MACK CALI REALTY L P - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
ý	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to

Commission file number 333-57103-01

Mack-Cali Realty, L.P.
(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		22-3315804 (I.R.S. Employer Identification Number)
11 Commerce Drive, Cranford, New Jersey 07016-3501 (Address of principal executive office) (Zip Code)
(908) 272-8000 (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 for such shorter period that the Registrant was required to file such reports) Yes ý No o and (2) has been subject to such filing requirements for the past ninety (90) days Yes ý No o.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý No o

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, 2003 and December 31, 2002	4
		Consolidated Statements of Operations for the three and six month periods ended June 30, 2003 and 2002	5
		Consolidated Statement of Changes in Partners' Capital for the six months ended June 30, 2003	6
		Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and 2002	7
		Notes to Consolidated Financial Statements	8-36
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	37-52
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	52
	Item 4.	Controls and Procedures	53
Part II	Other Information and Signatures
	Item 1.	Legal Proceedings	54
	Item 2.	Changes in Securities and Use of Proceeds	54
	Item 3.	Defaults Upon Senior Securities	54
	Item 4.	Submission of Matters to a Vote of Security Holders	54
	Item 5.	Other Information	54
	Item 6.	Exhibits and Reports on Form 8-K	55-60
		Signatures	61
		Certifications	62-63

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 thereto, 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, 2002.

The results of operations for the three and six month periods ended June 30, 2003 are not necessarily indicative of the results to be expected for the entire fiscal year or any other period.

MACK-CALI REALTY, L.P. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per unit amounts)

			June 30, 2003			December 31, 2002
			(unaudited)
ASSETS
Rental property
	Land and leasehold interests		$	545,838		$	544,176
	Buildings and improvements			3,165,161			3,141,003
	Tenant improvements			178,702			164,945
	Furniture, fixtures and equipment			7,626			7,533

				3,897,327			3,857,657
	Less—accumulated depreciation and amortization			(495,071	)		(445,569	)

		Net investment in rental property		3,402,256			3,412,088
Cash and cash equivalents				8,585			1,167
Investments in unconsolidated joint ventures, net				178,601			176,797
Unbilled rents receivable, net				70,253			64,759
Deferred charges and other assets, net				123,778			127,551
Restricted cash				8,115			7,777
Accounts receivable, net of allowance for doubtful accounts of $1,288 and $1,856				3,285			6,290

Total assets			$	3,794,873		$	3,796,429

LIABILITIES AND PARTNERS' CAPITAL
Senior unsecured notes			$	1,127,300		$	1,097,346
Revolving credit facilities				95,000			73,000
Mortgages and loans payable				505,335			582,026
Distributions payable				46,081			45,067
Accounts payable and accrued expenses				48,520			50,774
Rents received in advance and security deposits				34,542			39,038
Accrued interest payable				24,946			24,948

		Total liabilities		1,881,724			1,912,199

Commitments and contingencies
Partners' Capital:
General Partner, 10,000 and 0 preferred units outstanding				24,836			—
Limited partners, 215,456 and 215,894 preferred units outstanding				220,996			221,445
General Partner, 58,011,329 and 57,318,478 common units outstanding				1,460,268			1,454,194
Limited partners, 7,800,497 and 7,813,806 common units outstanding				207,049			208,591

		Total partners' capital		1,913,149			1,884,230

Total liabilities and partners' capital			$	3,794,873		$	3,796,429

The accompanying notes are an integral part of these consolidated financial statements.

MACK-CALI REALTY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit amounts)
(unaudited)

		Three Months Ended June 30,						Six Months Ended June 30,
		2003			2002			2003			2002
REVENUES
Base rents		$	127,841		$	121,764		$	254,089		$	247,920
Escalations and recoveries from tenants			14,191			14,394			30,024			27,586
Parking and other			3,292			4,531			9,154			7,592
Interest income			265			446			591			784

	Total revenues		145,589			141,135			293,858			283,882

EXPENSES
Real estate taxes			16,133			15,319			32,046			30,604
Utilities			9,541			9,257			20,437			19,333
Operating services			18,042			16,428			38,365			32,537
General and administrative			6,914			7,893			13,672			14,594
Depreciation and amortization			29,354			27,520			58,555			51,472
Interest expense			28,722			25,596			58,233			51,955
Loss on early retirement of debt, net			970			—			2,372			—

	Total expenses		109,676			102,013			223,680			200,495

Income from continuing operations before equity in earnings of unconsolidated joint ventures			35,913			39,122			70,178			83,387
Equity in earnings of unconsolidated joint ventures, net			6,819			9,374			9,199			8,069

Income from continuing operations			42,732			48,496			79,377			91,456
Discontinued operations:
	Income from discontinued operations		—			98			30			284
	Realized gain on disposition of rental property		—			—			1,324			—

Total discontinued operations, net			—			98			1,354			284
Realized gains (losses) and unrealized losses on disposition of rental property, net			—			(4,840	)		—			2,258

Net income		$	42,732		$	43,754		$	80,731		$	93,998
	Series C Preferred unit distributions		(672	)		—			(672	)		—
	Series B Preferred unit distributions		(3,917	)		(3,863	)		(7,842	)		(7,806	)

Net income available to common unitholders		$	38,143		$	39,891		$	72,217		$	86,192

Basic earnings per common unit:
Income from continuing operations		$	0.58		$	0.61		$	1.09		$	1.32
Discontinued operations			—			—			0.02			0.01

Net income available to common unitholders		$	0.58		$	0.61		$	1.11		$	1.33

Diluted earnings per common unit:
Income from continuing operations		$	0.58		$	0.61		$	1.08		$	1.31
Discontinued operations			—			—			0.02			—

Net income available to common unitholders		$	0.58		$	0.61		$	1.10		$	1.31

Distributions declared per common unit		$	0.63		$	0.62		$	1.26		$	1.24

Basic weighted average units outstanding			65,331			65,168			65,186			64,961

Diluted weighted average units outstanding			65,761			65,606			65,454			71,702

The accompanying notes are an integral part of these consolidated financial statements.

MACK-CALI REALTY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL

For the Six Months Ended June 30, 2003 (in thousands) (unaudited)

		General Partner Preferred Units	Limited Partners Preferred Units		General Partner Common Units		Limited Partners Common Units		General Partner Preferred Unitholders			Limited Partners Preferred Unitholders			General Partner Common Unitholders			Limited Partners Common Unitholders			Total
Balance at January 1, 2003		—	216		57,318		7,813			—		$	221,445		$	1,454,194		$	208,591		$	1,884,230
	Net income	—	—		—		—			672			7,842			63,569			8,648			80,731
	Distributions	—	—		—		—			(672	)		(7,842	)		(72,879	)		(9,836	)		(91,229	)
	Issuance of preferred stock	10	—		—		—			24,836			—			—			—			24,836
	Redemption of Preferred Units for limited partner units	—	(1	)	—		13			—			(449	)		—			449			—
	Redemption of limited partner units for shares of common stock	—	—		26		(26	)		—			—			803			(803	)		—
	Contributions — proceeds from stock options exercised	—	—		498		—			—			—			13,483			—			13,483
	Contributions — proceeds from Stock Warrants exercised	—	—		29		—			—			—			973			—			973
	Stock options expense	—	—		—		—			—			—			88			—			88
	Deferred compensation plan for directors	—	—		—		—			—			—			112			—			112
	Issuance of Restricted Stock Awards	—	—		175		—			—			—			40			—			40
	Amortization of stock compensation	—	—		—		—			—			—			915			—			915
	Repurchase of general partner units	—	—		(35	)	—			—			—			(1,030	)		—			(1,030	)

Balance at June 30, 2003		10	215		58,011		7,800		$	24,836		$	220,996		$	1,460,268		$	207,049		$	1,913,149

The accompanying notes are an integral part of these consolidated financial statements.

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		Six Months Ended June 30,
CASH FLOWS FROM OPERATING ACTIVITIES		2003			2002
Net income		$	80,731		$	93,998
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization		58,555			51,472
	Stock options expense		88			—
	Amortization of stock compensation		915			1,001
	Amortization of deferred financing costs and debt discount		2,485			2,353
	Write-off of unamortized interest rate contract		1,540			—
	Discount on early retirement of debt		(2,008	)		—
	Equity in earnings of unconsolidated joint ventures, net		(9,199	)		(8,069	)
	Realized (gains) losses and unrealized losses on disposition of rental property, net		(1,324	)		(2,258	)
Changes in operating assets and liabilities:
	Increase in unbilled rents receivable, net		(5,558	)		(3,996	)
	Increase in deferred charges and other assets, net		(10,450	)		(12,197	)
	Decrease in accounts receivable, net		3,005			714
	Decrease in accounts payable and accrued expenses		(2,254	)		(3,074	)
	Decrease in rents received in advance and security deposits		(4,496	)		(300	)
	(Decrease) increase in accrued interest payable		(2	)		52

	Net cash provided by operating activities	$	112,028		$	119,696

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to rental property		$	(44,202	)	$	(81,895	)
Proceeds from repayment of mortgage note receivable			2,362			3,240
Investments in unconsolidated joint ventures			(6,201	)		(35,260	)
Distributions from unconsolidated joint ventures			13,596			17,272
Proceeds from sales of rental property			5,469			92,503
Increase in restricted cash			(338	)		(556	)

	Net cash used in investing activities	$	(29,314	)	$	(4,696	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from senior unsecured notes		$	124,714			—
Proceeds from revolving credit facilities			196,500		$	204,400
Repayments of revolving credit facilities			(174,500	)		(197,300	)
Repayment of senior unsecured notes			(95,284	)		—
Repayments of mortgages and loans payable			(74,202	)		(1,466	)
Net proceeds from preferred stock issuance			24,836			—
Repurchase of common units			(1,030	)		(152	)
Payment of financing costs			(570	)		—
Proceeds from stock options exercised			13,483			16,572
Proceeds from stock warrants exercised			973			3,465
Payment of distributions			(90,216	)		(88,415	)

	Net cash used in financing activities	$	(75,296	)	$	(62,896	)

Net increase in cash and cash equivalents		$	7,418		$	52,104
Cash and cash equivalents, beginning of period			1,167			12,835

Cash and cash equivalents, end of period		$	8,585		$	64,939

The accompanying notes are an integral part of these consolidated financial statements.

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 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 88.1 percent and 88.0 percent common unit interest in the Operating Partnership as of June 30, 2003 and December 31, 2002, 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 f