SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported ) December 16, 1998
Mack-Cali Realty Corporation
----------------------------
(Exact name of registrant as specified in its charter)
Maryland 1-13274 22-3305147
-------- ------- ----------
(state or other jurisdiction (Commission (IRS Employer
or incorporation) File Number) Identification Number)
11 Commerce Drive, Cranford , New Jersey 07016
----------------------------------------------
Registrant's telephone number, including area code: (908) 272-8000
--------------
N/A
---
(Former name or former address, if changed since last report)
Item 5. Other Events
For the period January 1, 1998 through December 14, 1998, Mack-Cali Realty
Corporation and subsidiaries (collectively, the "Company") acquired 54
properties aggregating approximately 4.9 million square feet in 17 separate
transactions, comprised of 36 office properties and 18 office/flex properties.
Additionally, during the same period, in connection with two of the transactions
included above, the Company entered into contracts to acquire two office
properties and four office/flex properties.
Risk Factors
An investment in the common stock, par value $0.01 per share, of the Company
involves various risks. All investors should consider the following risk
factors before deciding to purchase shares of the Company's common stock. The
Company refers to itself as "we" or "our" in the following risk factors.
Dependence on Northeastern and Southwestern Office Markets
A majority of our properties are located in the northeastern and southwestern
United States, particularly in New Jersey, New York, Pennsylvania and Texas.
Adverse economic developments in these states could adversely impact the
operations of our properties and, therefore, our profitability. Because our
portfolio consists primarily of office and office/flex buildings (as compared to
a more diversified real estate portfolio), a decline in the economy and/or a
decline in the demand for office space may adversely affect our ability to pay
dividends to our stockholders.
Real Estate Investment Considerations
General
Our ability to pay dividends to our stockholders depends on the ability of our
properties to generate funds in excess of operating expenses (including
scheduled principal payments on debt and capital expenditure requirements).
Events or conditions that are beyond our control may adversely affect our cash
flow from operations and the value of our properties. Such events or conditions
could include:
o changes in the general economic climate;
o changes in local conditions such as oversupply of office space or a
reduction in demand for office space;
o decreased attractiveness of our properties to potential tenants;
o competition from other office and office/flex buildings;
o our inability to provide adequate maintenance;
o increased operating costs, including insurance premiums and real estate
taxes, due to inflation and other factors which may not necessarily be
offset by increased rents;
o changes in laws and regulations (including tax, environmental and housing
laws and regulations) and agency or court interpretations of such laws and
regulations and the related costs of compliance;
o changes in interest rate levels and the availability of financing;
o the inability of a significant number of tenants to pay rent;
o our inability to rent office space on favorable terms; and
o civil unrest, earthquakes and other natural disasters or acts of God that
may result in uninsured losses.
2
Financially Distressed Tenants May Reduce Our Cash Flow
If a tenant defaults, we may experience delays and incur substantial costs in
enforcing our rights as landlord and protecting our investments. If a tenant
files for bankruptcy, a potential court judgment rejecting and terminating such
tenant's lease could adversely affect our ability to pay dividends.
Illiquidity of Real Estate Limits Our Ability to Act Quickly
Real estate investments are relatively illiquid. Such illiquidity may limit our
ability to vary our portfolio quickly in response to changes in economic and
other conditions. If we want to sell an investment, we might not be able to
dispose of such investment in the time period we desire, and the sales price of
such investment might not recoup or exceed the amount of our investment. The
prohibition in the Internal Revenue Code of 1986, as amended (the "Code"), and
related regulations on a REIT holding property for sale may also restrict our
ability to sell property. Such limitations on our ability to sell our
investments could adversely affect our ability to pay dividends.
Americans With Disabilities Act Compliance Could Be Costly
Under the Americans with Disabilities Act of 1990 (the "ADA"), all public
accommodations and commercial facilities must meet certain federal requirements
related to access and use by disabled persons. Compliance with the ADA
requirements could involve removal of structural barriers from certain entrances
for disabled persons. Other federal, state and local laws may require
modifications to or restrict further renovations of our properties with respect
to such accesses. Although we believe that our properties are substantially in
compliance with present requirements, noncompliance with the ADA or related laws
or regulations could result in the United States government imposing fines or
private litigants being awarded damages against us. Such costs may adversely
affect our ability to pay dividends.
Environmental Regulations Could Subject Us to Liability
Various federal, state and local laws and regulations subject property owners or
operators to liability for the costs of removal or remediation of certain
hazardous or toxic substances located on or in the property. These laws often
impose liability without regard to whether the owner or operator was responsible
for or even knew of the presence of such substances. The presence of or failure
to properly remediate hazardous or toxic substances may adversely affect our
ability to rent, sell or borrow against contaminated property. Various laws and
regulations also impose liability on persons who arrange for the disposal or
treatment of hazardous or toxic substances at another location for the costs of
removal or remediation of such substances at the disposal or treatment facility.
These laws often impose liability whether or not the person arranging for such
disposal ever owned or operated the disposal facility. Certain other
environmental laws and regulations impose liability on owners or operators of
property for injuries relating to the release of asbestos-containing materials
into the air. As owners and operators of property and as potential arrangers for
hazardous substance disposal, we may be liable under such laws and regulations
for removal or remediation costs, governmental penalties, property damage,
personal injuries and related expenses. Payment of such costs and expenses could
adversely affect our ability to pay dividends.
Competition Within Our Markets Could Reduce Our Cash Flow
We plan to acquire additional properties in New Jersey, New York, Pennsylvania
and Texas and in the northeast and southwest generally. We may be competing for
investment opportunities with entities that have greater financial resources and
more experienced managers. Several office building developers and real estate
companies may compete with us in seeking properties for acquisition, land for
development and prospective tenants. Such competition may reduce our cash flow
and adversely affect our ability to pay dividends by:
3
o reducing the number of suitable investment opportunities offered to us;
o increasing the bargaining power of property owners;
o interfering with our ability to attract and retain tenants;
o increasing vacancies which lowers market rental rates and limits our
ability to negotiate rental rates; and
o adversely affecting our ability to minimize expenses of operation.
Risks of Real Estate Development
As part of our operating strategy, we may acquire land for development under
certain conditions. In addition to the risks involved in the ownership and
operation of established office, office/flex, industrial/warehouse or
multifamily residential apartment buildings, included among the risks of the
real estate development business are the following:
o financing for development projects may not be available on favorable terms;
o long-term financing may not be available upon completion of construction;
and
o failure to complete construction on schedule or within budget may increase
debt service expense and construction costs.
Real Estate Financing Risks
Debt Financing and Debt Maturities
We are subject to the risks normally associated with debt financing, including
the following:
o our cash flow may be insufficient to meet required payments of principal
and interest;
o payments of principal and interest on borrowings may leave us with
insufficient cash resources to pay operating expenses;
o we may not be able to refinance indebtedness on our properties at maturity;
and
o the terms of refinancing may not be as favorable as the terms of the
related indebtedness.
As of September 30, 1998, we had outstanding an aggregate of approximately
$750.4 million of mortgage indebtedness (in addition to borrowings under our
revolving credit facilities). As of September 30, 1998, we had outstanding an
aggregate of approximately $655.6 million under our revolving credit facilities.
We may have to refinance the principal due on our long-term mortgage
indebtedness at maturity, and we may not be able to refinance any indebtedness
we incur in the future.
If we are unable to refinance our indebtedness on acceptable terms, or at all,
events or conditions that may adversely affect our cash flow and ability to pay
dividends include the following:
o we may need to dispose of one or more of our properties upon
disadvantageous terms;
o prevailing interest rates or other factors at the time of refinancing could
increase interest rates and, therefore, our interest expense;
o if we mortgage property to secure payment of indebtedness and are unable to
meet mortgage payments, the mortgagee could foreclose upon such property or
appoint a receiver to receive an assignment of our rents and leases; and
o foreclosures upon mortgaged property could create taxable income without
accompanying cash proceeds and, therefore, hinder the Corporation's ability
to meet the REIT distribution requirements of the Code.
4
Risk of Rising Interest Rates May Increase Costs
Advances under our revolving credit facilities and approximately $72.2 million
(as of September 30, 1998) of our mortgage indebtedness bear interest at
variable rates. We may incur additional indebtedness in the future that also
bears interest at variable rates. Variable rate debt creates higher debt service
requirements if market interest rates increase. Higher debt service requirements
could adversely affect our cash flow and ability to pay dividends or cause us to
default under certain debt covenants.
Dependence on Key Personnel
We are dependent upon our executive officers for strategic business direction
and real estate experience. While we believe that we could find replacements for
these key personnel, loss of their services could adversely affect our
operations. We have entered into an employment agreement (including
non-competition provisions) which provides for a continuous five-year employment
term with each of Thomas A. Rizk, Mitchell E. Hersh, Brant B. Cali, John R.
Cali, Roger W. Thomas, Barry Lefkowitz and Timothy M. Jones, and an employment
agreement which provides for a five-year employment term with an automatic
one-year extension at the end of the five-year term and each subsequent term
with each of James Nugent and Albert Spring. We do not have key man life
insurance for our executive officers.
Continuing Operations Effected By Year 2000 Issues
General
The Year 2000 issue is the result of computer programs and embedded chips using
a two-digit format, as opposed to four digits, to indicate the year. Such
computer systems may be unable to interpret dates beyond the year 1999, which
could cause a system failure or other computer errors, leading to disruptions in
operations. We have developed a three-phase Year 2000 project to determine our
Year 2000 systems compliance. In phase I, we will identify those systems with
which we have exposure to Year 2000 issues. In phase II, we will develop and
implement action plans to be Year 2000 compliant in all areas by early 1999. In
phase III, which we will complete by mid-1999, we will perform final tests of
each major area of exposure to assure compliance.
We have identified the following three major areas as critical for successful
Year 2000 compliance:
o our central accounting and operating computer system at our Cranford, New
Jersey headquarters and local networks and related systems in our regional
offices in Dallas, Texas and Elmsford, New York;
o inquiries of our tenants and key vendors as to their Year 2000 readiness;
and
o assessment of our individual buildings as to the Year 2000 readiness of our
operating systems.
We believe that progress in all such areas is proceeding on schedule and that we
will not be materially adversely effected as a result of the Year 2000 issue. We
cannot, however, assure you that this will be the case. Set forth below is a
more detailed analysis of our Year 2000 project and its impact on us.
Central Accounting and Operating Systems
We have completed a review of our key computer hardware and software and other
equipment, and believe we have upgraded or replaced all identified hardware and
equipment in our corporate and regional offices that may be affected by problems
associated with Year 2000. Our software supplier of our accounting system is
currently completing its Year 2000 upgrade and is scheduled to supply us with
Year 2000 compliant software by March 31, 1999 at no cost to us. We are
reasonably confident that such software will be delivered as indicated. We
anticipate completing our testing by June 1999. We also expect that all
identified secondary software systems will be compliant by June 1999.
5
Tenant Compliance
We sent questionnaires to all of our tenants in August 1998 to assess their Year
2000 compliance status in order to determine whether the orderly payment of
monthly rent to us will be adversely affected. We are in the process of
receiving, reviewing and evaluating these questionnaires. We are, therefore, not
yet in a position to evaluate the full impact of tenant non-compliance on the
timely payment of monthly rent and other tenant obligations.
Property Compliance
Our property managers have completed a building by building survey of all of our
properties to determine whether building support systems such as heat, power,
light, security, garages and elevators will be affected by the advent of the
Year 2000. Most of such systems either are already Year 2000 compliant or
contain no computerized parts. We are relying on assurances requested from
utility providers of the Year 2000 compliance and their continued ability to
provide uninterrupted service to our buildings. We anticipate that we will incur
approximately $1.0 million in costs to upgrade and/or replace identified
building support systems.
Worst Case Exposure
We are aware that it is generally believed that the Year 2000 problem, if
uncorrected may result in a worldwide economic crisis. We are unable to
determine whether such predictions are true or false. However, if such
predictions prove true, we assume that all companies (including ours) will
experience the effects in one way or another.
The most reasonably likely worst case scenario that we anticipate in connection
with the Year 2000 issue relates to the failure of the upgrade to our accounting
system to effectively become Year 2000 compliant. We believe that such an event
is unlikely, but an occurrence of the foregoing would have a material adverse
impact on our operations. We cannot currently assess the financial impact of
such a worst case scenario.
Contingency Plans
As part of our Year 2000 project, we are currently developing contingency plans,
which we expect to complete during 1999.
Risks
Our failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect our results of
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the Year 2000 problem, resulting in part from the uncertainty of the
Year 2000 readiness of third-party vendors and tenants, we are unable to
determine at this time whether the consequences of Year 2000 failures will have
a material impact on our results of operations, liquidity or financial
condition. Our Year 2000 project is expected to significantly reduce our level
of uncertainty about the Year 2000 problem. We believe that, with the
implementation and completion of our Year 2000 project as scheduled, the
possibility of significant interruptions of normal operations should be reduced.
Consequences of Failure to Qualify as a REIT Could Adversely Affect Our
Financial Condition
Our failure to qualify as a REIT for federal income tax purposes could adversely
affect our financial condition.
6
Tax Liabilities as a Consequence of Failure to Qualify as a REIT
We have operated so as to qualify as a REIT for federal income tax purposes
since our taxable year ended December 31, 1994. Although we believe we will
continue to operate in such manner, we cannot guarantee you that we will.
Qualification as a REIT depends on our meeting various requirements (some on an
annual and quarterly basis) established under highly technical and complex tax
provisions of the Code. Because few judicial or administrative interpretations
of such provisions exist and qualification determinations are fact sensitive, we
cannot assure you that we will qualify as a REIT for any taxable year.
If we fail to qualify as a REIT in any taxable year, we will be subject to the
following:
o we will not be allowed a deduction for distributions to shareholders;
o we will be subject to federal income tax at regular corporate rates,
including any alternative minimum tax, if applicable; and
o unless we are entitled to relief under certain statutory provisions, we
will not be permitted to qualify as a REIT for the four taxable years
following the year during which we were disqualified.
A loss of REIT status would reduce our net earnings available for investment or
distribution to our stockholders. Failure to qualify as a REIT also would
eliminate the requirement that we make distributions to our stockholders.
Other Tax Liabilities
Even if we qualify as a REIT, we are subject to certain federal, state and local
taxes on our income and property and, in some circumstances, certain other state
taxes. Our net income from third party management and tenant improvements, if
any, also may be subject to federal income tax.
Risk of Changes in the Tax Law Applicable to REITs
Since the Internal Revenue Service, the United States Treasury Department and
Congress frequently review federal income tax legislation, we cannot predict
whether, when or to what extent new federal tax laws, regulations,
interpretations or rulings will be adopted. Any of such legislative action may
prospectively or retroactively modify our tax treatment and, therefore, may
adversely affect taxation of us or our stockholders.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(b) Pro Forma Financial Information (unaudited)
Unaudited pro forma financial information for the Company is presented as
follows:
o Condensed consolidated balance sheet as of September 30, 1998, and
o Condensed consolidated statements of operations for the nine months
ended September 30, 1998 and the year ended December 31, 1997.
7
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Mack-Cali
Realty Corporation has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
MACK-CALI REALTY CORPORATION
December 16, 1998 By: /s/Thomas A. Rizk
-----------------
Thomas A. Rizk
Chief Executive Officer
December 16, 1998 By: /s/Barry Lefkowitz
------------------
Barry Lefkowitz
Executive Vice President and
Chief Financial Officer
8
MACK-CALI REALTY CORPORATION
Pro Forma Condensed Consolidated Balance Sheet (unaudited)
As of September 30, 1998 (in thousands)
- --------------------------------------------------------------------------------
The following unaudited pro forma condensed consolidated balance sheet is
presented as if the completion by the Company of the acquisitions of the
remaining properties in the McGarvey Portfolio not yet acquired, the remaining
properties in the Pacifica Portfolio not yet acquired, 3 Vaughn Drive land
parcel and 12 Skyline Drive land parcel, (collectively, the "Fourth Quarter 1998
Acquisitions"), had all occurred on September 30, 1998. This unaudited pro forma
condensed consolidated balance sheet should be read in conjunction with the pro
forma condensed consolidated statement of operations of the Company and the
historical financial statements and notes thereto of the Company included in the
Company's Form 10-Q for the quarter ended September 30, 1998.
The pro forma condensed consolidated balance sheet is unaudited and is not
necessarily indicative of what the actual financial position of the Company
would have been had the aforementioned acquisitions actually occurred on
September 30, 1998, nor does it purport to represent the future financial
position of the Company.
Pro Forma
Adjustments for
Company the Fourth Quarter Company
ASSETS Historical 1998 Acquisitions Pro Forma
- --------------------------------------------------------------------------------------------------------
Rental property, net $3,270,843 $ 27,345 (a) $3,298,188
Cash and cash equivalents 6,854 -- 6,854
Investment in partially-owned entities 62,079 -- 62,079
Unbilled rents receivable 37,041 -- 37,041
Deferred charges and other assets, net 36,085 -- 36,085
Restricted cash 5,677 -- 5,677
Accounts receivable, net 6,320 -- 6,320
---------- ---------- ----------
Total assets $3,424,899 $ 27,345 $3,452,244
---------- ---------- ----------
---------- ---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgages and loans payable $1,406,039 $ 27,345 (b) $1,433,384
Dividends and distributions payable 40,059 -- 40,059
Accounts payable and accrued expenses 35,323 -- 35,323
Accrued interest payable 2,327 -- 2,327
Rents received in advance
and security deposits 29,100 -- 29,100
---------- ---------- ----------
Total liabilities 1,512,848 27,345 1,540,193
---------- ---------- ----------
Minority interest of unitholders in
Operating Partnership 487,640 -- 487,640
---------- ---------- ----------
Stockholders' equity
Common stock, $0.01 par value 573 -- 573
Other stockholders' equity 1,423,838 -- 1,423,838
---------- ---------- ----------
Total stockholders' equity 1,424,411 -- 1,424,411
---------- ---------- ----------
Total liabilities and stockholders' equity $3,424,899 $ 27,345 $3,452,244
---------- ---------- ----------
---------- ---------- ----------
See accompanying footnotes on subsequent page
9
MACK-CALI REALTY CORPORATION Notes to
Pro Forma Condensed Consolidated Balance Sheet
(unaudited) As of September 30, 1998 (in thousands,
except share/unit amounts )
- --------------------------------------------------------------------------------
(a) Represents the approximate aggregate cost of the Fourth Quarter 1998
Acquisitions, comprised of: the remaining properties in the McGarvey
Portfolio not yet acquired ($11,995), remaining properties in the Pacifica
Portfolio not yet acquired ($12,000), 3 Vaughn Drive land parcel ($1,850)
and 12 Skyline Drive land parcel ($1,500).
(b) Represents the Company's approximate aggregate pro forma drawings on the
Company's credit facilities of $27,345 which are to be, or have been, used
as the primary means in funding the Fourth Quarter 1998 Acquisitions.
10
MACK-CALI REALTY CORPORATION
Pro Forma Condensed Consolidated Statement of Operations (unaudited)
For the Nine Months Ended September 30, 1998
And the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
The unaudited pro forma condensed consolidated statements of operations for the
nine months ended September 30, 1998 and for the year ended December 31, 1997
are presented as if each of the following had occurred on January 1, 1997: (i)
the completion by the Company of the Robert Martin Company transaction (the "RM
Transaction"), (ii) the acquisition by the Company of the properties known as
1345 Campus Parkway, Westlakes Office Park, Moorestown Buildings, Shelton Plaza,
200 Corporate Boulevard, Three Independence Way, The Trooper Building, Princeton
Overlook and Concord Plaza, (iii) the completion by the Company of the October
1997 13 million share stock offering, (iv) the completion by the Company of the
acquisition of the properties of the Mack Company and Patriot American Office
Group (the "Mack Transaction"), (v) the acquisition by the Company of the
properties known as the McGarvey Portfolio, 500 West Putnam, Mountainview, Cielo
Center, Prudential Business Campus, the Pacifica Portfolio, Morris County
Financial Center, 3600 S. Yosemite, 500 College Road East, D.C. Buildings, 400
S. Colorado, Eastpoint I & II, 40 Richards Avenue and 7 Skyline Drive
(collectively, "1998 Acquisitions") and (vi) the Company's 1998 stock offerings.
Items (i), (ii), (iii) and (iv) are to be collectively hereinafter referred to
as the 1997 Events.
Such pro forma information is based upon the historical consolidated results of
operations of the Company for the nine months ended September 30, 1998 and for
the year ended December 31, 1997, after giving effect to the transactions
described above. The pro forma condensed consolidated statements of operations
should be read in conjunction with the pro forma condensed consolidated balance
sheet of the Company and the historical financial statements and notes thereto
of the Company included in the Company's Form 10-Q for the nine months ended
September 30, 1998, and in the Company's Form 10-K for the year ended December
31, 1997.
The unaudited pro forma condensed consolidated statements of operations are not
necessarily indicative of what the actual results of operations of the Company
would have been assuming the transactions had been completed as set forth above,
nor does it purport to represent the Company's results of operations for future
periods.
11
MACK-CALI REALTY CORPORATION
Pro Forma Condensed Consolidated Statement of Operations (unaudited)
For the Nine Months Ended September 30, 1998
(in thousands, except per share amounts)
- --------------------------------------------------------------------------------
1998
Company Acquisitions Pro Forma Company
REVENUES Historical Historical (a) Adjustments Pro Forma
- --------------------------------------------------------------------------------------------------------
Base rents $311,753 $ 22,134 $ 3,067 (b) $336,954
Escalations and recoveries from tenants 36,897 2,839 -- 39,736
Parking and other 7,921 990 -- 8,911
Interest income 2,187 -- -- 2,187
-------- -------- -------- --------
Total revenues 358,758 25,963 3,067 387,788
-------- -------- -------- --------
EXPENSES
Real estate taxes 35,415 2,966 -- 38,381
Utilities 28,717 2,168 -- 30,885
Operating services 44,128 2,860 -- 46,988
General and administrative 18,708 1,329 -- 20,037
Depreciation and amortization 56,537 -- 4,494 (b) 61,031
Interest expense 64,146 -- 12,572 (c) 76,718 (c)
-------- -------- -------- --------
Total expenses 247,651 9,323 17,066 274,040
-------- -------- -------- --------
Income before minority interest
and extraordinary item 111,107 16,640 (13,999) 113,748
Minority interest 23,464 -- 1,031 (d) 24,495 (d)
-------- -------- -------- --------
Income before extraordinary item $ 87,643 $ 16,640 $(15,030) $ 89,253
-------- -------- -------- --------
-------- -------- -------- --------
Basic weighted average common shares
outstanding (e) 55,391 57,814 (e)
------ ------
Diluted weighted average common
shares outstanding (f) 63,093 66,363 (f)
------ ------
Basic income before extraordinary item
per common share $ 1.58 $ 1.54
------ ------
Diluted income before extraordinary
item per common share $ 1.57 $ 1.53
------ ------
12
MACK-CALI REALTY CORPORATION
Notes to Pro Forma Condensed Consolidated Statement of Operations (unaudited)
For the Nine Months Ended September 30, 1998
(in thousands)
- --------------------------------------------------------------------------------
(a) Reflects historical revenues and certain expenses for the 1998 Acquisitions
for the period from January 1, 1998 through the earlier of the date of
acquisition or September 30, 1998, as follows:
Parking Real
Acquisition Base Escalations/ and Estate Operating General and
Property (1) Date Rents Recoveries Other Taxes Utilities Services Administrative
- ------------ ------------- ------- ------------ ------- ------- --------- --------- --------------
McGarvey Portfolio Jan. 30, 1998 (2) $ 1,003 $ 368 -- $ 238 $ 20 $ 115 $ 1
500 West Putnam Feb. 5, 1998 230 38 -- 17 26 27 15
Mountainview Feb. 25, 1998 422 34 -- 35 68 70 14
Cielo Center Mar. 12, 1998 943 43 $ 19 124 89 138 73
Pacifica Portfolio Mar. 27, 1998 (3) 4,119 615 24 447 287 339 132
Prudential Bus. Campus Mar. 27, 1998 3,033 252 636 612 285 168 496
Morris County Fin. Ctr Mar. 30, 1998 1,511 499 -- 193 252 322 86
3600 S. Yosemite May 13, 1998 592 3 27 44 74 115 18
500 College Road East May 22, 1998 1,108 210 -- 124 227 134 52
D.C. Buildings June 1, 1998 4,248 357 276 565 227 609 264
400 S. Colorado June 3, 1998 719 46 -- 82 81 157 43
Eastpoint I & II July 16, 1998 976 73 -- 68 124 235 55
40 Richards Avenue Sept. 10, 1998 1,829 202 6 269 195 194 79
7 Skyline Drive Sept. 15, 1998 1,401 99 2 148 213 237 1
- ------------ -------------- ------- ------------ ------- ------- --------- --------- --------------
Total 1998 Acquisitions $22,134 $ 2,839 $ 990 $ 2,966 $ 2,168 $ 2,860 $ 1,329
- ----------------------- -------------- ------- ------------ ------- ------- --------- --------- --------------
- ----------------------- -------------- ------- ------------ ------- ------- --------- --------- --------------
(1) 2115 Linwood, 1510 Lancer Road and certain of the properties in the
Pacifica Portfolio (aggregate cost of $26,761) were not in operation, due
to being vacant and/or under development, during the nine months ended
September 30, 1998.
(2) Acquisition of four of the 21 properties in this portfolio has not yet been
completed; results for period include full nine-month period operations for
those pending acquisitions.
(3) Acquisition of two of the 18 properties in this portfolio has not yet been
completed; results for period include full nine-month period operations for
those pending acquisitions.
13
MACK-CALI REALTY CORPORATION
Notes to Pro Forma Condensed Consolidated Statement of Operations (unaudited)
For the Nine Months Ended September 30, 1998
(in thousands)
- --------------------------------------------------------------------------------
(b) Reflects pro forma adjustments to base rent and depreciation for the 1998
Acquisitions for the period from January 1, 1998 through the earlier of the
date of acquisition or September 30, 1998, as follows:
Acquisition Base Rent
Property (1) Date Adjustment (2) Depreciation (3)
- ------------ ----------------- -------------- ----------------
McGarvey Portfolio Jan. 30, 1998 (4) $ 308 $ 334
500 West Putnam Feb. 5, 1998 14 36
Mountainview Feb. 25, 1998 3 86
Cielo Center Mar. 12, 1998 88 174
Pacifica Portfolio Mar. 27, 1998 (5) 1,848 945
Prudential Bus. Campus Mar. 27, 1998 463 758
Morris County Fin. Ctr Mar. 30, 1998 (27) 313
3600 S. Yosemite May 13, 1998 33 122
500 College Road East May 22, 1998 182 176
D.C. Buildings June 1, 1998 88 725
400 S. Colorado June 3, 1998 24 112
Eastpoint I & II July 16, 1998 28 164
40 Richards Avenue Sept. 10, 1998 15 319
7 Skyline Drive Sept. 15, 1998 -- 230
- ------------------- -------------- -------------- ----------------
Total Pro Forma Adj $ 3,067 $ 4,494
- ------------------- -------------- -------------- ----------------
- ------------------- -------------- -------------- ----------------
(1) 2115 Linwood, 1510 Lancer Road and certain of the properties in the
Pacifica Portfolio (aggregate cost of $26,761) were not in operation, due
to being vacant and/or under development, during the nine months ended
September 30, 1998.
(2) Adjustments to base rent to reflect the resetting of the straight-line rent
for all leases in effect from January 1, 1997 forward.
(3) Pro forma depreciation is based on the building-related portion of the
purchase price and associated costs (for those properties in operation
during the period), depreciated using the straight-line method over a
40-year useful life.
(4) Acquisition of four of the 21 properties in this portfolio has not yet been
completed; results for period include nine-month period operations for
those pending acquisitions.
(5) Acquisition of two of the 18 properties in this portfolio has not yet been
completed; results for period include nine-month period operations for
those pending acquisitions.
14
MACK-CALI REALTY CORPORATION
Notes to Pro Forma Condensed Consolidated Statement of Operations (unaudited)
For the Nine Months Ended September 30, 1998
(in thousands)
- --------------------------------------------------------------------------------
(c) Pro forma adjustment to interest expense for the nine months ended
September 30,1998 reflects interest on mortgage debt assumed with certain
acquisitions and additional borrowings from the Company's credit facilities
to fund certain acquisitions. Pro forma interest expense for the nine
months ended September 30, 1998 is computed as follows:
Interest expense on loan assumed with Fair Lawn acquisition on March 3, 1995 $ 1,107
(fixed interest rate of 8.25 percent on average outstanding principal balance
of approximately $18,185)
Interest expense on mortgages assumed in connection with the Harborside 8,130
acquisition in 1996 (fixed interest rate of 7.32 percent on $107,912 and
initial rate of 6.99 percent on $42,088)
Interest expense on the Teachers Mortgage assumed with the RM Transaction 9,978
on January 31, 1997 (fixed interest rate of 7.18 percent on $185,283)
Interest expense on the Mack Transaction assumed debt during the period 17,724
Interest expense on West Putnam Mortgage ($12,104) with an effective 592
interest rate of 6.52 percent
Interest expense on McGarvey Mortgages ($8,354) with a weighted average 389
effective interest rate of 6.21 percent
Interest expense on Prudential Term Loan ($200,000) with an 10,185
interest rate of 6.79 percent
Interest expense on pro forma drawings on the Company's credit facilities of 27,491
$545,772 at a weighted average interest rate of 6.72 percent
Historical amortization of deferred mortgage, finance and title costs for the 1,122
nine months ended September 30, 1998 --------
Pro forma interest expense for the nine months ended September 30, 1998: 76,718
Company historical interest expense: 64,146
--------
Pro Forma Adjustment $ 12,572
--------
--------
Interest expense can be effected by increases and decreases in the variable
interest rates under the Company's various floating rate debt. For example, a
one-eighth percent change in such variable interest rates will result in a $833
change for the nine months ended September 30, 1998.
15
MACK-CALI REALTY CORPORATION
Notes to Pro Forma Condensed Consolidated Statement of Operations (unaudited)
For the Nine Months Ended September 30, 1998
(in thousands)
- --------------------------------------------------------------------------------
(d) Represents pro forma minority interest computed as follows:
Income before minority interest $113,748
Preferred unit dividend $ 12,090
Income allocable to common stockholders of the Company and
common unitholders in the Operating Partnership $101,658
--------
Allocation to minority interest based upon weighted average
percentage of Common Units outstanding of 12.20 percent 12,405
--------
Pro forma minority interest for the nine months ended
September 30, 1998 24,495
Company historical 23,464
--------
Pro Forma Adjustment: $ 1,031
--------
--------
(e) The following is a reconciliation of the historical basic weighted average
common shares outstanding to the pro forma basic weighted average common
shares outstanding (shares in thousands):
Historical basic weighted average common shares outstanding 55,391
Effect of pro forma adjustment for shares issued in connection
with the 1998 stock offerings 2,423
------
Pro forma basic weighted average common shares outstanding 57,814
------
------
(f) The following is a reconciliation of the historical diluted average common
shares outstanding to the pro forma basic weighted average common shares
outstanding (shares in thousands):
Historical diluted weighted average common shares outstanding 63,093
Effect of pro forma adjustment for dilutive securities issued in connection
with the 1998 Acquisitions 3,270
------
Pro forma diluted weighted average common shares outstanding 66,363
======
16
MACK-CALI REALTY CORPORATION
Pro Forma Condensed Consolidated Statement Of Operations (unaudited)
For the Year Ended December 31, 1997
(in thousands, except per share amounts)
- --------------------------------------------------------------------------------
1997 Events and
Company 1998 Acquisitions Pro Forma Company
Historical Historical (a) Adjustments Pro Forma
---------- ----------------- ----------- ---------
Base rents $206,215 $204,464 $ 15,747 $426,426
Escalations and recoveries
from tenants 31,130 26,093 -- 57,223
Parking and other 6,910 10,190 -- 17,100
Interest income 5,546 -- (835)(g) 4,711
-------- -------- -------- --------
Total revenues 249,801 240,747 14,912 505,460
-------- -------- -------- --------
EXPENSES
Real estate taxes 25,992 26,538 -- 52,530
Utilities 18,246 20,901 -- 39,147
Operating services 30,912 30,495 -- 61,407
General and administrative 15,862 11,927 -- 27,789
Depreciation and amortization 36,825 -- 37,790(b) 74,615
Interest expense 39,078 -- 66,631(c) 105,709(c)
Non-recurring merger -
related charges 46,519 -- (46,519)(h) --
-------- -------- -------- --------
Total expenses 213,434 89,861 57,902 361,197
-------- -------- -------- --------
Income before minority
interest and extraordinary item 36,367 150,886 (42,990) 144,263
Minority interest 31,379 -- (1,116)(d) 30,263(d)
-------- -------- -------- --------
Income before extraordinary
item $ 4,988 $150,886 $(41,874) $114,000
-------- -------- -------- --------
-------- -------- -------- --------
Basic weighted average common
shares outstanding (e) 39,266 57,510(e)
------ ------
Diluted weighted average common
shares outstanding (f) 44,156 65,564
------ ------
Basic income before extraordinary
item per common share $ 0.13 $ 1.98
-------- --------
Diluted income before extraordinary
item per common share $ 0.12 $ 1.96
-------- --------
17
MACK-CALI REALTY CORPORATION
Notes to Pro Forma Condensed Consolidated Statement of Operations (unaudited)
For the Year Ended December 31, 1997
(in thousands)
- --------------------------------------------------------------------------------
(a) Reflects historical revenues and certain expenses for the 1997 Events and
1998 Acquisitions for the period from January 1, 1997 through the earlier
of the date of acquisition or December 31, 1997, as follows:
Real
Base Escalations/ Other Estate Operating General and
Transaction/Acquis. (1) Date Completed Rents Recoveries Income Taxes Utilities Services Administrative
- ----------------------- -------------- ----- ---------- ------ ------ --------- --------- --------------
1345 Campus Parkway Jan. 28, 1997 $ 58 $ 19 -- $ 7 $ 1 $ 4 $ 1
RM Transaction Jan. 31, 1997 5,219 195 $ 524 817 379 858 410
Westlakes May 8, 1997 2,825 866 -- 258 362 449 246
Shelton Place July 31, 1997 1,259 123 -- 94 168 162 57
200 Corporate Blvd Aug. 15, 1997 482 15 -- 68 6 91 1
Three Independence Way Sept. 3, 1997 1,312 2 -- 163 72 147 28
The Trooper Building Nov. 19, 1997 1,395 537 -- 113 228 172 54
The Mack Transaction Dec. 11, 1997 122,989 16,099 6,500 15,099 13,210 18,679 7,043
Princeton Overlook Dec. 19, 1997 3,166 265 -- 436 209 302 183
Concord Plaza Dec. 19, 1997 3,470 511 128 619 249 721 227
McGarvey Portfolio Jan. 30, 1998 (4) 5,002 1,009 -- 780 90 376 2
500 West Putnam Feb. 5, 1998 2,270 482 -- 170 269 314 167
Mountainview Feb. 25, 1998 2,654 211 4 221 421 508 110
Cielo Center Mar. 12, 1998 3,977 206 106 597 492 849 264
Pacifica Portfolio Mar. 17, 1998 (5) 7,825 791 53 1,084 495 808 263
Prudential Bus. Campus Mar. 27, 1998 12,225 1,082 2,159 2,531 941 828 1,632
Morris County Fin. Ctr Mar. 30, 1998 6,044 1,794 48 789 939 1,229 329
3600 S. Yosemite May 13, 1998 1,678 10 69 119 195 316 49
500 College Road East May 22, 1998 2,828 437 -- 318 479 407 161
D.C. Portfolio June 1, 1998 10,075 750 433 1,115 674 1,772 365
400 S. Colorado June 3, 1998 1,389 95 -- 185 231 382 109
Eastpoint I & II July 16, 1998 2,664 250 144 372 225 590 121
40 Richards Drive Sept. 10, 1998 2,552 237 16 389 282 266 104
7 Skyline Drive Sept. 15, 1998 1,106 107 6 194 284 265 1
- ------------------------- -------------- -------- -------- -------- -------- -------- -------- --------
Total 1997 Events
and 1998 Acquisitions
Historical $204,464 $ 26,093 $ 10,190 $ 26,538 $ 20,901 $ 30,495 $ 11,927
- ------------------------- -------- -------- -------- -------- -------- -------- --------
- ------------------------- -------- -------- -------- -------- -------- -------- --------
See footnotes to this page on subsequent page.
18
MACK-CALI REALTY CORPORATION
Notes to Pro Forma Condensed Consolidated Statement of Operations (unaudited)
For the Year Ended December 31, 1997 (in thousands)
- --------------------------------------------------------------------------------
(b) Reflects pro forma adjustments to base rent and depreciation for the 1997
Events and 1998 Acquisitions for the period from January 1, 1997 through
the earlier of the date of acquisition or December 31, 1997, as follows:
Base Rent
Transaction/Acquis. (1) Date Completed Adjustment (2) Depreciation (3)
- ----------------------- -------------- -------------- ----------------
1345 Campus Parkway Jan. 28, 1997 $ -- $ 12
RM Transaction Jan. 31, 1997 (10) 864
Westlakes May 8, 1997 301 607
Shelton Place July 31, 1997 (113) 192
200 Corporate Blvd Aug. 15, 1997 -- 106
Three Independence Way Sept. 3, 1997 (3) 189
The Trooper Building Nov. 19, 1997 1 303
The Mack Transaction Dec. 11, 1997 10,018 20,797
Princeton Overlook Dec. 19, 1997 149 578
Concord Plaza Dec. 19, 1997 252 724
McGarvey Portfolio Jan. 30, 1998 (4) 307 1,044
500 West Putnam Feb. 5, 1998 150 423
Mountainview Feb. 25, 1998 10 514
Cielo Center Mar. 12, 1998 626 838
Pacifica Portfolio Mar.17, 1998 (5) 224 2,372
Prudential Bus. Campus Mar. 27, 1998 1,913 3,096
Morris County Fin. Ctr Mar. 30, 1998 4 1,253
3600 S. Yosemite May 13, 1998 (17) 325
500 College Road East May 22, 1998 208 459
D.C. Portfolio June 1, 1998 1,721 1,740
400 S. Colorado June 3, 1998 23 266
Eastpoint I & II July 16, 1998 -- 304
40 Richards Drive Sept. 10, 1998 (17) 459
7 Skyline Drive Sept. 15, 1998 -- 325
- ------------------------------- --------------- -------- -------
Total 1997 Events and
1998 Acquisitions Historical $ 15,747 $37,790
- ------------------------------- --------------- -------- -------
- ------------------------------- --------------- -------- -------
See footnotes to this page on subsequent page.
19
MACK-CALI REALTY CORPORATION
Notes to Pro Forma Condensed Consolidated Statement of Operations (unaudited)
For the Year Ended December 31, 1997
(in thousands)
- --------------------------------------------------------------------------------
Notes to Footnote "(a)" and Footnote "(b)":
(1) Moorestown Properties, 2115 Linwood, 1510 Lancer Road and certain of the
properties in the Pacifica Portfolio (aggregate cost of $49,047) were not
in operations, due to being vacant and/or under development, during the
year ended December 31, 1997.
(2) Adjustments to base rent to reflect the resetting of the straight-line rent
for all leases in effect from January 1, 1997 forward.
(3) Pro forma depreciation is based on the building-related portion of the
purchase price and associated costs (for those properties in operation
during the period) depreciated using the straight-line method over a
40-year life.
(4) Acquisition of four of the 21 properties in this portfolio has not yet been
completed.
(5) Acquisition of two of the 18 properties in this portfolio has not yet been
completed.
- ---------------------------
(c) The pro forma adjustment to interest expense for the year ended December
31, 1997 reflects interest on mortgage debt assumed with certain
acquisitions and additional borrowings from the Company's credit facilities
to fund certain acquisitions. Pro forma interest expense for the year ended
December 31, 1997 is computed as follows:
Interest expense on the Initial Mortgage Financing, after the Partial Pre- $ 4,858
payment (fixed interest rate of 8.02 percent on $44,313 and variable rate
of 30-day LIBOR plus 100 basis points on $20,195; weighted average interest
rate used is 6.46 percent)
Interest expense on loan assumed with Fair Lawn acquisition on March 3, 1995 1,505
(fixed interest rate of 8.25 percent on average outstanding principal balance
of approximately $18,185)
Interest expense on mortgages in connection with the Harborside acquisition on 10,841
November 4, 1996 (fixed interest rate of 7.32 percent on $107,912 and initial rate
of 6.99 percent on $42,088)
Interest expense on Teachers Mortgage assumed with the RM Transaction on 13,303
January 31, 1997 (fixed interest rate of 7.18 percent on $185,283)
Interest expense on Mack Assumed Debt ($291,883) with a weighted average 22,530
interest rate of 7.72 percent
Interest expense on West Putnam Mortgage ($12,104) with an effective 789
interest rate of 6.52 percent
Interest expense on McGarvey Mortgage ($8,354) with a weighted average 519
effective interest rate of 6.24 percent
Interest expense on Prudential Term Loan ($200,000) at a weighted average 13,700
interest rate of 6.85 percent
20
MACK-CALI REALTY CORPORATION
Notes to Pro Forma Condensed Consolidated Statement of Operations (unaudited)
For the Year Ended December 31, 1997
(in thousands)
- --------------------------------------------------------------------------------
Interest expense on pro forma drawings on the Company's credit facilities of
$523,486 at a weighted average rate of 7.00 percent 36,681
Historical amortization of deferred mortgage, finance and title costs for the 983
year ended December 31, 1997
--------
Pro forma interest expense for the year ended December 31, 1997: 105,709
Company historical interest expense 39,078
--------
Pro Forma Adjustment: $ 66,631
--------
--------
Interest expense can be effected by increases and decreases in the variable
rates under the Company's various floating rate debt. For example, a
one-eighth percent change in such variable interest rates will result in a
$1,055 change for the year ended December 31, 1997.
(d) Represents pro forma minority interest computed as follows:
Income before extraordinary item and minority interest $ 144,263
Pro forma dividend yield of 6.75 percent on the Preferred $ 15,563
Units with a par value of $230,562
Income allocable to common stockholders of the Company and 128,700
---------
unitholders in the Operating Partnership
Allocation to minority interest based upon weighted average
percentage of Common Units outstanding of 11.42 percent 14,700
----- ------
Pro Forma minority interest for the Year Ended December 31, 1997 30,263
Company historical including amount related to the beneficial
conversion feature of the Preferred Units of $26,801 (h) 31,379
------- ------
Pro Forma Adjustment: $ (1,116)
---------
---------
21
MACK-CALI REALTY CORPORATION
Notes to Pro Forma Condensed Consolidated Statement of Operations (unaudited)
For the Year Ended December 31, 1997
(in thousands)
- --------------------------------------------------------------------------------
(e) The following is a reconciliation of the historical basic weighted average
common shares outstanding to the pro forma basic weighted average common
shares outstanding (shares in thousands):
Historical basic weighted average shares outstanding 39,266
Effect of shares issued in connection with the 1997 and 1998 18,045
stock offerings
Effect of vesting of 199 shares on an accelerated basis as a result of
the Mack Transaction 199
------
Pro forma basic weighted average shares outstanding 57,510
------
------
(f) The following is a reconciliation of the historical diluted weighted
average common shares outstanding to the pro forma diluted weighted average
common shares outstanding (shares in thousands):
Historical diluted weighted average shares outstanding 44,156
Effect of dilutive securities issued in connection with the 1997 and 1998 21,209
acquisitions
Effect of vesting of 199 shares on an accelerated basis as a result of
the Mack Transaction 199
------
Pro forma diluted weighted average shares outstanding 65,564
------
------
(g) Represents pro forma reduction for interest income earned on investments of
proceeds from the Company's November 1996 stock offering ($835).
(h) The charge related to the beneficial conversion feature of the preferred
units ($26,801) and the non-recurring merger-related charges ($46,519) were
excluded for pro forma purposes.
22