SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED ) SEPTEMBER 18, 1997
CALI REALTY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 1-13274 22-3305147
(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OR INCORPORATION) FILE NUMBER) IDENTIFICATION NUMBER)
11 COMMERCE DRIVE, CRANFORD , NEW JERSEY 07016
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (908) 272-8000
N/A
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
ITEM 5, OTHER EVENTS
During the period May 8, 1997 through September 15, 1997, Cali Realty
Corporation and subsidiaries (the "Company") (i) acquired four office buildings
in a suburban office complex, (ii) acquired two office buildings in a suburban
office complex, (iii) acquired an individual office property, (iv) acquired an
office/ flex property and (v) acquired another individual office property
through five individual transactions with separate, unrelated sellers (to be
collectively referred to as the "Acquisitions"). The Acquisitions, together with
the Company's acquisition of a 76,300 square-foot office/flex property ("1345
Campus Parkway") on January 28, 1997 and of 65 properties from the Robert Martin
Company LLC and affiliates ("RM") on January 31, 1997 in the "RM Transaction",
are to be collectively referred to as the "1997 Events." The following is a
brief description of the Acquisitions:
On May 8, 1997, the Company acquired four buildings in the Westlakes Office
Park ("Westlakes"), a suburban office complex located in Berwyn, Chester County,
Pennsylvania, totaling 444,350 square feet. The properties were acquired for
approximately $74.7 million, which was made available primarily from drawing on
one of the Company's credit facilities.
On July 21, 1997, the Company acquired two office buildings in the
Moorestown Corporate Center ("Moorestown Buildings"), a suburban office complex
located in Moorestown, Burlington County, New Jersey. The properties, each
consisting of 74,000 square feet, were acquired for an aggregate price of
approximately $10.2 million, which was made available from drawing on one of the
Company's credit facilities.
On August 1, 1997, the Company acquired 1000 Bridgeport Avenue ("Shelton
Place"), a 133,000 square-foot office building located in Shelton, Fairfield
County, Connecticut. The property was acquired for approximately $15.5 million,
which was made available from drawing on one of the Company's credit facilities.
On August 15, 1997, the Company acquired 200 Corporate Boulevard South ("200
Corporate"), an 84,000 square-foot office/flex building located in Yonkers,
Westchester County, New York. The property was acquired for approximately $8.0
million through the exercise of a purchase option obtained in connection with
the January 1997 RM Transaction. The acquisition cost, net of the mortgage
prepayment described below, was financed from the Company's cash reserves.
In conjunction with the acquisition of 200 Corporate, the sellers of the
property, certain RM principals, prepaid $4.4 million of the $11.6 million
mortgage note receivable ("RM Mortgage Note Receivable") between the Company and
such RM principals.
On September 3, 1997, the Company acquired Three Independence Way ("Three
Independence"), a 111,300 square foot suburban office property located in
Princeton, Mercer County, New Jersey, for approximately $13.2 million. The funds
were made available from drawing on one of the Company's credit facilities.
Further information regarding the Acquisitions is attached on SCHEDULE A.
Each of the Acquisitions was pursuant to individual agreements for the sale
and purchase of each property between each selling entity and the Company. The
factors considered by the Company in determining the price to be paid for the
properties include their historical and expected cash flow, nature of the
tenants and terms of leases in place, occupancy rates, opportunities for
alternative and new tenancies, current operating costs and real estate taxes on
the properties and anticipated changes therein under Company ownership, the
physical condition and locations of the properties, the anticipated effect on
the Company's financial results (including particularly funds from operations)
and the ability to sustain and potentially increase its distributions to Company
stockholders, and other factors. The Company takes into consideration
capitalization rates at which it believes other comparable office buildings had
recently sold, but determined the price it is willing to pay primarily on the
factors discussed above relating to the
1
properties themselves and their fit with the Company's operations. No separate
independent appraisals were obtained in connection with the acquisition of
properties by the Company. The Company, after investigation of the properties,
is not aware of any material factors, other than those enumerated above, that
would cause the financial information reported not to be necessarily indicative
of future operating results.
ITEM 7, FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS
The Statements of Revenue and Certain Expenses included in this report
encompass the following:
- Audited Statement of Revenue and Certain Expenses for Westlakes for the
year ended December 31, 1996 and unaudited interim financial information
for the period January 1, 1997 through May 7, 1997,
- Audited Statement of Revenue and Certain Expenses for Shelton Place for
the year ended April 30, 1997, and unaudited interim financial information
for the three months ended July 31, 1997,
- Audited Statement of Revenue and Certain Expenses for Three Independence
for the year ended December 31, 1996, and unaudited financial information
for the six months ended June 30, 1997.
(b) PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
Unaudited pro forma financial information for the Company is presented as
follows:
- Condensed consolidated balance sheet as of June 30, 1997.
- Condensed consolidated statements of operations for the six months ended
June 30, 1997 and the year ended December 31, 1996.
- Estimated twelve-month pro forma statement of taxable net operating income
and operating funds available for the twelve months ended June 30, 1997.
(c) EXHIBITS
10.95 -- Agreement for Assignment of Sale Agreement between O'Neill Properties Group,
L.P., as Contract Vendee, and Moorestown Realty Associates L.P., as Assignee,
dated as of July 17, 1997.
10.96 -- Sale Agreement between Metropolitan Life Insurance Company, as Seller, and
O'Neill Properties Group, L.P., as Purchaser, dated as of May 5, 1997.
10.97 -- Earnest Money Contract and Agreement by and between New York Life Insurance
Company, as Seller, and Cali Realty Acquisition Corporation, as Purchaser,
dated as of August 20, 1997.
2
SCHEDULE A
CALI REALTY CORPORATION
SUMMARY OF THE ACQUISITIONS
PERCENT INITIAL
OCCUPIED COST TO
DATE TOTAL AT DATE OF COMPANY (IN
PROPERTY ACQUIRED SQUARE FEET ACQUISITION YEAR COMPLETED THOUSANDS)
WESTLAKES 05/08/97 97% $ 74,700
Berwyn,
Chester County,
Pennsylvania
1235 Westlakes Drive 134,902 1986
1205 Westlakes Drive 130,265 1988
1055 Westlakes Drive 118,487 1990
1000 Westlakes Drive 60,696 1989
MOORESTOWN BUILDINGS 07/21/97 vacant $ 10,200
Moorestown,
Burlington County,
New Jersey
224 Strawbridge Drive 74,000 1984
228 Strawbridge Drive 74,000 1984
SHELTON PLACE 08/01/97 133,000 97% 1986 $ 15,500
1000 Bridgeport Avenue
Shelton,
Fairfield County,
Connecticut
200 CORPORATE 08/15/97 84,000 98% 1990 $ 8,000
BOULEVARD SOUTH
Yonkers,
Westchester County,
New York
THREE INDEPENDENCE WAY 09/03/97 111,300 100% 1983 $ 13,150
Princeton,
Mercer County,
New Jersey
TOTAL 920,650 $ 121,550
PRINCIPAL TENANTS
(BASED ON PERCENTAGE OF PROPERTY
PROPERTY LEASED)
WESTLAKES
Berwyn,
Chester County,
Pennsylvania
1235 Westlakes Drive Ratner & Prestia, PC (14%), Pepper,
Hamilton & Scheetz (11%)
1205 Westlakes Drive Provident Mutual Life Insurance Co.
(35%), Oracle Corporation (23%)
1055 Westlakes Drive Tokai Financial Services, Inc. (77%)
1000 Westlakes Drive PNC Bank National Association
(38%), Drinker, Biddle & Reath (24%)
MOORESTOWN BUILDINGS
Moorestown,
Burlington County,
New Jersey
224 Strawbridge Drive N/A
228 Strawbridge Drive N/A
SHELTON PLACE Wesely Software Development Corp.
1000 Bridgeport Avenue (22%),
Shelton, The William Carter Company (20%),
Fairfield County, Blue Cross and Blue Shield of
Connecticut Connecticut, Inc. (12%),
Toyota Motor Credit Corp. (11%),
Lanstar System, Inc. (11%)
200 CORPORATE Belmay, Inc. (29%), Montefiore
BOULEVARD SOUTH Medical Center (23%),
Yonkers, Codenoll Technology Corp. (13%)
Westchester County,
New York
THREE INDEPENDENCE WAY Merrill Lynch, Pierce, Fenner &
Princeton, Smith, Inc. (71%)
Mercer County,
New Jersey
TOTAL
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Cali
Realty Corporation has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
CALI REALTY CORPORATION
By: /s/ THOMAS A. RIZK
September 19, 1997 -------------------------------------------
Thomas A. Rizk
PRESIDENT AND CHIEF EXECUTIVE OFFICER
By: /s/ BARRY LEFKOWITZ
September 19, 1997 -------------------------------------------
Barry Lefkowitz
CHIEF FINANCIAL OFFICER
4
CALI REALTY CORPORATION
INDEX TO FINANCIAL INFORMATION
PAGE
-----
WESTLAKES
Report of Independent Accountants........................................................................ 6
Statements of Revenue and Certain Expenses for:
The Year Ended December 31, 1996....................................................................... 7
The Period from January 1, 1997 through May 7, 1997 (unaudited)........................................ 8
Notes to Statements of Revenue and Certain Expenses...................................................... 9-10
SHELTON PLACE
Report of Independent Accountants........................................................................ 11
Statements of Revenue and Certain Expenses for:
The Year Ended April 30, 1997.......................................................................... 12
The Three Months Ended July 31, 1997 (unaudited)....................................................... 13
Notes to Statements of Revenue and Certain Expenses...................................................... 14-15
THREE INDEPENDENCE
Report of Independent Accountants........................................................................ 16
Statements of Revenue and Certain Expenses for:
The Year Ended December 31, 1996....................................................................... 17
The Six Months Ended June 30, 1997 (unaudited)......................................................... 18
Notes to Statements of Revenue and Certain Expenses...................................................... 19-20
CALI REALTY CORPORATION
PRO FORMA (UNAUDITED):
Condensed Consolidated Balance Sheet as of June 30, 1997................................................. 21-22
Condensed Consolidated Statements of Operations for the Six Months Ended June 30, 1997 and for the Year
Ended December 31, 1996................................................................................ 23-29
Estimated Twelve-Month Pro Forma Statement of Taxable Net Operating Income and Operating Funds Available
for the Twelve Months June 30, 1997.................................................................... 30-31
5
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Cali Realty Corporation
Cranford, New Jersey
We have audited the accompanying Statement of Revenue and Certain Expenses
for the property known as Westlakes Office Park for the year ended December 31,
1996. This financial statement is the responsibility of management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial
statement. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying statement of revenue and certain expenses was prepared as
described in Note 2, for the purpose of complying with the rules and regulations
of the Securities and Exchange Commission (for inclusion in the Form 8-K of Cali
Realty Corporation) and is not intended to be a complete presentation of
Westlakes Office Park's revenues and expenses.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenue and certain expenses for Westlakes Office
Park, on the basis described in Note 2, for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ Schonbraun, Safris, Sternlieb & Co.,
L.L.C.
--------------------------------------------
SCHONBRAUN SAFRIS STERNLIEB & CO., L.L.C.
Certified Public Accountants
Roseland, New Jersey
May 20, 1997
6
WESTLAKES OFFICE PARK
STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
Revenue
Base rents (Note 3).......................................................... $7,737,771
Escalations and recoveries from tenants...................................... 2,346,892
----------
10,084,663
----------
Certain expenses
Real estate taxes............................................................ 610,016
Utilities.................................................................... 1,216,385
Operating services........................................................... 1,626,811
General and administrative (Note 4).......................................... 772,240
----------
4,225,452
----------
Revenue in excess of certain expenses.......................................... $5,859,211
----------
----------
The accompanying notes are an integral part of this Statement of Revenue and
Certain Expenses.
7
WESTLAKES OFFICE PARK
STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE PERIOD JANUARY 1, 1997 TO MAY 7, 1997
(UNAUDITED)
Revenue
Base rents (Note 3)........................................................... $2,824,753
Recoveries from tenants....................................................... 865,881
---------
3,690,634
---------
Certain expenses
Real estate taxes............................................................. 258,437
Utilities..................................................................... 361,792
Operating services............................................................ 448,870
General and administrative (Note 4)........................................... 245,727
---------
1,314,826
---------
Revenue in excess of certain expenses........................................... $2,375,808
---------
---------
The accompanying notes are an integral part of this Statement of Revenue and
Certain Expenses.
8
WESTLAKES OFFICE PARK
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
1. ORGANIZATION AND OPERATION OF PROPERTY
For the purpose of the accompanying statement of revenue and certain
expenses, Westlakes Office Park (the "Property") consists of four office
buildings located in Berwyn, Chester County, Pennsylvania. The Property contains
a total of approximately 444,350 square feet of net rentable area. The Property
was acquired by a subsidiary of Cali Realty Corporation, (the "Company") on May
8, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION
The accompanying statement of revenue and certain expenses has been prepared
on the accrual basis of accounting.
The accompanying financial statement is not representative of the actual
operations for the period presented, as certain revenue and expenses, which may
not be comparable to the revenues and expenses to be earned or incurred by the
Company in the future operations of the Property, have been excluded. Revenues
excluded consists of interest and other revenues unrelated to the continuing
operations of the Property. Expenses excluded consist of depreciation of the
building and improvements, and amortization of organization and other intangible
costs and other expenses not directly related to the future operations of the
Property.
B. USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the period. Actual results could differ from those
estimates.
C. REVENUE RECOGNITION
Base rents are recognized on a straight-line basis over the terms of the
respective leases.
3. LEASES
Leases for the Property have various remaining lease terms of up to 10 years
with options to certain tenants for renewal. Minimum rental amounts for certain
leases increase as set forth under the terms of each lease.
Future minimum rents to be received over the next five years and thereafter,
as of December 31, 1996, from tenants are as follows:
1997........................................................... $9,026,038
1998........................................................... 8,911,747
1999........................................................... 8,312,429
2000........................................................... 7,097,526
2001........................................................... 3,692,641
Thereafter..................................................... 6,033,915
----------
$43,074,296
----------
----------
9
WESTLAKES OFFICE PARK
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996
3. LEASES (CONTINUED)
For the year ended December 31, 1996, one tenant, Tokai Financial Services,
contributed 18 percent of base rents.
For the period of January 1, 1997 to May 7, 1997, Tokai Financial Services
contributed 18 percent and Provident Mutual Life Insurance contributed 12
percent of base rents.
4. GENERAL AND ADMINISTRATIVE EXPENSES
The Property was owner-managed and incurred management fees of four percent
of revenue received which totaled $432,647 for the twelve months ended December
31, 1996. Additionally, management fees totaled $147,625 for the period of
January 1, 1997 to May 7, 1997.
5. INTERIM STATEMENTS
The interim financial data for the period of January 1, 1997 to May 7, 1997
are unaudited; however, in the opinion of management, the interim data includes
all adjustments, consisting only of normally recurring adjustments, necessary
for a fair statement of the results for the interim periods. The results for the
periods presented are not necessarily indicative of the results to be expected
for the entire fiscal year or any other period.
10
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Cali Realty Corporation
Cranford, New Jersey
We have audited the accompanying Statement of Revenue and Certain Expenses
for the property known as First Shelton Place for the year ended April 30, 1997.
The financial statement is the responsibility of management. Our responsibility
is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial
statement. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying statement of revenue and certain expenses was prepared as
described in Note 2, for the purpose of complying with the rules and regulations
of the Securities and Exchange Commission (for inclusion in the Form 8-K of Cali
Realty Corporation) and is not intended to be a complete presentation of First
Shelton Place revenues and expenses.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenue and certain expenses for First Shelton
Place, on the basis described in Note 2, for the year ended April 30, 1997, in
conformity with generally accepted accounting principles ("GAAP").
/s/ Schonbraun, Safris, Sternlieb & Co.,
L.L.C.
--------------------------------------------
SCHONBRAUN SAFRIS STERNLIEB & CO., L.L.C.
Certified Public Accountants
Roseland, New Jersey
August 8, 1997
11
FIRST SHELTON PLACE--SHELTON, CONNECTICUT
STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED APRIL 30, 1997
Revenue
Base rents (Note 3)........................................................... $2,092,577
Escalations and recoveries from tenants....................................... 192,726
---------
2,285,303
---------
Certain expenses
Real estate taxes............................................................. 160,902
Utilities..................................................................... 319,831
Operating services............................................................ 292,198
General and administrative (Note 4)........................................... 93,210
---------
866,141
---------
Revenue in excess of certain expenses........................................... $1,419,162
---------
---------
The accompanying notes are an integral part of this Statement of Revenue and
Certain Expenses.
12
FIRST SHELTON PLACE--SHELTON, CONNECTICUT
STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE THREE MONTHS ENDED JULY 31, 1997
(UNAUDITED)
Revenue
Base rents (Note 3)............................................................. $ 561,123
Escalations and other income.................................................... 52,683
---------
613,806
---------
Certain expenses
Real estate taxes............................................................... 40,224
Utilities....................................................................... 76,667
Operating services.............................................................. 60,418
General and administrative (Note 4)............................................. 24,333
---------
201,642
---------
Revenue in excess of certain expenses............................................. $ 412,164
---------
---------
The accompanying notes are an integral part of this Statement of Revenue and
Certain Expenses.
13
FIRST SHELTON PLACE--SHELTON, CONNECTICUT
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED APRIL 30, 1997
1. ORGANIZATION AND OPERATION OF PROPERTY
For the purpose of the accompanying statement of revenue and certain
expenses, First Shelton Place (the "Property") is an office building located in
Shelton, Fairfield County, Connecticut, which was acquired by a subsidiary of
Cali Realty Corporation, (the "Company") on August 1, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION
The accompanying statement of revenue and certain expenses has been prepared
on the accrual basis of accounting.
The accompanying financial statement is not representative of the actual
operations for the period presented, as certain revenues and expenses, which may
not be comparable to the revenues and expenses to be earned or incurred by the
Company in the future operations of the Property, have been excluded. Revenues
excluded consist of interest and other revenues unrelated to the continuing
operations of the Property. Expenses excluded consist of depreciation of the
building and improvements, and amortization of organization and other intangible
costs and other expenses not directly related to the future operations of the
Property.
B. USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the report amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the period. Actual results could differ from those estimates.
C. REVENUE RECOGNITION
Base rents are recognized on a straight-line basis over the term of the
respective lease.
3. LEASES
Leases for the Property have various remaining lease terms of up to nine
years with options to certain tenants for renewal. Minimum rental amounts for
certain leases increase as set forth under the terms of each lease.
Future minimum rents to be received over the next five fiscal years and
thereafter from tenants as of April 30, 1997 are as follows:
May 1, 1997-April 30, 1998...................................... $2,128,464
May 1, 1998-April 30, 1999...................................... 2,009,388
May 1, 1999-April 30, 2000...................................... 1,558,335
May 1, 2000-April 30, 2001...................................... 1,096,008
May 1, 2001-April 30, 2002...................................... 949,409
Thereafter...................................................... 1,033,054
---------
$8,774,658
---------
---------
14
FIRST SHELTON PLACE--SHELTON, CONNECTICUT
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES (CONTINUED)
FOR THE YEAR ENDED APRIL 30, 1997
3. LEASES (CONTINUED)
For the year ended April 30, 1997, three tenants contributed 47.4 percent
and for the three months ended July 31, 1997, five tenants contributed 80.6
percent of base rents (unaudited).
William Carter contributed 22.6 percent of the base rents for the year ended
April 30, 1997 and 22.5 percent of base rents for the three months ended July
31, 1997 (unaudited).
Blue Cross/Blue Shield contributed 14.2 percent of the base rents for the
year ended April 30, 1997 and 13.3 percent of base rents for the three months
ended July 31, 1997 (unaudited).
Lanstar contributed 10.6 percent of the base rents for the year ended April
30, 1997 and 11.9 percent of base rents for the three months ended July 31, 1997
(unaudited).
For the three months ended July 31, 1997, Wesely Software contributed 21.7
percent of base rents and Toyota Motor Credit Corporation contributed 11.2
percent of base rents.
4. GENERAL AND ADMINISTRATIVE EXPENSES
The Property incurred management fees based on three and one-quarter percent
of revenues received which totaled $77,860 for the year ended April 30, 1997,
$22,374 for the period May 1, 1997 to July 31, 1997 (unaudited).
5. INTERIM STATEMENTS
The interim financial data for the three months ended July 31, 1997 is
unaudited; however, in the opinion of management, the interim financial data
include all adjustments, consisting only of normally-recurring adjustments,
necessary for a fair statement of the results for the interim periods. The
results for the periods presented are not necessarily indicative of the results
to be expected for the entire fiscal year or any other period.
15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Cali Realty Corporation
Cranford, New Jersey
We have audited the accompanying Statement of Revenue and Certain Expenses
for the property known as Three Independence Way, for the year ended December
31, 1996. The financial statement is the responsibility of management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial
statement. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying statement of revenue and certain expenses was prepared as
described in Note 2, for the purpose of complying with the rules and regulations
of the Securities and Exchange Commission (for inclusion in the Form 8-K of Cali
Realty Corporation) and is not intended to be a complete presentation of Three
Independence Way's revenues and expenses.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenue and certain expenses for Three
Independence Way, on the basis described in Note 2, for the year ended December
31, 1996, in conformity with generally accepted accounting principles ("GAAP").
/s/ Schonbraun, Safris, Sternlieb & Co.,
L.L.C.
--------------------------------------------
SCHONBRAUN SAFRIS STERNLIEB & CO., L.L.C.
Certified Public Accountants
Roseland, New Jersey
September 3, 1997
16
THREE INDEPENDENCE WAY
STATEMENT OF REVENUE AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1996
Revenue
Base rents (Note 3)......................................................................................... $1,023,679
Escalations and recoveries from tenant...................................................................... 3,625
----------
1,027,304
----------
Certain expenses
Real estate taxes........................................................................................... 222,633
Utilities................................................................................................... 113,574
Operating services.......................................................................................... 232,951
General and administrative.................................................................................. 46,856
----------
616,014
----------
Revenue in excess of certain expenses......................................................................... $411,290
----------
----------
The accompanying notes are an integral part of this Statement of Revenue and
Certain Expenses.
17
THREE INDEPENDENCE WAY
STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
Revenue
Base rents (Note 3)............................................................. $ 975,468
Escalations and recoveries from tenant.......................................... 1,403
---------
976,871
---------
Certain expenses
Real estate taxes............................................................... 121,570
Utilities....................................................................... 53,549
Operating services.............................................................. 109,139
General and administrative...................................................... 20,825
---------
305,083
---------
Revenue in excess of certain expenses............................................. $ 671,788
---------
---------
The accompanying notes are an integral part of this Statement of Revenue and
Certain Expenses.
18
THREE INDEPENDENCE WAY
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1996
1. ORGANIZATION AND OPERATION OF PROPERTY
For the purpose of the accompanying statement of revenue and certain
expenses, Three Independence Way (the "Property") is an office building located
in Princeton, Mercer County, New Jersey which was acquired by a subsidiary of
Cali Realty Corporation, (the "Company").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION
The accompanying statement of revenue and certain expenses has been prepared
on the accrual basis of accounting.
The accompanying financial statement is not representative of the actual
operations for the period presented, as certain revenues and expenses, which may
not be comparable to the revenues and expenses to be earned or incurred by the
Company in the future operations of the Property, have been excluded. Revenues
excluded consist of interest and other revenues unrelated to the continuing
operations of the Property. Expenses excluded consist of depreciation of the
building and improvements, and amortization of organization and other intangible
costs and other expenses not directly related to the future operations of the
Property.
B. USE OF ESTIMATES
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
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
C. REVENUE RECOGNITION
Base rents are recognized on a straight-line basis over the term of the
respective lease.
3. LEASES
Leases for the Property have various remaining lease terms of up to five
years with options to certain tenants for renewal. Minimum rental amounts for
certain leases increase as set forth under the terms of each lease. In addition
to base rents, the leases provide for the tenants to pay a portion of real
estate taxes and operating expenses in excess of base year amounts.
19
THREE INDEPENDENCE WAY
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
3. LEASES (CONTINUED)
Future minimum rents to be received over the next five years and thereafter
from tenants as of December 31, 1996 are as follows:
1997............................................................ $1,613,967
1998............................................................ 1,897,978
1999............................................................ 1,705,857
2000............................................................ 1,705,857
2001............................................................ 1,651,692
Thereafter...................................................... 499,538
---------
$9,074,889
---------
---------
For the year ended December 31, 1996, four tenants made up 73.6% of base
rents, comprised of: Thomas Cook Travel Money ("Thomas Cook") 34.4%, Riviera
Finance 16.0%, MCI Telecommunications 12.8%, and Bell Atlantic Meridian Systems
10.4%.
On December 17, 1996, Merrill Lynch, Pierce, Fenner, & Smith, Inc. ("Merrill
Lynch" ) signed a lease to take over space left vacant after Thomas Cook
terminated their lease in November 1996. Merrill Lynch's total square footage
leased is 79,726, which comprises 71.6% of the rentable square footage of the
building. The lease expires on April 30, 2002 and provides for, among other
things, annual base rent of $1,494,863.
For the six months ended June 30, 1997, Merrill Lynch contributed 72.0% of
base rents (unaudited).
4. GENERAL AND ADMINISTRATIVE EXPENSES
The Property incurred management fees based on two and one-half percent of
revenues received which totaled $41,309 for the year ended December 31, 1996 and
$18,690 for the six months ended June 30, 1997 (unaudited).
5. INTERIM STATEMENTS
The interim financial data for the six months ended June 30, 1997 is
unaudited; however, in the opinion of management, the interim data includes all
adjustments, consisting only of normally recurring adjustments, necessary for a
fair statement of the results for the interim period. The results for the period
presented are not necessarily indicative of the results to be expected for the
entire fiscal year or any other period.
20
CALI REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF JUNE 30, 1997 (IN THOUSANDS)
The following unaudited pro forma condensed consolidated balance sheet is
presented as if the acquisition by the Company of the Moorestown Buildings,
Shelton Place, 200 Corporate and Three Independence had occurred on June 30,
1997. This unaudited pro forma condensed consolidated balance sheet should be
read in conjunction with the pro forma condensed consolidated statement of
operations of the Company and the historical financial statements and notes
thereto of the Company included in the Company's Form 10-K for the year ended
December 31, 1996 and the Company's Form 10-Q for the six month period ended
June 30, 1997, respectively.
The pro forma condensed consolidated balance sheet is unaudited and is not
necessarily indicative of what the actual financial position of the Company
would have been had the aforementioned acquisition actually occurred on June 30,
1997, nor does it purport to represent the future financial position of the
Company.
COMPANY
COMPANY PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS (UNAUDITED)
----------- ----------- -----------
ASSETS
- ----------------------------------------------------------------------------------
Rental property, net.............................................................. $ 1,307,365 $ 46,850(a) $ 1,354,215
Cash and cash equivalents......................................................... 6,090 -- 6,090
Unbilled rents receivable......................................................... 23,648 -- 23,648
Deferred charges and other assets, net............................................ 13,224 -- 13,224
Restricted cash................................................................... 8,218 -- 8,218
Accounts receivable, net.......................................................... 3,547 -- 3,547
Mortgage note receivable.......................................................... 11,600 (4,350)(b) 7,250
----------- ----------- -----------
Total assets...................................................................... $ 1,373,692 $ 42,500 $ 1,416,192
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------
Mortgages and loans payable....................................................... $ 553,961 $ 42,500(c) $ 596,461
Dividends and distributions payable............................................... 18,334 -- 18,334
Accounts payable and accrued expenses............................................. 10,582 -- 10,582
Accrued interest payable.......................................................... 1,916 -- 1,916
Rents received in advance and security deposits................................... 16,280 -- 16,280
----------- ----------- -----------
Total liabilities................................................................. 601,073 42,500 643,573
----------- ----------- -----------
Minority interest of unitholders in Operating Partnership......................... 70,911 -- 70,911
----------- ----------- -----------
Stockholders' equity
Common stock, $.01 par value.................................................... 366 -- 366
Additional paid in capital........................................................ 723,009 -- 723,009
Distributions in excess of net earnings........................................... (11,604) -- (11,604)
Unamortized stock compensation.................................................... (10,063) -- (10,063)
----------- ----------- -----------
Total stockholders' equity........................................................ 701,708 -- 701,708
----------- ----------- -----------
Total liabilities and stockholders' equity........................................ $ 1,373,692 $ 42,500 $ 1,416,192
----------- ----------- -----------
----------- ----------- -----------
See accompanying footnotes on subsequent page.
21
CALI REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF JUNE 30, 1997 (IN THOUSANDS)
- ------------------------
(a) Represents the approximate aggregate cost of the acquisitions subsequent to
June 30, 1997, consisting of the Moorestown Buildings on July 21, 1997 for
$10,200; Shelton Place on August 1, 1997 for $15,500; 200 Corporate on
August 15, 1997 for $8,000; and Three Independence on September 3, 1997 for
$13,150.
(b) Represents the partial prepayment of the RM Mortgage Note Receivable
received from the sellers of 200 Corporate, certain RM principals, in
conjunction with the Company's acquisition of such property.
(c) Represents the approximate aggregate pro forma drawings on the Company's
credit facilities, which were used as the primary means in funding the
acquisitions subsequent to June 30, 1997, listed in note (a) above.
22
CALI REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
The unaudited pro forma condensed consolidated statements of operations for
the six months ended June 30, 1997 and for the year ended December 31, 1996 are
presented as if each of the following had occurred on January 1, 1996: (i) the
partial prepayment by the Company of its Mortgage Financing ("Partial
Prepayment") in 1996, (ii) the disposition by the Company of its property at 15
Essex Road in Paramus, New Jersey ("Essex Road") in 1996, (iii) the acquisition
by the Company of the properties known as 103 Carnegie, Rose Tree, the Mount
Airy Road Buildings , Five Sentry Parkway, Harborside, Whiteweld Centre, One
Bridge Plaza and Airport Center in 1996, (iv) the net proceeds received by the
Company as a result of its common stock offering of 3,450,000 shares on August
13, 1996 (the "August Offering"), (v) the net proceeds received by the Company
as a result of the Company common stock offering of 17,537,500 shares on
November 22, 1996 (the "November Offering"), and (vi) completion by the Company
of the 1997 Events. Items (i) through (v) above are to be collectively referred
to as the "1996 Events."
Such pro forma information is based upon the historical consolidated results
of operations of the Company for the six months ended June 30, 1997 and for the
year ended December 31, 1996, after giving effect to the transactions described
above. The pro forma condensed consolidated statements of operations should be
read in conjunction with the pro forma condensed consolidated balance sheet of
the Company and the historical financial statements and notes thereto of the
Company included in the Company's Form 10-Q for the six months ended June 30,
1997 and in the Company's Form 10-K for the year ended December 31, 1996.
The unaudited pro forma condensed consolidated statements of operations are
not necessarily indicative of what the actual results of operations of the
Company would have been assuming the transactions had been completed as set
forth above, nor does it purport to represent the Company's results of
operations for future periods.
23
CALI REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
(UNAUDITED)
PRO FORMA ADJ.
COMPANY FOR 1997 COMPANY
REVENUES HISTORICAL EVENTS PRO FORMA
- -------------------------------------------------------------------------- ----------- -------------- -----------
Base rents................................................................ $ 93,180 $ 10,734(a) $ 103,914
Escalations and recoveries from tenants................................... 14,279 1,198(a) 15,477
Parking and other......................................................... 3,598 524(a) 4,122
Interest income........................................................... 1,640 (956)(b) 684
----------- ------- -----------
Total revenues............................................................ 112,697 11,500 124,197
----------- ------- -----------
EXPENSES
- --------------------------------------------------------------------------
Real estate taxes......................................................... 11,929 1,339(a) 13,268
Utilities................................................................. 7,940 939(a) 8,879
Operating services........................................................ 13,773 1,634(a) 15,407
General and administrative................................................ 6,927 730(a) 7,657
Depreciation and amortization............................................. 16,844 1,873(a) 18,717
Interest expense.......................................................... 17,152 2,058(c) 19,210
----------- ------- -----------
Total expenses............................................................ 74,565 8,573 83,138
----------- ------- -----------
Income before minority interest........................................... 38,132 2,927 41,059
Minority interest......................................................... 3,648 491(d) 4,139
----------- ------- -----------
Net income................................................................ $ 34,484 $ 2,436 $ 36,920
----------- ------- -----------
----------- ------- -----------
Weighted average common shares outstanding................................ 36,475 36,475
----------- -----------
Net income per common share............................................... $ 0.95 $ 1.01
----------- -----------
See accompanying footnotes on subsequent pages.
24
CALI REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATION STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
(a) Reflects:
Revenues and expenses for the properties acquired in 1997 by the Company for
the period January 1, 1997 through the earlier of the date of acquisition or
June 30, 1997, as follows:
REAL
DATE BASE ESCALATIONS/ OTHER ESTATE OPERATING
PROPERTY (1) ACQUIRED RENTS(2) RECOVERIES INCOME TAXES UTILITIES SERVICES
- ----------------- ----------------- ----------- ------------- ----------- --------- ----------- -----------
1345 Campus
Parkway........ January 28, 1997 $ 58 $ 19 -- $ 7 $ 1 $ 4
RM Transaction... January 31, 1997 5,209 195 $ 524 817 379 858
Westlakes........ May 8, 1997 3,126 866 -- 258 362 449
Shelton Place
(4)............ July 31, 1997 982 105 -- 80 138 141
200 Corporate August 15, 1997 386 12 -- 55 5 73
Three
Independence... September 3, 1997 973 1 -- 122 54 109
----------- ------ ----- --------- ----- -----------
Total Pro Forma Adj. for 1997
Events............................ $ 10,734 $ 1,198 $ 524 $ 1,339 $ 939 $ 1,634
----------- ------ ----- --------- ----- -----------
----------- ------ ----- --------- ----- -----------
GENERAL AND
PROPERTY (1) ADMINISTRATIVE DEPRECIATION(3)
- ----------------- ----------------- -----------------
1345 Campus
Parkway........ $ 1 $ 12
RM Transaction... 410 864
Westlakes........ 246 607
Shelton Place
(4)............ 51 165
200 Corporate 1 85
Three
Independence... 21 140
----- ------
Total Pro Forma A
Events......... $ 730 $ 1,873
----- ------
----- ------
- ------------------------
(1) The Moorestown Buildings were vacant during 1996 and for the six months
ended June 30, 1997.
(2) Pro forma base rents are presented on a straight-line basis calculated from
January 1, 1996 forward.
(3) Depreciation is based on the building-related portion of the purchase price
and associated costs depreciated using the straight-line method over a
40-year life.
(4) Total revenues of $444 and Revenue in excess of certain expenses of $234 for
the three months ended March 31, 1997 have been included in both the Pro
Forma Condensed Consolidated Statements of Operations for the Six Months
Ended June 30, 1997 and the Year Ended December 31, 1996.
25
CALI REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATION STATEMENT OF OPERATIONS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
(b) Represents reduction for (i) interest income earned on investments of
proceeds from the November 1996 offering ($835) and (ii) interest income
earned on the RM Mortgage Receivable as a result of the prepayment in
connection with the 200 Corporate acquisition ($121).
(c) The pro forma adjustment to interest expense for the six months ended June
30, 1997 reflects interest on mortgage debt assumed with certain
acquisitions and additional borrowings from the Company's credit facilities
to fund certain acquisitions. Pro forma interest expense for the six months
ended June 30, 1997 is computed as follows:
Interest expense on the Initial Mortgage Financing, after the $ 2,443
Partial Pre-payment (fixed interest rate of 8.02 percent on $44,313
and variable rate of 30-day LIBOR plus 100 basis points on $20,195;
weighted average interest rate used is 6.60 percent)
Interest expense on loan assumed with Fair Lawn acquisition on 767
March 3, 1995 (fixed interest rate of 8.25 percent on average
outstanding principal balance of approximately $18,605)
Interest expense on mortgages in connection with the Harborside 5,421
acquisition in 1996 (fixed interest rate of 7.32 percent on
$107,912 and initial rate of 6.99 percent on $42,088)
Interest expense on outstanding borrowings on the Company's credit 3,927
lines (a variable rate of 30-day LIBOR plus 125 basis points during
the period on $114,655; weighted average interest rate used is 6.85
percent)
Interest expense on Teachers Mortgage assumed with the RM 6,652
Transaction on January 31, 1997 (fixed interest rate of 7.18
percent on $185,283)
---------
Total pro forma interest expense for the six months ended June 30, $ 19,210
1997:
---------
---------
Interest expense can be effected by increases and decreases in the variable
interest rates under the Company's various floating rate debt. For example,
a one-eighth percent change in such variable interest rates will result in a
$84 change for the six months ended June 30, 1997.
(d) Represents pro forma income allocated to the pro forma weighted average
minority interest (Units) in Cali Realty L.P. (the Operating Partnership)
for the period of 10.08 percent.
26
CALI REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
PRO FORMA PRO FORMA
COMPANY ADJ. FOR 1996 ADJ. FOR 1997 OTHER PRO COMPANY
HISTORICAL EVENTS (A) SUB--TOTAL EVENTS (B) FORMA ADJ. PRO FORMA
---------- ------------- --------- ------------- ---------- ---------
REVENUES
- ----------------------------------------
Base rents.............................. $76,922 $49,087 $ 126,009 $76,655 -- $202,664
Escalations and recoveries from
tenants............................... 14,429 8,870 23,299 8,230 -- 31,529
Parking and other....................... 2,204 190 2,394 4,428 -- 6,822
Interest income......................... 1,917 (c) 1,917 (c) (738)(c) 1,179
---------- ------------- --------- ------------- ---------- ---------
Total revenues.......................... 95,472 58,147 153,619 89,313 (738) 242,194
---------- ------------- --------- ------------- ---------- ---------
EXPENSES
- ----------------------------------------
Real estate taxes....................... 9,395 5,144 14,539 11,039 -- 25,578
Utilities............................... 8,138 3,313 11,451 6,619 -- 18,070
Operating services...................... 12,129 6,452 18,581 12,277 -- 30,858
General and administrative.............. 5,800 3,020 8,820 4,965 -- 13,785
Depreciation and amortization........... 15,812 8,133 23,945 13,021 -- 36,966
Interest expense........................ 12,677 (d) 12,677 (d) 25,608(d) 38,285
---------- ------------- --------- ------------- ---------- ---------
Total expenses.......................... 63,951 26,062 90,013 47,921 25,609 163,542
---------- ------------- --------- ------------- ---------- ---------
Income before gain on sale of rental
property, minority interest and
extraordinary item.................... 31,521 32,085 63,606 41,392 (26,346) 78,652
Gain on sale of rental property......... 5,658 (5,658) -- -- -- --
---------- ------------- --------- ------------- ---------- ---------
Income before minority interest and
extraordinary item.................... 37,179 26,427 63,606 41,392 (26,346) 78,652
Minority interest....................... 4,760 (e) 4,760 (e) 3,263(e) 8,023
---------- ------------- --------- ------------- ---------- ---------
Income before extraordinary item........ $32,419 $26,427 $ 58,846 $41,392 $(29,609) $ 70,629
---------- ------------- --------- ------------- ---------- ---------
---------- ------------- --------- ------------- ---------- ---------
Weighted average common shares
outstanding........................... 18,461 36,202
---------- ---------
Income before extraordinary item per
common share.......................... $ 1.76 $ 1.95
---------- ---------
See accompanying footnotes on subsequent pages.
27
CALI REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
(a) Reflects:
Revenues and expenses of the properties acquired in 1996 for the period
January 1, 1996 through the date of acquisition, as follows:
REAL
PROPERTY/ DATE OF BASE ESCALATIONS/ OTHER ESTATE OPERATING
EVENT ACQUISITION/EVENT RENTS (2) RECOVERIES INCOME TAXES UTILITIES SERVICES
- ------------------- ----------------- ----------- ------------- ----------- --------- ----------- -----------
Carnegie........... March 20, 1996 $ 386 $ 31 -- $ 54 $ 56 $ 58
Rose Tree.......... May 2, 1996 1,312 115 -- 165 180 179
Mt. Airy Bldgs..... July 23, 1996 665 101 -- 101 -- 4
Harborside......... November 4, 1996 30,884 7,037 $ 166 3,096 906 3,633
Five Sentry........ November 7, 1996 1,663 -- -- 148 32 325
Whiteweld.......... December 10, 1996 3,890 326 -- 430 748 543
One Bridge Plaza... December 16, 1996 3,597 293 -- 420 412 659
Airport Center..... December 17, 1996 6,953 1,004 24 780 1,035 1,129
----------- ------ ----------- --------- ----------- -----------
Total Pro Forma
Adj.
for 1996
acquisitions..... $ 49,350 $ 8,907 $ 190 $ 5,194 $ 3,369 $ 6,530
----------- ------ ----------- --------- ----------- -----------
Revenues and expenses of the property disposed of in 1996 for the period January 1, 1996 through the disposition
date, as follows:
Essex Road......... March 20, 1996 (263) (37) -- (50) (56) (78)
Reduction of expenses as a result of the Partial Prepayment in 1996, for the period January 1, 1996 through March
12, 1996, as follows:
Partial
Prepayment....... March 12, 1996 -- -- -- -- -- --
----------- ------ ----------- --------- ----------- -----------
Total Pro Forma Adj.
for 1996 Events..................... $ 49,087 $ 8,870 $ 190 $ 5,144 $ 3,313 $ 6,452
----------- ------ ----------- --------- ----------- -----------
----------- ------ ----------- --------- ----------- -----------
PROPERTY/ GENERAL AND DEPRECIATION/
EVENT ADMINISTRATIVE AMORTIZATION (3)
- ------------------- --------------- -----------------
Carnegie........... $ 11 $ 49
Rose Tree.......... 43 215
Mt. Airy Bldgs..... 51 107
Harborside......... 2,048 5,332
Five Sentry........ 88 246
Whiteweld.......... 158 733
One Bridge Plaza... 237 585
Airport Center..... 395 953
------ ------
Total Pro Forma
Adj.
for 1996
acquisitions..... $ 3,031 $ 8,220
------ ------
Revenues and expens
date, as follows:
Essex Road......... (11) (81)
Reduction of expens
12, 1996, as follow
Partial
Prepayment....... -- (6)
------ ------
Total Pro Forma Adj
for 1996 Events.. $ 3,020 $ 8,133
------ ------
------ ------
(b) Reflects:
Revenues and expenses for the properties acquired in 1997 by the Company for
the year ended December 31, 1996, as follows:
REAL
DATE BASE ESCALATIONS/ OTHER ESTATE OPERATING
PROPERTY (1) ACQUIRED RENTS (2) RECOVERIES INCOME TAXES UTILITIES SERVICES
- ------------------- ----------------- ----------- ------------- ----------- --------- ----------- -----------
1345 Campus
Parkway.......... January 28, 1997 $ 698 $ 165 -- $ 90 $ 25 $ 103
RM Transaction..... January 31, 1997 63,083 5,483 $ 4,393 9,870 4,944 9,876
Westlakes.......... May 8, 1997 8,659 2,347 -- 610 1,216 1,627
Shelton Place
(4).............. July 31, 1997 2,180 193 -- 161 320 292
200 Corporate...... August 15, 1997 850 38 35 85 -- 146
Three
Independence..... September 3, 1997 1,185 4 -- 223 114 233
----------- ------ ----------- --------- ----------- -----------
Total Pro Forma Adj.
for 1997 Events..................... $ 76,655 $ 8,230 $ 4,428 $ 11,039 $ 6,619 $ 12,277
----------- ------ ----------- --------- ----------- -----------
----------- ------ ----------- --------- ----------- -----------
GENERAL AND DEPRECIATION
PROPERTY (1) ADMINISTRATIVE (3)
- ------------------- --------------- ---------------
1345 Campus
Parkway.......... $ 20 $ 143
RM Transaction..... 3,997 10,364
Westlakes.......... 772 1,734
Shelton Place
(4).............. 93 329
200 Corporate...... 36 170
Three
Independence..... 47 281
------ -------
Total Pro Forma Adj
for 1997 Events.. $ 4,965 $ 13,021
------ -------
------ -------
- ------------------------
(1) The Moorestown Buildings were vacant during 1996.
(2) Pro Forma base rents are presented on a straight-line basis calculated from
January 1, 1996 forward.
(3) Depreciation is based on the building-related portion of the purchase price
and associated costs depreciated using the straight-line method over a
40-year life.
(4) Revenues and certain expenses for Shelton Place reasonably reflect the
operations of the property for the period April 1, 1996 through March 31,
1997. Total revenues of $444 and Revenue in excess of certain expenses of
$234 for the three months ended March 31, 1997 have been included in both
the Pro Forma Condensed Consolidated Statements of Operations for the Six
Months Ended June 30, 1997 and the Year Ended December 31, 1996.
28
CALI REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 (CONTINUED)
(IN THOUSANDS)
(c) Represents reduction for interest income earned on investments of proceeds
from the November 1996 Offering ($1,463), net of additional interest income
earned on the RM Mortgage Receivable ($725).
(d) The pro forma adjustment to interest expense for the year ended December 31,
1996 reflects interest on mortgage debt assumed with certain acquisitions
and additional borrowings from the Company's credit facilities to fund
acquisitions. Pro forma interest expense for the year ended December 31,
1996 is computed as follows:
Interest expense on the Initial Mortgage Financing, after the Partial $ 4,867
Pre-payment (fixed interest rate of 8.02 percent on $44,313 and variable
rate of 30-day LIBOR plus 100 basis points on $20,195; weighted average
interest rate used is 6.50 percent)
Interest expense on loan assumed with Fair Lawn acquisition on March 3, 1,535
1995 (fixed interest rate of 8.25 percent on average outstanding
principal balance of approximately $18,605)
Interest expense on mortgages in connection with the Harborside acquisition 10,841
on November 4, 1996 (fixed interest rate of 7.32 percent on $107,912 and
initial rate of 6.99 percent on $42,088)
Interest expense on outstanding borrowings on the Company's credit lines (a 7,739
variable rate of 30-day LIBOR plus 125 basis points during the period on
$114,655; weighted average interest rate used is 6.75 percent)
Interest expense on Teachers Mortgage assumed with the RM Transaction on 13,303
January 31, 1997 (fixed interest rate of 7.18 percent on $185,283)
---------
Total pro forma interest expense for the year ended December 31, 1996: $ 38,285
---------
---------
Interest expense can be effected by increases and decreases in the variable
interest rates under the Company's various floating rate debt. For example,
a one-eighth percent change in such variable interest rates will result in a
$169 change for the year ended December 31, 1996.
(e) Represents pro forma income allocated to the pro forma weighted average
minority interest (Units) in Cali Realty L.P. (the Operating Partnership) of
10.20 percent.
29
CALI REALTY CORPORATION
ESTIMATED TWELVE MONTH PRO FORMA STATEMENT OF
TAXABLE NET OPERATING INCOME AND OPERATING FUNDS AVAILABLE
(UNAUDITED)
The following unaudited statement is a Pro Forma estimate for a twelve month
period of taxable income and funds available from operations of the Company. The
Pro Forma statement is based on the Company's historical operating results for
the twelve month period ended June 30 1997, adjusted for historical operations
of the properties acquired during the period from July 1, 1996 to September 15,
1997 (as reported in this report and previous 8-K and 8-K/A filings of the
Company dated January 31, 1997, December 31, October 28, October 29, October 8,
and July 16, 1996) and certain items related to operations which can be
factually supported. This statement does not purport to forecast actual
operating results for any period in the future.
This statement should be read in conjunction with (i) the financial
statements of the Company and (ii) the Pro Forma financial statements of the
Company.
ESTIMATE OF TAXABLE NET OPERATING INCOME (IN THOUSANDS):
Cali Realty Corporation historical income before minority
interest for the year ended December 31, 1996,
exclusive of depreciation and amortization..................................... $ 47,333
Cali Realty Corporation historical income before minority
interest for the six months ended June 30, 1997,
exclusive of depreciation and amortization..................................... 54,976
Cali Realty Corporation historical income before minority
interest for the six months ended June 30, 1996,
exclusive of depreciation and amortization..................................... (19,729)
---------
Cali Realty Corporation historical income before minority
interest for the twelve month period ended June 30, 1997,
exclusive of depreciation and amortization (Note 1)............................ 82,580
Properties acquired July 1, 1996 through September 15, 1997,
historical earnings from operations, as adjusted, exclusive
of depreciation and amortization (Note 2)...................................... 24,005
Pro Forma adjustments relating to the Company's common
stock offerings (Note 3)....................................................... 12,897
Net adjustment for tax basis revenue recognition (Note 4)........................ 113
Estimated tax deduction from the exercise and sale of stock options under the
Company's Employee Stock Option Plan........................................... (3,100)
Estimated tax depreciation and amortization (Note 5) (36,821)
---------
Pro Forma taxable income before allocation to minority interest and
dividends deduction............................................................ 79,674
Estimated allocation to minority interest (Note 6)............................... (8,662)
Estimated dividends deduction (Note 7)........................................... (72,780)
---------
---------
$ (1,768)
---------
---------
Pro Forma taxable net operating income........................................... $ 0
---------
---------
ESTIMATE OF OPERATING FUNDS AVAILABLE (IN THOUSANDS):
Pro Forma taxable operating income before allocation to minority
interests and dividends deduction.............................................. $ 79,674
Add: Pro Forma depreciation and amortization..................................... 36,821
Estimated tax deduction from the exercise and sale of stock options under the
Company's Employee Stock Option Plan....................................... 3,100
---------
Estimated Pro Forma operating funds available (Note 8)........................... $ 119,595
---------
---------
See accompanying footnotes on subsequent page.
30
CALI REALTY CORPORATION
ESTIMATED TWELVE MONTH PRO FORMA STATEMENT OF
TAXABLE NET OPERATING INCOME AND OPERATING FUNDS AVAILABLE
(UNAUDITED)
Note 1 -- The historical income before minority interest represents the
Company's income before minority interest for the twelve month
period ended June 30, 1997.
Note 2 -- The historical earnings from operations represents the Pro Forma
results of the properties acquired during the period from July 1,
1996 to September 15, 1997 for the period from July 1, 1996
through the earlier of the date of acquisition or June 30, 1997.
Note 3 -- Represents the pro forma interest reduction resulting from the
paydown of funds drawn on the Company's credit facilities with
proceeds from the Company's common stock offerings on August 13
and November 22, 1996.
Note 4 -- Represents the net adjustment to (i) recognize prepaid rent and
(ii) reverse the effect of rental revenue recognition on a
straight line basis.
Note 5 -- Tax depreciation for the Company is based upon the original cost
or purchase price allocated to the buildings, depreciated on a
straight-line method over a 39-year life.
Note 6 -- Estimated allocation of taxable income to minority interests is
based on a 10.11 percent minority interest in the operating
partnership with a special allocation of depreciation on
properties included in the Initial Public Offering and subsequent
acquisitions where Operating Units were issued as part of the
consideration.
Note 7 -- Estimated dividends deduction is based on 36,389,785 shares
outstanding at the dividend rate of $2.00 per share. Shares
outstanding, on a pro forma basis, are 36,389,785.
Note 8 -- Operating funds available does not represent cash generated from
operating activities in accordance with generally accepted
accounting principles and is not necessarily indicative of cash
available to fund cash needs.
31
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Cali Realty Corporation on Forms S-3 (File Nos. 333-25475, 333-09875,
333-19101, 333-09081, 33-96542, and 33-96538) and Forms S-8 (File Nos. 33-91822,
333-18725, 333-19831 and 333-32661) of our report dated May 20, 1997 on our
audit of the Statement of Revenue and Certain Expenses for Westlakes Office
Park, of our report dated August 8, 1997 on our audit of the Statement of
Revenue and Certain Expenses for First Shelton Place, and of our report dated
September 3, 1997 on our audit of the Statement of Revenue and Certain Expenses
for Three Independence Way, which reports are included in this Current Report on
Form 8-K.
/s/ Schonbraun, Safris, Sternlieb, & Co., L.L.C.
- -------------------------------------------
Schonbraun, Safris, Sternlieb, & Co., L.L.C.
Roseland, New Jersey
September 19, 1997
32