UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from. . . .to.
Commission file number 1-13274
Mack-Cali Realty Corporation
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 22-3305147
- ------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
11 Commerce Drive, Cranford, New Jersey 07016-3501
- -------------------------------------------------------------------------------
(Address of principal executive office)
(Zip Code)
(908) 272-8000
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(Registrant's telephone number, including area code)
Not Applicable
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or such shorter period that the
Registrant was required to file such report) YES X NO and (2) has been subject
to such filing requirements for the past ninety (90) days YES X NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of July 31, 1998, there were 57,974,947 shares of $0.01 par value common
stock outstanding.
Page 1 of 34
MACK-CALI REALTY CORPORATION
Form 10-Q
INDEX
Part I Financial Information Page
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1998
and December 31, 1997 ..................................................... 4
Consolidated Statements of Operations for the three and six month
periods ended June 30, 1998 and 1997 ...................................... 5
Consolidated Statement of Changes in Stockholders' Equity for the
six months ended June 30, 1998 ............................................ 6
Consolidated Statements of Cash Flows for the six months
ended June 30, 1998 and 1997 .............................................. 7
Notes to Consolidated Financial Statements .................................... 8 - 24
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................................. 25 - 30
Item 3. Quantitative and Qualitative Disclosures about Market Risk .................... 30
Part II Other Information and Signatures
Item 1. Legal Proceedings ............................................................. 31
Item 2. Changes in Securities and Use of Proceeds...................................... 31
Item 3. Defaults Upon Senior Securities................................................ 31
Item 4. Submission of Matters to a Vote of Security Holders............................ 31
Item 5. Other Information ............................................................. 32
Item 6. Exhibits .............................................................. 33
Signatures .............................................................. 34
Page 2 of 34
MACK-CALI REALTY CORPORATION
Part I - Financial Information
Item I: Financial Statements
The accompanying unaudited consolidated balance sheets,
statements of operations, of changes in stockholders' equity,
and of cash flows and related notes, have been prepared in
accordance with generally accepted accounting principles
("GAAP") for interim financial information and in conjunction
with the rules and regulations of the Securities and Exchange
Commission ("SEC"). Accordingly, they do not include all of
the disclosures required by GAAP for complete financial
statements. The financial statements reflect all adjustments
consisting only of normal, recurring adjustments, which are,
in the opinion of management, necessary for a fair
presentation for the interim periods.
The aforementioned financial statements should be read in
conjunction with the notes to the aforementioned financial
statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations and the
financial statements and notes thereto included in the
Company's Annual Report on Form 10-K and Form 10-K/A for the
fiscal year ended December 31, 1997.
The results of operations for the three and six month periods
ended June 30, 1998 are not necessarily indicative of the
results to be expected for the entire fiscal year or any other
period.
Page 3 of 34
MACK-CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts)
June 30, December 31,
ASSETS 1998 1997
- ------ ------------- -------------
Rental property
Land $ 494,161 $ 374,242
Buildings and improvements 2,788,978 2,206,462
Tenant improvements 55,753 44,596
Furniture, fixtures and equipment 4,987 4,316
------------- -------------
3,343,879 2,629,616
Less - accumulated depreciation and amortization (136,568) (103,133)
------------- -------------
Total rental property 3,207,311 2,526,483
Cash and cash equivalents 16,595 2,704
Investments in partially-owned entities 46,460 --
Unbilled rents receivable 33,777 27,438
Deferred charges and other assets, net 30,322 18,989
Restricted cash 5,483 6,844
Accounts receivable, net of allowance for doubtful accounts
of $547 and $327 5,529 3,736
Mortgage note receivable 7,250 7,250
------------- -------------
Total assets $ 3,352,727 $ 2,593,444
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgages and loans payable $ 1,350,996 $ 972,650
Dividends and distributions payable 36,532 28,089
Accounts payable and accrued expenses 31,502 31,136
Rents received in advance and security deposits 29,820 21,395
Accrued interest payable 2,013 3,489
------------- -------------
Total liabilities 1,450,863 1,056,759
------------- -------------
Minority interest of unitholders in Operating Partnership 456,242 379,245
------------- -------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, 5,000,000 shares authorized, none issued -- --
Common stock, $0.01 par value, 190,000,000 shares authorized,
57,971,447 and 49,856,289 shares outstanding 580 499
Additional paid-in capital 1,535,374 1,244,883
Dividends in excess of net earnings (90,332) (87,942)
------------- -------------
Total stockholders' equity 1,445,622 1,157,440
------------- -------------
Total liabilities and stockholders' equity $ 3,352,727 $ 2,593,444
------------- -------------
------------- -------------
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4 of 34
MACK-CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)
Three Months Ended June 30, Six Months Ended June 30,
REVENUES 1998 1997 1998 1997
- -------- --------- -------- ---------- ---------
Base rents $ 105,861 $ 50,389 $ 198,777 $ 93,180
Escalations and recoveries from tenants 12,358 7,667 22,715 14,279
Parking and other 2,906 2,054 4,913 3,598
Interest income 916 432 1,459 1,640
--------- -------- ---------- ---------
Total revenues 122,041 60,542 227,864 112,697
--------- -------- ---------- ---------
EXPENSES
Real estate taxes 11,854 6,496 21,926 11,929
Utilities 9,115 4,215 17,417 7,940
Operating services 15,629 7,357 28,321 13,773
General and administrative 6,394 3,754 12,591 6,927
Depreciation and amortization 19,093 8,799 35,324 16,292
Interest expense 21,786 9,884 40,265 17,704
--------- -------- ---------- ---------
Total expenses 83,871 40,505 155,844 74,565
--------- -------- ---------- ---------
Income before minority interest
and extraordinary item 38,170 20,037 72,020 38,132
Minority interest 7,782 2,012 15,089 3,648
--------- -------- ---------- ---------
Income before extraordinary item 30,388 18,025 56,931 34,484
Extraordinary item - loss on early retirement of debt
(net of minority interest's share of $297 in 1998) 2,373 -- 2,373 --
--------- -------- ---------- ---------
Net income $ 28,015 $ 18,025 $ 54,558 $ 34,484
--------- -------- ---------- ---------
--------- -------- ---------- ---------
Net income per share - Basic:
Income before extraordinary item $ 0.53 $ 0.49 $ 1.05 $ 0.95
Extraordinary item - loss on early
retirement of debt (0.04) -- (0.04) --
--------- -------- ---------- ---------
Net income $ 0.49 $ 0.49 $ 1.01 $ 0.95
--------- -------- ---------- ---------
--------- -------- ---------- ---------
Net income per share - Diluted:
Income before extraordinary item $ 0.53 $ 0.49 $ 1.04 $ 0.93
Extraordinary item - loss on early
retirement of debt (0.04) -- (0.04) --
--------- -------- ---------- ---------
Net income $ 0.49 $ 0.49 $ 1.00 $ 0.93
--------- -------- ---------- ---------
--------- -------- ---------- ---------
Dividends declared per common share $ 0.50 $ 0.45 $ 1.00 $ 0.90
--------- -------- ---------- ---------
--------- -------- ---------- ---------
Weighted average shares outstanding - basic 57,019 36,489 54,207 36,475
--------- -------- ---------- ---------
Weighted average shares outstanding - diluted 64,626 41,213 61,671 41,016
--------- -------- ---------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5 of 34
MACK-CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
Retained
Earnings
Additional (Dividends in Total
Common Stock Paid-In Excess of Stockholders'
Shares Par Value Capital Net Earnings) Equity
------------------ ---------- ------------- -------------
Balance at January 1, 1998 49,856 $499 $1,244,883 $(87,942) $1,157,440
Net income -- -- -- 54,558 54,558
Dividends -- -- -- (56,948) (56,948)
Net proceeds from common stock offerings 7,835 78 284,375 -- 284,453
Conversion of common units to shares of
common stock 22 -- 848 -- 848
Proceeds from stock options exercised 258 3 5,268 -- 5,271
------ ---- ---------- -------- ----------
Balance at June 30, 1998 57,971 $580 $1,535,374 $(90,332) $1,445,622
------ ---- ---------- -------- ----------
------ ---- ---------- -------- ----------
The accompanying notes are an integral part of these consolidated financial
statements.
Page 6 of 34
MACK-CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended June 30,
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 54,558 $ 34,484
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 35,324 16,292
Amortization of stock compensation -- 1,057
Amortization of deferred financing costs 654 552
Minority interest 15,089 3,648
Extraordinary item - loss on early retirement of debt 2,373 --
Changes in operating assets and liabilities:
Increase in unbilled rents receivable (6,339) (3,944)
Increase in deferred charges and other assets, net (4,569) (2,976)
Increase in accounts receivable, net (1,793) (1,472)
Increase in accounts payable and
accrued expenses 366 5,514
Increase in rents received in advance and
security deposits 8,425 5,498
(Decrease) increase in accrued interest payable (1,476) 588
----------- ----------
Net cash provided by operating activities $ 102,612 $ 59,241
----------- ----------
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to rental property $ (625,434) $(308,531)
Issuance of mortgage note receivable (20,000) (11,600)
Repayment of mortgage note receivable 20,000 --
Investments in partially-owned entities (38,126) --
Decrease (increase) in restricted cash 1,361 (301)
----------- ----------
Net cash used in investing activities $ (662,199) $(320,432)
----------- ----------
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgages and loans payable $ 1,307,452 $ 132,876
Repayments of mortgages and loans payable (949,815) (32,482)
Repurchase of common stock -- (4,680)
Repurchase of common units (3,163) --
Payment of financing costs (7,492) --
Net proceeds from common stock offerings 284,453 --
Proceeds from stock options exercised 5,271 2,503
Payment of dividends and distributions (63,228) (35,743)
----------- ----------
Net cash provided by financing activities $ 573,478 $ 62,474
----------- ----------
----------- ----------
Net increase (decrease) in cash and cash equivalents $ 13,891 $(198,717)
Cash and cash equivalents, beginning of period $ 2,704 $ 204,807
----------- ----------
Cash and cash equivalents, end of period $ 16,595 $ 6,090
----------- ----------
----------- ----------
The accompanying notes are an integral part of these consolidated financial
statements.
Page 7 of 34
MACK-CALI REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share/unit amounts)
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
Mack-Cali Realty Corporation, a Maryland corporation, and subsidiaries (the
"Company"), is a fully-integrated, self-administered, self-managed real estate
investment trust ("REIT") providing leasing, management, acquisition,
development, construction and tenant-related services for its portfolio of
properties. As of June 30, 1998, the Company's portfolio was comprised of 242
properties plus developable land (collectively, the "Properties"). The
Properties aggregate approximately 27.0 million square feet, and are comprised
of 230 office and office/flex buildings totaling approximately 26.6 million
square feet, six industrial/warehouse buildings totaling approximately 387,400
square feet, two multi-family residential complexes consisting of 453 units, two
stand-alone retail properties and two land leases. The Properties are located in
11 states, primarily in the Northeast and Southwest, plus the District of
Columbia.
Basis of Presentation
The accompanying consolidated financial statements include all accounts of the
Company and its majority-owned subsidiaries, which consist principally of
Mack-Cali Realty, L.P. (the "Operating Partnership"). See Investments in
Partially-Owned Entities in Note 2 for the Company's treatment of unconsolidated
partnership interests. All significant intercompany accounts and transactions
have been eliminated.
The preparation of financial statements in conformity with generally accepted
accounting principles ("GAAP") requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. SIGNIFICANT ACCOUNTING POLICIES
Rental
Property Rental properties are stated at cost less accumulated
depreciation and amortization. Costs directly related to
the acquisition and development of rental properties are
capitalized. Capitalized development costs include
interest, property taxes, insurance and other project
costs incurred during the period of construction.
Ordinary repairs and maintenance are expensed as
incurred; major replacements and betterments, 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.
Depreciation and amortization is computed on a
straight-line basis over the estimated useful lives of
the assets as follows:
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
--------------------------------------------------------
On a periodic basis, management assesses whether there
are any indicators that the value of the real estate
properties may be impaired. A property's value is
impaired only if management's estimate of the aggregate
future cash flows (undiscounted and without interest
charges) to be generated by the property are less than
the carrying value of the property. To the extent an
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. Management does not
believe that the value of any of its rental properties
is impaired.
Page 8 of 34
Investments in
Partially-Owned
Entities The Company accounts for its investments in
partially-owned entities under the equity method of
accounting as the Company exercises significant
influence. These investments are recorded initially at
cost, as Investments in Partially-Owned Entities, and
subsequently adjusted for net equity in income (loss)
and cash contributions and distributions. Net equity in
income (loss) is included in parking and other in the
Consolidated Statements of Operations for the three and
six month periods ended June 30, 1998 (see Note 4).
Cash and Cash
Equivalents All highly liquid investments with a maturity of three
months or less when purchased are considered to be cash
equivalents.
Deferred
Financing Costs Costs incurred in obtaining financing are
capitalized and amortized on a straight-line basis,
which approximates the effective interest method, over
the term of the related indebtedness. Amortization of
such costs is included in interest expense and was $400
and $281 for the three months ended June 30, 1998 and
1997, respectively, and $654 and $552 for the six months
ended June 30, 1998 and 1997, respectively.
Deferred
Leasing Costs Costs incurred in connection with leases are capitalized
and amortized on a straight-line basis over the terms of
the related leases 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 Operating
Partnership provide leasing services to the Properties
and receive fees as compensation ranging from 0.667
percent to 2.667 percent of adjusted rents. Such fees,
which are capitalized and amortized, approximated $659
and $334 for the three months ended June 30, 1998 and
1997, respectively, and $1,236 and $540 for the six
months ended June 30, 1998 and 1997, respectively.
Revenue
Recognition The Company recognizes base rental revenue on a
straight-line basis over the terms of the respective
leases. Unbilled rents receivable represents the amount
by which straight-line rental revenue exceeds rents
currently billed in accordance with the lease
agreements. Parking revenue includes income from parking
spaces leased to tenants. Rental income on residential
property under operating leases having terms generally
of one year or less is recognized when earned.
The Company receives reimbursements 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 12).
Income and
Other Taxes The Company has elected to be taxed as a REIT under
Sections 856 through 860 of the Internal Revenue Code of
1986, as amended (the "Code"). As a REIT, the Company
generally will not be subject to federal income tax to
the extent it distributes at least 95 percent of its
REIT taxable income to its shareholders and satisfies
certain other requirements. REITs are subject to a
number of organizational and operational requirements.
If the Company fails to qualify as a REIT in any taxable
year, the Company will be subject to federal income tax
(including any applicable alternative minimum tax) on
its taxable income at regular corporate tax rates. The
Company is subject to certain state and local taxes.
Interest Rate
Contracts Interest rate contracts are utilized by the Company to
reduce interest rate risks. The Company does not hold or
issue derivative financial instruments for trading
purposes.
The differentials to be received or paid under contracts
designated as hedges are recognized in income over the
life of the contracts as adjustments to interest
expense. Gains and losses are deferred and amortized to
interest expense over the remaining life of the
associated debt to the extent that such debt remains
outstanding.
Page 9 of 34
Earnings
Per Share In accordance with the Statement of Financial Accounting
Standards No. 128 ("FASB No. 128"), the Company presents
both basic and diluted earnings per share ("EPS"). Basic
EPS excludes dilution and is computed by dividing net
income available to common stockholders by the weighted
average number of shares outstanding for the period.
Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common
stock were exercised or converted into common stock,
where such exercise or conversion would result in a
lower EPS amount.
Dividends and
Distributions
Payable The dividends and distributions payable at June 30, 1998
represents dividends payable to shareholders of record
on July 6, 1998 (57,973,447 shares), distributions
payable to minority interest common unitholders
(7,675,081 common units) on that same date and preferred
distributions to preferred unitholders (248,055
preferred units) for the second quarter 1998. The second
quarter 1998 dividends and common unit distributions of
$0.50 per share and per common unit (pro-rated for units
issued during the quarter), as well as the second
quarter preferred unit distribution of $16.875 per
preferred unit (pro-rated for units issued during the
quarter), were approved by the Board of Directors on
June 24, 1998 and were paid on July 22, 1998.
Underwriting
Commissions
and Costs Underwriting commissions and costs incurred in
connection with the Company's stock offerings are
reflected as a reduction of additional paid-in-capital.
Stock Options The Company accounts for stock-based compensation using
the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related Interpretations ("APB
No. 25"). Under APB No. 25, compensation cost is
measured as the excess, if any, of the quoted market
price of the Company's stock at the date of grant over
the exercise price of the option granted. Compensation
cost for stock options, if any, is recognized ratably
over the vesting period. The Company's policy is to
grant options with an exercise price equal to the quoted
closing market price of the Company's stock on the
business day preceding the grant date. Accordingly, no
compensation cost has been recognized for the Company's
stock option plans. See Note 13.
Reclassifications Certain reclassifications have been made to prior period
balances in order to conform with current period
presentation.
3. ACQUISITIONS/TRANSACTIONS
On January 31, 1997, the Company acquired 65 properties ("RM Properties") from
Robert Martin Company, LLC and affiliates ("RM") for a total cost of
approximately $450,000. The cost of the transaction (the "RM Transaction") was
financed through the assumption of $185,283 of mortgage indebtedness, the
payment of approximately $220,000 in cash, substantially all of which
was obtained from the Company's cash reserves, and the issuance of
1,401,225 common units, valued at $43,788. The RM Properties consist primarily
of 54 office and office/flex properties, aggregating approximately 3.7 million
square feet, and six industrial/warehouse properties, aggregating approximately
387,000 square feet.
In connection with the RM Transaction, the Company was granted a three-year
option to acquire two properties (the "Option Properties"), under certain
conditions, one of which was acquired in 1997. The purchase price for the
remaining Option Property, under the agreement, is subject to adjustment
based on different formulas and is payable in cash or common units. The Company
holds a $7,250 mortgage loan ("RM Note Receivable") secured by the remaining
Option Property (see Note 7).
On December 11, 1997, the Company acquired 54 office properties, aggregating
approximately 9.2 million square feet, (the "Mack Properties") from the Mack
Company and Patriot American Office Group (the "Mack Transaction"),
Page 10 of 34
pursuant to a Contribution and Exchange Agreement (the "Agreement"), for a total
cost of approximately $1,102,024.
The total cost of the Mack Transaction was financed as follows: (i) $498,757 in
cash made available from the Company's cash reserves and from the $200,000
Prudential Term Loan (see Note 8), (ii) $291,879 in debt assumed by the Company
(the "Mack Mortgages"), (iii) the issuance of 1,965,886 common units, valued at
approximately $66,373, (iv) the issuance of 15,237 Series A preferred units and
215,325 Series B preferred units, valued at approximately $236,491
(collectively, the "Preferred Units"), (v) warrants to purchase 2,000,000 common
units (the "Unit Warrants"), valued at approximately $8,524, and (vi) the
issuance of Contingent Units, as described below.
The 2,006,432 contingent common units, 11,895 Series A contingent preferred
units and 7,799 Series B contingent preferred units (collectively, the
"Contingent Units") were issued as contingent non-participating units. Such
Contingent Units have no voting, distribution or other rights until such time as
they are redeemed into common units, Series A preferred units, and Series B
preferred units, respectively. Redemption of such Contingent Units shall occur
upon the achievement of certain performance goals relating to certain of the
Mack Properties, specifically the achievement of certain leasing activity.
On account of the achievement of certain of the performance goals during the six
months ended June 30, 1998, certain of the Contingent Units were redeemed for a
specified amount of common and preferred units (see Note 9).
With the completion of the Mack Transaction, the Cali Realty Corporation name
was changed to Mack-Cali Realty Corporation, and the name of the Operating
Partnership was changed from Cali Realty, L.P. to Mack-Cali Realty, L.P.
In 1997, the Company also acquired 13 office and office/flex properties,
aggregating 1,495,950 square feet, in nine separate transactions with separate
sellers, for an aggregate cost of approximately $204,446. Such acquisitions were
funded primarily from drawings on the Company's credit facilities.
On January 23, 1998, the Company acquired 10 acres of vacant land in the
Stamford Executive Park, located in Stamford, Fairfield County, Connecticut for
approximately $1,341, funded from the Company's cash reserves. The vacant land,
on which the Company has commenced development of a 40,000 square-foot
office/flex property, was acquired from RMC Development Co., LLC. In conjunction
with the acquisition of the developable land, the Company signed a 15-year
lease, on a triple-net basis, with a single tenant to occupy the entire property
being developed.
On January 30, 1998, the Company acquired a 17-building office/flex portfolio,
aggregating 748,660 square feet located in the Moorestown West Corporate
Center in Moorestown, Burlington County, New Jersey and in Bromley
Commons in Burlington, Burlington County, New Jersey. The 17 properties
("McGarvey Properties") were acquired for a total cost of approximately $47,526.
The Company is under contract to acquire an additional four office/flex
properties in the same locations. The Company also obtained an option to
purchase a property for approximately $3,700, which was subsequently acquired by
the Company on July 14, 1998. The purchase contract also provides the Company a
right of first refusal to acquire up to six additional office/flex properties
totaling 202,000 square feet upon their development and lease-up. The initial
transaction was funded primarily from drawing on one of the Company's credit
facilities as well as the assumption of mortgage debt with an estimated fair
value of approximately $8,354 (the "McGarvey Mortgages"). The McGarvey Mortgages
currently have a weighted average annual effective interest rate of 6.24 percent
and are secured by five of the office/flex properties acquired.
On February 2, 1998, the Company acquired 2115 Linwood Avenue, a 68,000
square-foot vacant office building located in Fort Lee, Bergen County, New
Jersey. The building was acquired for approximately $5,164, which was made
available from drawing on one of the Company's credit facilities. The Company is
currently redeveloping the property for future lease-up and operation.
On February 5, 1998, the Company acquired 500 West Putnam Avenue ("500 West
Putnam"), a 121,250 square-foot office building located in Greenwich, Fairfield
County, Connecticut. The property was acquired for a total cost of approximately
$20,125, funded from drawing on one of the Company's credit facilities, as well
as the assumption of mortgage debt with an estimated fair value of approximately
$12,104, which bears interest at an annual effective interest rate of 6.52
percent.
On February 25, 1998, the Company acquired 10 Mountainview Road
("Mountainview"), a 192,000 square-foot office property, located in Upper Saddle
River, Bergen County, New Jersey. The property was acquired for approximately
$24,754, which was made available from proceeds received from the Company's
February 1998 offering of common stock.
Page 11 of 34
On March 12, 1998, the Company acquired 1250 Capital of Texas Highway South, a
270,703 square-foot office building in Austin, Travis County, Texas. The
property was acquired for a total cost of approximately $37,167, which was made
available from drawing on one of the Company's credit facilities.
On March 27, 1998, the Company acquired four office buildings, a day care
center, plus land parcels, and a 50 percent interest in another office building,
all of such properties aggregating 859,946 square feet and located in the
Prudential Business Campus office complex in Parsippany and Hanover Township,
Morris County, New Jersey. The properties and land parcels were acquired for a
total cost of approximately $175,895, which funds were made available
from the Company's cash reserves (provided in part from the proceeds received
from the sale of 2,705,628 shares of the Company's common stock pursuant to a
Stock Purchase Agreement with The Prudential Insurance Company of America,
Strategic Value Investors, LLC and Strategic Value Investors International, LLC)
and from drawing on one of the Company's credit facilities.
Also, on March 27, 1998, the Company acquired ten office properties (the
"Pacifica I Acquisition"), located in suburban Denver and Colorado Springs,
Colorado, and 2.5 acres of vacant land, located in the Denver Tech Center, from
Pacifica Holding Company ("Pacifica"), a private real estate owner and operator
in Denver, Colorado, for a total cost of approximately $74,818. Such funds were
made available from drawing on one of the Company's credit facilities and the
issuance of common units (see Note 9). The Pacifica I Acquisition comprises an
aggregate of approximately 620,017 square feet of Pacifica's entire 1.2 million
square-foot office portfolio, which consists of 18 office buildings and related
operations. On June 8, 1998, the Company acquired six of the remaining office
buildings as part of the second phase of the Pacifica acquisition (the "Pacifica
II Acquisition"). The Pacifica II Acquisition is comprised of an aggregate of
approximately 514,427 square feet and was acquired for a total cost of
approximately $80,841, which was made available from drawing on one of the
Company's credit facilities and the issuance of common units (see Note 9). The
Company currently is a party to a letter of intent to acquire the remaining two
office buildings, encompassing 95,360 square feet from Pacifica for an aggregate
purchase price of approximately $11,866.
On March 30, 1998, the Company acquired two office buildings, aggregating
303,940 square feet, in the Morris County Financial Center located in
Parsippany, Morris County, New Jersey. The properties were acquired for a total
cost of approximately $52,763, which was made available from drawing on one of
the Company's credit facilities.
On May 13, 1998, the Company acquired 3600 South Yosemite, a 133,743 square-foot
office building located in Denver, Denver County, Colorado. The property was
acquired for approximately $13,519, which was made available from drawing on one
of the Company's credit facilities.
On May 14, 1998, the Company acquired One Ramland Road, a 232,000 square-foot
vacant office/flex building plus developable land, located in Orangeburg,
Rockland County, New York. The property and land were acquired for a total cost
of approximately $7,000, which was made available from the Company's cash
reserves. The Company is currently redeveloping the property for future lease-up
and operation.
On May 22, 1998, the Company acquired 500 College Road East, a 158,235
square-foot office building, located in Princeton, Mercer County, New Jersey.
The property was acquired for approximately $21,334, which was made available
from drawing on one of the Company's credit facilities.
On June 1, 1998, the Company acquired two office buildings and entered into a
contract to acquire a third office building and developable land, all from the
same seller, as further described below. The Company acquired on June 1, 1998,
1709 New York Avenue Northwest and 1400 L Street Northwest, two office
properties aggregating 325,000 square feet located in Washington, D.C. The
properties were acquired for a total cost of approximately $90,347, which was
made available from drawing on one of the Company's credit facilities.
Subsequently, on July 16, 1998, the Company acquired 4200 Parliament Drive, a
122,000 square-foot office property, plus adjacent developable land, located in
Lanham, Prince George's County, Maryland. The property and land were acquired
for a total cost of approximately $15,650, which was made available from drawing
on one of the Company's credit facilities.
On June 3, 1998, the Company acquired 400 South Colorado Boulevard, a 125,415
square-foot office building, located in Denver, Denver County, Colorado. The
property was acquired for approximately $12,015, which was made available from
drawing on one of the Company's credit facilities.
On June 8, 1998, the Company completed construction of Two Center Court, a
30,600 square-foot office/flex building, located in the Company's Commercenter
Office Park, in Totowa, Passaic County, New Jersey. The property was constructed
for a cost of approximately $2,124.
Page 12 of 34
On July 14, 1998, the Company acquired 1510 Lancer Road, an 88,000 square-foot
office/flex building, located in Moorestown West Corporate Center in Moorestown,
Burlington County, New Jersey for approximately $3,700, which was made available
from drawing on one of the Company's credit facilities. The property was
acquired through the Company's exercise of a purchase option obtained
simultaneous with the acquisition of 17 office/flex buildings from the same
seller on January 30, 1998.
4. INVESTMENTS IN PARTIALLY-OWNED ENTITIES
On March 27, 1998, the Company acquired a 50 percent interest in an existing
joint venture, which owns Nine Campus Drive, a 156,495 square-foot office
building, located in the Prudential Business Campus office complex in
Parsippany, Morris County, New Jersey, as previously mentioned (see Note 3).
On April 23, 1998, the Company entered into a joint venture agreement with HCG
Development, L.L.C. and Summit Partners I, L.L.C. to form HPMC Development
Partners, L.P. The venture was formed with the purpose of investing in, holding,
rehabilitating, developing, managing, maintaining, and operating real estate
investments, primarily in California. Initially, the venture's efforts have
focused on two development projects, commonly referred to as Summit Continental
Grand and Summit Ridge. Summit Continental Grand is a 4.2 acre site located on
El Segundo, Los Angeles County, California, where the venture owns and has
commenced construction of a 237,000 square-foot office property. Summit Ridge is
a 7.3 acre site located in San Diego, San Diego County, California, which the
venture plans to acquire and build a 132,000 square-foot office/flex property.
The Company is required to make capital contributions to the venture totaling up
to $19,200, pursuant to the partnership agreement. Through June 30, 1998, the
Company has invested approximately $7,044 in the venture. Amongst other things,
the partnership agreement provides 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.
On April 30, 1998, the Company acquired a 49.9 percent interest in an existing
joint venture, which owns Convention Plaza, a 305,000 square-foot office
building, located in San Francisco, San Francisco County, California. The
Company acquired its interest in the venture for a total initial investment of
approximately $11,818, through the issuance of common units (see Note 9) and
funds drawn from the Company's credit facilities.
On May 20, 1998, the Company entered into a joint venture agreement with
Columbia Development Corp. to form American Financial Exchange L.L.C. The
venture was formed to initially acquire land for future development, located on
the Hudson River waterfront in Jersey City, Hudson County, New Jersey, adjacent
to the Company's Harborside property. The Company invested approximately $9,917
in the joint venture through June 30, 1998 and holds a 50 percent interest.
Amongst other things, the partnership agreement provides 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
joint venture has acquired land on which it has constructed a parking
facility, which is currently leased to a parking operator under a 10-year
lease. Such parking facility serves the recently-commenced ferry service
between the Harborside property and Manhattan.
The following is a combined summary of the financial position of the
partially-owned entities in which the Company has investment interests:
June 30,
1998
Assets:
Rental property, net $56,066
Other assets 12,720
------
Total assets $68,786
------
------
Liabilities and partners' equity:
Mortgage payable $39,000
Other liabilities 2,131
Partners' equity 27,655
------
Total liabilities and partners' equity $68,786
------
------
Page 13 of 34
The following is a combined summary of the results of operations of the
partially-owned entities in which the Company has investment interests (from the
date of the Company's initial investment through the end of the period for
existing joint ventures) for the three and six month periods ended June 30,
1998:
Three Months Ended Six Months Ended
June 30, 1998 June 30, 1998
------------- -------------
Rental and other revenues $ 1,776 $ 1,806
Operating and other expenses (652) (658)
Interest expense (505) (505)
Depreciation and amortization (479) (479)
------ -----
Net income $ 140 $ 164
------ -----
------ -----
Company's share of net income $ 70 $ 95
------ -----
5. DEFERRED CHARGES AND OTHER ASSETS
June 30, December 31,
1998 1997
Deferred leasing costs $ 25,789 $ 20,297
Deferred financing costs 7,894 3,640
------ -------
33,683 23,937
Accumulated amortization (10,690) (9,535)
------- ------
Deferred charges, net 22,993 14,402
Prepaid expenses and other assets 7,329 4,587
------ ------
Total deferred charges and other assets, net $ 30,322 $ 18,989
------ ------
------ ------
6. RESTRICTED CASH
Restricted cash includes security deposits for the Company's residential
properties and certain commercial properties, and escrow and reserve funds for
debt service, real estate taxes, property insurance, capital improvements,
tenant improvements, and leasing costs established pursuant to certain mortgage
financing arrangements, and is comprised of the following:
June 30, December 31,
1998 1997
Escrow and other reserve funds $ 310 $ 1,278
Security deposits 5,173 5,566
----- -----
Total restricted cash $ 5,483 $ 6,844
----- -----
----- -----
7. MORTGAGE NOTE RECEIVABLE
In connection with the RM Transaction on January 31, 1997, the Company provided
a $11,600 non-recourse mortgage loan (the "RM Note Receivable") to entities
controlled by the RM principals, bearing interest at an annual rate of 450 basis
points over one-month LIBOR (5.66 percent at June 30, 1998). The RM Note
Receivable, which is secured by the Option Properties and guaranteed by certain
of the RM principals, matures on February 1, 2000. In conjunction with the
acquisition of one of the Option Properties on August 15, 1997, the sellers of
the property, certain RM principals, prepaid $4,350 of the RM Note Receivable,
leaving a principal balance of $7,250 secured by the remaining Option Property.
On March 6, 1998, prior to the completion of the Pacifica I Acquisition, the
Company provided a $20,000 mortgage loan to an entity controlled by certain
principals of Pacifica. Such mortgage loan was secured by an office property in
California and bore interest at an annual rate of 9.25 percent. The mortgage
loan was subsequently prepaid in full by the borrower on June 10, 1998. The
Company received a prepayment fee of $200 with the retirement of the mortgage
loan.
Page 14 of 34
8. MORTGAGES AND LOANS PAYABLE
June 30, December 31,
1998 1997
Prudential Mortgages $ 211,221 $ 262,205
TIAA Mortgage 185,283 185,283
Harborside Mortgages 150,000 150,000
Mitsubishi Mortgages 72,204 72,204
CIGNA Mortgages 47,721 86,650
Other Mortgages 79,184 88,474
Revolving Credit Facilities 599,441 122,100
Contingent Obligation 5,942 5,734
--------- --------
Total mortgages and loans payable $ 1,350,996 $ 972,650
--------- --------
--------- --------
PRUDENTIAL MORTGAGES
The Company has mortgage debt from The Prudential Insurance Company of America
and its subsidiaries (the "Prudential Mortgages") aggregating $211,221 and
$262,205 as of June 30, 1998 and December 31, 1997, respectively, comprised of
the following:
The Company has certain non-recourse mortgage debt, aggregating $61,221 in
principal as of June 30, 1998, with The Prudential Insurance Company of
America ("Prudential"), substantially all of which was assumed in the Mack
Transaction. Such mortgages, which are secured by three properties, bear
interest at a weighted average fixed rate of 8.31 percent, all of which
requiring monthly payments of interest. Certain of the mortgages require
monthly payments of principal, in addition to interest, on various term
amortization schedules. The mortgages mature between October 2003 and
July 2004.
On December 10, 1997, the Company obtained a $200,000 term loan (the "Prudential
Term Loan") from Prudential Securities Corp. ("PSC"). The proceeds of the loan
were used to fund a portion of the cash consideration in completion of the Mack
Transaction. The loan had a one-year term and interest payments were required
monthly at an interest rate of 110 basis points over one-month LIBOR. The loan
was a recourse loan secured by 11 properties owned by the Company and located in
New Jersey. The Prudential Term Loan was retired in April 1998, simultaneous
with the Company obtaining the $150,000 Prudential Mortgage Loan, as described
below.
On April 30, 1998, the Company obtained a $150,000, interest-only, non-recourse
mortgage loan from Prudential ("$150,000 Prudential Mortgage Loan"). The
loan, which is secured by 12 of the Company's properties, has an effective
annual interest rate of 7.10 percent and a seven-year term. The Company, at
its option, may convert the mortgage loan to unsecured debt upon achievement
by the Company of a credit rating of Baa3/BBB - or better. The mortgage loan
is prepayable in whole or in part subject to certain provisions, including
yield maintenance. The proceeds of the new loan were used, along with funds
drawn from one of the Company's credit facilities, to retire the Prudential
Term Loan, as well as approximately $48,224 of the Mack Mortgages.
TIAA MORTGAGE
In connection with the RM Transaction, on January 31, 1997, the Company assumed
a $185,283 non-recourse mortgage loan with Teachers Insurance and Annuity
Association of America ("TIAA"), with interest only payable monthly at a fixed
annual rate of 7.18 percent (the "TIAA Mortgage"). The TIAA Mortgage is secured
and cross-collateralized by 43 of the RM Properties and matures on December 31,
2003. The Company, at its option, may convert, without any yield maintenance
obligation or prepayment premium, the TIAA Mortgage to unsecured public debt
upon achievement by the Company of a credit rating of Baa3/BBB- or
better. The TIAA Mortgage is prepayable in whole or in part subject to certain
provisions, including yield maintenance which is generally 100 basis points over
United States Treasury obligations or similar maturity to the remaining maturity
of the TIAA Mortgage at the time prepayment is being sought.
Page 15 of 34
HARBORSIDE MORTGAGES In connection with the acquisition of Harborside
Financial Center ("Harborside"), on November 4, 1996, the Company assumed
existing mortgage debt and was provided seller-financed mortgage debt
aggregating $150,000. The existing non-recourse mortgage financing, with a
principal balance of $103,337 and $104,768 as of June 30, 1998 and December
31, 1997, respectively, bears interest at a fixed rate of 7.32 percent and
matures on January 1, 2006. The seller-provided mortgage financing, with a
principal balance of $46,663 and $45,232 as of June 30, 1998 and December 31,
1997, respectively, matures on January 1, 2006 and initially bears interest
at an annual rate of 6.99 percent. The interest rate on the seller-provided
financing will be reset at the end of the third and sixth loan years based on
the yield of the three-year treasury obligation at that time, with spreads of
110 basis points in years four through six and 130 basis points in years
seven through maturity.
MITSUBISHI MORTGAGES In connection with the Mack Transaction, the Company
assumed non-recourse, variable-rate mortgage debt (the "Mitsubishi Mortgages")
aggregating $72,204 in principal as of June 30, 1998 and December 31, 1997
with Mitsubishi Trust and Banking Corporation. Such mortgages, which are
secured by two of the Mack Properties, bear interest at a variable rate of 65
basis points over LIBOR and mature between January 2008 and January 2009.
CIGNA MORTGAGES In connection with the Mack Transaction, the Company assumed
non-recourse mortgage debt (the "CIGNA Mortgages") aggregating $47,721 and
$86,650 in principal as of June 30, 1998 and December 31, 1997, respectively,
with Connecticut General Life Insurance Company (CIGNA). Such mortgages,
which are secured by five of the Mack Properties, bear interest at a weighted
average annual fixed rate of 7.85 percent and require monthly payments of
interest and principal on various term amortization schedules. The various
mortgages mature between October 1998 and October 2003. In April 1998,
simultaneous with the Company obtaining the $150,000 Prudential Mortgage Loan,
as described above, the Company retired one of the CIGNA Mortgages with a
principal balance of $27,835.
OTHER MORTGAGES The Company has mortgage debt ("Other Mortgages") aggregating
$79,184 and $88,474 in principal as of June 30, 1998 and December 31, 1997,
respectively, with eight different lenders, all of which were assumed in the
Mack Transaction as well as the 1998 acquisitions of the McGarvey Properties
and 500 West Putnam, and are secured by 14 individual properties. As of June
30, 1998, the Other Mortgages bear interest at a weighted average annual fixed
effective rate of 7.59 percent, and require monthly payments of principal and
interest on various term amortization schedules. The Other Mortgages mature
between February 1999 and October 2010. Variable rate debt included in Other
Mortgages, aggregating $20,338, which bore interest at 115 basis points over
LIBOR, was retired in April 1998, simultaneous with the Company obtaining the
$150,000 Prudential Mortgage Loan, as described above.
REVOLVING CREDIT FACILITIES
Original Unsecured Facility
On August 6, 1997, the Company obtained an unsecured revolving credit
facility (the "Original Unsecured Facility") in the amount of $400,000
from a group of 13 lender banks. The facility carried a three-year term
and bore interest at 125 basis points over one-month LIBOR.
The terms of the Original Unsecured Facility included certain restrictions
and covenants which limited, among other things, dividend payments and
additional indebtedness and which required compliance with specified
financial ratios and other financial measurements. The facility also
required a fee on the unused balance payable quarterly in arrears, at a rate
ranging from one-eighth of one percent to one-quarter of one percent of such
balance, depending on the level of borrowings outstanding in relation to the
total facility commitment.
The Company had outstanding borrowings of $122,100 at December 31, 1997,
under the Original Unsecured Facility. The Original Unsecured Facility was
repaid in full and retired in connection with the Company obtaining the 1998
Unsecured Facility in April 1998, as described below.
1998 Unsecured Facility
On April 17, 1998, the Company repaid in full and terminated the Original
Unsecured Facility and obtained a new unsecured revolving credit facility
(the "1998 Unsecured Facility") in the amount of $870,000 from a group of
25 lender banks, led by The Chase Manhattan Bank and Fleet National Bank.
In July 1998, the 1998 Unsecured Facility was expanded to $900,000 with
the addition of two new lender banks into the facility, bringing the
total number of participants to 27 banking institutions. The 1998
Unsecured Facility has a three-year term and currently bears interest at
110 basis points over LIBOR, a reduction of 15 basis points from the
retired Original Unsecured Facility. Based upon the Company's achievement
of an investment grade unsecured debt rating, the interest rate will be
reduced, on a sliding scale, and a competitive bid option will become
available.
Page 16 of 34
The terms of the 1998 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 assets, 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 equity interests in an aggregate amount in excess of
90 percent of funds from operations for such period, subject to certain
other adjustments. The 1998 Unsecured Facility also requires a 17.5 basis
point fee on the unused balance payable quarterly in arrears.
The lending group for the 1998 Unsecured Facility consists of: The Chase
Manhattan Bank, as administrative agent; Fleet National Bank, as
syndication agent; PNC Bank, N.A., as documentation agent; Bankers Trust,
Commerzbank, AG, The First National Bank of Chicago, First Union National
Bank and NationsBank, as managing agents; Creditanstalt Corporate
Finance, Inc., Dresdner Bank, AG, European American Bank, Hypo Bank,
Societe Generale and Summit Bank, as co-agents; and Kredietbank, N.V.,
Key Bank, Mellon Bank, N.A., The Bank of New York, Citizens Bank,
Crestar, DG Bank, Tokai Bank, US Trust, Bayerische Landesbank, Erste
Bank, BankLeumi USA and Bank One, Arizona, NA.
Prudential Facility
The Company has a revolving credit facility (the "Prudential Facility")
from PSC in the amount of $100,000, which currently bears interest at 110
basis points over one-month LIBOR, with a maturity date of March 31, 1999.
In July 1998, the Prudential Facility's maturity date was extended to
June 30, 1999. The Prudential Facility is a recourse liability of the
Operating Partnership and is secured by the Company's equity interest in
Harborside. The Prudential Facility limits the ability of the Operating
Partnership to make any distributions during any fiscal quarter in an
amount in excess of 100 percent of the Operating Partnership's available
funds from operations for the immediately preceding fiscal quarter
(except to the extent such excess distributions or dividends are
attributable to gains from the sale of the Operating Partnership's assets
or are required for the Company to maintain its status as a REIT under
the Code); provided, however, that the Operating Partnership may make
distributions and pay dividends in excess of 100 percent of available
funds from operations for the preceding fiscal quarter for not more than
three consecutive quarters. In addition to the foregoing, the Prudential
Facility limits the liens placed upon the subject property and certain
collateral, the use of proceeds from the Prudential Facility, and the
maintenance of ownership of the subject property and assets derived from
said ownership. The Company had no outstanding borrowings at June 30,
1998 and December 31, 1997 under the Prudential Facility.
CONTINGENT OBLIGATION
As part of the Harborside acquisition, the Company agreed to make payments
(with an estimated net present value of approximately $5,252 at acquisition
date) to the seller for development rights ("Contingent Obligation") if and
when the Company commences construction on the acquired site during the next
several years. However, the agreement provides, among other things, that even
if the Company does not commence construction, the seller may nevertheless
require the Company to acquire these rights during the six-month period after
the end of the sixth year. After such period, the seller's option lapses, but
any development in years 7 through 30 will require a payment, on an
increasing scale, for the development rights. The Company is currently in the
pre-development phase of a long-range plan to develop the Harborisde site on
a multi-property, multi-use basis.
For the six months ended June 30, 1998, interest was imputed on the
Contingent Obligation, thereby increasing the balance of the Contingent
Obligation from $5,734 as of December 31, 1997 to $5,942 as of June 30, 1998.
INTEREST RATE CONTRACTS
On May 24, 1995, the Company entered into an interest rate swap agreement
with a commercial bank. The swap agreement fixes the Company's one-month
LIBOR base for 6.285 percent per annum on a notional amount of $24,000
through August 1999.
On January 23, 1996, the Company entered into another interest rate swap
agreement with a commercial bank. This swap agreement has a three-year term
and a notional amount of $26,000, which fixes the Company's one-month LIBOR
base to 5.265 percent per annum.
Page 17 of 34
The Company is exposed to credit loss in the event of non-performance by the
other parties to the interest rate contracts. However, the Company does not
anticipate non-performance by either of the counter parties.
CASH PAID FOR INTEREST & INTEREST CAPITALIZED
Cash paid for interest for the six months ended June 30, 1998 and 1997 was
$61,440 and $16,563, respectively. Interest capitalized by the Company for
the six months ended June 30, 1998 and 1997 was $1,085 and none, respectively.
9. MINORITY INTEREST
Minority interest in the accompanying consolidated financial statements
relates to common units in the Operating Partnership, in addition to Preferred
Units and Unit Warrants issued in connection with the Mack
Transaction, held by parties other than the Company.
Preferred Units
As described in Note 3, in connection with the funding of the Mack
Transaction, the Company issued 15,237 Series A Preferred Units and 215,325
Series B Preferred Units, with an aggregate value of $236,491. The Preferred
Units have a stated value of $1,000 per unit and are preferred as to assets
over any class of common units or other class of preferred units of the
Company, based on circumstances per the applicable unit certificates.
The quarterly distribution on each Preferred Unit (representing 6.75 percent
of the Preferred Unit stated value of $1,000 on an annualized basis) is an
amount equal to the greater of (i) $16.875 or (ii) the quarterly distribution
attributable to a Preferred Unit determined as if such unit had been
converted into common units, subject to adjustment for customary
anti-dilution rights. Each of the Series A Preferred Units may be converted
at any time into common units at a conversion price of $34.65 per unit, and,
after the one year anniversary of the date of the Series A Preferred Units'
initial issuance, common units received pursuant to such conversion may be
redeemed into common stock. Each of the Series B Preferred Units may be
converted at any time into common units at a conversion price of $34.65 per
unit, and, after the three year anniversary of the date of the Series B
Preferred Units' initial issuance, common units received pursuant to such
conversion may be redeemed into common stock. Each of the common units are
redeemable after one year for an equal number of shares of common stock.
The Preferred Units, issued in the Mack Transaction, are convertible into
common units at $34.65 per common unit, which is an amount less than the
$39.0625 closing stock price on the date of closing of the Mack Transaction.
Accordingly, the Company recorded, on December 11, 1997, the financial value
ascribed to the beneficial conversion feature inherent in the Preferred Units
upon issuance, which totaled $26,801 ($29,361, before allocation to minority
common unitholders) and was recorded as beneficial conversion feature in
stockholders' equity. The beneficial conversion feature was amortized in full
as the Preferred Units were immediately convertible upon issuance; such
amortization was included in minority interest for the year ended December
31, 1997.
During the six months ended June 30, 1998, the Company issued 17,493
additional Preferred Units (10,565 of Series A and 6,928 of Series B), valued
at approximately $17,943, in connection with the achievement of certain
performance goals at the Mack Properties in redemption of an equivalent
number of Contingent Units. Such Preferred Units carry the identical terms as
those issued in the Mack Transaction.
Common Units
Certain individuals and entities own common units in the Operating
Partnership. A common unit and a share of common stock of the Company have
substantially the same economic characteristics in as much as they
effectively share equally in the net income or loss of the Operating
Partnership.
Common units are redeemable by the common unitholders at their option,
subject to certain restrictions, on the basis of one common unit for either
one share of common stock or cash equal to the fair market value of a share
at the time of the redemption. The Company has the option to deliver shares
of common stock in exchange for all or any portion of the cash requested.
When a unitholder redeems a common unit, minority interest is reduced and the
Company's investment in the Operating Partnership is increased.
During the six months ended June 30, 1998, the Operating Partnership redeemed
a total of 82,880 common units in exchange for an aggregate of $3,163 in
cash. Additionally, the Operating Partnership redeemed an aggregate of 22,300
common units for an equivalent number of shares of common stock in the
Company.
Page 18 of 34
As described in Note 3, the Company issued an aggregate of 3,408,532 common
units in 1997 in connection with the completion of the RM Transaction, the
Mack Transaction and a 1997 single-property acquisition.
On March 26, 1998, in connection with the Pacifica I Acquisition, the Company
issued 100,175 common units, valued at approximately $3,779.
On April 30, 1998, in connection with the acquisition of a 49.9 percent
interest in a joint venture (see Note 4), the Company issued 218,105 common
units, valued at approximately $8,334.
On June 8, 1998, in connection with the Pacifica II Acquisition, the Company
issued 585,263 common units, valued at approximately $20,753.
During the six months ended June 30, 1998, the Company also issued 779,241
common units, valued at approximately $30,129, in connection with the
achievement of certain performance goals at the Mack Properties in redemption
of an equivalent number of contingent common units.
Contingent Common & Preferred Units
In conjunction with the completion of the Mack Transaction (see Note 3),
2,006,432 contingent common units, 11,895 Series A contingent Preferred Units
and 7,799 Series B contingent Preferred Units were issued as contingent
non-participating units. Such Contingent Units have no voting, distribution
or other rights until such time as they are redeemed into common units,
Series A Preferred Units, and Series B Preferred Units, respectively.
Redemption of such Contingent Units shall occur upon the achievement of
certain performance goals relating to certain of the Mack Properties,
specifically the achievement of certain leasing activity. When Contingent
Units are redeemed for common and Preferred Units, an adjustment to the
purchase price of certain of the Mack Properties is recorded, based on the
value of the units issued. On account of certain of the performance goals
having been achieved during the six months ended June 30, 1998, the Company
redeemed 779,241 contingent common units and 17,493 contingent Preferred
Units and issued an equivalent number of common and Preferred Units, as
indicated above.
Unit Warrants
As described in Note 3, in connection with the funding of the Mack
Transaction, the Company granted warrants to purchase 2,000,000 common units.
The Unit Warrants are exercisable at any time after one year from the date of
their issuance and prior to the fifth anniversary date thereof at an exercise
price of $37.80 per common unit.
Minority Ownership
As of June 30, 1998 and December 31, 1997, the minority interest common
unitholders owned 11.7 percent (20.4 percent, including the effect of the
conversion of Preferred Units into common units) and 10.9 percent (20.4
percent including the effect of the conversion of Preferred Units into common
units) of the Operating Partnership, respectively (excluding any effect for
the exercise of Unit Warrants).
10. EMPLOYEE BENEFIT PLAN
All employees of the Company who meet certain minimum age and period of
service requirements are eligible to participate in a 401(k) defined
contribution plan (the "Plan"). The Plan allows eligible employees to defer
up to 15 percent of their annual compensation. The amounts contributed by
employees are immediately vested and non-forfeitable. The Company, at
management's discretion, may match employee contributions, although no
employer contributions have been made to date.
11. COMMITMENTS AND CONTINGENCIES
Tax Abatement Agreements
Grove Street Property
Pursuant to an agreement with the City of Jersey City, New Jersey, as
amended, expiring in 2004, the Company is required to make payments in lieu
of property taxes ("PILOT") on its property at 95 Christopher Columbus Drive,
Jersey City, Hudson County, New Jersey. Such PILOT, as defined, is $1,267 per
annum through May 31, 1999 and $1,584 per annum through May 31, 2004.
Page 19 of 34
Harborside Financial Center Property
Pursuant to an agreement with the City of Jersey City, New Jersey obtained by
the former owner of the Harborside property in 1988 and assumed by the
Company as part of the acquisition of the property in November 1996, the
Company is required to make PILOT payments on its Harborside property. The
agreement, which commenced in 1990, is for a term of 15 years. Such PILOT is
equal to two percent of Total Project Costs, as defined, in year one and
increases by $75 per annum through year fifteen. Total Project Costs, as
defined, are $148,712.
Ground Lease Agreements
Future minimum rental payments under the terms of all non-cancelable ground
leases, under which the Company is the lessee, as of June 30, 1998, are as
follows:
Period Amount
- ------- --------
July 1, 1998 to December 31, 1998 $ 240
1999 479
2000 479
2001 479
2002 479
Thereafter 20,923
- ---------- ---------
Total $23,079
- ---------- ---------
- ---------- ---------
Other Contingencies
On December 10, 1997, a Shareholder's Derivative Action was filed in Maryland
Court on behalf of a shareholder. The complaint questioned certain executive
compensation decisions made by the Company's Board of Directors in connection
with the Mack Transaction. The Board's compensation decisions were discussed
in the proxy materials distributed in connection with the Mack Transaction
and were approved by in excess of 99 percent of the voting shareholders.
Although the Company believes that this lawsuit was factually and legally
baseless, the Company on May 4, 1998 agreed to a settlement which included
making certain changes to employment agreements of certain of its executive
officers. The Company incurred $750 in costs associated with this action,
which was provided for at December 31, 1997.
The Company is a defendant in other certain litigation arising in the normal
course of business activities. Management does not believe that the
resolution of these matters will have a materially adverse effect upon the
Company.
12. TENANT LEASES
The Properties are leased to tenants under operating leases with various
expiration dates through 2020. Substantially all of the leases provide for
annual base rents plus recoveries and escalation charges based upon the
tenant's proportionate share of and/or increases in real estate taxes and
certain operating costs, as defined, and the pass through of charges for
electrical usage.
13. STOCKHOLDERS' EQUITY
To maintain its qualification as a REIT, not more than 50 percent in value of
the outstanding shares of the Company may be owned, directly or indirectly,
by five or fewer individuals at any time during the last half of any taxable
year of the Company, other than its initial taxable year (defined to include
certain entities), applying certain constructive ownership rules. To help
ensure that the Company will not fail this test, the Company's Articles of
Incorporation provide for, among other things, certain restrictions on the
transfer of the common stock to prevent further concentration of stock
ownership. Moreover, to evidence compliance with these requirements, the
Company must maintain records that disclose the actual ownership of its
outstanding common stock and will demand written statements each year from
the holders of record of designated percentages of its common stock
requesting the disclosure of the beneficial owners of such common stock.
On May 15, 1997, the stockholders approved an increase in the authorized
shares of common stock in the Company to 190,000,000.
Page 20 of 34
On October 15, 1997, the Company completed an underwritten public offer and
sale of 13,000,000 shares (the "1997 Offering") of its common stock. The
Company received approximately $489,116 in net proceeds (after offering
costs) from the 1997 Offering. The Company used $160,000 of such proceeds to
repay outstanding borrowings on its Original Unsecured Facility and the
remainder of the proceeds to fund a portion of the purchase price of the Mack
Transaction, for other potential acquisitions, and for general corporate
purposes.
On February 25, 1998, the Company completed an underwritten public offer and
sale of 2,500,000 shares of its common stock and used the net proceeds, which
totaled approximately $92,194 (after offering costs) to pay down a portion of
its outstanding borrowings under the Company's credit facilities and fund the
acquisition of Moutainview (see Note 3).
On March 18, 1998, in connection with the acquisition of Prudential Business
Campus, the Company completed an offer and sale of 2,705,628 shares of its
common stock using the net proceeds of approximately $99,899 (after offering
costs) in the funding of such acquisition (see Note 3).
On March 27, 1998, the Company completed an underwritten public offer and
sale of 650,407 shares of its common stock and used the net proceeds, which
totaled approximately $23,690 (after offering costs) to pay down a portion of
its outstanding borrowings under the Company's credit facilities.
On April 29, 1998, the Company completed an underwritten offer and sale of
994,228 shares of its common stock and used the net proceeds, which totaled
approximately $34,570 (after offering costs), primarily to pay down a portion
of its outstanding borrowings under the Company's credit facilities.
On May 29, 1998, the Company completed an underwritten offer and sale of
984,615 shares of its common stock and used the net proceeds, which totaled
approximately $34,100 (after offering costs), primarily to pay down a portion
of its outstanding borrowings under the Company's credit facilities.
On August 6, 1998, the Board of Directors of the Company authorized a share
repurchase program ("Repurchase Program") under which the Company was
permitted to purchase up to $100,000 of the Company's common stock. Purchases
could be made from time to time in open market transactions at prevailing
prices or through privately negotiated transactions. Subsequently, through
August 12, 1998, the Company purchased, for constructive retirement, 215,200
shares of its outstanding common stock for an aggregate cost of approximately
$6,586. Concurrent with this purchase, the Company sold to the Operating
Partnership 215,200 common units for approximately $6,586.
Stock Option Plans
In 1994, and as subsequently amended, the Company established the Cali
Employee Stock Option Plan ("Employee Plan") and the Cali Director Stock
Option Plan ("Director Plan") under which a total of 5,380,188 shares
(subject to adjustment) of the Company's common stock have been reserved for
issuance (4,980,188 shares under the Employee Plan and 400,000 shares under
the Director Plan). Stock options granted under the Employee Plan in 1994 and
1995 become exercisable over a three-year period and those options granted
under the Employee Plan in 1996 and 1997 become exercisable over a five-year
period. All stock options granted under the Director Plan become exercisable
in one year. All options were granted at the fair market value at the dates
of grant and have terms of ten years. As of June 30, 1998, and December 31,
1997, the stock options outstanding had a weighted average remaining
contractual life of approximately 8.9 and 9.0 years, respectively.
Page 21 of 34
Information regarding the Company's stock option plans is summarized below:
Weighted
Shares Average
Under Exercise
Options Price
-------- -----------
Outstanding at January 1, 1995 625,000 $17.23
Granted 230,200 17.69
Exercised -- --
Lapsed or canceled 3,588 17.25
-------- -----------
Outstanding at December 31, 1995 851,612 17.36
Granted 809,700 23.97
Exercised 126,041 17.25
Lapsed or canceled 7,164 19.52
-------- -----------
Outstanding at December 31, 1996 1,528,107 20.86
Granted 2,126,538 37.35
Exercised 337,282 21.33
Lapsed or canceled 30,073 22.62
-------- -----------
Outstanding at December 31, 1997 3,287,290 31.47
Granted 901,150 37.31
Exercised 257,980 20.42
Lapsed or canceled 55,714 36.17
--------- -----------
Outstanding at June 30, 1998 3,874,746 $33.49
========= ===========
Options exercisable at December 31, 1997 1,004,618 $25.22
Options exercisable at June 30, 1998 1,185,047 $26.33
--------- -----------
Available for grant at December 31, 1997 1,629,575
Available for grant at June 30, 1998 784,139
---------
Stock Warrants
On January 31, 1997, in conjunction with the completion of the RM
Transaction, the Company granted a total of 400,000 warrants to purchase an
equal number of shares of common stock ("Stock Warrants") at $33 per share
(the market price at date of grant) to Timothy Jones, Brad Berger and certain
other Company employees formerly with RM. Such warrants vest equally over a
three-year period and have a term of ten years.
On December 12, 1997, in conjunction with the completion of the Mack
Transaction, the Company granted a total of 491,756 Stock Warrants to
purchase an equal number of shares of common stock at $38.75 per share (the
market price at date of grant) to Mitchell Hersh, and certain Company
executives formerly with the Patriot American Office Group. Such warrants
vest equally over a five-year period and have a term of ten years.
Stock Compensation
In January 1997, the Company entered into employment contracts with seven of
its key executives which provided for, among other things, compensation in
the form of stock awards ("Restricted Stock Awards") and Company-financed
stock purchase rights ("Stock Purchase Rights"), and associated tax
obligation payments. In connection with the Restricted Stock Awards, the
executives were to receive 199,070 shares of the Company's common stock
vesting over a five-year period contingent on the Company meeting certain
performance objectives. Additionally, pursuant to the terms of the Stock
Purchase Rights, the Company provided fixed rate, non-recourse loans,
aggregating $4,750, to such executives to finance their purchase of 152,000
shares of the Company's common stock, which the Company agreed to forgive
ratably over five years, subject to continued employment. Such loans were for
amounts equal to the fair market value of the associated shares at the date
of grant. Subsequently, from April 18, 1997 through April 24, 1997, the
Company purchased, for constructive retirement, 152,000 shares of its
outstanding common stock for $4,680. The excess of the purchase price over
par value was recorded as a reduction to additional paid-in capital.
Concurrent with this purchase, the Company sold to the Operating Partnership
152,000 common units for $4,680.
The value of the Restricted Stock Awards and the balance of the loans related
to the Stock Purchase Rights at the grant date were recorded as unamortized
stock compensation in stockholders' equity. As a result of provisions
contained in certain of the Company's executive officers' employment
agreements, which were triggered by the Mack Transaction on December 11,
1997, the loans provided by the Company under the Stock Purchase Rights were
forgiven by the
Page 22 of 34
Company, and the vesting and issuance of the restricted stock issued under the
Restricted Stock Awards was accelerated, and related tax obligation payments
were made.
Earnings Per Share
- ------------------
FASB No. 128 requires a dual presentation of basic and diluted earnings per
share ("EPS") on the face of the income statement for all companies with complex
capital structures even where the effect of such dilution is not material. Basic
EPS excludes dilution and is computed by dividing net income available to common
stockholders by the weighted average number of shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock.
The following information presents the Company's results for the three and six
month periods ended June 30, 1998 and 1997 in accordance with FASB No. 128.
Three Months
Ended June 30,
1998 1997
---- ----
Basic EPS Diluted EPS Basic EPS Diluted EPS
--------- ----------- --------- -----------
Net income $ 28,015 $ 28,015 $ 18,025 $ 18,025
Add: Net income attributable
to potentially dilutive
securities -- 3,500 -- 2,012
-------- --------- --------- ---------
Adjusted net income $ 28,015 $ 31,515 $ 18,025 $ 20,037
-------- --------- --------- ---------
-------- --------- --------- ---------
Weighted average shares 57,019 64,626 36,489 41,213
-------- --------- --------- ---------
Per Share $ 0.49 $ 0.49 $ 0.49 $ 0.49
-------- --------- --------- ---------
-------- --------- --------- ---------
Six Months
Ended June 30,
1998 1997
---- ----
Basic EPS Diluted EPS Basic EPS Diluted EPS
--------- ----------- --------- -----------
Net income $ 54,558 $ 54,558 $ 34,484 $ 34,484
Add: Net income attributable
to potentially dilutive
securities -- 6,895 -- 3,648
-------- --------- --------- ---------
Adjusted net income $ 54,558 $ 61,453 $ 34,484 $ 38,132
-------- --------- --------- ---------
-------- --------- --------- ---------
Weighted average shares 54,207 61,671 36,475 41,016
-------- --------- --------- ---------
Per Share $ 1.01 $ 1.00 $ 0.95 $ 0.93
-------- --------- --------- ---------
-------- --------- --------- ---------
The following schedule reconciles the shares used in the basic EPS calculation
to the shares used in the diluted EPS calculation.
Three Months Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
---- ---- ---- ----
Basic EPS Shares: 57,019 36,489 54,207 36,475
Add: Operating Partnership units 7,126 4,091 6,848 3,859
Stock options 444 434 529 483
Restricted Stock Awards -- 199 -- 199
Stock Warrants 37 -- 87 --
------ ------ ------ ------
Diluted EPS Shares: 64,626 41,213 61,671 41,016
------ ------ ------ ------
------ ------ ------ ------
Pursuant to the Repurchase Program, from August 7, 1998 through August 12, 1998,
the Company purchased for constructive retirement, 215,200 shares of its
outstanding common stock for approximately $6,586.
Page 23 of 34
14. IMPACT OF RECENTLY-ISSUED ACCOUNTING STANDARDS
The Company has adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income ("FASB No. 130"), which establishes standards for
the reporting and display of comprehensive income and its components; however
the adoption of this statement had no impact on the Company's financial
statement presentation. The Company does not currently have any items of
comprehensive income requiring separate reporting and disclosure.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise and Related Information, ("FASB
No. 131"), which establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and require that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. This
statement is effective for financial statements for annual periods beginning
after December 15, 1997 and interim periods a year later, and requires that
comparative information from earlier years be restated to conform to the
requirements of this standard.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities ("FASB No.
133"). FASB No. 133 is effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999 (January 1, 2000 for the Company). FASB No. 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. Management of the Company anticipates that, due to its
limited use of derivative instruments, the adoption of FASB No. 133 will not
have a significant effect on the Company's results of operations or its
financial position.
15. PRO FORMA FINANCIAL INFORMATION (unaudited)
The following proforma financial information for the three and six month periods
ended June 30, 1998 and 1997 are presented as if the RM Transaction, the Mack
Transaction and all other acquisitions and common stock offerings completed in
1997, and all acquisitions and common stock offerings completed during the six
month period ended June 30, 1998 had all occurred on January 1, 1997. In
management's opinion, all adjustments necessary to reflect the effects of these
transactions have been made.
This pro forma financial information is not necessarily indicative of what the
actual results of operations of the Company would have been assuming such
transactions had been completed as of January 1, 1997, nor do they represent the
results of operations of future periods.
Three Months Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
---- ---- ---- ----
Total revenues $ 127,156 $ 127,655 $ 251,359 $ 250,686
Operating and other expenses 37,534 42,965 73,668 80,367
General and administrative 6,615 9,100 13,785 15,497
Depreciation and amortization 19,797 19,686 39,007 37,861
Interest expense 25,869 26,832 50,903 53,619
---------- ---------- ----------- ----------
Income before minority interest
and extraordinary item 37,341 29,072 73,996 63,342
Minority interest 7,867 6,623 15,525 13,812
---------- ---------- ----------- ----------
Income before extraordinary item $ 29,474 $ 22,449 $ 58,471 $ 49,530
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Basic earnings per common share $ 0.51 $ 0.39 $ 1.01 $ 0.86
Diluted earnings per common share $ 0.50 $ 0.39 $ 1.00 $ 0.85
---------- ---------- ----------- ----------
Page 24 of 34
MACK-CALI REALTY CORPORATION AND SUBSIDIARIES
Item 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements of Mack-Cali Realty Corporation and the notes thereto.
The following comparisons for the three and six month periods ended June 30,
1998 ("1998"), as compared to the three and six month periods ended June 30,
1997 ("1997") make reference to the following: (i) the effect of the "Same-Store
Properties," which represents all properties owned by the Company at March 31,
1997 (for the three-month period comparisons), and which represents all
properties owned by the Company at December 31, 1996 (for the six-month period
comparisons), (ii) the effect of the acquisition of the RM Properties on January
31, 1997, (iii) the effect of the acquisition of the Mack Properties on December
11, 1997, and (iv) the effect of the "Acquired Properties," which represents all
properties acquired by the Company from April 1, 1997 through June 30, 1998,
excluding Mack Properties (for the three-month period comparisons), and which
represents all properties acquired by the Company from January 1, 1997 through
June 30, 1998, excluding RM Properties and Mack Properties (for the six-month
period comparisons).
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
Total revenues increased $61.5 million, or 101.6 percent, for the three months
ended June 30, 1998 over the same period in 1997. Base rents increased $55.5
million, or 110.1 percent, of which an increase of $19.4 million, or 38.5
percent, was attributable to the Acquired Properties, and an increase of $36.4
million, or 72.2 percent, due to the Mack Properties, offset by a decrease of
$0.3 million, or 0.6 percent, due to occupancy and rental rate changes at the
Same-Store Properties. Escalations and recoveries increased $4.7 million, or
61.2 percent, of which an increase of $2.3 million, or 30.3 percent, was
attributable to the Acquired Properties, and an increase of $2.4 million, or
30.9 percent, due to the Mack Properties. Parking and other income increased
$0.8 million, or 41.5 percent, of which $0.5 million, or 28.8 percent, was
attributable to the Mack Properties, $0.2 million, or 9.3 percent, was
attributable to the Acquired Properties, and $0.1 million, or 3.4 percent, due
to the Same-Store Properties. Interest income increased $0.5 million, or 112.0
percent, due primarily to interest received in connection with the Company's
$20.0 million mortgage note receivable in 1998.
Total expenses for the three months ended June 30, 1998 increased $43.4 million,
or 107.1 percent, as compared to the same period in 1997. Real estate taxes
increased $5.4 million, or 82.5 percent, for 1998 over 1997, of which an
increase of $2.2 million, or 33.0 percent, was attributable to the Acquired
Properties, an increase of $2.9 million, or 44.7 percent, due to the Mack
Properties, and an increase of $0.3 million, or 4.8 percent, attributable to the
Same-Store Properties. Additionally, operating services increased $8.3 million,
or 112.4 percent, and utilities increased $4.9 million, or 116.3 percent, for
1998 over 1997. The aggregate increase in operating services and utilities of
$13.2 million, or 113.8 percent, consists of $4.6 million, or 39.9 percent,
attributable to the Acquired Properties, and an increase of $8.9 million, or
76.6 percent, due to the Mack Properties, offset by a decrease of $0.3 million,
or 2.7 percent, attributable to the Same-Store Properties. General and
administrative expense increased $2.7 million, or 70.3 percent, of which $2.0
million, or 52.0 percent, is due primarily to an increase in payroll and related
costs as a result of the Company's expansion, and $0.7 million, or 18.3 percent,
due to additional costs related to the Mack Properties. Depreciation and
amortization increased $10.0 million, or 110.3 percent, for 1998 over 1997, of
which $3.8 million, or 42.3 percent, relates to depreciation on the Acquired
Properties, an increase of $5.8 million, or 63.3 percent, due to the Mack
Properties, and an increase of $0.4 million, or 4.7 percent, due to the
Same-Store Properties. Interest expense increased $12.1 million, or 126.9
percent, for 1998 over 1997, of which $0.3 million, or 3.4 percent, was
attributable to assumed mortgages on Acquired Properties, an increase of $6.0
million, or 63.1 percent, due to assumed mortgages from the Mack Properties, and
an increase of $5.8 million, or 60.4 percent, due to net additional drawings
from the Company's credit facilities as a result of Company acquisitions and the
$200 million Prudential Term Loan obtained in December 1997, as well as changes
in LIBOR.
Income before minority interest and extraordinary item increased to $38.1
million in 1998 from $20.0 million in 1997. The increase of $18.1 million was
due to the factors discussed above.
Net income increased $10.0 million for 1998, from $18.0 million in 1997 to $28.0
million in 1998. This increase was a result of an increase in income before
minority interest and extraordinary item of $18.1 million, offset by an increase
of $5.7 million in minority interest, primarily attributable to distributions on
Preferred Units in 1998 of $4.0 million, and an extraordinary item of $2.4
million (net of minority interest), related to early retirement of debt.
Page 25 of 34
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Total revenues increased $115.2 million, or 102.2 percent, for the six months
ended June 30, 1998 over the same period in 1997. Base rents increased $105.6
million, or 113.3 percent, of which an increase of $27.9 million, or 29.9
percent, was attributable to the Acquired Properties, an increase of $5.6
million, or 6.0 percent, due to the RM Properties, and an increase of $72.1
million, or 77.4 percent, due to the Mack Properties. Escalations and recoveries
increased $8.5 million, or 59.1 percent, of which an increase of $3.4 million,
or 23.9 percent, was attributable to the Acquired Properties, an increase of
$0.5 million, or 2.9 percent, due to the RM Properties, and an increase of $4.7
million, or 32.7 percent, due to the Mack Properties, offset by a decrease of
$0.1 million, or 0.4 percent, due to occupancy changes at the Same-Store
Properties. Parking and other income increased $1.3 million, or 36.5 percent, of
which $0.9 million, or 25.7 percent, was due to the Mack Properties, and $0.3
million, or 9.0 percent, was attributable to the Acquired Properties, and an
increase of $0.3 million, or 7.2 percent, due to the Same-Store Properties,
offset by a decrease of $0.2 million, or 5.4 percent, due to the RM Properties.
Interest income decreased $0.2 million, or 11.0 percent, due primarily to the
use of funds held in 1997 to fund the RM Transaction, partially offset by
interest received in connection with the Company's $20.0 million mortgage note
receivable in 1998.
Total expenses for the six months ended June 30, 1998 increased $81.3 million,
or 109.0 percent, as compared to the same period in 1997. Real estate taxes
increased $10.0 million, or 83.8 percent, for 1998 over 1997, of which an
increase of $3.0 million, or 24.7 percent, was attributable to the Acquired
Properties, an increase of $0.8 million, or 7.0 percent, due to the RM
Properties, an increase of $5.8 million, or 48.6 percent, due to the Mack
Properties, and an increase of $0.4 million, or 3.5 percent, attributable to the
Same-Store Properties. Additionally, operating services increased $14.5 million,
or 105.6 percent, and utilities increased $9.5 million, or 119.4 percent, for
1998 over 1997. The aggregate increase in operating services and utilities of
$24.0 million, or 110.6 percent, consists of $0.8 million, or 3.7 percent,
attributable to the RM Properties, an increase of $6.4 million, or 29.5 percent,
due to the Acquired Properties, and an increase of $17.2 million, or 79.1
percent, due to the Mack Properties, offset by a decrease of $0.4 million, or
1.7 percent, attributable to the Same-Store Properties. General and
administrative expense increased $5.7 million, or 81.8 percent, of which $4.1
million, or 59.6 percent, is due primarily to an increase in payroll and related
costs as a result of the Company's expansion, $1.5 million, or 20.8 percent, due
to additional costs related to the Mack Properties, and $0.1 million, or 1.4
percent, attributable to additional costs related to the RM Properties.
Depreciation and amortization increased $18.5 million, or 109.7 percent, for
1998 over 1997, of which $5.4 million, or 32.1 percent, relates to depreciation
on the Acquired Properties, an increase of $1.4 million, or 8.3 percent,
attributable to the RM Properties, an increase of $11.3 million, or 67.2
percent, due to the Mack Properties, and an increase of $0.4 million, or 2.1
percent, due to the Same-Store Properties. Interest expense increased $23.1
million, or 134.8 percent, for 1998 over 1997, of which $1.1 million, or 6.5
percent, was attributable to the TIAA Mortgage, $0.5 million, or 3.1 percent,
due to assumed mortgages on Acquired Properties, an increase of $11.4 million,
or 66.1 percent, due to assumed mortgages from the Mack Properties, and an
increase of $10.1 million, or 59.1 percent, due to net additional drawings from
the Company's credit facilities as a result of Company acquisitions and the $200
million Prudential Term Loan obtained in December 1997, as well as changes in
LIBOR.
Income before minority interest and extraordinary item increased to $72.0
million in 1998 from $38.1 million in 1997. The increase of $33.9 million was
due to the factors discussed above.
Net income increased $20.1 million for 1998, from $34.5 million in 1997 to $54.6
million in 1998. This increase was a result of an increase in income before
minority interest and extraordinary item of $33.9 million, offset by an increase
of $11.4 million in minority interest, primarily attributable to distributions
on preferred units in 1998 of $7.9 million, and an extraordinary item of $2.4
million (net of minority interest), related to early retirement of debt.
Liquidity and Capital Resources
Statement of Cash Flows
During the six months ended June 30, 1998, the Company generated $102.6 million
in cash flows from operating activities, and together with $1.3 billion in
borrowings from the Company's credit facilities and additional mortgage
financings, $284.5 million in net proceeds from the Company's common stock
offerings during the period, $20.0 million received from a repayment of a
mortgage note receivable, and $5.3 million in proceeds from stock options
exercised, $1.4 million from the Company's cash reserves, used an aggregate of
$1.7 billion to acquire 51 properties and pay for other tenant improvements and
building improvements for $625.4 million, repay outstanding borrowings on its
credit facilities and other mortgage debt of $949.8 million, pay quarterly
dividends and distributions of $63.2 million, invest $38.1 million in
partially-owned entities, provide $20.0 million for a mortgage note receivable,
pay financing costs of $7.5 million and repurchase 20,000 common units for $3.2
million.
Capitalization
On February 25, 1998, the Company completed an underwritten public offer and
sale of 2,500,000 shares of its common stock and used the net proceeds, which
totaled approximately $92.2 million (after offering costs) to pay down a portion
of its outstanding borrowings under the Company's credit facilities and fund the
acquisition of Moutainview.
Page 26 of 34
On March 18, 1998, in connection with the acquisition of Prudential Business
Campus, the Company completed an offer and sale of 2,705,628 shares of its
common stock using the net proceeds of approximately $99.9 million (after
offering costs) in the funding of such acquisition.
On March 26, 1998, in connection with the Pacifica I Acquisition, the Company
issued 100,175 common units, valued at approximately $3.8 million.
On March 27, 1998, the Company completed an underwritten public offer and sale
of 650,407 shares of its common stock and used the net proceeds, which totaled
approximately $23.7 million (after offering costs) to pay down a portion of its
outstanding borrowings under the Company's credit facilities.
On April 29, 1998, the Company completed an underwritten offer and sale of
994,228 shares of its common stock and used the net proceeds, which totaled
approximately $34.6 million (after offering costs) primarily to pay down a
portion of its outstanding borrowings under the Company's credit facilities.
On April 30, 1998, in connection with the acquisition of a 49.9 percent interest
in a joint venture, the Company issued 218,105 common units, valued at
approximately $8.3 million.
On May 29, 1998, the Company completed an underwritten offer and sale of 984,615
shares of its common stock and used the net proceeds, which totaled
approximately $34.1 million (after offering costs) primarily to pay down a
portion of its outstanding borrowings under the Company's credit facilities.
On June 8, 1998, in connection with the Pacifica II Acquisition, the Company
issued 585,263 common units, valued at approximately $20.8 million.
During the six months ended June 30, 1998, the Company also issued 779,241
common units and 17,493 preferred units, valued at approximately $48.1 million,
in connection with the achievement of certain performance goals at the Mack
Properties, with an equivalent number of Contingent Units being redeemed.
On August 6, 1998, the Board of Directors of the Company authorized a share
repurchase program ("Repurchase Program") under which the Company was
permitted to purchase up to $100.0 million of the Company's common stock.
Purchases could be made from time to time in open market transactions at
prevailing prices or through privately negotiated transactions. Subsequently,
through August 12, 1998, the Company purchased, for constructive retirement,
215,200 shares of its outstanding common stock for an aggregate cost of
approximately $6.6 million. Concurrent with this purchase, the Company sold
to the Operating Partnership 215,200 common units for approximately $6.6
million.
On April 17, 1998, the Company repaid in full and terminated its $400 million
unsecured revolving credit facility, led by Fleet National Bank, and obtained a
new unsecured revolving credit facility (the "1998 Unsecured Facility") in the
amount of $870.0 million from a group of 25 lender banks, led by The Chase
Manhattan Bank and Fleet National Bank. In July 1998, the 1998 Unsecured
Facility was expanded to $900.0 million with the addition of two new lender
banks into the facility, bringing the total number of participants to 27 banking
institutions. The 1998 Unsecured Facility has a three-year term and currently
bears interest at 110 basis points over LIBOR, a reduction of 15 basis points
from the retired Original Unsecured Facility. Based upon the Company's
achievement of an investment grade unsecured debt rating, the interest rate will
be reduced, on a sliding scale, and a competitive bid option will become
available.
The terms of the 1998 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 assets, 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 equity interests in an aggregate amount in excess of 90 percent
of funds from operations for such period, subject to certain other adjustments.
The 1998 Unsecured Facility also requires a 17.5 basis point fee on the
unused balance payable quarterly in arrears.
The lending group for the 1998 Unsecured Facility consists of: The Chase
Manhattan Bank, as administrative agent; Fleet National Bank, as syndication
agent; PNC Bank, N.A., as documentation agent; Bankers Trust, Commerzbank, AG,
The First National Bank of Chicago, First Union National Bank and NationsBank,
as managing agents; Creditanstalt Corporate Finance, Inc., Dresdner Bank, AG,
European American Bank, Hypo Bank, Societe Generale and Summit Bank, as
co-agents; and Kredietbank, N.V., Key Bank, Mellon Bank, N.A.,
Page 27 of 34
The Bank of New York, Citizens Bank, Crestar, DG Bank, Tokai Bank, US Trust,
Bayerische Landesbank, Erste Bank, Bank Leumi USA, and Bank One, Arizona, N.A.
The new unsecured facility, together with the Company's previously-existing
$100.0 million revolving credit facility with Prudential Securities Corp.,
provides the Company with total credit lines borrowing capacity of $1.0 billion.
On April 30, the Company obtained a $150.0 million, interest-only, non-recourse
mortgage loan from The Prudential Insurance Company of America ("$150.0 Million
Prudential Mortgage Loan"). The loan, which is secured by 12 of the Company's
properties, has an effective annual interest rate of 7.10 percent and a
seven-year term. The Company, at its option, may convert the mortgage loan to
unsecured debt upon achievement by the Company of a credit rating of
Baa3/BBB- or better. The mortgage loan is prepayable in whole or in part subject
to certain provisions, including yield maintenance. The proceeds of the new loan
were used, along with funds drawn from one of the Company's credit facilities,
to retire a $200.0 million term loan with Prudential, as well as approximately
$48.2 million of the Mack Mortgages.
As of June 30, 1998, the Company has 164 unencumbered properties, totaling 16.4
million square feet, representing 60.6 percent of the Company's total portfolio
on a square footage basis.
On June 18, 1998, the Company and the Operating Partnership filed a registration
statement on Form S-3 for an aggregate of $2.0 billion in debt securities,
preferred stock and preferred stock represented by depositary shares. The
registration statement has not yet been declared effective by the SEC and
neither the Company nor the Operating Partnership has a current intention to
issue securities therefrom.
Historically, rental revenue has been the principal source of funds to pay
operating expenses, debt service and capital expenditures, excluding
non-recurring capital expenditures. Management believes that the Company will
have access to the capital resources necessary to expand and develop its
business. To the extent that the Company's cash flow from operating activities
is insufficient to finance its non-recurring capital expenditures such as
property acquisition costs and other capital expenditures, the Company expects
to finance such activities through borrowings under its credit facilities and
other debt and equity financing.
The Company expects to meet its short-term liquidity requirements generally
through its working capital and net cash provided by operating activities,
along with the Prudential facility and the 1998 Unsecured Facility. The
Company is frequently examining potential property acquisitions and, at any
one given time, one or more of such acquisitions may be under consideration.
Accordingly, the ability to fund property acquisitions is a major part of the
Company's financing requirements. The Company expects to meet its financing
requirements through funds generated from operating activities, long-term or
short term borrowings (including draws on the Company's credit facilities)
and the issuance of debt securities or additional equity securities. In
addition, the Company anticipates utilizing the Prudential facility and the
1998 Unsecured Facility primarily to fund property acquisition activities.
The Company does not intend to reserve funds to retire the existing TIAA
mortgage, Harborside mortgages, $150.0 Million Prudential Mortgage Loan, its
various other property mortgages, and borrowings under the revolving credit
facilities or other long-term 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. 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 distribution
discussed below may be adversely affected.
To maintain its qualification as a REIT, the Company must make annual
distributions to its stockholders of at least 95 percent of its REIT taxable
income, 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 stockholders which, based upon current
policy, in the aggregate would equal approximately $115.9 million on an
annualized basis. However, any such distribution, whether for federal income tax
purposes or otherwise, would only be paid out of available cash after meeting
both operating requirements and scheduled debt service on mortgages and loans
payable.
Funds from Operations
The Company considers funds from operations ("FFO"), after adjustment for
straight-lining of rents, one measure of REIT performance. Funds from operations
is defined as net income (loss) before minority interest of unitholders,
computed in accordance with generally accepted accounting principles
("GAAP"), excluding gains (or losses) from debt restructuring, other
extraordinary and significant non-recurring items, and sales of property, plus
real estate-related depreciation and amortization. Funds from operations should
not be considered as an alternative to net income as an indication of the
Company's performance or to cash flows as a measure of liquidity. Funds from
operations presented herein is not necessarily comparable to funds from
operations presented by other real estate companies due to
Page 28 of 34
the fact that not all real estate companies use the same definition. However,
the Company's funds from operations is comparable to the funds from operations
of real estate companies that use the current definition of the National
Association of Real Estate Investment Trusts ("NAREIT"), after the adjustment
for straight-lining of rents.
NAREIT's definition of funds from operations indicates that the calculation
should be made before any extraordinary item (determined in accordance with
GAAP), and before any deduction of significant non-recurring events that
materially distort the comparative measurement of the Company's performance.
Funds from operations for the three and six month periods ended June 30, 1998
and 1997, as calculated in accordance with the NAREIT's definition published
in March 1995, are summarized in the following table (in thousands):
Three Months Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
--------- ---------- --------- ---------
Income before minority interest and extraordinary item $38,170 $20,037 $ 72,020 $38,132
Add: Real estate-related depreciation and
amortization (1) 19,211 8,786 35,330 16,265
Deduct: Rental income adjustment for
straight-lining of rents (1) (3,142) (2,337) (6,345) (3,944)
--------- ---------- --------- ---------
Funds from operations, after adjustment
for straight-lining of rents $54,239 $26,486 $101,005 $50,453
Less: Distributions to preferred unitholders 3,985 -- 7,896 --
--------- ---------- --------- ---------
Funds from operations, after adjustment for
straight-lining of rents, after distributions
to preferred unitholders $50,254 $26,486 $ 93,109 $50,453
--------- ---------- --------- ---------
--------- ---------- --------- ---------
Basic weighted average shares/units outstanding (2) 64,145 40,579 61,055 40,334
--------- ---------- --------- ---------
Diluted weighted average shares/units outstanding (2) 71,444 41,013 68,425 40,817
--------- ---------- --------- ---------
(1) Includes FFO adjustments in 1998 related to the Company's investments in
partially-owned entitites.
(2) See calculation for the amounts presented in the reconciliation below.
The following schedule reconciles the Company's basic weighted average shares to
the basic and diluted weighted average shares/units presented above.
Three Months Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
------- ------- ------- -------
Basic weighted average shares: 57,019 36,489 54,207 36,475
Add: Weighted average common units 7,126 4,090 6,848 3,859
------- ------- ------- -------
Basic weighted average shares/units: 64,145 40,579 61,055 40,334
Add: Weighted average preferred units
(after conversion to common units) 6,818 -- 6,754 --
Stock options 444 434 529 483
Stock warrants 37 -- 87 --
------- ------- ------- -------
Diluted weighted average share/units: 71,444 41,013 68,425 40,817
------- ------- ------- -------
------- ------- ------- -------
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.
Year 2000
Many computer systems experience problems handling dates beyond the year 1999.
Therefore, some computer hardware and software will need to be modified prior to
the year 2000 in order to remain functional. The Company is assessing both the
internal readiness of its systems as well as the compliance of its vendors for
the handling of the year 2000. The Company expects to implement successfully the
Page 29 of 34
systems and programming changes necessary to address year 2000 issues, and does
not believe that the cost of such actions will have a material effect on the
Company's results of operations or financial condition. There can be no
assurance, however, that there will not be a delay in, or increased costs
associated with, the implementation of such changes, and the Company's inability
to implement such changes could have an adverse effect on future results of
operations.
Disclosure Regarding Forward-Looking Statements
The Company considers portions of this information to be forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of The Securities Exchange Act of 1934. Although the Company
believes that the expectations reflected in such forward-looking statements are
based upon reasonable assumptions, it can give no assurance that its
expectations will be achieved.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable.
Page 30 of 34
MACK-CALI REALTY CORPORATION
Part II -- Other Information
Item 1. Legal Proceedings
Reference is made to "Other Contingencies" in Note 11 (Commitments and
Contingencies) to the Consolidated Financial Statements, which is
specifically incorporated by reference herein.
Item 2. Changes in Securities and Use of Proceeds
(c) Reference is made to the sixth, seventh and eighth paragraphs under
"Common Units" and "Contingent Common and Preferred Units" in Note 9
(Minority Interest) to the Consolidated Financial Statements, which are
specifically incorporated by reference herein.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
On May 21, 1998, the Company held its Annual Meeting of Stockholders to
elect four directors to the Board of Directors of the Company, among
other things. At the Annual Meeting, the shareholders re-elected the
following Class I directors to serve until the Annual Meeting of
Stockholders to be held in 2001: Brendan T. Byrne (Number of shares
for: 42,988,183, Number of shares against: 6,416,881), Martin D.
Gruss (Number of shares for: 43,011,747, Number of shares
against: 6,393,317), Jeffrey B. Lane (Number of shares for: 43,004,942,
Number of shares against: 6,400,122) and Vincent Tese (Number of
shares for: 43,001,727, Number of shares against: 6,403,337).
The remaining members of the 13 member Board of Directors
and their respective terms of offices are as follows:
Class II directors, William L. Mack, Earle I. Mack, Paul A.
Nussbaum and Alan G. Philibosian, whose terms expire at the Annual
Meeting of Stockholders to be held in 1999 and Class III directors,
John J. Cali, Thomas A. Rizk, Mitchell E. Hersh, Irvin D. Reid and
Robert F. Weinberg, whose terms expire at the Annual Meeting of
Stockholders to be held in 2000. At the Annual Meeting, the
shareholders also voted upon and approved the following proposals: (i)
the ratification of the appointment of Price Waterhouse LLP (currently
known as PricewaterhouseCoopers LLP), independent accountants, as the
Company's independent accountants for the ensuing year (Number of
shares for: 49,306,961, Number of shares against: 50,817, Number of
shares abstained: 47,207, Number of shares of broker non-votes: 79) and
(ii) the adoption of an amendment to the Company's Amended and Restated
Articles of Incorporation to decrease the number of affirmative votes
necessary to effect an admendment thereto from two-thirds to a majority
of the shares outstanding (Number of shares for: 41,489,309, Number of
shares against: 1,239,783, Number of shares abstained: 213,667, Number
of shares of broker non-votes 6,462,305).
Page 31 of 34
MACK-CALI REALTY CORPORATION
Part II -- Other Information (continued)
Item 5. Other Information
A recent change in the proxy rules of the Securities and Exchange
Commission limits the circumstances under which the proxy voting card
distributed by registered companies to their shareholders may permit
those companies to cast the votes represented by the proxy voting
cards in their sole discretion. As applied to the Company, the most
important limitation is as follows: For proposals made by a
shareholder at the 1999 annual meeting that were not properly
submitted by the shareholder for inclusion in the Company's own
proxy materials, the Company may vote proxies in its discretion
about those proposals only if it has not received notice from the
shareholder by February 14, 1999 at the latest that the shareholder
intends to make those proposals at the meeting.
Page 32 of 34
MACK-CALI REALTY CORPORATION
Part II -- Other Information (continued)
Item 6 - Exhibits
(a) The following exhibits are filed herewith:
Exhibit No. Exhibit Title
- ----------- -------------
10.168 Real Estate Purchase and Sale Agreement between
JAD Properties LLC. as Seller, and Mack-Cali
Realty, L.P., as Purchaser, dated April 1998.
10.169 Operating Agreement of American Financial Exchange L.L.C.
between M-C Harsimus Partners L.P and Columbia Development
Company, L.L.C., dated as of May 20, 1998.
10.170 First Amendment to Contribution and Exchange Agreement among
Pacifica Holding Company LLC and Apollo Real Estate Investment
Fund II, L.P., as Contributors, Mack-Cali Realty, L.P. and
Mack-Cali Realty Corporation dated June 8, 1998.
10.171 Agreement of Sale between Lancer Associates, L.L.C. and
Mack-Cali Realty, L.P. dated January 1998.
(b) On June 12, 1998, the Company filed a Current Report on Form 8-K which
reported certain acquisitions and filed special purpose financial statements
and unaudited pro forma financial information. A Current Report on Form
8-K/A, amending the June 12, 1998 8-K, was filed with the SEC on August 5, 1998.
Page 33 of 34
MACK-CALI REALTY CORPORATION
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Mack-Cali Realty Corporation
(Registrant)
Date: August 14, 1998 /s/ Thomas A. Rizk
-----------------------------
Thomas A. Rizk
Chief Executive Officer
Date: August 14, 1998 /s/ Barry Lefkowitz
-----------------------------
Barry Lefkowitz
Executive Vice President &
Chief Financial Officer
Page 34 of 34