UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-13274
Cali Realty Corporation
(Exact name of registrant as specified in its charter)
Maryland 22-3305147
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
11 Commerce Drive, Cranford, New Jersey 07016-3501
(Address of principal executive office)
(Zip Code)
(908) 272-8000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or such shorter period that the
Registrant was required to file such report) YES [ X ] NO [ ]
and (2) has been subject to such filing requirements for the past ninety (90)
days YES [ X ] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
There were 36,652,172 shares of $.01 par value common stock outstanding at July
31, 1997.
CALI REALTY CORPORATION
Form 10-Q
INDEX
Part I - Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996
Consolidated Statements of Operations for the three and
six month periods ended June 30, 1997 and 1996
Consolidated Statement of Stockholders' Equity for the
six months ended June 30, 1997
Consolidated Statements of Cash Flows for the six months
ended June 30, 1997 and 1996
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II - Other Information and Signatures
Item 6. Exhibits
Signatures
CALI REALTY CORPORATION
Part I - Financial Information
Item 1: Financial Statements
The accompanying unaudited consolidated balance sheets, statements of
operations, of stockholders' equity, and of cash flows, and related
notes, have been prepared in accordance with generally accepted
accounting principles ("GAAP") for interim financial information and
in conjunction with the rules and regulations of the Securities and
Exchange Commission ("SEC"). Accordingly, they do not include all of
the disclosures required by GAAP for complete financial statements.
The financial statements reflect all adjustments consisting only of
normal, recurring adjustments, which are, in the opinion of
management, necessary for a fair presentation of the aforementioned
financial statements for the interim periods.
The aforementioned financial statements should be read in conjunction
with the notes to the aforementioned financial statements and
Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996.
The results of operations for the three and six month periods ended
June 30, 1997 are not necessarily indicative of the results to be
expected for the entire fiscal year or any other period.
CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts)
- -------------------------------------------------------------------------------------------------------------------
June 30, December 31,
1997 1996
---- ----
ASSETS
- ------
Rental property
Land $ 138,051 $ 98,127
Buildings and improvements 1,212,631 718,466
Tenant improvements 38,679 35,626
Furniture, fixtures and equipment 1,867 1,133
- -------------------------------------------------------------------------------------------------------------------
1,391,228 853,352
Less - accumulated depreciation and amortization (83,863) (68,610)
- -------------------------------------------------------------------------------------------------------------------
Total rental property 1,307,365 784,742
Cash and cash equivalents (includes $201,269 in Overnight Investments
at December 31, 1996) 6,090 204,807
Unbilled rents receivable 23,648 19,705
Deferred charges and other assets, net of accumulated amortization 13,224 11,840
Restricted cash 8,218 3,160
Accounts receivable, net of allowance for doubtful accounts of $574 and $189 3,547 2,074
Mortgage note receivable 11,600 --
- -------------------------------------------------------------------------------------------------------------------
Total assets $1,373,692 $1,026,328
===================================================================================================================
CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) (continued)
- -------------------------------------------------------------------------------------------------------------------
June 30, December 31,
1997 1996
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Mortgages and loans payable $ 553,961 $ 268,010
Dividends and distributions payable 18,334 17,554
Accounts payable and accrued expenses 10,582 5,068
Rents received in advance and security deposits 16,280 6,025
Accrued interest payable 1,916 1,328
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 601,073 297,985
- -------------------------------------------------------------------------------------------------------------------
Minority interest of unitholders in Operating Partnership 70,911 26,964
- -------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, 5,000,000 shares authorized, none issued
Common stock, $.01 par value, 190,000,000 shares authorized,
36,651,872 and 36,318,937 shares outstanding 366 363
Additional paid-in capital 723,009 714,052
Distributions in excess of net earnings (11,604) (13,036)
Unamortized stock compensation (10,063) --
- -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 701,708 701,379
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,373,692 $1,026,328
===================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)
- -------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
REVENUES
- --------
Base rents $ 50,389 $ 17,264 $ 93,180 $ 33,276
Escalations and recoveries from tenants 7,667 3,151 14,279 6,232
Parking and other 2,054 519 3,598 923
Interest income 432 79 1,640 153
- -------------------------------------------------------------------------------------------------------------------
Total revenues 60,542 21,013 112,697 40,584
- -------------------------------------------------------------------------------------------------------------------
EXPENSES
- --------
Real estate taxes 6,496 2,194 11,929 4,153
Utilities 4,215 1,873 7,940 3,755
Operating services 7,357 2,512 13,773 5,315
General and administrative 3,754 1,128 6,927 2,064
Depreciation and amortization 9,080 3,614 16,844 6,908
Interest expense 9,603 2,999 17,152 5,568
- -------------------------------------------------------------------------------------------------------------------
Total expenses 40,505 14,320 74,565 27,763
- -------------------------------------------------------------------------------------------------------------------
Income before gain on sale of rental property,
minority interest and extraordinary item 20,037 6,693 38,132 12,821
Gain on sale of rental property -- -- -- 5,658
- -------------------------------------------------------------------------------------------------------------------
Income before minority interest
and extraordinary item 20,037 6,693 38,132 18,479
Minority interest 2,012 1,009 3,648 2,821
- -------------------------------------------------------------------------------------------------------------------
Income before extraordinary item 18,025 5,684 34,484 15,658
Extraordinary item-loss on early retirement of debt
(net of minority interest's share of $86 in 1996) -- -- -- 475
- -------------------------------------------------------------------------------------------------------------------
Net income $ 18,025 $ 5,684 $ 34,484 $ 15,183
===================================================================================================================
CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (continued)
- -------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
Net income per common share:
- ----------------------------
Income before extraordinary item-
loss on early retirement of debt $ 0.49 $ 0.37 $ 0.95 $ 1.03
Extraordinary item-loss on early
retirement of debt -- -- -- ( 0.03)
- -------------------------------------------------------------------------------------------------------------------
Net income $ 0.49 $ 0.37 $ 0.95 $ 1.00
===================================================================================================================
Dividends declared per common share $ 0.45 $ 0.43 $ 0.90 $ 0.85
- -------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 36,489 15,203 36,475 15,175
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Retained
Earnings
Additional (Distributions Unamortized Total
Common Stock Paid-in in Excess of Stock Stockholders'
Shares Par Value Capital Net Earnings) Compensation Equity
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 1, 1997 ..................... 36,319 $ 363 $ 714,052 $ (13,036) -- $ 701,379
Net income ..................................... -- -- -- 34,484 -- 34,484
Dividends ...................................... -- -- -- (33,052) -- (33,052)
Issuance of Stock Award Rights
and Stock Purchase Rights ................... 351 4 11,116 -- (11,120) --
Amortization of Stock Compensation ............. -- -- -- -- 1,057 1,057
Repurchase of Common Stock ..................... (152) (2) (4,678) -- -- (4,680)
Conversion of Units to
shares of Common Stock ...................... 1 -- 17 -- -- 17
Proceeds from exercise of
stock options ................................ 133 1 2,502 -- -- 2,503
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1997 ....................... 36,652 $ 366 $ 723,009 $ (11,604) $ (10,063) $ 701,708
====================================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
- ---------------------------------------------------------------------------------
Six Months Ended June 30,
-------------------------
1997 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 34,484 $ 15,183
Adjustments to reconcile net income to net cash
flows provided by operating activities:
Depreciation and amortization 16,844 6,908
Minority interest 3,648 2,821
Amortization of Stock Compensation 1,057 --
Gain on sale of rental property -- (5,658)
Extraordinary item-loss on early retirement of debt -- 475
Changes in operating assets and liabilities:
Increase in unbilled rents receivable (3,944) (204)
Increase in deferred charges and other assets, net (2,976) (2,180)
(Increase) decrease in accounts receivable, net (1,472) 63
Increase in accounts payable and
accrued expenses 5,514 799
Increase in rents received in advance and
security deposits 5,498 1,100
Increase (decrease) in accrued interest payable 588 (144)
- ---------------------------------------------------------------------------------
Net cash provided by operating activities $ 59,241 $ 19,163
=================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to rental property $(308,531) $ (46,321)
Issuance of mortgage note receivable (11,600) --
Proceeds from sale of rental property -- 10,324
Increase in restricted cash (301) (556)
- ---------------------------------------------------------------------------------
Net cash used in investing activities $(320,432) $ (36,553)
=================================================================================
CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (continued)
- ---------------------------------------------------------------------------------
Six Months Ended June 30,
-------------------------
1997 1996
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgages and loans payable $ 132,876 $ 109,500
Repayments of mortgages and loans payable (32,482) (75,817)
Debt prepayment premiums and other costs -- (312)
Proceeds from exercise of stock options 2,503 173
Repurchase of Common Stock (4,680) --
Payment of dividends and distributions (35,743) (15,214)
- ---------------------------------------------------------------------------------
Net cash provided by financing activities $ 62,474 $ 18,330
=================================================================================
Net (decrease) increase in cash and cash equivalents $(198,717) $ 940
Cash and cash equivalents, beginning of period 204,807 967
- ---------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 6,090 $ 1,907
=================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
CALI REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
1. ORGANIZATION, ACQUISITIONS AND BASIS OF PRESENTATION
Organization
Cali Realty Corporation and subsidiaries (the "Company"), a Maryland
corporation, is a fully-integrated, self- administered, self-managed real estate
investment trust ("REIT") providing leasing, management, acquisition,
development, construction and tenant-related services for its properties. As of
June 30, 1997, the Company owned and operated 127 properties (the "Properties")
aggregating 11.8 million square feet, consisting of 115 office and office/flex
buildings totaling approximately 11.4 million square feet, six
industrial/warehouse buildings totaling approximately 400,000 square feet, two
multi-family residential complexes consisting of 453 units, two stand-alone
retail properties and two land leases. The Properties are located in New Jersey,
New York, Pennsylvania, and Connecticut.
The Company was incorporated on May 24, 1994 and commenced operations on August
31, 1994. On August 31, 1994, the Company completed an initial public offering
("IPO") and effected a business combination with the Cali Group (not a legal
entity). The Company raised its initial capital through the IPO issuing
10,500,000 shares of common stock, and used the proceeds to acquire a majority
interest in Cali Realty, L.P. (the "Operating Partnership") and related
entities, which are the successors to the operations of the Cali Group.
Acquisitions
From 1994 through 1996, following the Company's IPO, the Company acquired 44
office and office/flex properties totaling 4.9 million square feet for
approximately $610,000. These properties are all located in New Jersey, New
York and Pennsylvania.
On January 28, 1997, the Company acquired 1345 Campus Parkway, a 76,300 square
foot office/flex property, located in Wall Township, Monmouth County, New
Jersey, for approximately $6,800 in cash, made available from the Company's cash
reserves. The property is located in the same office park in which the Company
previously acquired two office properties and four office/flex properties in
November 1995.
On January 31, 1997, the Company acquired 65 properties ("RM Properties") of
Robert Martin Company, LLC and affiliates ("RM") for a total cost of
approximately $450,000. The cost of the transaction (the "RM Transaction") was
financed through the assumption of $185,283 of mortgage indebtedness ("TIAA
Mortgage"), approximately $220,000 in cash, substantially all of which was
obtained from the Company's cash reserves, and the issuance of 1,401,225 Units
in the Operating Partnership.
The RM Properties consist primarily of 54 office and office/flex properties
aggregating approximately 3.7 million square feet and six industrial/warehouse
properties aggregating approximately 400,000 square feet. The RM Properties are
located primarily in established business parks in Westchester County, New York
and Fairfield County, Connecticut. The Company has agreed not to sell certain of
the RM Properties for a period of seven years without the consent of the RM
principals, except for sales made under certain circumstances and/or conditions.
In connection with the RM Transaction, the Company was granted a three-year
option to acquire a 115,000 square foot office property and an 84,000 square
foot office/flex property (the "Option Properties") for an aggregate minimum
price of $19,000 and has granted RM the right to put such properties to the
Company between a range of an aggregate purchase price of $11,600 to $21,300,
under certain conditions. The purchase prices, under the agreement, are subject
to adjustment based on different formulas and are payable in cash or Units.
In connection with the RM Transaction, the Company provided an $11,600 mortgage
loan ("Mortgage Note Receivable") secured by the Option Properties (see Note 5).
As part of the RM Transaction, Brad W. Berger, President and Chief Executive
Officer of RM, and Timothy M. Jones, Chief Operating Officer of RM, joined the
Company as Executive Vice Presidents under three-year employment agreements. The
agreements provide for, among other things, both Berger and Jones to be issued
warrants to purchase 170,000 shares of the Company's common stock at a price of
$33 per share, which vest equally over a three-year period and expire on January
31, 2007.
On May 8, 1997, the Company acquired four buildings in the Westlakes Office
Park, a suburban office complex located in Berwyn, Chester County, Pennsylvania,
totaling approximately 444,000 square feet. The properties were acquired for
approximately $74,700, which was made available primarily from drawing on one of
the Company's credit facilities.
On July 21, 1997, the Company acquired two office buildings in the Moorestown
Corporate Center, a suburban office complex located in Moorestown, Burlington
County, New Jersey. The properties, each consisting of 75,000 square feet, were
acquired for approximately $10,200, which was made available from drawing on one
of the Company's credit facilities.
On August 1, 1997, the Company acquired 1000 Bridgeport Avenue (a/k/a Shelton
Place), a 133,000 square-foot office building located in Shelton, Fairfield
County, Connecticut. The property was acquired for approximately $15,500, which
was made available from drawing on one of the Company's credit facilities.
As of August 1, 1997, the Company's portfolio consists of 130 properties
aggregating approximately 12 million square feet, consisting primarily of
office, office/flex and industrial/warehouse buildings, located in New Jersey,
New York, Pennsylvania and Connecticut.
Basis of Presentation
The accompanying consolidated financial statements include all accounts of the
Company and its majority-owned subsidiaries, which consist principally of the
Operating Partnership. All significant intercompany accounts and transactions
have been eliminated.
The preparation of financial statements in conformity with GAAP 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.
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 and depreciated over their
estimated useful lives. Fully-depreciated assets are
removed from the accounts. Depreciation is computed on a
straight-line basis over the estimated useful lives of
the assets as follows:
Buildings and improvements 39 to 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 are impaired.
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 December 31, 1996, cash and cash
equivalents included investments in overnight reverse
repurchase agreements ("Overnight Investments") totaling
$201,269. 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 held by the Company at December
31, 1996 matured on January 2, 1997. The entire balance,
including interest income earned, was realized by the
Company and ultimately used in the funding of the RM
Transaction on January 31, 1997.
Deferred
Financing Costs Costs incurred in obtaining financing are capitalized
and amortized on a straight-line basis, which
approximates the effective interest method, over the
term of the related indebtedness. Amortization of such
costs were $835 and $267 for the three month periods
ended June 30, 1997 and 1996, respectively, and $1,106
and $527 for the six month periods ending June 30, 1997
and 1996, respectively.
Deferred
Leasing Costs 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.
Revenue
Recognition The Company 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. Parking revenue includes income from parking
spaces leased to tenants.
Rental income on residential property under operating
leases having terms generally of one year or less is
recognized when earned.
Income and
Other Taxes The Company has elected to be taxed as a REIT under
Sections 856 through 860 of the Internal Revenue Code
(the "Code"). As a REIT, the Company will not be subject
to federal income tax to the extent it distributes at
least 95 percent of its REIT taxable income to its
shareholders. REITs are subject to a number of
organizational and operational requirements. If the
Company fails to qualify as a REIT in any taxable year,
the Company will be subject to federal income tax
(including any applicable alternative minimum tax) on
its taxable income at regular corporate tax rates. The
Company may be subject to certain state and local taxes.
Earnings
Per Share Net income per common share is computed in accordance
with APB Opinion No.15, "Earnings per Share," and uses
the weighted average common shares outstanding during
the period. The weighted average shares outstanding
during the three month periods ended June 30, 1997 and
1996 were 36,488,523 and 15,202,912, respectively, and
for the six month periods ended June 30, 1997 and 1996
were 36,474,942 and 15,174,500, respectively. In
February 1997, the Financial Accounting Standards Board
("FASB") issued statement No. 128, "Earnings per Share,"
("FASB No. 128") which will be effective for periods
ending after December 15, 1997. Earlier application is
not permitted. FASB No. 128 requires a dual presentation
of basic and diluted earnings per share ("EPS") on the
face of the income statement for all companies with
complex capital structures even where the effect of such
dilution is not material (See Note 12).
Dividends and
Distributions
Payable The dividends and distributions payable at June 30, 1997
represents dividends payable to shareholders of record
on July 3, 1997 (36,651,872 shares) and distributions
payable to minority interest unitholders (4,090,170
Units) on that same date. The second quarter dividends
and distributions of $0.45 per share and per Unit were
approved by the Board of Directors on June 21, 1997 and
were paid on July 18, 1997.
Extraordinary
Item The extraordinary item represents the net effect
resulting from the early settlement of certain mortgage
obligations, net of write-off's of related deferred
financing costs, prepayment penalties, and other related
items.
Underwriting
Commissions
and Offering
Costs Underwriting commissions and offering costs incurred in
connection with the Company's stock offerings are
reflected as a reduction of additional paid-in-capital.
Stock Options The Company accounts for stock-based compensation using
the intrinsic value method prescribed in Accounting
Principles Board Opinion (APB) No. 25, "Accounting for
Stock Issued to Employees," and related Interpretations.
Under APB No. 25, compensation cost is measured as the
excess, if any, of the quoted market price of the
Company's stock at the date of grant over the exercise
price of the option granted. Compensation cost for stock
options, if any, is recognized ratably over the vesting
period. The Company's policy is to grant options with an
exercise price equal to the quoted closing market price
of the Company's stock on the business day preceding the
grant date. Accordingly, no compensation cost has been
recognized for the Company's stock option plans. See
Note 11 for discussion of stock compensation.
3. DEFERRED CHARGES AND OTHER ASSETS
June 30, December 31,
1997 1996
---------- ---------
Deferred leasing costs $ 15,335 $ 14,031
Deferred financing costs 5,390 5,390
- -------------------------------------------------------------------------------------------------------------------
20,725 19,421
Accumulated amortization (10,478) (8,994)
- -------------------------------------------------------------------------------------------------------------------
Deferred charges, net 10,247 10,427
Prepaid expenses and other assets 2,977 1,413
- -------------------------------------------------------------------------------------------------------------------
Total deferred charges and other assets, net $ 13,224 $ 11,840
===================================================================================================================
4. RESTRICTED CASH
Restricted cash includes security deposits for all of the Company's residential
properties and certain commercial properties, and escrow and reserve funds for
debt service, real estate taxes, property insurance, capital improvements,
tenant improvements, and leasing costs established pursuant to certain mortgage
financing arrangements, and is comprised of the following:
June 30, December 31,
1997 1996
---- ----
Escrow and other reserve funds $ 3,161 $ 2,814
Security deposits 5,057 346
- -------------------------------------------------------------------------------------------------------------------
Total restricted cash $ 8,218 $ 3,160
===================================================================================================================
5. MORTGAGE NOTE RECEIVABLE
In connection with the RM Transaction on January 31, 1997, the Company provided
an $11,600 non-recourse mortgage loan to entities controlled by the RM
principals, bearing interest at an annual rate of 450 basis points over the
one-month London Inter-Bank Offered Rate (LIBOR). The Mortgage Note Receivable,
which is secured by the Option Properties and guaranteed by certain of the RM
principals, matures on February 1, 2000. In addition, the Company received a
three percent origination fee with the Mortgage Note Receivable.
6. MORTGAGES AND LOANS PAYABLE
June 30, December 31,
1997 1996
---- ----
TIAA Mortgage $ 185,283 --
Harborside Mortgages 150,000 $ 150,000
Mortgage Financing 64,508 64,508
Fair Lawn Mortgage 18,244 18,445
First Prudential Facility 8,600 6,000
Bank Facility 51,800 23,805
Second Prudential Facility 70,000 --
Contingent Obligation 5,526 5,252
- -------------------------------------------------------------------------------------------------------------------
Total mortgages and loans payable $ 553,961 $ 268,010
===================================================================================================================
TIAA Mortgage
In connection with the RM Transaction, on January 31, 1997, the Company assumed
a $185,283 non-recourse mortgage loan with Teachers Insurance and Annuity
Association of America ("TIAA"), with interest only payable monthly at a fixed
annual rate of 7.18 percent (the "TIAA Mortgage"). The TIAA Mortgage is secured
and cross-collateralized by 43 of the RM Properties and matures on December 31,
2003. The Company, at its option, may convert the TIAA Mortgage to unsecured
debt upon achievement by the Company of an investment credit rating of Baa3/BBB-
or better. The TIAA Mortgage is prepayable in whole or in part subject to
certain provisions, including yield maintenance.
Harborside Mortgages
In connection with the acquisition of Harborside Financial Center
("Harborside"), on November 4, 1996, the Company assumed existing mortgage debt
and was provided seller-financed mortgage debt aggregating $150,000. The
existing financing of approximately $106,149 bears interest at a fixed rate of
7.32 percent for a term of approximately nine years. The seller-provided
financing of approximately $43,851 also has a term of nine years and initially
bears interest at a rate of 6.99 percent. The interest rate on the
seller-provided financing will be reset at the end of the third and sixth loan
years based on the yield of the three-year treasury obligation at that time,
with spreads of 110 basis points in years four through six and 130 basis points
in years seven through maturity.
Mortgage Financing
Concurrent with the IPO, the Company's initial operating subsidiaries, which own
the Company's remaining initial 11 office properties and the initial
multi-family residential property (collectively, the "Initial Properties"),
issued five-year mortgage notes with an aggregate principal balance of $144,500
secured and cross-collateralized by the Initial Properties to an affiliate
("PSI") of Prudential Securities Inc. PSI then issued commercial mortgage
pay-through bonds ("Bonds") collateralized by the mortgage notes. Bonds with an
aggregate principal balance of $70,000 were purchased by unrelated third
parties. Bonds with an aggregate principal balance of $74,500 were purchased by
the Company. As a result, the Company's initial mortgage financing was $70,000
(the "Mortgage Financing"). Approximately $38,000 of the $70,000 is guaranteed
under certain conditions by certain partners of the Cali Group partnerships
which owned the Initial Properties. The Mortgage Financing requires monthly
payments of interest only, with all principal and any accrued but unpaid
interest due in August 1999. $46,000 of the $70,000 Mortgage Financing bears
interest at a net cost to the Company equal to a fixed rate of 8.02 percent per
annum and the remaining $24,000 bears interest at a net cost to the Company
equal to a floating rate of 100 basis points over one-month LIBOR (5.69141
percent at June 30, 1997) with a lifetime interest rate cap of 11.6 percent.
Pursuant to the terms of the Mortgage Financing, the Company is required to
escrow $143 per month for tenant improvements and leasing commissions and $53
per month for capital improvements. On March 12, 1996, the Company prepaid
$5,492 ($1,687 -- fixed rate debt, $3,805 -- floating rate debt) of the Mortgage
Financing, resulting in outstanding balances of $44,313 for the 8.02 percent
fixed rate debt and $20,195 for the floating rate debt. On August 12, 1997, the
Company prepaid in full the remaining balance and retired the Mortgage Financing
from funds made available primarily from drawing on the Unsecured Facility (see
below).
Fair Lawn Mortgage
In connection with the acquisition of an office building in Fair Lawn, New
Jersey on March 3, 1995, the Company assumed an $18,764 non-recourse mortgage
loan ("Fair Lawn Mortgage") collateralized by the property, bearing interest at
a fixed rate of 8.25 percent per annum. The loan required payment of interest
only through March 15, 1996 and payment of principal and interest thereafter, on
a 20-year amortization schedule, with the remaining principal balance due
October 1, 2003. For the six months ended June 30, 1997, the Company paid $201
for amortization of principal on the Fair Lawn Mortgage.
First Prudential Facility
The Company has a $70,000 revolving credit facility (the "First Prudential
Facility") with Prudential Securities Credit Corp. ("PSC"), which may be used to
fund acquisitions and new development projects and for general working capital
purposes, including capital expenditures and tenant improvements. In connection
with the Mortgage Financing, the Company obtained a $6,005 letter of credit (the
"Letter of Credit"), secured by the First Prudential Facility, to meet certain
tenant improvement and capital expenditure reserve requirements. The First
Prudential Facility bore interest at a floating rate equal to 150 basis points
over one-month LIBOR for January 1, 1996 through August 31, 1996. Effective
September 1, 1996, the interest rate was reduced to a floating rate equal to 125
basis points over one-month LIBOR. The First Prudential Facility is a recourse
liability of the Operating Partnership and is secured by a pledge of the $74,500
Bonds held by the Company. In conjunction with obtaining the Unsecured Facility
(see below), the Company repaid in full and terminated the First Prudential
Facility on August 7, 1997. Additionally, the Letter of Credit was canceled in
conjunction with prepayment of the Mortgage Financing on August 12, 1997.
Bank Facility
On February 1, 1996, the Company obtained a credit facility (the "Bank
Facility") secured by certain of its properties in the amount of $75,000 from
two participating banks. The Bank Facility has a three-year term and bears
interest at 150 basis points over one-month LIBOR. The terms of the Bank
Facility include certain restrictions and covenants which limit, among other
things, dividend payments and additional indebtedness and which require
compliance with specified financial ratios and other financial measurements. The
Bank Facility also requires a fee equal to one quarter of one percent of the
unused balance payable quarterly in arrears. In conjunction with obtaining the
Unsecured Facility (see below), the Company repaid in full and terminated the
Bank Facility on August 7, 1997.
Second Prudential Facility
On November 4, 1996, the Company obtained a revolving credit facility ("Second
Prudential Facility") from PSC totaling $80,000 which bears interest at 125
basis points over one-month LIBOR, and matures on January 15, 1998. The Second
Prudential Facility is a recourse liability of the Operating Partnership and is
secured by the Company's equity interest in Harborside. The terms of the Second
Prudential Facility include certain restrictions and covenants that limit, among
other things, dividend payments and additional indebtedness and that require
compliance with specified financial ratios and other financial measurements. On
August 7, 1997, the Company repaid in full the outstanding balance under the
Second Prudential Facility with funds drawn from the Unsecured Facility.
Additionally, on August 12, 1997, the Second Prudential Facility was amended,
increasing the total commitment from $80,000 to $100,000 and extending the
maturity date to August 31, 1998.
Contingent Obligation
As part of the Harborside acquisition, the Company agreed to make payments (with
an estimated net present value of approximately $5,252 at acquisition date) to
the seller for development rights ("Contingent Obligation") if and when the
Company commences construction on the acquired site during the next several
years. However, the agreement provides, among other things, that even if the
Company does not commence construction, the seller may nevertheless require the
Company to acquire these rights during the six-month period after the end of the
sixth year. After such period, the seller's option lapses, but any development
in years 7 through 30 will require a payment, on an increasing scale, for the
development rights. For the six months ended June 30, 1997, interest imputed on
the Contingent Obligation was capitalized to land, thereby increasing the
balance of the Contingent Obligation to $5,526 as of June 30, 1997.
Unsecured Facility
On August 6, 1997, the Company obtained an unsecured revolving credit facility
(the "Unsecured Facility") in the amount of $400,000 from a group of 13 lender
banks. The Unsecured Facility has a three-year term and currently bears interest
at 125 basis points over one-month LIBOR. Based upon the Company's achievement
of an investment grade long term unsecured debt rating, the interest rate will
be reduced, on a sliding scale, and a competitive bid option will become
available.
The terms of the Unsecured Facility include certain restrictions and covenants
which limit, among other things, dividend payments and additional indebtedness
and which require compliance with specified financial ratios and other financial
measurements. The Unsecured Facility also requires a fee on the unused balance
payable quarterly in arrears, at a rate ranging from one-eighth of one percent
to one-quarter of one percent of such balance, depending on the level of
borrowing outstanding in relation to the total facility commitment.
The lending group for the Unsecured Facility includes: Fleet National Bank, The
Chase Manhattan Bank, and Bankers Trust Company, as agents; PNC Bank, N.A., Bank
of America National Trust and Savings Association, Commerzbank, and First
National Bank of Chicago, as co-agents; and Keybank, Summit Bank, Crestar Bank,
Mellon Bank, N.A., Signet Bank, and Kredeitbank NV.
In conjunction with the Company obtaining the Unsecured Facility, the Company
drew funds on the new facility to repay in full and terminate both the First
Prudential Facility and the Bank Facility. The Company drew an additional
$70,000 to repay in full the outstanding balance under the Second Prudential
Facility. As of August 12, 1997, the Company's two remaining revolving credit
facilities consist of the Unsecured Facility and the Second Prudential Facility.
Interest Rate Swap Agreements
On May 24, 1995, the Company entered into an interest rate swap agreement with a
commercial bank. The swap agreement fixes the Company's one-month LIBOR base to
a fixed 6.285 percent per annum on a notional amount of $24,000 through August
1999.
On January 23, 1996, the Company entered into another interest rate swap
agreement with a commercial bank. This swap agreement has a three-year term and
a notional amount of $26,000, which fixes the Company's one-month LIBOR base to
5.265 percent.
The Company is exposed to credit loss in the event of non-performance by the
other parties to the interest rate swap agreements. However, the Company does
not anticipate non-performance by either counterparty.
Cash paid for interest for the three- and six-month periods ended June 30, 1997
was $8,060 and $16,563, respectively.
7. MINORITY INTEREST
Certain individuals and entities own Units in the Operating Partnership. A Unit
and a share of common stock of the Company have substantially the same economic
characteristics in as much as they effectively share equally in the net income
or loss of the Operating Partnership. Minority interest in the accompanying
consolidated financial statements relates to Units held by parties other than
the Company.
Units are redeemable by the unitholders at their option, subject to certain
restrictions, on the basis of one Unit for either one share of common stock or
cash equal to the fair market value of a share at the time of the redemption.
The Company has the option to deliver shares of common stock in exchange for all
or any portion of the cash requested. When a unitholder redeems a Unit, minority
interest is reduced and the Company's investment in the Operating Partnership is
increased.
On January 31, 1997, 1,401,225 Units were issued in connection with the RM
Transaction. As of June 30, 1997 and December 31, 1996, the minority interest
unitholders owned 10.0 and 6.9 percent of the Operating Partnership,
respectively.
8. EMPLOYEE BENEFIT PLAN
All employees of the Company who meet certain minimum age and period of service
requirements are eligible to participate in a Section 401(k) plan (the "Plan")
as defined by the Code. The Plan allows eligible employees to defer up to 15
percent of their annual compensation. The amounts contributed by employees are
immediately vested and non-forfeitable. The Company, at management's discretion,
may match employee contributions. No employer contributions have been made to
date.
9. COMMITMENTS AND CONTINGENCIES
Tax Abatement Agreements
Grove Street Property
Pursuant to an agreement with the City of Jersey City, New Jersey, as amended,
expiring in 2004, the Company is required to make payments in lieu of property
taxes ("PILOT") on its property at 95 Christopher Columbus Drive, Jersey City,
Hudson County, New Jersey. Such PILOT, as defined, is $1,267 per annum through
May 31, 1999 and $1,584 per annum through May 31, 2004.
Harborside Financial Center Property
Pursuant to a separate agreement with the City of Jersey City, New Jersey
obtained by the former owner of the Harborside property in 1988 and assumed by
the Company as part of the acquisition of the property on November 4, 1996, the
Company is required to make PILOT payments on its Harborside property. The
abatements, which commenced in 1990, are for a term of 15 years. Such PILOT is
equal to two percent of Total Project Costs, as defined, in year one and
increases by $75 per annum through year fifteen. Total Project Costs, as
defined, are $148,712.
10. TENANT LEASES
The Properties are leased to tenants under operating leases with various
expiration dates through 2020. 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.
11. STOCKHOLDERS' EQUITY
To maintain its qualification as a REIT, not more than 50 percent in value of
the outstanding shares of the Company may be owned, directly or indirectly, by
five or fewer individuals (defined to include certain entities), applying
certain constructive ownership rules. To help ensure that the Company will not
fail this test, the Company's Articles of Incorporation provide for, among other
things, certain restrictions on the transfer of the common stock to prevent
further concentration of stock ownership. Moreover, to evidence compliance with
these requirements, the Company must maintain records that disclose the actual
ownership of its outstanding common stock and will demand written statements
each year from the holders of record of designated percentages of its common
stock requesting the disclosure of the beneficial owners of such common stock.
On May 13, 1996, the stockholders approved an increase in the authorized shares
of common stock in the Company from 25,000,000 to 95,000,000.
On July 29, 1996, the Company filed a shelf registration statement (File No.
333-09081) with the SEC for an aggregate amount of $500,000 in equity securities
of the Company. The registration statement was declared effective by the SEC on
August 2, 1996.
On August 13, 1996, the Company sold 3,450,000 shares of its common stock
through a public stock offering (the "August 1996 Offering"), which included an
exercise of the underwriters over-allotment option of 450,000 shares. Net
proceeds from the August 1996 Offering (after offering costs) were approximately
$76,830. The offering was conducted using one underwriter and the shares were
issued from the Company's $250,000 shelf registration statement (File No.
33-96538).
Pursuant to the Company's $500,000 shelf registration statement (File No.
333-09081), on November 22, 1996, the Company completed an underwritten public
offer and sale of 17,537,500 shares of its common stock using several different
underwriters to underwrite such public offer and sale (which included an
exercise of the underwriters' over-allotment option of 2,287,500 shares). The
Company received approximately $441,215 in net proceeds (after offering costs)
from the offering, and used such funds to acquire certain of the Company's
property acquisitions in November and December 1996, pay down outstanding
borrowings on its revolving credit facilities, and investing the excess funds in
Overnight Investments.
On December 31, 1996, the Company filed a shelf registration statement (File No.
333-19101) with the SEC for an aggregate amount of $1,000,000 in equity
securities of the Company. The registration statement was declared effective by
the SEC on January 7, 1997.
On May 15, 1997, the stockholders approved an increase in the authorized shares
of common stock in the Company from 95,000,000 to 190,000,000.
Stock Option Plans
In 1994, and as afterwards amended, the Company established the Cali Employee
Stock Option Plan ("Employee Plan") and the Cali Director Stock Option Plan
("Director Plan") under which a total of 2,980,188 (subject to adjustment) of
the Company's shares of common stock have been reserved for issuance (2,780,188
shares under the Employee Plan and 200,000 shares under the Director Plan).
Stock options granted under the Employee Plan in 1994 and 1995 become
exercisable over a three-year period and those options granted under the
Employee Plan in 1996 and 1997 become exercisable over a five-year period. All
stock options under the Director Plan become exercisable in one year. All
options were granted at the fair market value at the dates of grant and have
terms of ten years.
Information regarding the Company's stock option plans is summarized below:
Employee Director
Plan Plan
-------- --------
Shares under option:
Granted on August 31, 1994 at
$15.25-$17.25 per share 600,000 25,000
----------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1994
$15.25 - $17.25 per share 600,000 25,000
Granted at $17.25-$19.875 per share 220,200 10,000
Less - Lapsed or canceled (3,588) --
----------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1995
$15.25 - $19.875 per share 816,612 35,000
Granted at $21.50-$26.25 per share 795,700 14,000
Less - Lapsed or canceled (7,164) --
Exercised at $17.25 per share (116,041) (10,000)
----------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1996
$15.25 - $26.25 per share 1,489,107 39,000
Granted at $33.00 per share -- 5,000
Granted at $33.875 per share -- 5,000
Granted at $30.75 per share 171,460 --
Granted at $30.25 per share 148,000 --
Less - Lapsed or canceled (24,773) --
Exercised at $17.25 - $25.25 per share (132,865) --
----------------------------------------------------------------------------------------------------------
Outstanding at June 30, 1997
$15.25 - $33.875 per share 1,650,929 49,000
==========================================================================================================
Exercisable at June 30, 1997 451,703 39,000
----------------------------------------------------------------------------------------------------------
Available for grant at December 31, 1996 175,040 51,000
Available for grant at June 30, 1997 880,353 141,000
----------------------------------------------------------------------------------------------------------
Stock Compensation
In January 1997, the Company entered into employment contracts with seven of its
key executives which provide for, among other things, compensation in the form
of stock awards (the "Stock Award Rights") and Company- financed stock purchase
rights (the "Stock Purchase Rights"), and associated tax obligation payments. In
connection with the Stock Award Rights, the executives will receive 199,070
shares of the Company's common stock vesting over a five-year period contingent
on the Company meeting certain performance objectives. Additionally, pursuant to
the terms of the Stock Purchase Rights, the Company provided fixed rate,
non-prepayable loans, aggregating $4,750, to such executives to finance their
purchase of 152,000 shares of the Company's common stock, which the Company has
agreed to forgive ratably over five years. Such loans were for amounts equal to
the fair market value of the associated shares at the date of grant.
Subsequently, from April 18, 1997 through April 24, 1997, the Company purchased,
for constructive retirement, 152,000 shares of its outstanding common stock for
$4,680. The excess of the purchase price over par value was recorded as a
reduction to additional paid-in capital. Concurrent with this purchase, the
Company sold to the Operating Partnership 152,000 Units for $4,680.
The market value of the Stock Award Rights at June 30, 1997, net of amounts
recognized as compensation expense, is recorded as unamortized stock
compensation and shown as a separate component of stockholders' equity.
Unamortized stock compensation for the Stock Award Rights is amortized to
expense as certain performance objectives are reached.
Additionally, the balance of the loans related to the Stock Purchase Rights at
the grant date, net of amounts recognized as compensation expense, is recorded
as unamortized stock compensation and shown as a separate component of
stockholders' equity. Unamortized stock compensation is amortized to expense
ratably over the five-year vesting period.
Included in general and administrative expense for the three and six month
periods ended June 30, 1997 is $828 and $1,478, respectively, relating to the
Stock Award Rights and Stock Purchase Rights.
12. FASB NO. 128 PRO FORMA EARNINGS PER SHARE
In February 1997, the FASB issued Statement No. 128, "Earnings Per Share" which
is effective for periods ending after December 15, 1997. The following pro forma
information presents the Company's results for the periods indicated in
accordance with the new Statement.
For the three month period ended June 30, 1997:
Per Share
Net Income Shares Amounts
---------- ------ -------
Pro Forma Basic EPS $18,025 36,488,523 $0.49
Pro Forma Diluted EPS $18,025 36,907,293 $0.49
The following schedule reconciles the shares used in the pro forma basic EPS
calculation to the shares used in the pro forma diluted EPS calculation:
Pro Forma Basic EPS Shares: 36,488,523
Add: Stock Options 418,770
----------
Pro Forma Diluted EPS Shares: 36,907,293
==========
For the six month period ended June 30, 1997:
Per Share
Net Income Shares Amounts
---------- ------ -------
Pro Forma Basic EPS $34,484 36,474,942 $0.95
Pro Forma Diluted EPS $34,484 36,967,249 $0.93
The following schedule reconciles the shares used in the pro forma basic EPS
calculation to the shares used in the pro forma diluted EPS calculation:
Pro Forma Basic EPS Shares: 36,474,942
Add: Stock Options 492,307
----------
Pro Forma Diluted EPS Shares: 36,967,249
==========
13. PRO FORMA FINANCIAL INFORMATION
The following pro forma financial information for the three and six month
periods ended June 30, 1997 and 1996 are presented as if the acquisitions and
common stock offerings in 1996, the January 1997 RM Transaction and the May 1997
acquisition of Westlakes had occurred on January 1, 1996. In management's
opinion, all adjustments necessary to reflect the effects of these transactions
have been made.
This pro forma financial information is not necessarily indicative of what the
actual results of operations of the Company would have been assuming such
transactions had been completed as of January 1, 1996, nor do they represent the
results of operations of future periods.
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues $ 61,845 $ 58,678 $122,617 $116,408
Operating and other expenses 18,495 17,735 36,772 35,780
General and administrative 3,996 3,213 7,583 5,895
Depreciation and amortization 9,261 8,883 18,322 17,515
Interest expense 9,873 9,800 19,780 19,673
- -------------------------------------------------------------------------------------------------------------------
Income before minority interest 20,220 19,047 40,160 37,545
Minority interest 2,101 1,939 4,018 3,845
- -------------------------------------------------------------------------------------------------------------------
Net income $ 18,119 $ 17,108 $ 36,142 $ 33,700
===================================================================================================================
Net income per common share $ 0.50 $ 0.47 $ 0.99 $ 0.93
- -------------------------------------------------------------------------------------------------------------------
CALI REALTY CORPORATION AND SUBSIDIARIES
Item 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements of Cali Realty Corporation and the notes thereto.
The following comparisons for the three and six month periods ended June 30,
1997 ("1997"), as compared to the three and six month periods ended June 30,
1996 ("1996") make reference to the following: (i) the effect of the
"Pre-Acquisition Properties," which represents all properties owned by the
Company at March 31, 1996 (for the three-month period comparisons), and
which represents all properties owned by the Company at December 31, 1995
(for the six-month period comparisons), (ii) the effect of the "Acquired
Properties," which for the three-month period comparisons represents all
properties acquired by the Company from April 1, 1996 through June 30, 1997
(excluding RM), and for the six-month period comparisons represents all
properties acquired by the Company from January 1, 1996 through June 30,
1997 (excluding RM), (iii) the effect of the "Disposition," which refers to
the Company's sale of its Essex Road property on March 20, 1996, and (iv)
the effect of the acquisition of the "RM Properties" on January 31, 1997.
Three Months Ended June 30, 1997 Compared to
Three Months Ended June 30, 1996
Total revenues increased $39.5 million, or 188.1 percent, for the three
months ended June 30, 1997 over the same period in 1996. Base rents
increased $33.1 million, or 191.9 percent, of which an increase of $16.6
million, or 96.5 percent, was attributable to the Acquired Properties, an
increase of $16.0 million, or 92.4 percent, due to the RM Properties, and an
increase of $0.5 million, or 3.0 percent, due to occupancy changes at the
Pre-Acquisition Properties. Escalations and recoveries increased $4.5
million, or 143.3 percent, of which an increase of $3.0 million, or 94.9
percent, was attributable to the Acquired Properties, an increase of $1.4
million, or 44.7 percent, due to the RM Properties, and an increase of $0.1
million, or 3.7 percent, due to occupancy changes at the Pre-Acquisition
Properties.
Total expenses for the three months ended June 30, 1997 increased $26.2
million, or 182.9 percent, as compared to the same period in 1996. Real
estate taxes increased $4.3 million, or 196.1 percent, for 1997 over 1996,
of which an increase of $1.7 million, or 79.0 percent, was attributable to
the Acquired Properties, an increase of $2.5 million, or 113.6 percent, due
to the RM Properties, and an increase of $0.1 million, or 3.5 percent,
attributable to the Pre-Acquisition Properties. Additionally, operating
services increased $4.9 million, or 192.9 percent, and utilities increased
$2.3 million, or 125.0 percent, for 1997 over 1996. The aggregate increase
in operating services and utilities of $7.2 million, or 163.9 percent,
consists of $3.6 million, or 82.0 percent, attributable to the Acquired
Properties, an increase of $3.5 million, or 80.0 percent, due to the RM
Properties, and an increase of $0.1 million, or 1.9 percent, attributable to
the Pre-Acquisition Properties. General and administrative expense increased
$2.6 million, or 232.8 percent, of which $0.8 million, or 70.6 percent, is
attributable to additional costs related to the RM Properties and $1.8
million, or 162.2 percent, is due primarily to an increase in payroll and
related costs as a result of the Company's expansion in late 1996 and early
1997. Depreciation and amortization increased $5.5 million, or 151.2
percent, for 1997 over 1996, of which $2.7 million, or 75.4 percent, relates
to depreciation on the Acquired Properties, an increase of $2.7 million, or
73.6 percent, attributable to the RM Properties, and an increase of $0.1
million, or 2.2 percent, due to the Pre-Acquisition Properties. Interest
expense increased $6.6 million, or 220.2 percent, for 1997 over 1996, of
which $3.3 million, or 110.9 percent, was attributable to the TIAA Mortgage,
$2.7 million, or 90.7 percent, due to the Harborside Mortgages, and an
increase of $0.6 million, or 18.6 percent, due to net additional drawings
from the Company's credit facilities as a result of Company acquisitions, as
well as changes in LIBOR.
Income before gain on sale of rental property, minority interest, and
extraordinary item increased to $20.0 million in 1997 from $6.7 million in
1996. The increase of $13.3 million was due to the factors discussed above.
Net income increased $12.3 million for the three months ended June 30, 1997
from $5.7 million in 1996 to $18.0 million in 1997, as a result of the
increase in income before gain on sale of rental property, minority interest
and extraordinary item of $13.3 million, offset by an increase in minority
interest of $1.0 million in 1997 from 1996.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Total revenues increased $72.1 million, or 177.7 percent, for the six months
ended June 30, 1997 over the same period in 1996. Base rents increased $59.9
million, or 180.0 percent, of which an increase of $32.7 million, or 98.3
percent, was attributable to the Acquired Properties, an increase of $26.4
million, or 79.2 percent, due to the RM Properties, and an increase of $1.1
million, or 3.3 percent, due to occupancy changes at the Pre-Acquisition
Properties, offset by a decrease of $0.3 million or 0.8 percent, as a result
of the Disposition. Escalations and recoveries increased $8.0 million, or
129.1 percent, of which an increase of $5.8 million, or 92.3 percent, was
attributable to the Acquired Properties, an increase of $2.1 million, or
33.8 percent, due to the RM Properties, and an increase of $0.2 million, or
3.5 percent, due to occupancy changes at the Pre-Acquisition Properties,
offset by a decrease of $0.1 million, or 0.5 percent, as a result of the
Disposition.
Total expenses for the six months ended June 30, 1997 increased $46.8
million, or 168.6 percent, as compared to the same period in 1996. Real
estate taxes increased $7.8 million, or 187.2 percent, for 1997 over 1996,
of which an increase of $3.5 million, or 84.0 percent, was attributable to
the Acquired Properties, an increase of $4.2 million, or 99.7 percent, due
to the RM Properties, and an increase of $0.2 million, or 4.7 percent,
attributable to the Pre-Acquisition Properties, offset by a decrease of $0.1
million, or 1.2 percent, as a result of the Disposition. Additionally,
operating services increased $8.4 million, or 159.1 percent, and utilities
increased $4.2 million, or 111.5 percent, for 1997 over 1996. The aggregate
increase in operating services and utilities of $12.6 million, or 139.4
percent, consists of $7.4 million, or 81.9 percent, attributable to the
Acquired Properties, and an increase of $5.8 million, or 63.5 percent, due
to the RM Properties, offset by a decrease of $0.2 million, or 1.8 percent,
as a result of the Disposition, and a decrease of $0.4 million, or 4.2
percent, attributable to the Pre-Acquisition Properties. General and
administrative expense increased $4.9 million, or 235.6 percent, of which
$1.2 million, or 58.1 percent, is attributable to additional costs related
to the RM Properties and $3.7 million, or 177.5 percent, is due primarily to
an increase in payroll and related costs as a result of the Company's
expansion in late 1996 and early 1997. Depreciation and amortization
increased $9.9 million, or 143.8 percent, for 1997 over 1996, of which $5.3
million, or 76.5 percent, relates to depreciation on the Acquired
Properties, an increase of $4.4 million, or 63.5 percent, attributable to
the RM Properties, and an increase of $0.3 million, or 5.0 percent, due to
the Pre-Acquisition Properties, offset by a decrease of $0.1 million, or 1.2
percent, related to the Disposition. Interest expense increased $11.6
million, or 208.0 percent, for 1997 over 1996, of which $5.5 million, or
99.6 percent, was attributable to the TIAA Mortgage, $5.4 million, or 97.4
percent, due to the Harborside Mortgages, and an increase of $0.8 million,
or 12.0 percent, due to net additional drawings from the Company's credit
facilities as a result of Company acquisitions as well as changes in LIBOR,
offset by a decrease of $0.1 million or 1.0 percent, related to the March
1996 partial prepayment of the Mortgage Financing.
Income before gain on sale of rental property, minority interest, and
extraordinary item increased to $38.1 million in 1997 from $12.8 million in
1996. The increase of $25.3 million was due to the factors discussed above.
Net income increased $19.3 million for the six months ended June 30, 1997
from $15.2 million in 1996 to $34.5 million in 1997, as a result of the
increase in income before gain on sale of rental property, minority interest
and extraordinary item of $25.3 million and the recognition in 1996 of an
extraordinary loss for $0.5 million (net of minority interest), offset by
the gain on sale of rental property of $5.7 million recognized in 1996, and
the increase in minority interest of $0.8 million in 1997 over 1996.
Liquidity and Capital Resources
Statement of Cash Flows
During the six months ended June 30, 1997, the Company generated $59.2
million in cash flows from operating activities, and together with $132.9
million in borrowings from the Company's credit facilities, $2.5 million of
proceeds from stock options exercised and $198.7 million from the Company's
cash reserves, used an aggregate of $393.3 million to (i) purchase 70 rental
properties and other tenant improvements and building improvements for
$308.5 million, (ii) pay $11.6 million for a Mortgage Note Receivable, (iii)
pay quarterly dividends and distributions of $35.7 million, (iv) pay the
amortization on mortgage principal of $0.2 million, (v) repay outstanding
borrowings on its credit facilities by $32.3 million, (vi) increase its
restricted cash by $0.3 million, and (vii) repurchase 152,000 shares of the
Company's common stock for $4.7 million.
Capitalization
On January 23, 1996, the Company entered into an interest rate swap
agreement with a commercial bank. The swap agreement has a three-year term
and a notional amount of $26 million which fixes the Company's one-month
LIBOR base to 5.265 percent.
On February 1, 1996, the Company obtained a credit facility (the "Bank
Facility") secured by certain of its properties in the amount of $75 million
from two participating banks. The Bank Facility has a three-year term and
bears interest at 150 basis points over one-month LIBOR. The terms of the
Bank Facility include certain restrictions and covenants which limit, among
other things, dividend payments and additional indebtedness and which
require compliance with specified financial ratios and other financial
measurements. The Bank Facility also requires a fee equal to one quarter of
one percent of the unused balance payable quarterly in arrears. In
conjunction with obtaining the Unsecured Facility, the Company repaid in
full and terminated the Bank Facility on August 7, 1997.
On July 29, 1996, the Company filed a shelf registration statement (File No.
333-09081) with the SEC for an aggregate amount of $500 million in equity
securities of the Company. The registration statement was declared effective
by the SEC on August 2, 1996.
On August 13, 1996, the Company sold 3,450,000 shares of its common stock
through a public stock offering (the "August 1996 Offering"), which included
an exercise of the underwriters' over-allotment option of 450,000 shares.
Net proceeds from the August 1996 Offering (after offering costs) were
approximately $76.8 million. The offering was conducted using one
underwriter and the shares were issued from the Company's $250 million shelf
registration statement (File No. 33-96538).
On November 4, 1996, the Company obtained a revolving credit facility
("Second Prudential Facility") from PSC totaling $80 million which bears
interest at 125 basis points over one-month LIBOR, and matures on January
15, 1998. The Second Prudential Facility is a recourse liability of the
Operating Partnership and is secured by the Company's equity interest in
Harborside. The terms of the Second Prudential Facility include certain
restrictions and covenants that limit, among other things, dividend payments
and additional indebtedness and that require compliance with specified
financial ratios and other financial measurements. On August 7, 1997, the
Company repaid in full the outstanding balance under the Second Prudential
Facility with funds drawn from the Unsecured Facility. Additionally, on
August 12, 1997, the Second Prudential Facility was amended, increasing the
total commitment from $80 million to $100 million and extending the maturity
date to August 31, 1998.
In addition, on November 4, 1996, the Company assumed existing debt and was
provided seller-financed mortgage debt aggregating $150 million (as more
fully described in Note 6).
Pursuant to the Company's $500 million shelf registration statement (File
No. 333-09081), on November 22, 1996, the Company completed an underwritten
public offer and sale of 17,537,500 shares of its common stock using several
different underwriters to underwrite such public offer and sale (which
included an exercise of the underwriters' over-allotment option of 2,287,500
shares). The Company received approximately $441.2 million in net proceeds
(after offering costs) from the offering, and used such funds to acquire
certain of the Company's property acquisitions in November and December
1996, pay down outstanding borrowings on its revolving credit facilities,
and investing the excess funds in Overnight Investments.
On December 31, 1996, the Company filed a shelf registration statement (File
No. 333-19101) with the SEC for an aggregate amount of $1 billion in equity
securities of the Company. The registration statement was declared effective
by the SEC on January 7, 1997.
In connection with the RM Transaction on January 31, 1997, the Company
assumed a $185.3 million non-recourse mortgage loan with TIAA (as more fully
described in Note 6).
From April 18, 1997 through April 24, 1997, the Company purchased, for
constructive retirement, 152,000 shares of its outstanding common stock for
$4.7 million. Concurrent with this purchase, the Company sold to the
Operating Partnership 152,000 Units for $4.7 million.
On August 6, 1997, the Company obtained an unsecured revolving credit
facility (the "Unsecured Facility") in the amount of $400 million from a
group of 13 lender banks. The Unsecured Facility has a three-year term and
currently bears interest at 125 basis points over one-month LIBOR. Based
upon the Company's achievement of an investment grade long term unsecured
debt rating, the interest rate will be reduced, on a sliding scale, and a
competitive bid option will become available.
The lending group for the Unsecured Facility includes: Fleet National Bank,
The Chase Manhattan Bank, and Bankers Trust Company, as agents; PNC Bank,
N.A., Bank of America National Trust and Savings Association, Commerzbank,
and First National Bank of Chicago, as co-agents; and Keybank, Summit Bank,
Crestar Bank, Mellon Bank, N.A., Signet Bank, and Kredeitbank NV.
In conjunction with the Company obtaining the Unsecured Facility, the
Company drew funds on the new facility to repay in full and terminate both
the First Prudential Facility and the Bank Facility. The Company drew an
additional $70 million to repay in full the outstanding balance under the
Second Prudential Facility. As of August 12, 1997, the Company's two
remaining revolving credit facilities consist of the Unsecured Facility and
the Second Prudential Facility.
On August 12, 1997, the Company prepaid in full and retired the secured
Mortgage Financing from funds made available primarily from drawing on the
Unsecured Facility.
Following this secured debt prepayment, the Company has four remaining
secured mortgage debt instruments; the $185.3 million TIAA Mortgage, the two
mortgages comprising the $150 million in Harborside Mortgages, and the $18.2
million Fair Lawn Mortgage.
As of August 12, 1997, the Company now has 83 unencumbered properties
totaling seven million square feet, representing 58 percent of the Company's
portfolio.
Historically, rental revenue has been the principal source of funds to pay
operating expenses, debt service and capital expenditures, excluding
non-recurring capital expenditures. Management believes that the Company
will have access to the capital resources necessary to expand and develop
its business. To the extent that the Company's cash flow from operating
activities is insufficient to finance its non-recurring capital expenditures
such as property acquisition costs and other capital expenditures, the
Company expects to finance such activities through the credit facilities and
other debt and equity financing.
The Company expects to meet its short-term liquidity requirements generally
through its working capital and net cash provided by operating activities,
along with the Second Prudential Facility and the Unsecured Facility. The
Company is frequently examining potential property acquisitions and, at any
one given time, one or more of such acquisitions may be under consideration.
Accordingly, being able to fund property acquisitions is a major part of the
Company's financing requirements. The Company expects to meet its financing
requirements through funds generated from operating activities, long-term or
short term borrowings (including draws on the Company's credit facilities),
and the issuance of debt securities or additional equity securities. In
addition, the Company anticipates utilizing the Second Prudential Facility
and the Unsecured Facility primarily to fund property acquisition
activities.
The Company does not intend to reserve funds to retire the existing TIAA
Mortgage and Harborside Mortgages, indebtedness under the credit facilities
or other mortgages and loans payable upon maturity. Instead, the Company
will seek to refinance such debt at maturity or retire such debt through the
issuance of additional equity securities. The Company anticipates that its
available cash and cash equivalents and cash flows from operating
activities, together with cash available from borrowings and other sources,
will be adequate to meet the Company's capital and liquidity needs both in
the short and long-term. However, if these sources of funds are insufficient
or unavailable, the Company's ability to make the expected distributions
discussed below may be adversely affected.
To maintain its qualification as a REIT, the Company must make annual
distributions to its stockholders of at least 95 percent of its REIT taxable
income, excluding the dividends paid deduction and net capital gains.
Moreover, the Company intends to continue to make regular quarterly
distributions to its stockholders which, based upon current policy, in the
aggregate would equal approximately $66 million on an annualized basis.
However, any such distribution, whether for federal income tax purposes or
otherwise, would only be paid out of available cash after meeting both
operating requirements and scheduled debt service on mortgages and loans
payable and required annual capital expenditure reserves pursuant to its
mortgage indenture.
Funds from Operations
The Company considers Funds from Operations, after adjustment for
straight-lining of rents, one measure of REIT performance. Funds from
Operations is defined as net income (loss) before minority interest of
unitholders, computed in accordance with Generally Accepted Accounting
Principles, excluding gains (or losses) from debt restructuring and sales of
property, plus real estate-related depreciation and amortization. Funds from
Operations should not be considered as an alternative to net income as an
indication of the Company's performance or to cash flows as a measure of
liquidity.
Funds from Operations for the three and six month periods ended June 30,
1997 and 1996, as calculated in accordance with the National Association of
Real Estate Investment Trusts' definition published in March 1995, are
summarized in the following table (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
Income before gain on sale of rental property,
minority interest, and extraordinary item $ 20,037 $ 6,693 $ 38,132 $ 12,821
Add: Real estate-related depreciation and
amortization 8,786 3,334 16,265 6,355
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Funds from Operations 28,823 10,027 54,397 19,176
- -------------------------------------------------------------------------------------------------------------------
Deduct: Rental income adjustment for
straight-lining of rents (2,337) (135) (3,944) (204)
- -------------------------------------------------------------------------------------------------------------------
Funds from Operations after adjustment
for straight-lining of rents $ 26,486 $ 9,892 $ 50,453 $ 18,972
===================================================================================================================
Weighted average shares outstanding (1) 40,579 17,902 40,334 17,900
- -------------------------------------------------------------------------------------------------------------------
(1) Assumes redemption of all Units, calculated on a weighted average basis,
for shares of Common stock in the Company.
Inflation
The Company's leases with the majority of its tenants provide for recoveries
and escalation charges based upon the tenant's proportionate share of and/or
increases in real estate taxes and certain operating costs, which reduce the
Company's exposure to increases in operating costs resulting from inflation.
CALI REALTY CORPORATION
Part II -- Other Information
Item 6. Exhibits
The following exhibits are filed herewith:
Exhibit 10.92 Purchase and Sale Contract between Beacon Properties L.P.
as "Seller" and Cali Realty Acquisitions Corporation as
"Buyer" dated April 9, 1997.
Exhibit 10.93 First Amendment to Purchase and Sale Contract between
Beacon Properties L.P. and Cali Realty Acquisitions
Corporation dated April 18, 1997.
Exhibit 10.94 Revolving Credit Agreement among Cali Realty, L.P. and
certain of its Subsidiaries and Fleet National Bank and
Other Lenders Which May Become Parties to this Agreement
and Fleet National Bank, as Administrative Agent, with
Fleet National Bank, as Loan Arranger, the Chase Manhattan
Bank, as Syndication Agent, Bankers Trust Company, as
Documentation Agent and PNC Bank, N.A., Commerzbank, Bank
of America National Trust and Savings Association, and
First National Bank of Chicago, as Co-Agents, dated as of
August 6, 1997.
CALI REALTY CORPORATION
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cali Realty Corporation
(Registrant)
Date: August 13, 1997 /s/ Thomas A. Rizk
------------------
Thomas A. Rizk
President and Chief Executive Officer
(signing on behalf of the Registrant)
/s/ Barry Lefkowitz
-------------------
Date: August 13, 1997 Barry Lefkowitz
Chief Financial Officer