Item 1 Business ..................................................... Item 2
ITEM 2. PROPERTIES
GENERAL
As of December 31, 1996, the Company owned 100 percent of 57 Properties ranging from one to nineteen stories, including a multi-family residential property. As of February 28, 1997, the Company owned 100 percent of 123 properties ranging from one to nineteen stories, including two stand-alone retail properties, two land leases and two multi-family residential properties. All of the Properties are strategically located in a contiguous area from Philadelphia, Pennsylvania to Stamford, Connecticut. The Properties are easily accessible from major thoroughfares and are in close proximity to numerous amenities. The Properties contain a total of approximately 11.4 million square feet, with the individual Office Properties ranging from approximately 23,350 to 761,200 square feet, the individual Office/Flex Properties ranging from 13,275 to 76,298 square feet and the individual Industrial/Warehouse Properties ranging from 6,638 to 195,741 square feet.
The Properties, each managed by on-site employees, generally have attractively landscaped sites, atriums and covered parking in addition to quality design and construction. As of February 28, 1997, the Office Properties, Office/Flex Properties and Industrial/Warehouse Properties were approximately 96 percent leased to approximately 1,100 tenants. The Company's tenants include many service sector employers, including a large number of professional firms and national and international businesses. The Company believes that all of its Properties are well-maintained and do not require significant capital improvements.
The following property information is provided separately for the Year-End Properties and the RM Properties. It should be noted that as the RM Properties were acquired on January 31, 1997, certain information provided for the RM Properties may not be indicative of the results that will occur following the Company's acquisition of such properties.
Year-End Properties: Property Tables The following tables set forth certain historical information relating to each of the Year-End Office Properties and the Year-End Office/Flex Properties, which are owned 100 percent by the Company as of December 31, 1996:
RM Properties: Property Tables
The following tables set forth certain historical information relating to each of the RM Office Properties, the RM Office/Flex Properties and the Industrial/Warehouse properties which were owned 100 percent by RM as of December 31, 1996.
Retail Properties. The Company owns two stand-alone retail properties as of February 28, 1997, both acquired in the RM Acquisition.
The Company owns an 8,000 square foot restaurant, constructed in 1986, located in the South Westchester Executive Park in Yonkers, Westchester County, New York. The restaurant is 100 percent leased to Magic at Yonkers, Inc. for use as a Red Robin restaurant under a 25-year lease. The lease currently provides for fixed annual rent of $230,000, with fully-reimbursed real estate taxes, and operating expenses escalated based on CPI over a base year CPI. The lease, which expires on June 30, 2012, includes scheduled rent increases in July 1997 to approximately $265,000 annually, and in July 2002 to approximately $300,000 annually. The lease also provides for additional rent calculated as a percentage of sales over a specified sales amount, as well as for two five-year renewal options. 1996 base rental revenue, calculated in accordance with GAAP, to RM was approximately $198,000.
The Company also owns a 9,300 square foot restaurant, constructed in 1984, located at 230 White Plains Road, Tarrytown, Westchester County, New York. The restaurant is 100 percent leased to TGI Fridays under a 10-year lease which provides for fixed annual rent of approximately $195,000, with fully-reimbursed real estate taxes, and operating expenses escalated based on CPI over a base year CPI. The lease, which expires on August 31, 2004, also provides for additional rent calculated as a percentage of sales over a specified sales amount, as well as for four five-year renewal options. 1996 base rental revenue, calculated in accordance with GAAP, to RM was approximately $195,000.
Land Leases. The Company owns two land leases as of February 28, 1997, both acquired in the RM Acquisition.
The Company has land leased to Star Enterprises, where a 2,264 square foot Texaco Gas Station was constructed, located at 1 Enterprise Boulevard in Yonkers, Westchester County, New York. The 15-year, triple-net land lease provides for annual rent of approximately $125,000 through January 1998, with an increase to approximately $145,000 annual rent through April 30, 2005. The lease also provides for two five-year renewal options. 1996 base rental revenue, calculated in accordance with GAAP, to RM was approximately $135,000.
The Company also leases five acres of land to Rake Realty, where a 103,500 office building exists, located at 700 Executive Boulevard, Elmsford, Westchester County, New York. The 22-year, triple-net land lease provides for fixed annual rent plus a CPI adjustment every five years, and expires on November 30, 2000. RM's 1996 base rent, calculated in accordance with GAAP, under this lease was approximately $97,000. The lease also provides for several renewal options which could extend the lease term for an additional 30 years.
Multi-family Residential Properties. As of February 28, 1997, the Company owned two multi-family residential properties, described below:
Tenby Chase Apartments, Delran, Burlington County, New Jersey
The Company's multi-family residential property, known as the Tenby Chase Apartments, was built in 1970. The property contains 327 units, comprised of 196 one-bedroom units and 131 two-bedroom units, with an average size of approximately 1,235 square feet per unit. The property had an average monthly rental rate of approximately $713 per unit during 1996 and was approximately 97 percent leased as of December 31, 1996. The property had 1996 total base rent of approximately $2.7 million which represented approximately 3.5 percent of the Company's 1996 total base rent. The average occupancy rate for the Property in each of 1996, 1995, and 1994, was 95.3 percent, 93.6 percent, and 94.8 percent respectively.
25 Martine Avenue, White Plains, Westchester County, New York
The Company's multi-family residential property, acquired in the RM Acquisition and known as 25 Martine Avenue, was completed in 1987. The property contains 124 units, comprised of 18 studio units, 71 one-bedroom units and 35 two-bedroom units, with an average size of approximately 722 square feet per unit. The property had an average monthly rental rate of approximately $1,488 per unit during 1996 and was 100.0 percent leased as of December 31, 1996. The property had 1996 total base rent to RM of approximately $2.1 million which represented approximately 3.5 percent of the RM Properties' 1996 total base rent of RM. The average occupancy rate for the property in each of 1996, 1995 and 1994 was 96.4 percent, 98.3 percent and 97.6 percent, respectively.
Year-End Office Properties: Schedule of Lease Expirations
The following table sets forth a schedule of the lease expirations for the Year-End Office Properties beginning January 1, 1997, assuming that none of the tenants exercises renewal options:
Year-End Office/Flex Properties: Schedule of Lease Expirations
The following table sets forth a schedule of the lease expirations for the Year-End Office/Flex Properties, beginning January 1, 1997, assuming that none of the tenants exercises renewal options:
RM Office Properties: Schedule of Lease Expirations
The following table sets forth a schedule of the lease expirations for the RM Office Properties beginning January 1, 1997, assuming that none of the tenants exercises renewal options:
RM Office/Flex Properties: Schedule of Lease Expirations
The following table sets forth a schedule of the lease expirations for the RM Office/Flex Properties, beginning January 1, 1997, assuming that none of the tenants exercises renewal options:
RM Industrial/Warehouse Properties: Schedule of Lease Expirations
The following table sets forth a schedule of the lease expirations for the RM Industrial/Warehouse Properties, beginning January 1, 1997, assuming that none of the tenants exercises renewal options:
95 Christopher Columbus Drive, Jersey City, Hudson County, NJ
As the 1996 revenues of 95 Christopher Columbus Drive, Jersey City ("Grove Street") was in excess of 10 percent of the Company's consolidated total revenues for the year ended December 31, 1996, additional information regarding Grove Street is provided below.
Grove Street is located in the Waterfront Region submarket of Hudson County, which includes Hoboken, Jersey City and Weehawken. The building, built in 1989, is located on approximately 1.8 acres and has 36,600 square feet on each of the first 18 floors and 24,000 square feet on the 19th floor. On April 9, 1996, DLJ, a significant tenant that previously leased approximately 55 percent of the space at Grove Street, signed a lease with the Company for an additional 73,200 square feet of office space and on December 31, 1996, DLJ signed a lease for an additional 6,507 square feet of space, which, in the aggregate, increased DLJ's occupancy to approximately 67 percent of the property as of December 31, 1996. The building currently contains 621,900 net rentable square feet and was 100% leased as of December 31, 1996. The building has 13 passenger and two freight elevators and offers 24-hour card access. Other amenities include fiber optics telecommunications, a separate power source for the most sophisticated computer systems, building life safety systems connected to an uninterruptable power source, extra height ceilings to accommodate raised floors, five-story skylit atrium with waterfall and reflecting pool, multiple on-premises retail services, six level attached parking deck with 485 spaces and an elevator and direct access to the Grove Street PATH subway station. The Grove Street PATH subway station provides direct access to midtown and downtown Manhattan.
The following table sets forth certain information (on a per net rentable square foot basis unless otherwise indicated) about 95 Christopher Columbus Drive, Jersey City since January 1, 1992 (based upon an average of all lease transactions during the respective periods):
The following table sets forth the average percentage leased and average annual rental per leased square foot (excluding storage space) for the past five years for 95 Christopher Columbus Drive, Jersey City. All of the leases at 95 Christopher Columbus Drive, Jersey City are triple net leases (i.e., tenants pay their proportionate share of real estate taxes, insurance and operating expenses).
Two tenants at Grove Street occupy approximately 92 percent of the net rentable square feet in the aggregate at December 31, 1996. As of December 31, 1996, DLJ, a national securities firm, occupied 413,852 square feet (approximately 67 percent of the net rentable square feet of Grove Street) pursuant to four leases which expire July 13, 2009, with two five-year renewal options. Total rental income from DLJ in 1996, including escalations and recoveries, was approximately $11.5 million (excluding lobby and storage space). The DLJ leases provide for, among other things, annual rental rate increases of approximately $1.3 million in July 1999 and approximately $1.6 million in July 2004. NTT, an international communications firm, occupies 137,000 square feet (approximately 22 percent of the net rentable square feet of Grove Street) pursuant to a lease which expires September 30, 2000, with three five-year renewal options. NTT's billed rent for 1996 was approximately $3.0 million (excluding lobby space).
The following table sets forth a schedule of the lease expirations for Grove Street, assuming that none of the tenants exercises renewal options or termination rights:
The aggregate tax basis of depreciable real property at Grove Street for federal income tax purposes was approximately $74 million as of December 31, 1996. Depreciation and amortization are computed on the declining balance and straight-line methods over the estimated useful life of the real property which range from 31.5 to 39 years. The aggregate tax basis of depreciable personal property associated with Grove Street for federal income tax purposes was approximately $15,000 as of December 31, 1996. Depreciation and amortization are computed on the double declining balance method over the estimated useful life of the personal property of five to seven years.
Grove Street has been granted an abatement under the Fox-Lance program by Jersey City, which establishes the payment to the City of Jersey City for municipal services to be paid in lieu of conventional real estate taxes. The abatement program is in effect for the 15-year period from completion of the project (1989 through 2004). The total annual charge in lieu of real estate taxes has been designated by the program at two percent of the project cost (i.e., $1,131,000 per annum) for the first ten years and 2.5 percent (i.e., $1,413,750 per annum) for years 11 through 15.
Harborside Financial Center, Jersey City, Hudson County, NJ
As the book value of Harborside was in excess of 10 percent of the Company's total assets at December 31, 1996, additional information regarding the property is provided below.
Harborside, acquired by the Company on November 4, 1996, is a completely redeveloped, three-building office complex containing 1,886,800 square feet of net rentable area located in the Exchange Place Newport Center submarket of Jersey City, New Jersey. This submarket is a satellite office market of Manhattan and is occupied primarily by the support and technical operations of New York City-based financial institutions. The buildings, known as Plazas I, II and III were developed as a complete reconstruction of existing buildings in two phases, the first completed in 1983 and the second in 1990. The buildings are connected via an enclosed 1,000 foot waterfront promenade featuring restaurants, service retail shops and a food court, as well as an atrium lobby. The promenade includes various retail operations such as restaurants, a bank, and a dry cleaner. The property is situated on 47.98 acres for the existing building complex, 11.29 acres of undeveloped land, 5.78 acres of piers and 21.61 acres of underwater land (excluding piers).
Plaza I is served by six passenger elevators as well as a 15,000 lb. freight car. Plazas II and III are each served by ten passenger elevators and have seven oversized freight elevators in total. In addition, there are large shafts where freight elevators have been removed which enable tenants to bring significant electric telecommunications cabling to their space at minimal cost.
The property leases space to a parking operator and provides for approximately 1,685 parking spaces including 200 spaces on the south pier. Public transportation to the property is available through the Exchange Place PATH rail station which is immediately adjacent to the property and links Harborside to downtown Manhattan in approximately four minutes. The PATH also provides access to midtown Manhattan, Newark and Hoboken in less than twenty minutes. The property is also connected to Manhattan by road via a three mile drive to the Holland Tunnel and a five-mile drive to the Lincoln Tunnel. Interstates 78 and 495, US Routes 1, 9 and 440, and NJ Route 3 connect the property to locations throughout northern New Jersey.
The following table sets forth certain information (on a per rentable square foot basis unless otherwise indicated) about the property since January 1, 1992 (based upon an average of all lease transactions during the respective periods):
The following schedule sets forth the average percent leased and average annual rental per leased square foot for the years ended December 31, 1992 through 1996 for Harborside:
Four tenants at Harborside occupy approximately 63 percent of the net rentable square feet in the aggregate as of December 31, 1996, as follows:
Bankers Trust Harborside, Inc., a commercial bank, occupied 385,000 square feet (approximately 21 percent of the net rentable square feet of Harborside) at December 31, 1996, pursuant to a triple net lease which expires March 31, 2003, with a five-year renewal option. Total rental income from Bankers Trust, including escalations and recoveries, was approximately $548,000 for the period November 4 through December 31, 1996. The lease provides, among other things, for an annual rent increase of $770,000 to an annual rent of $3,272,500 beginning on April 1, 1998.
Dow Jones Telerate Holdings, Inc., a telecommunications firm, occupied 378,232 square feet at December 31, 1996 (approximately 20 percent of the net rentable square feet of Harborside) pursuant to various leases expiring June 30, 1999 through March 31, 2001, with two five-year renewal options on 187,817 square feet of the space and one five-year option on 45,187 square feet of the space. Total rental income from Dow Jones Telerate Holdings, Inc., including escalations and recoveries was approximately $1,483,000 for the period November 4 through December 31, 1996. Certain of the leases provide for annual rental increases totaling approximately $181,000 beginning in June 2001.
AICPA, a professional organization, occupied approximately 250,000 square feet (approximately 13 percent of the net rentable square feet of Harborside) at December 31, 1996, pursuant to a lease which expires July 31, 2012, with a ten-year renewal option. Total rental income from the AICPA, including escalations and recoveries, was approximately $1,153,000 for the period November 4 through December 31, 1996. The AICPA lease provides for, among other things, annual rental increases of approximately $836,000 in July 2002 and $836,000 in July 2007.
Dean Witter Trust Company, a securities firm, occupied 179,131 square feet (approximately 9.5 percent of the net rentable square feet of Harborside) at December 31, 1996, pursuant to a lease which expires February 8, 2008, with ten-year and five-year renewal options. Total rental income from Dean Witter, including escalations and recoveries, was approximately $796,000 for the period November 4, 1996 through December 31, 1996. The lease provides for, among other things, annual rental increases of approximately $221,000 beginning in February 1998, $30,000 in September 2000, $473,000 in February 2003, and $64,000 in September 2005.
The following table sets forth a schedule of the lease expirations for Harborside, beginning January 1, 1997, assuming that none of the tenants exercise renewal options:
The aggregate tax basis of depreciable real property at Harborside for federal income tax purposes was approximately $254 million as of December 31, 1996. Depreciation and amortization are computed on the declining balance and straight-line methods over the estimated useful life of the real property which range from 31.5 to 39 years. There is no depreciable personal property associated with Harborside for federal income tax purposes as of December 31, 1996. Depreciation and amortization are computed on the double declining balance method over the estimated useful life of the personal property of five to seven years.
Tax abatements for Harborside were obtained in 1988 by the former owner of the property from the City of Jersey City under the Fox-Lance Program and were assumed by the Company as part of the acquisition of Harborside on November 4, 1996. The abatements, which commenced in 1990, are for a term of 15 years. The Company is required to pay municipal services equal to two percent of Total Project Costs, as defined, in year one and increase by $75,000 per annum through year fifteen. Total Project Costs, as defined, are $148.7 million. The service charges for the remaining undeveloped parcels will be equal to two percent of Total Project Costs for each unit in year one and increase to three percent by year fifteen.
The Company's Real Estate Markets.
The Company's Properties are strategically located in a contiguous area from Philadelphia, Pennsylvania to Stamford, Connecticut. The following is a discussion of the markets within which the Company's properties are located:
Northern New Jersey: The Northern New Jersey market consists of Bergen, Essex, Hudson, Morris and Passaic Counties. Northern New Jersey's five counties are part of the greater New York metropolitan area, are less than a 45 minute drive from Manhattan, and are widely regarded as major centers for corporate and international business. The region has direct access to New York City by public transportation and extensive road networks. In addition to being home to the two largest cities in New Jersey, Newark and Jersey City, Newark International Airport and the New York/New Jersey Harbor are also located within the five-county boundary.
Overall vacancy rates have declined in the Northern New Jersey market for the fourth consecutive year as a direct result of an increase in leasing activity and net absorption levels. Although some built-to-suit activity is present, speculative construction remains virtually nonexistent. The Company owns and operates approximately 4.5 million square feet of office and office/flex space in Northern New Jersey.
Central New Jersey: The Central New Jersey market consists of Union, Somerset, Hunterdon, Middlesex, Mercer and Monmouth Counties. Encompassing approximately 2,000 square miles in six counties, Central New Jersey is notable for its proximity to major highway arteries like Interstates 78 and 287, Route 1, the Garden State Parkway and the New Jersey Turnpike. This market continues to be a prime location for Fortune 500 headquarters, research & development operations and financial, insurance and real estate (FIRE) sector businesses.
Central New Jersey vacancy rates are decreasing while average asking rents are increasing. This is, in part, attributable to the increase in demand, measured by leasing activity, which rose predominantly due to corporate expansions. The Company owns and operates approximately 1.6 million square feet of office and office/flex space in the Central New Jersey Counties of Union, Somerset, Mercer and Monmouth.
Southern New Jersey: The Southern New Jersey market consists of Burlington, Camden, Atlantic, Ocean, Gloucester, Salem, Cumberland and Cape May Counties. This market has extensive geographic boundaries, stretching from the Delaware River and Philadelphia, to the Atlantic Ocean and Atlantic City. The region is mainly suburban, with the exception of Camden County, which is home to many affluent communities, and Atlantic City, one of the nation's largest centers for gaming/tourism.
The Company owns and operates 80,000 square feet of office space in Atlantic County and a 327-unit multi family residential complex in Burlington County.
Suburban Philadelphia, Pennsylvania: The Suburban Philadelphia market consists of Bucks, Chester, Delaware, Montgomery, Lehigh and Northampton Counties. These six surround the City of Philadelphia, are home to many affluent communities and are regarded as major centers for corporate and international business. The areas are served by an extensive highway network allowing easy access to Philadelphia International Airport and the Port of Philadelphia.
Over the last few years the overall vacancy rate in this region has declined and in 1996, the rate dipped below 10 percent for the first time as a result of strong leasing activity and virtually no new construction. The Company owns and operates approximately 761,000 square feet in Suburban Philadelphia.
Rockland County, New York: Rockland County, New York is located north of the New Jersey/New York border directly adjacent to Bergen County. Rockland County has excellent highway access to both New York City via Interstate 87 and to New Jersey via Interstate 287.
The Company owns and operates a 180,000 square foot office property in Rockland County.
Westchester County, New York: Westchester County, New York, is located immediately north of New York City. There is access to the City by public transportation and through an extensive road network. The vacancy rate in Westchester County has declined steadily over the last three years as the office market has absorbed 3 million square feet that IBM, A.T.& T. and NYNEX vacated from 1989 to 1993. Speculative construction has been virtually non-existent during the past five years.
The Company owns and operates approximately 1.6 million square feet of office space, approximately 1.6 million square feet of office/flex space, approximately 386,000 square feet of industrial/warehouse space and a 124-unit residential multifamily property in Westchester County, New York. The Company entered this market for the first time with the RM Acquisition.
Fairfield County, Connecticut: Fairfield County, Connecticut is the county in Connecticut closest in proximity with New York City. It has direct access to the City via public transportation and through an extensive road network. The county is home to ten Fortune 500 headquarters and there has been a substantial decline in vacancy during the past two years.
The Company owns approximately 166,000 square feet of office/flex space in Fairfield County. The Company entered this market for the first time with the RM Acquisition.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary routine litigation incidental to its business, to which the Company is a party or to which any of its Properties is subject.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders in the fourth quarter of the fiscal year ending December 31, 1996.
PART II
Item 5.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange under the symbol CLI.
Market Information. The Company's Common Stock has been traded on the New York Stock Exchange ("NYSE") since August 25, 1994. The high, low, and close price per share of Common Stock for the years ended December 31, 1995 and 1996 are as follows:
On February 28, 1997, the closing stock sales price on the NYSE was $32.00 per share.
Holders. The approximate number of holders of record of the shares of the Company's Common Stock was 244 as of February 28, 1997.
Dividends and Distributions. As a result of the Company's improved operating performance, in September 1996 the Company announced a 5.9 percent increase in its regular quarterly distribution, commencing with the Company's distribution with respect to the third quarter of 1996, from $.425 per share to $.450 per share of Common Stock ($1.80 per share of Common Stock on an annualized basis). The Company declared a cash dividend of $.450 per share on December 20, 1996, to stockholders of record on January 4, 1997. Also on that date, the Company declared a cash distribution to the limited partners in the Operating Partnership that was equivalent to $.450 per share. The dividend and distribution were paid on January 19, 1997. The declaration and payment of dividends and distributions will continue to be determined by the Board of Directors in light of conditions then existing, including the Company's earnings, financial condition, capital requirements, applicable legal restrictions and other factors.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
CALI REALTY CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
The following table sets forth selected financial data on a consolidated basis for the Company and on a combined basis for the Cali Group. The consolidated selected financial data of the Company as of December 31, 1996, 1995 and 1994 and for the years ended December 31, 1996 and 1995, and for the period from August 31, 1994 to December 31, 1994 and the combined selected financial data of the Cali Group as of December 31, 1993 and 1992, and for the periods ended August 30, 1994, December 31, 1993 and 1992 have been derived from the Company's financial statements.(1)
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CALI REALTY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected Financial Data" and the Company's Financial Statements and the Notes thereto.
The Company was incorporated on May 24, 1994, as a Maryland corporation, and commenced operations effective with the completion of its Initial Public Offering ("IPO") on August 31, 1994, which was simultaneous with effecting a business combination with the Cali Group (not a legal entity). The Cali Group was engaged in development, ownership and operation of a portfolio of twelve office buildings and one multi-family residential property, all located in New Jersey.
Following the IPO, during 1994 and 1995, the Company acquired 28 office and office/flex properties, aggregating approximately 1.7 million square feet, for a total cost of $157.5 million. The financing for the 1994 and 1995 acquisitions was primarily facilitated by a public stock offering in November 1995 (from which the Company raised $72.5 million in net proceeds) and funds made available from the Company's credit facility. Additionally, in conjunction with one of the 1995 acquisitions, the Company issued 93,458 Units in the Operating Partnership and assumed an $18.8 million mortgage loan.
At the end of 1995, the Company's portfolio of 39 Class A office and office/flex properties, and one multi-family residential property, were located in New Jersey, except for one office property located in Rockland County, New York. The Company's portfolio at December 31, 1995 aggregated approximately 3.9 million square feet, which was an increase of 78 percent over the Company's portfolio square feet at its IPO.
In 1996, the Company acquired 15 office and office/flex properties, aggregating approximately 3.3 million square feet, for a total cost of $459.4 million. The financing for the 1996 acquisitions was facilitated by two public stock offerings in 1996, from which the Company raised an aggregate of $518.2 million in net proceeds, and the assumption of $150.0 million in mortgage financing in connection with the acquisition of the Harborside Financial Center ("Harborside").
At the end of 1996, the Company's portfolio of 56 office and office/flex properties, and a multi-family residential property, was located primarily in New Jersey, except for seven office properties acquired in 1996 in suburban Philadelphia, and one office property located in Rockland County, New York. The Company's portfolio at December 31, 1996 aggregated 7.1 million square feet, which represented an increase of 82 percent over the Company's portfolio square feet at December 31, 1995.
As a result of the acquisitions by the Company in 1995 and 1996, the operating results of the Company during such periods are not directly comparable.
RESULTS OF OPERATIONS
The following comparisons for the year ended December 31, 1996 ("1996"), as compared to the year ended December 31, 1995 ("1995") and for 1995 as compared to the twelve month period ended December 31, 1994 makes reference to the following: (i) the effect of the "Initial Properties," which represent all properties owned by the Company at December 31, 1994, (ii) the effect of the "Acquired Properties," which represent all properties acquired since January 1, 1995, and (iii) the effect of the "Disposition," which refers to the Company's sale of Essex Road on March 20, 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Total revenues increased $33.1 million, or 53.2 percent, for 1996 over 1995. Base rents increased $26.1 million, or 51.4 percent, of which an increase of $26.4 million, or 52.0 percent, was attributable to the Acquired Properties, and an increase of $0.9 million, or 1.8 percent, as a result of occupancy changes at the Initial Properties, offset by a decrease of $1.2 million, or 2.4 percent, as a result of the Disposition. Escalations and recoveries increased $4.9 million, or 51.8 percent, of which an increase of $4.6 million, or 49.0 percent, was attributable to the Acquired Properties, and $0.4 million, or 4.0 percent, as a result of occupancy changes at the Initial Properties, offset by a decrease of $0.1 million, or 1.2 percent, due to the Disposition. Interest income increased $1.6 million for 1996 over 1995, due primarily to the funds held at December 31, 1996 from the Company's common stock offering in November 1996. Parking and other income increased $0.5 million, or 29.5 percent, of which $0.3 million, or 17.9 percent, was attributable to the Initial Properties, and $0.3 million, or 15.9 percent, due to the Acquired Properties, offset by a decrease of $0.1 million, or 4.3 percent, due to the Disposition.
Total expenses for 1996 increased $18.7 million, or 41.5 percent, as compared to 1995. Real estate taxes increased $3.5 million, or 60.4 percent, for 1996 over 1995, of which $3.6 million, or 60.9 percent, was a result of the Acquired Properties, and $0.1 million, or 2.6 percent, related to the Initial Properties, offset by a decrease of $0.2 million, or 3.1 percent, due to the Disposition. Additionally, operating services increased $3.6 million, or 42.4 percent, and utilities increased $1.8 million, or 28.6 percent. The aggregate increase in operating services and utilities of $5.4 million, or 36.5 percent, consists of $5.9 million, or 39.9 percent, attributable to the Acquired Properties, offset by a decrease of $0.5 million, or 3.5 percent, as a result of the Disposition. General and administrative expense increased $2.1 million, or 56.3 percent, of which $2.2 million, or 57.5 percent, is primarily attributable to an increase in payroll and related costs as a result of the Company's expansion in 1996, offset by a decrease of $0.1 million, or 1.2 percent, due to the Disposition. Depreciation and amortization increased $3.7 million, or 30.6 percent, for 1996 over 1995, of which $4.4 million, or 36.7 percent, related to depreciation on the Acquired Properties, offset by decreases of $0.5 million, or 4.1 percent, for amortization of deferred financing costs due to reduction in debt outstanding on the Initial Properties, and $0.2 million, or 2.0 percent, as a result of the Disposition. Interest expense increased $4.0 million, or 46.4 percent, primarily due to an increase in the average outstanding borrowings on the Company's credit facilities during 1996 over 1995 in connection with an increase in property acquisitions, as well as the increase in mortgage indebtedness assumed in connection with the acquisition of Harborside.
Income before gain on sale of rental property, minority interest and extraordinary item increased to $31.5 million in 1996 from $17.1 million in 1995. The increase of $14.4 million was due to the factors discussed above.
Net income increased $18.3 million for 1996, from $13.6 million in 1995 to $31.9 million in 1996, as a result of an increase in income before gain on sale of property, minority interest and extraordinary item of $14.4 million and a gain on sale of the Disposition property of $5.7 million, offset by the increase in minority interest of $1.3 million and the recognition in 1996 of an extraordinary loss for the early retirement of debt of $0.5 million (net of minority interest's share of $0.1 million).
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
The following comparison is for Cali Realty Corporation Consolidated Operations for the year ended December 31, 1995 as compared to Cali Realty Corporation Consolidated Operations for the period August 31, 1994 to December 31, 1994, plus Cali Group Combined Operations for the period January 1, 1994 to August 30, 1994 (collectively, "1994").
Total revenues increased $11.9 million, or 23.5 percent, for 1995 over 1994. Base rents increased $10.4 million, or 25.6 percent, of which $9.3 million, or 22.8 percent, was attributable to the Acquired Properties and $1.1 million, or 2.8 percent, was due to increased occupancy at the Initial Properties. Escalations and recoveries increased $1.4 million, or 17.6 percent, of which $1.1 million, or 13.6 percent, was attributable to the Acquired Properties and $0.3 million, or 4.0 percent, to the Initial Properties.
Total expenses for 1995 decreased $0.4 million from 1994. Interest expense decreased $6.7 million, or 43.7 percent, primarily due to the reduction in indebtedness resulting from the repayment of the mortgages and loans in connection with the IPO. Additionally, in 1994, the Cali Group recognized an expense of $0.7 million, in connection with the settlement of a tenant participation agreement and ground rent of $0.6 million was eliminated as a result of the purchase by the Company of the land previously leased.
These decreases were partially offset by an increase in depreciation and amortization of $2.9 million, or 31.4 percent, for 1995 over 1994. This increase is primarily attributable to increases of $1.9 million in rental property depreciation, of which $1.3 million is attributable to the Acquired Properties, and increases of $0.7 million in amortization of costs relating to the Mortgage Financing and $0.3 million related to amortization of leasing-related costs. In addition, utilities increased $1.5 million, or 29.8 percent, of which $1.1 million, or 23.5 percent, is attributable to the Acquired Properties; real estate taxes increased $0.9 million, or 18.0 percent, of which $1.1 million, or 21.8 percent, was attributable to the Acquired Properties offset by a decrease of $0.2 million, or 3.8 percent, for the Initial Properties; operating services increased $2.0 million, or 29.9 percent, of which $1.4 million, or 20.9 percent, was attributable to the Acquired Properties, and general and administrative costs increased $0.3 million as a result of increased salaries and benefits.
Income before gain on sale of rental property, minority interest and extraordinary item increased to $17.1 million for 1995 from $4.9 million for 1994. The increase of $12.2 million was due to the factors discussed above.
Net income decreased $2.0 million from $15.7 million in 1994 to $13.6 million in 1995 as a result of recognition in 1994 of an $11.9 million extraordinary gain primarily due to the early retirement of indebtedness at less than carrying value.
LIQUIDITY AND CAPITAL RESOURCES
Statement of Cash Flows
During the year ended December 31, 1996, the Company generated $46.8 million in cash flow from operating activities, and, together with $518.2 million in net proceeds from its common stock offerings in 1996, $10.3 million of proceeds from the sale of a rental property, $2.0 million in proceeds from stock options exercised, and funds from escrow cash balances relating to the Mortgage Financing of $0.1 million, used an aggregate $577.4 million to (i) purchase 15 rental properties for $304.2 million, (ii) complete construction of two office/flex properties for $2.7 million, (iii) acquire land for future development, tenant improvements and building improvements for $11.3 million (including $2.9 million for tenant improvement costs incurred in connection with the DLJ Expansion and $1.8 million in tenant improvement costs in connection with the leasing of 62,275 square feet to Berlitz International Inc. at the Company's 400 Alexander Park, Princeton, Mercer County, New Jersey office property), (iv) pay quarterly dividends and distributions of $32.4 million, (v) prepay a portion of its mortgage notes and prepayment penalties and other related costs for $5.8 million, (vi) pay the amortization on mortgage principal of $0.3 million, (vii) reduce its outstanding borrowings on its credit facilities by a net amount of $16.9 million, and (viii) increase its cash and cash equivalents balance by $203.8 million.
Acquisition and Development Activity
On March 20, 1996, the Company sold its office building located at 15 Essex Road in Paramus, Bergen County, New Jersey ("Essex Road") and concurrently acquired a 96,000 square foot office building at 103 Carnegie Center in Princeton, Mercer County, New Jersey. The concurrent transactions with unrelated parties qualified as a tax-free exchange, as the Company used substantially all of the proceeds from the sale of Essex Road to acquire the Princeton property. The financial statements for the year ended December 31, 1996 include a gain of $5.7 million relating to this transaction.
On May 2, 1996, the Company acquired Rose Tree Corporate Center, a two-building suburban office complex totaling 260,000 square feet, located in Media, Delaware County, Pennsylvania, for approximately $28.1 million, which was drawn from one of the Company's credit facilities.
During the second quarter of 1996, the Company completed its construction of tenant improvements to 400 Alexander Park, a three-story, 70,550 square foot office building located in Princeton, Mercer County, New Jersey, which the Company acquired in December 1995 and leased the property in its entirety to Berlitz International Inc. Also during the second quarter of 1996, the Company entered into a lease agreement with Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") for an additional 73,200 square feet of office space located at 95 Christopher Columbus Drive in Jersey City, increasing DLJ's occupancy to approximately 66 percent of the property.
On July 23, 1996, the Company acquired 222 and 233 Mount Airy Road, two suburban office buildings totaling 115,000 square feet, located in Basking Ridge, Somerset County, New Jersey, for approximately $10.5 million, which was drawn from one of the Company's credit facilities.
On November 4, 1996, the Company acquired Harborside, a 1.9 million square foot office complex located in Jersey City, Hudson County, New Jersey for approximately $292.7 million. The acquisition cost included the assumption of existing and seller-provided mortgage financing aggregating $150.0 million. The balance of the cost was paid primarily in cash and was financed substantially through drawings from the Company's credit facilities. As part of the purchase, the Company also acquired 11.3 acres of land fully zoned and permitted for an additional 4.1 million square feet of development and the water rights associated with 27.4 acres of land extending into the Hudson River immediately east of Harborside, including two piers with an area of 5.8 acres.
On November 7, 1996, the Company acquired Five Sentry Parkway East & West, a two-building office complex comprised of approximately 130,000 square feet located in Plymouth Meeting, Montgomery County, Pennsylvania for approximately $12.5 million, which was drawn from one of the Company's credit facilities.
On December 10, 1996, the Company acquired 300 Tice Boulevard, a 230,000 square foot office building located in Woodcliff Lake, Bergen County, New Jersey, for approximately $35.1 million in cash, made available from the net proceeds received from the Company's common stock offering in November 1996 (the "November 1996 Offering").
On December 16, 1996, the Company acquired One Bridge Plaza, a 200,000 square foot office building located in Fort Lee, Bergen County, New Jersey, for approximately $26.9 million in cash, made available from the net proceeds received from the November 1996 Offering.
On December 17, 1996, the Company acquired the International Court at Airport Business Center, a three-building office complex comprised of approximately 371,000 square feet located in Lester, Delaware County, Pennsylvania for approximately $43.2 million in cash, made available from the net proceeds received from the November 1996 Offering.
In December 1996, the Company completed the construction of two office/flex properties on vacant land purchased in the Company's Totowa, Passaic County, New Jersey office park acquired in November 1995. The two properties, which were 25 percent leased at December 31, 1996, aggregated 47,100 square feet, and were constructed for an aggregate cost of $2.7 million.
On January 28, 1997, the Company acquired 1345 Campus Parkway, a 76,000 square foot office/flex property, located in Wall Township, Monmouth County, New Jersey, for approximately $6.8 million in cash, made available from the net proceeds received from the November 1996 Offering. The property is located in the same office park in which the Company previously acquired two office properties and four office/flex properties in November 1995.
On January 31, 1997, the Company acquired 65 properties (the "RM Properties") of Robert Martin Company LLC and affiliates ("RM"), for a total cost of approximately $450.0 million. The cost of the transaction was financed through the assumption of $185.3 million in mortgage indebtedness, approximately $220.0 million in cash, substantially all of which was obtained from the Company's cash reserves, and the issuance of 1,401,225 Units in the Operating Partnership.
The RM Properties consist primarily of 54 office and office/flex properties aggregating approximately 3.7 million square feet and six industrial/warehouse properties aggregating approximately 400,000 square feet. The RM Properties are located primarily in established business parks in Westchester County, New York and Fairfield County, Connecticut. The Company has agreed not to sell certain of the RM Properties for a period of seven years without the consent of the RM principals, except for sales made under certain circumstances and/or conditions.
In connection with the RM transaction, the Company was granted a three-year option to acquire a 115,000 square foot office property and an 84,000 square foot office/flex property (the "Option Properties") for an aggregate minimum price of $19.0 million and has granted RM the right to put such properties to the Company between a range of an aggregate purchase price of $11.6 million to $21.3 million, under certain conditions. The purchase prices, under the agreement, are subject to adjustment based on different formulas and are payable in cash or Units.
Financing Activities
Mortgage Debt, Credit Facilities and Interest Rate Swaps
Concurrent with the IPO, the Company's initial operating subsidiaries, which own the Initial Properties, issued five-year mortgage notes with an aggregate principal balance of $144.5 million secured and cross-collateralized by the Initial Properties to an affiliate ("PSI") of Prudential Securities Inc. PSI then issued commercial mortgage pay-through bonds ("Bonds") collateralized by the mortgage notes. Bonds with an aggregate principal balance of $70.0 million were purchased by unrelated third parties. Bonds with an aggregate principal balance of $74.5 million were purchased by the Company. As a result, the Company's initial mortgage financing was $70.0 million (the "Mortgage Financing"). Approximately $38.0 million of the Mortgage Financing is guaranteed under certain conditions by certain partners of the Cali Group partnerships which owned the Initial Properties. The Mortgage Financing requires monthly payments of interest only, with all principal and any accrued but unpaid interest due in August 1999. $46.0 million of the $70.0 million Mortgage Financing bears interest at a net cost to the Company equal to a fixed rate of 8.02 percent per annum and the remaining $24.0 million bears interest at a net cost to the Company equal to a floating rate of 100 basis points over one-month LIBOR (5.53 percent at December 31, 1996) with a lifetime interest rate cap of 11.6 percent. Pursuant to the terms of the Mortgage Financing, the Company is required to escrow $143,000 per month for tenant improvements and leasing commissions and $53,000 per month for capital improvements.
In advance of the sale of Essex Road, on March 12, 1996, the Company prepaid $5.5 million ($1.7 million-fixed rate, $3.8 million-floating rate debt) of the Mortgage Financing, resulting in outstanding balances of $44.3 million for the 8.02 percent fixed rate debt and $20.2 million for the floating rate debt.
At the IPO, the Company obtained a $70.0 million revolving credit facility from Prudential Securities Credit Corp.("PSC") (the "First Prudential Facility"), which may be used to fund acquisitions and new development projects and for general working capital purposes, including capital expenditures and tenant improvements. In connection with the Mortgage Financing, the Company obtained a $6.0 million letter of credit, secured by the First Prudential Facility, to meet certain tenant improvement and capital expenditure reserve requirements. The First Prudential Facility bore interest at a floating rate equal to 150 basis points over one-month LIBOR for January 1, 1996 through August 31, 1996. Effective September 1, 1996, the interest rate was reduced to a floating rate equal to 125 basis points over one-month LIBOR. The First Prudential Facility is a recourse liability of the Operating Partnership and is secured by a pledge of the $74.5 million Bonds held by the Company. The First Prudential Facility requires monthly payments of interest only, with outstanding advances and any accrued but unpaid interest due November 30, 1997 and is subject to renewal at the lender's sole discretion. Subsequent to December 31, 1996 and through March 1, 1997, the Company did not draw any additional funds from the First Prudential Facility.
In connection with the acquisition of an office building in Fair Lawn, Bergen County, New Jersey on March 3, 1995, the Company assumed an $18.8 million non-recourse mortgage loan ("Fair Lawn Mortgage") bearing interest at a fixed rate of 8.25 percent per annum. The loan requires payment of interest only through March 15, 1996 and payment of principal and interest thereafter, on a 20-year amortization schedule, with the remaining principal balance due October 1, 2003. For the year ended December 31, 1996, the Company paid $319,000 for amortization of principal on the Fair Lawn Mortgage.
On May 24, 1995, the Company entered into an interest rate swap agreement with a commercial bank. The swap agreement fixes the Company's one-month LIBOR base to a fixed 6.285 percent per annum on a notional amount of $24.0 million through August 1999.
On January 23, 1996, the Company entered into an interest rate swap agreement with one of the participating banks in the Bank Facility. The swap agreement has a three-year term and a notional amount of $26.0 million, which fixes the Company's one-month LIBOR base to 5.265 percent on its floating rate credit facilities.
On February 1, 1996, the Company obtained a credit facility (the "Bank Facility"), secured by certain of its properties, in the amount of $75.0 million from two participating banks. The Bank Facility has a three-year term and bears interest at 150 basis points over one-month LIBOR. The terms of the Bank Facility include certain restrictions and covenants which limit, among other things, dividend payments and additional indebtedness and which require compliance with specified financial ratios and other financial measurements. The Bank Facility also requires a fee equal to one quarter of one percent of the unused balance payable quarterly in arrears.
In connection with the acquisition of Harborside, on November 4, 1996, the Company assumed existing mortgage debt and was provided seller-mortgage debt aggregating $150.0 million. The existing financing of approximately $107.5 million bears interest at a fixed rate of 7.32 percent for a term of approximately nine years. The seller-provided financing of approximately $42.5 million also has a term of nine years and initially bears interest at a rate of 6.99 percent. The interest rate on the seller-provided financing will be reset at the end of the third and sixth loan years based on the yield of the three-year treasury obligation at that time, with spreads of 110 basis points in years four through six and 130 basis points in years seven through maturity.
As part of the Harborside acquisition, the Company agreed to make payments (with an estimated net present value of approximately $5.3 million) 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.
On November 4, 1996, the Company obtained a revolving credit facility ("Second Prudential Facility") from PSC totaling $80.0 million which bears interest at 125 basis points over one-month LIBOR, and matures on January 15, 1998, unless the Company or PSC elects to extend the maturity date to not earlier than June 30, 1998, or the facility is refinanced prior to such date at the election of either the Company or PSC. The Second Prudential Facility is a recourse liability of the Operating Partnership and is secured by the Company's equity interest in Harborside. The terms of the Second Prudential Facility include certain restrictions and covenants that limit, among other things, dividend payments and additional indebtedness and that require compliance with specified financial ratios and other financial measurements.
In connection with the RM transaction on January 31, 1997, the Company assumed a $185.3 million non-recourse mortgage loan with Teachers Insurance and Annuity Association of America with interest only payable monthly at a fixed annual rate of 7.18 percent (the "TIAA Mortgage"). The TIAA Mortgage is secured and cross-collateralized by 43 of the RM Properties and matures on December 31, 2003. The Company, at its option, may convert the TIAA Mortgage to unsecured public debt upon achievement by the Company of an investment credit rating of Baa3/BBB- or better. The TIAA Mortgage is prepayable in whole or in part subject to certain provisions, including yield maintenance.
Common Stock Offerings and Shelf Registrations
On May 13, 1996, the stockholders approved an increase in the authorized shares of common stock in the Company from 25 million to 95 million.
On July 29, 1996, the Company filed a shelf registration statement (File No. 333-09081) with the Securities and Exchange Commission ("SEC") for an aggregate amount of $500.0 million in equity securities of the Company. The registration statement was declared effective by the SEC on August 2, 1996.
On August 13, 1996, the Company sold 3,450,000 shares of its common stock through a public stock offering (the "August 1996 Offering"), which included an exercise of the underwriters' over-allotment option of 450,000 shares. Net proceeds from the August 1996 Offering (after offering costs) were approximately $76.8 million. The offering was conducted using one underwriter and the shares were issued from the Company's $250.0 million shelf registration statement (File No. 33-96538).
Pursuant to the Company's Registration Statement on Form S-3 (File No. 333-09081), on November 22, 1996, the Company completed an underwritten public offer and sale of 17,537,500 shares of its common stock using several different underwriters to underwrite such public offer and sale (which included an exercise of the underwriters' over-allotment option of 2,287,500 shares). The Company received approximately $441.2 million in net proceeds (after offering costs) from the November 1996 Offering, and used such funds to acquire certain of the Company's property acquisitions in November and December, pay down outstanding borrowings on its revolving credit facilities, and invested the excess funds in Overnight Investments.
On December 31, 1996, the Company filed a shelf registration statement (File No. 333-19101) with the SEC for an aggregate amount of $1.0 billion in equity securities of the Company. The registration statement was declared effective by the SEC on January 7, 1997.
STRATEGIC PLAN
Historically, rental revenue has been the principal source of funds to pay operating expenses, debt service and capital expenditures, excluding non-recurring capital expenditures. Management believes that the Company will have access to the capital resources necessary to expand and develop its business. To the extent that the Company's cash flow from operating activities is insufficient to finance its non-recurring capital expenditures such as property acquisition costs and other capital expenditures, the Company expects to finance such activities through the credit facilities and other debt and equity financing.
The Company presently has no plans for major capital improvements to the existing properties, other than normal recurring expenditures.
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 First Prudential Facility, the Bank Facility and the Second Prudential 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 First Prudential Facility, the Bank Facility and the Second Prudential Facility primarily to fund property acquisition activities.
The Company does not intend to reserve funds to retire the existing Mortgage Financing, indebtedness under the credit facilities or other mortgages and loans payable upon maturity. Instead, the Company will seek to refinance such debt at maturity or retire such debt through the issuance of additional equity securities. The Company anticipates that its available cash and cash equivalents and cash flows from operating activities, together with cash available from borrowings and other sources, will be adequate to meet the Company's capital and liquidity needs both in the short and long-term. However, if these sources of funds are insufficient or unavailable, the Company's ability to make the expected distributions discussed below may be adversely affected.
To maintain its qualification as a real estate investment trust, the Company must make annual distributions to its stockholders of at least 95 percent of its REIT taxable income, excluding the dividends paid deduction and net capital gains. Moreover, the Company intends to continue to make regular quarterly distributions to its stockholders which, based upon current policy, in the aggregate would equal approximately $66.0 million on an annual basis. However, any such distribution, whether for federal income tax purposes or otherwise, would only be paid out of available cash after meeting both operating requirements and scheduled debt service on mortgages and loans payable and required annual capital expenditure reserves pursuant to its mortgage indenture.
FUNDS FROM OPERATIONS
The Company considers Funds from Operations ("FFO") after adjustment for the straight-lining of rents one measure of REIT performance. FFO is defined as net income (loss) before minority interest of unitholders, computed in accordance with Generally Accepted Accounting Principles, excluding gains (or losses) from debt restructuring and sales of property, plus real estate-related depreciation and amortization. FFO 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.
FFO for the years ended December 31, 1996 and 1995, as calculated in accordance with the National Association of Real Estate Investment Trusts ("NAREIT") definition published in March 1995, are summarized in the following table (in thousands):
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.
ITEM 8.
ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA
Report of Independent Accountants
To the Board of Directors and Shareholders of Cali Realty Corporation and the Partners of the Cali Group
In our opinion, the consolidated and combined financial statements listed in the index appearing in Item 14(a)(1) and (2) present fairly, in all material respects, the financial position of Cali Realty Corporation (the "Company") and its subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for the periods ended December 31, 1996, 1995 and 1994, and the results of operations and cash flows of Cali Group for the period January 1, 1994 through August 30, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's and Cali Group's management; our responsibility is to express and opinion on these financial statements based upon our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
/s/Price Waterhouse LLP - -------------------------- Price Waterhouse LLP New York, New York February 18, 1997
CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts)
The accompanying notes are an integral part of these financial statements.
CALI REALTY CORPORATION AND SUBSIDIARIES STATEMENTS OF OPERATIONS (in thousands, except per share amounts)
CALI REALTY CORPORATION AND SUBSIDIARIES STATEMENTS OF OPERATIONS (in thousands, except per share amounts)
CALI REALTY CORPORATION AND SUBSIDIARIES STATEMENT OF STOCKHOLDERS' EQUITY AND PARTNERS' DEFICIT (in thousands)
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
CALI REALTY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts)
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
Cali Realty Corporation and subsidiaries (the "Company"), a Maryland corporation, is a fully integrated, self-administered, self-managed real estate investment trust ("REIT") providing leasing, management, acquisition, development, construction and tenant-related services for its properties. As of December 31, 1996, the Company owned and operated 57 properties, consisting of 56 office and office/flex buildings totaling approximately 7.1 million square feet and a multi-family residential property (the "Properties"). The Properties are located in New Jersey, New York and Pennsylvania.
The Company was incorporated on May 24, 1994 and commenced operations on August 31, 1994. On August 31, 1994, the Company completed an initial public offering ("IPO") and effected a business combination with the Cali Group (not a legal entity). The Company raised (net of offering costs) approximately $165,518 of capital through the IPO issuing 10,500,000 shares of common stock, and used the proceeds to acquire a 78.94 percent interest in Cali Realty, L.P. (the "Operating Partnership") and related entities, which are the successors to the operations of the Cali Group. In connection with the business combination, the Operating Partnership assumed net liabilities of $26,133. Prior to the completion of the business combination with the Company, the Cali Group was engaged in development, ownership and operation of a portfolio of 12 office buildings and one multi-family residential property, all located in New Jersey (the "Original Properties").
Acquisitions
In 1994 and 1995, following the Company's IPO, the Company acquired 28 office and office/flex properties totaling 1.7 million square feet for approximately $157,481. These properties are all located in New Jersey, except for one, which is located in Rockland County, New York.
On March 20, 1996, the Company sold its office building located at 15 Essex Road in Paramus, Bergen County, New Jersey ("Essex Road") and concurrently acquired a 96,000 square foot office building at 103 Carnegie Center in Princeton, Mercer County, New Jersey. The concurrent transactions with unrelated parties qualified as a tax-free exchange, as the Company used substantially all of the proceeds from the sale of Essex Road to acquire the Princeton property. The financial statements for the year ended December 31, 1996 include a gain of $5,658 relating to this transaction.
In advance of the sale of Essex Road, on March 12, 1996, the Company prepaid $5,492 of the Mortgage Financing (see Note 5) and obtained a release of the mortgage liens on the property. On account of prepayment penalties, write-offs of loan origination fees and costs, legal fees and other costs incurred in the retirement of the debt, an extraordinary loss of $475, (net of minority interest's share of the loss ($86)), is recorded for the year ended December 31, 1996.
On May 2, 1996, the Company acquired Rose Tree Corporate Center, a two-building suburban office complex totaling 260,000 square feet, located in Media, Delaware County, Pennsylvania, for approximately $28,100, which was drawn from one of the Company's credit facilities.
On July 23, 1996, the Company acquired 222 and 233 Mount Airy Road, two suburban office buildings totaling 115,000 square feet, located in Basking Ridge, Somerset County, New Jersey, for approximately $10,478, which was drawn from one of the Company's credit facilities.
On November 4, 1996, the Company acquired the property known as the Harborside Financial Center ("Harborside"), a 1.9 million square foot office complex located in Jersey City, Hudson County, New Jersey for approximately $292,670. The acquisition cost included the assumption of existing and seller-provided mortgage financing aggregating $150,000 (see Note 5). The balance of the cost was paid in cash and was financed substantially through drawings from the Company's credit facilities. As part of the purchase, the Company also acquired 11.3 acres of land fully zoned and permitted for an additional 4.1 million square feet of development and the water rights associated with 27.4 acres of land extending into the Hudson River immediately east of Harborside, including two piers with an area of 5.8 acres.
On November 7, 1996, the Company acquired Five Sentry Parkway East & West, a two-building office complex comprised of approximately 130,000 square feet located in Plymouth Meeting, Montgomery County, Pennsylvania for approximately $12,484, which was drawn from one of the Company's credit facilities.
On December 10, 1996, the Company acquired 300 Tice Boulevard, a 230,000 square foot office building located in Woodcliff Lake, Bergen County, New Jersey, for approximately $35,112 in cash, made available from the net proceeds received from the Company's common stock offering in November 1996 (the "November 1996 Offering").
On December 16, 1996, the Company acquired One Bridge Plaza, a 200,000 square foot office building located in Fort Lee, Bergen County, New Jersey, for approximately $26,901 in cash, made available from the net proceeds received from the November 1996 Offering.
On December 17, 1996, the Company acquired the International Court at Airport Business Center, a three-building office complex comprised of approximately 371,000 square feet located in Lester, Delaware County, Pennsylvania for approximately $43,178 in cash, made available from the net proceeds received from the November 1996 Offering.
In December 1996, the Company completed the construction of two office/flex properties on vacant land purchased in the Company's Totowa, Passaic County, New Jersey office park acquired in November 1995. The two properties, which were 19 percent leased at December 31, 1996, aggregate 47,100 square feet, and were completed for a total cost of $2,714.
On January 28, 1997, the Company acquired 1345 Campus Parkway, a 76,000 square foot office/flex property, located in Wall Township, Monmouth County, New Jersey, for approximately $6,800 in cash, made available from the net proceeds received from the November 1996 Offering. The property is located in the same office park in which the Company previously acquired two office properties and four office/flex properties in November 1995.
On January 31, 1997, the Company acquired 65 properties (the "RM Properties") of the Robert Martin Company LLC and affiliates ("RM"), for a total cost of approximately $450,000. The cost of the transaction was financed through the assumption of $185,283 mortgage indebtedness, approximately $220,000 in cash, substantially all of which was obtained from the Company's cash reserves, and the issuance of 1,401,225 Units in the Operating Partnership.
The RM Properties consist primarily of 54 office and office/flex properties aggregating approximately 3.7 million square feet and six industrial/warehouse properties aggregating approximately 400,000 square feet. The RM Properties are located primarily in established business parks in Westchester County, New York and Fairfield County, Connecticut. The Company has agreed not to sell certain of the RM Properties for a period of seven years without the consent of the RM principals, except for sales made under certain circumstances and/or conditions.
In connection with the RM transaction, the Company was granted a three-year option to acquire a 115,000 square foot office property and an 84,000 square foot office/flex property (the "Option Properties") for an aggregate minimum price of $19,000 and has granted RM the right to put such properties to the Company between a range of an aggregate purchase price of $11,600 to $21,300, under certain conditions. The purchase prices, under the agreement, are subject to adjustment based on different formulas and are payable in cash or Units.
The Company provided an $11,600 non-recourse mortgage loan ("Mortgage Receivable") to entities controlled by the RM principals, bearing interest at an annual rate of 450 basis points over the one-month London Inter-Bank Offered Rate ("LIBOR"). The Mortgage Receivable, which is secured by the Option Properties and guaranteed by certain of the RM principals, matures on February 1, 2000. In addition, the Company received a three percent origination fee in connection with the Mortgage Receivable.
In connection with the RM transaction, RM has made certain customary representations and warranties to the Company, most of which survive the closing for a period of one year. RM has agreed to maintain a minimum net worth of $25,000 during such period.
As part of the RM transaction, Brad W. Berger, President and Chief Executive Officer of RM, and Timothy M. Jones, Chief Operating Officer of RM, joined the Company as Executive Vice- Presidents under three year employment agreements. The agreements provide for, among other things, both Berger and Jones to be issued warrants to purchase 170,000 shares of the Company's common stock at a price of $33 per share, which vest equally over a three-year period and expire on January 31, 2007.
Robert F. Weinberg, co-founder of RM, and Berger will serve on the Company's Board of Directors for an initial term of three years. The Company intends to appoint two additional independent Board members, thereby increasing the size of the Board from nine to thirteen members.
Following the transaction, the Company's portfolio consists of 123 properties, aggregating 11.4 million square feet of office, office/flex and industrial/warehouse properties, located in New Jersey, New York, Pennsylvania and Connecticut.
Basis of Presentation
The accompanying consolidated financial statements include all accounts of the Company and its majority-owned subsidiaries, which consist principally of the Operating Partnership. The Company's investment in Cali Services, Inc. (an entity formed to provide third party management services in which the Operating Partnership has a 99 percent interest) is accounted for under the equity method.
The accompanying combined statements of operations, cash flows, and partners' deficit of the Cali Group include all the operations of the entities comprising the Cali Group and are presented on a combined basis because of common management and because all of the entities became wholly-owned by the Operating Partnership and the Company.
Certain other properties affiliated with the Cali Group have been excluded from the statements as they were not included in the business combination described above.
All significant intercompany accounts and transactions have been eliminated.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
2. SIGNIFICANT ACCOUNTING POLICIES
Rental Property -- Rental properties are stated at cost less accumulated depreciation. Costs include interest, property taxes, insurance and other project costs incurred during the period of construction. Ordinary repairs and maintenance are expensed as incurred; major replacements and betterments are capitalized and depreciated over their estimated useful lives. Fully depreciated assets are removed from the accounts. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets as follows:
On a periodic basis, management assesses whether there are any indicators that the value of the real estate properties may be impaired. A property's value is impaired only if management's estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property are less than the carrying value of the property. Management does not believe that the value of any of its real estate properties are impaired.
Deferred Financing Costs -- Costs incurred in obtaining financing are capitalized and amortized on a straight-line basis, which approximates the effective interest method, over the term of the related indebtedness. Amortization of such costs were $1,081, $1,456, $445 and $361 for the years ended December 31, 1996 and 1995, and the periods August 31, 1994 to December 31, 1994 and January 1, 1994 to August 30, 1994, respectively.
Deferred Leasing Costs -- Costs incurred in connection with leases are capitalized and amortized on a straight-line basis over the terms of the related leases. Unamortized deferred leasing costs are charged to amortization expense upon early termination of the lease.
Revenue Recognition -- The Company recognizes base rental revenue on a straight-line basis over the terms of the respective leases. Unbilled rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with the lease agreements. Parking revenue includes income from parking spaces leased to tenants.
Rental income on residential property under operating leases having terms generally of one year or less is recognized when earned.
Cash and Cash Equivalents -- All highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. At December 31, 1996, cash and cash equivalents included investments in overnight reverse repurchase agreements ("Overnight Investments") totaling $201,269. Investments in Overnight Investments are subject to the risks that the counterparty will default and the collateral will decline in market value. The Overnight Investments matured on January 2, 1997. The entire balance, including interest income earned, was realized by the Company and ultimately used in the funding of the RM transaction on January 31, 1997.
Income and Other Taxes -- The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code (the "Code"). As a REIT, the Company will not be subject to federal income tax to the extent it distributes at least 95 percent of its REIT taxable income to its shareholders. REITs are subject to a number of organizational and operational requirements. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate tax rates. The Company may be subject to certain state and local taxes. Taxes were not provided for in the Cali Group combined financial statements because the entities that comprised the Cali Group were partnerships and any taxable income or loss was included in the income tax returns of the individual partners.
Net Income Per Share -- Net income per share is computed using the weighted average common shares outstanding during the period. The assumed exercise of outstanding stock options using the treasury stock method is not considered dilutive in any period.
Dividends and Distributions Payable -- The dividends and distributions payable at December 31, 1996 represent dividends payable to shareholders of record on January 6, 1997 (36,318,937 shares) and distributions payable to minority interest unitholders (2,689,945 Units) on that same date. The fourth quarter dividends and distributions of $0.45 per share and per Unit were approved by the Board of Directors on December 19, 1996 and were paid on January 21, 1997. All dividends paid and declared during the year ended December 31, 1996 are considered ordinary income to the Company's shareholders for federal income tax purposes. The status of such dividend is subject to final determination by the Internal Revenue Service.
Extraordinary Items -- The extraordinary items represent the net effects resulting from the early settlement of certain mortgage obligations, including accrued interest, net of write-offs of related deferred financing costs and prepayment penalties.
Participation Agreement Settlement -- In connection with its original ten-year lease entered into in 1988, a tenant was granted a rent concession in the form of a residual share, as defined, of the proceeds of any sale or refinancing of the property during the tenants' lease term. In connection with the IPO, the tenant was paid $1,135 in settlement of this participation agreement, of which $653 was expensed during the period ended August 30, 1994 and the balance of $482 is being amortized over the remaining term of the original ten-year term of the lease.
Underwriting Commissions and Offering Costs -- Underwriting commissions and offering costs incurred in connection with the Company's common stock offerings have been reflected as a reduction of additional paid-in-capital.
Stock Options -- The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. Under APB No. 25, compensation cost is measured as the excess, if any, of the quoted market price of the Company's stock at the date of grant over the exercise price of the option granted. Compensation cost for stock options, if any, is recognized ratably over the vesting period. The Company's policy is to grant options with an exercise price equal to the quoted market price of the Company's stock on the grant date. Accordingly, no compensation cost has been recognized for the Company's stock option plans. The Company provides additional pro forma disclosures as required under Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." (See Note 8.)
3. RESTRICTED CASH
Restricted cash includes security deposits for the residential property, 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:
December 31, 1996 1995 - ---------------------------------------------------------------- Escrow and other reserve funds $2,814 $2,901 Residential security deposits 346 328 - ---------------------------------------------------------------- Total restricted cash $3,160 $3,229 ================================================================
4. DEFERRED CHARGES AND OTHER ASSETS
December 31, 1996 1995 - ---------------------------------------------------------------- Deferred leasing costs $14,031 $13,498 Deferred financing costs 5,390 5,778 - ---------------------------------------------------------------- 19,421 19,276 Accumulated amortization (8,994) (9,035) - ---------------------------------------------------------------- Deferred charges, net 10,427 10,241 Prepaid expenses and other assets 1,413 632 - ---------------------------------------------------------------- Total deferred charges and other assets $11,840 $10,873 ================================================================
5. MORTGAGES AND LOANS PAYABLE
December 31, 1996 1995 - ---------------------------------------------------------------- Harborside Mortgages $150,000 $ -- Mortgage Financing 64,508 70,000 Fair Lawn Mortgage 18,445 18,764 First Prudential Facility 6,000 46,700 Bank Facility 23,805 -- Contingent Obligation 5,252 -- - ---------------------------------------------------------------- Total mortgages and loans payable $268,010 $135,464 ================================================================
Harborside Mortgages
In connection with the acquisition of Harborside, on November 4, 1996, the Company assumed existing mortgage debt and was provided seller-mortgage debt aggregating $150,000. The existing financing of approximately $107,480 bears interest at a fixed rate of 7.32 percent for a term of approximately nine years. The seller-provided financing of approximately $42,520 also has a term of nine
years and initially bears interest at a rate of 6.99 percent. The interest rate on the seller-provided financing will be reset at the end of the third and sixth loan years based on the yield of the three-year treasury obligation at that time, with spreads of 110 basis points in years four through six and 130 basis points in years seven through maturity.
Mortgage Financing
Concurrent with the IPO, the Company's initial operating subsidiaries, which own the Original Properties, issued five-year mortgage notes with an aggregate principal balance of $144,500 secured and cross-collateralized by the Original Properties to an affiliate ("PSI") of Prudential Securities Inc. PSI then issued commercial mortgage pay-through bonds ("Bonds") collateralized by the mortgage notes. Bonds with an aggregate principal balance of $70,000 were purchased by unrelated third parties. Bonds with an aggregate principal balance of $74,500 were purchased by the Company. As a result, the Company's initial mortgage financing was $70,000 (the "Mortgage Financing"). Approximately $38,000 of the $70,000 is guaranteed under certain conditions by certain partners of the Cali Group partnerships which owned the Original Properties. The Mortgage Financing requires monthly payments of interest only, with all principal and any accrued but unpaid interest due in August 1999. $46,000 of the $70,000 Mortgage Financing bears interest at a net cost to the Company equal to a fixed rate of 8.02 percent per annum and the remaining $24,000 bears interest at a net cost to the Company equal to a floating rate of 100 basis points over one-month LIBOR (5.53 percent at December 31, 1996) with a lifetime interest rate cap of 11.6 percent. Pursuant to the terms of the Mortgage Financing, the Company is required to escrow $143 per month for tenant improvements and leasing commissions and $53 per month for capital improvements.
In advance of the sale of Essex Road, on March 12, 1996, the Company prepaid $5,492 ($1,687 -- fixed rate debt, $3,805 -- floating rate debt) of the Mortgage Financing, resulting in outstanding balances of $44,313 for the 8.02 percent fixed rate debt and $20,195 for the floating rate debt.
Fair Lawn Mortgage
In connection with the acquisition of an office building in Fair Lawn, Bergen County, New Jersey on March 3, 1995, the Company assumed an $18,764 non-recourse mortgage loan ("Fair Lawn Mortgage") bearing interest at a fixed rate of 8.25 percent per annum. The loan requires payment of interest only through March 15, 1996 and payment of principal and interest thereafter, on a 20-year amortization schedule, with the remaining principal balance due October 1, 2003. For the year ended December 31, 1996, the Company has paid $319 for amortization of principal on the Fair Lawn Mortgage.
First Prudential Facility
The Company has a $70,000 revolving credit facility (the "First Prudential Facility") with Prudential Securities Credit Corp. ("PSC"), which may be used to fund acquisitions and new development projects and for general working capital purposes, including capital expenditures and tenant improvements. In connection with the Mortgage Financing, the Company obtained a $6,005 letter of credit, secured by the First Prudential Facility, to meet certain tenant improvement and capital expenditure reserve requirements. The First Prudential Facility bore interest at a floating rate equal to 150 basis points over one-month LIBOR for January 1, 1996 through August 31, 1996. Effective September 1, 1996, the
interest rate was reduced to a floating rate equal to 125 basis points over one-month LIBOR. The First Prudential Facility is a recourse liability of the Operating Partnership and is secured by a pledge of the $74,500 Bonds held by the Company. The First Prudential Facility requires monthly payments of interest only, with outstanding advances and any accrued but unpaid interest due November 30, 1997 and is subject to renewal at the lender's sole discretion. Subsequent to December 31, 1996 and through February 18, 1997, the Company did not draw any additional funds from the First Prudential Facility.
Bank Facility
On February 1, 1996, the Company obtained a credit facility (the "Bank Facility") secured by certain of its properties in the amount of $75,000 from two participating banks. The Bank Facility has a three-year term and bears interest at 150 basis points over one-month LIBOR. The terms of the Bank Facility include certain restrictions and covenants which limit, among other things, dividend payments and additional indebtedness and which require compliance with specified financial ratios and other financial measurements. The Bank Facility also requires a fee equal to one quarter of one percent of the unused balance payable quarterly in arrears. Subsequent to December 31, 1996 and through February 18, 1997, the Company had additional net borrowings of $41,195 from the Bank Facility, used for the cash portion of the financing for the RM transaction on January 31, 1997.
Contingent Obligation
As part of the Harborside acquisition, the Company agreed to make payments (with an estimated net present value of approximately $5,252) 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.
Second Prudential Facility
On November 4, 1996, the Company obtained a revolving credit facility ("Second Prudential Facility") from PSC totaling $80,000 which bears interest at 125 basis points over one-month LIBOR, and matures on January 15, 1998, unless the Company or PSC elects to extend the maturity date to not earlier than June 30, 1998, or the facility is refinanced prior to such date at the election of either the Company or PSC. The Second Prudential Facility is a recourse liability of the Operating Partnership and is secured by the Company's equity interest in Harborside. The terms of the Second Prudential Facility include certain restrictions and covenants that limit, among other things, dividend payments and additional indebtedness and that require compliance with specified financial ratios and other financial measurements. Subsequent to December 31, 1996 and through February 18, 1997, the Company did not draw any additional funds from the Second Prudential Facility.
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 with interest only payable monthly at a fixed annual rate of 7.18 percent (the "TIAA Mortgage"). The TIAA Mortgage is secured and cross-collateralized by 43 of the RM Properties and matures on December 31, 2003. The Company, at its option, may convert the TIAA Mortgage to unsecured public debt upon achievement by the Company of an investment credit rating of Baa3/BBB- or better. The TIAA Mortgage is prepayable in whole or in part subject to certain provisions, including yield maintenance.
Interest Rate Swap Agreements
On May 24, 1995, the Company entered into an interest rate swap agreement with a commercial bank. The swap agreement fixes the Company's one-month LIBOR base to a fixed 6.285 percent per annum on a notional amount of $24,000 through August 1999.
On January 23, 1996, the Company entered into an interest rate swap agreement with one of the participating banks in the Bank Facility. The 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 on its floating rate credit facilities.
The Company is exposed to credit loss in the event of non-performance by the other parties to the interest rate swap agreements. However, the Company does not anticipate non-performance by either counterparty.
Scheduled Principal Payments and Interest Paid
Scheduled principal payments on the mortgages and loans payable, as of December 31, 1996, are as follows:
Year Amount - ---------------------------------------------------------------- 1997 $ 6,412 1998 448 1999 88,799 2000 527 2001 573 Thereafter 171,251 - ---------------------------------------------------------------- Total $268,010 ================================================================
Cash paid for interest for the years ended December 31, 1996 and 1995, and the periods from August 31, 1994 to December 31, 1994 and from January 1, 1994 to August 30, 1994 was $12,096, $8,322, $1,504, and $15,977, respectively. Additionally, interest capitalized by the Company for the years ended December 31, 1996 and 1995 was $118 and $27, respectively, while no interest was capitalized during the periods August 31, 1994 to December 31, 1994 and January 1, 1994 to August 30, 1994 .
6. MINORITY INTEREST
Certain individuals and entities contributing interests to the Operating Partnership received Units. A Unit and a share of common stock of the Company have substantially the same economic characteristics in as much as they effectively share equally in the net income or loss of the Operating Partnership. Minority interest in the accompanying consolidated financial statements relates to Units held by parties other than the Company.
Units are able to be redeemed by the unitholders at their option, subject to certain restrictions, on the basis of one Unit for either one share of common stock or cash equal to the fair market value of a share at the time of the redemption. The Company has the option to deliver shares of common stock in exchange for all or any portion of the cash requested. When a unitholder redeems a Unit, minority interest is reduced and the Company's investment in the Operating Partnership is increased. During the year ended December 31, 1996, 100,671 Units were redeemed for common stock of the Company. As of December 31, 1996, the minority interest unitholders owned 6.9 percent of the Operating Partnership.
7. RELATED PARTY TRANSACTIONS
Certain employees of the Operating Partnership provide leasing services to the Properties and receive fees as compensation ranging from 0.667 to 2.667 percent of adjusted rents. For the years ended December 31, 1996 and 1995, such fees, which are capitalized and amortized, approximated $490 and $575, respectively.
The Cali Group
Prior to the IPO, Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") was an affiliate of a 20 percent limited partner of one property partnership. Total rental income, including escalations and recoveries, from DLJ for the period January 1, 1994 to August 30, 1994 approximated $6,472.
Prior to the IPO, two limited partners in the Roseland II Limited Partnership were tenants occupying, in the aggregate, 21 percent of the property. Total rental income, including escalations and recoveries, from these tenants for the period January 1, 1994 to August 30, 1994 approximated $578.
The Cali Group provided administrative services to certain properties not included in the accompanying combined financial statements and earned fees of $108 for such services for the period January 1, 1994 to August 30, 1994.
Certain Cali Group employees provided leasing services to the Original Properties and received fees as additional compensation ranging from .667 percent to 2.667 percent of adjusted rents. For the period January 1, 1994 to August 30, 1994 such fees, which are capitalized and amortized, approximated $108.
8. STOCK OPTION AND EXECUTIVE COMPENSATION PLANS
Stock Option Plans
In 1994, and as amended on May 13, 1996, 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 1,880,188 (subject to adjustment) of the Company's shares of common stock have been reserved for issuance (1,780,188 shares under the Employee Plan and 100,000 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 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 a term of ten years.
CALI REALTY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
Information regarding the Company's stock option plans is summarized below:
Employee Director Shares under option: Plan Plan - ----------------------------------------------------------------- Granted on August 31, 1994 at $17.25 per share 600,000 20,000 Granted at $15.25 per share -- 5,000 - ----------------------------------------------------------------- Outstanding at December 31, 1994 600,000 25,000 Granted at $17.25 per share 181,200 10,000 Granted at $19.875 per share 39,000 -- Less-- Lapsed or canceled (3,588) -- - ----------------------------------------------------------------- Outstanding at December 31, 1995 816,612 35,000 $15.25 - $19.875 per share Granted at $21.50 per share 361,750 14,000 Granted at $25.25 per share 58,950 -- Granted at $26.25 per share 375,000 -- Less -- Lapsed or canceled (7,164) -- Exercised at $17.25 per share (116,041) (10,000) - ----------------------------------------------------------------- Outstanding at December 31, 1996 1,489,107 39,000 $15.25 - $26.25 per share ================================================================= Exercisable at December 31, 1996 509,710 25,000 - ----------------------------------------------------------------- Available for grant at December 31, 1995 463,576 15,000 - ----------------------------------------------------------------- Available for grant at December 31, 1996 175,040 51,000 - -----------------------------------------------------------------
The weighted-average fair value of options granted during 1996 and 1995 were $2.41 and $1.28 per option, respectively. The fair value of each significant option grant is estimated on the date of grant using the Black-Scholes model. The following weighted average assumptions are included in the Company's fair value calculations:
1996 1995 - --------------------------------------------------------------- Expected life (years) 6 6 Risk-free interest rate 6.11% 6.58% Volatility 19.14% 1.41% Dividend yield 7.58% 10.20%
Under the above models, the value of stock options granted under the Employee Plan and Director Plan during 1996 and 1995 totaled approximately $1,955 and $294, respectively, which would be amortized ratably on a pro forma basis over the appropriate vesting period. Had the Company determined compensation cost for these plans in accordance with SFAS No. 123, the Company's pro forma net income and earnings per share would have been $31,980 and $1.73 in 1996 and $13,553 and $1.22 in 1995. The SFAS No. 123 method of accounting does not apply to options granted prior to January 1, 1995 and accordingly, the resulting pro forma compensation cost may not be representative of that to be expected in the future.
Executive Compensation Plans
In January 1997, the Company entered into employment contracts with seven of its key executives which provide for, among other things, compensation in the form of stock awards (the "Stock Award Rights") and Company-financed stock purchase rights (the "Stock Purchase Rights") and associated tax obligation payments. In connection with the Stock Award Rights, the executives will receive 199,070 shares of the Company's common stock vesting over a five-year period contingent on the Company meeting certain performance objectives. Pursuant to the terms of the Stock Purchase Rights, the Company provided fixed rate, non-prepayable loans to such executives to finance their purchase of 152,000 shares of the Company's common stock, which the Company has agreed to forgive ratably over five years.
9. EMPLOYEE BENEFIT PLAN
All employees of the Company who meet certain minimum age and period of service requirements are eligible to participate in a Section 401(k) plan (the "Plan") as defined by the Code. The Plan allows eligible employees to defer up to 15 percent of their annual compensation. The amounts contributed by employees are immediately vested and non-forfeitable. The Company, at management's discretion, may match employee contributions. No employer contributions have been made to date.
10. DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of estimated fair value was determined by management using available market information and appropriate valuation methodologies. However, considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments at December 31, 1996 and 1995. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
Cash equivalents, receivables, accounts payable, and accrued expenses and other liabilities are carried at amounts which reasonably approximate their fair values.
Mortgages and loans payable have an aggregate carrying value of $268,010 and $135,464 at December 31, 1996 and 1995, respectively, which approximates their estimated aggregate fair value (excluding prepayment penalties) based upon then current interest rates for debt with similar terms and remaining maturities.
The estimated net gain on settling the Company's interest rate swap agreements, at December 31, 1996, based on quoted market prices of comparable swaps, was $140.
Disclosure about fair value financial instruments is based on pertinent information available to management as of December 31, 1996 and 1995. Although management is not aware of any factors that would significantly affect the fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since December 31, 1996 and current estimates of fair value may differ significantly from the amounts presented herein.
11. COMMITMENTS AND CONTINGENCIES
Tax Abatement Agreements Grove Street Property:
Pursuant to an agreement with the City of Jersey City, New Jersey expiring in 2009, the Company is required to make payments in lieu of property taxes ("PILOT") on its property at 95 Christopher Columbus Drive, Jersey City. Such PILOT is determined based on the greater of two percent of the property cost, as defined, or $1,131 per annum, through 1999 and 2.5 percent, or $1,414 per annum, through 2004.
Harborside Financial Center Property:
Tax abatements for Harborside were obtained in 1988 by the former owner of the property of the City of Jersey City and were assumed by the Company as part of the acquisition of Harborside on November 4, 1996. The abatements, which commenced in 1990, are for a term of 15 years. Such PILOT is equal to two percent of Total Project Costs, as defined, in year one and increase by $75 per annum through year fifteen. Total Project Costs, as defined, are $148,712. The service charges for the remaining undeveloped parcels will be equal to two percent of Total Project Costs for each unit in year one and increase to three percent by year fifteen.
12. TENANT LEASES
The Properties are leased to tenants under operating leases with various expiration dates through 2011. 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.
At December 31, 1995, DLJ leased approximately 55 percent of the space in the Company's 95 Christopher Columbus Drive, Jersey City, Hudson County, New Jersey property. On April 9, 1996, DLJ signed a lease with the Company for an additional 73,200 square feet of space ("DLJ Expansion"), increasing its occupancy to approximately 66 percent of the property.
Total rental income from DLJ, including escalations and recoveries, was $11,498, $10,352 and $3,324 for the years ended December 31, 1996 and 1995 and the period ended December 31, 1994, respectively. At December 31, 1996 and 1995, unbilled rents receivable included $12,862 and $12,164, respectively, from DLJ.
Future minimum rentals to be received under noncancelable operating leases at December 31, 1996 are as follows:
Year Amount - ----------------------------------------------------- 1997 $117,705 1998 107,399 1999 94,462 2000 76,575 2001 59,081 Thereafter 285,198 - ----------------------------------------------------- Total $740,420 =====================================================
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 (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.
During 1995, the Company completed a public offering of 4,600,000 shares of common stock and received net proceeds of $83,594. Additionally in 1995, the Company purchased, for constructive retirement, 100,000 shares of its outstanding common stock for $1,595. 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 100,000 Units for $1,595.
On May 13, 1996, the stockholders approved an increase in the authorized shares of common stock in the Company from 25,000,000 to 95,000,000.
On July 29, 1996, the Company filed a shelf registration statement (File No. 333-09081) with the Securities and Exchanges Commission ("SEC") for an aggregate amount of $500,000 in equity securities of the Company. The registration statement was declared effective by the SEC on August 2, 1996.
On August 13, 1996, the Company sold 3,450,000 shares of its common stock through a public stock offering (the "August 1996 Offering"), which included an exercise of the underwriters' over-allotment option of 450,000 shares. Net proceeds from the August 1996 Offering (after offering costs) were approximately $76,830. The offering was conducted using one underwriter and the shares were issued from the Company's $250,000 shelf registration statement (File No. 33-96538). Pursuant to the Company's Registration Statement on Form S-3 (File No. 333-09081), on November 22, 1996, the Company completed an underwritten public offer and sale of 17,537,500 shares of its common stock using several different underwriters to underwrite such public offer and sale (which included an exercise of the underwriters' over-allotment option of 2,287,500 shares). The Company received approximately $441,215 in net proceeds (after offering costs) from the November 1996 Offering, and used such funds to acquire certain of the Company's property acquisitions in November and December, pay down outstanding borrowings on its revolving credit facilities, and invested the excess funds in Overnight Investments.
On December 31, 1996, the Company filed a shelf registration statement (File No. 333-19101) with the SEC for an aggregate amount of $1,000,000 in equity securities of the Company. The registration statement was declared effective by the SEC on January 7, 1997.
14. CONDENSED QUARTERLY FINANCIAL INFORMATION (Unaudited)
The following summarizes the condensed quarterly financial information for the Company:
CALI REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
15. PRO FORMA FINANCIAL INFORMATION (Unaudited)
The following unaudited pro forma financial information for the years ended December 31, 1996 and 1995 are presented as if the acquisitions and common stock offerings which occurred during 1996 and 1995 had occurred on January 1, 1995. In management's opinion, all adjustments necessary to reflect the effects of these transactions have been made.
This unaudited 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 the beginning of the respective periods, nor do they represent the results of operations of future periods.
Year Ended December 31, 1996 1995 - ---------------------------------------------------------------- Revenues $153,619 $145,982 Operating and other expenses 44,571 42,424 General and administrative 8,820 7,862 Depreciation and amortization 23,945 23,778 Interest expense 19,300 19,924 - ---------------------------------------------------------------- Income before minority interest 56,983 51,994 Minority interest 5,043 4,742 - ---------------------------------------------------------------- Net income $ 51,940 $ 47,252 ================================================================ Net income per common share $1.86 $1.70 - ----------------------------------------------------------------
The following unaudited pro forma financial information for the year ended December 31, 1996 is presented as if the acquisitions and common stock offerings which occurred during 1996 and the January 1997 Robert Martin transaction had occurred on January 1, 1996. In management's opinion, all adjustments necessary to reflect the effects of these transactions have been made.
This unaudited 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 the beginning of the year, nor do they represent the results of operations of future periods.
Year Ended December 31, - ---------------------------------------------------------------- Revenues $226,578 Operating and other expenses 69,260 General and administrative 12,817 Depreciation and amortization 34,070 Interest expense 34,264 - ---------------------------------------------------------------- Income before minority interest 76,167 Minority interest 7,769 - ---------------------------------------------------------------- Net income $ 68,398 ================================================================ Net income per common share $1.89 - ----------------------------------------------------------------
Cali Realty Corporation and Cali Group Note to Schedule III
Changes in rental properties and accumulated depreciation for the periods ended December 31, 1996, 1995 and 1994, and August 30, 1994, are as follows:
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated by reference to the Company's definitive proxy statement for its annual meeting of stockholders to be held on May 15, 1997.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference to the Company's definitive proxy statement for its annual meeting of stockholders to be held on May 15, 1997.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference to the Company's definitive proxy statement for its annual meeting of stockholders to be held on May 15, 1997.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference to the Company's definitive proxy statement for its annual meeting of stockholders to be held on May 15, 1997.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a)1. Financial Statements and Report of Price Waterhouse LLP, Independent Accountants (See Item 8)
Report of Independent Accountants Financial Statements:
Balance Sheets:
Cali Realty Corporation Consolidated as of December 31, 1996 and 1995
Statements of Operations:
Cali Realty Corporation Consolidated for the Years Ended December 31, 1996 and December 31, 1995, and for the Period from August 31, 1994 to December 31, 1994
Cali Group Combined for the Period from January 1, 1994 to August 30,
Statements of Stockholders' Equity and Partners' Deficit:
Cali Realty Corporation Consolidated for the Years Ended December 31, 1996 and December 31, 1995, and for the Period from August 31, 1994 to December 31, 1994
Cali Group Combined for the Period from January 1, 1994 to August 30,
Statements of Cash Flows:
Cali Realty Corporation Consolidated for the Years Ended December 31, 1996 and December 31, 1995, and for the Period from August 31, 1994 to December 31, 1994
Cali Group Combined for the Period from January 1, 1994 to August 30,
(a)2. Financial Statement Schedules:
Schedule III - Real Estate Investments and Accumulated Depreciation as of December 31, 1996 (See Item 8)
All other schedules are omitted because they are not required or the required information is shown in the financial statements or notes thereto.
(a)3. Exhibits
The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed:
Exhibit Number Exhibit Title - ------ -------------
1.1 Underwriting Agreement, dated November 18, 1996, between Cali Realty Corporporation and Prudential Securities Incorporated. (1)
23 Consent of Price Waterhouse LLP.
10.42 Agreement of Purchase and Sale, dated September 11, 1996, among Plaza One Exchange Place Limited Partnership, Harborside Exchange Place Limited Partnership, Plaza II and III Urban Renewal Associates, L.P. (Seller) and Cali Realty Corporation (Purchaser). (2)
10.43 Contingent Consideration Agreement, dated November 4, 1996, between Harborside Exchange PlaceLimited Partnership and Cali Harborside (Fee) Associates L.P. (2)
10.44 Revolving Credit Facility Agreement, dated November 1, 1996, among Cali Realty, L.P., as Borrower, the Lenders parties thereto, and Prudential Securities Credit Corp., as Administrative Agent, in the amount of $800,000,000. (2)
10.45 Mortgage Note in the amount of $42,087,513 between Cali Harborside Plaza I(Fee) Associates L.P. and US West Pension Trust Investment Management Company, dated November 4, 1996. (2)
10.46 Assignment and Assumption Agreement, dated as of November 4, 1996, among Plaza One Exchange Place Limited Partnership (formerly known as BT Exchange Limited Partnership), Harborside Exchange Place Limited Partnership, Harborside Urban Renewal Associates L.P., Plaza II and III Urban Renewal Associates L.P., Plaza IV Urban Renewal Associates L.P., Plaza V Urban Renewal Associates L.P., Plaza VI Urban Renewal Associates L.P., Cali Harborside (Fee) Associates L.P., Cal- Harbor II & III Urban Renewal Associates L.P., Cal-Harbor IV Urban Renewal Association L.P., Cal-Harbor V Urban Renewal Associates, L.P., Cal-Harbor VI Urban Renewal Associates L.P., Cal-Harbor VII Urban Renewal Associates L.P., The Northwestern Mutual Life Insurance Company and Principal Mutual Life Insurance Company. (2)
10.47 Management Agreement, dated November 4, 1996, among Cali Harborside (Fee) Associates L.P., Cali Harborside Plaza I (Fee) Associates L.P., Plaza II & III Urban Renewal Associates L.P., Cal-Harbor II & III Urban Renewal Associates L.P., Plaza IV Urban Renewal Associates L.P., Cal-Harbor IV Urban Renewal Associates L.P., Plaza V Renewal Associates L.P., Cal-Harbor V Urban Renewal Associates L.P., Plaza VI Urban Renewal Associates L.P., Harborside Exchange Place Limited Partnership, Cal-Harbor VIII Urban Renewal Associates L.P., North Pier Urban Renewal Associates L.P., Cal-Harbor No. Pier Urban Renewal Associates L.P., South Pier Urban Renewal Associates L.P., Cal-Harbor So. Pier Urban Renewal Associates L.P. and Institutional Realty Management, LLC, as Manager. (2)
10.48 Rental Agency Agreement, dated November 4, 1996, among Cali Harborside (Fee) Associates L.P., Cali Harborside Plaza I (Fee) Associates L.P., Plaza II and III Urban Renewal Associates L.P., Cal-Harbor II & III Urban Renewal Associates L.P., Plaza IV Urban Renewal Associates L.P., Cal-Harbor IV Urban Renewal Associates L.P., Plaza V Urban Renewal Associates L.P., Cal-Harbor V Urban Renewal Associates L.P., Plaza VI Urban Renewal Associates L.P., Cal-Harbor VI Urban Renewal Associates L.P., Harborside Exchange Place Limited Partnership, Cal-Harbor VII Urban Renewal Associates L.P., North Pier Urban Renewal Associates L.P., Cal-Harbor No. Pier Urban Renewal Associates L.P., South Pier Urban Renewal Associates L.P., Cal-Harbor So. Pier Urban Renewal Associates L.P., and Institutional Realty Management, LLC, as Rental Agent. (2)
10.49 Company Pledge Agreement, dated as of November 1, 1996, between Cali Realty Corporation and Prudential Securities Credit Corp., as Administrative Agent for the Lenders. (2)
10.50 Pledge Agreement, dated as of November 1, 1996, between Cali Realty, L.P. and Prudential Securities Credit Corp., as Administrative Agent for the benefit of the Lenders. (2)
10.51 Agreement of Assignment of Agreement for Purchase and Sale of Real Estate and Related Property, dated as of October 23, 1996, between Bryemere, L.P. and Five Sentry Realty Associates, L.P. (3)
10.52 Purchase Agreement, dated October 11, 1996, between Whiteweld Centre, Inc. and Cali Realty Acquisition Corporation.(3)
10.53 First Amendment to Purchase Agreement, dated as of December 10, 1996, by and between Whiteweld Centre, Inc. and Cali Realty Acquisition Corporation.(3)
10.54 Agreement of Sale, dated October 23, 1996, by and among Henderson/Tinicum Partnership, International Court II Limited Partnership, International Court III Joint Venture, Wilbur C. Henderson & Son, David Henderson and Cali Realty Acquisition Corporation.(3)
10.55 Amendment to Agreement of Sale, dated December 3, 1996, by and among Henderson/Tinicum Partnership, International Court II Limited Partnership, International Court III Joint Venture, Wilbur C. Henderson & Son, David Henderson and Cali Realty Acquisition Corporation.(3)
10.56 Second Amendment to Agreement of Sale, dated December 17, 1996, by and among Henderson/Tinicum Partnership, International Court II Limited Partnership, International Court III Joint Venture, Wilbur C. Henderson & Son, David Henderson and Cali Realty Acquisition Corporation.(3)
10.57 Sale Agreement between Metropolitan Life Insurance Company, a New York corporation, as Seller, and Cali Realty Acquisition Corp., a Delaware corporation, as Purchaser, as of November 26, 1996.(4)
10.58 Amendment to Sale Agreement as of December 4, 1996, by and between Metropolitan Life Insurance Company, a New York corporation, and Cali Realty Acquisition Corp., a Delaware corporation.(4)
10.59 Amended and Restated Employment Agreement between Cali Realty Corporation and John R. Cali, dated as of January 21, 1997. *
10.60 Restricted Share Agreement between Cali Realty Corporation and John R. Cali, dated as of January 21, 1997. *
10.61 Amended and Restated Employment Agreement between Cali Realty Corporation and Brant Cali, dated as of January 21, 1997. *
10.62 Restricted Share Agreement between Cali Realty Corporation and Brant Cali, dated as of January 21, 1997. *
10.63 Amended and Restated Employment Agreement between Cali Realty Corporation and Thomas A. Rizk, dated as of January 21, 1997. *
10.64 Restricted Share Agreement between Cali Realty Corporation and Thomas A. Rizk dated as of January 21, 1997. *
10.65 Stock Pledge Agreement between Cali Realty Corporation and Thomas A. Rizk, dated as of January 21, 1997. *
10.66 Secured Non-Recourse Promissory Note issued by Thomas A. Rizk to Cali Realty Corporation, dated as of January 21, 1997. *
10.67 Employment Agreement between Cali Realty Corporation and Roger W. Thomas, dated as of January 21, 1997. *
10.68 Restricted Share Agreement between Cali Realty Corporation and Roger W. Thomas, dated as of January 21, 1997. *
10.69 Stock Pledge Agreement between Cali Realty Corporation and Roger W. Thomas, dated as of January 21, 1997. *
10.70 Secured Non-Recourse Promissory Note issued by Roger W. Thomas to Cali Realty Corporation, dated as of January 21, 1997. *
10.71 Employment Agreement between Cali Realty Corporation and Barry Lefkowitz, dated as of January 21, 1997. *
10.72 Restricted Share Agreement between Cali Realty Corporation and Barry Lefkowitz, dated as of January 21, 1997. *
10.73 Stock Pledge Agreement between Cali Realty Corporation and Barry Lefkowitz, dated as of January 21, 1997.*
10.74 Secured Non-Recourse Promissory Note issued by Barry Lefkowitz to Cali Realty Corporation, dated as of January 21, 1997. *
10.75 Employment Agreement between Cali Realty Corporation and James Nugent, dated as of January 21, 1997. *
10.76 Restricted Share Agreement between Cali Realty Corporation and James Nugent, dated as of January 21, 1997. *
10.77 Stock Pledge Agreement between Cali Realty Corporation and James Nugent, dated as of January 21, 1997. *
10.78 Secured Non-Recourse Promissory Note issued by James Nugent to Cali Realty Corporation, dated as of January 21, 1997. *
10.79 Employment Agreement between Cali Realty Corporation and Albert Spring, dated as of January 21, 1997. *
10.80 Restricted Share Agreement between Cali Realty Corporation and Albert Spring, dated as of January 21, 1997. *
10.81 Stock Pledge Agreement between Cali Realty Corporation and Albert Spring, dated as of January 21, 1997. *
10.82 Secured Non-Recourse Promissory Note issued by Albert Spring to Cali Realty Corporation, dated as of January 21, 1997. *
10.83 Employment Agreement between Cali Realty Corporation and Brad W. Berger, dated as of January 31, 1997. *
10.84 Warrant issued by Cali Realty Corporation to Brad W. Berger, dated January 31, 1997, and amendment No. 1 to the warrant.*
10.85 Employment Agreement between Cali Realty Corporation and Timothy M. Jones, dated as of January 31, 1997. *
10.86 Warrant issued by Cali Realty Corporation to Timothy M. Jones, dated January 31, 1997, and amendment No. 1 to the warrant. *
10.87 Warrant issued by Cali Realty Corporation to Greg Berger, dated January 31, 1997.
10.88 Warrant issued by Cali Realty Corporation to Andrew Greenspan, dated January 31, 1997.
10.89 Warrant issued by Cali Realty Corporation to Michael Grossman, dated January 31, 1997.
10.90 Non-Competition Agreement between Cali Realty Corporation and Robert F. Weinberg, dated January 31, 1997.
10.91 Non-Competition Agreement between Cali Realty Corporation and Martin S. Berger, dated January 31, 1997.
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* Indicates management contract or compensatory plan or arrangement.
(1) Incorporated by reference to the identically numbered exhibit to the Company's Form 8-K dated November 21, 1996.
(2) Incorporated by reference to the identically numbered exhibit to the Company's Form 8-K dated November 18, 1996.
(3) Incorporated by reference to the identically numbered exhibit to the Company's Form 8-K dated December 30, 1996.
(4) Incorporated by reference to the identically numbered exhibit to the Company's Form 8-K dated December 31, 1996.
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(b) Reports on Form 8-K
The Company filed Current Reports on Form 8-K dated October 8, 1996, October 28, 1996, October 29, 1996, November 18, 1996, November 21, 1996, December 30, 1996 and December 31, 1996, during the quarter ended December 31, 1996. Items 2, 5 and 7 were reported.
Included in the Form 8-K's dated October 8, 1996, October 28, 1996 and October 29, 1996 was the Company's audited consolidated statement of operations for the year ended December 31, 1995 and the Company's unaudited consolidated financial statements as of and for the six months ended June 30, 1996. Included in the Form 8-K dated December 31, 1996 was the Company's audited consolidated statement of operations for the year ended December 31, 1995 and the Company's unaudited financial statements as of and for the nine months ended September 30, 1996. Also included in the Form 8-K dated October 8, 1996 was the audited financial statements for the year ended December 31, 1995, and the unaudited financial statements for the six months ended June 30, 1996 for the Mount Airy Buildings. Also included in the Form 8-K dated October 28, 1996 was the audited financial statements for the year ended December 31, 1995, 1994 and 1993 and the unaudited financial statements for the six months ended June 30, 1996 for the Harborside Financial Center. Also included in the Form 8-K dated October 29, 1996 was the audited financial statements for the year ended December 31, 1995 and the unaudited financial statements for the six months ended June 30, 1996 for each of the following: 5 Sentry Parkway, Whiteweld Centre, and Airport Business Center. Also included in the Form 8-K dated December 31, 1996 was the audited financial statements for the year ended December 31, 1995 and the unaudited financial statements for the nine months ended September 30, 1996 for One Bridge Plaza, and the unaudited financial statements for the nine months ended June 30, 1996 for each of the following: Harborside Financial Center, 5 Sentry Parkway, Whiteweld Centre and Airport Business Center.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CALI REALTY CORPORATION (Registrant)
Dated: March 28, 1997 /s/ John J. Cali ---------------- John J. Cali Chairman of the Board
Dated: March 28, 1997 /s/ Thomas A. Rizk ------------------ Thomas A. Rizk President, Chief Executive Officer and Director
Dated: March 28, 1997 /s/ Barry Lefkowitz ------------------- Barry Lefkowitz Chief Financial Officer
Dated: March 28, 1997 /s/ Brad W. Berger ------------------ Brad W.Berger Executive Vice President and Director
Dated: March 28, 1997 /s/ Angelo R. Cali ------------------ Angelo R. Cali Director
Dated: March 28, 1997 /s/ Edward Leshowitz -------------------- Edward Leshowitz Director
Dated: March 28, 1997 /s/ Brendan T. Byrne -------------------- Brendan T. Byrne Director
Dated: March 28, 1997 /s/ Kenneth A. DeGhetto ----------------------- Kenneth A. DeGhetto Director
Dated: March 28, 1997 /s/ James W. Hughes ------------------- James W. Hughes Director
Dated: March 28, 1997 /s/ Irvin D. Reid ----------------- Irvin D. Reid Director
Dated: March 28, 1997 /s/ Alan Turtletaub ------------------- Alan Turtletaub Director
Dated: March 28, 1997 /s/ Robert F. Weinberg ---------------------- Robert F. Weinberg Director
Dated: March 28, 1997 /s/ Alan G. Philibosian ----------------------- Alan G. Philibosian Director
EXHIBIT INDEX
Exhibit Number Exhibit Title - ------ -------------
1.1 Form of Underwriting Agreement. (1)
23 Consent of Price Waterhouse LLP.
10.42 Agreement of Purchase and Sale, dated September 11, 1996, among Plaza One Exchange Place Limited Partnership, Harborside Exchange Place Limited Partnership, Plaza II and III Urban Renewal Associates, L.P. (Seller) and Cali Realty Corporation (Purchaser). (2)
10.43 Contingent Consideration Agreement, dated November 4, 1996, between Harborside Exchange Place Limited Partnership and Cali Harborside (Fee) Associates L.P. (2)
10.44 Revolving Credit Facility Agreement, dated November 1, 1996, among Cali Realty, L.P., as Borrower, the Lenders parties thereto, and Prudential Securities Credit Corp., as Administrative Agent, in the amount of $800,000,000. (2)
10.45 Mortgage Note in the amount of $42,087,513 between Cali Harborside Plaza I(Fee) Associates L.P. and US West Pension Trust Investment Management Company, dated November 4, 1996. (2)
10.46 Assignment and Assumption Agreement, dated as of November 4, 1996, among Plaza One Exchange Place Limited Partnership (formerly known as BT Exchange Limited Partnership), Harborside Exchange Place Limited Partnership, Harborside Urban Renewal Associates L.P., Plaza II and III Urban Renewal Associates L.P., Plaza IV Urban Renewal Associates L.P., Plaza V Urban Renewal Associates L.P., Plaza VI Urban Renewal Associates L.P., Cali Harborside (Fee) Associates L.P., Cal-Harbor II & III Urban Renewal Associates L.P., Cal-Harbor IV Urban Renewal Association L.P., Cal-Harbor V Urban Renewal Associates, L.P., Cal-Harbor VI Urban Renewal Associates L.P., Cal-Harbor VII Urban Renewal Associates L.P., The Northwestern Mutual Life Insurance Company and Principal Mutual Life Insurance Company. (2)
10.47 Management Agreement, dated November 4, 1996, among Cali Harborside (Fee) Associates L.P., Cali Harborside Plaza I (Fee) Associates L.P., Plaza II & III Urban Renewal Associates L.P., Cal-Harbor II & III Urban Renewal Associates L.P., Plaza IV Urban Renewal Associates L.P., Cal- Harbor IV Urban Renewal Associates L.P., Plaza V Renewal Associates L.P., Cal-Harbor V Urban Renewal Associates L.P., Plaza VI Urban Renewal Associates L.P., Harborside Exchange Place Limited Partnership, Cal- Harbor VIII Urban Renewal Associates L.P., North Pier Urban Renewal Associates L.P., Cal-Harbor No. Pier Urban Renewal Associates L.P., South Pier Urban Renewal Associates L.P., Cal-Harbor So. Pier Urban Renewal Associates L.P. and Institutional Realty Management, LLC, as Manager. (2)
10.48 Rental Agency Agreement, dated November 4, 1996, among Cali Harborside (Fee) Associates L.P., Cali Harborside Plaza I (Fee) Associates L.P., Plaza II and III Urban Renewal Associates L.P., Cal-Harbor II & III Urban Renewal Associates L.P., Plaza IV Urban Renewal Associates L.P., Cal-Harbor IV Urban Renewal Associates L.P., Plaza V Urban Renewal Associates L.P., Cal-Harbor V Urban Renewal Associates L.P., Plaza VI Urban Renewal Associates L.P., Cal-Harbor VI Urban Renewal Associates L.P., Harborside Exchange Place Limited Partnership, Cal-Harbor VII Urban Renewal Associates L.P., North Pier Urban Renewal Associates L.P., Cal-Harbor No. Pier Urban Renewal Associates L.P., South Pier Urban Renewal Associates L.P., Cal-Harbor So. Pier Urban Renewal Associates L.P., and Institutional Realty Management, LLC, as Rental Agent. (2)
10.49 Company Pledge Agreement, dated as of November 1, 1996, between Cali Realty Corporation and Prudential Securities Credit Corp., as Administrative Agent for the Lenders. (2)
10.50 Pledge Agreement, dated as of November 1, 1996, between Cali Realty, L.P. and Prudential Securities Credit Corp., as Administrative Agent for the benefit of the Lenders. (2)
10.51 Agreement of Assignment of Agreement for Purchase and Sale of Real Estate and Related Property, dated as of October 23, 1996, between Bryemere, L.P. and Five Sentry Realty Associates, L.P. (3)
10.52 Purchase Agreement, dated October 11, 1996, between Whiteweld Centre, Inc. and Cali Realty Acquisition Corporation.(3)
10.53 First Amendment to Purchase Agreement, dated as of December 10, 1996, by and between Whiteweld Centre, Inc. and Cali Realty Acquisition Corporation.(3)
10.54 Agreement of Sale, dated October 23, 1996, by and among Henderson/Tinicum Partnership, International Court II Limited Partnership, International Court III Joint Venture, Wilbur C. Henderson & Son, David Henderson and Cali Realty Acquisition Corporation.(3)
10.55 Amendment to Agreement of Sale, dated December 3, 1996, by and among Henderson/Tinicum Partnership, International Court II Limited Partnership, International Court III Joint Venture, Wilbur C. Henderson & Son, David Henderson and Cali Realty Acquisition Corporation.(3)
10.56 Second Amendment to Agreement of Sale, dated December 17, 1996, by and among Henderson/Tinicum Partnership, International Court II Limited Partnership, International Court III Joint Venture, Wilbur C. Henderson & Son, David Henderson and Cali Realty Acquisition Corporation.(3)
10.57 Sale Agreement between Metropolitan Life Insurance Company, a New York corporation, as Seller, and Cali Realty Acquisition Corp., a Delaware corporation, as Purchaser, as of November 26, 1996.(4)
10.58 Amendment to Sale Agreement as of December 4, 1996, by and between Metropolitan Life Insurance Company, a New York corporation, and Cali Realty Acquisition Corp., a Delaware corporation.(4)
10.59 Amended and Restated Employment Agreement between Cali Realty Corporation and John R. Cali, dated as of January 21, 1997. *
10.60 Restricted Share Agreement between Cali Realty Corporation and John R. Cali, dated as of January 21, 1997. *
10.61 Amended and Restated Employment Agreement between Cali Realty Corporation and Brant Cali, dated as of January 21, 1997. *
10.62 Restricted Share Agreement between Cali Realty Corporation and Brant Cali, dated as of January 21, 1997. *
10.63 Amended and Restated Employment Agreement between Cali Realty Corporation and Thomas A. Rizk, dated as of January 21, 1997. *
10.64 Restricted Share Agreement between Cali Realty Corporation and Thomas A. Rizk dated as of January 21, 1997. *
10.65 Stock Pledge Agreement between Cali Realty Corporation and Thomas A. Rizk, dated as of January 21, 1997. *
10.66 Secured Non-Recourse Promissory Note issued by Thomas A. Rizk to Cali Realty Corporation, dated as of January 21, 1997. *
10.67 Employment Agreement between Cali Realty Corporation and Roger W. Thomas, dated as of January 21, 1997. *
10.68 Restricted Share Agreement between Cali Realty Corporation and Roger W. Thomas, dated as of January 21, 1997. *
10.69 Stock Pledge Agreement between Cali Realty Corporation and Roger W. Thomas, dated as of January 21, 1997. *
10.70 Secured Non-Recourse Promissory Note issued by Roger W. Thomas to Cali Realty Corporation, dated as of January 21, 1997. *
10.71 Employment Agreement between Cali Realty Corporation and Barry Lefkowitz, dated as of January 21, 1997. *
10.72 Restricted Share Agreement between Cali Realty Corporation and Barry Lefkowitz, dated as of January 21, 1997. *
10.73 Stock Pledge Agreement between Cali Realty Corporation and Barry Lefkowitz, dated as of January 21, 1997.*
10.74 Secured Non-Recourse Promissory Note issued by Barry Lefkowitz to Cali Realty Corporation, dated as of January 21, 1997. *
10.75 Employment Agreement between Cali Realty Corporation and James Nugent, dated as of January 21, 1997. *
10.76 Restricted Share Agreement between Cali Realty Corporation and James Nugent, dated as of January 21, 1997. *
10.77 Stock Pledge Agreement between Cali Realty Corporation and James Nugent, dated as of January 21, 1997. *
10.78 Secured Non-Recourse Promissory Note issued by James Nugent to Cali Realty Corporation, dated as of January 21, 1997. *
10.79 Employment Agreement between Cali Realty Corporation and Albert Spring, dated as of January 21, 1997. *
10.80 Restricted Share Agreement between Cali Realty Corporation and Albert Spring, dated as of January 21, 1997. *
10.81 Stock Pledge Agreement between Cali Realty Corporation and Albert Spring, dated as of January 21, 1997. *
10.82 Secured Non-Recourse Promissory Note issued by Albert Spring to Cali Realty Corporation, dated as of January 21, 1997. *
10.83 Employment Agreement between Cali Realty Corporation and Brad W. Berger, dated as of January 31, 1997. *
10.84 Warrant issued by Cali Realty Corporation to Brad W. Berger, dated January 31, 1997.
10.85 Employment Agreement between Cali Realty Corporation and Timothy M. Jones, dated as of January 31, 1997. *
10.8 Warrant issued by Cali Realty Corporation to Timothy M. Jones, dated January 31, 1997. *
10.87 Warrant issued by Cali Realty Corporation to Greg Berger, dated January 31, 1997.
10.88 Warrant issued by Cali Realty Corporation to Andrew Greenspan, dated January 31, 1997.
10.89 Warrant issued by Cali Realty Corporation to Michael Grossman, dated January 31, 1997.
10.90 Non-Competition Agreement between Cali Realty Corporation and Robert F. Weinberg, dated January 31, 1997.
10.91 Non-Competition Agreement between Cali Realty Corporation and Martin S. Berger, dated January 31, 1997.
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(2) Incorporated by reference to the identically numbered exhibit to the Company's Form 8-K dated November 18, 1996.
(3) Incorporated by reference to the identically numbered exhibit to the Company's Form 8-K dated December 30, 1996.
(4) Incorporated by reference to the identically numbered exhibit to the Company's Form 8-K dated December 31, 1996.