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