- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 19, 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
On September 18, 1997, Cali Realty Corporation and its subsidiary, Cali
Realty, L.P. (collectively, the "Company") entered into a Contribution and
Exchange Agreement (the "Agreement") with certain contributing partnerships and
other entities affiliated with The Mack Company and Patriot American Office
Group (collectively, "The Mack Group"). The Agreement provides for, among other
things, the Company to acquire 55 office properties, aggregating approximately
9.4 million square feet, (the "Mack Properties") for a total cost of
approximately $1.2 billion. According to terms of the Agreement, the cost of the
transaction (the "Transaction") will be financed through: (i) the assumption of
an aggregate of $302.1 million in long-term mortgage financing (the "Mack
Assumed Debt"); (ii) approximately $476.1 million in cash (which the Company
plans to obtain through net proceeds to be received from a public offering of
its common stock, with the remainder to be obtained through drawing on the
Company's revolving credit facilities); (iii) the issuance of 3,931,048 common
units ("Common Units") in Cali Realty, L.P. (the "Operating Partnership"); (iv)
the issuance of 249,656 preferred units ("Preferred Units") in the Operating
Partnership convertible into Common Units; and (v) the issuance of two million
warrants ("Warrants") to purchase Common Units.
As more fully described in the Company's Current Report on Form 8-K/A, dated
January 31, 1997, and the Company's Current Report on Form 8-K, dated September
18, 1997, from the period January 1, 1997 through September 19, 1997, the
Company acquired a total of 75 properties, aggregating 5.1 million square feet,
for a total cost of approximately $578.3 million (including the $450.0 million
Robert Martin transaction in January 1997). These properties consist of 24
office buildings aggregating 2.4 million square feet, 40 office/flex buildings
aggregating 2.3 million square feet, six industrial/warehouse buildings
aggregating 387,000 square feet, two stand-alone retail properties aggregating
17,000 square feet, two land leases, and a multi-family residential property.
The acquisitions and related activities referred to above are to be collectively
referred to as the "Pre-Mack Events."
Prior to the completion of the Transaction, the Company intends to commence
and complete a public offering and sale of 10 million shares of its Common Stock
(subject to increase based on the Company's option and/or underwriters' exercise
of its over allotment option). The Company expects to receive approximately
$365.1 million in net proceeds from such offering (the "1997 Offering"), which
it intends to use primarily to fund the cash portion of the Transaction. No
assurances can be given that the 1997 Offering will be completed based on these
terms, or at all.
The following summary of the material provisions of the Agreement is
qualified in its entirety by reference to a copy of such Agreement, which is
attached hereto as Exhibit 10.98.
The Mack Properties to be acquired in the Transaction consist of 25 office
buildings in New Jersey aggregating 4.8 million square feet, 17 office buildings
in Texas aggregating 2.5 million square feet, five office buildings in Arizona
aggregating 609,000 square feet, three office buildings in New York aggregating
381,000 square feet, a 320,000 square-foot office building in Nebraska, a
297,000 square-foot building in Florida, a 267,000 square-foot office building
in California, a 168,000 square-foot office building in Pennsylvania, and a
72,000 square-foot office building in Iowa. The Mack Properties were constructed
between 1894 and 1994 and range in size from 40,000 to 475,000 net rentable
square feet. As of June 30,
1997, the Mack Properties had a weighted average occupancy rate of approximately
94.8 percent and were leased to over 1,000 tenants.
Following the completion of the Transaction, the Company's total portfolio
will consist of 187 properties, primarily office and office/flex buildings,
aggregating approximately 21.6 million square feet, located in ten states.
Based on terms in the Agreement, the Cali Realty Corporation name will be
changed, subject to shareholder approval, to Mack-Cali Realty Corporation, and
the name of the Operating Partnership will be changed from Cali Realty, L.P. to
Mack-Cali Realty, L.P. If such shareholder approval is not obtained
2
the Company will operate under its new name pursuant to a fictitious name
certificate, and continue to seek to obtain shareholder approval in the future.
With the completion of the Transaction, the composition of the Company's
13-member Board of Directors will also change. The Mack Group will be permitted
to name three designees to the Board, who will be: William Mack, currently
Senior Managing Partner of the Mack Company, Mitchell Hersh, currently Partner
and Chief Operating Officer of the Mack Company, and Earle Mack, all of whom
will be considered "inside" members of the Board because of their relationship
with the Company's management. The other inside members of the Board will be
John J. Cali, who will remain as Chairman of the Board, Thomas A. Rizk, and
Robert Weinberg. The remaining seven independent directors will include three
current independent Board members: Brendan Byrne, Irvin Reid and Alan
Philibosian; with four additional independent Board members to be selected by
the Mack Group, subject to the Company's reasonable approval.
Additionally, Thomas A. Rizk will remain Chief Executive Officer and will
resign as President of the Company, with Mitchell Hersh being appointed
President and Chief Operating Officer. The Company's other existing officers
will retain their current positions and responsibilities, except that Brant Cali
will resign as Chief Operating Officer and John R. Cali will resign as Chief
Administrative Officer. Brant Cali and John R. Cali will remain as officers of
the Company as Executive Vice Presidents.
Additionally, the Agreement calls for the Company to enter into
non-competition agreements with each of William, Earle, David and Frederick
Mack, which will restrict the business dealings of such individuals relative to
their involvement in commercial real estate activities to those specified in the
Agreement. The agreements are to have a term of the later of (a) three years
from the completion of the Transaction, or (b) the occurrence of specified
circumstances including, but not limited to, the removal of William, Earle,
David or Frederic Mack, respectively, from the Company's Board of Directors and
a decrease in certain ownership levels.
The 3,931,048 Common Units to be issued in the Transaction will be
redeemable, after one year, for shares of Common Stock of the Company. Following
completion of the Transaction, there will be 8,021,219 Common Units in the
Operating Partnership issued and outstanding.
The 249,956 Preferred Units to be issued in the Transaction will contain
anti-dilution protection and have voting rights similar to those of Common
Units. The Preferred Units would be able to be converted to 7,205,079 Common
Units immediately following their issuance upon completion of the Transaction.
Pursuant to the Agreement, the Common Units underlying 209,656 of the Preferred
Units may be redeemed for shares of Common Stock of the Company after three
years and the Common Units underlying 40,000 of the Preferred Units may be
redeemed for shares of Common Stock after one year. The distribution on each
Preferred Unit will be paid quarterly at an annual rate of 6.75 percent of the
stated value ($1,000) of each unit, or $67.50 per Preferred Unit annually,
subject to certain restrictions if such Preferred Units are converted to common
units. The Company will have the right to cause the conversion of any or all of
the Preferred Units into common units, at any time after the seven and one-half
year anniversary of the completion of the Transaction at their stated value plus
accrued but unpaid distributions, subject to restrictions based on the price of
the Company's Common Stock. The Preferred Units are also subject to various
other provisions as described in the Agreement.
The Warrants to be issued in the Transaction will be exercisable over a
four-year period commencing with the first anniversary of the completion of the
Transaction, and upon exercise, provide for the purchase of a Common Unit in the
Operating Partnership at a price of $37.80 per Common Unit, subject to
adjustment for customary anti-dilution rights.
On or before December 12, 1997, the Company may terminate the Agreement for
any reason. On or before October 27, 1997, the Mack Group may terminate the
Agreement for any reason. During the period beginning October 28, 1997 and
through December 12, 1997, the Mack Group may terminate the
3
Agreement under certain situations and conditions relative to material adverse
changes in the activities and stock price of the Company during that period.
The completion of the Transaction is subject to certain conditions,
including approval by the Company's stockholders. There can be no assurance that
the Transaction will be consummated or that the Agreement will not be modified
or amended. Subject to the foregoing, the Company expects the Transaction to be
completed in or about December 1997.
The Transaction is pursuant to an agreement for the sale and purchase of the
Properties 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 took 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 properties themselves and their fit with the Company's operations. No
separate independent appraisals were obtained in connection with the pending
acquisition of the Properties by the Company. The Company has retained
Prudential Securities Incorporated to provide certain financial advisory
services in connection with the Transaction. The Company 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.
(a) Financial Statements
Audited Combined Financial Statements of the Mack Group as of December 31,
1996 and 1995 and for the three years in the period ended December 31, 1996
and Unaudited Financial Information as of June 30, 1997 and for the six
months ended June 30, 1997 and 1996.
(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.
(c) Exhibits
10.98-Contribution and Exchange Agreement among The MK Contributors, The MK
Entities, The Patriot Contributors, The Patriot Entities, Patriot American
Management and Leasing Corp., Cali Realty, L.P. and Cali Realty Corporation,
dated September 18, 1997.
4
MACK PROPERTIES
The following tables set forth certain historical information relating to
each of the Mack Properties which were owned by Mack as of June 30, 1997.
NET PERCENTAGE PERCENTAGE 1996 1996
RENTABLE LEASED LEASED BASE EFFECTIVE
YEAR AREA AS OF AS OF RENT RENT
PROPERTY/LOCATION BUILT (SQ. FT.) 12/31/96(%)(1) 6/30/97(%)(2) ($000)(3) ($000)(4)
- ---------------------------- ------- --------- ----------- ----------- --------- ---------
ROCHELLE PARK, BERGEN
COUNTY, NJ
Mack Centre I -- 365 West
Passaic Street............ 1976 212,578 81.0 86.2 3,297 2,682
120 Passaic Street........ 1972 52,000 100.0 100.0 575 551
PARAMUS, BERGEN COUNTY, NJ
Mack Centre II -- 650 From
Road...................... 1978 348,510 90.0 100.0 6,066 4,993
Mack Centre III -- 140
East Ridgewood Avenue..... 1981 239,680 90.9 99.1 4,806 4,009
Mack Centre IV -- 61 South
Paramus Road.............. 1985 269,191 75.8 78.8 5,177 4,249
Mack Centre VI -- 461 From
Road...................... 1988 253,554 98.3 100.0 5,087 4,762
Mack Centre VII -- 15 East
Midland Avenue............ 1988 259,823 100.0 100.0 4,493 3,758
UPPER SADDLE RIVER, BERGEN
COUNTY, NJ
Mack Saddle River -- One
Lake Street............... 1973/94(8) 474,801 100.0 100.0 7,144 6,234
MONTVALE, BERGEN COUNTY, NJ
Mack Montvale I -- 95
Chestnut Ridge Road....... 1975 47,700 100.0 100.0 507 290
Mack Montvale II -- 135
Chestnut Ridge Road....... 1981 66,150 100.0 100.0 1,217 973
WOODCLIFF LAKE, BERGEN
COUNTY, NJ
400 Chestnut Ridge Road... 1982 89,200 100.0 100.0 1,814 1,813
470 Chestnut Ridge Road... 1987 52,500 100.0 100.0 1,051 1,051
530 Chestnut Ridge Road... 1986 57,204 100.0 100.0 1,083 1,082
PERCENTAGE
OF 1996 1996 AVG. TENANTS LEASING
1996 AVERAGE EFFECTIVE 10% OR MORE OF
TOTAL BASE RENT RENT PER. NET RENTABLE AREA
BASE RENT PER SQ. SQ. FT. PER PROPERTY
PROPERTY/LOCATION (%) FT.($)(5) ($)(6) AS OF 6/30/97(7)
- ---------------------------- --------- -------------- --------- ----------------------------
ROCHELLE PARK, BERGEN
COUNTY, NJ
Mack Centre I -- 365 West
Passaic Street............ 2.57 19.15 15.58 Sizes Unlimited Inc. (26%)
Financial Telesis Inc. (10%)
Catalina Marketing Corp.
(10%)
120 Passaic Street........ 0.45 11.06 10.60 Electronic Data
Systems Corp. (100%)
PARAMUS, BERGEN COUNTY, NJ
Mack Centre II -- 650 From
Road...................... 4.74 19.34 15.92 Western Union Financial
Services, Inc. (38%)
Mack Centre III -- 140
East Ridgewood Avenue..... 3.75 22.05 18.40 AT&T Wireless
Services (41%), Smith Barney
Inc. (19%)
Mack Centre IV -- 61 South
Paramus Road.............. 4.04 25.37 20.82 Dunn & Bradstreet Software
Services, Inc. (10%)
Mack Centre VI -- 461 From
Road...................... 3.97 20.41 19.11 Toys 'R' Us, Inc. (89%)
Mack Centre VII -- 15 East
Midland Avenue............ 3.51 17.29 14.46 AT&T Wireless Services (98%)
UPPER SADDLE RIVER, BERGEN
COUNTY, NJ
Mack Saddle River -- One
Lake Street............... 5.58 15.05 13.13 Prentice-Hall, Inc. (100%)
MONTVALE, BERGEN COUNTY, NJ
Mack Montvale I -- 95
Chestnut Ridge Road....... 0.40 10.63 6.08 ArgEvo E.H. (100%)
Mack Montvale II -- 135
Chestnut Ridge Road....... 0.95 18.40 14.70 Alliance Funding Company
(100%)
WOODCLIFF LAKE, BERGEN
COUNTY, NJ
400 Chestnut Ridge Road... 1.42 20.34 20.33 Timeplex, Inc. (100%)
470 Chestnut Ridge Road... 0.82 20.02 20.01 Timeplex, Inc. (100%)
530 Chestnut Ridge Road... 0.85 18.93 18.92 KPMG Peat Marwick, LLP
(100%)
5
NET PERCENTAGE PERCENTAGE 1996 1996
RENTABLE LEASED LEASED BASE EFFECTIVE
YEAR AREA AS OF AS OF RENT RENT
PROPERTY/LOCATION BUILT (SQ. FT.) 12/31/96(%)(1) 6/30/97(%)(2) ($000)(3) ($000)(4)
- ---------------------------- ------- --------- ----------- ----------- --------- ---------
LITTLE FERRY, BERGEN COUNTY,
NJ
Mack Airport -- 200 Riser
Road...................... 1974 286,628 100.0 100.0 991 896
MORRIS PLAINS, MORRIS
COUNTY, NJ
Mack Lakeview Plaza -- 201
Littleton Road............ 1979 88,369 89.0 89.0 1,414 1,135
Mack Morris Plains -- 250
Johnson Road.............. 1977 75,000 100.0 100.0 1,125 782
MORRIS TOWNSHIP, MORRIS
COUNTY, NJ
Kemble Plaza I -- 340 Mt.
Kemble Ave................ 1985 387,000 100.0 100.0 5,244 5,198
Kemble Plaza II -- 412 Mt.
Kemble Ave................ 1986 475,100 100.0 100.0 7,499 7,311
WAYNE, PASSAIC COUNTY, NJ
Mack Willowbrook -- 201
Willowbrook Boulevard..... 1970 178,329 100.0 100.0 2,214 1,894
BRIDGEWATER, SOMERSET
COUNTY, NJ
Mack Bridgewater I -- 721
Route 202/206............. 1989 192,741 100.0 100.0 3,631 2,558
CRANFORD, UNION COUNTY, NJ
Mack Cranford -- 12
Commerce Drive............ 1967 72,260 87.3 87.3 552 492
NEW PROVIDENCE, UNION
COUNTY, NJ
Mack Murray Hill -- 890
Mountain Road............. 1977 80,000 100.0 59.2 1,538 1,437
PERCENTAGE
OF 1996 1996 AVG. TENANTS LEASING
1996 AVERAGE EFFECTIVE 10% OR MORE OF
TOTAL BASE RENT RENT PER. NET RENTABLE AREA
BASE RENT PER SQ. SQ. FT. PER PROPERTY
PROPERTY/LOCATION (%) FT.($)(5) ($)(6) AS OF 6/30/97(7)
- ---------------------------- --------- -------------- --------- ----------------------------
LITTLE FERRY, BERGEN COUNTY,
NJ
Mack Airport -- 200 Riser
Road...................... 0.77 3.46 3.13 Ford Motor Co. (34%)
Sanyo Fisher Service Corp.
(33%)
Dassault Falcon Jet Corp.
(33%)
MORRIS PLAINS, MORRIS
COUNTY, NJ
Mack Lakeview Plaza -- 201
Littleton Road............ 1.10 17.98 14.43 Poppe Tyson Inc. (34%) Xerox
Corp. (29%) Willis Corroon
Corp. of New Jersey (20%)
Mack Morris Plains -- 250
Johnson Road.............. 0.88 15.00 10.43 Electronic Data Systems
Corp. (100%)
MORRIS TOWNSHIP, MORRIS
COUNTY, NJ
Kemble Plaza I -- 340 Mt.
Kemble Ave................ 4.09 13.55 13.43 AT&T Corp. (100%)
Kemble Plaza II -- 412 Mt.
Kemble Ave................ 5.86 15.78 15.39 AT&T Corp. (100%)
WAYNE, PASSAIC COUNTY, NJ
Mack Willowbrook -- 201
Willowbrook Boulevard..... 1.73 12.42 10.62 The Grand Union Co. (76%)
Woodward-Clyde Consultants
(24%)
BRIDGEWATER, SOMERSET
COUNTY, NJ
Mack Bridgewater I -- 721
Route 202/206............. 2.84 18.84 13.27 Allstate Insurance Company
(37%) Norris, McLaughlin &
Marcus, PA (30%) Lucent
Technologies, Inc. (20%)
CRANFORD, UNION COUNTY, NJ
Mack Cranford -- 12
Commerce Drive............ 0.43 8.75 7.80 Dames & Moore (42%)
Registrar & Transfer Co.
(23%) Body Connections, Inc.
(20%)
NEW PROVIDENCE, UNION
COUNTY, NJ
Mack Murray Hill -- 890
Mountain Road............. 1.20 19.23 17.97 Allstate Insurance Company
(59%)
6
NET PERCENTAGE PERCENTAGE 1996 1996
RENTABLE LEASED LEASED BASE EFFECTIVE
YEAR AREA AS OF AS OF RENT RENT
PROPERTY/LOCATION BUILT (SQ. FT.) 12/31/96(%)(1) 6/30/97(%)(2) ($000)(3) ($000)(4)
- ---------------------------- ------- --------- ----------- ----------- --------- ---------
MILLBURN, ESSEX COUNTY, NJ
Mack Short Hills -- 150
J.F. Kennedy Parkway...... 1980 247,476 100.0 100.0 5,241 4,965
EAST BRUNSWICK, MIDDLESEX
COUNTY, NJ
Mack East Brunswick -- 377
Summerhill Road........... 1977 40,000 100.0 100.0 363 359
WOODBRIDGE, MIDDLESEX
COUNTY, NJ
Mack Woodbridge II -- 581
Main Street............... 1991 200,000 92.3 95.5 3,688 2,916
NORTH HEMPSTEAD, NASSAU
COUNTY, NY
Mack Manhasset -- 111 East
Shore Road................ 1980 55,575 100.0 100.0 1,612 1,591
Mack North Hills -- 600
Community Drive........... 1983 206,274 100.0 100.0 4,379 4,102
FISHKILL, DUTCHESS COUNTY,
NY
Westage Business Center --
300 South Lake Drive.... 1987 118,727 91.2 99.8 1,471 1,228
TAMPA, HILLSBOROUGH COUNTY,
FL
One Mack Centre -- 501
Kennedy Boulevard......... 1982 297,429 88.8 90.5 3,852 3,480
PLYMOUTH MEETING, MONTGOMERY
COUNTY, PA
Mack Plymouth Meeting --
1150 Plymouth Meeting
Mall...................... 1970 167,748 99.7 98.4 2,451 2,317
PERCENTAGE
OF 1996 1996 AVG. TENANTS LEASING
1996 AVERAGE EFFECTIVE 10% OR MORE OF
TOTAL BASE RENT RENT PER. NET RENTABLE AREA
BASE RENT PER SQ. SQ. FT. PER PROPERTY
PROPERTY/LOCATION (%) FT.($)(5) ($)(6) AS OF 6/30/97(7)
- ---------------------------- --------- -------------- --------- ----------------------------
MILLBURN, ESSEX COUNTY, NJ
Mack Short Hills -- 150
J.F. Kennedy Parkway...... 4.09 21.18 20.06 KPMG Peat Marwick, LLP (44%)
Budd Larner Gross Rosenbaum
Greenberg & Sade, PC (22%)
Coldwell Banker Residential
Real Estate (13%)
EAST BRUNSWICK, MIDDLESEX
COUNTY, NJ
Mack East Brunswick -- 377
Summerhill Road........... 0.28 9.08 8.97 Greater New York Mutual
Insurance Company (100%)
WOODBRIDGE, MIDDLESEX
COUNTY, NJ
Mack Woodbridge II -- 581
Main Street............... 2.88 19.98 15.80 First Investors Management
Company, Inc.(46%) CIBA
Consumer Pharmaceuticals
(39%)
NORTH HEMPSTEAD, NASSAU
COUNTY, NY
Mack Manhasset -- 111 East
Shore Road................ 1.26 29.01 28.63 Administrations for the
Professions, Inc. (100%)
Mack North Hills -- 600
Community Drive........... 3.42 21.23 19.89 CMP Media, Inc. (100%)
FISHKILL, DUTCHESS COUNTY,
NY
Westage Business Center --
300 South Lake Drive.... 1.14 13.59 11.34 Allstate Insurance Company
(15%)
TAMPA, HILLSBOROUGH COUNTY,
FL
One Mack Centre -- 501
Kennedy Boulevard......... 3.01 14.58 13.17 Raytheon Engineers &
Constructors, Inc.(31%)
Fowler, White, Gillen Boggs,
Villareal & Banker, PA (30%)
PLYMOUTH MEETING, MONTGOMERY
COUNTY, PA
Mack Plymouth Meeting --
1150 Plymouth Meeting
Mall...................... 1.91 14.66 13.85 Smith Enviromental
Technologies Corp. (42%)
Ken Crest Services (16%)
Computer Learning Centers,
Inc. (12%)
7
NET PERCENTAGE PERCENTAGE 1996 1996
RENTABLE LEASED LEASED BASE EFFECTIVE
YEAR AREA AS OF AS OF RENT RENT
PROPERTY/LOCATION BUILT (SQ. FT.) 12/31/96(%)(1) 6/30/97(%)(2) ($000)(3) ($000)(4)
- ---------------------------- ------- --------- ----------- ----------- --------- ---------
PHOENIX, MARICOPA COUNTY, AZ
Beardsley Corporate Center
-- 20002 North 19th
Ave..................... 1986 119,301 100.0 100.0 673 389
Patriot Biltmore Plaza --
6001 North 24th
Street.................. 1987 124,690 100.0 100.0 1,604 1,335
Mack Beardsley -- 19640
North 31st Street....... 1990 124,171 100.0 100.0 1,396 1,396
SCOTTSDALE, MARICOPA COUNTY,
AZ
9060 E. Via Linda
Boulevard................. 1984 111,200 100.0 100.0 1,276 1,276
GLENDALE, MARICOPA COUNTY,
AZ
Mack Glendale -- 5551 West
Talavi Boulevard.......... 1991 130,000 100.0 100.0 1,087 1,076
EULESS, TARRANT
COUNTY, TX
Landmark Centre -- 150
West Park Way............. 1984 74,429 98.8 96.6 856 738
RICHARDSON, DALLAS COUNTY,
TX
Santa Fe Building -- 1122
Alma Road................. 1977 82,576 100.0 100.0 599 446
IRVING, DALLAS COUNTY, TX
Metroport -- 2300 Valley
View...................... 1985 142,634 89.6 100.0 1,688 1,304
DALLAS, DALLAS COUNTY, TX
3100 Monticello........... 1984 173,837 65.7 83.8 1,908 1,746
PERCENTAGE
OF 1996 1996 AVG. TENANTS LEASING
1996 AVERAGE EFFECTIVE 10% OR MORE OF
TOTAL BASE RENT RENT PER. NET RENTABLE AREA
BASE RENT PER SQ. SQ. FT. PER PROPERTY
PROPERTY/LOCATION (%) FT.($)(5) ($)(6) AS OF 6/30/97(7)
- ---------------------------- --------- -------------- --------- ----------------------------
PHOENIX, MARICOPA COUNTY, AZ
Beardsley Corporate Center
-- 20002 North 19th
Ave..................... 0.53 5.64 3.26 American Express Travel
Related Services Co., Inc.
(100%)
Patriot Biltmore Plaza --
6001 North 24th
Street.................. 1.25 12.86 10.71 Del Webb Corporation (68%)
Wrigley Mansion Club, Inc.
(24%)
Mack Beardsley -- 19640
North 31st Street....... 1.09 11.24 11.24 American Express Travel
Related Services Co., Inc.
(100%)
SCOTTSDALE, MARICOPA COUNTY,
AZ
9060 E. Via Linda
Boulevard................. 1.00 11.47 11.47 Sentry Insurance A Mutual
Company (100%)
GLENDALE, MARICOPA COUNTY,
AZ
Mack Glendale -- 5551 West
Talavi Boulevard.......... 0.85 8.36 8.28 Honeywell, Inc. (100%)
EULESS, TARRANT
COUNTY, TX
Landmark Centre -- 150
West Park Way............. 0.67 11.64 10.04 Warrantech Corporation (34%)
Mike Bowman Realtors/Century
21 (17%)
Landmark Bank-Mid Cities
(16%)
RICHARDSON, DALLAS COUNTY,
TX
Santa Fe Building -- 1122
Alma Road................. 0.47 7.25 5.40 MCI Telecommunications Corp.
(100%)
IRVING, DALLAS COUNTY, TX
Metroport -- 2300 Valley
View...................... 1.32 13.21 10.20 Nokia, Inc. (52%)
Computer Task Group, Inc.
(12%)
Alltell Information
Services, Inc.(12%)
DALLAS, DALLAS COUNTY, TX
3100 Monticello........... 1.49 16.71 15.28 Insignia Financial Group,
Inc.(18%)
Time Marketing Corporation
(11%)
8
NET PERCENTAGE PERCENTAGE 1996 1996
RENTABLE LEASED LEASED BASE EFFECTIVE
YEAR AREA AS OF AS OF RENT RENT
PROPERTY/LOCATION BUILT (SQ. FT.) 12/31/96(%)(1) 6/30/97(%)(2) ($000)(3) ($000)(4)
- ---------------------------- ------- --------- ----------- ----------- --------- ---------
Preston Centre Plaza --
8214 Westchester.......... 1983 95,509 88.9 89.3 1,096 944
Tri West Plaza -- 3030 LBJ
Freeway................... 1984 367,018 98.9 96.0 4,660 4,059
PLANO, COLLIN COUNTY, TX
555 Republic Place........ 1986 97,889 100.0 97.5 1,039 765
HOUSTON, HARRIS COUNTY, TX
Cornerstone Regency --
14511 Falling Creek....... 1982 70,999 96.4 87.4 584 466
Katy Plaza -- 5225 Katy
Freeway................... 1983 112,213 88.1 92.0 899 646
5300 Memorial............. 1982 155,099 95.1 96.0 1,634 1,321
1717 St. James Place...... 1975 109,574 94.9 96.0 988 796
1770 St. James Place...... 1973 103,689 96.3 95.2 1,082 775
10497 Town & Country
Way....................... 1981 148,434 99.3 99.0 1,564 1,293
SAN ANTONIO, BEXAR COUNTY,
TX
Bexar Plaza -- 1777 N.E.
Loop 410................ 1986 256,137 92.4 94.0 2,754 2,252
Century Building -- 84
N.E. Loop 410........... 1971 187,312 95.1 91.4 2,032 1,470
Riverview -- 111
Soledad................. 1918 248,153 54.7 60.0 1,269 999
PERCENTAGE
OF 1996 1996 AVG. TENANTS LEASING
1996 AVERAGE EFFECTIVE 10% OR MORE OF
TOTAL BASE RENT RENT PER. NET RENTABLE AREA
BASE RENT PER SQ. SQ. FT. PER PROPERTY
PROPERTY/LOCATION (%) FT.($)(5) ($)(6) AS OF 6/30/97(7)
- ---------------------------- --------- -------------- --------- ----------------------------
Preston Centre Plaza --
8214 Westchester.......... 0.86 12.91 11.12 State Bank & Trust (10%)
Preston Business Center,
Inc. (15%)
Malone Mortgage Company
America, Inc. (11%)
Tri West Plaza -- 3030 LBJ
Freeway................... 3.64 12.84 11.18 Club Corporation
International (29%)
PLANO, COLLIN COUNTY, TX
555 Republic Place........ 0.81 10.61 7.81 William Smith Enterprises
(19%)
Kaiser Foundation Health
Plan of Texas (17%)
Dayton Hudson Corporation
(14%)
HOUSTON, HARRIS COUNTY, TX
Cornerstone Regency --
14511 Falling Creek....... 0.46 8.53 6.81 Nationwide Mutual Insurance
Company (11%)
Katy Plaza -- 5225 Katy
Freeway................... 0.70 9.09 6.53
5300 Memorial............. 1.28 11.08 8.96 Drypers Corporation (20%)
HCI Chemicals USA, Inc.(14%)
Datavox, Inc. (17%)
1717 St. James Place...... 0.77 9.50 7.65 Mississippi Chemical
Express, Inc. (14%)
1770 St. James Place...... 0.84 10.84 7.76 Gateway Homes, Inc. (10%)
10497 Town & Country
Way....................... 1.22 10.61 8.77 Texas Ohio Gas, Inc. (11%)
Vastar Resources, Inc.(22%)
SAN ANTONIO, BEXAR COUNTY,
TX
Bexar Plaza -- 1777 N.E.
Loop 410................ 2.15 11.64 9.52
Century Building -- 84
N.E. Loop 410........... 1.59 11.41 8.25 KBL Cable, Inc. (26%)
Pacificare of Texas, Inc.
(30%)
Kraft General Foods, Inc.
(25%)
Riverview -- 111
Soledad................. 0.99 9.35 7.36
9
NET PERCENTAGE PERCENTAGE 1996 1996
RENTABLE LEASED LEASED BASE EFFECTIVE
YEAR AREA AS OF AS OF RENT RENT
PROPERTY/LOCATION BUILT (SQ. FT.) 12/31/96(%)(1) 6/30/97(%)(2) ($000)(3) ($000)(4)
- ---------------------------- ------- --------- ----------- ----------- --------- ---------
AMARILLO, POTTER COUNTY, TX
Atrium at Coulter Ridge --
6900 IH-40 West......... 1986 71,771 82.4 80.0 583 464
SAN FRANCISCO, SAN FRANCISCO
COUNTY, CA
Phelan Building -- 760
Market Street........... 1908 267,446 81.6 83.1 4,078 3,726
OMAHA, DOUGLAS COUNTY, NE
Brandeis Building -- 210
South 16th Street....... 1894 319,535 94.3 94.4 2,326 2,210
WEST DES MOINES, POLK
COUNTY, IA
Century III -- 2600
Westown Parkway......... 1988 72,265 95.3 95.4 809 689
--------- ----- ----- --------- ---------
Total Mack Properties..... 9,357,428 93.7 94.8 128,066 111,689
--------- ----- ----- --------- ---------
--------- --------- ---------
PERCENTAGE
OF 1996 1996 AVG. TENANTS LEASING
1996 AVERAGE EFFECTIVE 10% OR MORE OF
TOTAL BASE RENT RENT PER. NET RENTABLE AREA
BASE RENT PER SQ. SQ. FT. PER PROPERTY
PROPERTY/LOCATION (%) FT.($)(5) ($)(6) AS OF 6/30/97(7)
- ---------------------------- --------- -------------- --------- ----------------------------
AMARILLO, POTTER COUNTY, TX
Atrium at Coulter Ridge --
6900 IH-40 West......... 0.46 9.86 7.85 Sitel Corporation (16%)
SAN FRANCISCO, SAN FRANCISCO
COUNTY, CA
Phelan Building -- 760
Market Street........... 3.18 18.69 17.07 R.H. Macy & Company, Inc.
(19%)
Comp USA, Inc. (11%)
OMAHA, DOUGLAS COUNTY, NE
Brandeis Building -- 210
South 16th Street....... 1.82 7.72 7.33 Union Pacific Railroad
Company (69%)
WEST DES MOINES, POLK
COUNTY, IA
Century III -- 2600
Westown Parkway......... 0.62 11.75 10.00 MCI Telecommunications Corp.
(14%)
New England Mutual Life
Insurance Company (13%)
St. Paul Fire and Marine
Insurance Company (19%)
American Express Financial
Advisors, Inc. (10%)
--------- ----- ---------
Total Mack Properties..... 100.00 14.61 12.74
--------- ----- ---------
- ------------------------
(1) Based on all leases in effect as of December 31, 1996.
(2) Based on all leases in effect as of June 30, 1997.
(3) Total base rent for 1996, determined in accordance with GAAP. Substantially
all of the leases provide for annual base rents plus recoveries and
escalation charges based upon the tenant's proportionate share of and/or
increases in real estate taxes utilities and certain operating costs, as
defined.
(4) Total base rent for 1996 minus total 1996 amortization of tenant
improvements, leasing commissions and other concessions and costs,
determined in accordance with GAAP.
(5) Base rent for 1996 divided by net rentable square feet leased at December
31, 1996.
(6) Effective rent for 1996 divided by net rentable square feet leased at
December 31, 1996.
(7) Excludes office space leased subsequent to June 30, 1997.
(8) A 130,000 square foot building addition was completed in 1994.
10
MACK'S SIGNIFICANT TENANTS
The following table sets forth a schedule of Mack's ten largest tenants as
of June 30, 1997, based upon annualized contractual base rents for the month of
June 1997.
PERCENTAGE
AVERAGE OF MACK'S TOTAL LEASE
RENT PER ANNUALIZED BASE EXPIRATION
TENANT NAME SQUARE FOOT (2) RENTAL REVENUE DATE
- ----------------------------------------------- TENANT ------------------ ------------------- ----------
ANNUALIZED
BASE RENTAL
REVENUE (000) (1)
-----------------
(IN THOUSANDS)
AT&T Corp...................................... $13,491 $15.65 10.21% Jan. 2008(3)
AT&T Wireless Services......................... 7,653 21.76 5.79 March 2007(4)
Prentice Hall, Inc............................. 5,795 12.21 4.39 Dec. 2014
CMP Media, Inc................................. 4,823 21.75 3.65 Oct. 2014
Toys 'R' Us, Inc............................... 4,308 19.18 3.26 Dec. 2012
Timeplex, Inc.................................. 2,780 19.62 2.10 June 2004(5)
KPMG Peat Marwick, LLP......................... 2,535 22.46 1.92 Sept. 2002
Western Union Financial Services, Inc.......... 2,434 18.50 1.84 Nov. 2000
Union Pacific Railroad Company................. 2,394 10.79 1.81 May 2002
American Express Company....................... 2,266 8.97 1.72 July 2000(6)
------- -----
Total.................................. $48,479 36.69%
------- -----
------- -----
- ------------------------
(1) Annual base rental revenue is based on actual June 1997 billings annualized
and is not derived from historical GAAP results. The historical results for
the 12 months ended December 31, 1997 may differ from those set forth above.
(2) Represents tenant's annualized base rent divided by the respective tenant's
leased square feet as of June 30, 1997.
(3) Represents leases at two office properties. AT&T Corp.'s lease of (i)
475,100 net rentable square feet at Kemble Plaza II, Morris Township, New
Jersey expires in January 2008 and (ii) 387,000 net rentable square feet at
Kemble Plaza I, Morris Township, New Jersey expires in January 2009.
(4) Represents leases at three office properties. AT&T Wireless Services' leases
of (i) 255,536 net rentable square feet at Mack Centre VII, Paramus, New
Jersey expires in March 2007 and (ii) 85,976 net rentable square feet in
Mack Centre III, Paramus, New Jersey expires in March 2007, and (iii) 10,113
net rentable square feet in Mack Centre I, Rochelle Park, New Jersey expires
in May 1998.
(5) Represents leases at two office properties. Timeplex, Inc.'s lease of (i)
89,200 net rentable square feet at 400 Chestnut Ridge Road, Woodcliff Lake,
New Jersey expires in June 2004 and (ii) 52,500 net rentable square feet at
470 Chestnut Ridge Road, Woodcliff Lake, New Jersey expires in December
2005.
(6) Represents leases at three office properties. American Express Travel
Related Services Co., Inc.'s leases of (i) 124,171 net rentable square feet
at 19640 No. 31st St., Phoenix, Arizona expires in July 2000 and (ii)
119,301 net rentable square feet at 20002 No. 19th Ave., Phoenix, Arizona
expires in February 2004. American Express Financial Advisors, Inc.'s lease
of 9,175 net rentable square feet at Mack Centre IV, Paramus, New Jersey
expires in September, 1999.
11
MACK PROPERTIES: SCHEDULE OF LEASE EXPIRATIONS
The following table sets forth a schedule of the lease expirations for the
Mack Properties beginning with the six months ending December 31, 1997 and
annually thereafter, assuming that none of the tenants exercises renewal
options:
NET
RENTABLE AVERAGE ANNUAL
AREA RENT PER NET
SUBJECT TO PERCENTAGE OF TOTAL ANNUAL BASE RENT RENTABLE SQ. FT.
EXPIRING LEASED UNDER EXPIRING REPRESENTED BY
YEAR OF NUMBER OF LEASES SQ. FT. REPRESENTED LEASES EXPIRING LEASES
EXPIRATION LEASES EXPIRING(1) (SQ.FT.) BY EXPIRING LEASES(%) ($000'S)(2) ($)
- -------------------------------- ------------------- ----------- ----------------------- ---------------- -----------------
7/1/97-12/31/97................. 112 243,827 2.75 4,346 17.82
1998............................ 258 710,955 8.01 9,563 13.45
1999............................ 206 808,502 9.11 13,336 16.49
2000............................ 162 1,279,712 14.42 18,190 14.21
2001............................ 104 790,246 8.90 10,807 13.68
2002............................ 86 951,378 10.72 16,247 17.08
2003............................ 25 586,730 6.61 7,277 12.40
2004............................ 20 706,770 7.96 10,908 15.43
2005............................ 13 303,678 3.42 5,631 18.54
2006............................ 7 159,085 1.79 3,052 19.18
2007 & thereafter............... 16 2,335,817 26.31 38,445 16.46
----- ----------- -------- ------- -----
Total/Weighted Average.... 1,009 8,876,700 100.00 137,802 15.52
----- ----------- -------- ------- -----
----- ----------- -------- ------- -----
- ------------------------
(1) Includes office tenants only. Excludes leases for amenity, retail, parking
and month-to-month office tenants. Some tenants have multiple leases.
(2) Based upon aggregate base rent, determined in accordance with GAAP, for all
leases dated on or before June 30, 1997.
12
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
September 19, 1997 By: /s/ THOMAS A. RIZK
------------------------------------------
Thomas A. Rizk
PRESIDENT AND CHIEF EXECUTIVE OFFICER
September 19, 1997 By: /s/ BARRY LEFKOWITZ
------------------------------------------
Barry Lefkowitz
CHIEF FINANCIAL OFFICER
13
CALI REALTY CORPORATION
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
THE MACK GROUP
Reports of Independent Accountants:
Report of Price Waterhouse LLP.........................................................................
Report of Ernst & Young LLP............................................................................
Combined Balance Sheets as of June 30, 1997 (unaudited), December 31, 1996 and 1995......................
Combined Statements of Operations for the Six Months Ended June 30, 1997 and 1996 (unaudited), and for
the Three Years in the Period Ended December 31, 1996..................................................
Combined Statements of Partners' Deficit for the Period January 1, 1994 through December 31, 1996, and
through June 30, 1997 (unaudited)......................................................................
Combined Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1996 (unaudited) and the
Three Years in the Period Ended December 31, 1996......................................................
Notes to Combined Financial Statements...................................................................
Financial Statement Schedule III--Real Estate and Accumulated Depreciation and Amortization............
14
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Cali Realty Corporation
and the Partners and Members of
The Mack Group
In our opinion, based upon our audits and the report of other auditors, the
accompanying combined balance sheets and the related combined statements of
operations, of partners' deficit and of cash flows, including financial
statement Schedule III, present fairly, in all material respects, the financial
position of The Mack Group at December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31 1996, in conformity with generally accepted accounting
principles. These financial statements and schedule are the responsibility of
the management of The Mack Group; our responsibility is to express an opinion on
these financial statements and schedule based on our audits. We did not audit
the combined financial statements and schedule of the Patriot American Office
Group, part of the combined Mack Group, which statements reflect total assets of
$136,855,000 and $135,063,000 at December 31, 1996 and 1995, respectively, and
total revenues of $40,118,000, $36,776,000 and $31,583,000 for the years ended
December 31, 1996, 1995 and 1994, respectively. Those statements were audited by
other auditors whose report thereon has been furnished to us, and our opinion
expressed herein, insofar as it relates to the amounts included for the Patriot
American Office Group, is based solely on the report of the other auditors. We
conducted our audits of these statements and schedule in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements and
schedule are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
- --------------------------
PRICE WATERHOUSE LLP
New York, New York
September 15, 1997
15
REPORT OF INDEPENDENT AUDITORS
To the Partners and Owners
Patriot American Office Group:
We have audited the accompanying combined balance sheets of the Patriot
American Office Group, more fully described in Note 1, as of December 31, 1996
and 1995, and the related combined statements of operations, partners' and
owners' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 1996 (not presented separately herein). We have also
audited the accompanying financial statement schedule (not presented separately
herein). These financial statements and schedule are the responsibility of the
Patriot American Office Group's management. Our responsibility is to express an
opinion of these financial statements and schedule based on our audits.
We conducted our audits 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 statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Patriot
American Office Group as of December 31, 1996 and 1995, and the combined results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information
required to be set forth therein.
/s/ ERNST & YOUNG LLP
----------------------------------------------------------------
ERNST & YOUNG LLP
Dallas, Texas
March 19, 1997, except for Note 9,
for which the date is August 4, 1997
16
THE MACK GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31,
------------------------
1996 1995
JUNE 30, ----------- -----------
1997
-----------
(UNAUDITED)
ASSETS
Rental property
Land..................................................................... $ 67,917 $ 67,917 $ 67,917
Buildings and improvements............................................... 489,755 489,030 488,106
Tenant improvements...................................................... 140,291 126,591 112,307
Furniture, fixtures, and equipment....................................... 2,464 2,446 2,398
----------- ----------- -----------
700,427 685,984 670,728
Less-accumulated depreciation and amortization........................... (208,712) (196,790) (172,622)
----------- ----------- -----------
Total rental property................................................ 491,715 489,194 498,106
Cash and cash equivalents.................................................. 8,291 13,486 8,628
Unbilled rents receivable.................................................. 19,105 21,352 20,839
Deferred charges and other assets, net..................................... 21,846 23,348 20,459
Restricted cash............................................................ 7,685 3,911 7,676
Accounts receivable........................................................ 2,237 2,943 2,678
Due from affiliate......................................................... 1,948 4,366 6,169
----------- ----------- -----------
Total assets......................................................... $ 552,827 $ 558,600 $ 564,555
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND PARTNERS' DEFICIT
Mortgages and bond payable, net of discount of $2,314, $2,721 and
$39,865.................................................................. $ 654,031 $ 659,339 $ 640,063
Loans payable--partners, includes accrued interest......................... 8,307 8,222 8,603
Accounts payable and accrued expenses...................................... 10,669 11,815 10,538
Rents received in advance and security deposits............................ 10,465 9,269 8,767
Accrued interest payable................................................... 1,655 2,283 2,904
----------- ----------- -----------
Total liabilities...................................................... 685,127 690,928 670,875
Commitments and contingencies
Partners' deficit.......................................................... (132,300) (132,328) (106,320)
----------- ----------- -----------
Total liabilities and partners' deficit................................ $ 552,827 $ 558,600 $ 564,555
----------- ----------- -----------
----------- ----------- -----------
The accompanying notes are an integral part of these combined financial
statements.
17
THE MACK GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
-------------------- ------------------------------------------
1997 1996 1996 1995 1994
--------- --------- ---------- ------------------ ----------
(UNAUDITED)
REVENUES
Base rents, including amounts from related
parties of $3,760, $3,832, $7,593, $7,603 and
$7,606....................................... $ 64,521 $ 63,013 $ 128,066 $ 124,493 $ 114,843
Escalation and recoveries from tenants,
including amounts from related parties of
$149, $140, $337, $348 and $603.............. 7,774 8,232 16,984 14,823 14,964
Other income................................... 5,587 2,356 3,233 2,838 2,296
Interest income................................ 350 218 469 194 275
--------- --------- ---------- -------- ----------
Total revenues............................. 78,232 73,819 148,752 142,348 132,378
--------- --------- ---------- -------- ----------
EXPENSES
Real estate taxes.............................. 7,833 7,431 15,367 14,407 14,320
Utilities...................................... 6,782 6,726 14,143 13,387 13,220
Operating services............................. 9,960 9,616 19,507 18,254 18,032
General and administrative..................... 3,531 3,777 7,309 7,885 7,995
Depreciation and amortization.................. 13,717 13,799 28,069 26,833 25,188
Interest expense............................... 29,975 30,228 58,621 59,813 56,889
--------- --------- ---------- -------- ----------
Total expenses............................. 71,798 71,577 143,016 140,579 135,654
--------- --------- ---------- -------- ----------
Income (loss) before extraordinary item........ 6,434 2,242 5,736 1,769 (3,276)
Extraordinary item-
loss on extinguishment of debt, net........ -- -- (19,285) -- --
--------- --------- ---------- -------- ----------
Net income (loss).............................. $ 6,434 $ 2,242 $ (13,549) $ 1,769 $ (3,276)
--------- --------- ---------- -------- ----------
--------- --------- ---------- -------- ----------
The accompanying notes are an integral part of these financial statements.
18
THE MACK GROUP
COMBINED STATEMENTS OF PARTNERS' DEFICIT
(IN THOUSANDS)
Partners' deficit at January 1, 1994............................................. $(132,938)
Contributions.................................................................. 28,983
Distributions.................................................................. (7,353)
Net loss....................................................................... (3,276)
---------
Partners' deficit at December 31, 1994........................................... (114,584)
Contributions.................................................................. 16,696
Distributions.................................................................. (10,201)
Net income..................................................................... 1,769
---------
Partners' deficit at December 31, 1995........................................... (106,320)
Contributions.................................................................. 6,340
Distributions.................................................................. (18,799)
Net loss....................................................................... (13,549)
---------
Partners' deficit at December 31, 1996........................................... (132,328)
Contributions.................................................................. 2,204
Distributions.................................................................. (8,610)
Net income..................................................................... 6,434
---------
Partners' deficit at June 30, 1997 (unaudited)................................... $(132,300)
---------
---------
The accompanying notes are an integral part of these combined financial
statements.
19
THE MACK GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS ENDED FOR THE YEAR ENDED
JUNE 30, DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................... $ 6,434 $ 2,242 $ (13,549) $ 1,769 $ (3,276)
Adjustments to reconcile net income (loss) to net cash flows
provided by operating activities
Depreciation and amortization............................... 13,717 13,799 28,069 26,833 25,188
Amortization of deferred financing costs.................... 1,232 382 899 828 962
Amortization of interest discount on mortgage loans......... 407 2,735 5,466 5,390 5,163
Amortization of profit participation discount on mortage
loans..................................................... -- 647 1,294 1,029 812
Loss on extinguishment of debt, net......................... -- -- 19,285 -- --
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable................ 706 (251) (265) 29 761
(Increase) decrease in unbilled rents receivable.......... 2,247 (356) (513) (4,112) (2,177)
(Increase) decrease in due from Mack Company.............. 2,418 358 1,803 (2,261) (3,909)
(Increase) decrease in deferred charges and other assets,
net..................................................... (1,469) (943) (5,212) (1,987) (5,123)
Increase (decrease) in accounts payable and accrued
expenses................................................ (1,611) 944 737 (6,362) 2,139
Increase (decrease) in accrued interest payable and
accrued interest on partner loans....................... (469) 1,736 1,989 4,882 1,810
Increase (decrease) in rents received in advance and
security deposits....................................... 1,196 (2,383) 502 1,778 (1,142)
--------- --------- --------- --------- ---------
Cash flows provided by operating activities............... 24,808 18,910 40,505 27,816 21,208
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to rental properties.............................. (13,900) (4,744) (15,301) (27,070) (49,700)
(Increase) decrease in restricted cash...................... (3,774) 628 3,764 (3,611) (1,103)
--------- --------- --------- --------- ---------
Cash flows used in investing activities................... (17,674) (4,116) (11,537) (30,681) (50,803)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgages..................................... -- 3,300 131,700 7,500 10,900
Repayments of mortgages..................................... (5,788) (10,073) (139,997) (13,565) (11,377)
Proceeds from loans payable partners........................ -- -- -- -- 7,000
Payment of financing costs.................................. (135) (547) (3,354) (402) (631)
Cash contributions from partners............................ 2,204 807 6,340 16,696 28,983
Cash distributions to partners.............................. (8,610) (7,152) (18,799) (10,201) (7,353)
--------- --------- --------- --------- ---------
Cash flows (used in) provided by financing activities..... (12,329) (13,665) (24,110) 28 27,522
--------- --------- --------- --------- ---------
Net (decrease) increase in cash and cash equivalents...... (5,195) 1,129 4,858 (2,837) (2,073)
Cash and cash equivalents, beginning of period................ 13,486 8,628 8,628 11,465 13,538
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of period...................... $ 8,291 $ 9,757 $ 13,486 $ 8,628 $ 11,465
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental Cash Flow Information
Cash paid for interest expense.............................. $ 28,862 $ 23,304 $ 48,821 $ 49,020 $ 47,710
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Non-Cash Investing Activites
Accruals for property additions............................. $ 942 $ 712 $ 477 $ 521 $ 767
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
The accompanying notes are an integral part of these combined financial
statements.
20
THE MACK GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
The Mack Group (not a legal entity) is engaged in the ownership and
operation of commercial office buildings located in the United States (the
"Properties"). The Properties are held through two portfolios: The Mack Company
and Patriot American Office Group ("PAO") portfolios. The Mack Company's office
property portfolio consists of 32 office properties comprising approximately 5.9
million square feet located principally in New Jersey and Arizona. The PAO
portfolio consists of 23 office properties comprising approximately 3.5 million
square feet located principally in Texas and Arizona. The Mack Company and PAO
are collectively hereinafter referred to as The Mack Group. Management, leasing
and construction services with respect to the Properties have been historically
provided by affiliates of The Mack Group.
BASIS OF PRESENTATION
The accompanying combined financial statements of The Mack Group have been
presented on a combined basis, which is considered to be the most meaningful,
due to the common general partners in partnerships or managing members in
limited liability companies and common management. In addition, the entities are
expected to be the subject of a business combination with Cali Realty
Corporation and subsidiaries ("Cali"), a fully integrated, self administered,
self managed real estate investment trust. The business combination involves the
planned acquisition by Cali of 100 percent of the interests of the partners and
members of the partnerships and limited liability companies (hereinafter
referred to as "partnership or partnerships") included in The Mack Group who
will receive cash, limited partnership interests, warrants to acquire limited
partnership interests, or a combination thereof in Cali Realty, LP.
Certain other properties and operations affiliated with The Mack Group have
been excluded from these financial statements as they are not included in the
anticipated business combination described above.
All significant intercompany accounts and transactions have been eliminated
in combination.
The following table sets forth the Properties included in The Mack Group:
PROPERTY LOCATION PROPERTY LOCATION
- --------------------------- --------------------------- --------------------------- ---------------------------
NEW JERSEY NEW JERSEY
Mack Centre I Rochelle Park Mack Airport Little Ferry
Mack Centre II Paramus Kemble Plaza I Morris Township
Mack Centre III Paramus 120 Passaic Street Rochelle Park
Mack Centre IV Paramus Kemble Plaza II Morris Township
Mack Centre VI Paramus Mack Montvale I Montvale
Mack Centre VII Paramus Mack Cranford Cranford
Willowbrook Wayne Mack Short Hills Short Hills
Woodbridge II Woodbridge Mack Montvale II Montvale
Bridgewater I Bridgewater Mack Morris Plains Morris Plains
Mack Lakeview Plaza Morris Plains Timeplex HQ Woodcliff Lake
Mack Murray Hill New Providence Timeplex 470 Woodcliff Lake
Mack East Brunswick East Brunswick Timeplex 530 Woodcliff Lake
Mack Saddle River Upper Saddle River
21
THE MACK GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
PROPERTY LOCATION PROPERTY LOCATION
- --------------------------- --------------------------- --------------------------- ---------------------------
TEXAS TEXAS
Atrium at Coulter Ridge Amarillo St. James I Houston
Monticello Dallas St. James II Houston
Preston Center Dallas Town & Country Houston
TriWest Dallas Metroport Irving
Landmark Euless Republic Place Plano
Cornerstone Houston Santa Fe Richardson
Katy Plaza Houston Bexar San Antonio
Memorial Houston Century San Antonio
Commerce Plaza San Antonio
ARIZONA ARIZONA
Beardsley Phoenix Mack Beardsley Phoenix
Glendale Glendale Biltmore Phoenix
Linda Blvd Scottsdale
NEW YORK NEW YORK
North Hills North Hills Westage Fishkill
Mack Manhasset Manhasset
CALIFORNIA NEBRASKA
Phelan San Francisco Brandeis Omaha
IOWA FLORIDA
Century III. Des Moines One Mack Center Tampa
PENNSYLVANIA
Mack Plymouth Meeting Plymouth Meeting
All of the Properties have been owned by The Mack Group for the three year
period ended December 31, 1996, with the exception of the 120 Passaic Street,
Rochelle Park, New Jersey property, which was acquired in 1995.
UNAUDITED FINANCIAL STATEMENTS
The combined financial statements including the note disclosures included
herein as of June 30, 1997 and for the six months ended June 30, 1997 and 1996
are unaudited; however, in the opinion of The Mack Groups' management, all
adjustments (consisting solely of normal recurring adjustments) necessary for a
fair presentation of the combined financial statements for these interim periods
have been included. The results for the interim periods are not necessarily
indicative of the results to be obtained for the full fiscal year.
22
THE MACK GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. SIGNIFICANT ACCOUNTING POLICIES
RENTAL PROPERTY
Rental properties are stated at cost less accumulated depreciation. Costs
include interest, property taxes, insurance and other project costs incurred
during the period of construction. Ordinary repairs and maintenance are expensed
as incurred; major replacements and betterments are capitalized. Depreciation is
computed on a straight-line basis over the estimated useful lives of the assets
as follows:
Buildings and improvements................... 40 years
Tenant improvements.......................... The shorter of the term of the related lease
or useful life
Furniture, fixtures and equipment............ 5 to 10 years
On a periodic basis, management assesses whether there are any indicators
that the value of the real estate properties may be impaired. A property's value
is impaired only if management's estimate of the aggregate future cash flows
(undiscounted and without interest charges) to be generated by the property are
less than the carrying value of the property. Management does not believe that
the value of any of its real estate properties is impaired.
DEFERRED CHARGES AND OTHER ASSETS
DEFERRED FINANCING COSTS
Costs incurred to obtain financing are capitalized and amortized on a
straight-line basis, which approximated the effective interest method, over the
term of the related indebtedness. Amortization of such costs was $1,232, $382,
$899, $828, and $962 for the six months ended June 30, 1997 and 1996 and years
ended December 31, 1996, 1995 and 1994, respectively.
DEFERRED LEASING COSTS
Direct costs, principally commissions and legal costs, incurred in
connection with leases are capitalized and amortized on a straight-line basis
over the terms of the related leases. Unamortized deferred leasing costs are
charged to amortization expense upon early termination of the lease.
DEBT DISCOUNTS
In connection with the initial acquisition and RTC financing of 22 of the
Properties (see Note 5), the carrying amount of the real estate and mortgage
notes payable were initially discounted by $44,082 using an effective interest
rate of 9.0 percent. The discount is amortized to interest expense over the
terms of the mortgage loans using the effective interest method.
As more fully described in Note 5, The Mack Group determines the fair value
of the participation feature of the RTC participating mortgage at the inception
of the loan and records an increase in the mortgage note payable with a
corresponding debt discount. The debt discount is amortized into interest
expense using the effective interest method over the life of the loan. The
liability and debt discount are adjusted for subsequent changes in the fair
value of the participation feature and the revised debt discount is amortized
prospectively over the remaining life of the loan.
23
THE MACK GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Mack Group recognizes base rental revenue on a straight-line basis over
the terms of the respective leases. Unbilled rents receivable represents the
amount by which straight-line rental revenue exceeds rents currently billed in
accordance with the lease agreements.
CASH AND CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents. At June 30, 1997 and December
31, 1996, cash and cash equivalents included investments in overnight reverse
repurchase agreements ("Overnight Investments") totaling $4,491 and $2,172,
respectively. Investments in Overnight Investments are subject to the risks that
the counter-party will default and the collateral will decline in market value.
The Overnight Investments matured on July 1, 1997 and on January 2, 1997, and
the entire balance, including interest income earned, was realized by The Mack
Group.
INTEREST RATE SWAP AND CAP AGREEMENTS
The Mack Group has entered into interest rate swap and cap agreements to
reduce the impact of changes in interest rates on its floating rate mortgages.
The effect of these agreements is included in interest expense as incurred.
EXTRAORDINARY ITEM
The extraordinary item represents the net effects resulting from the early
settlement of certain mortgage obligations, including accrued interest, net of
write-offs of related deferred financing costs.
PARTNERS' CAPITAL CONTRIBUTIONS, DISTRIBUTIONS AND PROFIT AND LOSS ALLOCATIONS
The individual partnership agreements specify the required capital
contributions of the partners and the procedures for the allocation of profits,
losses, distributions and the return of capital to the partners. Generally,
these items are allocated in proportion to the respective ownership percentages
of the partners.
INCOME TAXES
The entities included in the combined financial statements are partnerships
which are not subject to federal and state income taxes. The partners are
required to report in their individual federal and state income tax returns
their distributed share of income or loss and other amounts. Accordingly, income
taxes have not been provided for in the accompanying financial statements.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
24
THE MACK GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. RESTRICTED CASH
Restricted cash includes escrow and reserve funds for debt service, real
estate taxes, property insurance, capital and tenant improvements, and leasing
costs established pursuant to certain mortgage and bond financing arrangements.
At December 31, 1995, restricted cash also included $1,653 of restricted
deposits made by a partner.
4. DEFERRED CHARGES AND OTHER ASSETS
(UNAUDITED) DECEMBER 31,
JUNE 30, --------------------
1997 1996 1995
----------- --------- ---------
Deferred leasing costs......................................................... $ 36,046 $ 34,419 $ 29,246
Deferred financing costs....................................................... 10,621 10,486 8,200
----------- --------- ---------
Total deferred charges....................................................... 46,667 44,905 37,446
Less--accumulated amortization................................................. (25,921) (22,989) (18,719)
Deferred charges, net.......................................................... 20,746 21,916 18,727
Prepaid expenses and other assets.............................................. 1,100 1,432 1,732
----------- --------- ---------
Total deferred charges and other assets........................................ $ 21,846 $ 23,348 $ 20,459
----------- --------- ---------
----------- --------- ---------
5. MORTGAGES AND BOND PAYABLE
The Mack Group has non-recourse mortgages and bond payable each of which is
collateralized by one or more of the Properties included in these financial
statements. The mortgages and bond are generally due in monthly installments of
interest and in certain cases principal based on amortization periods of 15 to
35 years, and mature at various dates through January 2009. The mortgages and
bond outstanding as of June 30, 1997 and December 31, 1996 and 1995 are as
follows:
(UNAUDITED) DECEMBER 31,
JUNE 30, ----------------------
MORTGAGES AND BOND 1997 1996 1995
- ---------------------------------------------------------------------------- ----------- ---------- ----------
Paine Webber Mortgages...................................................... $ 126,000 $ 126,000 --
RTC Mortgages............................................................... 3,410 3,264 $ 57,628
Fixed Rate Mortgages........................................................ 344,465 347,854 396,317
Variable Rate Mortgages..................................................... 172,156 174,221 178,118
Industrial Development Bond................................................. 8,000 8,000 8,000
----------- ---------- ----------
$ 654,031 $ 659,339 $ 640,063
----------- ---------- ----------
----------- ---------- ----------
PAINE WEBBER MORTGAGES
In December 1996, The Mack Group, in connection with the PAO portfolio,
entered into a $126,000 mortgage loan agreement with Paine Webber Incorporated
("Paine Webber"). Proceeds from the loan were used to repay the RTC mortgages
and other loans, and accrued interest as discussed below. The loan, which is
collateralized by 21 Properties and a pledge of equity interest in one
partnership, an assignment of leases, and a cash collateral account, bears
interest at 250 basis points over the London Interbank Offer Rate ("LIBOR") for
the first six months, 300 basis points over LIBOR for the following six months
and
25
THE MACK GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
5. MORTGAGES AND BOND PAYABLE (CONTINUED)
350 basis points over LIBOR thereafter until maturity in June 1998. LIBOR at
June 30, 1997 and December 31, 1996 was 5.53 percent and 5.69 percent,
respectively, and averaged 5.61 percent for the six months ended June 30, 1997.
At maturity, The Mack Group has the option to extend the loan to a seven-year
fixed rate mortgage, which would bear interest at the seven-year Treasury rate
plus 350 basis points. The loan may be prepaid in whole or part without penalty.
Additionally, The Mack Group has the option to borrow an additional $7,000 to
fund renovation costs at one of the Properties, subject to the approval of Paine
Webber.
Under the terms of the loan, The Mack Group is required to deposit
substantially all revenues from the Properties into a cash collateral account
under the sole control of Paine Webber. Funds from the cash collateral account
are to be used to fund reasonable operating expenses, debt service, real estate
taxes, insurance and approved capital improvements. On a monthly basis, 70
percent of the remaining funds in the account are to be used to repay principal
on the Paine Webber mortgage loan and 30 percent are available to the The Mack
Group.
RESOLUTION TRUST CORPORATION (RTC)
In connection with the acquisition of 22 of the PAO Properties in 1992, The
Mack Group obtained seller financing from the RTC in the form of individual
mortgage loans which aggregated $93,543. The mortgage loans matured from August
to December 2004, and were non-interest bearing for the first seven years, after
which time the loans bore interest at 9 percent per annum, payable quarterly. In
addition, the RTC was entitled to receive quarterly principal payments based on
operating income, as defined. Under the terms of the mortgage loans, the RTC was
also entitled to a 30 percent profit participation upon sale or refinancing of
the mortgage loans. The profit participation initially recorded in 1993 of
$6,287, was subsequently adjusted to $8,692 at December 31, 1994, $10,645 at
December 31, 1995 and $12,762 at December 27, 1996. The amortization of the
corresponding discount resulted in additional interest expense related to the
profit participation for the six months ended June 30, 1996 and the years ended
December 31, 1996, 1995 and 1994 of approximately $647, $1,294, $1,029 and $812,
respectively.
In December 1996, 21 of the 22 RTC mortgage loans, along with the unpaid
additional interest, were repaid with the proceeds of the Paine Webber mortgage
loan. As a result, The Mack Group recognized an extraordinary loss from early
extinguishment of debt of $33,390, which consisted primarily of the write-off of
the remaining unamortized debt discount of $23,454, the write-off of the
remaining unamortized discount related to the profit participation of $9,056 and
the write-off of deferred financing costs of $673. At June 30, 1997 and December
31, 1996, one RTC mortgage loan remains with a carrying amount of $3,410 and
$3,264, net of discount of $927 and $1,073, respectively.
FIXED RATE MORTGAGES
Interest rates on fixed rate mortgages aggregating $344,465, $347,854 and
$396,317 at June 30, 1997, and December 31, 1996 and 1995, respectively, range
from 7 percent to 14 percent, excluding the cash flow participation discussed
below. The effective interest rate at June 30, 1997 and December 31, 1996 and
1995 on such fixed rate mortgages was 8.84 percent, 9.05 percent and 10.60
percent, respectively.
In addition to the stated rates of interest, at June 30, 1997 and December
31, 1996 and 1995, a $4,750 mortgage on one Property includes provisions for
additional interest based on 25 percent of cash flows, as
26
THE MACK GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
5. MORTGAGES AND BOND PAYABLE (CONTINUED)
defined, of the underlying property pledged under the mortgage. Additional
interest for the six months ended June 30, 1997, and 1996 and years ended
December 31, 1996, 1995, and 1994 was $98, $93, $276, $244, and $230,
respectively.
On July 3, 1996, a second mortgage on the One Mack Center, Tampa, FL
property with an outstanding balance of $15,555 including unpaid interest of
$1,955 was canceled for a payment of $1,450 to the lender, which after the
write-off of related deferred financing costs resulted in an extraordinary gain
of $14,105.
VARIABLE RATE MORTGAGES
The interest rate on variable rate mortgage payables of $12,470, $12,750 and
$15,816 at June 30, 1997 and December 31, 1996 and 1995, respectively, is at the
banks' prime rate or at prime plus one percent. The average effective interest
rate at June 30, 1997 and December 31, 1996 and 1995 was 8.50 percent, 8.25
percent and 6.68 percent, respectively.
The interest rate on variable rate mortgage payables of $159,686, $161,471
and $162,302 at June 30, 1997 and December 31, 1996 and 1995, respectively, is
0.55 percent to 2.25 percent above LIBOR. The average effective interest rate at
June 30, 1997 and December 31, 1996 and 1995 was 7.27 percent, 7.24 percent and
8.11 percent, respectively. The average effective interest rate for all variable
rate mortgage payables for the six months ended June 30, 1997 and years ended
December 31, 1996 and 1995 was 7.47 percent, 7.89 percent and 7.82 percent,
respectively.
Substantially all of the loans may not be prepaid until specified dates with
prepayment fees ranging from 1/2 percent to 2 percent of the outstanding
principal balance, or yield maintenance, as defined in the respective mortgage
loan agreement.
INDUSTRIAL DEVELOPMENT BONDS
The Mack Manhasset, NY property is financed through the issuance of $8,000
of Nassau County IDA Bonds bearing interest at a bank's TENR rate (4.1 percent
at June 30, 1997 and 4.0 percent and 5.0 percent at December 31, 1996 and 1995,
respectively) and maturing on December 1, 1999. These bonds are secured by an
$8.4 million letter of credit issued by a bank. Pursuant to the terms of the
letter of credit, the net cash flow of the Property is required to be deposited
into a sinking fund maintained by the bank as additional collateral; such
deposits, including interest totaled $556, $441 and $216 at June 30, 1997, and
December 31, 1996 and 1995, respectively.
INTEREST RATE SWAP AND CAP AGREEMENTS
The Mack Group has entered into interest rate swap and cap agreements to
reduce the impact of changes in interest rates on its floating rate mortgages.
At December 31, 1996, The Mack Group had two outstanding swap agreements with
financial institutions, having an aggregate notional principal amount of
$54,875. Those agreements effectively change The Mack Group's interest rate
exposure on its $11,875 floating rate (LIBOR + 1.15 percent) mortgage due
September 1999 to a fixed 7.08 percent through September 1998, and $43,000 of
its $53,000 floating rate (LIBOR + 0.55 percent) mortgage due January 2009 to a
fixed 8.029 percent through August 1997.
27
THE MACK GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
5. MORTGAGES AND BOND PAYABLE (CONTINUED)
At December 31, 1996, The Mack Group also has an outstanding interest rate
cap agreement with a financial institution, having a notional amount of $8,500.
This cap agreement effectively changes The Mack Group's interest rate exposure
on its $8,090 floating rate (LIBOR + 1.15 percent) mortgage due September 1999
to a maximum 9.65 percent through September 1998.
The Mack Group is exposed to credit loss in the event of non-performance by
the other parties to the interest rate swap and cap agreements. However, The
Mack Group does not anticipate non- performance by the counter-parties.
REPAYMENT SCHEDULE
Scheduled principal repayments for the above mortgages and bond at December
31, 1996 are as follows:
1997.............................................................................. $ 12,527
1998.............................................................................. 218,332
1999.............................................................................. 98,671
2000.............................................................................. 18,739
2001.............................................................................. 82,304
Thereafter........................................................................ 231,487
---------
662,060
Less amount representing interest................................................. (2,721)
---------
Total............................................................................. $ 659,339
---------
---------
6. LOAN PAYABLE--PARTNERS
In accordance with a partnership agreement, partner loans of $7,000 were
provided to a property. The loan bears interest at 10 percent per annum until
such time as the aggregate outstanding balance has been reduced to $2,500 at
which time the interest rate shall be reduced to 9 percent. Interest is payable
monthly, in arrears, commencing on March 1, 1994. The loan matures on December
1, 1999. Interest on these loans totaled $482 and $480 for the six months ended
June 30, 1997 and 1996, and $949, $854 and $365 for the years ended December 31,
1996, 1995 and 1994, respectively. Unpaid interest at June 30, 1997 and December
31, 1996 and 1995 totaled $1,307, $1,222 and $1,019, respectively.
7. RELATED PARTY TRANSACTIONS
LEASES WITH AFFILIATES
An affiliate of a partner of the Mack North Hills, NY property occupies, as
of December 31, 1996, 100 percent of the space in the North Hills property.
Total rent income, including escalations and recoveries from this affiliate for
the six months ended June 30, 1997 and 1996 and years ended December 31, 1996,
1995 and 1994 approximated $2,364, $2,360, $4,751, $4,728, and $4,734,
respectively.
An affiliate of a partner of the Mack Manhasset, NY property occupies, as of
December 31, 1996, 100 percent of the space in the Mack Manhasset property.
Total rent income, including escalations and
28
THE MACK GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
7. RELATED PARTY TRANSACTIONS (CONTINUED)
recoveries from this affiliate for the six months ended June 30, 1997 and 1996
and years ended December 31, 1996, 1995 and 1994, approximated $880, $909,
$1,808, $1,803, and $1,851, respectively.
An affiliate of a partner of the Bridgewater, NJ property occupies, as of
December 31, 1996, 30 percent of the space in the Bridgewater property. Total
rent income, including escalations and recoveries from this affiliate for the
six months ended June 30, 1997 and 1996 and years ended December 31, 1996, 1995
and 1994 approximated $620, $658, $1,280, $1,330 and $1,535, respectively.
A partner with interests in 5 property partnerships occupies as of December
31, 1996, 3 percent of the space in the Mack Center I property. Total rent
income, including escalations and recoveries from this partner for the six
months ended June 30, 1997 and 1996 and years ended December 31, 1996, 1995 and
1994 approximated $45, $46, $90, $90, and $90, respectively.
OPERATING AND ADMINISTRATIVE SERVICES
Certain affiliates of The Mack Group provides operating, leasing and
management services to and charges the Properties for the expenses associated
with such services, comprising principally of employee costs and office
expenses. For the six months ended June 30, 1997 and 1996, and years ended
December 31, 1996, 1995 and 1994, the amount of such charges included in
operating services was $1,753, $1,411, $2,900, $2,735 and $2,755, respectively,
and the amount included in general and administrative expenses for such services
was $2,765, $3,038, $6,325, $6,305 and $5,988, respectively. Included in the
expense charged were contributions made by The Mack Group to employee profit
sharing and 401(k) plans sponsored by the affiliates, which amounted to $73,
$85, $172, $127 and $160 for the six months ended June 30, 1997 and 1996, and
years ended December 31, 1996, 1995 and 1994, respectively.
LEASING COMMISSIONS
Employees of an affiliate provide leasing services to the Properties and, in
certain situations, receive additional compensation based on executed leases.
For the six months ended June 30, 1997 and 1996 and the years ended December
1996, 1995 and 1994, the additional amounts paid to these employees, which are
capitalized and amortized, approximated $178, $108, $275, $280 and $329,
respectively. In 1995, an affiliate of The Mack Group was paid a leasing
commission of $400 relating to the SaddleMack Property which is capitalized and
amortized.
CASH PROCESSING
The Properties' rent receipts are deposited into a centralized receipt
account of an affiliate and the Properties' cash payments are disbursed from a
centralized disbursement account of that affiliate. At June 30, 1997 and
December 31, 1996 and 1995, the net amount due from affiliate was $1,948,
$4,366, and $6,169, respectively.
8. INCOME TAXES
The entities included in the combined financial statements are partnerships
which are not subject to federal and state income taxes. Accordingly, no
recognition has been given to income taxes in the accompanying financial
statements since the income or loss of the entities are to be included in the
tax returns of the individual partners. The tax returns of the entities are
subject to examination by federal and
29
THE MACK GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
8. INCOME TAXES (CONTINUED)
state taxing authorities. If such examinations result in adjustments to
distributive shares of taxable income or loss, the tax liability of the partners
would be adjusted accordingly.
The tax attributes of the partnerships' net assets flow directly to each
individual partner. Individual partners will have different investment bases
depending upon the timing and prices of their acquisition of partnership units.
Furthermore each partner's tax accounting, which is partially dependent upon
their individual tax position, may differ from the accounting followed in the
financial statements. Accordingly, there could be significant differences
between each individual partner's tax basis and their proportionate share of the
net assets reported in the financial statements.
9. DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of estimated fair value was determined by
management using available market information and appropriate valuation
methodologies. However, considerable judgment is necessary to interpret market
data and develop estimated fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts The Mack Group could
realize on disposition of the financial instruments at December 31, 1996. The
use of different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
Cash equivalents, receivables, accounts payable, and accrued expenses and
other liabilities are carried at amounts which reasonably approximate their fair
values.
Mortgages and bond payable have an aggregate carrying value of $659,339 at
December 31, 1996, which approximates their estimated aggregate fair value
(excluding prepayment penalties) based upon then current interest rates for debt
with similar terms and remaining maturities.
Based on the value of The Mack Group's interest rate swap and cap agreements
at December 31, 1996, the cost to The Mack Group to settle such agreements would
have been approximately $620.
Disclosure about fair value financial instruments is based on pertinent
information available to management as of December 31, 1996. Although management
is not aware of any factors that would significantly affect the fair value
amounts, such amounts have not been comprehensively revalued for purposes of
these financial statements since December 31, 1996 and current estimates of fair
value may differ significantly from the amounts presented herein.
10. COMMITMENTS AND CONTINGENCIES
The Mack Group has outstanding letters of credit issued by various banks
pledged as security for certain mortgages and bond payable. Letters of credit
outstanding as of June 30, 1997, and December 31, 1996 and 1995, aggregated
$15,577, $15,620 and $19,965, respectively, and are not reflected on the
accompanying financial statements.
30
THE MACK GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Mack Group leases certain land under ground leases expiring in various
times through December 2076. The future minimum lease payments under the ground
leases at December 31, 1996 are as follows:
1997............................................................................... $ 288
1998............................................................................... 288
1999............................................................................... 291
2000............................................................................... 291
2001............................................................................... 291
Thereafter......................................................................... 21,220
---------
Total............................................................................ $ 22,669
---------
---------
One ground lease which expires December 2011 also provides additional rent
based 25 percent of cash flow, as defined, of the Property subject to the ground
lease. Such additional rents were $131, $105, $150, $201 and $169 for the six
months ended June 30, 1997 and 1996 and years ended December 31, 1996, 1995 and
1994, respectively. Another ground lease which expires in February 2076 provides
for additional rent beginning February 1997 based on 11 percent of cash flow, as
defined, of the Property subject to the ground lease. There was no such
additional rent due for the six months ended June 30, 1997.
11. TENANT LEASES
The Properties are leased to tenants under operating leases with various
expiration dates through 2014. Substantially all of the leases provide for
annual base rents plus recoveries and escalation charges based upon the tenant's
proportionate share of and/or increases in real estate taxes and certain
operating costs as defined and the pass through of charges for electrical usage.
Future minimum rentals to be received under non-cancelable operating leases at
December 31, 1996 are as follows:
1997.............................................................................. $ 127,708
1998.............................................................................. 122,141
1999.............................................................................. 113,581
2000.............................................................................. 99,937
2001.............................................................................. 84,671
Thereafter........................................................................ 422,544
---------
Total............................................................................. $ 970,582
---------
---------
31
THE MACK GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
11. TENANT LEASES (CONTINUED)
The geographic concentration of the Properties' base rental income for the
year ended December 31, 1996 and property net book value as of December 31, 1996
are as follows:
REGION BASE RENTAL INCOME % PROPERTY NET BOOK VALUE %
- ----------------------------------------------------------------- ------------------------- -----------------------------
Northeast........................................................ 66 68
Southwest........................................................ 25 24
Other............................................................ 9 8
--- ---
100% 100%
--- ---
--- ---
Other income for the six months ended June 30, 1997 and 1996 and years ended
December 31, 1996, 1995 and 1994 included lease cancellation income of $4,462 ,
$1,293, $1,413, $589 and $571, respectively.
Fourteen properties with aggregate rental income (base rent plus escalations
and recoveries) of $17,312 and $34,652 for the six months ended June 30, 1997
and year ended December 31, 1996 are subject to purchase options, rights of
first refusal, or right of first offer, or a combination thereof, granted to
certain tenants.
32
SCHEDULE III
PAGE 1 OF 4
THE MACK GROUP
REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION
(IN THOUSANDS)
DECEMBER 31, 1996
GROSS
AMOUNT
CARRIED
INITIAL COSTS AT
--------------------------------------- CLOSE OF
COSTS PERIOD
CAPITALIZED (2)
SUBSEQUENT ---------
DATE RELATED BUILDING AND TO
PROPERTY NAME/LOCATION ACQUIRED ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION LAND
- ---------------------------------------- ----------- ------------- --------- ------------- ------------- ---------
ROCHELLE PARK, NJ
Mack Centre I......................... 1976 $ 7,070 $ 1,269 $ -- $ 14,647 $ 1,269
120 Passaic Street.................... 1995 2,710 646 1,788 -- 646
PARAMUS, NJ
Mack Centre II........................ 1978 16,247 2,008 -- 25,515 2,008
Mack Centre III....................... 1981 13,344 1,059 -- 25,007 1,059
Mack Centre IV........................ 1985 27,080 -- -- 35,402 --
Mack Centre VI........................ 1988 30,413 2,391 -- 27,983 2,391
Mack Centre VII....................... 1988 28,512 5,222 -- 32,702 5,222
UPPER SADDLE RIVER, NJ
Mack Saddle River..................... 1973 27,460 6,198 24,765 27,535 6,198
MORRIS PLAINS, NJ
Mack Lakeview Plaza................... 1979 4,091 512 -- 5,453 512
Mack Morris Plains.................... 1977 2,400 442 -- 4,756 442
171 Littleton Road.................... -- 100 -- -- 100
MORRIS TOWNSHIP, NJ
Kemble Plaza I........................ 1985 53,000 1,164 -- 11,060 1,164
Kemble Plaza II....................... 1986 67,000 3,815 -- 44,158 3,815
MONTVALE, NJ
Mack Montvale I....................... 1975 1,203 360 -- 3,774 360
Mack Montvale II...................... 1981 3,256 689 -- 5,916 689
WOODCLIFF LAKE, NJ
400 Chestnut Ridge Road............... 1982 15,490 1,074 6,085 -- 1,074
470 Chestnut Ridge Road............... 1987 6,375 1,189 6,720 -- 1,189
530 Chestnut Ridge Road............... 1986 6,375 1,234 6,976 -- 1,234
WAYNE, NJ
Mack Willowbrook...................... 1970 13,699 513 -- 9,894 513
Willowbrook--Peripheral Land.......... -- 440 -- -- 440
WOODBRIDGE, NJ
Mack Woodbridge II.................... 1991 24,707 1,408 -- 30,632 1,408
BRIDGEWATER, NJ
Mack Bridgewater I.................... 1989 24,458 693 21,806 6,963 693
DEPRECIABLE
BUILDING AND ACCUMULATED LIVES
PROPERTY NAME/LOCATION IMPROVEMENT TOTAL DEPRECATION (YEARS)
- ---------------------------------------- ------------- --------- ------------ ---------------
ROCHELLE PARK, NJ
Mack Centre I......................... $ 14,647 $ 15,916 $ 9,723 (1)
120 Passaic Street.................... 1,788 2,434 506 (1)
PARAMUS, NJ
Mack Centre II........................ 25,515 27,523 14,364 (1)
Mack Centre III....................... 25,007 26,066 10,515 (1)
Mack Centre IV........................ 35,402 35,402 11,228 (1)
Mack Centre VI........................ 27,983 30,374 9,571 (1)
Mack Centre VII....................... 32,702 37,924 13,036 (1)
UPPER SADDLE RIVER, NJ
Mack Saddle River..................... 52,300 58,498 7,028 (1)
MORRIS PLAINS, NJ
Mack Lakeview Plaza................... 5,453 5,965 1,374 (1)
Mack Morris Plains.................... 4,756 5,198 2,542 (1)
171 Littleton Road.................... -- 100 -- (1)
MORRIS TOWNSHIP, NJ
Kemble Plaza I........................ 11,060 12,224 3,882 (1)
Kemble Plaza II....................... 44,158 47,973 13,986 (1)
MONTVALE, NJ
Mack Montvale I....................... 3,774 4,134 2,038 (1)
Mack Montvale II...................... 5,916 6,605 4,886 (1)
WOODCLIFF LAKE, NJ
400 Chestnut Ridge Road............... 6,085 7,159 1,138 (1)
470 Chestnut Ridge Road............... 6,720 7,909 1,014 (1)
530 Chestnut Ridge Road............... 6,976 8,210 1,053 (1)
WAYNE, NJ
Mack Willowbrook...................... 9,894 10,407 5,065 (1)
Willowbrook--Peripheral Land.......... -- 440 -- (1)
WOODBRIDGE, NJ
Mack Woodbridge II.................... 30,632 32,040 4,974 (1)
BRIDGEWATER, NJ
Mack Bridgewater I.................... 28,769 29,462 8,644 (1)
33
SCHEDULE III
PAGE 2 OF 4
THE MACK GROUP
REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION
(IN THOUSANDS)
DECEMBER 31, 1996
GROSS
AMOUNT
CARRIED
INITIAL COSTS AT
--------------------------------------- CLOSE OF
COSTS PERIOD
CAPITALIZED (2)
SUBSEQUENT ---------
DATE RELATED BUILDING AND TO
PROPERTY NAME/LOCATION ACQUIRED ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION LAND
- ---------------------------------------- ----------- ------------- --------- ------------- ------------- ---------
CRANFORD, NJ
Mack Cranford......................... 1967 -- 219 -- 2,722 219
MILLBURN , NJ
Mack Short Hills...................... 1980 29,908 1,943 -- 14,939 1,943
LITTLE FERRY, NJ
Mack Airport.......................... 1974 7,128 -- -- 8,708 --
200 Riser Road........................ -- 800 -- -- 800
NEW PROVIDENCE, NJ
Mack Murray Hill...................... 1977 8,961 595 -- 3,435 595
EAST BRUNSWICK, NJ
Mack East Brunswick................... 1977 944 382 -- 1,487 382
NORTH HEMPSTEAD, NY
Mack Manhasset........................ 1980 8,000 710 -- 7,340 710
Mack North Hills...................... 1983 31,951 4,324 -- 21,694 4,324
TAMPA, FL
One Mack Centre....................... 1982 17,698 1,203 -- 28,908 1,203
PLYMOUTH MEETING, PA
Mack Plymouth Meeting................. 1970 769 -- -- 5,172 --
SCOTTSDALE, AZ
9060 E. Via Linda..................... 1988 10,637 3,814 8,392 -- 3,814
GLENDALE, AZ
Mack Glendale......................... 1991 8,090 1,241 7,540 -- 1,241
DALLAS, TX
3100 Monticello....................... 1992 6,903 698 3,747 1,525 698
Preston Center Plaza.................. 1992 5,213 529 2,117 1,048 529
TriWest Plaza......................... 1992 15,540 5,319 21,274 2,119 5,319
EULESS, TX
Landmark Centre....................... 1992 2,965 294 1,175 520 294
IRVING, TX
Metroport............................. 1992 6,126 626 2,504 1,565 626
DEPRECIABLE
BUILDING AND ACCUMULATED LIVES
PROPERTY NAME/LOCATION IMPROVEMENT TOTAL DEPRECATION (YEARS)
- ---------------------------------------- ------------- --------- ------------ ---------------
CRANFORD, NJ
Mack Cranford......................... 2,722 2,941 1,897 (1)
MILLBURN , NJ
Mack Short Hills...................... 14,939 16,882 9,004 (1)
LITTLE FERRY, NJ
Mack Airport.......................... 8,708 8,708 2,571 (1)
200 Riser Road........................ -- 800 --
NEW PROVIDENCE, NJ
Mack Murray Hill...................... 3,435 4,030 2,880 (1)
EAST BRUNSWICK, NJ
Mack East Brunswick................... 1,487 1,869 1,186 (1)
NORTH HEMPSTEAD, NY
Mack Manhasset........................ 7,340 8,050 2,646 (1)
Mack North Hills...................... 21,694 26,018 9,000 (1)
TAMPA, FL
One Mack Centre....................... 28,908 30,111 12,859 (1)
PLYMOUTH MEETING, PA
Mack Plymouth Meeting................. 5,172 5,172 3,066 (1)
SCOTTSDALE, AZ
9060 E. Via Linda..................... 8,392 12,206 1,783 (1)
GLENDALE, AZ
Mack Glendale......................... 7,540 8,781 959 (1)
DALLAS, TX
3100 Monticello....................... 5,272 5,970 754 (1)
Preston Center Plaza.................. 3,165 3,694 534 (1)
TriWest Plaza......................... 23,393 28,712 3,542 (1)
EULESS, TX
Landmark Centre....................... 1,695 1,989 313 (1)
IRVING, TX
Metroport............................. 4,069 4,695 929 (1)
34
SCHEDULE III
PAGE 3 OF 4
THE MACK GROUP
REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION
(IN THOUSANDS)
DECEMBER 31, 1996
GROSS
AMOUNT
CARRIED
INITIAL COSTS AT
--------------------------------------- CLOSE OF
COSTS PERIOD
CAPITALIZED (2)
SUBSEQUENT ---------
DATE RELATED BUILDING AND TO
PROPERTY NAME/LOCATION ACQUIRED ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION LAND
- ---------------------------------------- ----------- ------------- --------- ------------- ------------- ---------
PLANO, TX
Republic Place........................ 1992 3,969 314 1,257 967 314
RICHARDSON, TX
Santa Fe Building..................... 1992 3,186 130 520 1,460 130
HOUSTON, TX
Cornerstone Regency................... 1992 1,842 124 498 608 124
Katy Plaza............................ 1992 4,649 126 1,673 1,413 126
5300 Memorial......................... 1992 6,764 856 3,424 1,355 856
1717 St. James........................ 1992 4,004 195 782 1,963 195
1770 St. James........................ 1992 2,961 152 609 1,501 152
Town & Country........................ 1992 5,525 584 2,338 1,389 584
PHOENIX, AZ
Beardsley Corporate Ctr............... 1992 8,051 373 1,491 2,401 373
Patriot Biltmore Plaza................ 1992 9,354 829 3,314 2,006 829
Mack Beardsley........................ 11,875 856 -- 13,160 856
SAN ANTONIO, TX
Bexar Plaza........................... 1992 11,590 907 4,689 2,544 907
Century Building...................... 1992 7,818 400 1,605 6,974 400
Commerce Plaza........................ 1992 3,264 383 2,354 1,503 383
SAN FRANCISCO, CA
Phelan Building....................... 1992 17,341 4,710 8,741 1,527 4,710
AMARILLO, TX
Atrium at Coulter Ridge............... 1992 1,063 67 270 578 67
OMAHA, NE
Brandeis Building..................... 1992 5,917 799 3,198 813 799
WEST DES MOINES, IA
Century III........................... 1992 3,823 689 2,760 521 689
FISHKILL, NY
Westage Business Center............... 1992 6,936 300 4,698 1,249 300
Furniture, Fixtures & Equipment......... -- -- -- 2,446 --
------------- --------- ------------- ------------- ---------
TOTALS.............................. $ 655,655 $ 67,917 $ 159,110 $ 458,957 $ 67,917
------------- --------- ------------- ------------- ---------
------------- --------- ------------- ------------- ---------
DEPRECIABLE
BUILDING AND ACCUMULATED LIVES
PROPERTY NAME/LOCATION IMPROVEMENT TOTAL DEPRECATION (YEARS)
- ---------------------------------------- ------------- --------- ------------ ---------------
PLANO, TX
Republic Place........................ 2,224 2,538 520 (1)
RICHARDSON, TX
Santa Fe Building..................... 1,980 2,110 521 (1)
HOUSTON, TX
Cornerstone Regency................... 1,106 1,230 253 (1)
Katy Plaza............................ 3,086 3,212 669 (1)
5300 Memorial......................... 4,779 5,635 762 (1)
1717 St. James........................ 2,745 2,940 574 (1)
1770 St. James........................ 2,110 2,262 503 (1)
Town & Country........................ 3,727 4,311 724 (1)
PHOENIX, AZ
Beardsley Corporate Ctr............... 3,892 4,265 707 (1)
Patriot Biltmore Plaza................ 5,320 6,149 802 (1)
Mack Beardsley........................ 13,160 14,016 1,988 (1)
SAN ANTONIO, TX
Bexar Plaza........................... 7,233 8,140 1,289 (1)
Century Building...................... 8,579 8,979 1,083 (1)
Commerce Plaza........................ 3,857 4,240 656 (1)
SAN FRANCISCO, CA
Phelan Building....................... 10,268 14,978 1,337 (1)
AMARILLO, TX
Atrium at Coulter Ridge............... 848 915 224 (1)
OMAHA, NE
Brandeis Building..................... 4,011 4,810 547 (1)
WEST DES MOINES, IA
Century III........................... 3,281 3,970 416 (1)
FISHKILL, NY
Westage Business Center............... 5,947 6,247 788 (1)
Furniture, Fixtures & Equipment......... 2,446 2,446 1,937 (1)
------------- --------- ------------
TOTALS.............................. $ 618,067 $ 685,984 $ 196,790
------------- --------- ------------
------------- --------- ------------
- ------------------------
(1) Building and Improvements--5 to 40 years
(2) The aggregate cost for federal income tax purpose was approximately $492,809
35
SCHEDULE III
PAGE 4 OF 4
THE MACK GROUP
REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION
(IN THOUSANDS)
A summary of activity for real estate and accumulated depreciation and
amortization is as follows:
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
REAL ESTATE:
Balance at beginning of year................................................. $ 670,726 $ 643,894 $ 595,850
Improvements................................................................. 15,258 24,398 48,044
Acquisition of real estate................................................... -- 2,436 --
---------- ---------- ----------
Balance at end of year....................................................... $ 685,984 $ 670,728 $ 643,894
---------- ---------- ----------
---------- ---------- ----------
ACCUMULATED DEPRECIATION AND AMORTIZATION:
Balance at beginning of year................................................. $ 172,622 $ 148,155 $ 126,220
Depreciation and amortization expense........................................ 24,168 24,467 21,935
---------- ---------- ----------
Balance at end of year....................................................... $ 196,790 $ 172,622 $ 148,155
---------- ---------- ----------
---------- ---------- ----------
36
CALI REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997 (DOLLARS IN THOUSANDS)
(UNAUDITED)
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, Three Independence (collectively, the "Pre-Mack
Events," which are discussed more fully in the Company's Current Report on Form
8-K, dated September 18, 1997), and the Transaction and related 1997 Offering
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.
PRO FORMA
PRO FORMA ADJ. FOR THE
ADJUSTMENTS TRANSACTION
COMPANY FOR PRE-MACK PRE-MACK EVENT AND 1997 COMPANY
ASSETS HISTORICAL EVENTS PRO FORMA OFFERING PRO FORMA (L)
------------ ------------ --------------- ------------ --------------
Rental property, net............................. $ 1,307,365 $ 46,850(a) $ 1,354,215 $ 1,205,573(d) $ 2,559,788
Cash and cash equivalents........................ 6,090 -- 6,090 -- (e) 6,090
Unbilled rents receivable........................ 23,648 -- 23,648 -- 23,648
Deferred charges and other assets, net........... 13,224 -- 13,224 -- 13,224
Restricted cash.................................. 8,218 -- 8,218 -- 8,218
Accounts receivable, net......................... 3,547 -- 3,547 -- 3,547
Mortgage note receivable......................... 11,600 (4,350)(b) 7,250 -- 7,250
------------ ------------ --------------- ------------ --------------
Total assets..................................... $ 1,373,692 $ 42,500 $ 1,416,192 1,205,573 $ 2,621,765
------------ ------------ --------------- ------------ --------------
------------ ------------ --------------- ------------ --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgages and loans payable...................... $ 553,961 $ 42,500(c) $ 596,461 $ 464,690(f) $ 1,061,151
Dividends and distributions payable.............. 18,334 -- 18,334 -- 18,334
Accounts payable and accrued expenses............ 10,582 -- 10,582 (422 (g) 10,160
Accrued interest payable......................... 1,916 -- 1,916 -- 1,916
Rents received in advance and security
deposits....................................... 16,280 -- 16,280 10,465(h) 26,745
------------ ------------ --------------- ------------ --------------
Total liabilities................................ 601,073 42,500 643,573 474,733 1,118,306
------------ ------------ --------------- ------------ --------------
Minority interest of unitholders in
Operating Partnership.......................... 70,911 -- 70,911 391,218(i) 462,129
------------ ------------ --------------- ------------ --------------
Stockholders' equity
Common stock, $.01 par value................... 366 -- 366 100(j) 466
Other stockholders' equity....................... 701,342 -- 701,342 339,522(k) 1,040,864
------------ ------------ --------------- ------------ --------------
Total stockholders' equity....................... 701,708 -- 701,708 339,622 1,041,330
------------ ------------ --------------- ------------ --------------
Total liabilities and stockholders' equity....... $ 1,373,692 $ 42,500 $ 1,416,192 $ 1,205,573 $ 2,621,765
------------ ------------ --------------- ------------ --------------
------------ ------------ --------------- ------------ --------------
See accompanying footnotes on subsequent pages.
37
CALI REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997 (IN THOUSANDS)
(UNAUDITED)
(a) Represents the approximate aggregate cost of the acquisitions completed
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. (See the Company's Current Report on Form 8-K, dated
September 18, 1997 for additional information.)
(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. (See the
Company's Current Report on Form 8-K, dated September 18, 1997 for
additional information.)
(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, as listed in note (a) above. (See
the Company's Current Report on Form 8-K, dated September 18, 1997 for
additional information.)
(d) Represents the estimated aggregate acquisition cost to be incurred by the
Company to acquire the Mack Properties based upon the estimated market price
of the consideration to be paid as of the time the Transaction was agreed to
and announced. The total costs approximate the fair value of the rental
property to be acquired and include the following:
Cash............................................................ $ 476,106
Mack Assumed Debt............................................... 302,147
Common Units.................................................... 132,721
Preferred Units................................................. 256,075
Warrants........................................................ 8,524
Estimated Transaction-related costs............................. 30,000
---------
$1,205,573
---------
---------
(e) The following schedule summarizes the pro forma sources and uses of funds in
connection with the Transaction:
Net proceeds to be received from the 1997 Offering after estimated
underwriting discount and issuance costs of $21,811............. $ 365,064
Pro forma drawing on the Company's credit facilities.............. 162,543
Cash consideration paid (including estimated Transaction-related
costs of $30,000)............................................... (506,106)
Cash paid for executive compensation, bonuses and related tax
obligation payments............................................. (31,966)
Net cash from estimated closing adjustments at completion of
Transaction..................................................... 10,465
---------
$ 0
---------
---------
38
CALI REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)
AS OF JUNE 30, 1997 (IN THOUSANDS)
(UNAUDITED)
(f) Represents the Mack Assumed Debt expected to be assumed by the Company and
additional drawings on the Company's credit facilities in connection with
the consummation of the Transaction, as follows:
Expected assumed debt with an estimated weighted average interest
rate of 7.23 percent............................................ $ 302,147
Additional drawings on the Company's credit facilities............ 162,543
---------
$ 464,690
---------
---------
(g) Represents amounts that were accrued in the Company's historical accounts as
of June 30, 1997 for tax obligation payments in connection with the
Company's executive compensation agreements, which are to be paid in
connection with completion of the Transaction (see Note (1) below).
(h) Represents adjustments for rents received in advance ($7,278) and security
deposits ($3,187) to be received by the Company at the closing of the
Transaction.
(i) Reflects the adjustment to minority interest of the unitholders in the
Operating Partnership computed as follows:
Common Units...................................................... $ 132,721
Preferred Units................................................... 256,075
Warrants.......................................................... 8,524
Minority interest share of non-recurring charges [see Note (k)
below].......................................................... (6,102)
---------
$ 391,218
---------
---------
(j) Reflects the issuance of 10 million shares of the Company's Common Stock
with a par value of $.01 per share.
39
CALI REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)
AS OF JUNE 30, 1997 (IN THOUSANDS)
(UNAUDITED)
(k) Reflects the issuance of 10 million shares of the Company's Common Stock
with a par value of $.01 per share, at the assumed offering price of
$38.6875 per share. The following table sets forth the adjustments to Other
stockholders' equity:
Net proceeds to be received from the 1997 Offering after estimated
underwriting discount and issuance costs of $21,811, (net of
$100 for par value)............................................. $ 364,964
Recording of the financial accounting value ascribed to the
beneficial conversion feature inherent in the Preferred Units
upon issuance. The Preferred Units are immediately convertible
into Common Units at $34.65 per Common Unit, which is an amount
that is expected to be less than the market price of the Common
Stock (assumed to be $38.6875 per share for purposes of this pro
forma information) as of the date the Preferred Units are
issued.......................................................... 29,091
Recording of amortization for the beneficial conversion feature
inherent in the Preferred Units as they are immediately
convertible into Common Units upon consummation of the
Transaction (1)................................................. (29,091)
Expensing of previously unamortized stock compensation recorded in
connection with the Company's executive compensation agreements,
which will fully vest on an accelerated basis as a result of the
consummation of the Transaction (1)............................. (10,063)
Tax obligation payments related to stock compensation (net of $422
previously accrued) (1)......................................... (4,559)
Elimination of unamortized stock compensation previously recorded
in equity....................................................... 10,063
Additional executive compensation and bonuses to be paid only upon
consummation of the Transaction (1)............................. (26,985)
Allocation to minority interest based upon post-Transaction
ownership....................................................... 6,102
---------
$ 339,522
---------
---------
(l) See following Estimated Pro Forma Results for Permitted Transaction
Alternatives.
- ------------------------
(1) Reflects the adjustments to historical net earnings for non-recurring
charges, which will be incurred in connection with the Transaction and will
be recorded in the Company's statement of operations for the period in which
they are incurred.
40
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"), (vi) completion by the Company of
the Pre-Mack Events, (which are more fully discussed in the Company's Current
Report on Form 8-K, dated September 18, 1997), and (vii) completion by the
Company of the Transaction and related 1997 Offering. 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.
41
CALI REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
PRO FORMA
ADJ. FOR
THE TRANS-
ACTION AND
PRO FORMA ADJ. PRE-MACK HISTORICAL 1997
COMPANY FOR PRE-MACK EVENTS THE MACK OFFERING COMPANY
REVENUES HISTORICAL EVENTS PRO FORMA GROUP (G) PRO FORMA(M)
----------- -------------- ----------- ----------- ----------- -------------
Base rents....................... $ 93,180 $ 10,734(a) $ 103,914 $ 64,521 $ 3,963(e) $ 172,398
Escalations and recoveries from
tenants........................ 14,279 1,198(a) 15,477 7,774 -- 23,251
Parking and other................ 3,598 524(a) 4,122 5,587 -- 9,709
(956) (350)
Interest income.................. 1,640 (b) 684 350 (f) 684
----------- ------- ----------- ----------- ----------- -------------
Total revenues................... 112,697 11,500 124,197 78,232 3,613 206,042
----------- ------- ----------- ----------- ----------- -------------
EXPENSES
Real estate taxes................ 11,929 1,339(a) 13,268 7,833 -- 21,101
Utilities........................ 7,940 939(a) 8,879 6,782 -- 15,661
Operating services............... 13,773 1,634(a) 15,407 9,960 -- 25,367
General and administrative....... 6,927 730(a) 7,657 3,531 -- 11,188
(1,661)
Depreciation and amortization.... 16,844 1,873(a) 18,717 13,717 (h) 30,773
(13,597)
Interest expense................. 17,152 2,058(c) 19,210(c) 29,975 (i) 35,588
----------- ------- ----------- ----------- ----------- -------------
Total expenses................... 74,565 8,573 83,138 71,798 (15,258) 139,678
----------- ------- ----------- ----------- ----------- -------------
Income before minority
interest....................... 38,132 2,927 41,059 6,434 18,871 66,364
Minority interest................ 3,648 491(d) 4,139 -- 12,784(j) 16,923
----------- ------- ----------- ----------- ----------- -------------
Net income....................... $ 34,484 $ 2,436 $ 36,920 $ 6,434 $ 6,087 $ 49,441
----------- ------- ----------- ----------- ----------- -------------
----------- ------- ----------- ----------- ----------- -------------
Weighted average common shares
outstanding (k)................ 36,475 46,674
----------- -------------
Net income per common share
(l)............................ $ 0.95 $ 1.06
----------- -------------
42
CALI REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED 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 (as
reported by the Company on previously-filed Current Reports on Form 8-K and
8-K/A) for the period January 1, 1997 through the earlier of the date of
acquisition/completion or June 30, 1997, as follows:
REAL
ACQUISITION/ BASE ESCALATIONS/ OTHER ESTATE OPERATING
PROPERTY/TRANSACTION (1) COMPLETION DATE 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/TRANSACTION (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 Adj. for
1997 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 year ended December 31, 1996.
43
CALI REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED 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 Pre-Mack Events 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. Pre-Mack Events 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
Partial Prepayment (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)...... $ 2,443
Interest expense on loan assumed with Fair Lawn acquisition on
March 3, 1995 (fixed interest rate of 8.25 percent on average
outstanding principal balance of approximately $18,605)............ 767
Interest expense on mortgages in connection with the Harborside
acquisition in 1996 (fixed interest rate of 7.32 percent on
$107,912 and initial rate of 6.99 percent on $42,088).............. 5,421
Interest expense on outstanding borrowings on the Company's credit
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)........................................................... 3,927
Interest expense on the Teachers Mortgage assumed with the RM
Transaction on January 31, 1997 (fixed interest rate of 7.18
percent on $185,283)............................................... 6,652
---------
Total Pre-Mack Events pro forma interest expense for the six months
ended June 30, 1997:............................................... $ 19,210
---------
---------
(d) Represents Pre-Mack Events 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.
(e) Represents adjustment necessary to reflect rental income for the Mack
Properties on a straight lined basis assuming that the Transaction was
consummated as of January 1, 1996.
(f) Represents reduction of interest income, which was recorded in the Mack
Group Historical Financial Statements.
(g) In connection with the consummation of the Transaction, the Company
estimates that it will also recognize the following non-recurring charges,
before minority interest, in the Company's Statements
44
CALI REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
of Operations for the period in which the Transaction is completed, which
have been excluded from the Company's pro forma operating results:
Expensing of previously unamortized stock compensation recorded in
connection with the Company's executive compensation plans which
will vest on an accelerated basis as a result of the consummation
of the Transaction................................................. $ 10,063
Related tax obligation payments (net of $422 previously accrued)... 4,559
Additional executive compensation and bonuses to be paid only upon
consummation of the Transaction.................................... 26,985
Amortization of the beneficial conversion feature inherent in the
Preferred Units (as an allocation to minority interest) as they are
immediately convertible into Common Units upon consummation of the
Transaction........................................................ 29,091
---------
$ 70,698
---------
---------
(h) Represents adjustment to reflect depreciation expense related to the Mack
Properties to be acquired by the Company based on estimated relative fair
value of buildings and improvements ($964,458) as of the date of
acquisition, as follows:
Pro forma depreciation expense..................................................... $ 12,056
Mack Group Historical.............................................................. 13,717
---------
$ 1,661
---------
---------
(i) Reflects reduction of interest expense relating to the Transaction. Proforma
interest expense is computed as follows:
Interest on expected assumed debt ($302,147) with a weighted average interest rate
of 7.23 percent.................................................................... $ 10,923
Interest on drawings on the Company's credit facilities of $162,543 at a weighted
average interest rate of 6.71 percent.............................................. 5,455
---------
$ 16,378
Mack Group Historical.............................................................. $ 29,975
---------
$ 13,597
---------
---------
45
CALI REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
(j) Represents minority interest computed as follows:
Income before extraordinary item and minority interest.................. $ 66,364
Dividend yield of 6.75 percent on the Preferred Units with a par value
of $249,656............................................................. $ 8,426
Income allocable to common stockholders in the Company and unitholders
in the Operating Partnership............................................ $ 57,938
---------
Allocation to minority interest based upon weighted average percentage
of Common Units outstanding of 14.67 percent............................ 8,497
---------
Total minority interest................................................. 16,923
---------
Pre-Mack Events pro forma............................................... 4,139
---------
$ 12,784
---------
---------
(k) The following is a reconciliation of the historical weighted average shares
outstanding to the pro forma primary weighted average shares outstanding
(shares in thousands):
Historical weighted average shares outstanding....................................... 36,475
Shares to be issued in connection with the 1997 Offering............................. 10,000
Vesting of 199 shares on an accelerated basis as a result of the Transaction......... 199
---------
Pro forma weighted average shares outstanding........................................ 46,674
---------
---------
(l) Fully-diluted pro forma net income per share is not presented since common
stock equivalents and the Preferred Units are not dilutive.
(m) See following Estimated Pro Forma Results for Permitted Transaction
Alternatives.
46
CALI REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
PRO FORMA
PRO FORMA PRO FORMA THE MACK ADJ. FOR THE
ADJ. FOR ADJ. FOR PRE-MACK GROUP TRANSACTION AND COMPANY
COMPANY 1996 PRE-MACK EVENTS HISTORICAL 1997 OFFERING PRO FORMA
HISTORICAL EVENTS (A) EVENTS (B) PRO FORMA (C) (H) (N)
----------- ----------- ----------- ----------- ------------ --------------- -----------
REVENUES
Base rents..................... $ 76,922 $ 49,087 $ 76,655 $ 202,664 $ 128,066 $ 7,559(f) $ 338,289
Escalations and recoveries from
tenants...................... 14,429 8,870 8,230 31,529 16,984 -- 48,513
Parking and other.............. 2,204 190 4,428 6,822 3,233 -- 10,055
Interest income................ 1,917 -- (738)(c) 1,179 469 (469)(g) 1,179
----------- ----------- ----------- ----------- ------------ --------------- -----------
Total revenues................. 95,472 58,147 88,575 242,194 148,752 7,090 398,036
----------- ----------- ----------- ----------- ------------ --------------- -----------
EXPENSES
Real estate taxes.............. 9,395 5,144 11,039 25,578 15,367 -- 40,945
Utilities...................... 8,138 3,313 6,619 18,070 14,143 -- 32,213
Operating Services............. 12,129 6,452 12,277 30,858 19,507 -- 50,365
General and administrative..... 5,800 3,020 4,965 13,785 7,309 -- 21,094
Depreciation and
amortization................. 15,812 8,133 13,021 36,966 28,069 (3,958)(i) 61,077
Interest expense............... 12,677 -- 25,608(d) 38,285(d) 58,621 (26,171)(j) 70,735
----------- ----------- ----------- ----------- ------------ --------------- -----------
Total expenses........... 63,951 26,062 73,529 163,542 143,016 (30,129) 276,429
----------- ----------- ----------- ----------- ------------ --------------- -----------
Income before gain on sale of
rental property, minority
interest and extraordinary
item......................... 31,521 32,085 15,046 78,652 5,736 37,219 121,607
Gain on sale of rental
property..................... 5,658 (5,658) -- -- -- -- --
----------- ----------- ----------- ----------- ------------ --------------- -----------
Income before minority interest
and extraordinary item....... 37,179 26,427 15,046 78,652 5,736 37,219 121,607
Minority interest.............. 4,760 -- 3,263(e) 8,023(e) -- 24,304(k) 32,327
----------- ----------- ----------- ----------- ------------ --------------- -----------
Income before extraordinary
item......................... $ 32,419 $ 26,427 $ 11,783 $ 70,629 $ 5,736 $ 12,915 $ 89,280
----------- ----------- ----------- ----------- ------------ --------------- -----------
----------- ----------- ----------- ----------- ------------ --------------- -----------
Weighted average common shares
outstanding (l).............. 18,461 46,400
----------- -----------
Income before extraordinary
item per common share (m).... $ 1.76 $ 1.92
----------- -----------
47
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 reported by the Company on
previously-filed Current Reports on Form 8-K) as follows:
REAL
ACQUIS./COMPLETION BASE ESCALATIONS/ OTHER ESTATE
PROPERTY/TRANSACTION DATE RENTS (2) RECOVERIES INCOME TAXES
- -------------------------------------------------- ----------------- ----------- ------------- ----------- ---------
Carnegie.......................................... March 20, 1996 $ 386 $ 31 -- $ 54
Rose Tree......................................... May 2, 1996 1,312 115 -- 165
Mt. Airy Bldgs. .................................. July 23, 1996 665 101 -- 101
Harborside........................................ November 4, 1996 30,884 7,037 $ 166 3,096
Five Sentry....................................... November 7, 1996 1,663 -- -- 148
December 10,
Whiteweld......................................... 1996 3,890 326 -- 430
December 16,
One Bridge Plaza.................................. 1996 3,597 293 -- 420
December 17,
Airport Center.................................... 1996 6,953 1,004 24 780
----------- ------ ----- ---------
Total Pro Forma Adj. for 1996 acquisitions........ $ 49,350 $ 8,907 $ 190 $ 5,194
----------- ------ ----- ---------
Revenues and expenses of the property disposed of in 1996 for the period January 1, 1996 through the date of disposition,
as follows:
Essex Road........................................ March 20, 1996 (263) (37) -- (50)
----------- ------ ----- ---------
Reduction of expense as a result of the Partial Prepayment in 1996, for the period January 1, 1996 through the Partial
Payment date, as follows:
Partial Prepayment................................ March 12, 1996 -- -- -- --
----------- ------ ----- ---------
Total Pro Forma Adj. for 1996 Events.............. $ 49,087 $ 8,870 $ 190 $ 5,144
----------- ------ ----- ---------
----------- ------ ----- ---------
OPERATING GENERAL AND
PROPERTY/TRANSACTION UTILITIES SERVICES ADMINISTRATIVE DEPRECIATION (3)
- -------------------------------------------------- ----------- ----------- --------------- -----------------
Carnegie.......................................... $ 56 $ 58 $ 11 $ 49
Rose Tree......................................... 180 179 43 215
Mt. Airy Bldgs. .................................. -- 4 51 107
Harborside........................................ 906 3,633 2,048 5,332
Five Sentry....................................... 32 325 88 246
Whiteweld......................................... 748 543 158 733
One Bridge Plaza.................................. 412 659 237 585
Airport Center.................................... 1,035 1,129 395 953
----------- ----------- ------ ------
Total Pro Forma Adj. for 1996 acquisitions........ $ 3,369 $ 6,530 $ 3,031 $ 8,220
----------- ----------- ------ ------
Revenues and expenses of the property disposed of in 1996 for the period January 1, 1996 through the date of disposition,
as follows:
Essex Road........................................ (56) (78) (11) (81)
----------- ----------- ------ ------
Reduction of expense as a result of the Partial Prepayment 1996, for the period January 1, 1996 through the Partial
Payment date, as follows:
Partial Prepayment................................ -- -- -- (6)
----------- ----------- ------ ------
Total Pro Forma Adj. for 1996 Events.............. $ 3,313 $ 6,452 $ 3,020 $ 8,133
----------- ----------- ------ ------
----------- ----------- ------ ------
48
CALI REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
(b) Reflects:
Revenues and expenses for the properties acquired in 1997 by the Company (as
reported by the Company on previously-filed Current Reports on Form 8-K and
8-K/A), for the year ended December 31, 1996, as follows:
REAL
AQUIS./COMPLETION BASE ESCALATIONS/ OTHER ESTATE
PROPERTY/TRANSACTION (1) DATE RENTS (2) RECOVERIES INCOME TAXES
- ----------------------------------- -------------------------------- ----------- ------------- ----------- ---------
1345 Campus Parkway................ January 28, 1997 $ 698 $ 165 -- $ 90
RM Transaction..................... January 31, 1997 63,083 5,483 $ 4,393 9,870
Westlakes.......................... May 8, 1997 8,659 2,347 -- 610
Shelton Place (4).................. July 31, 1997 2,180 193 -- 161
200 Corporate...................... August 15, 1997 850 38 35 85
Three Independence................. September 3, 1997 1,185 4 -- 223
----------- ------ ----------- ---------
Total Pro Forma Adj. for Pre-Mack
Events........................... $ 76,655 $ 8,230 $ 4,428 $ 11,039
----------- ------ ----------- ---------
----------- ------ ----------- ---------
OPERATING GENERAL AND DEPRECIATION
PROPERTY/TRANSACTION (1) UTILITIES SERVICES ADMINISTRATIVE (3)
- ----------------------------------- ----------- ----------- --------------- ---------------
1345 Campus Parkway................ $ 25 $ 103 $ 20 $ 143
RM Transaction..................... 4,944 9,876 3,997 10,364
Westlakes.......................... 1,216 1,627 772 1,734
Shelton Place (4).................. 320 292 93 329
200 Corporate...................... -- 146 36 170
Three Independence................. 114 233 47 281
----------- ----------- ------ -------
Total Pro Forma Adj. for Pre-Mack
Events........................... $ 6,619 $ 12,277 $ 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 year ended December 31, 1996.
49
CALI REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(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 (for the Pre-Mack Events) 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 Prepayment (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 6.46
percent)......................................................... $ 4,867
Interest expense on loan assumed with Fair Lawn acquisition on
March 3, 1995 (fixed interest rate of 8.25 percent on average
outstanding principal balance of approximately $18,605).......... 1,535
Interest expense on mortgages in connection with the Harborside
acquisition on November 4, 1996 (fixed interest rate of 7.32
percent on $107,912 and initial rate of 6.99 percent on
$42,088)......................................................... 10,841
Interest expense on outstanding borrowings on the Company's credit
lines (a variable rate of 30-day LIBOR plus 125 basis points
during the period on $114,655; weighted average interest rate
used is 6.75 percent)............................................ 7,739
Interest expense on Teachers Mortgage assumed with the RM
Transaction on January 31, 1997 (fixed interest rate of 7.18
percent on $185,283)............................................. 13,303
---------
Pre-Mack Events pro forma interest expense for the year ended
December 31, 1996................................................ $ 38,285
---------
---------
(e) Represents pro forma income for 1996 Events and Pre-Mack Events allocated to
the pro forma weighted average minority interest (Units) in Cali Realty L.P.
(the Operating Partnership) of 10.20 percent.
(f) Represents adjustment necessary to reflect rental income on a straight line
basis assuming that the Transaction was consummated as of January 1, 1996.
(g) Represents reduction of interest income, which was recorded in the Mack
Group Historical Financial Statements.
(h) In connection with the consummation of the Transaction, the Company
estimates that it will also recognize the following non-recurring charges
before minority interest in the Company's Statement of
50
CALI REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Operations for the period in which the Transaction is completed, which have
been excluded from the Company's pro forma operating results:
Expensing of previously unamortized stock compensation recorded in
connection with the Company's executive compensation plans which
will vest on an accelerated basis as a result of the consummation
of the Transaction............................................... $ 10,063
Related tax obligation payments (net of $422 previously accrued)... 4,559
Additional executive compensation and bonuses to be paid only upon
consummation of the Transaction.................................. 26,985
Amortization of the beneficial conversion feature inherent in the
Preferred Units (as an allocation to minority interest) as they
are immediately convertible into Common Units upon consummation
of the Transaction............................................... 29,091
---------
$ 70,698
---------
---------
(i) Represents adjustment to reflect depreciation expense related to the Mack
Properties to be acquired by the Company based on estimated relative fair
value of buildings and improvements ($964,458) as of the date of acquisition
as follows:
Pro forma depreciation expense..................................................... $ 24,111
Mack Group Historical.............................................................. 28,069
---------
$ 3,958
---------
---------
(j) Reflects reduction of interest expense relating to the Transaction. Proforma
interest expense is computed as follows:
Interest on expected assumed debt ($302,147) with an estimated weighted average
interest rate of 7.23 percent.................................................... $ 21,845
Interest on drawings on the Company's credit facilities of $162,543 at a weighted
average interest rate of 6.52 percent............................................ 10,605
---------
32,450
Mack Group Historical.............................................................. 58,621
---------
$ 26,171
---------
---------
51
CALI REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(k) Represents minority interest computed as follows:
Income before extraordinary item and minority interest................. $ 121,607
Dividend yield of 6.75 percent on the preferred units with a par value
of $249,656............................................................ $ 16,852
Income allocable to common stockholders in the Company and unitholders
in the Operating Partnership........................................... $ 104,755
----------
Allocation to minority interest based upon weighted average percentage
of Common Units outstanding of 14.77 percent, respectively............. 15,475
---------
Minority interest...................................................... 32,327
Pre-Mack Events pro forma.............................................. 8,023
---------
$ 24,304
---------
---------
(l) The following is a reconciliation of the historical primary weighted average
shares outstanding to the pro forma weighted average shares outstanding
(shares in thousands):
Historical weighted average shares outstanding..................................... 18,461
Shares issued in connection with the the November 1996 offering.................... 17,538
Issued in connection with the August 1996 offering................................. 3,450
Adjustment for period of year during which shares issued with the 1996 offerings
were outstanding................................................................... (3,248)
Shares to be issued in connection with the 1997 Offering........................... 10,000
Vesting of 199 shares on an accelerated basis as a result of the Transaction....... 199
---------
Pro forma weighted average shares outstanding...................................... 46,400
---------
---------
(m) Fully-diluted pro forma income before extraordinary item per share is not
presented since common stock equivalents and the Preferred Units are not
dilutive.
(n) See following Estimated Pro Forma Results for Permited Transaction
Alternatives.
52
CALI REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ESTIMATED PRO FORMA RESULTS FOR PERMITTED TRANSACTION ALTERNATIVES
Consummation of the transaction is conditioned upon, among other things, the
receipt by Mack of certain partner, tenant and third party consents. To the
extent Mack cannot obtain such consents, Mack may eliminate certain properties
from the Transaction. Such eliminated properties are not to exceed 20 percent of
the aggregate value of the Mack properties.
If the maximum amount of such properties (20 percent) were excluded from the
Transaction, estimated pro forma total assets, total liabilities, minority
interest and stockholders' equity as of June 30, 1997 may approximate
$2,387,937, $930,793, $416,122 and $1,041,022, respectively. Under the
Agreement, a reduction in the purchase price due to exclusion of properties is
allocated to (1) reduce debt assumed by the greater of 26 percent of the
allocated purchase price for such property or the outstanding debt on such
property to be assumed (assumed to be 26 percent for this pro forma), (2) reduce
cash paid up to $79,904, subject to certain elections by Mack to lower the cash
reduction and take fewer Preferred and Common Units ($79,904 cash reduction
assumed for this pro forma) and (3) reduce cash paid, Preferred and Common Units
by 51.5 percent, 32.3 percent and 16.2 percent of the remaining price reduction.
In this situation, estimated total revenues, income before minority interest,
net income and net income per common share may be $189,673, $64,465, $49,097 and
$1.05, respectively for the six months ended June 30, 1997 and $366,867,
$119,255, $89,758 and $1.93, respectively for the year ended December 31, 1996.
Also, as described in the Agreement, Mack may elect to further reduce the
amount of cash consideration, in exchange for additional debt assumption, up to
$60,429. Such a situation would result in lower borrowings under the Company's
credit facility.
53
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Forms S-3 (Nos. 333-09875,
333-19101, 333-09081, 33-96542, 333-25475, and 33-96538) and Forms S-8 (Nos.
33-91822, 333-18275, 333-19831, 333-32661) of Cali Realty Corporation of our
report dated September 15, 1997, relating to the combined financial statements
of The Mack Group, appearing in this Current Report on Form 8-K.
/s/ PRICE WATERHOUSE LLP
- -------------------------------------------
Price Waterhouse LLP
New York, New York
September 19, 1997
54
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 33-96538) and related Prospectus of Cali Realty Corporation, as
amended, on October 6, 1995, the Registration Statement (Form S-3 No. 33-96542)
and related Prospectus of Cali Realty Corporation, as amended on October 10,
1995, the Registration Statement (Form S-3 No. 333-09081) and related Prospectus
of Cali Realty Corporation, as amended on August 9, 1996, the Registration
Statement (Form S-3 No. 333-09875) and related Prospectus of Cali Realty
Corporation dated August 9, 1996, the Registration Statement (Form S-8 No.
33-91822) pertaining to the 1994 Employee and Director Stock Option Plans, as
amended on September 29, 1996, the Registration Statement (Form S-3 No.
333-19101) of Cali Realty Corporation dated December 31, 1996, the Registration
Statement (Form S-8 No. 333-19831) dated January 15, 1997, pertaining to the
Cali Realty Corporation Restricted Stock Award Plan for Senior Executive and
Officers in the Cali Realty Corporation Stock Purchase Program for Senior
Executives and Officers, the Registration Statement (Form S-8 No. 333-18275)
dated December 19, 1996, pertaining to the Employee Stock Option Plan and the
Director Stock Option Plan, the Registration Statement (Form S-8 No. 333-32661)
dated August 1, 1997, pertaining to the Employee Stock Option Plan and the
Director Stock Option Plan, and the Registration Statement (Form S-3 No.
333-25475) and related Prospectus of Cali Realty Corporation dated April 18,
1997 of our report dated March 19, 1997, except for Note 9, for which the date
is August 4, 1997, with respect to the Combined Financial Statements of the
Patriot American Office Group, as of December 31, 1996 and 1995 and for each of
the three years in the period ended December 31, 1996, included in the Current
Report on Form 8-K of Cali Realty Corporation dated September 19, 1997, filed
with the Securities and Exchange Commission. We also consent to the reference to
our firm under the caption "Experts" in the Prospectus Supplement dated
September 19, 1997 to the Registration Statement (Form S-3 No. 333-19101) and
related Prospectus of Cali Realty Corporation dated December 31, 1996 for the
registration of $1,000,000,000 of Preferred Stock, Common Stock and Warrants.
/s/ ERNST & YOUNG LLP
---------------------
Ernst & Young LLP
Dallas, Texas
September 18, 1997
55