QuickLinks -- Click here to rapidly navigate through this document

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

FORM 10-K

ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1-13274

MACK-CALI REALTY CORPORATION
(Exact Name of Registrant as specified in its charter)

Maryland
(State or other jurisdiction of
incorporation or organization)
  22-3305147
(IRS Employer
Identification No.)

11 Commerce Drive, Cranford, New Jersey
(Address of principal executive offices)

 

07016-3599
(Zip code)

(908) 272-8000
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

(Title of Each Class)   (Name of Each Exchange on Which Registered)

Common Stock, $0.01 par value
Preferred Share Purchase Rights

 

New York Stock Exchange
Pacific Exchange

Securities registered pursuant to Section 12(g) of the Act:
None


        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 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. ý

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

        As of February 20, 2004, the aggregate market value of the voting stock held by non-affiliates of the registrant was $2,495,113,846. The aggregate market value was computed with references to the closing price on the New York Stock Exchange on such date. This calculation does not reflect a determination that persons are affiliates for any other purpose.

        As of February 20, 2004, 60,084,282 shares of common stock, $0.01 par value, of the Company ("Common Stock") were outstanding.

        LOCATION OF EXHIBIT INDEX: The index of exhibits is contained herein on page number 135.

        DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's definitive proxy statement for fiscal year ended December 31, 2003 to be issued in conjunction with the registrant's annual meeting of shareholders expected to be held on May 20, 2004 are incorporated by reference in Part III of this Form 10-K. The definitive proxy statement will be filed by the registrant with the SEC not later than 120 days from the end of the Registrant's fiscal year ended December 31, 2003.





TABLE OF CONTENTS
FORM 10-K

 
   
  Page No.
PART I        
 
Item 1

 

Business

 

3
  Item 2   Properties   20-41
  Item 3   Legal Proceedings   42
  Item 4   Submission of Matters to a Vote of Security Holders   42

PART II

 

 

 

 
 
Item 5

 

Market for Registrant's Common Equity and Related Stockholder Matters

 

42
  Item 6   Selected Financial Data   44
  Item 7   Management's Discussion and Analysis of Financial Condition and Results of Operations   45-62
  Item 7A   Quantitative and Qualitative Disclosures About Market Risk   62-63
  Item 8   Financial Statements and Supplementary Data   63
  Item 9   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   63
  Item 9A   Controls and Procedures   63

PART III

 

 

 

 
 
Item 10

 

Directors and Executive Officers of the Registrant

 

63
  Item 11   Executive Compensation   63
  Item 12   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   63
  Item 13   Certain Relationships and Related Transactions   63
  Item 14   Principal Accountant Fees and Services   64

PART IV

 

 

 

 
 
Item 15

 

Exhibits, Financial Statement Schedules, and Reports on Form 8-K

 

64-132

SIGNATURES

 

133-134

2



PART I

ITEM 1.    BUSINESS

GENERAL

        Mack-Cali Realty Corporation, a Maryland corporation (together with its subsidiaries, the "Company"), is a fully-integrated, self-administered and self-managed real estate investment trust ("REIT") that owns and operates a real estate portfolio comprised predominantly of Class A office and office/flex properties located primarily in the Northeast. The Company performs substantially all commercial real estate leasing, management, acquisition, development and construction services on an in-house basis. Mack-Cali Realty Corporation was incorporated on May 24, 1994. The Company's executive offices are located at 11 Commerce Drive, Cranford, New Jersey 07016, and its telephone number is (908) 272-8000. The Company has an internet website at www.mack-cali.com.

        As of December 31, 2003, the Company owned or had interests in 263 properties, aggregating approximately 28.3 million square feet (collectively, the "Properties"), plus developable land. The Properties are comprised of: (a) 256 wholly-owned or Company-controlled properties consisting of 150 office buildings and 96 office/flex buildings aggregating approximately 26.6 million square feet, six industrial/warehouse buildings totaling approximately 387,400 square feet, two stand-alone retail properties totaling approximately 17,300 square feet, and two land leases (collectively, the "Consolidated Properties"); and (b) four office buildings and one office/flex building aggregating 1.2 million square feet, a 100,740 square-foot mixed use retail property and a 350-room hotel, which are owned by unconsolidated joint ventures in which the Company has investment interests. Unless otherwise indicated, all references to square feet represent net rentable area. As of December 31, 2003, the office, office/flex, industrial/warehouse and stand-alone retail properties included in the Consolidated Properties were 91.5 percent leased to approximately 2,100 tenants. Percentage leased includes all leases in effect as of the period end date, some of which have commencement dates in the future and leases that expire at the period end date. Leases that expire as of the period end date aggregate 143,059 square feet, or 0.5 percent of the net rentable square footage. The Properties are located in eight states, primarily in the Northeast, and the District of Columbia. See Item 2: Properties.

        The Company's strategy has been to focus its operations, acquisition and development of office properties in high-barrier-to-entry markets and sub-markets where it believes it is, or can become, a significant and preferred owner and operator. The Company will continue this strategy by expanding through acquisitions and/or development in Northeast markets where it has, or can achieve, similar status. The Company believes that its Properties have excellent locations and access and are well-maintained and professionally managed. As a result, the Company believes that its Properties attract high quality tenants and achieve among the highest rental, occupancy and tenant retention rates within their markets. The Company also believes that its extensive market knowledge provides it with a significant competitive advantage, which is further enhanced by its strong reputation for, and emphasis on, delivering highly responsive, professional management services. See "Business Strategies".

        As of December 31, 2003, executive officers and directors of the Company and their affiliates owned approximately 9.8 percent of the Company's outstanding shares of Common Stock (including Units redeemable or convertible into shares of Common Stock). As used herein, the term "Units" refers to limited partnership interests in Mack-Cali Realty, L.P., a Delaware limited partnership ("Operating Partnership"), through which the Company conducts its real estate activities. The Company's executive officers have been employed by the Company and/or its predecessor companies for an average of approximately 16 years.

3



BUSINESS STRATEGIES

Operations

        Reputation:    The Company has established a reputation as a highly-regarded landlord with an emphasis on delivering quality tenant services in buildings it owns and/or manages. The Company believes that its continued success depends in part on enhancing its reputation as an operator of choice, which will facilitate the retention of current tenants and the attraction of new tenants. The Company believes it provides a superior level of service to its tenants, which should in turn allow the Company to outperform the market with respect to occupancy rates, as well as improve tenant retention.

        Communication with tenants:    The Company emphasizes frequent communication with tenants to ensure first-class service to the Properties. Property managers generally are located on site at the Properties to provide convenient access to management and to ensure that the Properties are well-maintained. Property management's primary responsibility is to ensure that buildings are operated at peak efficiency in order to meet both the Company's and tenants' needs and expectations. Property managers additionally budget and oversee capital improvements and building system upgrades to enhance the Properties' competitive advantages in their markets and to maintain the quality of the Company's properties.

        Additionally, the Company's in-house leasing representatives develop and maintain long-term relationships with the Company's diverse tenant base and coordinate leasing, expansion, relocation and build-to-suit opportunities within the Company's portfolio. This approach allows the Company to offer office space in the appropriate size and location to current or prospective tenants in any of its sub-markets.

Growth

        The Company plans to continue to own and operate a portfolio of properties in high-barrier-to-entry markets, with a primary focus in the Northeast. The Company's primary objectives are to maximize operating cash flow and to enhance the value of its portfolio through effective management, acquisition, development and property sales strategies, as follows:

        Internal Growth:    The Company seeks to maximize the value of its existing portfolio through implementing operating strategies designed to produce the highest effective rental and occupancy rates and lowest tenant installation cost within the markets that it operates. The Company continues to pursue internal growth through re-leasing space at higher effective rents with contractual rent increases and developing or redeveloping space for its diverse base of high credit tenants, including Citigroup, Dow Jones, Merck and Prudential Insurance. In addition, the Company seeks economies of scale through volume discounts to take advantage of its size and dominance in particular sub-markets, and operating efficiencies through the use of in-house management, leasing, marketing, financing, accounting, legal, development and construction services.

        Acquisitions:    The Company also believes that growth opportunities exist through acquiring operating properties or properties for redevelopment with attractive returns in its core Northeast sub-markets where, based on its expertise in leasing, managing and operating properties, it believes it is, or can become, a significant and preferred owner and operator. The Company intends to acquire, invest in or redevelop additional properties that: (i) are expected to provide attractive initial yields with potential for growth in cash flow from operations; (ii) are well-located, of high quality and competitive in their respective sub-markets; (iii) are located in its existing sub-markets or in sub-markets in which the Company can become a significant and preferred owner and operator; and (iv) it believes have been under-managed or are otherwise capable of improved performance through intensive management, capital improvements and/or leasing that should result in increased effective rental and occupancy rates.

4



        Development:    The Company seeks to selectively develop additional properties where it believes such development will result in a favorable risk-adjusted return on investment in coordination with the above operating strategies. Such development primarily will occur: (i) when leases have been executed prior to construction; (ii) in stable core Northeast sub-markets where the demand for such space exceeds available supply; and (iii) where the Company is, or can become, a significant and preferred owner and operator.

        Property Sales:    While management's principal intention is to own and operate its properties on a long-term basis, it periodically assesses the attributes of each of its properties, with a particular focus on the supply and demand fundamentals of the sub-markets in which they are located. Based on these ongoing assessments, the Company may, from time to time, decide to sell any of its properties.

Financial

        The Company currently intends to maintain a ratio of debt-to-undepreciated assets (total debt of the Company as a percentage of total undepreciated assets) of 50 percent or less. As of December 31, 2003, the Company's total debt constituted approximately 37.9 percent of total undepreciated assets of the Company. The Company has three investment grade credit ratings. Standard & Poor's Rating Services ("S&P") and Fitch, Inc. ("Fitch") have each assigned their BBB rating to existing and prospective senior unsecured debt of the Operating Partnership. S&P and Fitch have also assigned their BBB- rating to existing and prospective preferred stock offerings of the Company. Moody's Investors Service ("Moody's") has assigned its Baa2 rating to existing and prospective senior unsecured debt of the Operating Partnership and its Baa3 rating to existing and prospective preferred stock offerings of the Company. Although there is no limit in the Company's organizational documents on the amount of indebtedness that the Company may incur or a requirement for the maintenance of investment grade credit ratings, the Company has entered into certain financial agreements which contain covenants that limit the Company's ability to incur indebtedness under certain circumstances. The Company intends to conduct its operations so as to best be able to maintain its investment grade rated status. The Company intends to utilize the most appropriate sources of capital for future acquisitions, development, capital improvements and other investments, which may include funds from operating activities, proceeds from property and land sales, short-term and long-term borrowings (including draws on the Company's revolving credit facility), and the issuance of additional debt or equity securities.

EMPLOYEES

        As of December 31, 2003, the Company had approximately 335 full-time employees.

COMPETITION

        The leasing of real estate is highly competitive. The Properties compete for tenants with lessors and developers of similar properties located in their respective markets primarily on the basis of location, rent charged, services provided, and the design and condition of the Properties. The Company also experiences competition when attempting to acquire or dispose of real estate, including competition from domestic and foreign financial institutions, other REITs, life insurance companies, pension trusts, trust funds, partnerships, individual investors and others.

REGULATIONS

        Many laws and governmental regulations are applicable to the Properties and changes in these laws and regulations, or their interpretation by agencies and the courts, occur frequently.

        Under various laws and regulations relating to the protection of the environment, an owner of real estate may be held liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in the property. These laws often impose liability without regard to whether

5



the owner was responsible for, or even knew of, the presence of such substances. The presence of such substances may adversely affect the owner's ability to rent or sell the property or to borrow using such property as collateral and may expose it to liability resulting from any release of, or exposure to, such substances. Persons who arrange for the disposal or treatment of hazardous or toxic substances at another location may also be liable for the costs of removal or remediation of such substances at the disposal or treatment facility, whether or not such facility is owned or operated by such person. Certain environmental laws impose liability for the release of asbestos-containing materials into the air, and third parties may also seek recovery from owners or operators of real properties for personal injury associated with asbestos-containing materials and other hazardous or toxic substances.

        In connection with the ownership (direct or indirect), operation, management and development of real properties, the Company may be considered an owner or operator of such properties or as having arranged for the disposal or treatment of hazardous or toxic substances and, therefore, potentially liable for removal or remediation costs, as well as certain other related costs, including governmental penalties and injuries to persons and property.

        There can be no assurance that (i) future laws, ordinances or regulations will not impose any material environmental liability, (ii) the current environmental condition of the Properties will not be affected by tenants, by the condition of land or operations in the vicinity of the Properties (such as the presence of underground storage tanks), or by third parties unrelated to the Company, or (iii) the Company's assessments reveal all environmental liabilities and that there are no material environmental liabilities of which the Company is aware. If compliance with the various laws and regulations, now existing or hereafter adopted, exceeds the Company's budgets for such items, the Company's ability to make expected distributions to stockholders could be adversely affected.

        There are no other laws or regulations which have a material effect on the Company's operations, other than typical federal, state and local laws affecting the development and operation of real property, such as zoning laws.

INDUSTRY SEGMENTS

        The Company operates in only one industry segment—real estate. The Company does not have any foreign operations and its business is not seasonal. Please see our financial statements attached hereto and incorporated by reference herein for financial information relating to our industry segment.

RECENT DEVELOPMENTS

        As a result of the economic climate since 2001, substantially all of the real estate markets the Company operates in materially softened. Demand for office space declined significantly and vacancy rates increased in each of the Company's core markets over the period. Through February 20, 2004, the Company's core markets continued to be weak. The percentage leased in the Company's consolidated portfolio of stabilized operating properties decreased to 91.5 percent at December 31, 2003, as compared to 92.3 percent at December 31, 2002 and 94.6 percent at December 31, 2001. Percentage leased includes all leases in effect as of the period end date, some of which have commencement dates in the future and leases that expire at the period end date. Market rental rates have declined in most markets from peak levels in late 2000 and early 2001. Rental rates on the Company's space that was re-leased (based on first rents payable) during the year ended December 31, 2003 decreased an average of 7.8 percent compared to rates that were in effect under expiring leases, as compared to a 3.0 percent increase in 2002 and a 9.5 percent increase in 2001. The Company believes that vacancy rates may continue to increase in most of its markets in 2004.

6



        In 2003, the Company:

        Additionally, in 2003, the Company, through unconsolidated joint ventures, sold two office properties, aggregating 850,769 square feet, for aggregate net sales proceeds of approximately $214.6 million. See Note 4 to the Financial Statements for further information regarding joint venture activity.

Property Acquisitions

        The Company acquired the following operating properties during the year ended December 31, 2003:

Acquisition
Date

  Property/Address
  Location
  # of
Bldgs.

  Rentable
Square Feet

  Investment by
Company (a)

 
   
   
   
   
  (in thousands)

Office:                      
09/12/03   4 Sentry Parkway   Blue Bell, Montgomery County, PA   1   63,930   $ 10,432
09/23/03   14 Commerce Drive   Cranford, Union County, NJ   1   67,189     8,387
           
 
 
Total Office Property Acquisitions:       2   131,119     18,819
           
 
 

Office/Flex:

 

 

 

 

 

 

 

 

 

 

 
08/19/03   3 Odell Plaza   Yonkers, Westchester County, NY   1   71,065     6,100
           
 
 
Total Property Acquisitions:           3   202,184   $ 24,919
           
 
 

(a)
Transactions were funded primarily through borrowings on the Company's revolving credit facility, from net proceeds received in the sale or sales of rental property, and/or from the Company's cash reserves. Amounts are as of December 31, 2003.

7


Sales

        The Company sold the following properties during the year ended December 31, 2003:

Sale
Date

  Property/Address
  Location
  # of
Bldgs.

  Rentable
Square Feet

  Net Sales
Proceeds

  Net Book
Value

  Realized
Gain/(Loss)

 
   
   
   
   
  (in thousands)

  (in thousands)

  (in thousands)

Office:                                  
03/28/03   1770 St. James Place   Houston, Harris County, TX   1   103,689   $ 5,469   $ 4,145   $ 1,324
10/31/03   111 Soledad   San Antonio, Bexar County, TX   1   248,153     10,782     10,538     244
           
 
 
 
 
Total Office Property Sales:           2   351,842   $ 16,251   $ 14,683   $ 1,568
           
 
 
 
 

Land:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
11/19/03   Home Depot land lease   Hamilton Township, Mercer County, NJ   1   27.7 acres     2,471     498     1,973
           
 
 
 
 
Total Property Sales:           3   351,842   $ 18,722   $ 15,181   $ 3,541
           
 
 
 
 

        On September 29, 2003, the Company sold its interest in American Financial Exchange L.L.C. ("AFE"), in which the Company held a 50 percent interest, and received approximately $162.1 million in net sales proceeds from the transaction, which the Company used primarily to repay outstanding borrowings under its unsecured revolving credit facility. The Company recognized a gain on the sale of approximately $24.0 million, which is recorded in gain on sale of investment in unconsolidated joint venture for the year ended December 31, 2003.

        In advance of the transaction, AFE distributed its interests in Plaza VIII and IX Associates, L.L.C., which owned the undeveloped land currently used as a parking facility, to its then partners, the Company and Columbia Development Company, L.L.C. ("Columbia"). The Company and Columbia subsequently entered into a new joint venture agreement to own and manage the undeveloped land and related parking operations through Plaza VIII and IX Associates, L.L.C. The Company and Columbia each hold a 50 percent interest in the new venture.

Development

        On November 25, 2003, the Company and affiliates of The Mills Corporation ("Mills") entered into a joint venture agreement to form Meadowlands Mills/Mack-Cali Limited Partnership ("Meadowlands Venture") for the purpose of developing a $1.3 billion family entertainment and recreation complex with an office and hotel component to be built at the Meadowlands sports complex in East Rutherford, New Jersey ("Meadowlands Xanadu"). Meadowlands Xanadu's approximately 4.76 million-square-foot complex is expected to feature a family entertainment destination comprising three themed zones: sports/recreation, children's activities and fashion, in addition to four office buildings, aggregating approximately 1.8 million square feet, and a 520-room hotel.

        On December 3, 2003, the Meadowlands Venture entered into a redevelopment agreement with the New Jersey Sports and Exposition Authority ("NJSEA") (the "Redevelopment Agreement") for the redevelopment of the area surrounding the Continental Airlines Arena in East Rutherford, New Jersey and the construction of the Meadowlands Xanadu project. The Redevelopment Agreement provides for a 75-year ground lease, which requires the joint venture to pay the NJSEA a $160 million development rights fee at the start of construction of the entertainment phase, when all permits and approvals are obtained, and the payment of fixed rent over the term. Fixed rent will be in the amount of $1,000 per year for the first 15 years, increasing to $7.5 million from the 16th to the 22nd year, then to $9.2 million in the 23rd year, with additional increases over the remainder of the term, as set forth in

8



the ground lease. The ground lease also allows for the potential for participation rent payments by the venture, as described in the ground lease agreement.

        The Company and Mills own a 20 percent and 80 percent interest, respectively, in the Meadowlands Venture, subject to certain participation rights by The New York Giants. The joint venture agreement requires the Company to make an equity contribution up to a maximum of $32.5 million. As part of the Redevelopment Agreement, Mills is required to contribute certain vacant land, known as the Empire Tract, to the State of New Jersey to be used as a wetlands mitigation bank, for which Mills has received subordinated capital credit in the venture of approximately $118 million. The joint venture agreement requires Mills to contribute the balance of the capital required to complete the entertainment phase, subject to certain limitations. The Company will receive a nine percent preferred return on its equity investment, only after Mills receives a nine percent preferred return on its equity investment. Residual returns, subject to participation by other parties, will be in proportion to each partners' respective percentage interest.

        Mills will develop, lease and operate the entertainment phase of the Meadowlands Xanadu project. The joint venture agreement provides the Company an option to cause the Meadowlands Venture to form component ventures for the future development of the office and hotel phases, for which the Company will develop, lease and operate such phases. The Company will own an 80 percent interest and Mills will own a 20 percent interest in such entities. The agreement provides for the first office or hotel component ventures to be formed no later than four years after the grand opening of the entertainment phase, and requires that all component ventures for the office and hotel phases be formed no later than 10 years from such date, but does not require that any or all components be developed. However, under the Meadowlands Venture agreement, Mills has the ability to accelerate such formation schedule, subject to certain conditions. Should the Company fail to meet the time schedule described above for the formation of the component ventures, the Company will forfeit its rights to cause the Meadowlands Venture to form additional component ventures. If this occurs, Mills will have the ability to develop the additional phases, subject to the Company's right to participate, or to cause the Meadowlands Venture to sell such components to a third party, subject to a sales price limitation of 95 percent of the value that would have been the amount necessary to form such component ventures.

FINANCING ACTIVITY

Senior Unsecured Notes Transactions

        On March 14, 2003, the Company exchanged $25 million face amount of existing 7.18 percent senior unsecured notes due December 31, 2003, with interest payable monthly in arrears, for $26.1 million face amount of 5.82 percent senior unsecured notes due March 15, 2013, with interest payable semi-annually in arrears. The exchange was completed with Teachers Insurance and Annuity Association ("TIAA"). In addition, the Company used the net proceeds from the issuance of preferred stock, together with available cash, to repurchase $25 million face amount of notes due December 31, 2003 from TIAA for $26.1 million. See Issuance of Preferred Stock below. The Company recorded $1.4 million in loss on early retirement of debt, net, for the year ended December 31, 2003 for costs incurred in connection with the notes transactions.

        On June 12, 2003, the Company issued $100 million face amount of 4.60 percent senior unsecured notes due June 15, 2013, with interest payable semi-annually in arrears. The total proceeds from the issuance (net of selling commissions and discount) of approximately $99.1 million was used primarily to repay $62.8 million of mortgage debt at a discount of $1.7 million (recorded as a reduction in loss on early retirement of debt, net in 2003), and to repay outstanding borrowings under the Company's unsecured revolving credit facility. The Company recorded $1.5 million in loss on early retirement of debt, net, in the year ended December 31, 2003 for the write-off of the unamortized balance of an

9



interest rate contract in conjunction with the repayment of mortgage debt. The unsecured notes were issued at a discount of approximately $286,000, which is being amortized over the term as an adjustment to interest expense.

        On June 25, 2003, the Company repurchased $45.3 million face amount of existing 7.18 percent senior unsecured notes due December 31, 2003, with interest payable monthly in arrears, for $46.7 million from TIAA. The repurchase fully retired the 7.18 percent senior unsecured notes which were due December 31, 2003. The Company recorded $1.4 million in loss on early retirement of debt, net, for the year ended December 31, 2003 for costs incurred in connection with the notes repurchase.

        On February 9, 2004, the Company issued $100 million face amount of 5.125 percent senior unsecured notes due February 15, 2014, with interest payable semi-annually in arrears. The total proceeds from the issuance (net of selling commissions and discount) of approximately $98.5 million will be held until March 15, 2004, at which time the Company intends to use the net proceeds from the sale, together with borrowings under its unsecured revolving credit facility and available cash, to repay the $300 million, 7.00 percent notes due on that date.

Issuance of Preferred Stock

        On March 14, 2003, in a publicly registered transaction with a single institutional buyer, the Company completed the sale and issuance of 10,000 shares of eight-percent Series C cumulative redeemable perpetual preferred stock ("Series C Preferred Stock") in the form of 1,000,000 depositary shares ($25 stated value per depositary share). Each depositary share represents 1/100th of a share of Series C Preferred Stock. The Company received net proceeds of approximately $24.8 million from the sale. The Company used the net proceeds, together with available cash, to repurchase $25 million face amount of notes due December 31, 2003 from TIAA for $26.1 million. See Senior Unsecured Notes Transactions above.

RISK FACTORS

        Our results from operations and ability to make distributions on our equity and debt service on our indebtedness may be affected by the risk factors set forth below. All investors should consider the following risk factors before deciding to purchase securities of the Company. The Company refers to itself as "we" or "our" in the following risk factors.

Declines in economic activities in the Northeastern office markets could adversely affect our operating results.

        A majority of our revenues are derived from our properties located in the Northeast, particularly in New Jersey, New York, Pennsylvania and Connecticut. Adverse economic developments in this region could adversely impact the operations of our properties and, therefore, our profitability. Because our portfolio consists primarily of office and office/flex buildings (as compared to a more diversified real estate portfolio), a decline in the economy and/or a decline in the demand for office space may adversely affect our ability to make distributions or payments to our investors.

        The continued economic downturn in the real estate market has resulted in the relocation of companies and an uncertain economic future for many businesses. We are uncertain how long the current downturn will last. The current economic downturn may also be having a negative economic impact on many industries, including securities, insurance services, telecommunications and computer systems and other technology, businesses in which many of our tenants are involved. Such economic impact may cause our tenants to have difficulty or be unable to meet their obligations to us.

10



Our performance is subject to risks associated with the real estate industry.

        General:    Our ability to make distributions or payments to our investors depends on the ability of our properties to generate funds in excess of operating expenses (including scheduled principal payments on debt and capital expenditure requirements). Events or conditions that are beyond our control may adversely affect our operations and the value of our properties. Such events or conditions could include:

        Financially distressed tenants may be unable to pay rent:    If a tenant defaults, we may experience delays and incur substantial costs in enforcing our rights as landlord and protecting our investments. If a tenant files for bankruptcy, a potential court judgment rejecting and terminating such tenant's lease could adversely affect our ability to make distributions or payments to our investors.

        Renewing leases or re-letting space could be costly:    If a tenant does not renew its lease upon expiration or terminates its lease early, we may not be able to re-lease the space. If a tenant does renew its lease or we re-lease the space, the terms of the renewal or new lease, including the cost of required renovations or concessions to the tenant, may be less favorable than the current lease terms which could adversely affect our ability to make distributions or payments to our investors.

        Our insurance coverage on our properties may be inadequate:    We currently carry comprehensive insurance on all of our properties, including insurance for liability, fire and flood. We cannot guarantee that the limits of our current policies will be sufficient in the event of a catastrophe to our properties. We cannot guarantee that we will be able to renew or duplicate our current insurance coverage in adequate amounts or at reasonable prices. In addition, while our current insurance policies insure us against loss from terrorist acts and toxic mold, in the future insurance companies may no longer offer coverage against these types of losses, or, if offered, these types of insurance may be prohibitively expensive. If any or all of the foregoing should occur, we may not have insurance coverage against certain types of losses and/or there may be decreases in the limits of insurance available. Should an uninsured loss or a loss in excess of our insured limits occur, we could lose all or a portion of the capital we have invested in a property or properties, as well as the anticipated future revenue from the property or properties. Nevertheless, we might remain obligated for any mortgage debt or other

11



financial obligations related to the property or properties. We cannot guarantee that material losses in excess of insurance proceeds will not occur in the future. If any of our properties were to experience a catastrophic loss, it could seriously disrupt our operations, delay revenue and result in large expenses to repair or rebuild the property. Such events could adversely affect our ability to make distributions or payments to our investors.

        Illiquidity of real estate limits our ability to act quickly:    Real estate investments are relatively illiquid. Such illiquidity may limit our ability to react quickly in response to changes in economic and other conditions. If we want to sell an investment, we might not be able to dispose of that investment in the time period we desire, and the sales price of that investment might not recoup or exceed the amount of our investment. The prohibition in the Internal Revenue Code of 1986, as amended, and related regulations on a real estate investment trust holding property for sale also may restrict our ability to sell property. In addition, we acquired a significant number of our properties from individuals to whom we issued limited partnership units as part of the purchase price. In connection with the acquisition of these properties, in order to preserve such individual's tax deferral, we contractually agreed not to sell or otherwise transfer the properties for a specified period of time, except in a manner which does not result in recognition of any built-in-gain (which may result in an income tax liability) or which reimburses the appropriate individuals for the tax consequences of the recognition of such built-in-gains. As of December 31, 2003, 140 of our properties, with an aggregate net book value of approximately $1.8 billion, were subject to these restrictions, which expire periodically through 2008. The above limitations on our ability to sell our investments could adversely affect our ability to make distributions or payments to our investors.

        Americans with Disabilities Act compliance could be costly:    Under the Americans with Disabilities Act of 1990 ("ADA"), all public accommodations and commercial facilities must meet certain federal requirements related to access and use by disabled persons. Compliance with the ADA requirements could involve removal of structural barriers from certain disabled persons' entrances. Other federal, state and local laws may require modifications to or restrict further renovations of our properties with respect to such accesses. Although we believe that our properties are substantially in compliance with present requirements, noncompliance with the ADA or related laws or regulations could result in the United States government imposing fines or private litigants being awarded damages against us. Such costs may adversely affect our ability to make distributions or payments to our investors.

        Environmental problems are possible and may be costly:    Various federal, state and local laws and regulations subject property owners or operators to liability for the costs of removal or remediation of certain hazardous or toxic substances located on or in the property. These laws often impose liability without regard to whether the owner or operator was responsible for or even knew of the presence of such substances. The presence of or failure to properly remediate hazardous or toxic substances (such as toxic mold) may adversely affect our ability to rent, sell or borrow against contaminated property. Various laws and regulations also impose liability on persons who arrange for the disposal or treatment of hazardous or toxic substances at another location for the costs of removal or remediation of such substances at the disposal or treatment facility. These laws often impose liability whether or not the person arranging for such disposal ever owned or operated the disposal facility. Certain other environmental laws and regulations impose liability on owners or operators of property for injuries relating to the release of asbestos-containing materials into the air. As owners and operators of property and as potential arrangers for hazardous substance disposal, we may be liable under such laws and regulations for removal or remediation costs, governmental penalties, property damage, personal injuries and related expenses. Payment of such costs and expenses could adversely affect our ability to make distributions or payments to our investors.

        Competition for acquisitions may result in increased prices for properties:    We plan to acquire additional properties in New Jersey, New York and Pennsylvania and in the Northeast generally. We

12



may be competing for investment opportunities with entities that have greater financial resources. Several office building developers and real estate companies may compete with us in seeking properties for acquisition, land for development and prospective tenants. Such competition may adversely affect our ability to make distributions or payments to our investors by:

        Development of real estate could be costly:    As part of our operating strategy, we may acquire land for development or construct on owned land, under certain conditions. Included among the risks of the real estate development business are the following, which may adversely affect our ability to make distributions or payments to our investors:

        Property ownership through joint ventures could subject us to the contrary business objectives of our co-venturers:    We, from time to time, invest in joint ventures or partnerships in which we do not hold a controlling interest. These investments involve risks that do not exist with properties in which we own a controlling interest, including the possibility that our co-venturers or partners may, at any time, have business, economic or other objectives that are inconsistent with our objectives. Because we lack a controlling interest, our co-venturers or partners may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives. While we seek protective rights against such contrary actions, there can be no assurance that we will be successful in procuring any such protective rights, or if procured, that the rights will be sufficient to fully protect us against contrary actions. Our organizational documents do not limit the amount of available funds that we may invest in joint ventures or partnerships. If the objectives of our co-venturers or partners are inconsistent with ours, it may adversely affect our ability to make distributions or payments to our investors.

Debt financing could adversely affect our economic performance.

        Scheduled debt payments and refinancing could adversely affect our financial condition:    We are subject to the risks normally associated with debt financing. These risks, including the following, may adversely affect our ability to make distributions or payments to our investors:

        As of December 31, 2003, we had total outstanding indebtedness of $1.6 billion comprised of $1.1 billion of senior unsecured notes and approximately $500.7 million of mortgage indebtedness. We

13



may have to refinance the principal due on our current or future indebtedness at maturity, and we may not be able to do so.

        If we are unable to refinance our indebtedness on acceptable terms, or at all, events or conditions that may adversely affect our ability to make distributions or payments to our investors include the following:


        We are obligated to comply with financial covenants in our indebtedness that could restrict our range of operating activities:    The mortgages on our properties contain customary negative covenants, including limitations on our ability, without the prior consent of the lender, to further mortgage the property, to enter into new leases outside of stipulated guidelines or to materially modify existing leases. In addition, our credit facility contains customary requirements, including restrictions and other limitations on our ability to incur debt, debt to assets ratios, secured debt to total assets ratios, debt service coverage ratios and minimum ratios of unencumbered assets to unsecured debt. The indentures under which our senior unsecured debt have been issued contain financial and operating covenants including coverage ratios and limitations on our ability to incur secured and unsecured debt. These covenants limit our flexibility in conducting our operations and create a risk of default on our indebtedness if we cannot continue to satisfy them.

        Rising interest rates may adversely affect our cash flow:    As of December 31, 2003, approximately $32.2 million of our mortgage indebtedness bears interest at variable rates. We may incur additional indebtedness in the future that also bears interest at variable rates. Variable rate debt creates higher debt service requirements if market interest rates increase. Higher debt service requirements could adversely affect our ability to make distributions or payments to our investors and/or cause us to default under certain debt covenants.

        Our degree of leverage could adversely affect our cash flow:    We fund acquisition opportunities and development partially through short-term borrowings (including our revolving credit facility), as well as from proceeds from property sales and undistributed cash. We expect to refinance projects purchased with short-term debt either with long-term indebtedness or equity financing depending upon the economic conditions at the time of refinancing. Our Board of Directors has a general policy of limiting the ratio of our indebtedness to total undepreciated assets (total debt as a percentage of total undepreciated assets) to 50 percent or less, although there is no limit in Mack-Cali Realty, L.P.'s or our organizational documents on the amount of indebtedness that we may incur. However, we have entered into certain financial agreements which contain financial and operating covenants that limit our ability under certain circumstances to incur additional secured and unsecured indebtedness. The Board of Directors could alter or eliminate its current policy on borrowing at any time at its discretion. If this policy were changed, we could become more highly leveraged, resulting in an increase in debt service that could adversely affect our cash flow and our ability to make distributions or payments to our investors and/or could cause an increased risk of default on our obligations.

14



        We are dependent on external sources of capital for future growth:    To qualify as a real estate investment trust, we must distribute to our shareholders each year at least 90 percent of our net taxable income, excluding any net capital gain. Because of this distribution requirement, it is not likely that we will be able to fund all future capital needs, including for acquisitions and developments, from income from operations. Therefore, we will have to rely on third-party sources of capital, which may or may not be available on favorable terms or at all. Our access to third-party sources of capital depends on a number of things, including the market's perception of our growth potential and our current and potential future earnings. Moreover, additional equity offerings may result in substantial dilution of our shareholders' interests, and additional debt financing may substantially increase our leverage.

Competition for skilled personnel could increase our labor costs.

        We compete with various other companies in attracting and retaining qualified and skilled personnel. We depend on our ability to attract and retain skilled management personnel who are responsible for the day-to-day operations of our company. Competitive pressures may require that we enhance our pay and benefits package to compete effectively for such personnel. We may not be able to offset such added costs by increasing the rates we charge our tenants. If there is an increase in these costs or if we fail to attract and retain qualified and skilled personnel, our business and operating results could be harmed.

We are dependent on our key personnel whose continued service is not guaranteed.

        We are dependent upon our executive officers for strategic business direction and real estate experience. While we believe that we could find replacements for these key personnel, loss of their services could adversely affect our operations. We have entered into an employment agreement (including non-competition provisions) which provides for a continuous four-year employment term with each of Mitchell E. Hersh, Timothy M. Jones, Barry Lefkowitz and Roger W. Thomas, and a continuous one-year employment term with Michael A. Grossman. We do not have key man life insurance for our executive officers.

Certain provisions of Maryland law and our charter and bylaws as well as our stockholder rights plan could hinder, delay or prevent changes in control.

        Certain provisions of Maryland law, our charter and our bylaws, as well as our stockholder rights plan have the effect of discouraging, delaying or preventing transactions that involve an actual or threatened change in control. These provisions include the following:

        Classified Board of Directors:    Our Board of Directors is divided into three classes with staggered terms of office of three years each. The classification and staggered terms of office of our directors make it more difficult for a third party to gain control of our board of directors. At least two annual meetings of stockholders, instead of one, generally would be required to affect a change in a majority of the board of directors.

        Removal of Directors:    Under our charter, subject to the rights of one or more classes or series of preferred stock to elect one or more directors, a director may be removed only for cause and only by the affirmative vote of at least two-thirds of all votes entitled to be cast by our stockholders generally in the election of directors.

        Number of Directors, Board Vacancies, Term of Office:    We have, in our bylaws, elected to be subject to certain provisions of Maryland law which vest in the Board of Directors the exclusive right to determine the number of directors and the exclusive right, by the affirmative vote of a majority of the remaining directors, even if the remaining directors do not constitute a quorum, to fill vacancies on the board. These provisions of Maryland law, which are applicable even if other provisions of Maryland law

15



or the charter or bylaws provide to the contrary, also provide that any director elected to fill a vacancy shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred, rather than the next annual meeting of stockholders as would otherwise be the case, and until his or her successor is elected and qualifies.

        Stockholder Requested Special Meetings:    Our bylaws provide that our stockholders have the right to call a special meeting only upon the written request of the stockholders entitled to cast not less than a majority of all the votes entitled to be cast by the stockholders at such meeting.

        Advance Notice Provisions for Stockholder Nominations and Proposals:    Our bylaws require advance written notice for stockholders to nominate persons for election as directors at, or to bring other business before, any meeting of stockholders. This bylaw provision limits the ability of stockholders to make nominations of persons for election as directors or to introduce other proposals unless we are notified in a timely manner prior to the meeting.

        Exclusive Authority of the Board to Amend the Bylaws:    Our bylaws provide that our board of directors has the exclusive power to adopt, alter or repeal any provision of the bylaws or to make new bylaws. Thus, our stockholders may not effect any changes to our bylaws.

        Preferred Stock:    Under our charter, our Board of Directors has authority to issue preferred stock from time to time in one or more series and to establish the terms, preferences and rights of any such series of preferred stock, all without approval of our stockholders.

        Duties of Directors with Respect to Unsolicited Takeovers:    Maryland law provides protection for Maryland corporations against unsolicited takeovers by limiting, among other things, the duties of the directors in unsolicited takeover situations. The duties of directors of Maryland corporations do not require them to (a) accept, recommend or respond to any proposal by a person seeking to acquire control of the corporation, (b) authorize the corporation to redeem any rights under, or modify or render inapplicable, any stockholders rights plan, (c) make a determination under the Maryland Business Combination Act or the Maryland Control Share Acquisition Act, or (d) act or fail to act solely because of the effect of the act or failure to act may have on an acquisition or potential acquisition of control of the corporation or the amount or type of consideration that may be offered or paid to the stockholders in an acquisition. Moreover, under Maryland laws the act of directors of a Maryland corporation relating to or affecting an acquisition or potential acquisition of control is not subject to any higher duty or greater scrutiny than is applied to any other act of a director. Maryland law also contains a statutory presumption that an act of a director of a Maryland corporation satisfies the applicable standards of conduct for directors under Maryland law.

        Ownership Limit:    In order to preserve our status as a real estate investment trust under the Code, our charter generally prohibits any single stockholder, or any group of affiliated stockholders, from beneficially owning more than 9.8 percent of our outstanding capital stock unless our Board of Directors waives or modifies this ownership limit.

        Maryland Business Combination Act:    The Maryland Business Combination Act provides that unless exempted, a Maryland corporation may not engage in business combinations, including mergers, dispositions of 10 percent or more of its assets, certain issuances of shares of stock and other specified transactions, with an "interested stockholder" or an affiliate of an interested stockholder for five years after the most recent date on which the interested stockholder became an interested stockholder, and thereafter unless specified criteria are met. An interested stockholder is generally a person owning or controlling, directly or indirectly, 10 percent or more of the voting power of the outstanding stock of the Maryland corporation. Our board of directors has exempted from this statute business combinations between the Company and certain affiliated individuals and entities. However, unless our board adopts

16



other exemptions, the provisions of the Maryland Business Combination Act will be applicable to business combinations with other persons.

        Maryland Control Share Acquisition Act: Maryland law provides that "control shares" of a corporation acquired in a "control share acquisition" shall have no voting rights except to the extent approved by a vote of two-thirds of the votes eligible to cast on the matter under the Maryland Control Share Acquisition Act. "Control Shares" means shares of stock that, if aggregated with all other shares of stock previously acquired by the acquirer, would entitle the acquirer to exercise voting power in electing directors within one of the following ranges of the voting power: one-tenth or more but less than one-third, one-third or more but less than a majority or a majority or more of all voting power. A "control share acquisition" means the acquisition of control shares, subject to certain exceptions.

        If voting rights of control shares acquired in a control share acquisition are not approved at a stockholder's meeting, then subject to certain conditions and limitations, the issuer may redeem any or all of the control shares for fair value. If voting rights of such control shares are approved at a stockholder's meeting and the acquirer becomes entitled to vote a majority of the shares of stock entitled to vote, all other stockholders may exercise appraisal rights. Our bylaws contain a provision exempting from the Maryland Control Share Acquisition Act any acquisitions of shares by certain affiliated individuals and entities, any directors, officers or employees of the Company and any person approved by the board of directors prior to the acquisition by such person of control shares. Any control shares acquired in a control share acquisition which are not exempt under the foregoing provisions of our bylaws will be subject to the Maryland Control Share Acquisition Act.

        Stockholder Rights Plan:    We have adopted a stockholder rights plan that may discourage any potential acquirer from acquiring more than 15 percent of our outstanding common stock since, upon this type of acquisition without approval of our board of directors, all other common stockholders will have the right to purchase a specified amount of common stock at a substantial discount from market price.

Consequences of failure to qualify as a real estate investment trust could adversely affect our financial condition.

        Failure to maintain ownership limits could cause us to lose our qualification as a real estate investment trust:    In order for us to maintain our qualification as a real estate investment trust, not more than 50 percent in value of our outstanding stock may be actually and/or constructively owned by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities). We have limited the ownership of our outstanding shares of our common stock by any single stockholder to 9.8 percent of the outstanding shares of our common stock. Our Board of Directors could waive this restriction if they were satisfied, based upon the advice of tax counsel or otherwise, that such action would be in our best interests and would not affect our qualifications as a real estate investment trust. Common stock acquired or transferred in breach of the limitation may be redeemed by us for the lesser of the price paid and the average closing price for the 10 trading days immediately preceding redemption or sold at the direction of us. We may elect to redeem such shares of common stock for limited partnership units, which are nontransferable except in very limited circumstances. Any transfer of shares of common stock which, as a result of such transfer, causes us to be in violation of any ownership limit will be deemed void. Although we currently intend to continue to operate in a manner which will enable us to continue to qualify as a real estate investment trust, it is possible that future economic, market, legal, tax or other considerations may cause our Board of Directors to revoke the election for us to qualify as a real estate investment trust. Under our organizational documents, our Board of Directors can make such revocation without the consent of our stockholders.

        In addition, the consent of the holders of at least 85 percent of Mack-Cali Realty, L.P.'s partnership units is required: (i) to merge (or permit the merger of) us with another unrelated person,

17



pursuant to a transaction in which Mack-Cali Realty, L.P. is not the surviving entity; (ii) to dissolve, liquidate or wind up Mack-Cali Realty, L.P.; or (iii) to convey or otherwise transfer all or substantially all of Mack-Cali Realty, L.P.'s assets. As general partner, we own approximately 80.9 percent of Mack-Cali Realty, L.P.'s outstanding partnership units (assuming conversion of all preferred limited partnership units).

        Tax liabilities as a consequence of failure to qualify as a real estate investment trust:    We have elected to be treated and have operated so as to qualify as a real estate investment trust for federal income tax purposes since our taxable year ended December 31, 1994. Although we believe we will continue to operate in such manner, we cannot guarantee that we will do so. Qualification as a real estate investment trust involves the satisfaction of various requirements (some on an annual and some on a quarterly basis) established under highly technical and complex tax provisions of the Internal Revenue Code. Because few judicial or administrative interpretations of such provisions exist and qualification determinations are fact sensitive, we cannot assure you that we will qualify as a real estate investment trust for any taxable year.

        If we fail to qualify as a real estate investment trust in any taxable year, we will be subject to the following:


        A loss of our status as a real estate investment trust could have an adverse effect on us. Failure to qualify as a real estate investment trust also would eliminate the requirement that we pay dividends to our stockholders.

        Other tax liabilities:    Even if we qualify as a real estate investment trust, we are subject to certain federal, state and local taxes on our income and property and, in some circumstances, certain other state and local taxes. In addition, our taxable REIT subsidiaries will be subject to federal, state and local income tax for income received in connection with certain non-customary services performed for tenants and/or third parties.

        Risk of changes in the tax law applicable to real estate investment trusts:    Since the Internal Revenue Service, the United States Treasury Department and Congress frequently review federal income tax legislation, we cannot predict whether, when or to what extent new federal tax laws, regulations, interpretations or rulings will be adopted. Any of such legislative action may prospectively or retroactively modify our and Mack-Cali Realty, L.P.'s tax treatment and, therefore, may adversely affect taxation of us, Mack-Cali Realty, L.P., and/or our investors.

AVAILABLE INFORMATION

        The Company's internet website is www.mack-cali.com. The Company makes available free of charge on or through its website its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after it electronically files or furnishes such materials to the Securities and Exchange Commission. In addition, the Company's internet website includes other items related to corporate governance matters, including, among other things, the Company's corporate governance guidelines, charters of various committees of the Board of Directors, and the Company's code of business conduct and ethics

18



applicable to all employees, officers and directors. Copies of these documents may be obtained, free of charge, from our internet website. Any shareholder also may obtain copies of these documents, free of charge, by sending a request in writing to: Mack-Cali Investor Relations Department, 11 Commerce Drive, Cranford, NJ 07016-3501.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

        The Company considers portions of this information to be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act. Such forward-looking statements relate to, without limitation, the Company's future economic performance, plans and objectives for future operations and projections of revenue and other financial items. Forward-looking statements can be identified by the use of words such as "may," "will," "should," "expect," "anticipate," "estimate," "continue" or comparable terminology. Forward-looking statements are inherently subject to risks and uncertainties, many of which the Company cannot predict with accuracy and some of which the Company might not even anticipate. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions at the time made, it can give no assurance that its expectations will be achieved. Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements. Among the factors about which the Company has made assumptions are changes in the general economic climate; conditions, including those affecting industries in which the Company's principal tenants compete; any failure of the general economy to recover from the current economic downturn; the extent of any tenant bankruptcies; the Company's ability to lease or re-lease space at current or anticipated rents; changes in the supply of and demand for office, office/flex and industrial/warehouse properties; changes in interest rate levels; changes in operating costs; the Company's ability to obtain adequate insurance, including coverage for terrorist acts; the availability of financing; and other risks associated with the development and acquisition of properties, including risks that the development may not be completed on schedule, that the tenants will not take occupancy or pay rent, or that development or operating costs may be greater than anticipated. For further information on factors which could impact the Company and the statements contained herein, see the "Risk Factors" section. The Company assumes no obligation to update and supplement forward-looking statements that become untrue because of subsequent events.

19



ITEM 2. PROPERTIES

PROPERTY LIST

        As of December 31, 2003, the Company's Consolidated Properties consisted of 252 in-service office, office/flex and industrial/warehouse properties, as well as two stand-alone retail properties and two land leases. The Consolidated Properties are located primarily in the Northeast. The Consolidated Properties are easily accessible from major thoroughfares and are in close proximity to numerous amenities. The Consolidated Properties contain a total of approximately 27.0 million square feet, with the individual properties ranging from 6,216 to 977,225 square feet. The Consolidated Properties, managed by on-site employees, generally have attractively landscaped sites, atriums and covered parking in addition to quality design and construction. The Company's tenants include many service sector employers, including a large number of professional firms and national and international businesses. The Company believes that all of its properties are well-maintained and do not require significant capital improvements.


Property Listing

Office Properties

Property
Location

  Year
Built

  Net
Rentable
Area
(Sq. Ft.)

  Percentage
Leased
as of
12/31/03
(%) (a)

  2003
Base
Rent
($000's)
(b) (c)

  2003
Effective
Rent
($000's)
(c) (d)

  Percentage
of Total 2003
Base Rent (%)

  2003
Average
Base Rent
Per Sq. Ft.
($) (c) (e)

  2003
Average
Effective
Rent
Per Sq. Ft.
($) (c) (f)

ATLANTIC COUNTY, NEW JERSEY                                
Egg Harbor                                
100 Decadon Drive   1987   40,422   100.0   951   857   0.19   23.53   21.20
200 Decadon Drive   1991   39,922   100.0   923   917   0.18   23.12   22.97
BERGEN COUNTY, NEW JERSEY                                
Fair Lawn                                
17-17 Route 208 North   1987   143,000   100.0   3,378   2,854   0.67   23.62   19.96
Fort Lee                                
One Bridge Plaza   1981   200,000   93.7   4,599   4,269   0.91   24.54   22.78
2115 Linwood Avenue   1981   68,000   71.2   1,460   1,095   0.29   30.16   22.62
Little Ferry                                
200 Riser Road   1974   286,628   100.0   2,255   2,183   0.45   7.87   7.62
Montvale                                
95 Chestnut Ridge Road   1975   47,700   100.0   563   499   0.11   11.80   10.46
135 Chestnut Ridge Road   1981   66,150   100.0   1,561   1,262   0.31   23.60   19.08
Paramus                                
15 East Midland Avenue   1988   259,823   100.0   6,715   6,715   1.33   25.84   25.84
461 From Road   1988   253,554   99.8   6,090   6,072   1.20   24.07   24.00
650 From Road   1978   348,510   98.3   7,782   7,102   1.54   22.72   20.73
140 Ridgewood Avenue   1981   239,680   93.0   4,843   4,503   0.96   21.73   20.20
61 South Paramus
Avenue
  1985   269,191   99.7   6,727   6,062   1.33   25.06   22.59

20



Property Listing

Office Properties

Property
Location

  Year
Built

  Net
Rentable
Area
(Sq. Ft.)

  Percentage
Leased
as of
12/31/03
(%) (a)

  2003
Base
Rent
($000's)
(b) (c)

  2003
Effective
Rent
($000's)
(c) (d)

  Percentage
of Total 2003
Base Rent (%)

  2003
Average
Base Rent
Per Sq. Ft.
($) (c) (e)

  2003
Average
Effective
Rent
Per Sq. Ft.
($) (c) (f)

Rochelle Park                                
120 Passaic Street   1972   52,000   99.6   1,397   1,317   0.28   26.97   25.43
365 West Passaic Street   1976   212,578   90.8   4,103   3,656   0.81   21.26   18.94
Upper Saddle River                                
1 Lake Street   1973/94   474,801   100.0   7,465   7,465   1.48   15.72   15.72
10 Mountainview Road   1986   192,000   97.9   3,880   3,794   0.77   20.64   20.18
Woodcliff Lake                                
400 Chestnut Ridge Road   1982   89,200   100.0   2,094   2,036   0.41   23.48   22.83
470 Chestnut Ridge Road   1987   52,500   100.0   1,192   1,192   0.24   22.70   22.70
530 Chestnut Ridge Road   1986   57,204   100.0   1,166   1,166   0.23   20.38   20.38
50 Tice Boulevard   1984   235,000   100.0   5,883   5,183   1.16   25.03   22.06
300 Tice Boulevard   1991   230,000   100.0   6,038   5,423   1.19   26.25   23.58
BURLINGTON COUNTY, NEW JERSEY                                
Moorestown                                
224 Strawbridge Drive   1984   74,000   100.0   1,446   1,088   0.29   19.54   14.70
228 Strawbridge Drive   1984   74,000   100.0   1,271   1,047   0.25   17.18   14.15
ESSEX COUNTY, NEW JERSEY                                
Millburn                                
150 J.F. Kennedy Parkway   1980   247,476   98.7   6,492   6,003   1.28   26.58   24.58
Roseland                                
101 Eisenhower Parkway   1980   237,000   92.4   4,948   4,568   0.98   22.59   20.86
103 Eisenhower Parkway   1985   151,545   89.5   3,370   3,032   0.67   24.85   22.35
105 Eisenhower Parkway   2001   220,000   62.1   1,580   937   0.31   11.56   6.86
HUDSON COUNTY, NEW JERSEY                                
Jersey City                                
Harborside Financial Center Plaza 1   1983   400,000   99.0   4,684   4,423   0.93   11.83   11.17
Harborside Financial Center Plaza 2   1990   761,200   100.0   19,194   18,085   3.78   25.22   23.76
Harborside Financial Center Plaza 3   1990   725,600   100.0   18,294   17,236   3.61   25.21   23.75
Harborside Financial Center Plaza 4-A   2000   207,670   96.3   6,975   6,202   1.38   34.88   31.01
Harborside Financial Center Plaza 5   2002   977,225   60.1   20,922   18,275   4.13   35.62   31.12

21



Property Listing

Office Properties

Property
Location

  Year
Built

  Net
Rentable
Area
(Sq. Ft.)

  Percentage
Leased
as of
12/31/03
(%) (a)

  2003
Base
Rent
($000's)
(b) (c)

  2003
Effective
Rent
($000's)
(c) (d)

  Percentage
of Total 2003
Base Rent (%)

  2003
Average
Base Rent
Per Sq. Ft.
($) (c) (e)

  2003
Average
Effective
Rent
Per Sq. Ft.
($) (c) (f)

MERCER COUNTY, NEW JERSEY                                
Hamilton Township                                
600 Horizon Drive   2002   95,000   100.0   1,373   1,373   0.27   14.45   14.45
Princeton                                
103 Carnegie Center   1984   96,000   84.8   2,023   1,894   0.40   24.85   23.27
100 Overlook Center   1988   149,600   94.7   4,125   3,718   0.82   29.12   26.24
5 Vaughn Drive   1987   98,500   98.1   2,039   1,883   0.40   21.10   19.49
MIDDLESEX COUNTY, NEW JERSEY                                
East Brunswick                                
377 Summerhill Road   1977   40,000   100.0   373   368   0.07   9.33   9.20
Plainsboro                                
500 College Road East   1984   158,235   100.0   3,696   3,682   0.73   23.36   23.27
South Brunswick                                
3 Independence Way   1983   111,300   16.7   665   558   0.13   35.78   30.02
Woodbridge                                
581 Main Street   1991   200,000   100.0   4,899   4,729   0.97   24.50   23.65
MONMOUTH COUNTY, NEW JERSEY                                
Neptune                                
3600 Route 66   1989   180,000   100.0   2,409   2,409   0.48   13.38   13.38
Wall Township                                
1305 Campus Parkway   1988   23,350   92.4   398   366   0.08   18.45   16.96
1350 Campus Parkway   1990   79,747   99.9   1,579   1,483   0.31   19.82   18.61
MORRIS COUNTY, NEW JERSEY                                
Florham Park                                
325 Columbia Turnpike   1987   168,144   99.0   4,478   4,058   0.89   26.90   24.38
Morris Plains                                
250 Johnson Road   1977   75,000   100.0   1,594   1,433   0.32   21.25   19.11
201 Littleton Road   1979   88,369   86.3   1,634   1,497   0.32   21.43   19.63
Morris Township                                
340 Mt. Kemble Avenue   1985   387,000   100.0   5,530   5,530   1.09   14.29   14.29

22



Property Listing

Office Properties

Property
Location

  Year
Built

  Net
Rentable
Area
(Sq. Ft.)

  Percentage
Leased
as of
12/31/03
(%) (a)

  2003
Base
Rent
($000's)
(b) (c)

  2003
Effective
Rent
($000's)
(c) (d)

  Percentage
of Total 2003
Base Rent (%)

  2003
Average
Base Rent
Per Sq. Ft.
($) (c) (e)

  2003
Average
Effective
Rent
Per Sq. Ft.
($) (c) (f)

Parsippany                                
4 Campus Drive   1983   147,475   94.8   3,518   3,478   0.70   25.16   24.88
6 Campus Drive   1983   148,291   46.2   1,327   1,259   0.26   19.37   18.38
7 Campus Drive   1982   154,395   100.0   2,037   1,924   0.40   13.19   12.46
8 Campus Drive   1987   215,265   100.0   5,309   5,003   1.05   24.66   23.24
9 Campus Drive   1983   156,495   81.0   4,363   4,239   0.86   34.42   33.44
2 Dryden Way   1990   6,216   100.0   92   92   0.02   14.80   14.80
4 Gatehall Drive   1988   248,480   81.7   5,663   5,427   1.12   27.90   26.73
2 Hilton Court   1991   181,592   86.6   4,294   4,055   0.85   27.31   25.79
1633 Littleton Road   1978   57,722   100.0   1,131   1,131   0.22   19.59   19.59
600 Parsippany Road   1978   96,000   44.8   1,020   883   0.20   23.72   20.53
1 Sylvan Way   1989   150,557   100.0   3,438   3,036   0.68   22.84   20.17
5 Sylvan Way   1989   151,383   100.0   3,962   3,703   0.78   26.17   24.46
7 Sylvan Way   1987   145,983   100.0   2,927   2,766   0.58   20.05   18.95
PASSAIC COUNTY, NEW JERSEY                                
Clifton                                
777 Passaic Avenue   1983   75,000   96.1   1,499   1,276   0.30   20.80   17.70
Totowa                                
999 Riverview Drive   1988   56,066   94.8   849   781   0.17   15.97   14.69
Wayne                                
201 Willowbrook Boulevard   1970   178,329   56.2   1,625   1,395   0.32   16.21   13.92
SOMERSET COUNTY, NEW JERSEY                                
Basking Ridge                                
222 Mt. Airy Road   1986   49,000   100.0   741   689   0.15   15.12   14.06
233 Mt. Airy Road   1987   66,000   100.0   1,315   1,103   0.26   19.92   16.71
Bernards                                
106 Allen Road   2000   132,010   73.1   2,206   1,776   0.44   22.86   18.40
Bridgewater                                
721 Route 202/206   1989   192,741   100.0   4,767   4,520   0.94   24.73   23.45
UNION COUNTY, NEW JERSEY                                
Clark                                
100 Walnut Avenue   1985   182,555   86.8   4,822   4,248   0.95   30.43   26.81
Cranford                                
6 Commerce Drive   1973   56,000   100.0   1,197   1,048   0.24   21.38   18.71
11 Commerce Drive (c)   1981   90,000   100.0   1,223   1,056   0.24   13.59   11.73
12 Commerce Drive   1967   72,260   88.7   873   704   0.17   13.62   10.98
14 Commerce Drive (g)   1971   67,189   98.0   379   379   0.07   21.01   21.01
20 Commerce Drive   1990   176,600   93.8   4,380   3,873   0.87   26.44   23.38
25 Commerce Drive   1971   67,749   100.0   1,352   1,315   0.27   19.96   19.41
65 Jackson Drive   1984   82,778   88.7   1,737   1,549   0.34   23.66   21.10

23



Property Listing

Office Properties

Property
Location

  Year
Built

  Net
Rentable
Area
(Sq. Ft.)

  Percentage
Leased
as of
12/31/03
(%) (a)

  2003
Base
Rent
($000's)
(b) (c)

  2003
Effective
Rent
($000's)
(c) (d)

  Percentage
of Total 2003
Base Rent (%)

  2003
Average
Base Rent
Per Sq. Ft.
($) (c) (e)

  2003
Average
Effective
Rent
Per Sq. Ft.
($) (c) (f)

New Providence                                
890 Mountain Avenue   1977   80,000   89.6   1,886   1,807   0.37   26.31   25.21
       
 
 
 
 
 
 
Total New Jersey Office       13,367,955   91.3   276,988   256,014   54.75   22.76   21.05
       
 
 
 
 
 
 
DUTCHESS COUNTY, NEW YORK                                
Fishkill                                
300 Westage Business Center Drive   1987   118,727   88.7   2,283   2,082   0.45   21.68   19.77
NASSAU COUNTY, NEW YORK                                
North Hempstead                                
600 Community Drive   1983   237,274   100.0   5,476   5,476   1.08   23.08   23.08
111 East Shore Road   1980   55,575   100.0   1,518   1,504   0.30   27.31   27.06
ROCKLAND COUNTY, NEW YORK                                
Suffern                                
400 Rella Boulevard   1988   180,000   95.9   4,130   3,690   0.82   23.93   21.38
WESTCHESTER COUNTY, NEW YORK                                
Elmsford                                
100 Clearbrook Road (c)   1975   60,000   100.0   1,067   953   0.21   17.78   15.88
101 Executive Boulevard   1971   50,000   78.5   819   764   0.16   20.87   19.46
555 Taxter Road   1986   170,554   63.6   3,439   3,375   0.68   31.70   31.11
565 Taxter Road   1988   170,554   85.6   3,589   3,455   0.71   24.58   23.67
570 Taxter Road   1972   75,000   91.5   1,645   1,474   0.33   23.97   21.48
Hawthorne                                
1 Skyline Drive   1980   20,400   99.0   392   368   0.08   19.41   18.22
2 Skyline Drive   1987   30,000   85.6   469   424   0.09   18.26   16.51
3 Skyline Drive   1981   75,668   100.0   1,688   1,688   0.33   22.31   22.31
7 Skyline Drive   1987   109,000   96.6   1,926   1,855   0.38   18.29   17.62
17 Skyline Drive   1989   85,000   100.0   1,360   1,335   0.27   16.00   15.71
19 Skyline Drive   1982   248,400   100.0   4,484   4,187   0.89   18.05   16.86
Tarrytown                                
200 White Plains Road   1982   89,000   91.6   1,896   1,695   0.37   23.26   20.79
220 White Plains Road   1984   89,000   100.0   2,020   1,651   0.40   22.70   18.55
White Plains                                
1 Barker Avenue   1975   68,000   96.6   1,697   1,600   0.34   25.83   24.36
3 Barker Avenue   1983   65,300   93.3   1,614   1,412   0.32   26.49   23.18
50 Main Street   1985   309,000   96.8   8,509   7,890   1.67   28.45   26.38
11 Martine Avenue   1987   180,000   92.9   4,463   3,987   0.88   26.69   23.84
1 Water Street   1979   45,700   94.9   1,017   915   0.20   23.45   21.10

24



Property Listing

Office Properties

Property
Location

  Year
Built

  Net
Rentable
Area
(Sq. Ft.)

  Percentage
Leased
as of
12/31/03
(%) (a)

  2003
Base
Rent
($000's)
(b) (c)

  2003
Effective
Rent
($000's)
(c) (d)

  Percentage
of Total 2003
Base Rent (%)

  2003
Average
Base Rent
Per Sq. Ft.
($) (c) (e)

  2003
Average
Effective
Rent
Per Sq. Ft.
($) (c) (f)

Yonkers                                
1 Executive Boulevard   1982   112,000   100.0   2,822   2,640   0.56   25.20   23.57
3 Executive Plaza   1987   58,000   100.0   1,328   1,195   0.26   22.90   20.60
       
 
 
 
 
 
 
Total New York Office       2,702,152   93.6   59,651   55,615   11.78   23.58   21.98
       
 
 
 
 
 
 
CHESTER COUNTY, PENNSYLVANIA                                
Berwyn                                
1000 Westlakes Drive   1989   60,696   87.3   1,467   1,419   0.29   27.69   26.78
1055 Westlakes Drive   1990   118,487   67.5   1,848   1,479   0.37   23.11   18.49
1205 Westlakes Drive   1988   130,265   92.8   3,126   2,974   0.62   25.86   24.60
1235 Westlakes Drive   1986   134,902   59.7   2,020   1,867   0.40   25.08   23.18
DELAWARE COUNTY, PENNSYLVANIA                                
Lester                                
100 Stevens Drive   1986   95,000   100.0   2,551   2,350   0.50   26.85   24.74
200 Stevens Drive   1987   208,000   100.0   5,613   5,263   1.11   26.99   25.30
300 Stevens Drive   1992   68,000   63.1   883   740   0.17   20.58   17.25
Media                                
1400 Providence Road — Center I   1986   100,000   94.0   2,224   2,011   0.44   23.66   21.39
1400 Providence Road — Center II   1990   160,000   89.0   3,240   2,924   0.64   22.75   20.53
MONTGOMERY COUNTY, PENNSYLVANIA                                
Blue Bell                                
4 Sentry Parkway (g)   1982   63,930   94.1   417   417   0.08   22.79   22.79
16 Sentry Parkway   1988   93,093   89.0   2,075   2,058   0.41   24.98   24.77
18 Sentry Parkway   1988   95,010   84.9   2,017   2,009   0.40   24.94   24.84
King of Prussia                                
2200 Renaissance Boulevard   1985   174,124   89.5   3,792   3,778   0.75   24.33   24.24
Lower Providence                                
1000 Madison Avenue   1990   100,700   31.1   895   780   0.18   28.58   24.91
Plymouth Meeting                                
1150 Plymouth Meeting Mall   1970   167,748   94.7   3,464   3,166   0.68   21.81   19.93
Five Sentry Parkway East   1984   91,600   100.0   1,917   1,860   0.38   20.93   20.31
Five Sentry Parkway West   1984   38,400   100.0   822   803   0.16   21.41   20.91
       
 
 
 
 
 
 
Total Pennsylvania Office       1,899,955   85.1   38,371   35,898   7.58   24.32   22.79
       
 
 
 
 
 
 

25



Property Listing

Office Properties

Property
Location

  Year
Built

  Net
Rentable
Area
(Sq. Ft.)

  Percentage
Leased
as of
12/31/03
(%) (a)

  2003
Base
Rent
($000's)
(b) (c)

  2003
Effective
Rent
($000's)
(c) (d)

  Percentage
of Total 2003
Base Rent (%)

  2003
Average
Base Rent
Per Sq. Ft.
($) (c) (e)

  2003
Average
Effective
Rent
Per Sq. Ft.
($) (c) (f)

FAIRFIELD COUNTY, CONNECTICUT                                
Greenwich                                
500 West Putnam Avenue   1973   121,250   100.0   3,059   2,847   0.60   25.23   23.48
Norwalk                                
40 Richards Avenue   1985   145,487   77.6   3,153   2,855   0.62   27.93   25.29
Shelton                                
1000 Bridgeport Avenue   1986   133,000   74.3   1,810   1,609   0.36   18.32   16.28
Stamford                                
1266 East Main Street   1984   179,260   97.8   4,746   4,735   0.94   27.07   27.01
       
 
 
 
 
 
 
Total Connecticut Office       578,997   87.8   12,768   12,046   2.52   25.12   23.70
       
 
 
 
 
 
 
WASHINGTON, D.C.                                
1201 Connecticut Avenue, NW   1940   169,549   97.6   5,310   5,080   1.05   32.09   30.70
1400 L Street, NW   1987   159,000   100.0   6,197   5,936   1.22   38.97   37.33
       
 
 
 
 
 
 
Total District of Columbia Office       328,549   98.8   11,507   11,016   2.27   35.46   33.95
       
 
 
 
 
 
 
PRINCE GEORGE'S COUNTY, MARYLAND                                
Lanham                                
4200 Parliament Place   1989   122,000   98.2   2,811   2,648   0.56   23.46   22.10
       
 
 
 
 
 
 
Total Maryland Office       122,000   98.2   2,811   2,648   0.56   23.46   22.10
       
 
 
 
 
 
 
BEXAR COUNTY, TEXAS                                
San Antonio                                
84 N.E. Loop 410   1971   187,312   78.8   2,611   2,297   0.52   17.69   15.56
DALLAS COUNTY, TEXAS                                
Dallas                                
3030 LBJ Freeway (c)   1984   367,018   76.6   5,251   4,757   1.04   18.68   16.92
Richardson                                
1122 Alma Road   1977   82,576   100.0   607   599   0.12   7.35   7.25
       
 
 
 
 
 
 
Total Texas Office       636,906   80.3   8,469   7,653   1.68   16.56   14.97
       
 
 
 
 
 
 
ARAPAHOE COUNTY, COLORADO                                
Denver                                
400 South Colorado Boulevard   1983   125,415   77.6   1,801   1,667   0.36   18.51   17.13
Englewood                                
9359 East Nichols Avenue   1997   72,610   100.0   767   767   0.15   10.56   10.56
5350 South Roslyn Street   1982   63,754   91.0   933   777   0.18   16.08   13.39

26



Property Listing

Office Properties

Property
Location

  Year
Built

  Net
Rentable
Area
(Sq. Ft.)

  Percentage
Leased
as of
12/31/03
(%) (a)

  2003
Base
Rent
($000's)
(b) (c)

  2003
Effective
Rent
($000's)
(c) (d)

  Percentage
of Total 2003
Base Rent (%)

  2003
Average
Base Rent
Per Sq. Ft.
($) (c) (e)

  2003
Average
Effective
Rent
Per Sq. Ft.
($) (c) (f)

BOULDER COUNTY, COLORADO                                
Broomfield                                
105 South Technology Court   1997   37,574   67.0   186   178   0.04   7.39   7.07
303 South Technology Court-A   1997   34,454   100.0   157   112   0.03   4.56   3.25
303 South Technology Court-B   1997   40,416   100.0   185   131   0.04   4.58   3.24
Louisville                                
248 Centennial Parkway   1996   39,266   100.0   349   293   0.07   8.89   7.46
1172 Century Drive   1996   49,566   68.3   440   369   0.09   13.00   10.90
285 Century Place   1997   69,145   100.0   1,102   1,098   0.22   15.94   15.88
DENVER COUNTY, COLORADO                                
Denver                                
3600 South Yosemite   1974   133,743   100.0   1,387   1,387   0.27   10.37   10.37
8181 East Tufts Avenue   2001   185,254   97.4   3,781   3,292   0.75   20.95   18.24
DOUGLAS COUNTY, COLORADO                                
Centennial                                
5975 South Quebec Street (c)   1996   102,877   83.1   993   678   0.20   11.62   7.93
Englewood                                
67 Inverness Drive East   1996   54,280   60.6   289   196   0.06   8.79   5.96
384 Inverness Parkway   1985   51,523   85.6   670   604   0.13   15.19   13.69
400 Inverness Parkway   1997   111,608   93.9   2,025   1,848   0.40   19.32   17.63
Parker                                
9777 Mount Pyramid Court   1995   120,281   44.4   594   582   0.12   11.12   10.90
EL PASO COUNTY, COLORADO                                
Colorado Springs                                
8415 Explorer   1998   47,368   94.1   587   585   0.12   13.17   13.12
1975 Research Parkway   1997   115,250   67.8   1,244   1,105   0.25   15.92   14.14
2375 Telstar Drive   1998   47,369   100.0   587   584   0.12   12.39   12.33
JEFFERSON COUNTY, COLORADO                                
Lakewood                                
141 Union Boulevard   1985   63,600   95.5   1,092   997   0.22   17.98   16.41
       
 
 
 
 
 
 
Total Colorado Office       1,565,353   85.4   19,169   17,250   3.82   14.33   12.90
       
 
 
 
 
 
 

27



Property Listing

Office Properties

Property
Location

  Year
Built

  Net
Rentable
Area
(Sq. Ft.)

  Percentage
Leased
as of
12/31/03
(%) (a)

  2003
Base
Rent
($000's)
(b) (c)

  2003
Effective
Rent
($000's)
(c) (d)

  Percentage
of Total 2003
Base Rent (%)

  2003
Average
Base Rent
Per Sq. Ft.
($) (c) (e)

  2003
Average
Effective
Rent
Per Sq. Ft.
($) (c) (f)

SAN FRANCISCO COUNTY, CALIFORNIA                                    
San Francisco                                    
795 Folsom Street   1977   183,445   100.0   7,056   6,285   1.39     38.46     34.26
760 Market Street   1908   267,446   96.0   8,231   7,823   1.62     32.06     30.47
       
 
 
 
 
 
 
Total California Office       450,891   97.6   15,287   14,108   3.01     34.73     32.05
       
 
 
 
 
 
 
TOTAL OFFICE PROPERTIES       21,652,758   90.5   445,021   412,248   87.97   $ 22.81   $ 21.13
       
 
 
 
 
 
 

28



Property Listing

Office/Flex Properties

Property Location

  Year
Built

  Net
Rentable
Area
(Sq. Ft.)

  Percentage
Leased
as of
12/31/03
(%)(a)

  2003
Base
Rent
($000's)
(b)(c)

  2003
Effective
Rent
($000's)
(c)(d)

  Percentage
of Total 2003
Base Rent (%)

  2003
Average
Base Rent
Per Sq. Ft.
($)(c)(e)

  2003
Average
Effective
Rent
Per Sq. Ft.
($)(c)(f)

BURLINGTON COUNTY, NEW JERSEY                                
Burlington                                
3 Terri Lane   1991   64,500   85.3   367   316   0.07   6.67   5.74
5 Terri Lane   1992   74,555   100.0   506   318   0.10   6.79   4.27
Moorestown                                
2 Commerce Drive   1986   49,000   100.0   423   390   0.08   8.63   7.96
101 Commerce Drive   1988   64,700   100.0   168   148   0.03   2.60   2.29
102 Commerce Drive   1987   38,400   100.0   183   164   0.04   4.77   4.27
201 Commerce Drive   1986   38,400   100.0   139   122   0.03   3.62   3.18
202 Commerce Drive   1988   51,200   25.3   127   122   0.03   9.80   9.42
1 Executive Drive   1989   20,570   43.0   195   188   0.04   22.05   21.25
2 Executive Drive   1988   60,800   78.4   410   339   0.08   8.60   7.11
101 Executive Drive   1990   29,355   75.2   232   189   0.05   10.51   8.56
102 Executive Drive   1990   64,000   100.0   372   316   0.07   5.81   4.94
225 Executive Drive   1990   50,600   86.2   335   267   0.07   7.68   6.12
97 Foster Road   1982   43,200   100.0   201   159   0.04   4.65   3.68
1507 Lancer Drive   1995   32,700   100.0   155   142   0.03   4.74   4.34
1510 Lancer Drive   1998   88,000   100.0   370   370   0.07   4.20   4.20
1245 North Church Street   1998   52,810   100.0   385   384   0.08   7.29   7.27
1247 North Church Street   1998   52,790   100.0   449   445   0.09   8.51   8.43
1256 North Church Street   1984   63,495   100.0   371   305   0.07   5.84   4.80
840 North Lenola Road   1995   38,300   100.0   285   234   0.06   7.44   6.11
844 North Lenola Road   1995   28,670   100.0   94   87   0.02   3.28   3.03
915 North Lenola Road   1998   52,488   91.8   272   218   0.05   5.65   4.52
2 Twosome Drive   2000   48,600   100.0   391   391   0.08   8.05   8.05
30 Twosome Drive   1997   39,675   100.0   217   202   0.04   5.47   5.09
31 Twosome Drive   1998   84,200   100.0   438   438   0.09   5.20   5.20
40 Twosome Drive   1996   40,265   100.0   268   258   0.05   6.66   6.41
41 Twosome Drive   1998   43,050   77.7   292   279   0.06   8.73   8.34
50 Twosome Drive   1997   34,075   100.0   277   261   0.05   8.13   7.66
West Deptford                                
1451 Metropolitan Drive   1996   21,600   100.0   148   148   0.03   6.85   6.85

MERCER COUNTY, NEW JERSEY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Hamilton Township                                
100 Horizon Drive   1989   13,275   100.0   192   169   0.04   14.46   12.73
200 Horizon Drive   1991   45,770   100.0   530   490   0.10   11.58   10.71
300 Horizon Drive   1989   69,780   100.0   1,135   995   0.22   16.27   14.26
500 Horizon Drive   1990   41,205   100.0   594   554   0.12   14.42   13.44

MONMOUTH COUNTY, NEW JERSEY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Wall Township                                
1325 Campus Parkway   1988   35,000   100.0   466   309   0.09   13.31   8.83
1340 Campus Parkway   1992   72,502   100.0   853   747   0.17   11.77   10.30
1345 Campus Parkway   1995   76,300   100.0   823   698   0.16   10.79   9.15
1433 Highway 34   1985   69,020   75.7   517   418   0.10   9.90   8.00
1320 Wyckoff Avenue   1986   20,336   100.0   176   166   0.03   8.65   8.16
1324 Wyckoff Avenue   1987   21,168   100.0   223   192   0.04   10.53   9.07

29


Property Listing

Office/Flex Properties

Property Location

  Year
Built

  Net
Rentable
Area
(Sq. Ft.)

  Percentage
Leased
as of
12/31/03
(%)(a)

  2003
Base
Rent
($000's)
(b)(c)

  2003
Effective
Rent
($000's)
(c)(d)

  Percentage
of Total 2003
Base Rent (%)

  2003
Average
Base Rent
Per Sq. Ft.
($)(c)(e)

  2003
Average
Effective
Rent
Per Sq. Ft.
($)(c)(f)

PASSAIC COUNTY, NEW JERSEY                                
Totowa                                
1 Center Court   1999   38,961   100.0   494   359   0.10   12.68   9.21
2 Center Court   1998   30,600   85.3   337   236   0.07   12.91   9.04
11 Commerce Way   1989   47,025   100.0   549   469   0.11   11.67   9.97
20 Commerce Way   1992   42,540   100.0   441   425   0.09   10.37   9.99
29 Commerce Way   1990   48,930   79.6   755   661   0.15   19.38   16.97
40 Commerce Way   1987   50,576   100.0   692   648   0.14   13.68   12.81
45 Commerce Way   1992   51,207   100.0   514   475   0.10   10.04   9.28
60 Commerce Way   1988   50,333   93.1   592   536   0.12   12.63   11.44
80 Commerce Way   1996   22,500   100.0   321   284   0.06   14.27   12.62
100 Commerce Way   1996   24,600   100.0   350   311   0.07   14.23   12.64
120 Commerce Way   1994   9,024   100.0   109   104   0.02   12.08   11.52
140 Commerce Way   1994   26,881   99.5   323   312   0.06   12.08   11.67
       
 
 
 
 
 
 
Total New Jersey Office/Flex       2,277,531   94.0   19,056   16,758   3.76   8.90   7.82
       
 
 
 
 
 
 

WESTCHESTER COUNTY, NEW YORK

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Elmsford                                
11 Clearbrook Road   1974   31,800   100.0   431   400   0.09   13.55   12.58
75 Clearbrook Road   1990   32,720   100.0   816   816   0.16   24.94   24.94
125 Clearbrook Road   2002   33,000   100.0   712   592   0.14   21.58   17.94
150 Clearbrook Road   1975   74,900   75.3   892   835   0.18   15.82   14.81
175 Clearbrook Road   1973   98,900   88.6   1,403   1,311   0.28   16.01   14.96
200 Clearbrook Road   1974   94,000   99.8   1,219   1,128   0.24   12.99   12.02
250 Clearbrook Road   1973   155,000   94.5   1,364   1,258   0.27   9.31   8.59
50 Executive Boulevard   1969   45,200   79.4   377   363   0.07   10.50   10.11
77 Executive Boulevard   1977   13,000   100.0   220   208   0.04   16.92   16.00
85 Executive Boulevard   1968   31,000   99.4   473   464   0.09   15.35   15.06
300 Executive Boulevard   1970   60,000   100.0   571   541   0.11   9.52   9.02
350 Executive Boulevard   1970   15,400   98.8   296   272   0.06   19.45   17.88
399 Executive Boulevard   1962   80,000   100.0   1,024   999   0.20   12.80   12.49
400 Executive Boulevard   1970   42,200   100.0   653   597   0.13   15.47   14.15
500 Executive Boulevard   1970   41,600   100.0   686   627   0.14   16.49   15.07
525 Executive Boulevard   1972   61,700   83.6   844   802   0.17   16.36   15.55
1 Westchester Plaza   1967   25,000   100.0   316   296   0.06   12.64   11.84
2 Westchester Plaza   1968   25,000   100.0   489   482   0.10   19.56   19.28
3 Westchester Plaza   1969   93,500   94.6   1,371   1,291   0.27   15.50   14.60
4 Westchester Plaza   1969   44,700   99.8   663   644   0.13   14.86   14.44
5 Westchester Plaza   1969   20,000   77.0   262   224   0.05   17.01   14.55
6 Westchester Plaza   1968   20,000   100.0   330   306   0.07   16.50   15.30
7 Westchester Plaza   1972   46,200   100.0   705   698   0.14   15.26   15.11
8 Westchester Plaza   1971   67,200   96.7   872   769   0.17   13.42   11.83
Hawthorne                                
200 Saw Mill River Road   1965   51,100   97.8   706   668   0.14   14.13   13.37
4 Skyline Drive   1987   80,600   100.0   1,370   1,316   0.27   17.00   16.33
5 Skyline Drive   1980   124,022   100.0   1,619   1,618   0.31   13.05   13.05
6 Skyline Drive   1980   44,155   100.0   718   718   0.14   16.26   16.26
8 Skyline Drive   1985   50,000   98.7   898   634   0.18   18.20   12.85
10 Skyline Drive   1985   20,000   62.3   211   188   0.04   16.93   15.09
11 Skyline Drive   1989   45,000   100.0   794   733   0.16   17.64   16.29
12 Skyline Drive   1999   46,850   100.0   797   565   0.16   17.01   12.06
15 Skyline Drive   1989   55,000   100.0   1,187   976   0.23   21.58   17.75

30


Property Listing

Office/Flex Properties

Property Location

  Year
Built

  Net
Rentable
Area
(Sq. Ft.)

  Percentage
Leased
as of
12/31/03
(%)(a)

  2003
Base
Rent
($000's)
(b)(c)

  2003
Effective
Rent
($000's)
(c)(d)

  Percentage
of Total 2003
Base Rent (%)

  2003
Average
Base Rent
Per Sq. Ft.
($)(c)(e)

  2003
Average
Effective
Rent
Per Sq. Ft.
($)(c)(f)

Yonkers                                
100 Corporate Boulevard   1987   78,000   98.2   1,433   1,338   0.28   18.71   17.47
200 Corporate Boulevard South   1990   84,000   99.8   1,392   1,348   0.28   16.60   16.08
4 Executive Plaza   1986   80,000   99.0   1,227   1,068   0.24   15.49   13.48
6 Executive Plaza   1987   80,000   100.0   1,335   1,289   0.26   16.69   16.11
1 Odell Plaza   1980   106,000   99.9   1,438   1,349   0.28   13.58   12.74
3 Odell Plaza (g)   1984   71,065   100.0   200   200   0.04   7.61   7.61
5 Odell Plaza   1983   38,400   99.6   632   592   0.12   16.52   15.48
7 Odell Plaza   1984   42,600   76.0   592   585   0.12   18.29   18.07
       
 
 
 
 
 
 
Total New York Office/Flex       2,348,812   96.1   33,538   31,108   6.61   15.01   13.94
       
 
 
 
 
 
 
FAIRFIELD COUNTY, CONNECTICUT                                
Stamford                                
419 West Avenue   1986   88,000   100.0   1,154   1,063   0.23   13.11   12.08
500 West Avenue   1988   25,000   100.0   447   390   0.09   17.88   15.60
550 West Avenue   1990   54,000   100.0   884   879   0.17   16.37   16.28
600 West Avenue   1999   66,000   100.0   755   712   0.15   11.44   10.79
650 West Avenue   1998   40,000   100.0   555   424   0.11   13.88   10.60
       
 
 
 
 
 
 
Total Connecticut Office/Flex       273,000   100.0   3,795   3,468   0.75   13.90   12.70
       
 
 
 
 
 
 

TOTAL OFFICE/FLEX PROPERTIES

 

 

 

4,899,343

 

95.3

 

56,389

 

51,334

 

11.12

 

12.14

 

11.06
       
 
 
 
 
 
 

31



Property Listing

Industrial/Warehouse, Retail and Land Lease Properties

Property
Location

  Year
Built

  Net
Rentable
Area
(Sq. Ft.)

  Percentage
Leased
as of
12/31/03
(%) (a)

  2003
Base
Rent
($000's)
(b) (c)

  2003
Effective
Rent
($000's)
(c) (d)

  Percentage
of Total 2003
Base Rent (%)

  2003
Average
Base Rent
Per Sq. Ft.
($) (c) (e)

  2003
Average
Effective
Rent
Per Sq. Ft.
($) (c) (f)

WESTCHESTER COUNTY, NEW YORK                                
Elmsford                                
1 Warehouse Lane   1957   6,600   100.0   72   72   0.01   10.91   10.91
2 Warehouse Lane   1957   10,900   96.3   140   118   0.03   13.34   11.24
3 Warehouse Lane   1957   77,200   100.0   301   284   0.06   3.90   3.68
4 Warehouse Lane   1957   195,500   100.0   1,962   1,881   0.39   10.04   9.62
5 Warehouse Lane   1957   75,100   97.1   910   858   0.18   12.48   11.77
6 Warehouse Lane   1982   22,100   100.0   513   511   0.10   23.21   23.12
       
 
 
 
 
 
 
Total Industrial/Warehouse Properties       387,400   99.3   3,898   3,724   0.77   10.13   9.68
       
 
 
 
 
 
 
WESTCHESTER COUNTY, NEW YORK                                

Tarrytown

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
230 White Plains Road   1984   9,300   100.0   195   195   0.04   20.97   20.97
Yonkers                                
2 Executive Plaza   1986   8,000   100.0   232   232   0.05   29.00   29.00
       
 
 
 
 
 
 
Total Retail Properties       17,300   100.0   427   427   0.09   24.68   24.68
       
 
 
 
 
 
 
WESTCHESTER COUNTY, NEW YORK                                
Elmsford                                
700 Executive Boulevard       100.0   114   114   0.02    
Yonkers                                
1 Enterprise Boulevard       100.0   136   136   0.03    
       
 
 
 
 
 
 
Total Land Leases         100.0   250   250   0.05    
       
 
 
 
 
 
 
TOTAL PROPERTIES       26,956,801   91.5   505,985   467,983   100.00   20.60   19.03
       
 
 
 
 
 
 

32


PERCENTAGE LEASED

        The following table sets forth the year-end percentages of square feet leased in the Company's stabilized operating Consolidated Properties for the last five years:

Year Ended December 31,

  Percentage of
Square Feet Leased (%) (a)

2003   91.5
2002   92.3
2001   94.6
2000   96.8
1999   96.5

(a)
Percentage of square-feet leased includes all leases in effect as of the period end date, some of which have commencement dates in the future and leases that expire at the period end date.

33


Significant Tenants

        The following table sets forth a schedule of the Company's 50 largest tenants for the Consolidated Properties as of December 31, 2003 based upon annualized base rental revenue:

 
  Number of
Properties

  Annualized
Base Rental
Revenue($)(a)

  Percentage of
Company
Annualized Base
Rental Revenue(%)

  Square
Feet
Leased

  Percentage
Total Company
Leased Sq. Ft.(%)

  Year of
Lease
Expiration

 
AT&T Wireless Services   2   9,856,447   1.9   395,955   1.5   2007 (b)
Credit Suisse First Boston   1   8,382,273   1.6   271,953   1.1   2012 (c)
Keystone Mercy Health Plan   2   7,578,725   1.5   303,149   1.2   2015  
AT&T Corporation   3   7,396,771   1.4   455,064   1.9   2009 (d)
Prentice-Hall Inc.   1   6,744,495   1.4   474,801   2.0   2014  
IBM Corporation   3   6,270,924   1.3   353,617   1.5   2007 (e)
Toys 'R' Us—NJ, Inc.   1   6,072,651   1.2   242,518   1.0   2012  
Nabisco Inc.   3   6,066,357   1.2   340,746   1.4   2006 (f)
American Institute of Certified Public Accountants   1   5,817,181   1.2   249,768   1.0   2012  
Forest Laboratories Inc.   2   5,733,035   1.2   166,405   0.7   2017 (g)
Allstate Insurance Company   9   5,490,741   1.1   238,435   1.0   2009 (h)
Waterhouse Securities, Inc.   1   5,443,760   1.1   184,222   0.8   2015  
Bankers Trust Harborside   1   4,950,000   1.0   385,000   1.6   2004  
Garban LLC   1   4,862,772   1.0   135,077   0.6   2017  
Dean Witter Trust Company   1   4,856,901   1.0   221,019   0.9   2008  
CMP Media Inc.   1   4,817,298   1.0   237,274   1.0   2014  
KPMG, LLP   3   4,714,583   0.9   181,025   0.7   2012 (i)
Winston & Strawn   1   4,513,175   0.9   108,100   0.4   2005  
National Financial Services   1   4,346,765   0.9   112,964   0.5   2012  
Morgan Stanley Dean Witter, Inc.   5   4,329,709   0.9   163,253   0.7   2010 (j)
Citigroup Global Marketing   6   4,153,737   0.8   160,929   0.7   2014 (k)
Move.Com Operations Inc.   1   4,081,431   0.8   94,917   0.4   2006  
Cendant Operations Inc.   1   3,773,775   0.8   150,951   0.6   2008  
Bank of Tokyo-Mitsubishi Ltd   1   3,378,923   0.7   137,076   0.6   2009  
URS Greiner Woodward-Clyde   1   3,252,691   0.7   120,550   0.5   2011  
Montefiore Medical Center   4   3,129,071   0.6   144,457   0.6   2019 (l)
Dow Jones & Company Inc.   2   2,970,142   0.6   98,007   0.4   2012 (m)
SSB Realty, LLC   1   2,810,985   0.6   114,519   0.5   2009  
SunAmerica Asset Management   1   2,680,409   0.5   69,621   0.3   2018  
United States Life Insurance Co.   1   2,520,000   0.5   180,000   0.7   2013  
Regus Business Centre Corp.   3   2,345,074   0.5   107,608   0.4   2011  
Computer Sciences Corporation   3   2,315,851   0.5   131,850   0.5   2006 (n)
Deloitte & Touche USA LLP   1   2,271,766   0.5   85,727   0.4   2004  
Lonza Inc.   1   2,236,200   0.4   89,448   0.4   2007  
Prudential Insurance Company   2   2,231,859   0.4   87,611   0.4   2013 (o)
Xerox Corporation   5   2,123,776   0.4   92,889   0.4   2010 (p)
Merck & Company Inc.   2   2,110,767   0.4   97,396   0.4   2006  
Barr Laboratories Inc.   1   2,030,087   0.4   89,510   0.4   2015  
Avaya Inc.   2   2,017,019   0.4   115,692   0.5   2011 (q)
GAB Robins North America Inc.   1   1,913,750   0.4   75,049   0.3   2008  
Movado Group Inc.   1   1,902,415   0.4   80,417   0.3   2013  
URS Corporation   3   1,850,434   0.4   92,518   0.4   2011 (r)
Bearingpoint Inc.   1   1,831,966   0.4   77,956   0.3   2011  
Nextel of New York Inc.   2   1,829,524   0.4   85,174   0.4   2014 (s)
Cable & Wireless Internet Services, Inc.   1   1,799,572   0.4   71,474   0.3   2010  
Chase Manhattan Mortgage Co   1   1,797,040   0.4   68,766   0.3   2006  
Mellon HR Solutions LLC   1   1,783,374   0.4   69,946   0.3   2006  
First Investors Management   1   1,730,914   0.3   75,578   0.3   2006  
MCI Worldcom Communications   1   1,660,260   0.3   55,342   0.2   2007  
Sankyo Pharma Inc.   1   1,651,136   0.2   51,598   0.1   2012  
       
 
 
 
     
Total Company       190,428,511   38.2   8,192,921   33.8      
       
 
 
 
     

See footnotes on subsequent page.

34


Significant Tenants Footnotes

(a)
Annualized base rental revenue is based on actual December 2003 billings times 12. For leases whose rent commences after January 1, 2004, annualized base rental revenue is based on the first full month's billing times 12. As annualized base rental revenue is not derived from historical GAAP results, historical results may differ from those set forth above.

(b)
12,150 square feet expire in 2004; 383,805 square feet expire in 2007.

(c)
190,000 square feet expire in 2011; 81,953 square feet expire in 2012.

(d)
63,278 square feet expire in 2004; 4,786 square feet expire in 2007; 387,000 square feet expire in 2009.

(e)
105,218 square feet expire in 2005; 248,399 square feet expire in 2007.

(f)
300,378 square feet expire in 2005; 40,368 square feet expire in 2006.

(g)
22,785 square feet expire in 2010; 143,620 square feet expire in 2017.

(h)
4,398 square feet expire in 2004; 59,329 square feet expire in 2005; 22,444 square feet expire in 2006; 70,517 square feet expire in 2007; 59,562 square feet expire in 2008; 22,185 square feet expire in 2009.

(i)
57,204 square feet expire in 2007; 46,440 square feet expire in 2009; 77,381 square feet expire in 2012.

(j)
7,500 square feet expire in 2004; 18,539 square feet expire in 2005; 104,651 square feet expire in 2008; 7,000 square feet expire in 2009; 25,563 square feet expire in 2010.

(k)
40,683 square feet expire in 2004; 9,945 square feet expire in 2005; 45,678 square feet expire in 2007; 37,789 square feet expire in 2009; 26,834 square feet expire in 2014.

(l)
5,850 square feet expire in 2004; 19,000 square feet expire in 2007; 48,542 square feet expire in 2009; 71,065 square feet expire in 2019.

(m)
5,695 square feet expire in 2004; 92,312 square feet expire in 2012.

(n)
49,000 square feet expire in 2004; 82,850 square feet expire in 2006.

(o)
75,174 square feet expire in 2012; 12,437 square feet expire in 2013.

(p)
8,475 square feet expire in 2004; 5,000 square feet expire in 2005; 79,414 square feet expire in 2010.

(q)
49,424 square feet expire in 2004; 66,268 square feet expire in 2011.

(r)
1,456 square feet expire in 2005; 20,187 square feet expire in 2008; 70,875 square feet expire in 2011.

(s)
50,174 square feet expire in 2005; 35,000 square feet expire in 2014.

35


SCHEDULE OF LEASE EXPIRATIONS

        The following table sets forth a schedule of lease expirations for the total of the Company's office, office/flex, industrial/warehouse and stand-alone retail properties, included in the Consolidated Properties, beginning January 1, 2004, assuming that none of the tenants exercise renewal options:

Year Of
Expiration

  Number Of
Leases
Expiring (a)

  Net Rentable
Area Subject
To Expiring
Leases
(Sq. Ft.)

  Percentage Of
Total Leased
Square Feet
Represented By
Expiring
Leases (%)

  Annualized
Base Rental
Revenue
Under
Expiring
Leases ($) (b)

  Average Annual
Rent Per Net
Rentable
Square Foot
Represented
By Expiring
Leases ($)

  Percentage Of
Annual Base
Rent Under
Expiring
Leases (%)

2004 (c)   377   1,803,936   7.4   34,977,869   19.39   7.0
2005   428   3,131,953   12.8   62,304,247   19.89   12.4
2006   376   2,774,391   11.4   58,021,381   20.91   11.6
2007   299   2,488,024   10.3   53,769,144   21.61   10.8
2008   328   3,001,578   12.4   56,134,258   18.70   11.3
2009   201   2,185,676   9.0   42,334,535   19.37   8.5
2010   131   1,537,648   6.3   30,675,036   19.95   6.2
2011   93   1,631,506   6.7   38,697,070   23.72   7.8
2012   71   1,643,368   6.8   37,446,396   22.79   7.5
2013   58   1,105,819   4.6   21,617,089   19.55   4.3
2014   21   746,160   3.1   14,615,181   19.59   2.9
2015 and thereafter   43   2,225,965   9.2   48,252,634   21.68   9.7
   
 
 
 
 
 
Totals/Weighted Average   2,426   24,276,024 (d) 100.0   498,844,840   20.55   100.0
   
 
 
 
 
 


 
  Square Feet
Square footage leased to commercial tenants   24,276,024
Square footage used for corporate offices, management offices, building use, retail tenants, food services, other ancillary service tenants and occupancy adjustments   394,936
Square footage unleased   2,285,841
   
Total net rentable square footage (does not include residential, land lease, retail or not-in-service properties)   26,956,801
   

36


SCHEDULE OF LEASE EXPIRATIONS: OFFICE PROPERTIES

        The following table sets forth a schedule of lease expirations for the office properties, included in the Consolidated Properties, beginning January 1, 2004, assuming that none of the tenants exercise renewal options:

Year Of
Expiration

  Number Of
Leases
Expiring (a)

  Net Rentable
Area Subject
To Expiring
Leases
(Sq. Ft.)

  Percentage Of
Total Leased
Square Feet
Represented By
Expiring
Leases (%)

  Annualized
Base Rental
Revenue Under
Expiring
Leases ($) (b)

  Average Annual
Rent Per Net
Rentable
Square Foot
Represented
By Expiring
Leases ($)

  Percentage Of
Annual Base
Rent Under
Expiring
Leases (%)

2004 (c)   320   1,408,653   7.3   30,740,856   21.82   7.0
2005   321   2,344,159   12.2   53,075,372   22.64   12.2
2006   316   2,236,798   11.6   51,110,754   22.85   11.6
2007   233   1,851,545   9.6   45,506,783   24.58   10.4
2008   258   2,217,901   11.6   48,452,703   21.85   11.1
2009   159   1,760,989   9.2   37,022,218   21.02   8.5
2010   99   1,054,924   5.5   23,725,632   22.49   5.4
2011   77   1,407,215   7.3   35,550,861   25.26   8.2
2012   52   1,431,652   7.5   34,449,358   24.06   7.9
2013   45   973,559   5.1   19,889,021   20.43   4.6
2014   19   689,160   3.6   13,749,181   19.95   3.2
2015 and thereafter   26   1,830,405   9.5   43,180,150   23.59   9.9
   
 
 
 
 
 
Totals/Weighted Average   1,925   19,206,960   100.0   436,452,889   22.72   100.0
   
 
 
 
 
 

37


SCHEDULE OF LEASE EXPIRATIONS: OFFICE/FLEX PROPERTIES

        The following table sets forth a schedule of lease expirations for the office/flex properties, included in the Consolidated Properties, beginning January 1, 2004, assuming that none of the tenants exercise renewal options:

Year Of
Expiration

  Number Of
Leases
Expiring (a)

  Net Rentable
Area Subject
To Expiring
Leases
(Sq. Ft.)

  Percentage Of
Total Leased
Square Feet
Represented By
Expiring
Leases (%)

  Annualized
Base Rental
Revenue
Under
Expiring
Leases ($) (b)

  Average Annual
Rent Per Net
Rentable
Square Foot
Represented
By Expiring
Leases ($)

  Percentage Of
Annual Base
Rent Under
Expiring
Leases (%)

2004 (c)   54   374,845   8.1   3,922,013   10.46   6.8
2005   104   765,866   16.4   9,021,093   11.78   15.5
2006   60   537,593   11.5   6,910,627   12.85   11.9
2007   62   621,179   13.3   8,053,711   12.97   13.8
2008   67   692,308   14.8   7,211,650   10.42   12.4
2009   39   384,792   8.3   4,621,677   12.01   7.9
2010   31   454,724   9.7   6,669,404   14.67   11.5
2011   16   224,291   4.8   3,146,209   14.03   5.4
2012   19   211,716   4.5   2,997,038   14.16   5.1
2013   6   77,024   1.7   1,074,845   13.95   1.9
2014   2   57,000   1.2   866,000   15.19   1.5
2015 and thereafter   13   265,278   5.7   3,644,664   13.74   6.3
   
 
 
 
 
 
Totals/Weighted Average   473   4,666,616   100.0   58,138,931   12.46   100.0
   
 
 
 
 
 

38


SCHEDULE OF LEASE EXPIRATIONS: INDUSTRIAL/WAREHOUSE PROPERTIES

        The following table sets forth a schedule of lease expirations for the industrial/warehouse properties, included in the Consolidated Properties, beginning January 1, 2004, assuming that none of the tenants exercise renewal options:

Year Of
Expiration

  Number Of
Leases
Expiring (a)

  Net Rentable
Area Subject
To Expiring
Leases
(Sq. Ft.)

  Percentage Of
Total Leased
Square Feet
Represented By
Expiring
Leases (%)

  Annualized
Base Rental
Revenue Under
Expiring
Leases ($) (b)

  Average Annual
Rent Per Net
Rentable
Square Foot
Represented
By Expiring
Leases ($)

  Percentage Of
Annual Base
Rent Under
Expiring
Leases (%)

2004   2   11,138   2.9   120,000   10.77   3.1
2005   3   21,928   5.7   207,783   9.48   5.4
2007   4   15,300   3.9   208,650   13.64   5.4
2008   3   91,369   23.7   469,904   5.14   12.2
2009   3   39,895   10.4   690,640   17.31   17.9
2010   1   28,000   7.3   280,000   10.00   7.3
2013   7   55,236   14.3   653,223   11.83   17.0
2015 & thereafter   3   122,282   31.8   1,222,820   10.00   31.7
   
 
 
 
 
 
Totals/Weighted Average   26   385,148   100.0   3,853,020   10.00   100.0
   
 
 
 
 
 

SCHEDULE OF LEASE EXPIRATIONS: STAND-ALONE RETAIL PROPERTIES

        The following table sets forth a schedule of lease expirations for the stand-alone retail properties, included in the Consolidated Properties, beginning January 1, 2004, assuming that none of the tenants exercise renewal options: 

Year Of
Expiration

  Number Of
Leases
Expiring (a)

  Net Rentable
Area Subject
To Expiring
Leases
(Sq. Ft.)

  Percentage Of
Total Leased
Square Feet
Represented By
Expiring
Leases (%)

  Annualized
Base Rental
Revenue Under
Expiring
Leases ($) (b)

  Average Annual
Rent Per Net
Rentable
Square Foot
Represented
By Expiring
Leases ($)

  Percentage Of
Annual Base
Rent Under
Expiring
Leases (%)

2004   1   9,300   53.8   195,000   20.97   48.8
2015 & thereafter   1   8,000   46.2   205,000   25.62   51.2
   
 
 
 
 
 
Totals/Weighted Average   2   17,300   100.0   400,000   23.12   100.0
   
 
 
 
 
 

39


INDUSTRY DIVERSIFICATION

        The following table lists the Company's 30 largest industry classifications based on annualized contractual base rent of the Consolidated Properties:

Industry Classification (a)

  Annualized
Base Rental
Revenue
($) (b) (c) (d)

  Percentage of
Company
Annualized Base
Rental Revenue (%)

  Square
Feet
Leased (d)

  Percentage of
Total Company
Leased
Sq. Ft. (%)

Securities, Commodity Contracts & Other Financial   74,195,913   14.8   2,706,810   11.1
Manufacturing   49,180,527   9.8   2,538,664   10.5
Insurance Carriers & Related Activities   30,801,313   6.1   1,457,767   5.9
Telecommunications   28,568,072   5.6   1,451,564   5.9
Computer System Design Svcs.   28,527,683   5.6   1,456,734   5.9
Credit Intermediation & Related Activities   24,778,965   5.0   1,275,444   5.3
Legal Services   24,725,986   5.0   931,454   3.8
Health Care & Social Assistance   21,119,425   4.2   1,060,728   4.4
Scientific Research/Development   19,799,627   4.0   979,041   4.0
Wholesale Trade   19,376,649   3.9   1,310,368   5.4
Retail Trade   16,265,491   3.3   928,488   3.8
Accounting/Tax Prep.   15,751,237   3.2   671,965   2.8
Other Professional   14,287,386   2.9   693,417   2.9
Publishing Industries   13,928,699   2.8   599,405   2.5
Information Services   11,239,268   2.3   502,686   2.1
Architectural/Engineering   9,684,890   1.9   441,169   1.8
Advertising/Related Services   9,254,969   1.9   388,884   1.6
Arts, Entertainment & Recreation   9,164,336   1.8   620,396   2.6
Other Services (except Public Administration)   9,107,624   1.8   586,746   2.4
Real Estate & Rental & Leasing   7,531,455   1.5   434,240   1.8
Transportation   6,386,004   1.3   419,171   1.7
Management of Companies & Finance   5,779,074   1.2   267,555   1.1
Data Processing Services   5,523,863   1.1   230,629   1.0
Construction   5,364,961   1.1   283,131   1.2
Utilities   5,093,182   1.0   266,526   1.1
Educational Services   4,899,823   1.0   261,740   1.1
Public Administration   4,756,755   1.0   216,895   0.9
Admin. & Support, Waste Mgt. & Remediation Svc.   3,823,770   0.8   265,549   1.1
Specialized Design Services   3,353,802   0.7   229,230   0.9
Management/Scientific   3,341,893   0.7   163,285   0.7
Other   13,232,198   2.7   636,343   2.7
   
 
 
 
Totals   498,844,840   100.0   24,276,024   100.0
   
 
 
 

40


MARKET DIVERSIFICATION

        The following table lists the Company's markets (MSAs), based on annualized contractual base rent of the Consolidated Properties:

Market(MSA)

  Annualized
Base Rental
Revenue
($) (a) (b) (c)

  Percentage Of
Company
Annualized Base
Rental Revenue (%)

  Total
Property Size
Rentable Area (b) (c)

  Percentage Of
Rentable Area (%)

New York, NY (Westchester-Rockland Counties)   89,381,047   17.8   5,044,088   18.8
Bergen-Passaic, NJ   88,887,580   17.8   4,530,091   16.8
Newark, NJ (Essex-Morris-Union Counties)   87,700,275   17.6   4,309,519   16.0
Jersey City, NJ   67,032,435   13.4   3,071,695   11.4
Philadelphia, PA-NJ   49,284,216   9.9   3,417,953   12.7
Trenton, NJ (Mercer County)   15,609,585   3.1   767,365   2.8
Middlesex-Somerset-Hunterdon, NJ   14,602,755   2.9   791,051   2.9
Denver, CO   14,487,488   2.9   1,084,945   4.0
Stamford-Norwalk, CT   13,833,396   2.8   706,510   2.6
Washington, DC-MD-VA   13,234,698   2.7   450,549   1.7
San Francisco, CA   11,859,353   2.4   450,891   1.7
Monmouth-Ocean, NJ   7,695,141   1.5   577,423   2.1
Nassau-Suffolk, NY   6,373,398   1.3   292,849   1.1
Dallas, TX   5,610,874   1.1   449,594   1.7
Bridgeport, CT   2,781,539   0.6   145,487   0.5
San Antonio, TX   2,366,314   0.5   187,312   0.7
Dutchess County, NY   2,270,327   0.5   118,727   0.4
Colorado Springs, CO   2,014,838   0.4   209,987   0.8
Boulder-Longmont, CO   1,956,980   0.4   270,421   1.0
Atlantic-Cape May, NJ   1,862,601   0.4   80,344   0.3
   
 
 
 
Totals   498,844,840   100.0   26,956,801   100.0
   
 
 
 

41



ITEM 3. LEGAL PROCEEDINGS

        On March 27, 2003, Hartz Mountain Industries, Inc. ("Hartz") filed a lawsuit in the Superior Court of New Jersey, Law Division, for Bergen County, seeking to enjoin the New Jersey Sports & Exposition Authority ("NJSEA") from entering into a contract with The Mills Corporation and the Company for the redevelopment of the Continental Airlines Arena site. The case was dismissed by the trial court but Hartz appealed. Hartz also appealed the NJSEA's final decision which denied Hartz's bid protest on October 23, 2003. Westfield America, Inc., has also protested the NJSEA decision, and has appealed the NJSEA's denial of its protest. In January 2004, Hartz and Westfield also appealed the NJSEA's approval and execution of the final Redevelopment Agreement. Four citizens, Elliot Braha, Richard DeLauro, George Perry and Carol Coronato, have also filed lawsuits challenging the NJSEA award to Mills and the Company. All of these cases are now pending unresolved in the Superior Court of New Jersey, Appellate Division. The Company believes that its proposal fully complied with applicable laws and the request for proposals, and plans to vigorously enforce its rights concerning this project. The Company does not believe that the ultimate resolution of this matter will have a material adverse effect on the Company's financial condition taken as a whole.

        On May 8, 2003, an adversary proceeding arising out of the bankruptcy of Broadband Office, Inc. ("BBO") was commenced by BBO and the Official Committee of Unsecured Creditors of BBO ("Plaintiffs") in the United States Bankruptcy Court for the District of Delaware. On August 25, 2003, the Plaintiffs filed an Amended Complaint. As amended, the Complaint names as defendants Mack-Cali Realty, L.P., the chief executive officer of the Company, and certain alleged affiliates of the Company (the "Mack-Cali Defendants"). Also named as defendants are seven other real estate investment trusts or partnerships ("REITs") that invested in BBO and the eight individuals designated by the REITs to serve on the Board of Directors of BBO. Plaintiffs assert, among other things, that the Defendants breached fiduciary duties to BBO, its minority shareholders (other than the REITs) and its creditors by approving a spin-off of BBO's assets to a newly created entity, and approving the sale of BBO's remaining assets to Yipes, Inc., both for allegedly inadequate consideration. Plaintiffs seek an unspecified amount of compensatory and punitive damages in connection with their fiduciary duty claims. In addition, Plaintiffs seek to avoid all payments and other transfers made to Defendants within one year of BBO's bankruptcy filing under various provisions of the Bankruptcy Code, and to obtain "turnover" of certain property under Section 542(b) of the Code. On July 8, 2003, the district court withdrew the reference of this proceeding to the bankruptcy court, and the action is now pending in the United States District Court for the District of Delaware. The Mack-Cali Defendants have denied the claims asserted in the Amended Complaint, and believe they have substantial defenses to the claims asserted against them. The Company does not believe that the ultimate resolution of this matter will have a material adverse effect on the Company's financial condition taken as a whole.

        There are no other material pending legal proceedings, other than ordinary routine litigation incidental to its business, to which the Company is a party or to which any of the Properties is subject.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        Not applicable.


PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        The shares of the Company's Common Stock are traded on the New York Stock Exchange ("NYSE") and the Pacific Exchange under the symbol "CLI".

42



MARKET INFORMATION

        The following table sets forth the quarterly high, low, and closing price per share of Common Stock reported on the NYSE for the years ended December 31, 2003 and 2002, respectively:

        For the Year Ended December 31, 2003:

 
  High
  Low
  Close
First Quarter   $ 31.38   $ 27.35   $ 30.97
Second Quarter   $ 36.50   $ 30.41   $ 36.38
Third Quarter   $ 39.21   $ 35.35   $ 39.20
Fourth Quarter   $ 41.96   $ 36.86   $ 41.62

        For the Year Ended December 31, 2002:

 
  High
  Low
  Close
First Quarter   $ 34.95   $ 29.90   $ 34.68
Second Quarter   $ 35.73   $ 32.45   $ 35.15
Third Quarter   $ 34.96   $ 26.65   $ 32.13
Fourth Quarter   $ 31.70   $ 27.03   $ 30.30

        On February 20, 2004, the closing Common Stock price reported on the NYSE was $41.96 per share.

HOLDERS

        On February 20, 2004, the Company had 657 common shareholders of record.

RECENT SALES OF UNREGISTERED SECURITIES

        The Company did not issue any unregistered securities in the years ended December 31, 2003, 2002 or 2001.

DIVIDENDS AND DISTRIBUTIONS

        During the year ended December 31, 2003, the Company declared four quarterly common stock dividends and common unit distributions of $0.63 per share and per unit from the first to the fourth quarter. Additionally, in 2003, the Company declared quarterly preferred stock dividends of $67.22, $50.00 and $50.00 per preferred share from the second to the fourth quarter, respectively. The Company also declared four quarterly preferred unit distributions of $18.1818 per preferred unit from the first to the fourth quarter.

        During the year ended December 31, 2002, the Company declared four quarterly common stock dividends and common unit distributions in the amounts of $0.62, $0.62, $0.63 and $0.63 per share and per unit from the first to the fourth quarter, respectively.

        The declaration and payment of dividends and distributions will continue to be determined by the Board of Directors in light of conditions then existing, including the Company's earnings, financial condition, capital requirements, applicable REIT and legal restrictions and other factors.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

        Information regarding securities authorized for issuance under our equity compensation plans is disclosed in Item 12 "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters."

43




ITEM 6. SELECTED FINANCIAL DATA

        The following table sets forth selected financial data on a consolidated basis for the Company. The consolidated selected operating, balance sheet and other data of the Company as of December 31, 2003, 2002, 2001, 2000 and 1999, and for the years then ended have been derived from the Company's financial statements for the respective periods.

 
  Year Ended December 31,
Operating Data (a)
In thousands, except per share data

  2003
  2002
  2001
  2000
  1999
Total revenues   $ 586,246   $ 563,612   $ 569,020   $ 559,980   $ 543,528
Property expenses(b)   $ 181,462   $ 165,732   $ 172,123   $ 169,309   $ 166,092
General and administrative   $ 31,461   $ 26,977   $ 28,431   $ 23,227   $ 25,443
Interest expense   $ 116,311   $ 107,823   $ 112,003   $ 105,394   $ 102,960
Income from continuing operations before minority interest and equity in earnings of unconsolidated joint ventures   $ 136,583   $ 157,432   $ 167,236   $ 136,278   $ 146,680
Income from continuing operations   $ 139,694   $ 137,604   $ 140,782   $ 108,767   $ 116,756
Net income available to common shareholders   $ 141,381   $ 139,722   $ 131,659   $ 185,338   $ 119,739
Income from continuing operations per share — basic   $ 2.39   $ 2.45   $ 2.31   $ 3.15   $ 2.03
Income from continuing operations per share — diluted   $ 2.37   $ 2.44   $ 2.30   $ 3.08   $ 2.02
Net income per share — basic   $ 2.45   $ 2.44   $ 2.33   $ 3.18   $ 2.05
Net income per share — diluted   $ 2.43   $ 2.43   $ 2.32   $ 3.10   $ 2.04
Dividends declared per common share   $ 2.52   $ 2.50   $ 2.46   $ 2.38   $ 2.26
Basic weighted average shares outstanding     57,724     57,227     56,538     58,338     58,385
Diluted weighted average shares outstanding     65,990     65,427     64,775     73,070     67,133
 
  December 31,
Balance Sheet Data (a)
In thousands

  2003
  2002
  2001
  2000
  1999
Rental property, before accumulated depreciation and amortization   $ 3,954,632   $ 3,857,657   $ 3,378,071   $ 3,589,877   $ 3,654,845
Rental property held for sale, net   $   $   $ 384,626   $ 107,458   $
Total assets   $ 3,749,570   $ 3,796,429   $ 3,746,770   $ 3,676,977   $ 3,629,601
Total debt(c)   $ 1,628,584   $ 1,752,372   $ 1,700,150   $ 1,628,512   $ 1,490,175
Total liabilities   $ 1,779,983   $ 1,912,199   $ 1,867,938   $ 1,774,239   $ 1,648,844
Minority interests   $ 428,099   $ 430,036   $ 446,244   $ 449,448   $ 538,875
Stockholders' equity   $ 1,541,488   $ 1,454,194   $ 1,432,588   $ 1,453,290   $ 1,441,882

44



ITEM 7. 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 Mack-Cali Realty Corporation and the notes thereto (collectively, the "Financial Statements"). Certain defined terms used herein have the meaning ascribed to them in the Financial Statements.

Critical Accounting Policies

        The Financial Statements have been prepared in conformity with generally accepted accounting principles. The preparation of the Financial Statements require 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 reported period. These estimates and assumptions are based on management's historical experience that are believed to be reasonable at the time. However, because future events and their effects cannot be determined with certainty, the determination of estimates requires the exercise of judgment. The Company's critical accounting policies are those which require assumptions to be made about matters that are highly uncertain. Different estimates could have a material effect on the Company's financial results. Judgments and uncertainties affecting the application of these policies and estimates may result in materially different amounts being reported under different conditions and circumstances.

Rental Property

        Rental properties are stated at cost less accumulated depreciation and amortization. Costs directly related to the acquisition, development and construction of rental properties are capitalized. Capitalized development and construction costs include pre-construction costs essential to the development of the property, development and construction costs, interest, property taxes, insurance, salaries and other project costs incurred during the period of development. Interest capitalized by the Company for the years ended December 31, 2003, 2002 and 2001 was $7.3 million, $19.7 million and $16.7 million, respectively. Ordinary repairs and maintenance are expensed as incurred; major replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives. Fully-depreciated assets are removed from the accounts.

        The Company considers a construction project as substantially completed and held available for occupancy upon the completion of tenant improvements, but no later than one year from cessation of major construction activity (as distinguished from activities such as routine maintenance and cleanup). If portions of a rental project are substantially completed and occupied by tenants, or held available for occupancy, and other portions have not yet reached that stage, the substantially completed portions are accounted for as a separate project. The Company allocates costs incurred between the portions under construction and the portions substantially completed and held available for occupancy and capitalizes only those costs associated with the portion under construction.

        Properties are depreciated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives are as follows:

Leasehold interests   Remaining lease term
Buildings and improvements   5 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

        Upon acquisition of rental property, the Company estimates the fair value of acquired tangible assets, consisting of land, building and improvements, and identified intangible assets and liabilities

45



generally consisting of the fair value of (i) above and below market leases, (ii) in-place leases and (iii) tenant relationships. The Company allocates the purchase price to the assets acquired and liabilities assumed based on their relative fair values. In estimating the fair value of the tangible and intangible assets acquired, the Company considers information obtained about each property as a result of its due diligence and marketing and leasing activities, and utilizes various valuation methods, such as estimated cash flow projections utilizing appropriate discount and capitalization rates, estimates of replacement costs net of depreciation, and available market information. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant.

        Above-market and below-market lease values for acquired properties are recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management's estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases. The capitalized above-market lease values are amortized as a reduction of base rental revenue over the remaining term of the respective leases, and the capitalized below-market lease values are amortized as an increase to base rental revenue over the remaining initial terms plus the terms of any below-market fixed rate renewal options of the respective leases.

        Other intangible assets acquired include amounts for in-place lease values and tenant relationship values which are based on management's evaluation of the specific characteristics of each tenant's lease and the Company's overall relationship with the respective tenant. Factors to be considered by management in its analysis of in-place lease values include an estimate of carrying costs during hypothetical expected lease-up periods considering current market conditions, and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, management considers leasing commissions, legal and other related expenses. Characteristics considered by management in valuing tenant relationships include the nature and extent of the Company's existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant's credit quality and expectations of lease renewals. The value of in-place leases are amortized to expense over the remaining initial terms of the respective leases. The value of tenant relationship intangibles will be amortized to expense over the anticipated life of the relationships.

        On a periodic basis, management assesses whether there are any indicators that the value of the Company's rental 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 is less than the carrying value of the property. To the extent impairment has occurred, the loss shall be measured as the excess of the carrying amount of the property over the fair value of the property. The Company's estimates of aggregate future cash flows expected to be generated by each property are based on a number of assumptions that are subject to economic and market uncertainties including, among others, demand for space, competition for tenants, changes in market rental rates, and costs to operate each property. As these factors are difficult to predict and are subject to future events that may alter management's assumptions, the future cash flows estimated by management in its impairment analyses may not be achieved. Management does not believe that the value of any of the Company's rental properties is impaired.

Rental Property Held for Sale and Discontinued Operations

        When assets are identified by management as held for sale, the Company discontinues depreciating the assets and estimates the sales price, net of selling costs, of such assets. If, in management's opinion,

46



the net sales price of the assets which have been identified as held for sale is less than the net book value of the assets, a valuation allowance is established.

        If circumstances arise that previously were considered unlikely and, as a result, the Company decides not to sell a property previously classified as held for sale, the property is reclassified as held and used. A property that is reclassified is measured and recorded individually at the lower of (a) its carrying amount before the property was classified as held for sale, adjusted for any depreciation (amortization) expense that would have been recognized had the property been continuously classified as held and used, or (b) the fair value at the date of the subsequent decision not to sell.

        Effective January 1, 2002, the Company adopted the provisions of FASB No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which supercedes FASB No. 121. FASB No. 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less cost to sell. FASB No. 144 retains the requirements of FASB No. 121 regarding impairment loss recognition and measurement. In addition, it requires that one accounting model be used for long-lived assets to be disposed of by sale and broadens the presentation of discontinued operations to include more disposal transactions. As the statement requires implementation on a prospective basis, properties which were identified as held for sale by the Company as of December 31, 2002 are presented in the accompanying financial statements in a manner consistent with the presentation prior to January 1, 2002. Properties identified as held for sale and/or sold from January 1, 2002 forward are presented in discontinued operations for all periods presented. See Note 7 to the Financial Statements.

Investments in Unconsolidated Joint Ventures, Net

        The Company accounts for its investments in unconsolidated joint ventures under the equity method of accounting as the Company exercises significant influence, but does not control these entities. These investments are recorded initially at cost, as Investments in Unconsolidated Joint Ventures, and subsequently adjusted for equity in earnings and cash contributions and distributions.

        On a periodic basis, management assesses whether there are any indicators that the value of the Company's investments in unconsolidated joint ventures may be impaired. An investment is impaired only if management's estimate of the value of the investment is less than the carrying value of the investment. To the extent impairment has occurred, the loss shall be measured as the excess of the carrying amount of the investment over the value of the investment. See Note 4 to the Financial Statements.

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 and included in depreciation and amortization. Unamortized deferred leasing costs are charged to amortization expense upon early termination of the lease. Certain employees of the Company provide leasing services to the Properties and receive compensation based on space leased. The portion of such compensation, which is capitalized and amortized, approximated $3.8 million, $4.1 million, and $4.0 million for the years ended December 31, 2003, 2002 and 2001, respectively.

Derivative Instruments

        The Company measures derivative instruments, including certain derivative instruments embedded in other contracts, at fair value and records them as an asset or liability, depending on the Company's rights or obligations under the applicable derivative contract. For derivatives designated as fair value hedges, the changes in the fair value of both the derivative instrument and the hedged item are recorded in earnings. For derivatives designated as cash flow hedges, the effective portions of the

47



derivative are reported in other comprehensive income ("OCI") and are subsequently reclassified into earnings when the hedged item affects earnings. Changes in fair value of derivative instruments not designated as hedging and ineffective portions of hedges are recognized in earnings in the affected period. See Note 11 to the Financial Statements—Interest Rate Contract.

Revenue Recognition

        Base rental revenue is recognized 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. Above-market and below-market lease values for acquired properties are recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management's estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases. The capitalized above-market lease values are amortized as a reduction of base rental revenue over the remaining term of the respective leases, and the capitalized below-market lease values are amortized as an increase to base rental revenue over the remaining initial terms plus the terms of any below-market fixed rate renewal options of the respective leases. Parking and other revenue includes income from parking spaces leased to tenants, income from tenants for additional services provided by the Company, income from tenants for early lease terminations and income from managing and/or leasing properties for third parties. Escalations and recoveries are received from tenants for certain costs as provided in the lease agreements. These costs generally include real estate taxes, utilities, insurance, common area maintenance and other recoverable costs. See Note 16 to the Financial Statements.

Allowance for Doubtful Accounts

        Management periodically performs a detailed review of amounts due from tenants to determine if accounts receivable balances are impaired based on factors affecting the collectibility of those balances. Management's estimate of the allowance for doubtful accounts requires management to exercise significant judgment about the timing, frequency and severity of collection losses, which affects the allowance and net income.

Results from Operations

        As a result of the economic climate since 2001, substantially all of the real estate markets the Company operates in materially softened. Demand for office space declined significantly and vacancy rates increased in each of the Company's core markets over the period. Through February 20, 2004, the Company's core markets continued to be weak. The percentage leased in the Company's consolidated portfolio of stabilized operating properties decreased to 91.5 percent at December 31, 2003, as compared to 92.3 percent at December 31, 2002 and 94.6 percent at December 31, 2001. Percentage leased includes all leases in effect as of the period end date, some of which have commencement dates in the future and leases that expire at the period end date. Market rental rates have declined in most markets from peak levels in late 2000 and early 2001. Rental rates on the Company's space that was re-leased (based on first rents payable) during the year ended December 31, 2003 decreased an average of 7.8 percent compared to rates that were in effect under expiring leases, as compared to a 3.0 percent increase in 2002 and a 9.5 percent increase in 2001. The Company believes that vacancy rates may continue to increase in most of its markets in 2004. As a result, the Company's future earnings may be negatively impacted.

        The Company has a focused strategy geared to attractive opportunities in high-barrier-to-entry markets, primarily predicated on the Company's strong presence in the Northeast region.

48



        Consistent with its strategy, in the fourth quarter 2000, the Company started construction of a 977,225 square-foot office property, known as Plaza 5, at its Harborside Financial Center office complex in Jersey City, Hudson County, New Jersey. The project, which commenced initial operations in September 2002, is currently projected to cost approximately $260 million, of which $231.9 million has been incurred by the Company through December 31, 2003. Plaza 5 was approximately 60.1 percent leased as of December 31, 2003. The Company anticipates expending an additional approximately $28.1 million for tenant installation costs as the vacant space of Plaza 5 is leased, which it expects to fund primarily through drawing on its revolving credit facility.

        Additionally, in the fourth quarter 2000, the Company, through its joint venture with Columbia Development Company, L.L.C. ("Columbia"), known as American Financial Exchange ("AFE"), started construction of a 577,575 square-foot office property, known as Plaza 10, which was 100 percent pre-leased to Charles Schwab & Co. Inc. ("Schwab") for a 15-year term, on land owned by the joint venture located adjacent to the Company's Harborside complex. Among other things, the joint venture agreement provided for a preferred return on the Company's invested capital in the venture in addition to the Company's proportionate share of the venture's profit, as defined in the agreement. The project commenced initial operations in September 2002.

        On September 29, 2003, the Company sold its interest in AFE, in which the Company held a 50 percent interest, and received approximately $162.1 million in net sales proceeds from the transaction, which the Company used primarily to repay outstanding borrowings under its revolving credit facility. The Company recognized a gain on the sale of approximately $24.0 million, which is recorded in gain on sale of investment in unconsolidated joint venture for the year ended December 31, 2003. Following completion of the sale of its interest, the Company no longer has any remaining obligations to Schwab.

        In advance of the transaction, AFE distributed its interests in Plaza VIII and IX Associates, L.L.C., which owned the undeveloped land currently used as a parking facility, to its then partners, the Company and Columbia. The Company and Columbia subsequently entered into a new joint venture agreement to own and manage the undeveloped land and related parking operations through Plaza VIII and IX Associates, L.L.C. The Company and Columbia each hold a 50 percent interest in the new venture.

        On June 6, 2002, the Company determined that 20 of its office properties and a land parcel, which are located in Colorado, aggregating 1.6 million square feet, were no longer being held for sale. The Company decided that it would continue to own and operate these properties until market conditions in Colorado improve. The reclassified properties carried an aggregate book value of $175.6 million, net of accumulated depreciation of $15.8 million and a valuation allowance of $27.0 million at the date of the subsequent decision not to sell (including an unrealized loss of $3.0 million and catch-up depreciation and amortization expense of $3.9 million for certain properties reflecting expense for the period from the date the properties were originally held for sale through the date they were no longer held for sale, which was recorded at that date).

        On September 30, 2002, the Company determined that its five remaining properties located in Texas were no longer being held for sale. The Company decided that it would continue to own and operate these properties until market conditions in Texas improve and certain leasing uncertainties at the properties are resolved. The reclassified properties had an aggregate book value of $56.3 million, net of accumulated depreciation of $7.1 million and a valuation allowance of $2.0 million, at the date of the subsequent decision not to sell (including catch-up depreciation and amortization expense of $3.4 million for certain properties reflecting expense for the period from the date the properties were originally held for sale through the date they were no longer held for sale, which was recorded at that date).

49



        The following comparisons for the year ended December 31, 2003 ("2003"), as compared to the year ended December 31, 2002 ("2002"), and for 2002, as compared to the year ended December 31, 2001 ("2001"), make reference to the following: (i) the effect of the "Same-Store Properties," which represents all in-service properties owned by the Company at December 31, 2001, excluding Dispositions as defined below (for the 2003 versus 2002 comparison) and which represents all in-service properties owned by the Company at December 31, 2000, excluding Dispositions as defined below (for the 2002 versus 2001 comparison); (ii) the effect of the "Acquired Properties," which represents all properties acquired by the Company or commencing initial operations from January 1, 2002 through December 31, 2003 (for the 2003 versus 2002 comparison) and which represents all properties acquired by the Company or commencing initial operations from January 1, 2001 through December 31, 2002 (for the 2002 versus 2001 comparison) and; (iii) the effect of the "Dispositions", which represents results for each period for those rental properties sold by the Company during the respective periods.

50



Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

 
  Year Ended
December 31,

   
   
 
 
  Dollar
Change

  Percent
Change

 
 
  2003
  2002
 
 
  (dollars in thousands)

 
Revenue from rental operations:                        
Base rents   $ 505,985   $ 489,149   $ 16,836   3.4 %
Escalations and recoveries from tenants     61,418     56,746     4,672   8.2  
Parking and other     18,843     17,717     1,126   6.4  
   
 
 
 
 
  Total revenues     586,246     563,612     22,634   4.0  
   
 
 
 
 

Property expenses:

 

 

 

 

 

 

 

 

 

 

 

 
Real estate taxes     64,718     60,417     4,301   7.1  
Utilities     41,788     38,282     3,506   9.2  
Operating services     74,956     67,033     7,923   11.8  
   
 
 
 
 
  Sub-total     181,462     165,732     15,730   9.5  

General and administrative

 

 

31,461

 

 

26,977

 

 

4,484

 

16.6

 
Depreciation and amortization     119,157     107,949     11,208   10.4  
Interest expense     116,311     107,823     8,488   7.9  
Interest income     (1,100 )   (2,301 )   1,201   52.2  
Loss on early retirement of debt, net     2,372         2,372   100.0  
   
 
 
 
 
  Total expenses     449,663     406,180     43,483   10.7  
   
 
 
 
 
Income from continuing operations before minority interest and equity in earnings of unconsolidated joint ventures     136,583     157,432     (20,849 ) (13.2 )
Minority interest in Operating Partnership     (29,870 )   (32,835 )   2,965   9.0  
Equity in earnings of unconsolidated joint ventures (net of minority interest), net     11,873     13,007     (1,134 ) (8.7 )
Gain on sale of investment in unconsolidated joint ventures (net of minority interest)     21,108         21,108   100.0  
   
 
 
 
 
Income from continuing operations     139,694     137,604     2,090   1.5  
Discontinued operations (net of minority interest):                        
  Income (loss) from discontinued operations     239     (298 )   537   180.2  
  Realized gain on disposition of rental property     3,120         3,120   100.0  
   
 
 
 
 
Total discontinued operations, net     3,359     (298 )   3,657   1,227.2  
Realized gains (losses) and unrealized losses on disposition of rental property, (net of minority interest), net         2,416     (2,416 ) (100.0 )
   
 
 
 
 
Net income     143,053     139,722     3,331   2.4  
Preferred stock dividends     (1,672 )       (1,672 ) (100.0 )
   
 
 
 
 
Net income available to common shareholders   $ 141,381   $ 139,722   $ 1,659   1.2 %
   
 
 
 
 

51


        The following is a summary of the changes in revenue from rental operations and property expenses divided into Same-Store Properties, Acquired Properties and Dispositions (dollars in thousands):

 
  Total
Company

  Same-Store Properties
  Acquired Properties
  Dispositions
 
 
  Dollar
Change

  Percent
Change

  Dollar
Change

  Percent
Change

  Dollar
Change

  Percent
Change

  Dollar
Change

  Percent
Change

 
Revenue from rental operations:                                          
Base rents   $ 16,836   3.4 % $ (3,461 ) (0.7 )% $ 33,350   6.8 % $ (13,053 ) (2.7 )%
Escalations and recoveries from tenants     4,672   8.2     2,189   3.9     3,820   6.7     (1,337 ) (2.4 )
Parking and other     1,126   6.4     (212 ) (1.2 )   1,842   10.4     (504 ) (2.8 )
   
 
 
 
 
 
 
 
 
Total   $ 22,634   4.0 % $ (1,484 ) (0.3 )% $ 39,012   6.9 % $ (14,894 ) (2.6 )%
   
 
 
 
 
 
 
 
 

Property expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Real estate taxes   $ 4,301   7.1 % $ 1,622   2.7 % $ 3,824   6.3 % $ (1,145 ) (1.9 )%
Utilities     3,506   9.2     1,580   4.1     3,237   8.5     (1,311 ) (3.4 )
Operating services     7,923   11.8     4,926   7.3     5,621   8.4     (2,624 ) (3.9 )
   
 
 
 
 
 
 
 
 
Total   $ 15,730   9.5 % $ 8,128   4.9 % $ 12,682   7.7 % $ (5,080 ) (3.1 )%
   
 
 
 
 
 
 
 
 

OTHER DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Number of Consolidated Properties     256         243         13         31      
Square feet (in thousands)     26,957         24,907         2,050         5,047      

        Base rents for the Same-Store Properties decreased $3.5 million, or 0.7 percent, for 2003 as compared to 2002, due primarily to decreases in space leased and rental rates at the properties in 2003. Escalations and recoveries from tenants for the Same-Store Properties increased $2.2 million, or 3.9 percent, for 2003 over 2002, due primarily to an increased amount of total property expenses in 2003. Parking and other income for the Same-Store Properties decreased $0.2 million, or 1.2 percent, due primarily to a decrease in lease termination fees in 2003.

        Real estate taxes on the Same-Store Properties increased $1.6 million, or 2.7 percent, for 2003 as compared to 2002, due primarily to property tax rate increases in certain municipalities in 2003, partially offset by lower assessments on certain properties in 2003. Utilities for the Same-Store Properties increased $1.6 million, or 4.1 percent, for 2003 as compared to 2002, due primarily to increased electric rates in 2003 and increased utility usage on account of the harsh 2003 winter. Operating services for the Same-Store Properties increased $4.9 million, or 7.3 percent, due primarily to increased snow removal costs from the harsh winter in 2003.

        General and administrative increased by $4.5 million, or 16.6 percent, for 2003 as compared to 2002. This increase was due primarily to an increase in 2003 in costs for transactions not consummated of $2.0 million, salaries and related expenses of $1.8 million, and professional fees of $1.1 million, as compared to 2002.

        Depreciation and amortization increased by $11.2 million, or 10.4 percent, for 2003 over 2002. Of this increase, $4.6 million, or 4.3 percent, is attributable to the Same-Store Properties, primarily on account of properties previously held for sale in 2002 not being depreciated during the period held for sale, which were no longer held for sale in 2003, and $6.6 million, or 6.1 percent, is due to the Acquired Properties.

52



        Interest expense increased $8.5 million, or 7.9 percent, for 2003 as compared to 2002. This increase was due primarily to lower capitalized interest in 2003 on account of less development projects.

        Interest income decreased $1.2 million, or 52.2 percent, for 2003 as compared to 2002. This decrease was due primarily to lower notes receivable balances and lower interest rates in 2003.

        Loss on early retirement of debt, net, amounted to $2.4 million in 2003, which consisted primarily of: (a) $1.4 million in costs in connection with the exchange and repurchase of $50.0 million in 7.18 percent senior unsecured notes due December 31, 2003; (b) a write-off of the unamortized balance of $1.5 million of an interest rate contract in conjunction with the repayment of mortgage debt; and (c) $1.4 million of costs incurred in connection with the repurchase of $45.3 million of 7.18 percent senior unsecured notes due December 31, 2003, partially offset by a discount of $1.7 million taken in conjunction with the early retirement of the same mortgage debt referred to in (b) above.

        Equity in earnings of unconsolidated joint ventures (net of minority interest) decreased $1.1 million, or 8.7 percent, for 2003 as compared to 2002. The decrease was due primarily to the sale of the ARCap joint venture investment in late 2002 resulting in a reduction of $4.4 million in 2003 and the sale of properties owned by the HPMC joint ventures in late 2002 and 2003 resulting in a reduction of $3.5 million in 2003, partially offset by the initial operations of a 577,575 square foot office property owned by the American Financial Exchange joint venture (in which the Company subsequently sold its interest) resulting in an increase in 2003 of $6.3 million.

        Gain on sale of investment in unconsolidated joint venture (net of minority interest) amounted to $21.1 million in 2003. This was due to the sale of the Company's investment in the American Financial Exchange joint venture.

        Income from continuing operations before minority interest and equity in earnings of unconsolidated joint ventures decreased to $136.6 million in 2003 from $157.4 million in 2002. The decrease of approximately $20.8 million is due to the factors discussed above.

        Net income available to common shareholders increased by $1.7 million, from $139.7 million in 2002 to $141.4 million in 2003. This increase was a result of a gain on sale of investment in American Financial Exchange (net of minority interest) of $21.1 million in 2003, realized gain on disposition of rental property of $3.1 million in 2003, an increase in income from discontinued operations of $0.5 million and a decrease in minority interest in Operating Partnership of $3.0 million from 2002 to 2003. This was partially offset by a decrease in 2003 in income from continuing operations before minority interest and equity in earnings of unconsolidated joint ventures of $20.8 million, realized gain on disposition of rental property (net of minority interest) of $2.4 million in 2002, preferred stock dividends of $1.7 million in 2003, and a decrease in equity in earnings of unconsolidated joint ventures of $1.1 million.

53




Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

 
  Year Ended
December 31,

   
   
 
(dollars in thousands)

  Dollar
Change

  Percent
Change

 
  2002
  2001
 
Revenue from rental operations:                        
Base rents   $ 489,149   $ 503,076   $ (13,927 ) (2.8 )%
Escalations and recoveries from tenants     56,746     55,609     1,137   2.0  
Parking and other     17,717     10,335     7,382   71.4  
   
 
 
 
 
  Total revenues     563,612     569,020     (5,408 ) (1.0 )
   
 
 
 
 
Property expenses:                        
Real estate taxes     60,417     61,552     (1,135 ) (1.8 )
Utilities     38,282     43,250     (4,968 ) (11.5 )
Operating services     67,033     67,321     (288 ) (0.4 )
   
 
 
 
 
  Sub-total     165,732     172,123     (6,391 ) (3.7 )

General and administrative

 

 

26,977

 

 

28,431

 

 

(1,454

)

(5.1

)
Depreciation and amortization     107,949     91,413     16,536   18.1  
Interest expense     107,823     112,003     (4,180 ) (3.7 )
Interest income     (2,301 )   (2,186 )   (115 ) (5.3 )
   
 
 
 
 
  Total expenses     406,180     401,784     4,396   1.1  
   
 
 
 
 
Income from continuing operations before minority interest and equity in earnings of unconsolidated joint ventures     157,432     167,236     (9,804 ) (5.9 )
Minority interest in Operating Partnership     (32,835 )   (34,347 )   1,512   4.4  
Equity in earnings of unconsolidated joint ventures (net of minority interest), net     13,007     7,893     5,114   64.8  
   
 
 
 
 
Income from continuing operations     137,604     140,782     (3,178 ) (2.3 )
(Loss) income from discontinued operations     (298 )   1,279     (1,577 ) (123.3 )
Realized gains (losses) and unrealized losses on disposition of rental property (net of minority interest), net     2,416     (10,402 )   12,818   123.2  
   
 
 
 
 
Net income   $ 139,722   $ 131,659   $ 8,063   6.1 %
   
 
 
 
 

54


        The following is a summary of the changes in revenue from rental operations and property expenses divided into Same-Store Properties, Acquired Properties and Dispositions (dollars in thousands):

 
  Total Company
  Same-Store Properties
  Acquired Properties
  Dispositions
 
 
  Dollar
Change

  Percent
Change

  Dollar
Change

  Percent
Change

  Dollar
Change

  Percent
Change

  Dollar
Change

  Percent
Change

 
Revenue from rental operations:                                          
Base rents   $ (13,927 ) (2.8 )% $ 3,679   0.7 % $ 12,787   2.5 % $ (30,393 ) (6.0 )%
Escalations and recoveries from tenants     1,137   2.0     2,201   3.9     1,119   2.0     (2,183 ) (3.9 )
Parking and other     7,382   71.4     4,294   41.6     3,373   32.6     (285 ) (2.8 )
   
 
 
 
 
 
 
 
 
Total   $ (5,408 ) (1.0 )% $ 10,174   1.8 % $ 17,279   3.0 % $ (32,861 ) (5.8 )%
   
 
 
 
 
 
 
 
 
Property expenses:                                          
Real estate taxes   $ (1,135 ) (1.8 )% $ 1,949   3.2 % $ 1,625   2.6 % $ (4,709 ) (7.6 )%
Utilities     (4,968 ) (11.5 )   (2,147 ) (5.1 )   813   1.9     (3,634 ) (8.3 )
Operating services     (288 ) (0.4 )   3,771   5.5     2,582   3.8     (6,641 ) (9.7 )
   
 
 
 
 
 
 
 
 
Total   $ (6,391 ) (3.7 )% $ 3,573   2.1 % $ 5,020   2.9 % $ (14,984 ) (8.7 )%
   
 
 
 
 
 
 
 
 
OTHER DATA:                                          
Number of Consolidated Properties     256         234         22         28      
Square feet (in thousands)     27,109         23,920         3,189         4,695      

        Base rents for the Same-Store Properties increased $3.7 million, or 0.7 percent, for 2002 as compared to 2001, due primarily to rental rate increases in 2002, partially offset by decreases in space leased at the properties in 2002. Escalations and recoveries from tenants for the Same-Store Properties increased $2.2 million, or 3.9 percent, for 2002 over 2001, due primarily to the recovery of an increased amount of total property expenses in 2002. Parking and other income for the Same-Store Properties increased $4.3 million, or 41.6 percent, due primarily to increased lease termination fees in 2002, primarily as a result of the Company receiving $2.9 million in August 2002 from a lease termination agreement with Arthur Andersen, LLP.

        Real estate taxes on the Same-Store Properties increased $1.9 million, or 3.2 percent, for 2002 as compared to 2001, due primarily to property tax rate increases in certain municipalities in 2002, partially offset by lower assessments on certain properties in 2002. Utilities for the Same-Store Properties decreased $2.1 million, or 5.0 percent, for 2002 as compared to 2001, due primarily to decreased rates in 2002. Operating services for the Same-Store Properties increased $3.8 million, or 5.6 percent, due primarily to increased insurance costs in 2002.

        General and administrative decreased by $1.5 million, or 5.1 percent, for 2002 as compared to 2001. This decrease was due primarily to a decrease in bad debt expense of approximately $2.9 million from 2001 to 2002, partially offset by an increase in state tax expense of $1.6 million in 2002.

        Depreciation and amortization increased by $16.5 million, or 18.1 percent, for 2002 over 2001. Of this increase, $11.4 million, or 12.5 percent, was attributable to the Same-Store Properties (including catch-up depreciation and amortization of $7.3 million in connection with the Company's change of plan to sell 20 of its office properties and a land parcel located in Colorado and its 5 remaining properties located in Texas), and $7.2 million, or 7.9 percent, is due to the Acquired Properties, partially offset by a decrease of $2.1 million, or 2.3 percent, due to the Dispositions.

        Interest expense decreased $4.2 million, or 3.7 percent, for 2002 as compared to 2001. This decrease was due primarily to lower interest rates on variable rate borrowings.

55



        Interest income increased $0.1 million, or 5.3 percent, for 2002 as compared to 2001. This increase was due primarily to the effect of net proceeds from property sales being invested in cash and cash equivalents for the period of time prior to which such proceeds were reinvested, partially offset by lower interest rates in 2002.

        Income from continuing operations before minority interest and equity in earnings of unconsolidated joint ventures (net of minority interest) decreased to $157.4 million in 2002 from $167.2 million in 2001. The decrease of approximately $9.8 million was due to the factors discussed above.

        Equity in earnings of unconsolidated joint ventures increased $5.1 million, or 64.8 percent, for 2002 as compared to 2001. This increase was due primarily to properties developed by joint ventures commencing initial operations in 2001 and 2002, higher occupancies at certain properties and net gain on sales of certain joint venture office properties, partially offset by a net loss of $1.8 million from the initial operations of the Harborside South Pier hotel venture in 2002. See Note 4 to the Financial Statements.

        Net income increased by $8.0 million, from $131.7 million in 2001 to $139.7 million in 2002. This increase was a result of realized gains (losses) and unrealized losses on disposition of rental property, net, of $10.4 million in 2001, an increase in equity in earnings of unconsolidated joint ventures (net of minority interest) of $5.1 million, realized gains (losses) and unrealized losses and disposition of rental property of $2.4 million in 2002, and a decrease in minority interest in Operating Partnership of $1.5 million. This was partially offset by a decrease in 2002 in income from continuing operations before minority interest and equity in earnings of unconsolidated joint ventures of $9.8 million and a decrease in income from discontinued operations of $1.6 million.


Liquidity and Capital Resources

        Historically, rental revenue has been the principal source of funds to pay operating expenses, debt service, capital expenditures and dividends, excluding non-recurring capital expenditures. To the extent that the Company's cash flow from operating activities is insufficient to finance its non-recurring capital expenditures such as property acquisitions, development and construction costs and other capital expenditures, the Company has and expects to continue to finance such activities through borrowings under its revolving credit facility and other debt and equity financings.

        The Company believes that with the general downturn in the economy in recent years, and the softening of the Company's markets specifically, it is reasonably likely that vacancy rates may continue to increase, effective rental rates on new and renewed leases may continue to decrease and tenant installation costs, including concessions, may continue to increase in most or all of its markets in 2004. As a result of the potential negative effects on the Company's revenue from the overall reduced demand for office space, the Company's cash flow could be insufficient to cover increased tenant installation costs over the short-term. If this situation were to occur, the Company expects that it would finance any shortfalls through borrowings under its revolving credit facility and other debt and equity financings.

        The Company expects to meet its short-term liquidity requirements generally through its working capital, net cash provided by operating activities and from its revolving credit facility. The Company frequently examines potential property acquisitions and development projects and, at any given time, one or more of such acquisitions or development projects may be under consideration. Accordingly, the ability to fund property acquisitions and development projects is a major part of the Company's financing requirements. The Company expects to meet its financing requirements through funds generated from operating activities, proceeds from property sales, long-term and short-term borrowings (including draws on the Company's revolving credit facility) and the issuance of additional debt and/or equity securities.

56



        On November 25, 2003, the Company and affiliates of The Mills Corporation ("Mills") entered into a joint venture agreement to form Meadowlands Mills/Mack-Cali Limited Partnership ("Meadowlands Venture") for the purpose of developing a $1.3 billion family entertainment and recreation complex with an office and hotel component to be built at the Meadowlands sports complex in East Rutherford, New Jersey ("Meadowlands Xanadu"). Meadowlands Xanadu's approximately 4.76 million-square-foot complex is expected to feature a family entertainment destination comprising three themed zones: sports/recreation, children's activities and fashion, in addition to four office buildings, aggregating approximately 1.8 million square feet, and a 520-room hotel.

        On December 3, 2003, the Meadowlands Venture entered into a redevelopment agreement with the New Jersey Sports and Exposition Authority ("NJSEA") (the "Redevelopment Agreement") for the redevelopment of the area surrounding the Continental Airlines Arena in East Rutherford, New Jersey and the construction of the Meadowlands Xanadu project. The Redevelopment Agreement provides for a 75-year ground lease, which requires the joint venture to pay the NJSEA a $160 million development rights fee at the start of construction of the entertainment phase, when all permits and approvals are obtained, and the payment of fixed rent over the term. Fixed rent will be in the amount of $1,000 per year for the first 15 years, increasing to $7.5 million from the 16 to the 22 year, then to $9.2 million in the 23 year, with additional increases over the remainder of the term, as set forth in the ground lease. The ground lease also allows for the potential for participation rent payments by the venture, as described in the ground lease agreement.

        The Company and Mills own a 20 percent and 80 percent interest, respectively, in the Meadowlands Venture, subject to certain participation rights by The New York Giants. The joint venture agreement requires the Company to make an equity contribution up to a maximum of $32.5 million. As part of the Redevelopment Agreement, Mills is required to contribute certain vacant land, known as the Empire Tract, to the State of New Jersey to be used as a wetlands mitigation bank, for which Mills has received subordinated capital credit in the venture of approximately $118.0 million. The joint venture agreement requires Mills to contribute the balance of the capital required to complete the entertainment phase, subject to certain limitations. The Company will receive a nine percent preferred return on its equity investment, only after Mills receives a nine percent preferred return on its equity investment. Residual returns, subject to participation by other parties, will be in proportion to each partners' respective percentage interest.

        Mills will develop, lease and operate the entertainment phase of the Meadowlands Xanadu project. The joint venture agreement provides the Company an option to cause the Meadowlands Venture to form component ventures for the future development of the office and hotel phases, for which the Company will develop, lease and operate such phases. The Company will own an 80 percent interest and Mills will own a 20 percent interest in such entities. The agreement provides for the first office or hotel component ventures to be formed no later than four years after the grand opening of the entertainment phase, and requires that all component ventures for the office and hotel phases be formed no later than 10 years from such date, but does not require that any or all components be developed. However, under the Meadowlands Venture agreement, Mills has the ability to accelerate such formation schedule, subject to certain conditions. Should the Company fail to meet the time schedule described above for the formation of the component ventures, the Company will forfeit its rights to cause the Meadowlands Venture to form additional component ventures. If this occurs, Mills will have the ability to develop the additional phases, subject to the Company's right to participate, or to cause the Meadowlands Venture to sell such components to a third party, subject to a sales price limitation of 95 percent of the value that would have been the amount necessary to form such component ventures.

        On March 27, 2003, Hartz Mountain Industries, Inc. ("Hartz") filed a lawsuit in the Superior Court of New Jersey, Law Division, for Bergen County, seeking to enjoin the New Jersey Sports & Exposition Authority ("NJSEA") from entering into a contract with The Mills Corporation and the

57



Company for the redevelopment of the Continental Airlines Arena site. The case was dismissed by the trial court but Hartz appealed. Hartz also appealed the NJSEA's final decision which denied Hartz's bid protest on October 23, 2003. Westfield America, Inc., has also protested the NJSEA decision, and has appealed the NJSEA's denial of its protest. In January 2004, Hartz and Westfield also appealed the NJSEA's approval and execution of the final Redevelopment Agreement. Four citizens, Elliot Braha, Richard DeLauro, George Perry and Carol Coronato, have also filed lawsuits challenging the NJSEA award to Mills and the Company. All of these cases are now pending unresolved in the Superior Court of New Jersey, Appellate Division. The Company believes that its proposal fully complied with applicable laws and the request for proposals, and plans to vigorously enforce its rights concerning this project. The Company does not believe that the ultimate resolution of this matter will have a material adverse effect on the Company's financial condition taken as a whole.

        On May 8, 2003, an adversary proceeding arising out of the bankruptcy of Broadband Office, Inc. ("BBO") was commenced by BBO and the Official Committee of Unsecured Creditors of BBO ("Plaintiffs") in the United States Bankruptcy Court for the District of Delaware. On August 25, 2003, the Plaintiffs filed an Amended Complaint. As amended, the Complaint names as defendants Mack-Cali Realty, L.P., the chief executive officer of the Company, and certain alleged affiliates of the Company (the "Mack-Cali Defendants"). Also named as defendants are seven other real estate investment trusts or partnerships ("REITs") that invested in BBO and the eight individuals designated by the REITs to serve on the Board of Directors of BBO. Plaintiffs assert, among other things, that the Defendants breached fiduciary duties to BBO, its minority shareholders (other than the REITs) and its creditors by approving a spin-off of BBO's assets to a newly created entity, and approving the sale of BBO's remaining assets to Yipes, Inc., both for allegedly inadequate consideration. Plaintiffs seek an unspecified amount of compensatory and punitive damages in connection with their fiduciary duty claims. In addition, Plaintiffs seek to avoid all payments and other transfers made to Defendants within one year of BBO's bankruptcy filing under various provisions of the Bankruptcy Code, and to obtain "turnover" of certain property under Section 542(b) of the Code. On July 8, 2003, the district court withdrew the reference of this proceeding to the bankruptcy court, and the action is now pending in the United States District Court for the District of Delaware. The Mack-Cali Defendants have denied the claims asserted in the Amended Complaint, and believe they have substantial defenses to the claims asserted against them. The Company does not believe that the ultimate resolution of this matter will have a material adverse effect on the Company's financial condition taken as a whole.

        As of December 31, 2003, the Company's total indebtedness of $1.6 billion (weighted average interest rate of 7.10 percent) was comprised of $32.2 million of variable rate mortgage debt (weighted average rate of 1.84 percent) and fixed rate debt of approximately $1.6 billion (weighted average rate of 7.21 percent).

        The Company has three investment grade credit ratings. Standard & Poor's Rating Services ("S&P") and Fitch, Inc. ("Fitch") have each assigned their BBB rating to existing and prospective senior unsecured debt of the Operating Partnership. S&P and Fitch have also assigned their BBB- rating to existing and prospective preferred stock offerings of the Company. Moody's Investors Service ("Moody's") has assigned its Baa2 rating to existing and prospective senior unsecured debt of the Operating Partnership and its Baa3 rating to its existing and prospective preferred stock offerings of the Company.

        On September 27, 2002, the Company obtained an unsecured revolving credit facility with a current borrowing capacity of $600.0 million from a group of 15 lenders, as described in Note 10 to the Financial Statements. As of December 31, 2003, the Company had no outstanding borrowings under its unsecured revolving credit facility, which resulted primarily from a paydown on the facility in September 2003 from proceeds received in the Company's sale of its interest in the American Financial Exchange joint venture.

58



        The interest rate on any outstanding borrowings under the unsecured facility is currently LIBOR plus 70 basis points. The Company may instead elect an interest rate representing the higher of the lender's prime rate or the Federal Funds rate plus 50 basis points. The unsecured facility also currently requires a 20 basis point facility fee on the current borrowing capacity payable quarterly in arrears.

        In the event of a change in the Operating Partnership's unsecured debt rating, the interest and facility fee rates will be adjusted in accordance with the following table:

Operating Partnership's
Unsecured Debt Ratings:
S&P/Moody's/Fitch (a)

  Interest Rate—
Applicable Basis Points
Above LIBOR

  Facility Fee
Basis Points

No rating or less than BBB-/Baa3/BBB-   120.0   30.0
BBB-/Baa3/BBB-   95.0   20.0
BBB/Baa2/BBB (current)   70.0   20.0
BBB+/Baa1/BBB+   65.0   15.0
A-/A3/A- or higher   60.0   15.0

(a)
If the Operating Partnership has debt ratings from two rating agencies, one of which is Standard & Poor's Rating Services ("S&P") or Moody's Investors Service ("Moody's"), the rates per the above table shall be based on the lower of such ratings. If the Operating Partnership has debt ratings from three rating agencies, one of which is S&P or Moody's, the rates per the above table shall be based on the lower of the two highest ratings. If the Operating Partnership has debt ratings from only one agency, it will be considered to have no rating or less than BBB-/Baa3/BBB- per the above table.

        The unsecured facility matures in September 2005, with an extension option of one year, which would require a payment of 25 basis points of the then borrowing capacity of the facility upon exercise. The Company believes that the unsecured facility is sufficient to meet its revolving credit facility needs.

        The terms of the unsecured facility include certain restrictions and covenants which limit, among other things, the payment of dividends (as discussed below), the incurrence of additional indebtedness, the incurrence of liens and the disposition of real estate properties (to the extent that: (i) such property dispositions cause the Company to default on any of the financial ratios of the facility described below, or (ii) the property dispositions are completed while the Company is under an event of default under the facility, unless, under certain circumstances, such disposition is being carried out to cure such default), and which require compliance with financial ratios relating to the maximum leverage ratio, the maximum amount of secured indebtedness, the minimum amount of tangible net worth, the minimum amount of debt service coverage, the minimum amount of fixed charge coverage, the maximum amount of unsecured indebtedness, the minimum amount of unencumbered property debt service coverage and certain investment limitations. The dividend restriction referred to above provides that, except to enable the Company to continue to qualify as a REIT under the Code, the Company will not during any four consecutive fiscal quarters make distributions with respect to common stock or other common equity interests in an aggregate amount in excess of 90 percent of funds from operations (as defined in the facility agreement) for such period, subject to certain other adjustments.

        The terms of the Company's Senior Unsecured Notes, as defined in Note 9 to the Financial Statements (which totaled approximately $1.1 billion as of December 31, 2003), include certain restrictions and covenants which require compliance with financial ratios relating to the maximum amount of debt leverage, the maximum amount of secured indebtedness, the minimum amount of debt service coverage and the maximum amount of unsecured debt as a percent of unsecured assets.

        As of December 31, 2003, the Company had 233 unencumbered properties, totaling 21.1 million square feet, representing 78.2 percent of the Company's total portfolio on a square footage basis.

59



        The debt of the Company's unconsolidated joint ventures aggregating $129.7 million is non-recourse to the Company except for customary exceptions pertaining to such matters as intentional misuse of funds, environmental conditions and material misrepresentations. The Company has posted an $8.0 million letter of credit in support of the Harborside South Pier joint venture, $4.0 million of which is indemnified by Hyatt.

        The following table outlines the timing of payment requirements related to the Company's debt, PILOT agreements, and ground lease agreements (in thousands):

 
  Payments Due by Period
 
  Total
  Less than 1
year

  1-3
years

  4-5
years

  6-10
years

  After 10
years

Senior unsecured notes   $ 1,127,859   $ 299,983           $ 827,876  
Revolving credit facility                      
Mortgages and loans payable     500,725     10,374   $ 410,190   $ 10,030     70,131  
Payments in lieu of taxes (PILOT)     101,151     8,065     12,398     8,706     24,337   47,645
Ground lease payments     23,657     578     1,731     1,111     2,660   17,577

        As of December 31, 2003, the Company's total debt had a weighted average term to maturity of approximately 4.3 years.

        On February 9, 2004, the Company issued $100 million face amount of 5.125 percent senior unsecured notes due February 15, 2014 with interest payable semi-annually in arrears. The total proceeds from the issuance (net of selling commissions and discount) of approximately $98.5 million will be held until March 15, 2004, at which time the Company intends to use the net proceeds from the sale, together with borrowings under its unsecured revolving credit facility and available cash, to repay $300 million, 7.00 percent Senior Unsecured notes due on that date.

        The Company does not intend to reserve funds to retire the remainder of the Company's senior unsecured notes or its 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 or debt securities on or before the applicable maturity dates. If it cannot raise such proceeds, the Company may draw on its revolving credit facility to retire the maturing indebtedness, which would reduce the future availability of funds under such facility. As of December 31, 2003, the Company had no outstanding borrowings under its $600 million unsecured revolving credit facility. The Company is reviewing various refinancing options, including the purchase of its senior unsecured notes in privately-negotiated transactions, the issuance of additional, or exchange of current, unsecured debt, preferred stock, and/or obtaining additional mortgage debt, some or all of which may be completed during 2004. 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.

        The Company has an effective shelf registration statement with the SEC for an aggregate amount of $2.0 billion in equity securities of the Company. The Company and Operating Partnership also have an effective shelf registration statement with the SEC for an aggregate of $2.0 billion in debt securities, preferred stock and preferred stock represented by depositary shares, under which the Operating Partnership has issued an aggregate of $1.3 billion of senior unsecured notes and the Company has issued $25 million of preferred stock.

        On September 13, 2000, the Board of Directors authorized an increase to the Company's repurchase program under which the Company was permitted to purchase up to an additional $150.0 million of the Company's outstanding common stock ("Repurchase Program"). From that date

60



through February 20, 2004, the Company purchased and retired, under the Repurchase Program, 3.7 million shares of its outstanding common stock for an aggregate cost of approximately $104.5 million. The Company has a remaining authorization to repurchase up to an additional $45.5 million of its outstanding common stock, which it may repurchase from time to time in open market transactions at prevailing prices or through privately negotiated transactions.

        The Company may not dispose of or distribute certain of its properties, currently comprising 140 properties with an aggregate net book value of approximately $1.8 billion, which were originally contributed by members of either the Mack Group (which includes William L. Mack, Chairman of the Company's Board of Directors; David S. Mack, director, Earle I. Mack, a former director; and Mitchell E. Hersh, chief executive officer and director), the Robert Martin Group (which includes Robert F. Weinberg, a former director; Martin S. Berger, director; and Timothy M. Jones, president), or the Cali Group (which includes John J. Cali, a former director and John R. Cali, director) without the express written consent of a representative of the Mack Group, the Robert Martin Group or the Cali Group, as applicable, except in a manner which does not result in recognition of any built-in-gain (which may result in an income tax liability) or which reimburses the appropriate Mack Group, Robert Martin Group or Cali Group members for the tax consequences of the recognition of such built-in-gains (collectively, the "Property Lock-Ups"). The aforementioned restrictions do not apply in the event that the Company sells all of its properties or in connection with a sale transaction which the Company's Board of Directors determines is reasonably necessary to satisfy a material monetary default on any unsecured debt, judgment or liability of the Company or to cure any material monetary default on any mortgage secured by a property. The Property Lock-Ups expire periodically through 2008. Upon the expiration of the Property Lock-Ups, the Company is required to use commercially reasonable efforts to prevent any sale, transfer or other disposition of the subject properties from resulting in the recognition of built-in gain to the appropriate Mack Group, Robert Martin Group or Cali Group members.

        To maintain its qualification as a REIT, the Company must make annual distributions to its stockholders of at least 90 percent of its REIT taxable income, determined without regard to the dividends paid deduction and by excluding net capital gains. Moreover, the Company intends to continue to make regular quarterly distributions to its common stockholders which, based upon current policy, in the aggregate would equal approximately $151.4 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, including borrowings and other sources, after meeting operating requirements, preferred stock and unit dividends and distributions, and scheduled debt service on the Company's debt.


Off-Balance Sheet Arrangements

        The Company's off-balance sheet arrangements are discussed in Note 4: "Investments in Unconsolidated Joint Ventures" to the Financial Statements. Additional information about the debt of the Company's unconsolidated joint ventures is included in "Liquidity and Capital Resources" herein.


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.

Disclosure Regarding Forward-Looking Statements

        The Company considers portions of this information to be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. The Company intends such forward-

61



looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act. Such forward-looking statements relate to, without limitation, the Company's future economic performance, plans and objectives for future operations and projections of revenue and other financial items. Forward-looking statements can be identified by the use of words such as "may," "will," "should," "expect," "anticipate," "estimate," "continue" or comparable terminology. Forward-looking statements are inherently subject to risks and uncertainties, many of which the Company cannot predict with accuracy and some of which the Company might not even anticipate. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions at the time made, it can give no assurance that its expectations will be achieved. Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements. Among the factors about which the Company has made assumptions are changes in the general economic climate; conditions, including those affecting industries in which the Company's principal tenants compete; any failure of the general economy to recover from the current economic downturn; the extent of any tenant bankruptcies; the Company's ability to lease or re-lease space at current or anticipated rents; changes in the supply of and demand for office, office/flex and industrial/warehouse properties; changes in interest rate levels; changes in operating costs; the Company's ability to obtain adequate insurance, including coverage for terrorist acts; the availability of financing; and other risks associated with the development and acquisition of properties, including risks that the development may not be completed on schedule, that the tenants will not take occupancy or pay rent, or that development or operating costs may be greater than anticipated. For further information on factors which could impact the Company and the statements contained herein, see the "Risk Factors" section. The Company assumes no obligation to update and supplement forward-looking statements that become untrue because of subsequent events.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. In pursuing its business plan, the primary market risk to which the Company is exposed is interest rate risk. Changes in the general level of interest rates prevailing in the financial markets may affect the spread between the Company's yield on invested assets and cost of funds and, in turn, its ability to make distributions or payments to its investors.

        Approximately $1.6 billion of the Company's long-term debt bears interest at fixed rates and therefore the fair value of these instruments is affected by changes in market interest rates. The following table presents principal cash flows (in thousands) based upon maturity dates of the debt obligations and the related weighted-average interest rates by expected maturity dates for the fixed rate debt. The interest rate on the variable rate debt as of December 31, 2003 was LIBOR plus 65 basis points.

December 31, 2003
Debt, including current portion

  2004
  2005
  2006
  2007
  2008
  Thereafter
  Total
  Fair Value
 
  ($'s in thousands)

Fixed Rate   $ 316,051   $ 259,523   $ 144,595   $ 9,199   $ (173 ) $ 867,211   $ 1,596,406   $ 1,738,227
Average Interest Rate     7.33 %   7.13 %   7.36 %   6.96 %   5.96 %   7.07 %   7.21 %    
Variable Rate                                 $ 32,178   $ 32,178   $ 32,178

62


        While the Company has not experienced any significant credit losses, in the event of a significant rising interest rate environment and/or economic downturn, defaults could increase and result in losses to the Company which could adversely affect its operating results and liquidity.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The information required by Item 8 is contained in the Consolidated Financial Statements, together with the notes to the Consolidated Financial Statements and the report of independent accountants.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        None.


ITEM 9A. CONTROLS AND PROCEDURES

        Disclosure Controls and Procedures.    The Company's management, with the participation of the Company's chief executive officer and chief financial officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, the Company's chief executive officer and chief financial officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.

        Internal Control Over Financial Reporting.    There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.


PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        The information required by Item 10 is incorporated by reference to the Company's definitive proxy statement for its annual meeting of shareholders expected to be held on May 20, 2004.


ITEM 11. EXECUTIVE COMPENSATION

        The information required by Item 11 is incorporated by reference to the Company's definitive proxy statement for its annual meeting of shareholders expected to be held on May 20, 2004.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

        The information required by Item 12 is incorporated by reference to the Company's definitive proxy statement for its annual meeting of shareholders expected to be held on May 20, 2004.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The information required by Item 13 is incorporated by reference to the Company's definitive proxy statement for its annual meeting of shareholders expected to be held on May 20, 2004.

63




ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

        The information required by Item 14 is incorporated by reference to the Company's definitive proxy statement for its annual meeting of shareholders expected to be held on May 20, 2004.


PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)1. Financial Statements and Report of PricewaterhouseCoopers LLP, Independent Auditors

(a)2. Financial Statement Schedules

(a)3. Exhibits

        The exhibits required by this item are set forth on the Exhibit Index attached hereto.

64



(b)   Reports on Form 8-K

        During the fourth quarter of 2003, the Company filed the following reports on Form 8-K:

65



REPORT OF INDEPENDENT AUDITORS

To Board of Directors and Shareholders
of Mack-Cali Realty Corporation:

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Mack-Cali Realty Corporation and its subsidiaries (the "Company") at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.


/s/  
PRICEWATERHOUSECOOPERS LLP      
PricewaterhouseCoopers LLP
New York, New York
February 24, 2004

 

66



MACK-CALI REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

 
  December 31,

 
ASSETS

 
  2003
  2002
 
Rental property              
  Land and leasehold interests   $ 552,287   $ 544,176  
  Buildings and improvements     3,176,236     3,141,003  
  Tenant improvements     218,493     164,945  
  Furniture, fixtures and equipment     7,616     7,533  
   
 
 
      3,954,632     3,857,657  
  Less — accumulated depreciation and amortization     (546,007 )   (445,569 )
   
 
 
    Net investment in rental property     3,408,625     3,412,088  
Cash and cash equivalents     78,375     1,167  
Investments in unconsolidated joint ventures     48,624     176,797  
Unbilled rents receivable, net     74,608     64,759  
Deferred charges and other assets, net     126,791     127,551  
Restricted cash     8,089     7,777  
Accounts receivable, net of allowance for doubtful accounts of $1,392 and $1,856     4,458     6,290  
   
 
 
Total assets   $ 3,749,570   $ 3,796,429  
   
 
 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 
Senior unsecured notes   $ 1,127,859   $ 1,097,346  
Revolving credit facilities         73,000  
Mortgages and loans payable     500,725     582,026  
Dividends and distributions payable     46,873     45,067  
Accounts payable and accrued expenses     41,423     50,774  
Rents received in advance and security deposits     40,099     39,038  
Accrued interest payable     23,004     24,948  
   
 
 
  Total liabilities     1,779,983     1,912,199  
   
 
 
Minority interest in Operating Partnership     428,099     430,036  
   
 
 
Commitments and contingencies              

Stockholders' equity:

 

 

 

 

 

 

 
Preferred stock, $0.01 par value, 5,000,000 shares authorized, 10,000 and no shares outstanding, at liquidation preference     25,000      
Common stock, $0.01 par value, 190,000,000 shares authorized, 59,420,484 and 57,318,478 shares outstanding     594     573  
Additional paid-in capital     1,597,785     1,525,479  
Dividends in excess of net earnings     (74,721 )   (68,966 )
Unamortized stock compensation     (7,170 )   (2,892 )
   
 
 
  Total stockholders' equity     1,541,488     1,454,194  
   
 
 
Total liabilities and stockholders' equity   $ 3,749,570   $ 3,796,429  
   
 
 

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

67



MACK-CALI REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

 
  Year Ended December 31,
 
 
  2003
  2002
  2001
 
REVENUES                    
Base rents   $ 505,985   $ 489,149   $ 503,076  
Escalations and recoveries from tenants     61,418     56,746     55,609  
Parking and other     18,843     17,717     10,335  
   
 
 
 
  Total revenues     586,246     563,612     569,020  
   
 
 
 
EXPENSES                    
Real estate taxes     64,718     60,417     61,552  
Utilities     41,788     38,282     43,250  
Operating services     74,956     67,033     67,321  
General and administrative     31,461     26,977     28,431  
Depreciation and amortization     119,157     107,949     91,413  
Interest expense     116,311     107,823     112,003  
Interest income     (1,100 )   (2,301 )   (2,186 )
Loss on early retirement of debt, net     2,372          
   
 
 
 
  Total expenses     449,663     406,180     401,784  
   
 
 
 
Income from continuing operations before minority interest and equity in earnings of unconsolidated joint ventures     136,583     157,432     167,236  
Minority interest in Operating Partnership     (29,870 )   (32,835 )   (34,347 )
Equity in earnings of unconsolidated joint ventures (net of minority interest), net     11,873     13,007     7,893  
Gain on sale of investment in unconsolidated joint ventures (net of minority interest)     21,108          
   
 
 
 
Income from continuing operations     139,694     137,604     140,782  
Discontinued operations (net of minority interest):                    
Income (loss) from discontinued operations     239     (298 )   1,279  
  Realized gain on disposition of rental property     3,120          
   
 
 
 
Total discontinued operations, net     3,359     (298 )   1,279  
Realized gains (losses) and unrealized losses on disposition of rental property (net of minority interest), net         2,416     (10,402 )
   
 
 
 
Net income     143,053     139,722     131,659  
  Preferred stock dividends     (1,672 )        
   
 
 
 
Net income available to common shareholders   $ 141,381   $ 139,722   $ 131,659  
   
 
 
 
Basic earnings per common share:                    
Income from continuing operations   $ 2.39   $ 2.45   $ 2.31  
Discontinued operations     0.06     (0.01 )   0.02  
   
 
 
 
Net income available to common shareholders   $ 2.45   $ 2.44   $ 2.33  
   
 
 
 
Diluted earnings per common share:                    
Income from continuing operations   $ 2.37   $ 2.44   $ 2.30  
Discontinued operations     0.06     (0.01 )   0.02  
   
 
 
 
Net income available to common shareholders   $ 2.43   $ 2.43   $ 2.32  
   
 
 
 
Dividends declared per common share   $ 2.52   $ 2.50   $ 2.46  
   
 
 
 
Basic weighted average shares outstanding     57,724     57,227     56,538  
   
 
 
 
Diluted weighted average shares outstanding     65,990     65,427     64,775  
   
 
 
 

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

68



MACK-CALI REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

(in thousands)

 
  Preferred Stock
  Common Stock
   
   
   
   
 
 
  Additional
Paid-In
Capital

  Dividends in
Excess of
Net Earnings

  Unamortized
Stock
Compensation

  Total
Stockholders'
Equity

 
 
  Shares
  Amount
  Shares
  Par Value
 
Balance at January 1, 2001         56,981   $ 570   $ 1,513,037   $ (57,149 ) $ (3,168 ) $ 1,453,290  
  Net income                     131,659         131,659  
  Common stock dividends                     (139,416 )       (139,416 )
  Redemption of common units for shares of common stock         9         239             239  
  Proceeds from stock options exercised         904     9     20,666             20,675  
  Deferred compensation plan for directors                 156             156  
  Issuance of Restricted Stock Awards         95     1     2,567         (2,527 )   41  
  Amortization of stock compensation                         1,356     1,356  
  Adjustment to fair value of Restricted Stock Awards                 557         (557 )    
  Cancellation of Restricted Stock Awards         (7 )       (200 )       200      
  Repurchase of common stock         (1,270 )   (13 )   (35,399 )           (35,412 )
       
 
 
 
 
 
 
 
Balance at December 31, 2001         56,712   $ 567   $ 1,501,623   $ (64,906 ) $ (4,696 ) $ 1,432,588  
  Net income                     139,722         139,722  
  Common stock dividends                     (143,782 )       (143,782 )
  Redemption of common units for shares of common stock         269     3     8,296             8,299  
  Expiration of Unit Warrants                 7,501             7,501  
  Proceeds from stock options exercised         646     6     17,001             17,007  
  Proceeds from stock warrants exercised         107     1     3,546             3,547  
  Deferred compensation plan for directors                 170             170  
  Amortization of stock compensation                         1,699     1,699  
  Adjustment to fair value of Restricted Stock Awards                 (105 )       105      
  Repurchase of common stock         (416 )   (4 )   (12,553 )           (12,557 )
       
 
 
 
 
 
 
 
Balance at December 31, 2002         57,318   $ 573   $ 1,525,479   $ (68,966 ) $ (2,892 ) $ 1,454,194  
  Net income                     143,053         143,053  
  Preferred stock dividends                     (1,672 )       (1,672 )
  Common stock dividends                     (147,136 )       (147,136 )
  Issuance of preferred stock   10   $ 25,000           (164 )           24,836  
  Redemption of common units for shares of common stock         44     1     1,384             1,385  
  Shares issued under Dividend Reinvestment and Stock Purchase Plan         4         148             148  
  Proceeds from stock options exercised         1,421     14     47,182             47,196  
  Proceeds from stock warrants exercised         443     4     16,577             16,581  
  Stock options expense                 189             189  
  Deferred compensation plan for directors                 227             227  
  Issuance of Restricted Stock Awards         225     2     7,233         (5,649 )   1,586  
  Amortization of stock compensation                         1,931     1,931  
  Adjustment to fair value of Restricted Stock Awards                 575         (575 )    
  Cancellation of Restricted Stock Awards                 (15 )       15      
  Repurchase of common stock         (35 )       (1,030 )           (1,030 )
   
 
 
 
 
 
 
 
 
Balance at December 31, 2003   10   $ 25,000   59,420   $ 594   $ 1,597,785   $ (74,721 ) $ (7,170 ) $ 1,541,488  
   
 
 
 
 
 
 
 
 

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

69



MACK-CALI REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 
  Year Ended December 31,
 
CASH FLOWS FROM OPERATING ACTIVITIES

 
  2003
  2002
  2001
 
Net income   $ 143,053   $ 139,722   $