital
for the six months ended June 30, 2002 6
Consolidated Statements of Cash Flows for the six months
ended June 30, 2002 and 2001 7
Notes to Consolidated Financial Statements 8-27
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 28-38
Item 3. Quantitative and Qualitative Disclosures about Market Risk 39
PART II OTHER INFORMATION AND SIGNATURES
Item 1. Legal Proceedings 40
Item 2. Changes in Securities and Use of Proceeds 40
Item 3. Defaults Upon Senior Securities 40
Item 4. Submission of Matters to a Vote of Security Holders 40
Item 5. Other Information 40
Item 6. Exhibits 41-45
Signatures 46
2
MACK-CALI REALTY, L.P.
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
The accompanying unaudited consolidated balance sheets, statements of
operations, of changes in partners' capital, and of cash flows and
related notes, have been prepared in accordance with generally
accepted accounting principles ("GAAP") for interim financial
information and in conjunction with the rules and regulations of the
Securities and Exchange Commission ("SEC"). Accordingly, they do not
include all of the disclosures required by GAAP for complete financial
statements. The financial statements reflect all adjustments
consisting only of normal, recurring adjustments, which are in the
opinion of management, necessary for a fair presentation for the
interim periods.
The aforementioned financial statements should be read in conjunction
with the notes to the aforementioned financial statements and
Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements and notes thereto
included in Mack-Cali Realty, L.P.'s Annual Report on Form 10-K for
the fiscal year ended December 31, 2001.
The results of operations for the three and six month periods ended
June 30, 2002 are not necessarily indicative of the results to be
expected for the entire fiscal year or any other period.
3
MACK-CALI REALTY, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
June 30,
2002 December 31,
ASSETS (UNAUDITED) 2001
- ----------------------------------------------------------------------------------------------------------------------
Rental property
Land and leasehold interests $ 505,363 $ 479,358
Buildings and improvements 2,977,233 2,751,453
Tenant improvements 152,230 140,071
Furniture, fixtures and equipment 7,326 7,189
- ----------------------------------------------------------------------------------------------------------------------
3,642,152 3,378,071
Less - accumulated depreciation and amortization (399,041) (350,705)
- ----------------------------------------------------------------------------------------------------------------------
3,243,111 3,027,366
Rental property held for sale, net 120,109 384,626
- ----------------------------------------------------------------------------------------------------------------------
Net investment in rental property 3,363,220 3,411,992
Cash and cash equivalents 64,939 12,835
Investments in unconsolidated joint ventures 172,611 146,540
Unbilled rents receivable, net 61,526 60,829
Deferred charges and other assets, net 101,407 101,499
Restricted cash 7,358 7,914
Accounts receivable, net of allowance for doubtful accounts
of $685 and $752 4,447 5,161
- ----------------------------------------------------------------------------------------------------------------------
Total assets $ 3,775,508 $ 3,746,770
======================================================================================================================
LIABILITIES AND PARTNERS' CAPITAL
- ----------------------------------------------------------------------------------------------------------------------
Senior unsecured notes $ 1,097,087 $ 1,096,843
Revolving credit facilities 66,600 59,500
Mortgages and loans payable 541,972 543,807
Distributions payable 44,493 44,069
Accounts payable and accrued expenses 61,546 64,620
Rents received in advance and security deposits 33,212 33,512
Accrued interest payable 25,639 25,587
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 1,870,549 1,867,938
- ----------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
PARTNERS' CAPITAL:
Preferred units 215,894 and 220,340 units outstanding 221,445 226,005
General partner, 57,666,984 and 56,712,270 common units outstanding 1,465,111 1,432,588
Limited partners, 7,858,490 and 7,954,775 common units outstanding 209,879 211,715
Unit warrants, 2,000,000 and 2,000,000 outstanding 8,524 8,524
- ----------------------------------------------------------------------------------------------------------------------
Total partners' capital 1,904,959 1,878,832
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities and partners' capital $ 3,775,508 $ 3,746,770
======================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
4
MACK-CALI REALTY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
REVENUES 2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------------------------
Base rents $ 122,049 $ 129,419 $ 248,506 $ 254,795
Escalations and recoveries from tenants 14,427 13,430 27,697 28,192
Parking and other 4,536 3,060 7,600 5,406
Interest income 446 472 784 1,085
- ----------------------------------------------------------------------------------------------------------------------
Total revenues 141,458 146,381 284,587 289,478
- ----------------------------------------------------------------------------------------------------------------------
EXPENSES
- ----------------------------------------------------------------------------------------------------------------------
Real estate taxes 15,369 15,510 30,702 30,797
Utilities 9,307 10,699 19,437 22,655
Operating services 16,541 17,686 32,739 35,565
General and administrative 7,903 6,856 14,608 12,866
Depreciation and amortization 27,522 21,951 51,475 45,435
Interest expense 25,596 28,555 51,955 56,920
- ----------------------------------------------------------------------------------------------------------------------
Total expenses 102,238 101,257 200,916 204,238
- ----------------------------------------------------------------------------------------------------------------------
Equity in earnings of unconsolidated joint ventures 9,374 2,037 8,069 5,446
- ----------------------------------------------------------------------------------------------------------------------
Income before realized gains (losses) and unrealized losses
on disposition of rental property 48,594 47,161 91,740 90,686
Realized gains (losses) and unrealized losses on
disposition of rental property, net (4,840) 22,510 2,258 1,947
- ----------------------------------------------------------------------------------------------------------------------
Net income 43,754 69,671 93,998 92,633
Preferred unit distributions (3,863) (3,879) (7,806) (7,758)
- ----------------------------------------------------------------------------------------------------------------------
Net income available to common unitholders $ 39,891 $ 65,792 $ 86,192 $ 84,875
======================================================================================================================
Basic earnings per unit $ 0.61 $ 1.02 $ 1.33 $ 1.31
Diluted earnings per unit $ 0.61 $ 0.98 $ 1.31 $ 1.30
Distributions declared per common unit $ 0.62 $ 0.61 $ 1.24 $ 1.22
- ----------------------------------------------------------------------------------------------------------------------
Basic weighted average units outstanding 65,168 64,476 64,961 64,621
Diluted weighted average units outstanding 65,606 71,044 71,702 71,198
- ----------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
5
MACK-CALI REALTY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (IN THOUSANDS)
(UNAUDITED)
General Limited
Preferred Partner Partner Preferred General Limited Unit
Units Units Units Unitholders Partner Partners Warrants Total
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 2002 220 56,712 7,955 $ 226,005 $ 1,432,588 $ 211,715 $ 8,524 $ 1,878,832
Net income -- -- -- 7,806 75,654 10,538 -- 93,998
Distributions -- -- -- (7,806) (71,232) (9,802) -- (88,840)
Redemption of Preferred
Units for limited partner
units (4) -- 128 (4,560) -- 4,560 -- --
Redemption of limited
partner units for
shares of common stock -- 225 (225) -- 7,132 (7,132) -- --
Contributions - proceeds
from stock
options exercised -- 630 -- -- 16,572 -- -- 16,572
Contributions - proceeds
from Stock Warrants
exercised -- 105 -- -- 3,465 -- -- 3,465
Deferred compensation
plan for directors -- -- -- -- 83 -- -- 83
Amortization of stock
compensation -- -- -- -- 1,001 -- -- 1,001
Repurchase of general
partner units -- (5) -- -- (152) -- -- (152)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2002 216 57,667 7,858 $ 221,445 $ 1,465,111 $ 209,879 $ 8,524 $ 1,904,959
==================================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
6
MACK-CALI REALTY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Six Months Ended
June 30,
CASH FLOWS FROM OPERATING ACTIVITIES 2002 2001
- ------------------------------------------------------------------------------------------------------------------
Net income $ 93,998 $ 92,633
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 51,475 45,435
Amortization of stock compensation 1,001 630
Amortization of deferred financing costs and debt discount 2,353 2,513
Equity in earnings of unconsolidated joint ventures (8,069) (5,446)
Realized (gains) losses and unrealized losses on disposition
of rental property, net (2,258) (1,947)
Changes in operating assets and liabilities:
Increase in unbilled rents receivable, net (3,996) (7,737)
Decrease (increase) in deferred charges and other assets, net (12,200) (1,454)
Decrease in accounts receivable, net 714 125
Decrease in accounts payable and accrued expenses (3,074) (1,896)
(Increase) decrease in rents received in advance and security deposits (300) 829
Decrease in accrued interest payable 52 9,337
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 119,696 $ 133,022
==================================================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------------------------------------------------------------------------------------
Additions to rental property $ (81,895) $ (148,144)
Repayment of notes receivable 3,240 5,983
Investments in unconsolidated joint ventures (35,260) (24,462)
Distributions from unconsolidated joint ventures 17,272 19,056
Proceeds from sales of rental property 92,503 44,787
Increase in restricted cash (556) (935)
- ------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities $ (4,696) $ (103,715)
==================================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------------------------------------------------------------------------------------
Proceeds from senior unsecured notes $ -- $ 298,269
Proceeds from revolving credit facilities 204,400 218,484
Repayments of revolving credit facilities (197,300) (490,825)
Proceeds from mortgages and loans payable -- 70,000
Repayments of mortgages and loans payable (1,466) (3,871)
Repurchase of general partner units (152) (24,055)
Payment of financing costs -- (3,159)
Proceeds from stock options exercised 16,572 2,389
Proceeds from Stock Warrants exercised 3,465 --
Payment of distributions (88,415) (86,980)
- ------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities $ (62,896) $ (19,748)
==================================================================================================================
Net increase in cash and cash equivalents $ 52,104 $ 9,559
Cash and cash equivalents, beginning of period $ 12,835 $ 13,179
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 64,939 $ 22,738
==================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
7
MACK-CALI REALTY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER
SHARE/UNIT AMOUNTS)
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
Mack-Cali Realty, L.P., a Delaware limited partnership, and its subsidiaries
(the "Operating Partnership"), was formed on May 31, 1994 to conduct the
business of leasing, management, acquisition, development, construction and
tenant-related services for its sole general partner, Mack-Cali Realty
Corporation and its subsidiaries (the "Corporation" or "General Partner").
The Operating Partnership, through its operating divisions and subsidiaries,
including the Mack-Cali property-owning partnerships and limited liability
companies (collectively, the "Property Partnerships"), as described below, is
the entity through which all of the General Partner's operations are
conducted. The Property Partnerships, which are not legal entities, consist
of partnerships and limited liability companies which are engaged in the
ownership and operation of the Properties (as hereinafter defined) of the
Operating Partnership.
The General Partner is a fully integrated, self-administered, self-managed real
estate investment trust ("REIT"). The General Partner controls the Operating
Partnership as its sole general partner, and owned an 88.0 percent and 87.7
percent common unit interest in the Operating Partnership as of June 30, 2002
and December 31, 2001, respectively.
The General Partner's business is the ownership of interests in and operation of
the Operating Partnership, and all of the General Partner's expenses are
incurred for the benefit of the Operating Partnership. The General Partner is
reimbursed by the Operating Partnership for all expenses it incurs relating to
the ownership and operation of the Operating Partnership. The Operating
Partnership earns a management fee of between three percent and five percent of
revenues, as defined, for its management of the Property Partnerships.
As of June 30, 2002, the Operating Partnership owned or had interests in 258
properties plus developable land (collectively, the "Properties"). The
Properties aggregate approximately 27.6 million square feet, and are comprised
of 150 office buildings and 96 office/flex buildings, totaling approximately
27.1 million square feet (which include five office buildings and one
office/flex building aggregating 1.5 million square feet, owned by
unconsolidated joint ventures in which the Operating Partnership has investment
interests), six industrial/warehouse buildings totaling approximately 387,400
square feet, three stand-alone retail properties totaling approximately 118,040
square feet (which includes one retail property totaling approximately 100,740
square feet, owned by an unconsolidated joint venture in which the Operating
Partnership has an investment interest), and three land leases. The Properties
are located in 10 states, primarily in the Northeast, plus the District of
Columbia.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include all accounts of the
Operating Partnership and its controlled subsidiaries, including the Property
Partnerships. See Investments in Unconsolidated Joint Ventures in Note 2 for the
Operating Partnership's treatment of unconsolidated joint venture interests. All
significant intercompany accounts and transactions have been eliminated.
The preparation of financial statements in conformity with generally accepted
accounting principles ("GAAP") requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
8
2. SIGNIFICANT ACCOUNTING POLICIES
RENTAL
PROPERTY Rental properties are stated at cost less accumulated
depreciation and amortization. Costs directly related to the
acquisition and development of rental properties are
capitalized. Capitalized development costs include interest,
property taxes, insurance and other project costs incurred
during the period of development. Included in total rental
property is construction-in-progress of $270,134 and
$210,463 as of June 30, 2002 and December 31, 2001,
respectively. Ordinary repairs and maintenance are expensed
as incurred; major replacements and betterments, which
improve or extend the life of the asset, are capitalized and
depreciated over their estimated useful lives.
Fully-depreciated assets are removed from the accounts.
Properties are depreciated using the straight-line method
over the estimated useful lives of the assets. The estimated
useful lives are as follows:
Leasehold interests Remaining lease term
--------------------------------- ---------------------------------
Buildings and improvements 5 to 40 years
--------------------------------- ---------------------------------
Tenant improvements The shorter of the term of
the related lease or useful life
--------------------------------- ---------------------------------
Furniture, fixtures and equipment 5 to 10 years
--------------------------------- ---------------------------------
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. To the extent impairment has occurred, the loss
shall be measured as the excess of the carrying amount of
the property over the fair value of the property. Management
does not believe that the value of any of the Operating
Partnership's rental properties is impaired.
When assets are identified by management as held for sale,
the Operating Partnership discontinues depreciating the
assets and estimates the sales price, net of selling costs,
of such assets. If, in management's opinion, the net sales
price of the assets which have been identified for sale is
less than the net book value of the assets, a valuation
allowance is established. See Note 6.
If circumstances arise that previously were considered
unlikely and, as a result, the Operating Partnership decides
not to sell a property previously classified as held for
sale, the property is reclassified as held and used. A
property that is reclassified is measured individually at
the lower of its (a) carrying amount before the property was
classified as held for sale, adjusted for any depreciation
(amortization) expense that would have been recognized had
the property been continuously classified as held and used,
or (b) the fair value at the date of the subsequent decision
not to sell. See Note 6.
Effective January 1, 2002, the Operating Partnership adopted
the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which supercedes SFAS No.
121. SFAS No. 144 requires that long-lived assets that are
to be disposed of by sale be measured at the lower of book
value or fair value less cost to sell. SFAS No. 144 retains
the requirements of SFAS No. 121 regarding impairment loss
recognition and measurement. In addition, it requires that
one accounting model be used for long-lived assets to be
disposed of by sale and broadens the presentation of
discontinued operations to include more disposal
transactions. As the statement requires implementation on a
prospective basis, properties which were identified as held
for sale by the Operating Partnership prior to January 1,
2002 are presented in the accompanying financial statements
in a manner consistent with the prior year's presentation.
As there were no additional properties identified as held
for sale in the six months ended June 30, 2002, the
Operating Partnership did not report any discontinued
operations for the presented periods.
9
INVESTMENTS IN
UNCONSOLIDATED
JOINT VENTURES The Operating Partnership accounts for its investments in
unconsolidated joint ventures under the equity method of
accounting as the Operating Partnership exercises
significant influence, but does not control these entities.
These investments are recorded initially at cost, as
Investments in Unconsolidated Joint Ventures, and
subsequently adjusted for equity in earnings and cash
contributions and distributions. See Note 4.
CASH AND CASH
EQUIVALENTS All highly liquid investments with a maturity of three
months or less when purchased are considered to be cash
equivalents.
DEFERRED
FINANCING COSTS Costs incurred in obtaining financing are capitalized and
amortized on a straight-line basis, which approximates the
effective interest method, over the term of the related
indebtedness. Amortization of such costs is included in
interest expense and was $1,176 and $1,161 for the three
months ended June 30, 2002 and 2001, respectively, and
$2,353 and $2,282 for the six months ended June 30, 2002 and
2001, respectively.
DEFERRED
LEASING COSTS Costs incurred in connection with leases are capitalized and
amortized on a straight-line basis over the terms of the
related leases and included in depreciation and
amortization. Unamortized deferred leasing costs are charged
to amortization expense upon early termination of the lease.
Certain employees of the Operating Partnership are
compensated for providing leasing services to the
Properties. The portion of such compensation, which is
capitalized and amortized, approximated $706 and $863 for
the three months ended June 30, 2002 and 2001, respectively,
and $1,696 and $1,603 for the six months ended June 30, 2002
and 2001, respectively.
RESTRICTED CASH Restricted cash includes tenant security deposits and escrow
and reserve funds for debt service, real estate taxes,
property insurance, capital improvements, tenant
improvements, and leasing costs established pursuant to
certain mortgage financing arrangements.
REVENUE
RECOGNITION Base rental revenue is recognized on a straight-line basis
over the terms of the respective leases. Unbilled rents
receivable represents the amount by which straight-line
rental revenue exceeds rents currently billed in accordance
with the lease agreements. Parking and other revenue
includes income from parking spaces leased to tenants,
income from tenants for additional services provided by the
Operating Partnership, income from tenants for early lease
terminations and income from managing and/or leasing
properties for third parties.
Reimbursements are received from tenants for certain costs
as provided in the lease agreements. These costs generally
include real estate taxes, utilities, insurance, common area
maintenance and other recoverable costs. See Note 12.
INCOME AND
OTHER TAXES The Operating Partnership is a partnership and, as a result,
all income and losses of the partnership are allocated to
the partners for inclusion in their respective income tax
returns. Accordingly, no provision or benefit for income
taxes has been made in the accompanying financial
statements.
10
EARNINGS
PER UNIT The Operating Partnership presents both basic and diluted
earnings per unit ("EPU"). Basic EPU excludes dilution and
is computed by dividing net income available to common
unitholders by the weighted average number of units
outstanding for the period. Diluted EPU reflects the
potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted
into common units, where such exercise or conversion would
result in a lower EPU amount.
DIVIDENDS AND
DISTRIBUTIONS
PAYABLE The distributions payable at June 30, 2002 represents
distributions payable to common unitholders of record as of
July 3, 2002 (65,532,174 common units) and preferred
distributions payable to preferred unitholders (215,894
preferred units) for the second quarter 2002. The second
quarter 2002 common unit distributions of $0.62 per common
unit, as well as the second quarter preferred unit
distribution of $17.8932 per preferred unit, were approved
by the Board of Directors on June 19, 2002 and paid on July
22, 2002.
The distributions payable at December 31, 2001 represents
distributions payable to common unitholders of record as of
January 4, 2002 (64,720,615 common units) and preferred
distributions payable to preferred unitholders (220,340
preferred units) for the fourth quarter 2001. The fourth
quarter 2001 common unit distributions of $0.62 per share
and per common unit, as well as the fourth quarter preferred
unit distribution of $17.8932 per preferred unit, were
approved by the Board of Directors on December 18, 2001 and
paid on January 22, 2002.
STOCK OPTIONS The Operating Partnership accounts for stock-based
compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related Interpretations
("APB No. 25"). Under APB No. 25, compensation cost is
measured as the excess, if any, of the quoted market price
of the Corporation's stock at the date of grant over the
exercise price of the option granted. Compensation cost for
stock options, if any, is recognized ratably over the
vesting period. The Corporation's policy is to grant options
with an exercise price equal to the quoted closing market
price of the Corporation's stock on the business day
preceding the grant date. Accordingly, no compensation cost
has been recognized under the Corporation's stock option
plans for the granting of stock options. See Note 10.
RECLASSIFICATIONS Certain reclassifications have been made to prior period
amounts in order to conform with current period
presentation.
3. ACQUISITIONS, PROPERTIES PLACED IN SERVICE AND PROPERTY SALES
LAND ACQUISITIONS
On June 12, 2002, the Operating Partnership acquired three land parcels located
in Hawthorne and Yonkers, Westchester County, New York in one transaction for a
total cost of approximately $2,600. The land was acquired from an entity whose
principals include Timothy M. Jones, Robert F. Weinberg and Martin S. Berger,
each of whom are affiliated with the Operating Partnership as the President of
the Corporation, a current member of the Board of Directors and a former member
of the Board of Directors of the Corporation, respectively. In connection with
the Operating Partnership's acquisition of 65 Class A properties from The Robert
Martin Company ("Robert Martin") in January 1997, as subsequently modified, the
Corporation granted Robert Martin the right to designate one seat on the
Corporation's Board of Directors ("RM Board Seat"). Robert Martin designated
Martin S. Berger and Robert F. Weinberg to jointly share the RM Board Seat, as
follows: Mr. Weinberg served as a member of the Board of the Directors of the
Corporation from 1997 until December 1, 1998, at which time Mr. Weinberg
resigned and Mr. Berger was appointed to serve in such capacity. Mr. Berger
served as a member of the Board of Directors of the Corporation from December 1,
1998 until March 6, 2001, at which time Mr. Berger resigned and Mr. Weinberg was
appointed to serve in such capacity until the
11
Corporation's 2003 annual meeting of stockholders. If the Corporation elects to
nominate for re-election to its Board of Directors a designee of Robert Martin
at the Corporation's 2003 annual meeting of stockholders, then Mr. Berger and
Mr. Weinberg have agreed that Mr. Berger will be so nominated and the seat will
be rotated among Mr. Berger and Mr. Weinberg every 12 months commencing on the
12 month anniversary of the 2003 annual meeting of stockholders. Upon the death
of Mr. Berger or Mr. Weinberg, the surviving person shall solely fill the
remainder of the term of the RM Board Seat.
PROPERTY PLACED IN SERVICE
The Operating Partnership placed in service the following property during the
six months ended June 30, 2002:
- -----------------------------------------------------------------------------------------------------------
Investment
Date Placed # of Rentable by Operating
in Service Property Name Location Bldgs. Square Feet Partnership
- -----------------------------------------------------------------------------------------------------------
OFFICE/FLEX:
4/01/02 125 Clearbrook Road Elmsford, Westchester County, NY 1 33,000 $ 4,638
- -----------------------------------------------------------------------------------------------------------
PROPERTY SALES
The Operating Partnership sold the following properties during the six months
ended June 30, 2002:
- ---------------------------------------------------------------------------------------------------------------------------------
Sale # of Net Sales Net Book Realized
Date Property/Portfolio Name Location Bldgs. Sq. Ft. Proceeds Value Gain (Loss)
- ---------------------------------------------------------------------------------------------------------------------------------
OFFICE:
05/13/02 Dallas Portfolio (a) Metro Dallas, TX 4 488,789 $ 33,115 $ 34,760 $ (1,645)
05/29/02 750 South Richfield Aurora, Arapahoe County, CO 1 108,240 20,631 21,291 (660)
Street
06/06/02 Houston Portfolio (b) Houston, Harris County, TX 3 413,107 25,482 24,393 1,089
RESIDENTIAL:
1/30/02 25 Martine Avenue White Plains, Westchester 1 124 units 17,559 10,461 7,098
County, NY
LAND:
04/25/02 Horizon Center Land Hamilton Township, Mercer n/a 0.8 acres 758 41 717
County, NJ
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL PROPERTY SALES: 9 1,010,136 $ 97,545 $ 90,946 $ 6,599
=================================================================================================================================
(a) On May 13, 2002, the Operating Partnership sold 3100 Monticello, 2300
Valley View, 150 West Parkway and 555 Republic Place in a single
transaction with one buyer, Brookview Properties, L.P., an entity that
includes a partner, whose principals include Paul A. Nussbaum, a former
member of the Board of Directors of the Corporation. The Operating
Partnership provided the purchaser with a $5,000 subordinated loan that
bears interest at 15 percent with a current pay rate of 11 percent. The
entire principal of the loan is payable at maturity in November 2007. In
conjunction with the Purchaser's subsequent sale of one of its acquired
properties, the purchaser repaid $953 of the loan principal through June
30, 2002. In July 2002, the purchaser repaid an additional $564 of the loan
principal.
(b) On June 6, 2002, the Operating Partnership sold 1717 St. James Place, 5300
Memorial Drive and 10497 Town & Country Way in a single transaction with
one buyer, Parkway Properties LP.
4. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
The debt of the Operating Partnership's unconsolidated joint ventures
aggregating $467,435 are non-recourse to the Operating Partnership, except for
customary exceptions pertaining to such matters as intentional misuse of funds,
environmental conditions and material misrepresentations and except as otherwise
indicated below.
PRU-BETA 3 (NINE CAMPUS DRIVE)
On March 27, 1998, the Operating Partnership acquired a 50 percent interest in
an existing joint venture with The Prudential Insurance Company of America
("Prudential"), known as Pru-Beta 3, which owned and operated Nine Campus Drive,
a 156,495 square-foot office building, located in the Mack-Cali Business Campus
office complex in Parsippany, Morris County, New Jersey. On November 5, 2001,
the Operating Partnership acquired the remaining interest in the property for
approximately $15,073. The property has been consolidated in the Operating
Partnership's financial statements subsequent to the acquisition of the
remaining interest. The Operating Partnership performed management and leasing
services for the property when it was owned by the joint venture and recognized
$75 in fees for
12
such services in the six months ended June 30, 2001.
HPMC
On April 23, 1998, the Operating Partnership entered into a joint venture
agreement with HCG Development, L.L.C. and Summit Partners I, L.L.C. to form
HPMC Development Partners, L.P. and, on July 21, 1998, entered into a second
joint venture, HPMC Development Partners II, L.P. (formerly known as HPMC Lava
Ridge Partners, L.P.), with these same parties. HPMC Development Partners,
L.P.'s efforts have focused on two development projects, commonly referred to as
Continental Grand II and Summit Ridge. HPMC Development Partners II, L.P.'s
efforts have focused on three development projects, commonly referred to as Lava
Ridge, Pacific Plaza I & II and Stadium Gateway. Among other things, the
partnership agreements provide for a preferred return on the Operating
Partnership's invested capital in each venture, in addition to 50 percent of
such venture's profit above the preferred returns, as defined in each agreement.
CONTINENTAL GRAND II
Continental Grand II is a 239,085 square-foot office building located in El
Segundo, Los Angeles County, California, which was constructed and placed
in service by the venture. On June 29, 2001, the venture sold the office
property for approximately $67,000.
SUMMIT RIDGE
Summit Ridge is an office complex of three one-story buildings aggregating
133,841 square feet located in San Diego, San Diego County, California,
which was constructed and placed in service by the venture. On January 29,
2001, the venture sold the office complex for approximately $17,450.
LAVA RIDGE
Lava Ridge is an office complex of three two-story buildings aggregating
183,200 square feet located in Roseville, Placer County, California, which
was constructed and placed in service by the venture. On May 30, 2002, the
venture sold the office complex for approximately $31,700.
PACIFIC PLAZA I & II
Pacific Plaza I & II is a two-phase development joint venture project,
located in the city of Daly City, San Mateo County, California between HPMC
Development Partners II, L.P. and a third-party entity. Phase I of the
project, which was placed in service in August 2001, consists of a
nine-story office building, aggregating 369,682 square feet. Phase II,
which is currently under construction, will comprise a three-story retail
and theater complex. The theater portion of Phase II was placed in service
in June 2002. The Operating Partnership performs management services for
this property owned by the joint venture and recognized $50 and zero in
fees for such services in the three months ended June 30, 2002 and 2001,
respectively.
STADIUM GATEWAY
Stadium Gateway is a development joint venture project located in Anaheim,
Orange County, California between HPMC Development Partners II, L.P. and a
third-party entity. The venture has constructed a six-story, 261,554
square-foot office building, which was placed in service in January 2002.
G&G MARTCO (CONVENTION PLAZA)
On April 30, 1998, the Operating Partnership acquired a 49.9 percent interest in
an existing joint venture, known as G&G Martco, which owns Convention Plaza, a
305,618 square-foot office building, located in San Francisco, San Francisco
County, California. A portion of the Operating Partnership's initial investment
was financed through the issuance of common units, as well as funds drawn from
the Operating Partnership's credit facilities. Subsequently, on June 4, 1999,
the Operating Partnership acquired an additional 0.1 percent interest in G&G
Martco through the issuance of common units. The Operating Partnership performs
management and leasing services for the property owned by the joint venture and
recognized $126 and $110 in fees for such services in the six months ended June
30, 2002 and 2001, respectively.
AMERICAN FINANCIAL EXCHANGE L.L.C.
On May 20, 1998, the Operating Partnership entered into a joint venture
agreement with Columbia Development Company, L.L.C. to form American Financial
Exchange L.L.C. The venture was initially formed to acquire land for future
development, located on the Hudson River waterfront in Jersey City, Hudson
County, New Jersey, adjacent to the Operating Partnership's Harborside Financial
Center office complex. The Operating Partnership holds a 50 percent
13
interest in the joint venture. Among other things, the partnership agreement
provides for a preferred return on the Operating Partnership's invested capital
in the venture, in addition to the Operating Partnership's proportionate share
of the venture's profit, as defined in the agreement. The joint venture acquired
land on which it constructed a parking facility, a portion of which is currently
licensed to a parking operator. Such parking facility serves a ferry service
between the Operating Partnership's Harborside property and Manhattan. In the
fourth quarter 2000, the joint venture started construction of Plaza 10, a
575,000 square-foot office building, on certain of the land owned by the
venture. Plaza 10 is 100 percent pre-leased to Charles Schwab & Co. Inc.
("Schwab") for a 15-year term. The lease agreement obligates the venture, among
other things, to deliver space to the tenant by required timelines and offers
expansion options, at the tenant's election. Such options may obligate the
venture to construct an additional building or, at the Operating Partnership's
option to make space available in any of its existing Harborside properties.
Should the venture be unable to or choose not to provide such expansion space,
the venture would be liable to Schwab for its actual damages, in no event to
exceed $15,000. The amount of Schwab's actual damages, up to $15,000, has been
guaranteed by the Operating Partnership. The project under construction, which
is anticipated to be completed in late 2002, is currently projected to cost the
Operating Partnership approximately $145,000, of which $101,394 has been
incurred by the Operating Partnership through June 30, 2002.
RAMLAND REALTY ASSOCIATES L.L.C. (ONE RAMLAND ROAD)
On August 20, 1998, the Operating Partnership entered into a joint venture
agreement with S.B. New York Realty Corp. to form Ramland Realty Associates
L.L.C. The venture was formed to own, manage and operate One Ramland Road, a
232,000 square-foot office/flex building plus adjacent developable land, located
in Orangeburg, Rockland County, New York. In August 1999, the joint venture
completed redevelopment of the property and placed the office/flex building in
service. The Operating Partnership holds a 50 percent interest in the joint
venture. The property's principal tenant, Superior Bank has been declared
insolvent and taken over by the Federal Deposit Insurance Corporation (FDIC).
The tenant continued to meet its rental payment obligation through June 2002. In
July 2002, the tenant vacated the premises and the FDIC notified the joint
venture that they are rejecting the lease as of July 16, 2002. As a result of
the uncertainty regarding the tenant's ability to meet its obligations through
the remainder of the term of its lease, the joint venture wrote off unbilled
rents receivable of $1,573 and deferred lease costs of $705, which is included
in the Operating Partnership's equity in earnings for the six months ended June
30, 2002. The Operating Partnership performs management, leasing and other
services for the property owned by the joint venture and recognized $49 and $58
in fees for such services in the six months ended June 30, 2002 and 2001,
respectively.
ASHFORD LOOP ASSOCIATES L.P. (1001 SOUTH DAIRY ASHFORD/2100 WEST LOOP SOUTH)
On September 18, 1998, the Operating Partnership entered into a joint venture
agreement with Prudential to form Ashford Loop Associates L.P. The venture was
formed to own, manage and operate 1001 South Dairy Ashford, a 130,000
square-foot office building acquired on September 18, 1998 and 2100 West Loop
South, a 168,000 square-foot office building acquired on November 25, 1998, both
located in Houston, Harris County, Texas. The Operating Partnership holds a 20
percent interest in the joint venture. The Operating Partnership performed
management and leasing services through March 2002 for the properties owned by
the joint venture and recognized $57 and $94 in fees for such services in the
six months ended June 30, 2002 and 2001, respectively. Under certain
circumstances, Prudential has the right to convert its interest in the venture
into common stock of the Corporation at a discount to the stock's fair market
value, based on the underlying fair value of Prudential's interest in the
venture at the time of conversion.
In May 2002, the Operating Partnership sent a notice to Prudential electing to
exercise its option under the buy-sell provisions of the joint venture
agreement. Subsequently, Prudential sent notice to the Operating Partnership
that it was exercising its option to put its interest in the joint venture to
the Operating Partnership in exchange for common stock of the Corporation as
described above. Pursuant to the provisions of the joint venture agreement, the
Operating Partnership, at its option, can elect to exchange cash in lieu of
stock for Prudential's interest. The Operating Partnership believes its prior
exercise of the buy-sell provisions acts to foreclose Prudential's subsequent
election to exchange its interest for stock, a position being disputed by
Prudential. The partners are currently in discussions about the relevant
provisions of the agreement. However, the ultimate resolution of the dispute is
not yet determinable.
ARCAP INVESTORS, L.L.C.
In 1999, the Operating Partnership invested $20,000 in ARCap Investors, L.L.C.,
a joint venture with several participants, which was formed to invest in
sub-investment grade tranches of commercial mortgage-backed securities ("CMBS").
William L. Mack, Chairman of the Board of Directors of the Corporation, is a
principal of an entity that
14
owns approximately 28 percent of the venture and has nominated a member of its
board of directors. At June 30, 2002, the venture held approximately $645,469 of
assets, comprised principally of subordinated CMBS recorded at market value.
MC-SJP MORRIS V REALTY, LLC AND MC-SJP MORRIS VI REALTY, LLC
The Operating Partnership has an agreement with SJP Properties, which provides
for a cooperative effort in seeking approvals to develop up to approximately 1.8
million square feet of office development on certain vacant land owned by the
Operating Partnership and SJP Properties, in Hanover and Parsippany, Morris
County, New Jersey. The agreement provides that the parties shall share equally
in the costs associated with seeking such requisite approvals. Upon mutual
consent, the Operating Partnership and SJP Properties may enter into one or more
joint ventures to construct on the vacant land, or seek to dispose of their
respective vacant land parcels subject to the agreement. Pursuant to the
agreement with SJP Properties, on August 24, 2000, the Operating Partnership
entered into a joint venture with SJP Properties to form MC-SJP Morris V Realty,
LLC and MC-SJP Morris VI Realty, LLC, which acquired developable land able to
accommodate approximately 650,000 square feet of office space located in
Parsippany, Morris County, New Jersey. The land was acquired for approximately
$16,193. The venture entered into an agreement pertaining to the acquired land
and two other land parcels in Parsippany with an insurance company to provide
for a guarantee on the funding of the development of four office properties,
aggregating 850,000 square feet. Such agreement provides, if the venture elects
to develop, that the insurance company will be admitted to the joint venture and
provide all the equity required to fund the development, subject to certain
conditions. In addition, the venture obtained a loan on the acquired land from a
bank, which is guaranteed by the insurance company.
SOUTH PIER AT HARBORSIDE - HOTEL DEVELOPMENT
On November 17, 1999, the Operating Partnership entered into an agreement with
Hyatt Corporation ("Hyatt") to develop a 350-room hotel on the Operating
Partnership's South Pier at Harborside Financial Center, Jersey City, Hudson
County, New Jersey, which commenced operations in July 2002. The total cost of
the project is estimated to be approximately $103,000. The venture has obtained
a construction loan of $63,700, of which each partner, including the Operating
Partnership, has severally guaranteed repayment of approximately $11,148.
Additionally, the Operating Partnership has posted an $8,000 letter of credit in
support of another loan to the joint venture, $4,000 of which is indemnified by
Hyatt. In addition, the Operating Partnership and Hyatt have guaranteed
completion of the hotel project to the joint venture's construction lender. If
the joint venture fails to complete the hotel project as required under the
construction loan documents and the construction loan proceeds remaining to be
advanced together with the capital contributed by the partners to such date are
insufficient to complete the hotel project, the Operating Partnership and/or
Hyatt may be required to provide additional funds sufficient to complete the
hotel project.
15
SUMMARIES OF UNCONSOLIDATED JOINT VENTURES
The following is a summary of the financial position of the unconsolidated joint
ventures in which the Operating Partnership had investment interests as of June
30, 2002 and December 31, 2001:
June 30, 2002
----------------------------------------------------------------------------------------
American
G&G Financial Ramland Ashford
Pru-Beta 3 HPMC Martco Exchange Realty Loop ARCap
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS:
Rental property, net $ -- $ -- $ 8,901 $ 108,416 $ 17,467 $ 36,871 $ --
Other assets -- 16,883 3,648 189 2,814 1,416 645,469
- ----------------------------------------------------------------------------------------------------------------------------
Total assets -- $ 16,883 $ 12,549 $ 108,605 $ 20,281 $ 38,287 $ 645,469
============================================================================================================================
LIABILITIES AND PARTNERS'/
MEMBERS' CAPITAL:
Mortgages and loans payable $ -- $ -- $ 50,000 $ -- $ 15,628 $ -- $ 324,422
Other liabilities -- 25 1,766 6,158 73 708 3,935
Partners'/members' capital -- 16,858 (39,217) 102,447 4,580 37,579 317,112
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and
partners'/members' capital $ -- $ 16,883 $ 12,549 $ 108,605 $ 20,281 $ 38,287 $ 645,469
============================================================================================================================
Operating Partnership's net
investment in unconsolidated
joint ventures $ -- $ 16,337 $ 2,921 $ 109,127 $ 1,862 $ 7,956 $ 18,085
- ----------------------------------------------------------------------------------------------------------------------------
June 30, 2002
---------------------------------------
MC-SJP
Morris Harborside Combined
Realty South Pier Total
- ---------------------------------------------------------------------------
ASSETS:
Rental property, net $ 17,173 $89,841 $ 278,669
Other assets 1,010 100 671,529
- ---------------------------------------------------------------------------
Total assets $ 18,183 $89,941 $ 950,198
===========================================================================
LIABILITIES AND PARTNERS'/
MEMBERS' CAPITAL:
Mortgages and loans payable $ 17,710 $59,675 $ 467,435
Other liabilities 146 3,434 16,245
Partners'/members' capital 327 26,832 466,518
- ---------------------------------------------------------------------------
Total liabilities and
partners'/members' capital $ 18,183 $89,941 $ 950,198
===========================================================================
Operating Partnership's net
investment in unconsolidated
joint ventures $ 186 $16,137 $ 172,611
- ---------------------------------------------------------------------------
December 31, 2001
----------------------------------------------------------------------------------------
American
G&G Financial Ramland Ashford
Pru-Beta 3 HPMC Martco Exchange Realty Loop ARCap
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS:
Rental property, net $ -- $ 19,556 $ 9,598 $ 81,070 $ 18,119 $ 37,157 $ --
Other assets 732 20,267 2,163 120 4,822 1,150 595,937
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $ 732 $ 39,823 $ 11,761 $ 81,190 $ 22,941 $ 38,307 $ 595,937
============================================================================================================================
LIABILITIES AND PARTNERS'/
MEMBERS' CAPITAL:
Mortgages and loans payable $ -- $ 13,976 $ 50,000 $ -- $ 15,974 $ -- $ 324,819
Other liabilities -- 897 1,196 9,667 83 949 3,736
Partners'/members' capital 732 24,950 (39,435) 71,523 6,884 37,358 267,382
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and
partners'/members' capital $ 732 $ 39,823 $ 11,761 $ 81,190 $ 22,941 $ 38,307 $ 595,937
============================================================================================================================
Operating Partnership's net
investment in unconsolidated
joint ventures $ 350 $ 24,545 $ 2,795 $ 74,651 $ 3,014 $ 7,809 $ 17,897
- ----------------------------------------------------------------------------------------------------------------------------
December 31, 2001
---------------------------------------
MC-SJP
Morris Harborside Combined
Realty South Pier Total
- ---------------------------------------------------------------------------
ASSETS:
Rental property, net $ 16,607 $ 63,236 $ 245,343
Other assets 107 100 625,398
- ---------------------------------------------------------------------------
Total assets $ 16,714 $ 63,336 $ 870,741
===========================================================================
LIABILITIES AND PARTNERS'/
MEMBERS' CAPITAL:
Mortgages and loans payable $ 16,795 $ 34,107 $ 455,671
Other liabilities 103 2,927 19,558
Partners'/members' capital (184) 26,302 395,512
- ---------------------------------------------------------------------------
Total liabilities and
partners'/members' capital $ 16,714 $ 63,336 $ 870,741
===========================================================================
Operating Partnership's net
investment in unconsolidated
joint ventures $ 183 $ 15,296 $ 146,540
- ---------------------------------------------------------------------------
16
The following is a summary of the results of operations of the unconsolidated
joint ventures for the period in which the Operating Partnership had investment
interests during the three months ended June 30, 2002 and 2001:
Three Months Ended June 30, 2002
----------------------------------------------------------------------------------------
American
G&G Financial Ramland Ashford
Pru-Beta 3 HPMC Martco Exchange Realty Loop ARCap
- ----------------------------------------------------------------------------------------------------------------------------
Total revenues $ -- $ 10,779 $ 3,354 $ 176 $ 767 $ 1,254 $ 40,282
Operating and other expenses -- (268) (883) (10) (263) (841) (5,275)
Depreciation and amortization -- (256) (406) (10) (223) (325) --
Interest expense -- (82) (488) -- (208) -- (6,490)
- ----------------------------------------------------------------------------------------------------------------------------
Net income $ -- $ 10,173 $ 1,577 $ 156 $ 73 $ 88 $ 28,517
============================================================================================================================
Operating Partnership's equity in
earnings of unconsolidated
joint ventures $ 13 $ 4,705 $ 945 $ 156 $ 36 $ 16 $ 3,503
- ----------------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, 2002
---------------------------------------
MC-SJP
Morris Harborside Combined
Realty South Pier Total
- ---------------------------------------------------------------------------
Total revenues $ -- $ -- $ 56,612
Operating and other expenses -- (10) (7,550)
Depreciation and amortization -- -- (1,220)
Interest expense -- -- (7,268)
- ---------------------------------------------------------------------------
Net income $ -- $ (10) $ 40,574
===========================================================================
Operating Partnership's equity in
earnings of unconsolidated
joint ventures $ -- $ -- $ 9,374
- ---------------------------------------------------------------------------
Three Months Ended June 30, 2001
-----------------------------------------------------------------------------------------
American
G&G Financial Ramland Ashford
Pru-Beta 3 HPMC Martco Exchange Realty Loop ARCap
- -----------------------------------------------------------------------------------------------------------------------------
Total revenues $ 1,235 $ 13,936 $ 3,084 $ 158 $ 989 $ 1,491 $ 8,504
Operating and other expenses (369) (774) (845) (7) (264) (699) (2,179)
Depreciation and amortization (299) (592) (387) (5) (236) (232) --
Interest expense -- (929) (808) -- (299) -- (4,903)
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 567 $ 11,641 $ 1,044 $ 146 $ 190 $ 560 $ 1,422
=============================================================================================================================
Operating Partnership's equity in
earnings (loss) of
unconsolidated
joint ventures $ 245 $ 1,311 $ 366 $ (617) $ 95 $ 112 $ 525
- -----------------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, 2001
---------------------------------------
MC-SJP
Morris Harborside Combined
Realty South Pier Total
- ---------------------------------------------------------------------------
Total revenues $ -- $ -- $ 29,397
Operating and other expenses -- -- (5,137)
Depreciation and amortization -- -- (1,751)
Interest expense -- -- (6,939)
- ---------------------------------------------------------------------------
Net income $ -- $ -- $ 15,570
===========================================================================
Operating Partnership's equity in
earnings (loss) of
unconsolidated
joint ventures $ -- $ -- $ 2,037
- ---------------------------------------------------------------------------
17
The following is a summary of the results of operations of the unconsolidated
joint ventures for the period in which the Operating Partnership had investment
interests during the six months ended June 30, 2002 and 2001:
Six Months Ended June 30, 2002
-----------------------------------------------------------------------------------------
American
G&G Financial Ramland Ashford
Pru-Beta 3 HPMC Martco Exchange Realty Loop ARCap
- -------------------------------------------------------------------------------------------------------------------------------
Total revenues $ -- $ 12,087 $ 6,760 $ 180 $ 1,740 $ 2,285 $ 39,498
Operating and other expenses -- (660) (1,736) (20) (2,119) (1,289) (9,160)
Depreciation and amortization -- (641) (813) (20) (1,526) (487) --
Interest expense -- (233) (993) -- (398) -- (12,968)
- -------------------------------------------------------------------------------------------------------------------------------
Net income $ -- $ 10,553 $ 3,218 $ 140 $ (2,303) $ 509 $ 17,370
===============================================================================================================================
Operating Partnership's equity in
earnings (loss) of unconsolidated
joint ventures $ -- $ 6,020 $ 1,627 $ 140 $ (1,152) $ 148 $ 1,286
- -------------------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30, 2002
-----------------------------------------
MC-SJP
Morris Harborside Combined
Realty South Pier Total
- -------------------------------------------------------------------------------
Total revenues $ -- $ -- $ 62,550
Operating and other expenses -- (10) (14,994)
Depreciation and amortization -- -- (3,487)
Interest expense -- -- (14,592)
- -------------------------------------------------------------------------------
Net income $ -- $ (10) $ 29,477
===============================================================================
Operating Partnership's equity in
earnings (loss) of unconsolidated
joint ventures $ -- $ -- $ 8,069
- ------------------------------------------------------------------------------
Six Months Ended June 30, 2001
-----------------------------------------------------------------------------------------
American
G&G Financial Ramland Ashford
Pru-Beta 3 HPMC Martco Exchange Realty Loop ARCap
- -------------------------------------------------------------------------------------------------------------------------------
Total revenues $ 2,488 $ 14,992 $ 5,807 $ 379 $ 1,958 $ 3,064 $ 27,830
Operating and other expenses (782) (948) (1,650) (41) (607) (1,416) (4,003)
Depreciation and amortization (592) (933) (777) (20) (483) (462) --
Interest expense -- (1,256) (1,793) -- (654) -- (7,890)
- -------------------------------------------------------------------------------------------------------------------------------
Net income $ 1,114 $ 11,855 $ 1,587 $ 318 $ 214 $ 1,186 $ 15,937
===============================================================================================================================
Operating Partnership's equity in
earnings (loss) of unconsolidated
joint ventures $ 503 $ 3,464 $ 536 $ (445) $ 154 $ 209 $ 1,025
- -------------------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30, 2001
-------------------------------------
MC-SJP
Morris Harborside Combined
Realty South Pier Total
- -------------------------------------------------------------------------------
Total revenues $ -- $ -- $ 56,518
Operating and other expenses -- -- (9,447)
Depreciation and amortization -- -- (3,267)
Interest expense -- -- (11,593)
- -------------------------------------------------------------------------------
Net income $ -- $ -- $ 32,211
===============================================================================
Operating Partnership's equity in
earnings (loss) of unconsolidated
joint ventures $ -- $ -- $ 5,446
- -------------------------------------------------------------------------------
18
5. DEFERRED CHARGES AND OTHER ASSETS
June 30, December 31,
2002 2001
- --------------------------------------------------------------------------------
Deferred leasing costs $ 97,921 $ 93,677
Deferred financing costs 26,569 26,569
- --------------------------------------------------------------------------------
124,490 120,246
Accumulated amortization (44,374) (36,746)
- --------------------------------------------------------------------------------
Deferred charges, net 80,116 83,500
Notes receivable 12,797 10,777
Prepaid expenses and other assets 8,494 7,222
- --------------------------------------------------------------------------------
Total deferred charges and other assets, net $ 101,407 $ 101,499
================================================================================
6. RENTAL PROPERTY HELD FOR SALE
PROPERTIES HELD FOR SALE
As of June 30, 2002, the Operating Partnership has identified nine office
properties, aggregating approximately 1.7 million square feet, as held for sale.
These properties are located in Texas, Arizona and Florida. The properties
carried an aggregate book value of $120,109, net of accumulated depreciation of
$9,257 and a valuation allowance of $12,553, at June 30, 2002. On July 15, 2002,
the Operating Partnership sold one of these properties, One Mack-Cali Center,
its sole property in Florida, for approximately $23,700.
On June 6, 2002, the Operating Partnership determined that 20 of its office
properties and a land parcel, which are located in Colorado, aggregating 1.6
million square feet, were no longer being held for sale. The Operating
Partnership decided that it would continue to own and operate these properties
until market conditions in Colorado improve. The reclassified properties had an
aggregate book value of $172,281, net of accumulated depreciation of $17,063 and
a valuation allowance of $27,049 at the date of the subsequent decision not to
sell (including an unrealized loss of $3,000, and catch-up depreciation and
amortization expense of $4,042 for certain properties reflecting expense from
the period from the date the properties were originally held for sale through
the date they were no longer held for sale, which was recorded at that date).
As of December 31, 2001, the Operating Partnership had identified 37 office
properties, aggregating approximately 4.3 million square feet, a multi-family
residential property and a land parcel as held for sale. These properties are
located in Texas, Colorado, Arizona, Florida and New York. The properties
carried an aggregate book value of $384,626, net of accumulated depreciation of
$28,379 and a valuation allowance of $40,464 at December 31, 2001. For the six
months ended June 30, 2002, the Operating Partnership sold eight of these
properties for total net sales proceeds of approximately $79,228.
The following is a summary of the condensed results of operations of the rental
properties held for sale at June 30, 2002 for the six months ended June 30, 2002
and 2001:
Six Months Ended
June 30,
2002 2001
- ---------------------------------------------------------------------
Total revenues $ 12,347 $ 13,410
Operating and other expenses (6,076) (6,020)
Depreciation and amortization (9) (735)
- ---------------------------------------------------------------------
Net income $ 6,262 $ 6,655
=====================================================================
While considered probable, there can be no assurance if and when sales of the
Operating Partnership's rental properties held for sale will occur.
19
During the six months ended June 30, 2002 and 2001, the Operating Partnership
determined that the carrying amounts of certain properties identified as held
for sale during those periods were not expected to be recovered from estimated
net sale proceeds from these property sales. The Operating Partnership
recognized a valuation allowance of $4,341 and none for the three months ended
June 30, 2002 and 2001, respectively, and $4,341 and $20,563 for the six months
ended June 30, 2002, and 2001, respectively.
REALIZED GAINS (LOSSES) AND UNREALIZED LOSSES, NET
The following table summarizes realized gains (losses) and unrealized losses on
disposition of rental property, net, for the three and six month periods ended
June 30, 2002 and 2001:
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------------------------------
Realized gains (losses) on sale of rental property, net $ (499) $ 22,510 $ 6,599 $ 22,510
Valuation allowance on rental property held for sale (4,341) -- (4,341) (20,563)
- ---------------------------------------------------------------------------------------------------------------------
Realized gains (losses) and unrealized losses, net $ (4,840) $ 22,510 $ 2,258 $ 1,947
=====================================================================================================================
7. SENIOR UNSECURED NOTES
A summary of the terms of the Senior Unsecured Notes outstanding as of June 30,
2002 and December 31, 2001 is as follows:
June 30, December 31, Effective
2002 2001 Rate (1)
- ----------------------------------------------------------------------------------------------------------------------
7.180% Senior Unsecured Notes, due December 31, 2003 $ 185,283 $ 185,283 7.23%
7.000% Senior Unsecured Notes, due March 15, 2004 299,864 299,824 7.27%
7.250% Senior Unsecured Notes, due March 15, 2009 298,424 298,307 7.49%
7.835% Senior Unsecured Notes, due December 15, 2010 15,000 15,000 7.95%
7.750% Senior Unsecured Notes, due February 15, 2011 298,516 298,429 7.93%
- ----------------------------------------------------------------------------------------------------------------------
Total Senior Unsecured Notes $ 1,097,087 $ 1,096,843 7.51%
======================================================================================================================
(1) Includes the cost of terminated treasury lock agreements (if any), offering
and other transaction costs and the discount on the notes, as applicable.
8. REVOLVING CREDIT FACILITY
The Operating Partnership has an unsecured revolving credit facility ("2000
Unsecured Facility") with a current borrowing capacity of $800,000 from a group
of 24 lenders. The interest rate on outstanding borrowings under the credit line
is currently the London Inter-Bank Offered Rate ("LIBOR") (1.84 percent at June
30, 2002) plus 80 basis points. The Operating Partnership may instead elect an
interest rate representing the higher of the lender's prime rate or the Federal
Funds rate plus 50 basis points. The 2000 Unsecured Facility also requires a 20
basis point facility fee on the current borrowing capacity payable quarterly in
arrears. The 2000 Unsecured Facility matures in June 2003, with an extension
option of one year, which would require a payment of 25 basis points of the then
borrowing capacity of the credit line upon exercise.
20
9. MORTGAGES AND LOANS PAYABLE
The Operating Partnership has mortgages and loans payable which are comprised of
various loans collateralized by certain of the Operating Partnership's rental
properties. Payments on mortgages and loans payable are generally due in monthly
installments of principal and interest, or interest only.
A summary of the Operating Partnership's mortgages and loans payable as of June
30, 2002 and December 31, 2001 is as follows:
EFFECTIVE PRINCIPAL BALANCE AT
INTEREST JUNE 30, DECEMBER 31,
PROPERTY NAME LENDER RATE 2002 2001 MATURITY
- -------------------------------------------------------------------------------------------------------------------------
Mack-Cali Willowbrook CIGNA 8.67% $ 8,139 $ 8,598 10/01/03
400 Chestnut Ridge Prudential Insurance Co. 9.44% 12,141 12,646 07/01/04
Mack-Cali Centre VI Principal Life Insurance Co. 6.87% 35,000 35,000 04/01/05
Various (a) Prudential Insurance Co. 7.10% 150,000 150,000 05/15/05
Mack-Cali Bridgewater I New York Life Ins. Co. 7.00% 23,000 23,000 09/10/05
Mack-Cali Woodbridge II New York Life Ins. Co. 7.50% 17,500 17,500 09/10/05
Mack-Cali Short Hills Prudential Insurance Co. 7.74% 24,851 25,218 10/01/05
500 West Putnam Avenue New York Life Ins. Co. 6.52% 8,852 9,273 10/10/05
Harborside - Plaza 1 U.S. West Pension Trust 5.61% 59,883 57,978 01/01/06
Harborside - Plazas 2 and 3 Northwestern/Principal 7.36% 160,117 162,022 01/01/06
Mack-Cali Airport Allstate Life Insurance Co. 7.05% 10,311 10,394 04/01/07
Kemble Plaza I Mitsubishi Tr & Bk Co. LIBOR+0.65% 32,178 32,178 01/31/09
- -------------------------------------------------------------------------------------------------------------------------
Total Property Mortgages $ 541,972 $ 543,807
=========================================================================================================================
(a) The Operating Partnership has the option to convert the mortgage loan,
which is secured by 12 properties, to unsecured debt, subject to, amongst
other things, the Operating Partnership having investment grade ratings
from two rating agencies (at least one of which must be from S&P or
Moody's) at the time of conversion.
INTEREST RATE SWAP
On July 18, 2002, the Operating Partnership entered into a forward treasury rate
lock agreement with a commercial bank. The agreement locked an interest rate of
3.285 percent per annum for the three-year U.S. Treasury Note effective November
4, 2002, on a notional amount of $61,525. The agreement will be used to fix the
index rate on $61,525 of the Harborside-Plaza 1 mortgage, for which the interest
rate will be re-set to the three-year U.S. Treasury Note plus 130 basis points
for the three years beginning November 4, 2002 (see "Property Mortgages:
Harborside-Plaza 1" above).
CASH PAID FOR INTEREST AND INTEREST CAPITALIZED
Cash paid for interest for the six months ended June 30, 2002 and 2001 was
$61,080 and $52,530, respectively. Interest capitalized by the Operating
Partnership for the six months ended June 30, 2002 and 2001 was $11,647 and
$7,315, respectively.
SUMMARY OF INDEBTEDNESS
As of June 30, 2002, the Operating Partnership's total indebtedness of
$1,705,659 (weighted average interest rate of 7.11 percent) was comprised of
$98,778 of revolving credit facility borrowings and other variable rate mortgage
debt (weighted average rate of 2.77 percent) and fixed rate debt of $1,606,881
(weighted average rate of 7.38 percent).
As of December 31, 2001, the Operating Partnership's total indebtedness of
$1,700,150 (weighted average interest rate of 7.17 percent) was comprised of
$91,678 of revolving credit facility borrowings and other variable rate mortgage
debt (weighted average rate of 3.38 percent) and fixed rate debt of $1,608,472
(weighted average rate of 7.38 percent).
21
10. PARTNERS' CAPITAL
Partners' capital in the accompanying consolidated financial statements relates
to common units held by the Corporation and common units held by the limited
partners, preferred units held by the preferred unitholders ("Preferred Units")
of the Operating Partnership, and warrants to purchase common units ("Unit
Warrants") in the Operating Partnership.
REPURCHASE OF GENERAL PARTNERS UNITS
On August 6, 1998, the Board of Directors of the Corporation authorized a share
repurchase program ("Repurchase Program") under which the Corporation was
permitted to purchase up to $100,000 of the Corporation's outstanding common
stock. Purchases could be made from time to time in open market transactions at
prevailing prices or through privately negotiated transactions. Under the
Repurchase Program, the Corporation purchased for constructive retirement
1,869,200 shares of its outstanding common stock for an aggregate cost of
approximately $52,562 from August 1998 through December 1999. Concurrent with
these purchases, the Corporation sold to the Operating Partnership 1,869,200
common units for approximately $52,562.
On September 13, 2000, the Board of Directors authorized an increase to the
Repurchase Program under which the Corporation is permitted to purchase up to an
additional $150,000 of the Corporation's outstanding common stock above the
$52,562 that had previously been purchased. The Corporation purchased for
constructive retirement 3,300,800 shares of its outstanding common stock for an
aggregate cost of approximately $91,077 from September 13, 2000 through June 30,
2002. Concurrent with these purchases, the Corporation sold to the Operating
Partnership 3,300,800 common units for approximately $91,077.
STOCK OPTION PLANS
In September 2000, the Corporation established the 2000 Employee Stock Option
Plan ("2000 Employee Plan") and the 2000 Director Stock Option Plan ("2000
Director Plan"). In May 2002, shareholders of the Corporation approved
amendments to both plans to increase the total shares reserved for issuance
under both plans from 2,700,000 to 4,350,000 shares (subject to adjustment) of
the Corporation's common stock (from 2,500,000 to 4,000,000 shares under the
2000 Employee Plan and from 200,000 to 350,000 shares under the 2000 Director
Plan). In 1994, and as subsequently amended, the Corporation established the
Mack-Cali Employee Stock Option Plan ("Employee Plan") and the Mack-Cali
Director Stock Option Plan ("Director Plan") under which a total of 5,380,188
shares (subject to adjustment) of the Corporation's common stock have been
reserved for issuance (4,980,188 shares under the Employee Plan and 400,000
shares under the Director Plan). Stock options granted under the Employee Plan
in 1994 and 1995 have become exercisable over a three-year period and those
options granted under both the 2000 Employee Plan and Employee Plan subsequent
to 1995 become exercisable over a five-year period. All stock options granted
under both the 2000 Director Plan and Director Plan become exercisable in one
year. All options were granted at the fair market value at the dates of grant
and have terms of ten years. As of June 30, 2002, the stock options outstanding
had a weighted average remaining contractual life of approximately 6.8 years.
Information regarding the Corporation's stock option plans is summarized below:
Weighted
Shares Average
Under Exercise
Options Price
- -------------------------------------------------------------------------------
Outstanding at January 1, 2002 4,511,886 $ 31.28
Exercised (630,117) $ 26.34
Lapsed or canceled (97,967) $ 29.72
- -------------------------------------------------------------------------------
Outstanding at June 30, 2002 3,783,802 $ 32.16
===============================================================================
Options exercisable at June 30, 2002 2,078,381 $ 35.43
Available for grant at June 30, 2002 3,222,230
- -------------------------------------------------------------------------------
STOCK WARRANTS
The Corporation has 255,000 warrants outstanding which enable the holders to
purchase an equal number of shares of its common stock ("Stock Warrants") at $33
per share (the market price at date of issuance). Such warrants are all
currently exercisable and expire on January 31, 2007.
22
The Corporation also has 389,976 Stock Warrants outstanding which enable the
holders to purchase an equal number of shares of its common stock at $38.75 per
share (the market price at date of issuance). Such warrants are all currently
exercisable and expire on December 12, 2007.
Information regarding the Corporation's Stock Warrants is summarized below:
Warrants
- -------------------------------------------------------------
Outstanding at January 1, 2002 749,976
Exercised (105,000)
Lapsed or canceled --
- -------------------------------------------------------------
Outstanding at June 30, 2002 644,976
=============================================================
Warrants exercisable at June 30, 2002 644,976
- -------------------------------------------------------------
STOCK COMPENSATION
The Corporation has granted stock awards to officers and certain other employees
of the Corporation (collectively, "Restricted Stock Awards"), which allows the
employees to each receive a certain amount of shares of the Corporation's common
stock generally over a five-year vesting period. Certain Restricted Stock Awards
are contingent upon the Corporation meeting certain performance and/or stock
price appreciation objectives. All Restricted Stock Awards provided to the
officers and certain other employees were granted under the 2000 Employee Plan
and Employee Plan.
Information regarding the Restricted Stock Awards is summarized below:
Shares
- -------------------------------------------------------------
Outstanding at January 1, 2002 198,279
Granted --
Vested (44,545)
Canceled --
- -------------------------------------------------------------
Outstanding at June 30, 2002 153,734
=============================================================
DEFERRED STOCK COMPENSATION PLAN FOR DIRECTORS
The Deferred Compensation Plan for Directors, which commenced January 1, 1999,
allows non-employee directors of the Corporation to elect to defer up to 100
percent of their annual retainer fee into deferred stock units. The deferred
stock units are convertible into an equal number of shares of common stock upon
the directors' termination of service from the Board of Directors or a change in
control of the Corporation, as defined in the plan. Deferred stock units are
credited to each director quarterly using the closing price of the Corporation's
common stock on the applicable dividend record date for the respective quarter.
Each participating director's account is also credited for an equivalent amount
of deferred stock units based on the dividend rate for each quarter.
During the six months ended June 30, 2002 and 2001, 1,191 and 1,378 deferred
stock units were earned, respectively.
EARNINGS PER UNIT
Basic EPU excludes dilution and is computed by dividing net income available to
common unitholders by the weighted average number of units outstanding for the
period. Diluted EPU reflects the potential dilution that could occur if
securities or other contracts to issue common units were exercised or converted
into common units.
23
The following information presents the Operating Partnership's EPU results for
the three and six months ended June 30, 2002 and 2001:
Three Months Ended June 30,
2002 2001
-----------------------------------------------------------
Basic EPU Diluted EPU Basic EPU Diluted EPU
- -----------------------------------------------------------------------------------------------------------------
Net income available to common unitholders $39,891 $39,891 $65,792 $65,792
Add: Net income attributable to
Operating Partnership - Preferred Units -- -- -- 3,879
- -----------------------------------------------------------------------------------------------------------------
Adjusted net income $39,891 $39,891 $65,792 $69,671
=================================================================================================================
Weighted average units 65,168 65,606 64,476 71,044
- -----------------------------------------------------------------------------------------------------------------
Per Unit $ 0.61 $ 0.61 $ 1.02 $ 0.98
=================================================================================================================
Six Months Ended June 30,
2002 2001
-----------------------------------------------------------
Basic EPU Diluted EPU Basic EPU Diluted EPU
- -----------------------------------------------------------------------------------------------------------------
Net income available to common unitholders $86,192 $86,192 $84,875 $84,875
Add: Net income attributable to
Operating Partnership - Preferred Units -- 7,806 -- 7,758
- -----------------------------------------------------------------------------------------------------------------
Adjusted net income $86,192 $93,998 $84,251 $92,633
=================================================================================================================
Weighted average units 64,961 71,702 64,621 71,198
- -----------------------------------------------------------------------------------------------------------------
Per Unit $ 1.33 $ 1.31 $ 1.31 $ 1.30
=================================================================================================================
The following schedule reconciles the units used in the basic EPU calculation to
the units used in the diluted EPU calculation:
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------------
Basic EPU Units 65,168 64,476 64,961 64,621
Add: Operating Partnership - Preferred Units
(after conversion to common units) -- 6,359 6,346 6,359
Stock options 429 209 390 218
Stock Warrants 9 -- 5 --
- -----------------------------------------------------------------------------------------------------------------
Diluted EPU Units 65,606 71,044 71,702 71,198
=================================================================================================================
Preferred Units outstanding during the three months ended June 30, 2002 were not
included in the three months ended June 30, 2002 computation of diluted EPU as
such units were anti-dilutive during the period.
Through June 30, 2002, under the Repurchase Program, the Corporation purchased
for constructive retirement, a total of 5,170,000 shares of its outstanding
common stock for an aggregate cost of approximately $143,639. Concurrent with
these purchases, the Corporation sold an equal number of common units to the
Operating Partnership.
11. COMMITMENTS AND CONTINGENCIES
TAX ABATEMENT AGREEMENTS
HARBORSIDE FINANCIAL CENTER
Pursuant to an agreement with the City of Jersey City, New Jersey, the Operating
Partnership is required to make payments in lieu of property taxes ("PILOT") on
its Harborside Plaza 2 and 3 properties. The agreement, which commenced in 1990,
is for a term of 15 years. Such PILOT is equal to two percent of Total Project
Costs, as defined, in year one and increases by $75 per annum through year 15.
Total Project Costs, as defined, are $145,644. The PILOT totaled $934 and $904
for the three months ended June 30, 2002 and 2001, respectively, and $1,869 and
$1,820 for the
24
six months ended June 30, 2002 and 2001, respectively. The PILOT on these two
properties has been challenged as part of a larger effort by several neighboring
towns to question past practices of the City of Jersey City in attracting large
development. If this challenge is successful, the properties will be placed back
on the regular tax roles for tax years beginning with 1998. While the Operating
Partnership cannot at this time determine the likely outcome of this challenge,
the effect, if successful, of the challenge on the tax assessments against the
properties, or the amount of the increase, if any, in taxes assessed resulting
from a successful challenge, the Operating Partnership does not believe that the
outcome will result in a material adverse impact to the Operating Partnership as
there is the potential that the majority of any increase in the expense at the
properties may be passed along to the properties' tenants.
The Operating Partnership has entered into a similar agreement with the City of
Jersey City, New Jersey on its Harborside Plaza 4-A property. The agreement,
which commenced in 2000, is for a term of 20 years. The PILOT is equal to two
percent of Total Project costs, as defined, and increase by 10 percent in years
7, 10 and 13 and by 50 percent in year 16. Total Project costs, as defined, are
$45,497. The PILOT totaled $252 and $228 for the three months ended June 30,
2002 and 2001, respectively, and $497 and $438 for the six months ended June 30,
2002 and 2001, respectively.
Additionally, the Operating Partnership has entered into a similar agreement
with the City of Jersey City, New Jersey on its Harborside Plaza 5 property. The
agreement, which will commence upon substantial completion of the property, as
defined, is for a term of 20 years. The PILOT is equal to two percent of Total
Project Costs, as defined, and increases by 10 percent in years 7, 10 and 13,
and by 50 percent in year 16. Total Project Costs, as defined, are $132,294. The
Operating Partnership incurred no costs pursuant to the PILOT for the years
ended December 31, 2001, 2000 and 1999.
The Operating Partnership is a defendant in other litigation arising in the
normal course of business activities. Management does not believe that the
ultimate resolution of these matters will have a materially adverse effect upon
the Operating Partnership.
12. TENANT LEASES
The Properties are leased to tenants under operating leases with various
expiration dates through 2017. Substantially all of the leases provide for
annual base rents plus recoveries and escalation charges based upon the tenant's
proportionate share of and/or increases in real estate taxes and certain
operating costs, as defined, and the pass through of charges for electrical
usage.
13. SEGMENT REPORTING
The Operating Partnership operates in one business segment - real estate. The
Operating Partnership provides leasing, management, acquisition, development,
construction and tenant-related services for its portfolio. The Operating
Partnership does not have any foreign operations. The accounting policies of the
segments are the same as those described in Note 2, excluding straight-line rent
adjustments, depreciation and amortization and non-recurring charges.
The Operating Partnership evaluates performance based upon net operating income
from the combined properties in the segment.
25
Selected results of operations for the three and six months ended June 30, 2002
and 2001 and selected asset information as of June 30, 2002 and December 31,
2001 regarding the Operating Partnership's operating segment are as follows:
Total Operating
Total Segment Corporate & Other (e) Partnership
- ------------------------------------------------------------------------------------------------------------
TOTAL CONTRACT REVENUES (a)
Three months ended:
June 30, 2002 $ 139,854 $ 394 $ 140,248(f)
June 30, 2001 141,739 584 142,323(g)
Six months ended:
June 30, 2002 $ 280,953 $ 712 $ 281,665(h)
June 30, 2001 280,134 1,480 281,614(i)
TOTAL OPERATING AND INTEREST EXPENSES (b):