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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 1-13274
CALI REALTY CORPORATION
(Exact Name of Registrant as specified in its charter)
Maryland 22-3305147
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
11 Commerce Drive, Cranford, New Jersey 07016-3599
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(Address of principal executive offices) (Zip code)
(908) 272-8000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
(Title of Each Class) (Name of Each Exchange on Which Registered)
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Common Stock, $0.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
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None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [ X ]
As of February 28, 1997, the aggregate market value of the voting stock
held by non-affiliates of the registrant was $1,304,410,000. The aggregate
market value was computed with references to the closing price on the New York
Stock Exchange on such date. This calculation does not reflect a determination
that persons are affiliates for any other purpose.
As of February 28, 1997, 36,671,657 shares of common stock, $.01 par
value, of the Company (the "Common Stock") were outstanding.
LOCATION OF EXHIBIT INDEX: The index of exhibits is contained in Part
IV herein on page number 121.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's
definitive proxy statement to be issued in conjunction with the registrant's
annual meeting of stockholders to be held on May 15, 1997, are incorporated by
reference in Part III of this Form 10-K.
TABLE OF CONTENTS
FORM 10-K
PART I
Item 1 Business .....................................................
Item 2 Properties ....................................................
Item 3 Legal Proceedings..............................................
Item 4 Submission of Matters to a Vote of
Security Holders................................................
PART II
Item 5 Market for Registrant's Common Stock
and Related Stockholder Matters ................................
Item 6 Selected Financial Data........................................
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of
Operations .....................................................
Item 8 Financial Statements and Supplementary
Data ...........................................................
Item 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure............................................
PART III
Item 10 Directors and Executive Officers of
the Registrant ................................................
Item 11 Executive Compensation........................................
Item 12 Security Ownership of Certain
Beneficial Owners and Management...............................
Item 13 Certain Relationships and Related
Transactions ..................................................
PART IV
Item 14 Exhibits, Financial Statements, Schedules
and Reports on Form 8-K........................................
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PART I
ITEM I. BUSINESS
GENERAL
Cali Realty Corporation (together with its subsidiaries, the "Company") is a
fully-integrated real estate investment trust ("REIT") that owns and operates a
portfolio comprised primarily of Class A office and office/flex properties, as
well as commercial real estate leasing, management, acquisition, development and
construction businesses. At December 31, 1996, the Company owned 100 percent of
56 properties, consisting of 37 office properties (the "Year-End Office
Properties") and 19 office/flex properties (the "Year-End Office/Flex
Properties"), encompassing an aggregate of approximately 7.1 million square
feet, as well as one multi-family residential property (collectively, the
"Year-End Properties"). On January 31, 1997, the Company acquired substantially
all of the assets, consisting primarily of 65 properties (the "RM Properties")
of the Robert Martin Company, LLC and affiliates ("RM"), for approximately
$450.0 million. As of February 28, 1997, following the acquisition of RM (the
"RM Acquisition"), the Company owned 100 percent of 123 properties encompassing
approximately 11.4 million square feet (collectively the "Properties"). See
"Business -- Recent Developments." The Properties are comprised of 54 office
properties containing an aggregate of approximately 8.0 million square feet (the
"Office Properties"), 57 office/flex properties containing an aggregate of
approximately 3.0 million square feet (the "Office/Flex Properties"), six
industrial/warehouse properties containing an aggregate of approximately 400,000
square feet (the "Industrial/Warehouse Properties"), two multi-family
residential properties, two stand-alone retail properties, two land leases, and
land for the development of seven million square feet of office space. As of
December 31, 1996, the Year-End Office Properties and the Year-End Office/Flex
Properties, in the aggregate, were approximately 96.4 percent leased to
approximately 550 tenants. As of February 28, 1997, the Office Properties and
Office/Flex Properties, in the aggregate, were approximately 96.0 percent leased
to approximately 1,100 tenants. The Company believes that its Properties have
excellent locations and access and are well-maintained and professionally
managed. As a result, the Company believes that its Properties attract high
quality tenants and achieve among the highest rent, occupancy and tenant
retention rates within their markets.
The Company's strategy has been to focus its development and ownership of office
properties in sub-markets where it is, or can become, a significant and
preferred owner and operator. The Company will continue this strategy by
expanding, primarily through acquisitions, initially into sub-markets where it
has, or can achieve, similar status. Consistent with its growth strategy, during
1996, the Company acquired 15 office properties for an aggregate acquisition
cost of approximately $459.4 million, including the acquisition on November 4,
1996 of the 1.9 million square foot Harborside Financial Center in Jersey City,
Hudson County, New Jersey for approximately $292.7 million (the "Harborside
Acquisition"). Additionally, in January 1997 the Company completed the RM
Acquisition. See "Business -- Recent Developments." Management believes that the
recent trend towards increasing rental and occupancy rates in office buildings
in the Company's sub-markets continues to present significant opportunities for
growth. The Company may also develop properties in such sub- markets,
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particularly with a view towards potential utlitization of certain vacant land
recently acquired or on which the Company holds options. Management believes
that its extensive market knowledge provides the Company with a significant
competitive advantage which is further enhanced by its strong reputation for and
emphasis on delivering highly responsive management services, including direct
and continued access to the Company's senior management. See "Business -- Growth
Strategies."
The Company's ten largest office and office/flex tenants in the Year-End Office
Properties, based on actual December 1996 rent billings, are Donaldson, Lufkin &
Jenrette Securities Corp. ("DLJ"), Dow Jones Telerate Holdings, Inc., the
American Institute of Certified Public Accountants, NTT Data Communications
Corporation ("NTT"), Dean Witter Trust Company, Bank of Tokyo Information
Services Inc., Bankers Trust Harborside Inc., The United States Life Insurance
Company in New York City, SAP America, Inc. and Lonza, Inc. The average age of
the Year-End Office Properties and the Year-End Office/flex Properties is
approximately 10 years and 6 years, respectively.
Cali Associates, the entity to whose business the Company succeeded in 1994, was
founded by John J. Cali, Angelo R. Cali and Edward Leshowitz (the "Founders"),
who have been involved in the development, leasing, management, operation and
disposition of commercial and residential properties in Northern and Central New
Jersey for over 40 years and have been primarily focusing on office buildings
for the past fifteen years. In addition to the Founders, the Company's executive
officers at December 31, 1996 have been employed by the Company and its
predecessor for an average of approximately 10 years. The Company and its
predecessor have built approximately four million square feet of office space,
more than one million square feet of industrial facilities and over 5,500
residential units. As of February 28, 1997, officers and directors of the
Company and other former owners of interests in certain of the Properties (many
of whom are employees of the Company) owned approximately 10.0 percent of the
Company's outstanding shares of Common Stock (including Units redeemable for
shares of Common Stock). As used herein, the term "Units" refers to limited
partnership interests in Cali Realty, L.P. a Delaware limited partnership (the
"Operating Partnership" through which the Company conducts its real estate
activities.
The Company performs substantially all construction, leasing, management and
tenant improvements on an "in-house" basis and is self-administered and
self-managed.
The Company was incorporated on May 24, 1994. The Company's executive offices
are located at 11 Commerce Drive, Cranford, New Jersey 07016, and its telephone
number is (908) 272-8000. The Company has an internet Web address at
"http://www.calirealty.com".
GROWTH STRATEGIES
The Company's objectives are to maximize growth in Funds from Operations (as
defined in Item 6 below) and to enhance the value of its portfolio through
effective management, acquisition and development strategies. The Company
believes that opportunities exist to increase cash flow per share by: (i)
implementing operating strategies to produce increased effective rental and
occupancy rates and decreased concession and tenant installation costs as
vacancy rates in the Company's sub-markets continue to decline; (ii) acquiring
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properties with attractive returns in sub-markets where, based on its expertise
in leasing, managing and operating properties, it is, or can become, a
significant and preferred owner and operator; and (iii) developing properties
where such development will result in a favorable risk-adjusted return on
investment.
Based on its evaluation of current market conditions, the Company believes that
a number of factors will enable it to achieve its business objectives,
including: (i) the limited availability to competitors of capital for financing
development, acquisitions or capital improvements or for refinancing maturing
mortgages; (ii) the lack of new construction in the Company's markets providing
the Company with the opportunity to maximize occupancy levels at attractive
rental rates; and (iii) the large number of distressed sellers and inadvertent
owners (through foreclosure or otherwise) of properties in the Company's markets
creating enhanced acquisition opportunities. Management believes that the
Company is well positioned to exploit existing opportunities because of its
extensive experience in its markets and its proven ability to acquire, develop,
lease and efficiently manage properties.
The Company will focus on enhancing growth in cash flow per share by: (i)
maximizing cash flow from its existing properties through continued active
leasing and property management; (ii) managing operating expenses through the
use of in-house management, leasing, marketing, financing, accounting, legal,
construction management and data processing functions; (iii) emphasizing
programs of repairs and capital improvements to enhance the Properties'
competitive advantages in their markets; (iv) maintaining and developing
long-term relationships with a diverse tenant group; and (v) attracting and
retaining motivated employees by providing financial and other incentives to
meet the Company's operating and financial goals.
The Company will also seek to increase its cash flow per share by acquiring
additional properties that: (i) provide attractive initial yields with
significant potential for growth in cash flow from property operations; (ii) are
well located, of high quality and competitive in their respective sub-markets;
(iii) are located in its existing sub-markets or in sub-markets which lack a
significant owner or operator; and (iv) have been under-managed or are otherwise
capable of improved performance through intensive management and leasing that
will result in increased occupancy and rental revenues.
Consistent with its acquisition strategy, from January 1, 1996 through February
28, 1997, the Company has invested an aggregate of approximately $916.2 million
in the Harborside Acquisition, the RM Acquisition and the acquisition of 13
other office and office/flex properties (the "Individual Property
Acquisitions"), thereby increasing its portfolio by approximately 189 percent
(based upon total net rentable square feet). See "Business -- Recent
Developments." There can be no assurance, however, that the Company will be able
to improve the operating performance of any properties that are acquired.
The Company may also develop office, office/flex space, or certain vacant land
acquired in connection with various acquisitions or on which the Company holds
options, when market conditions support a favorable risk-adjusted return on such
development, primarily in stable submarkets where the demand for such space
exceeds available supply and where the Company is, or can become, a significant
owner and operator. The Company believes that opportunities exist for it to
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acquire properties in its sub-markets at less than replacement cost. Therefore,
the Company currently intends to emphasize its acquisition strategies over its
development strategies until market conditions change. To the extent that the
costs associated with implementing such acquisition and development strategies
are financed using the Company's cash flow, such costs may adversely affect the
Company's ability to make distributions.
The Company intends to maintain a ratio of debt to total market capitalization
(total debt of the Company as a percentage of the market value of issued and
outstanding shares of Common Stock, including interests redeemable therefor,
plus total debt) of approximately 50 percent or less, although the Company's
organizational documents do not limit the amount of indebtedness that the
Company may incur. As of December 31, 1996, the Company's total debt constituted
approximately 18.2 percent of the total capitalization of the Company, and as of
February 28, 1997, the Company's total debt constituted approximately 27.4
percent of the total capitalization of the Company. The Company will utilize the
most appropriate sources of capital for future acquisitions, development and
capital improvements, which may include undistributed funds from operations,
borrowings under its revolving credit facilities, issuances of equity securities
and/or other borrowings.
EMPLOYEES
As of December 31, 1996, the Company had 107 employees. As of February 28, 1997,
the Company had 186 employees.
COMPETITION
The leasing of real estate is highly competitive. The Company's Properties
compete for tenants with similar properties located in its markets primarily on
the basis of location, rent charged, services provided, and the design and
condition of the improvements. The Company also experiences competition when
attempting to acquire equity interests in desirable real estate, including
competition from domestic and foreign financial institutions, other REIT's, life
insurance companies, pension trusts, trust funds, partnerships and individual
investors.
REGULATIONS
Many laws and governmental regulations are applicable to the Properties and
changes in these laws and regulations, or their interpretation by agencies and
the courts, occur frequently.
Under various laws and regulations relating to the protection of the
environment, an owner of real estate may be held liable for the costs of removal
or remediation of certain hazardous or toxic substances located on or in the
property. These laws often impose liability without regard to whether the owner
was responsible for, or even knew of, the presence of such substances. The
presence of such substances may adversely affect the owner's ability to rent or
sell the property or to borrow using such property as collateral and may expose
it to liability resulting from any release of, or exposure to, such substances.
Persons who arrange for the disposal or treatment of hazardous or toxic
substances at another location may also be liable for the costs of removal or
remediation of such substances at the disposal or treatment facility, whether or
not such facility is owned or operated by such person. Certain environmental
laws impose liability for release of asbestos-containing materials into the air,
Page 6
and third parties may also seek recovery from owners or operators of real
properties for personal injury associated with asbestos- containing materials
and other hazardous or toxic substances. In connection with the ownership
(direct or indirect), operation, management and development of real properties,
the Company may be considered an owner or operator of such properties or as
having arranged for the disposal or treatment of hazardous or toxic substances
and, therefore, potentially liable for removal or remediation costs, as well as
certain other related costs, including governmental penalties and injuries to
persons and property.
The Company obtained Phase I Assessments of each of its original properties (the
"Original Properties") at the time of its initial public offering in August 1994
(the "IPO"). With the acquisition of each new property, the Company obtains a
new Phase I Assessment for such property. These Phase I Assessments have not
revealed any environmental liability that the Company believes would have a
material adverse effect on the Company's business, assets or results of
operations taken as a whole, nor is the Company aware of any such material
environmental liability. However, four of the Office Properties are located on
or adjacent to a former municipal landfill (closed in the 1950s) that was
redeveloped with the participation of the State of New Jersey Economic
Development Authority. The Company obtained all necessary landfill disruption
permits to build the projects (other than such permits the absence of which
would not be expected to have a material adverse effect on the Company's
business, assets or results of operations taken as a whole) and state
environmental authorities approved the work. Although there can be no assurance,
the Company believes that there will be no further requirements with respect to
the former landfill at these Properties. Nevertheless, it is possible that the
Company's assessments do not reveal all environmental liabilities and that there
are material environmental liabilities of which the Company is unaware.
In connection with the RM Acquisition, the Company's environmental consultant
undertook environmental audits of the properties, including sampling activities,
which identified certain environmental conditions at several of the properties
(the "Designated Properties") that will likely require further investigation
and/or remedial activities. RM retained the liability and responsibility for
remediation of the environmental conditions of the Designated Properties, and
has established an escrow in the amount of $1.5 million (the "Environmental
Escrow") as a clean-up fund. Any remediation costs for the Designated Properties
exceeding the Environmental Escrow will remain the responsibility of the
principals of RM. See "Business -- Recent Developments -- RM Acquisition."
There can be no assurance that (i) future laws, ordinances or regulations will
not impose any material environmental liability or (ii) the current
environmental condition of the Properties will not be affected by tenants, by
the condition of land or operations in the vicinity of the Properties (such as
the presence of underground storage tanks), or by third parties unrelated to the
Company. If compliance with the various laws and regulations, now existing or
hereafter adopted, exceeds the Company's budgets for such items, the Company's
ability to make expected distributions to stockholders could be adversely
affected.
There are no other laws or regulations which have a material effect on the
Company's operations, other than typical federal, state and local laws affecting
the development and operation of real property, such as zoning laws.
Page 7
INDUSTRY SEGMENTS
The Company operates in only one industry segment. The Company does not have any
foreign operations and its business is not seasonal.
RECENT DEVELOPMENTS
From January 1, 1996 through February 28, 1997, the Company completed the
Harborside Acquisition, the RM Acquisition and the Individual Property
Acquisitions and has improved the operating performance of its existing
portfolio by maintaining high occupancies and controlling costs. The Company's
Funds from Operations (after adjustment for the straight-lining of rents) for
the year ended December 31, 1996 was $45.2 million. As a result of the Company's
improved operating performance, in September 1996 the Company announced a 5.9
percent increase in its regular quarterly distribution, commencing with the
Company's distribution with respect to the third quarter of 1996, from $.425 per
share of Common Stock ($1.70 per share of Common Stock on an annualized basis)
to $.45 per share of Common Stock ($1.80 per share of Common Stock on an
annualized basis). Since the IPO, the Company has increased its regular
quarterly distribution by 11.4 percent.
From January 1, 1996 through February 28, 1997, the Company invested
approximately $916.2 million in the Harborside Acquisition, the RM Acquisition
and the Individual Property Acquisitions, increasing its portfolio by 189
percent (based upon total net rentable square feet). The cash portions of the
acquisition costs for such acquisitions (as more fully described below) were
obtained by the Company from (i) the net proceeds of the Company's two 1996
public offerings of Common Stock in August and November 1996 for net proceeds of
approximately $76.8 million and $441.2 million, respectively, (ii) borrowings
under the Company's credit facilities (see Item 2 below), and (iii) available
working capital. In addition, a significant portion of the acquisition costs for
the RM Acquisition and the Harborside Acquisition included the assumption or
incurrence of permanent indebtedness. See "Business -- Financing Activities
- --Permanent Indebtedness." Set forth below are summary descriptions of the RM
Acquisition, the Harborside Acquisition and the Individual Property
Acquisitions:
RM Acquisition.
On January 31, 1997, the Company acquired the RM Properties for a total cost of
approximately $450.0 million. The RM Properties consist of 16 office properties
(the "RM Office Properties"), 38 office/flex properties (the "RM Office/Flex
Properties"), six industrial/warehouse properties, two stand-alone retail
properties, two land leases, and a multi-family residential property. The RM
Acquisition was financed through the assumption of a $185.3 million mortgage,
approximately $220.0 million in cash, substantially all of which was obtained
from the Company's cash reserves, and the issuance of 1,401,225 Units.
In connection with the RM Acquisition, the Company assumed a $185.3 million
non-recourse mortgage held by Teachers Insurance and Annuity Association of
America, with interest only payable monthly at a fixed annual rate of 7.18
percent (the "TIAA Mortgage"). The TIAA Mortgage is secured and
cross-collateralized by 43 of the RM Properties and matures on December 31,
2003. The Company, at its option, may convert the TIAA Mortgage to unsecured
debt upon achievement by the Company of an investment credit rating of Baa3/BBB-
or better. The TIAA Mortgage is prepayable in whole or in part subject to
certain provisions, including yield maintenance.
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The RM Properties, which consist primarily of 54 office and office/flex
properties aggregating approximately 3.7 million square feet and six
industrial/warehouse properties aggregating approximately 400,000 square feet,
are located primarily in established business parks in Westchester County, New
York and Fairfield County, Connecticut. The Company has agreed not to sell
certain of the RM Properties for a period of seven years without the consent of
the RM principals, except for sales made under certain circumstance and/or
conditions.
In connection with the RM Acquisition, the Company was granted a three-year
option to acquire a 115,000 square foot office property and an 84,000 square
foot office/flex property (the "Option Properties") for an aggregate minimum
purchase price of $19.0 million and has granted RM the right to put such
properties to the Company between an aggregate purchase price of $11.6 to $21.3
million, under certain conditions. The purchase prices are subject to adjustment
based on different formulas and are payable in cash or Units.
In addition, the Company provided an $11.6 million non-recourse mortgage loan
("Mortgage Receivable") to entities controlled by the RM principals, bearing
interest at an annual rate of 450 basis points over the one-month London
Inter-bank Offered Rate (LIBOR). The Mortgage Receivable, which is secured by
the Option Properties and guaranteed by certain of the RM principals, matures on
February 1, 2000. In addition, the Company received a three percent origination
fee in connection with the Mortgage Receivable.
RM has made certain customary representations and warranties to the Company,
most of which survive the closing for a period of one year. RM has agreed to
maintain a minimum net worth of $25.0 million during such period.
As part of the RM Acquisition, Brad W. Berger, President and Chief Executive
Officer of RM, and Timothy M. Jones, Chief Operating Officer of RM, joined the
Company as Executive Vice-Presidents under three year employment agreements.
Berger and Jones were each issued warrants to purchase 170,000 shares of the
Company's Common Stock at a stock price of $33 per share, which vest equally
over a three-year period and expire on January 31, 2007.
Robert F. Weinberg, co-founder of RM, and Berger will serve on the Company's
Board of Directors for an initial term of three years. The Company will also
appoint two additional independent Board members, thereby increasing the size of
the Board from nine to thirteen members.
Harborside Acquisition.
On November 4, 1996, the Company acquired Harborside Financial Center
("Harborside"), a 1.9 million square foot office complex located in Jersey City,
Hudson County, New Jersey for an acquisition cost of approximately $292.7
million. The Harborside Acquisition, which is located on the Hudson River
waterfront directly across from downtown Manhattan, increased the Company's
total office and office/flex portfolio as of the acquisition date by
approximately 44 percent. The acquisition cost included the assumption of
existing and seller-provided financing aggregating approximately $150.0 million.
See "Business --Financing Activities -- Permanent Indebtedness." The balance of
the acquisition cost, totaling approximately $142.7 million, was paid primarily
in cash and was financed substantially through drawings from the Company's
existing credit facilities (including the $80.0 million PCS Credit Facility, as
defined below). See "The Company -- Financing Activities -- Credit Facilities."
Harborside is located in the Exchange Place/Newport submarket of Jersey City,
adjacent to the Exchange Place Port Authority Trans-Hudson ("PATH") train
station. As of December 31, 1996, the property was approximately 97.1 percent
leased. Harborside's largest tenant is Bankers Trust Harborside, Inc., which
leases 385,000 square feet of space. Other major tenants include Dow Jones
Telerate Holdings, Inc., the American Institute of Certified Public Accountants
(AICPA), Dean Witter Trust Company and Bank of Tokyo.
As part of the Harborside Acquisition, the Company also acquired 11.3 acres of
land fully zoned and permitted for an additional 4.1 million square feet of
development and the water rights associated with 27.4 acres of land extending
into the Hudson River immediately east of Harborside, including two piers with
an area of 5.8 acres. The terms of the acquisition of the vacant parcels at
Harborside provide for payments (with an estimated net present value at the date
of acquisition of approximately $5.3 million) to be made to the seller for
development rights if and when the Company commences construction on the site
during the next several years. However, the agreement provides, among other
things, that even if the Company does not commence construction, the seller may
nevertheless require the Company to acquire these rights during the six-month
period after the end of the sixth year. After such period, the seller's option
lapses, but any development on years 7 through 30 will require a payment, on an
increasing scale, for the development rights.
Individual Property Acquisitions.
In addition to the RM Acquisition and the Harborside Acquisition, from January
1, 1996 through February 28, 1997, the Company has invested approximately $173.5
million in the acquisition of 13 office and office/flex properties.
On March 20, 1996, the Company sold its office building located at 15 Essex Road
in Paramus, Essex County, New Jersey ("Essex Road") and concurrently acquired a
96,000 square foot office building at 103 Carnegie Center in Princeton, Mercer
County, New Jersey (the "Princeton Property") with the net proceeds from the
sale of Essex Road of approximately $10.3 million. The concurrent transactions
qualified as a tax-free exchange, as the Company used substantially all of the
proceeds from the sale of Essex Road on March 12, 1996 to acquire the Princeton
Property.
On May 2, 1996, the Company acquired Rose Tree Corporate Center, a two-building
suburban office complex totaling approximately 260,000 square feet, located in
Media, Delaware County, Pennsylvania. The complex was acquired for approximately
$28.1 million, which was drawn from one of the Company's credit facilities.
On July 23, 1996, the Company acquired 222 and 233 Mount Airy Road, two suburban
office buildings totaling approximately 115,000 square feet, located in Basking
Ridge, Somerset County, New Jersey. The buildings were acquired for
approximately $10.5 million, which was drawn from one of the Company's credit
facilities.
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On November 7, 1996, the Company acquired Five Sentry Parkway East & West ("Five
Sentry"), a two-building office complex comprised of approximately 130,000
square feet located in Plymouth Meeting, Montgomery County, Pennsylvania, for
approximately $12.5 million in cash, which was drawn from one of the Company's
credit facilities. Such borrowing was subsequently repaid from the net proceeds
received from the Company's public common stock offering of 17,537,500 shares
(the "November 1996 Offering") which was completed on November 22, 1996. See
"Business - Financing Activities - Equity Offerings."
On December 10, 1996, the Company acquired 300 Tice Boulevard ("Whiteweld"), a
230,000 square foot office building located in Woodcliff Lake, Bergen County,
New Jersey, for approximately $35.1 million in cash, made available from the net
proceeds received from the November 1996 Offering.
On December 16, 1996, the Company acquired One Bridge Plaza, a 200,000 square
foot office building located in Fort Lee, Bergen County, New Jersey, for
approximately $26.9 million in cash, made available from the net proceeds
received from the November 1996 Offering.
On December 17, 1996, the Company acquired the International Court at Airport
Business Center ("Airport Center"), a three-building office complex comprised of
approximately 371,000 square feet located in Lester, Delaware County,
Pennsylvania for approximately $43.2 million in cash, made available from the
net proceeds received from the November 1996 Offering.
On January 28, 1997, the Company acquired 1345 Campus Parkway, a 76,000 square
foot office/flex property, located in Wall Township, Monmouth County, New Jersey
for approximately $6.8 million in cash, made available from the net proceeds
received from the November 1996 Offering. The property is located in the same
office park in which the Company previously acquired two office properties and
four office/flex properties in November 1995.
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Other Recent Developments.
During the second quarter of 1996, the Company completed its construction of
tenant improvements to 400 Alexander Park, a three story, 70,550 net rentable
square foot office building located in Princeton, Mercer County, New Jersey,
which the Company acquired in December 1995 and leased in its entirety to
Berlitz International Inc. ("Berlitz"). Also during the second quarter of 1996,
the Company entered into a lease agreement with Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") for an additional 73,200 square feet of office
space located at 95 Christopher Columbus Drive in Jersey City, increasing DLJ's
occupancy to approximately 66 percent of the property.
In December 1996, the Company completed the construction of two office/flex
properties on vacant land purchased in the Company's Totowa, Passaic County, New
Jersey office park acquired in November 1995. The two properties, which were 19
percent occupied at December 31, 1996, aggregated 47,100 square feet, and were
completed for a total cost of $2.7 million.
FINANCING ACTIVITIES
The Company utilizes the most appropriate sources of capital for acquisitions,
development, joint ventures and capital improvements, which sources may include
undistributed Funds from Operations, borrowings under its revolving credit
facilities, issuances of debt or equity securities and/or bank and other
institutional borrowings.
Credit Facilities.
After the consummation of the IPO, the Company obtained a $70.0 million
revolving credit facility (the "First Prudential Facility") from Prudential
Securities Credit Corp. ("PSC"), secured by a pledge of $74.5 million commercial
mortgage pay-through bonds held by the Company. The facility may be used to fund
acquisitions and new development projects and for general working capital
purposes, including capital expenditures and tenant improvements. The First
Prudential Facility bore interest at a floating rate equal to 150 basis points
over one-month LIBOR for January 1, 1996 through August 31, 1996. Effective
September 1, 1996, the interest rate was reduced to a floating rate equal to 125
basis points over one-month LIBOR. The First Prudential Facility is a recourse
liability of the Operating Partnership and is secured by a pledge of the $74.5
million commercial montage pay-through bonds held by the Company, which bonds
are, in turn, secured by underlying indebtedness incurred by certain of the
Company's subsidiaries. See "-- Permanent Indebtedness". The First Prudential
Facility requires monthly payments of interest only, with outstanding advances
and any accrued but unpaid interest due November 30, 1997 and is subject to
renewal at the lender's sole discretion. At December 31, 1996, $6.0 million was
outstanding under the First Prudential Facility. At February 28, 1997, $6.0
million remained outstanding under the First Prudential Facility.
On February 1, 1996, the Company obtained a credit facility (the "Bank
Facility") secured by certain of its properties in the amount of $75.0 million
from two participating banks. The Bank Facility has a three-year term and bears
interest at 150 basis points over one-month LIBOR. The terms of the Bank
Facility include certain restrictions and covenants which limit, among other
things, dividend payments and additional indebtedness and which require
compliance with specified financial ratios and other financial measurements. The
Bank Facility also requires a fee equal to one quarter of one percent of the
unused balance payable quarterly in arrears. At December 31, 1996, approximately
$23.8 million was outstanding under the Bank Facility. At February 28, 1997,
approximately $62.0 million was outstanding under the Bank Facility.
Page 11
On November 4, 1996, the Company obtained a credit facility (the "Second
Prudential Facility") from PSC totaling $80.0 million which bears interest at
125 basis points over one-month LIBOR, and matures on January 15, 1998, unless
the Company or PSC elects to extend the maturity date to not earlier than June
30, 1998, or the facility is refinanced prior to such date at the election of
either the Company or PSC. The Second Prudential Facility is a recourse
liability of the Operating Partnership and is secured by the Company's equity
interest in Harborside. The terms of the Second Prudential Facility include
certain restrictions and covenants that limit, among other things, dividend
payments and additional indebtedness and that require compliance with specified
financial ratios and other financial measurements. At December 31, 1996 and at
February 28, 1997, the Company did not have any outstanding borrowings under the
Second Prudential Facility.
Permanent Indebtedness.
As of December 31, 1996, the Company had outstanding an aggregate balance of
approximately $232.9 million of long-term mortgage indebtedness, and as of
February 28, 1997, the Company had outstanding an aggregate balance of
approximately $418.1 million of long-term mortgage indebtedness (excluding
borrowings under the Company's credit facilities).
Concurrent with the IPO, the Company's initial operating subsidiaries, which own
the Original Properties, issued five-year mortgage notes with an aggregate
principal balance of $144.5 million, secured and cross-collateralized by the
Original Properties, to an affiliate ("PSI") of Prudential Securities Inc. PSI
then issued commercial mortgage pay-through bonds ("Bonds") collateralized by
the mortgage notes. Bonds with an aggregate principal balance of $70.0 million
were purchased by unrelated third parties. Bonds with an aggregate principal
balance of $74.5 million were purchased by the Company. As a result, the
Company's initial mortgage financing was $70.0 (the "Mortgage Financing").
Approximately $38.0 million of the Mortgage Financing is guaranteed under
certain conditions by certain partners of the partnerships which owned the
Original Properties. The Mortgage Financing requires monthly payments of
interest only, with all principal and any accrued but unpaid interest due in
August 1999. $46.0 million of the Mortgage Financing bears interest at a net
cost to the Company equal to a fixed rate of 8.02 percent per annum and the
remaining $24.0 million bears interest at a net cost to the Company equal to a
floating rate of 100 basis points over one-month LIBOR (5.53 percent at December
31, 1996) with a lifetime interest rate cap of 11.6 percent. Pursuant to the
terms of the Mortgage Financing, the Company is required to escrow approximately
$143,000 per month for tenant improvements and leasing commissions and $53,000
per month for capital improvements. In advance of the sale of Essex Road, on
March 12, 1996, the Company prepaid approximately $5.5 million ($1.7
million-fixed rate, $3.8 million-floating rate debt) of the Mortgage Financing,
resulting in outstanding balances of $44.3 million for the 8.02 percent fixed
rate debt and $20.2 million for the floating rate debt. See "Business -- Recent
Development -- Individual Property Acquisitions."
In connection with the acquisition of an office building in Fair Lawn, Bergen
County, New Jersey on March 3, 1995, the Company assumed an $18.8 million
non-recourse mortgage loan ("Fair Lawn Mortgage") bearing interest at a fixed
rate of 8.25 percent per annum. The loan requires payment of interest only
through March 15, 1996 and payment of principal and interest thereafter, on a
20-year amortization schedule, with the remaining principal balance due October
1, 2003. At December 31, 1996, the principal balance for the Fair Lawn Mortgage
was approximately $18.4 million, and at February 28, 1997, the balance was
approximately $18.3 million.
Page 12
In connection with the Harborside Acquisition, on November 4, 1996, the Company
assumed existing mortgage debt and was provided with mortgage debt by the seller
aggregating $150.0 million. See "Business -- Recent Developments -- Harborside
Acquisition." The existing financing of approximately $107.5 million bears
interest at a fixed rate of 7.32 percent for a term of approximately nine years.
The seller-provided financing of approximately $42.5 million also has a term of
nine years and initially bears interest at a rate of 6.99 percent. The interest
rate on the seller-provided financing will be reset at the end of the third and
sixth loan years based on the yield of the three-year Treasury obligation at
that time, with spreads of 110 basis points in years four through six and 130
basis points in years seven through maturity.
In connection with the RM Acquisition on January 31, 1997, the Company assumed a
$185.3 million non-recourse mortgage loan with Teachers Insurance and Annuity
Association of America, with interest only payable monthly at a fixed annual
rate of 7.18 percent. The TIAA Mortgage is secured and cross-collateralized by
43 of the RM Properties and matures on December 31, 2003. The Company, at its
option, may convert the TIAA Mortgage to unsecured public debt upon achievement
by the Company of an investment credit rating of Baa3/BBB- or better. The TIAA
Mortgage is prepayable in whole or in part subject to certain provisions,
including yield maintenance
Interest Rate Swap Agreements.
On May 24, 1995, the Company entered into an interest rate swap agreement with a
commercial bank. The swap agreement fixes the Company's one-month LIBOR base to
a fixed 6.285 percent per annum on a notional amount of $24.0 million through
August 1999. On January 23, 1996, the Company entered into another interest rate
swap agreement with one of the participating banks in the Bank Facility. The
swap agreement has a three-year term and a notional amount of $26.0, which fixes
the Company's one-month LIBOR base to 5.265 percent on its floating rate credit
facilities. The Company is exposed to credit loss in the event of
non-performance by the other parties to the interest rate swap agreements.
However, the Company does not anticipate non-performance by either counterparty.
Equity Offerings and Shelf Registrations.
On May 13, 1996, the stockholders approved an increase in the number of
authorized shares of Common Stock of the Company from 25 million to 95 million.
On July 29, 1996, the Company filed a shelf registration statement (File No.
333- 09081) with the Securities and Exchange Commission ("SEC") for an aggregate
amount of $500.0 million in equity securities of the Company. The registration
statement was declared effective by the SEC on August 2, 1996.
On August 13, 1996, the Company sold 3,450,000 shares of its Common Stock
through a public stock offering (the "August 1996 Offering"), which included an
exercise of the underwriters over-allotment option of 450,000 shares. Net
proceeds from the August 1996 Offering (after offering costs) were approximately
$76.8 million. The offering was conducted using one underwriter and the shares
were issued from the Company's $250.0 million shelf registration statement (File
No. 33-96538).
Page 13
On November 22, 1996, the Company completed an underwritten public offer and
sale of 17,537,500 shares of its Common Stock using several different
underwriters to underwrite such public offer and sale (which included an
exercise of the underwriters' over-allotment option of 2,287,500 shares). The
shares were issued from the Company's $500.0 million shelf registration
statement (File No. 333- 09081). The Company received approximately $441.2
million in net proceeds (after offering costs) from the November 1996 Offering,
and used such funds to acquire certain of the Company's property acquisitions in
November and December, pay down outstanding borrowings on its revolving credit
facilities, and invested the excess funds in Overnight Investments.
On December 31, 1996, the Company filed a shelf registration statement (File No.
333-19101) with the SEC for an aggregate amount of $1.0 billion in equity
securities of the Company. The registration statement was declared effective by
the SEC on January 7, 1997. The Company has not issued any securities under this
shelf registration.
ITEM 2. PROPERTIES
GENERAL
As of December 31, 1996, the Company owned 100 percent of 57 Properties ranging
from one to nineteen stories, including a multi-family residential property. As
of February 28, 1997, the Company owned 100 percent of 123 properties ranging
from one to nineteen stories, including two stand-alone retail properties, two
land leases and two multi-family residential properties. All of the Properties
are strategically located in a contiguous area from Philadelphia, Pennsylvania
to Stamford, Connecticut. The Properties are easily accessible from major
thoroughfares and are in close proximity to numerous amenities. The Properties
contain a total of approximately 11.4 million square feet, with the individual
Office Properties ranging from approximately 23,350 to 761,200 square feet, the
individual Office/Flex Properties ranging from 13,275 to 76,298 square feet and
the individual Industrial/Warehouse Properties ranging from 6,638 to 195,741
square feet.
The Properties, each managed by on-site employees, generally have attractively
landscaped sites, atriums and covered parking in addition to quality design and
construction. As of February 28, 1997, the Office Properties, Office/Flex
Properties and Industrial/Warehouse Properties were approximately 96 percent
leased to approximately 1,100 tenants. The Company's tenants include many
service sector employers, including a large number of professional firms and
national and international businesses. The Company believes that all of its
Properties are well-maintained and do not require significant capital
improvements.
The following property information is provided separately for the Year-End
Properties and the RM Properties. It should be noted that as the RM Properties
were acquired on January 31, 1997, certain information provided for the RM
Properties may not be indicative of the results that will occur following the
Company's acquisition of such properties.
Page 14
Year-End Properties: Property Tables
The following tables set forth certain historical information relating to each
of the Year-End Office Properties and the Year-End Office/Flex Properties, which
are owned 100 percent by the Company as of December 31, 1996:
Page 15
Percentage
Of 1996
Percentage Total Office
Net Leased 1996 1996 and Office/
Rentable as of Base Effective Flex Base
Property Year Area 12/31/96 Rent Rent Rent
Location Built (Sq. Ft.) (%)(1) ($000)(2) ($000)(3) (%)
-------- ----- --------- ------ --------- --------- ---
Year-End Office Properties
CRANFORD, UNION COUNTY, NJ
6 Commerce Drive ......... 1973 56,000 100.0 941 814 1.27
11 Commerce Drive (6)..... 1981 90,000 95.8 1,219 1,099 1.64
20 Commerce Drive ........ 1990 176,600 100.0 3,677 2,936 4.95
65 Jackson Drive ......... 1984 82,778 86.4 953 895 1.28
CLARK, UNION COUNTY, NJ
100 Walnut Avenue ......... 1985 182,555 94.2 3,679 3,341 4.95
JERSEY CITY,
HUDSON COUNTY, NJ
95 Christopher
Columbus Drive........... 1989 621,900 100.0 12,123 11,031 16.33
Harborside Financial Center(8)
Christopher Columbus Drive
Exchange Place & the
Hudson River
Plaza I ............... 1983(9) 400,000 100.0 516 516 0.69
Plaza II .............. 1990(9) 761,200 95.8 2,134 2,134 2.87
Plaza III ............. 1990(9) 725,600 97.0 2,391 2,391 3.22
Parking Agreement (10). N/A N/A 100.0 538 538 0.72
ROSELAND, ESSEX COUNTY, NJ
101 Eisenhower Parkway..... 1980 237,000 93.1 3,685 3,339 4.96
103 Eisenhower Parkway..... 1985 151,545 97.5 3,187 3,057 4.29
Page 16
1996 1996 Tenants Leasing
Average Average 10% or More
Base Rent Effective of Net
per Rent Per Rentable Area
Property Sq. Ft. Sq. Ft. per Property
Location ($)(4) ($)(5) as of 12/31/96(6)
-------- ------ ------ -----------------
Year-End Office Properties
CRANFORD, UNION COUNTY, NJ
6 Commerce Drive ......... 16.80 14.54 Public Service Electric & Gas
Co. (18%), Excel Scientific
Protocols, Inc. (18%), Columbia
National, Inc. (13%)
11 Commerce Drive (6)..... 14.14 12.75 Public Service Electric & Gas Co.
(23%), Northeast
Administrators (23%)
20 Commerce Drive ........ 20.82 16.63 Public Service Electric & Gas Co.
(25%), Paychex, Inc. (12%)
65 Jackson Drive ......... 13.32 12.51 Kraft General Foods, Inc. (35%),
Allstate Insurance Co. (27%),
The Procter & Gamble Distribution
Co. Inc. (17%)
CLARK, UNION COUNTY, NJ
100 Walnut Avenue ......... 21.39 19.43 BDSI, Inc. (39%), The Equitable
Life Assurance Society of the
United States (15%)
JERSEY CITY,
HUDSON COUNTY, NJ
95 Christopher
Columbus Drive........... 19.49 17.74 Donaldson, Lufkin & Jenrette
Securities Corp. (67%), NTT
Data Corp. (25%)
Harborside Financial Center(8)
Christopher Columbus Drive
Exchange Place & the
Hudson River
Plaza I ............... 1.29 1.29 Bankers Trust Harborside,Inc.(96%)
Plaza II .............. 2.93 2.93 Dow Jones Telerate Holdings, Inc. (44%),
Dean Witter Trust Co. (24%)
Plaza III ............. 3.40 3.40 American Institute of Certified
Public Accountants (34%), Bank of
Tokyo Information
Services, Inc. (19%)
Parking Agreement (10). N/A N/A Kinney Hackensack, Inc. (100%)
ROSELAND, ESSEX COUNTY, NJ
101 Eisenhower Parkway..... 16.70 15.13 Arthur Andersen LLP (29%),
Brach, Eichler, Rosenberg,
Silver, Bernstein & Hammer (13%)
103 Eisenhower Parkway..... 21.57 20.69 Ravin, Sarasohn, Cook, Baumgarten (18%), Lum,
Hoenes, Able (17%), Chelsea-GCA (15%)
Page 17
Percentage
Of 1996
Percentage Total Office
Net Leased 1996 1996 and Office/
Rentable as of Base Effective Flex Base
Property Year Area 12/31/96 Rent Rent Rent
Location Built (Sq. Ft.) (%)(1) ($000)(2) ($000)(3) (%)
-------- ----- --------- ------ --------- --------- ---
Year-End Office Properties(cont.)
WOODCLIFF LAKE,
BERGEN COUNTY, NJ
50 Tice Boulevard ......... 1984 235,000 99.0 4,611 3,954 6.21
300 Tice Boulevard (8)........ 1991 230,000 100.0 245 245 0.33
PARAMUS, BERGEN COUNTY, NJ
15 Essex Road ............. 1979 (7) (7) 261 224 0.35
FAIR LAWN, BERGEN COUNTY, NJ
17-17 Route 208 ........... 1987 143,000 100.0 3,343 3,331 4.52
FORT LEE, BERGEN COUNTY, NJ
One Bridge Plaza (8) ...... 1981 200,000 90.7 174 174 0.24
FLORHAM PARK,
MORRIS COUNTY, NJ
325 Columbia Turnpike ..... 1987 168,144 97.1 3,396 2,998 4.57
PARSIPPANY,
MORRIS COUNTY, NJ
600 Parsippany Road ....... 1978 96,000 99.4 1,471 1,444 1.98
SUFFERN, ROCKLAND COUNTY, NY
400 Rella Boulevard ....... 1988 180,000 95.9 3,250 3,219 4.38
Page 18
1996 1996 Tenants Leasing
Average Average 10% or More
Base Rent Effective of Net
per Rent Per Rentable Area
Property Sq. Ft. Sq. Ft. per Property
Location ($)(4) ($)(5) as of 12/31/96(6)
-------- ------ ------ -----------------
Year-End Office Properties(cont.)
WOODCLIFF LAKE,
BERGEN COUNTY, NJ
50 Tice Boulevard ......... 19.82 17.00 Syncsort, Inc. (22%)
300 Tice Boulevard (8)........ 1.07 1.07 Medco Containments
Services, Inc. (20%), Xerox
Corp. (13%), Chase Home
Mortgage Corp. (11%),
Comdisco, Inc. (11%)
PARAMUS, BERGEN COUNTY, NJ
15 Essex Road ............. (7) (7) (7)
FAIR LAWN, BERGEN COUNTY, NJ
17-17 Route 208 ........... 23.38 23.29 Lonza, Inc. (63%), Chubb
Federal Insurance Co. (16%),
Boron-Lepone Assoc., Inc. (10%)
FORT LEE, BERGEN COUNTY, NJ
One Bridge Plaza (8) ...... 0.96 0.96 Broadview Associates LLP (16%),
Bozell Wordwide, Inc. (12%)
FLORHAM PARK,
MORRIS COUNTY, NJ
325 Columbia Turnpike ..... 20.80 18.36 Bressler, Amery & Ross (24%),
General Motors Acceptance
Corp.(14%), Dun &
Bradstreet, Inc. (12%)
PARSIPPANY,
MORRIS COUNTY, NJ
600 Parsippany Road ....... 15.42 15.13 Metropolitan Life Insurance Co.
(36%), International Business
Machines (35%)
SUFFERN, ROCKLAND COUNTY, NY
400 Rella Boulevard ....... 18.83 18.65 Allstate Insurance Co. (41%),
The Prudential Insurance Co. (21%),
Provident Savings F.A. (20%), John
Alden Life Insurance Co. of N.Y. (11%)
Page 19
Percentage
of 1996
Percentage Total Office
Net Leased 1996 1996 and Office/
Rentable as of Base Effective Flex Base
Property Year Area 12/31/96 Rent Rent Rent
Location Built (Sq. Ft.) (%)(1) ($000)(2) ($000)(3) (%)
-------- ----- --------- ------ --------- --------- ---
Year-End Office Properties (cont.)
PRINCETON, MERCER COUNTY, NJ
5 Vaughn Drive ............ 1987 98,500 99.2 2,048 2,037 2.76
400 Alexander Park(8)...... 1987 70,550 100.0 971 840 1.31
103 Carnegie Center(8)..... 1984 96,000 91.9 1,299 1,299 1.75
CLIFTON, PASSAIC COUNTY, NJ
777 Passaic Avenue ........ 1983 75,000 69.2 780 679 1.05
Clifton,
Passaic County, NJ
TOTOWA, PASSAIC COUNTY, NJ
999 Riverview Drive ....... 1988 56,066 97.5 967 963 1.30
WALL TOWNSHIP,
MONMOUTH COUNTY, NJ
1305 Campus Parkway ....... 1988 23,350 87.9 390 375 0.53
1350 Campus Parkway ....... 1990 79,747 80.5 1,174 1,161 1.58
NEPTUNE, MONMOUTH COUNTY, NJ
3600 Route 66 ............. 1989 180,000 100.0 2,411 2,411 3.25
EGG HARBOR,
ATLANTIC COUNTY, NJ
100 Decadon Drive ......... 1987 40,422 100.0 772 772 1.04
200 Decadon Drive ......... 1991 39,922 94.1 604 596 0.81
BASKING RIDGE,
SOMERSET COUNTY, NJ
222 Mt. Airy Road (8)...... 1986 49,000 100.0 191 191 0.26
233 Mt. Airy Road (8)...... 1987 66,000 100.0 336 336 0.45
Page 20
1996 1996 Tenants Leasing
Average Average 10% or More
Base Rent Effective of Net
per Rent Per Rentable Area
Property Sq. Ft. Sq. Ft. per Property
Location ($)(4) ($)(5) as of 12/31/96(6)
-------- ------ ------ -----------------
Year-End Office Properties (cont.)
PRINCETON, MERCER COUNTY, NJ
5 Vaughn Drive ............ 20.96 20.85 U.S. Trust of N.J. (19%), Princeton
Venture Research Corp. (14%), Woodrow
Wilson (12%), Villeroy & Boch
Tableware Ltd. (11%)
400 Alexander Park(8)...... 13.76 11.91 Berlitz International Inc.(100%)
103 Carnegie Center(8)..... 14.72 14.72 Ronin Development Corp. (11%)
CLIFTON, PASSAIC COUNTY, NJ
777 Passaic Avenue ........ 15.03 13.08 Motorola Inc. (19%)
Clifton,
Passaic County, NJ
TOTOWA, PASSAIC COUNTY, NJ
999 Riverview Drive ....... 17.69 17.62 Bank of New York (55%), Bankers
Financial (16%), Commonwealth Land (11%)
WALL TOWNSHIP,
MONMOUTH COUNTY, NJ
1305 Campus Parkway ....... 18.27 Centennial Cellular Corp. (41%),
19.00 McClaughlin, Bennett, Gelson(25%),
Premier Dash (12%), NJ Natural
Energy(10%)
1350 Campus Parkway ....... 18.09 New Jersey National Bank (17%),
18.29 Stephen E. Gertier (17%),
Hospital Computer
Systems, Inc. (11%)
NEPTUNE, MONMOUTH COUNTY, NJ 13.39
3600 Route 66 ............. 13.39 The U.S. Life Insurance Company
in New York City (100%)
EGG HARBOR,
ATLANTIC COUNTY, NJ 19.10
100 Decadon Drive ......... 19.10 Computer Sciences Corp. (79%)
16.08
200 Decadon Drive ......... 15.87 Hughes STX (27%), Reliance
Healthcare Group (19%),
International Business
Machines (14%), Computer
Sciences Corp. (11%)
BASKING RIDGE,
SOMERSET COUNTY, NJ
222 Mt. Airy Road (8)...... 3.90 3.90 Lucent Technologies Inc. (100%)
233 Mt. Airy Road (8)...... 5.09 5.09 A.T.& T. Corp. (100%)
Page 21
Percentage
of 1996
Percentage Total Office
Net Leased 1996 1996 and Office/
Rentable as of Base Effective Flex Base
Property Year Area 12/31/96 Rent Rent Rent
Location Built (Sq. Ft.) (%)(1) ($000)(2) ($000)(3) (%)
-------- ----- --------- ------ --------- --------- ---
Year-End Office Properties (cont.)
PLYMOUTH MEETING,
MONTGOMERY COUNTY, PA
5 Sentry Parkway East (8).. 1984 91,600 100.0 214 214 0.29
5 Sentry Parkway West (8).. 1984 38,400 100.0 95 95 0.13
MEDIA, DELAWARE COUNTY, PA
Rose Tree Coporate Center
Center I (8).............. 1986 100,000 96.1 1,221 1,221 1.64
Center II (8)............. 1990 160,000 99.0 1,847 1,846 2.49
LESTER, DELAWARE COUNTY, PA
Internationl Court at
Airport Business Center(8)
International Court I .. 1986 95,000 99.7 85 85 0.11
International Court II . 1987 208,000 99.8 153 153 0.21
International Court III. 1992 68,000 100.0 55 55 0.07
--------- ----- ------ ------ -----
Total Year-End Office Properties 6,372,879 97.0 67,407 63,009 90.78
--------- ----- ------ ------ -----
Page 22
1996 1996 Tenants Leasing
Average Average 10% or More
Base Rent Effective of Net
per Rent Per Rentable Area
Property Sq. Ft. Sq. Ft. per Property
Location ($)(4) ($)(5) as of 12/31/96(6)
-------- ------ ------ -----------------
Year-End Office Properties (cont.)
PLYMOUTH MEETING,
MONTGOMERY COUNTY, PA
5 Sentry Parkway East (8).. 2.34 2.34 Merck, Inc. (72%), Selas
Fluid Processing Corp. (22%)
5 Sentry Parkway West (8).. 2.47 2.47 Merck. Inc. (70%),
David Cutler Group (30%)
MEDIA, DELAWARE COUNTY, PA
Rose Tree Coporate Center
Center I (8).............. 12.71 12.71 General Services Administration
(13%), Erie Insurance
Company (11%)
Center II (8)............. 11.66 11.65 Barnett International (27%)
LESTER, DELAWARE COUNTY, PA
Internationl Court at
Airport Business Center(8)
International Court I .. 0.90 0.90 SAP America, Inc. (81%)
International Court II . 0.74 0.74 PNC Bank (51%), Mercy Health
Plan (34%)
International Court III. 0.81 0.81 SAP America, Inc. (38%), McLaren
Hart Environmental Engineering
Corp. (38%), Mercy Health
Plan(13%)
----- -----
Total Year-End Office Properties 19.00 (11) 17.54 (11)
----- -----
Page 23
Percentage
Of 1996
Percentage Total Office
Net Leased 1996 1996 and Office/
Rentable as of Base Effective Flex Base
Property Year Area 12/31/96 Rent Rent Rent
Location Built (Sq. Ft.) (%)(1) ($000)(2) ($000)(3) (%)
-------- ----- --------- ------ --------- --------- ---
Year-End Office/Flex Properties
TOTOWA, PASSAIC COUNTY, NJ
11 Commerce Way ........... 1989 47,025 88.9 412 412 0.55
20 Commerce Way ........... 1992 42,540 100.0 467 467 0.63
29 Commerce Way ........... 1990 48,930 100.0 454 430 0.61
40 Commerce Way ........... 1987 50,576 100.0 426 416 0.57
45 Commerce Way ........... 1992 51,207 100.0 478 454 0.64
60 Commerce Way ........... 1988 50,333 100.0 292 273 0.39
80 Commerce Way (8)........ 1996 22,500 51.6 -- -- --
100 Commerce Way (8)....... 1996 24,600 -- -- -- --
120 Commerce Way ...... 1994 9,024 100.0 128 126 0.17
140 Commerce Way .......... 1994 26,881 100.0 210 210 0.28
Page 24
1996 1996 Tenants Leasing
Average Average 10% or More
Base Rent Effective of Net
per Rent Per Rentable Area
Property Sq. Ft. Sq. Ft. per Property
Location ($)(4) ($)(5) as of 12/31/96(6)
-------- ------ ------ -----------------
Year-End Office/Flex Properties
TOTOWA, PASSAIC COUNTY, NJ
11 Commerce Way ........... 9.86 9.86 Caremark Homecare (78%),
Quantum Health (11%),
20 Commerce Way ........... 10.98 10.98 Motorola Inc. (45%),
Siemens Electro-
Components (41%),
John Guest USA (14%)
29 Commerce Way ........... 9.28 8.79 Sandvik Sorting Systems,Inc.(44%),
Paterson Dental Supply Inc. (23%),
Fujitec America Inc. (22%),
Bell Atlantic
Meridian Systems(11%)
40 Commerce Way ........... 8.42 8.23 Thomson Electronics (35%),
Minolta Business
Systems Inc.(35%),
Snap-On, Inc. (14%),
Inchscape Testing Services (14%)
45 Commerce Way ........... 9.33 8.87 Ericsson Radio Systems Inc. (52%),
Woodward Clyde Consultants (27%),
Oakwood Corporate Housing (10%),
Sensormatic Electronics (10%)
60 Commerce Way ........... 5.80 5.42 Ericsson Inc. (43%),
Relectronic Service Corp. (43%),
Maxlite-S.K. America (14%)
80 Commerce Way (8)........ -- -- Hey Diddle Diddle Inc. (52%), Bell
Atlantic Communications (11.6%)
100 Commerce Way (8)....... -- --
120 Commerce Way ...... 14.18 13.96 Deerfield Healthcare (100%)
140 Commerce Way .......... 7.81 7.81 Advanced Images Systems Inc.(20%),
Philips Consumer (l9%), Holder
Group Inc. (11%), Showa Toll
USA Inc. (10%), Alpha Testing (10%),
Telsource Inc. (10%), Dairygold (10%),
Universal Hospital Services (10%)
Page 25
Percentage
of 1996
Percentage Total Office
Net Leased 1996 1996 and Office/
Rentable as of Base Effective Flex Base
Property Year Area 12/31/96 Rent Rent Rent
Location Built (Sq. Ft.) (%)(1) ($000)(2) ($000)(3) (%)
-------- ----- --------- ------ --------- --------- ---
Year-End Office/Flex Properties(cont.)
WALL TOWNSHIP,
MONMOUTH COUNTY, NJ
1325 Campus Parkway ....... 1988 35,000 91.9 392 391 0.53
1340 Campus Parkway ....... 1992 72,502 88.9 600 600 0.81
1320 Wykoff Road .......... 1986 20,336 100.0 190 190 0.26
1324 Wykoff Road .......... 1987 21,168 100.0 206 206 0.28
1433 Highway 34 ........... 1985 69,020 94.7 563 549 0.76
HAMILTON TOWNSHIP,
MERCER COUNTY, NJ
100 Horizon Drive ........ 1989 13,275 100.0 226 226 0.30
200 Horizon Drive ......... 1991 45,770 85.3 445 445 0.60
300 Horizon Drive ......... 1989 69,780 100.00 923 919 1.25
500 Horizon Drive ......... 1990 41,205 92.8 436 427 0.59
--------- ------ ------ ------ ------
Total Yr-End Office/Flex Prop. 761,672 91.5 6,848 6,741 9.22
--------- ------ ------ ------ ------
Total Year-End Properties 7,134,551 96.4 74,255 69,750 100.00
========= ==== ====== ====== ======
See footnotes on subsequent page.
Page 26
1996 1996 Tenants Leasing
Average Average 10% or More
Base Rent Effective of Net
per Rent Per Rentable Area
Property Sq. Ft. Sq. Ft. per Property
Location ($)(4) ($)(5) as of 12/31/96(6)
-------- ------ ------ -----------------
Year-End Office/Flex Properties(cont.)
WALL TOWNSHIP,
MONMOUTH COUNTY, NJ
1325 Campus Parkway ....... 1988 12.19 12.16 American Press (71%)
1340 Campus Parkway ....... 1992 9.31 9.31 Groundwater & Environmental
Services(33%), Software Shop(22%),
Lincare/Omni (15%), Association
for Retarded Citizens (11%)
1320 Wykoff Road .......... 1986 9.34 9.34 Eastern Automation (71%),
A.T.&T. Corp. (29%)
1324 Wykoff Road .......... 1987 9.73 9.73 A.T.& T. Corp. (29%),
State of New Jersey (25%),
Supply Saver, Inc. (22%)
1433 Highway 34 ........... 1985 8.61 8.40 State Farm Mutual Auto
Insurance (22%), NJ
Natural Gas Co. (14%),
Beacon Tool Inc. (12%)
HAMILTON TOWNSHIP,
MERCER COUNTY, NJ
100 Horizon Drive ........ 1989 17.02 17.02 H.I.P. of New Jersey Inc. (100%)
200 Horizon Drive ......... 1991 11.40 11.40 O.H.M. Remediation
Services Corp. (85%)
300 Horizon Drive ......... 1989 13.23 13.17 State of NJ/D.E.P (50%),
McFaul & Lyons (26%),
Fluor Daniel GTI (24%)
500 Horizon Drive ......... 1990 11.40 11.17 First Financial (30%),
Lakeview Child Center Inc.(19%),
SHL Systems House Corp. (18%),
NJ Consumer Water Co. (14%),
Diedre Moire Corp. (11%)
----- ------
Total Yr-End Office/Flex Prop. 10.00 (11) 9.84 (11)
----- ------
Total Year-End Properties 17.28 (11) 16.07 (11)
----- ------
See footnotes on subsequent page.
Page 27
- -------------------------
(1) Based on all leases in effect as of December 31, 1996.
(2) Total base rent for 1996, determined in accordance with GAAP.
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.
(3) Total base rent for 1996 minus total 1996 amortization of tenant
improvements, leasing commissions and other concessions and costs,
determined in accordance with GAAP.
(4) Base rent for 1996 divided by net rentable square feet leased at
December 31, 1996. For those properties acquired by the Company during
1996, amounts presented reflected only that portion of the year during
which the Company owned the properties.
(5) Effective rent for 1996 divided by net rentable square feet leased at
December 31, 1996. For those properties acquired by the Company during
1996, base rent and effective rent amounts presented reflect only that
portion of the year during which the Company owned the properties.
(6) Excludes office space leased by the Company.
(7) 15 Essex Road was sold by the Company on March 20, 1996.
(8) As this Year-End Property was acquired or fully constructed by the
Company during 1996, the amounts represented in 1996 Base Rent and
Effective Rent as well as 1996 Average Base Rent per Sq.Ft. and 1996
Average Effective Rent per Sq.Ft. reflect only that portion of the year
during which the Company owned or placed the property in service during
the year. Accordingly, amounts may not be indicative of the property's
full year results.
(9) The Harborside Financial Center was completely reconstructed from 1983
through 1990, although the base structure was originally constructed in
1930.
(10) The Company has a lease agreement with a parking services company for
the use of certain land at Harborside to be used as a paid parking
area.
(11) Includes only those properties owned by the Company on January 1, 1996.
Page 28
RM Properties: Property Tables
The following tables set forth certain historical information relating to each
of the RM Office Properties, the RM Office/Flex Properties and the
Industrial/Warehouse properties which were owned 100 percent by RM as of
December 31, 1996.
Percentage
Of 1996
Total Office,
Percentage Office/Flex,
Net Leased 1996 & Industrial/
Rentable as of Base Warehouse
Property Year Area 12/31/96 Rent Base Rent
Location Built (Sq. Ft.) (%)(1) ($000)(2) (%)
-------- ----- --------- ------ --------- -------------
RM Office Properties
ELMSFORD,
WESTCHESTER COUNTY, NY
100 Clearbrook Road(6) .... 1975 60,000 93.8 776 1.32
101 Executive Boulevard ... 1971 50,000 94.3 893 1.52
570 Taxter Road ........... 1972 75,000 94.2 1,483 2.52
HAWTHORNE,
WESTCHESTER COUNTY, NY
1 Skyline Drive ........... 1980 20,400 50.0 134 0.23
2 Skyline Drive ........... 1987 30,000 100.0 420 0.71
17 Skyline Drive .......... 1989 85,000 100.0 1,130 1.92
30 Saw Mill River Road .... 1982 248,400 100.0 4,471 7.59
Page 29
1996 Tenants Leasing
Average 10% or More
Base Rent of Net
Property per Rentable Area
Location Sq. Ft. per Property
-------- ($)(3) as of 12/31/96(4)
------ -----------------
RM Office Properties
ELMSFORD,
WESTCHESTER COUNTY, NY
100 Clearbrook Road(6) .... 13.79 ANS (34%)
101 Executive Boulevard ... 18.92 Pennysaver Group (18%),
MCS Business Machines(11%),
Alcone Sim's O'Brien (12%)
570 Taxter Road ........... 20.99 Connecticut General (15%)
HAWTHORNE,
WESTCHESTER COUNTY, NY
1 Skyline Drive ........... 13.11 Childtime Childcare (50%)
2 Skyline Drive ........... 13.99 MW Samara (41%),
Perinin Construction (30%),
Boykoff & Bell (13%)
17 Skyline Drive .......... 13.29 IBM (100%)
30 Saw Mill River Road .... 18.00 IBM (100%)
Page 30
Percentage
Of 1996
Total Office,
Percentage Office/Flex,
Net Leased 1996 & Industrial/
Rentable as of Base Warehouse
Property Year Area 12/31/96 Rent Base Rent
Location Built (Sq. Ft.) (%)(1) ($000)(2) (%)
-------- ----- --------- ------ --------- -------------
RM Office Properties(cont.)
YONKERS,
WESTCHESTER COUNTY, NY
1 Executive Boulevard...... 1982 112,000 82.5 1,958 3.32
3 Executive Boulevard...... 1987 58,000 95.0 1,100 1.87
TARRYTOWN,
WESTCHESTER COUNTY, NY
200 White Plains Road ..... 1982 89,000 91.3 1,588 2.69
220 White Plains Road...... 1984 89,000 96.2 1,772 3.01
WHITE PLAINS,
WESTCHESTER COUNTY, NY
1 Barker Avenue ........... 1975 68,000 100.0 1,461 2.48
3 Barker Avenue ........... 1983 65,300 98.9 1,216 2.06
1 Water Street ............ 1979 45,700 100.0 874 1.48
11 Martine Avenue ......... 1987 180,000 100.0 4,224 7.17
50 Main Street ............. 1985 309,000 96.7 7,039 11.95
--------- ------ ------- -----
Total RM Office Properties 1,584,800 95.9 30,539 51.84
--------- ------ ------- -----
Page 31
1996 Tenants Leasing
Average 10% or More
Base Rent of Net
per Rentable Area
Property Sq. Ft. per Property
Location ($)(3) as of 12/31/96(4)
-------- ------ -----------------