ITEM 1.
BUSINESS
GENERAL
Mack-Cali Realty, L.P., a Delaware limited partnership (together with its subsidiaries, the “Operating Partnership”), is a majority-owned subsidiary of Mack-Cali Realty Corporation, a Maryland corporation (the “Corporation”). The Operating Partnership owns and operates a real estate portfolio comprised predominantly of Class A office and office/flex properties located primarily in the Northeast. The Operating Partnership performs substantially all commercial real estate leasing, management, acquisition, development and construction services on an in-house basis. The Operating Partnership was formed on May 31, 1994. The Operating Partnership’s executive offices are located at 11 Commerce Drive, Cranford, New Jersey 07016, and its telephone number is (908) 272-8000. The Corporation has an internet website at www.mack-cali.com.
As of December 31, 2004, the Operating Partnership owned or had interests in 273 properties, aggregating approximately 29.6 million square feet, plus developable land (collectively, the “Properties”). The Properties are comprised of: (a) 268 wholly-owned or Operating Partnership-controlled properties consisting of 162 office buildings and 96 office/flex buildings aggregating approximately 28.3 million square feet, six industrial/warehouse buildings totaling approximately 387,400 square feet, two stand-alone retail properties totaling approximately 17,300 square feet, and two land leases (collectively, the “Consolidated Properties”); and (b) three office buildings and one office/flex building aggregating approximately 836,000 square feet, and a 350-room hotel, which are owned by unconsolidated joint ventures in which the Operating Partnership has investment interests. Unless otherwise indicated, all references to square feet represent net rentable area. As of December 31, 2004, the office, office/flex, industrial/warehouse and stand-alone retail properties included in the Consolidated Properties were 91.2 percent leased to approximately 2,100 tenants. Percentage leased includes all leases in effect as of the period end date, some of which have commencement dates in the future, and leases that expire at the period end date. Excluded from percentage leased at December 31, 2004 was a non-strategic, non-core 318,224 square foot property acquired through a deed in lieu of foreclosure, which was 12.7 percent leased at December 31, 2004 and subsequently sold on February 4, 2005. Leases that expire as of the period end date aggregate 439,697 square feet, or 1.5 percent of the net rentable square footage. The Properties are located in nine states, primarily in the Northeast, and the District of Columbia. See Item 2:
ITEM 2.
PROPERTIES
PROPERTY LIST
As of December 31, 2004, the Operating Partnership’s Consolidated Properties consisted of 268 in-service office, office/flex and industrial/warehouse properties, as well as two stand-alone retail properties and two land leases. The Consolidated Properties are located primarily in the Northeast. The Consolidated Properties are easily accessible from major thoroughfares and are in close proximity to numerous amenities. The Consolidated Properties contain a total of approximately 28.7 million square feet, with the individual properties ranging from 6,216 to 977,225 square feet. The Consolidated Properties, managed by on-site employees, generally have attractively landscaped sites, atriums and covered parking in addition to quality design and construction. The Operating Partnership’s tenants include many service sector employers, including a large number of professional firms and national and international businesses. The Operating Partnership believes that all of its properties are well-maintained and do not require significant capital improvements.
PERCENTAGE LEASED
The following table sets forth the year-end percentages of square feet leased in the Operating Partnership’s stabilized operating Consolidated Properties for the last five years:
Percentage of
Year Ended December 31,
Square Feet Leased (%) (a)
2004 (b)
91.2
91.5
92.3
94.6
96.8
(a)
Percentage of square-feet leased includes all leases in effect as of the period end date, some of which have commencement dates in the future and leases that expire at the period end date.
(b)
Excluded from percentage leased at December 31, 2004 is a non-strategic, non-core 318,224 square foot property acquired through a deed in lieu of foreclosure, which was 12.7 percent leased at December 31, 2004 and subsequently sold on February 4, 2005.
SIGNIFICANT TENANTS
The following table sets forth a schedule of the Operating Partnership’s 50 largest tenants for the Consolidated Properties as of December 31, 2004 based upon annualized base rental revenue:
See footnotes on subsequent page.
Significant Tenants Footnotes
SCHEDULE OF LEASE EXPIRATIONS: ALL CONSOLIDATED PROPERTIES
The following table sets forth a schedule of lease expirations for the total of the Operating Partnership’s office, office/flex, industrial/warehouse and stand-alone retail properties included in the Consolidated Properties beginning January 1, 2005, assuming that none of the tenants exercise renewal or termination options:
(a)
Includes office, office/flex, industrial/warehouse and stand-alone retail property tenants only. Excludes leases for amenity, retail, parking and month-to-month tenants. Some tenants have multiple leases.
(b)
Annualized base rental revenue is based on actual December 2004 billings times 12. For leases whose rent commences after January 1, 2005, annualized base rental revenue is based on the first full month’s billing times 12. As annualized base rental revenue is not derived from historical GAAP results, historical results may differ from those set forth above.
(c)
Includes leases expiring December 31, 2004 aggregating 429,725 square feet and representing annualized rent of $4,983,291 for which no new leases were signed.
(d)
Reconciliation to Operating Partnership’s total net rentable square footage is as follows:
Square Feet
Square footage leased to commercial tenants
25,545,088
Square footage used for corporate offices, management offices,
building use, retail tenants, food services, other ancillary
service tenants and occupancy adjustments
392,665
Square footage unleased
2,487,532
Total net rentable square footage (does not include
land leases)
28,425,285
SCHEDULE OF LEASE EXPIRATIONS: OFFICE PROPERTIES
The following table sets forth a schedule of lease expirations for the office properties beginning January 1, 2005, assuming that none of the tenants exercise renewal or termination options:
Year Of
Expiration
Number Of
Leases
Expiring (a)
Net Rentable
Area Subject
To Expiring
Leases
(Sq. Ft.)
Percentage Of
Total Leased
Square Feet
Represented By
Expiring
Leases (%)
Annualized
Base Rental
Revenue Under
Expiring
Leases ($) (b)
Average
Annual
Rent Per Net
Rentable
Square Foot
Represented
By Expiring
Leases ($)
Percentage Of
Annual Base
Rent Under
Expiring
Leases (%)
2005 (c)
2,418,307
11.8
49,194,004
20.34
10.5
2,218,154
10.8
51,307,543
23.13
11.0
2,008,074
9.8
47,435,272
23.62
10.2
2,294,381
11.2
49,141,349
21.42
10.5
1,800,158
8.8
43,761,705
24.31
9.4
1,549,290
7.5
32,588,483
21.03
7.0
1,759,180
8.6
44,762,601
25.45
9.6
1,588,946
7.7
38,230,623
24.06
8.2
1,221,099
6.0
28,476,127
23.32
6.1
841,154
4.1
17,854,804
21.23
3.8
2,089,288
10.2
42,654,902
20.42
9.1
2016 and thereafter
711,311
3.5
21,580,731
30.34
4.6
Totals/Weighted
Average
1,970
20,499,342
100.0
466,988,144
22.78
100.0
(a)
Includes office tenants only. Excludes leases for amenity, retail, parking and month-to-month tenants. Some tenants have multiple leases.
(b)
Annualized base rental revenue is based on actual December 2004 billings times 12. For leases whose rent commences after January 1, 2005, annualized base rental revenue is based on the first full month’s billing times 12. As annualized base rental revenue is not derived from historical GAAP results, historical results may differ from those set forth above.
(c)
Includes leases expiring December 31, 2004 aggregating 364,810 square feet and representing annualized rent of $4,280,076 for which no new leases were signed.
SCHEDULE OF LEASE EXPIRATIONS: OFFICE/FLEX PROPERTIES
The following table sets forth a schedule of lease expirations for the office/flex properties beginning January 1, 2005, assuming that none of the tenants exercise renewal or termination options:
Year Of
Expiration
Number Of
Leases
Expiring (a)
Net Rentable
Area Subject
To Expiring
Leases
(Sq. Ft.)
Percentage Of
Total Leased
Square Feet
Represented By
Expiring
Leases (%)
Annualized
Base Rental
Revenue Under
Expiring
Leases ($) (b)
Average
Annual
Rent Per Net
Rentable
Square Foot
Represented
By Expiring
Leases ($)
Percentage Of
Annual Base
Rent Under
Expiring
Leases (%)
2005 (c)
549,250
11.8
6,150,541
11.20
10.6
544,286
11.7
7,263,790
13.35
12.5
628,879
13.6
7,978,524
12.69
13.7
807,397
17.4
8,613,198
10.67
14.8
494,767
10.7
6,158,865
12.45
10.6
674,958
14.5
9,013,417
13.35
15.5
265,796
5.7
3,740,481
14.07
6.5
218,354
4.7
3,179,061
14.56
5.5
106,684
2.3
1,477,724
13.85
2.6
69,179
1.5
1,070,364
15.47
1.8
130,098
2.8
1,505,392
11.57
2.6
2016 and thereafter
153,200
3.3
1,909,923
12.47
3.3
Totals/Weighted
Average
4,642,848
100.0
58,061,280
12.51
100.0
(a)
Includes office/flex tenants only. Excludes leases for amenity, retail, parking and month-to-month tenants. Some tenants have multiple leases.
(b)
Annualized base rental revenue is based on actual December 2004 billings times 12. For leases whose rent commences after January 1, 2005, annualized base rental revenue is based on the first full month’s billing times 12. As annualized base rental revenue is not derived from historical GAAP results, historical results may differ from those set forth above.
(c)
Includes leases expiring December 31, 2004 aggregating 64,915 square feet and representing annualized rent of $703,215 for which no new leases were signed.
SCHEDULE OF LEASE EXPIRATIONS: INDUSTRIAL/WAREHOUSE PROPERTIES
The following table sets forth a schedule of lease expirations for the industrial/warehouse properties beginning January 1, 2005, assuming that none of the tenants exercise renewal or termination options:
Year Of
Expiration
Number Of
Leases
Expiring (a)
Net Rentable
Area Subject
To Expiring
Leases
(Sq. Ft.)
Percentage Of
Total Leased
Square Feet
Represented By
Expiring
Leases (%)
Annualized
Base Rental
Revenue Under
Expiring
Leases ($) (b)
Average
Annual
Rent Per Net
Rentable
Square Foot
Represented
By Expiring
Leases ($)
Percentage Of
Annual Base
Rent Under
Expiring
Leases (%)
6,678
1.7
51,874
7.77
1.3
12,650
3.3
205,480
16.24
5.3
91,369
23.7
471,377
5.16
12.1
48,983
12.7
791,888
16.17
20.3
28,000
7.3
294,000
10.50
7.6
7,600
2.0
91,200
12.00
2.4
55,236
14.3
554,031
10.03
14.3
2016 and thereafter
135,082
35.0
1,428,754
10.58
36.7
Totals/Weighted
Average
385,598
100.0
3,888,604
10.08
100.0
(a)
Includes industrial/warehouse tenants only. Excludes leases for amenity, retail, parking and month-to-month industrial/warehouse tenants. Some tenants have multiple leases.
(b)
Annualized base rental revenue is based on actual December 2004 billings times 12. For leases whose rent commences after January 1, 2005, annualized base rental revenue is based on the first full month’s billing times 12. As annualized base rental revenue is not derived from historical GAAP results, the historical results may differ from those set forth above.
SCHEDULE OF LEASE EXPIRATIONS: STAND-ALONE RETAIL PROPERTIES
The following table sets forth a schedule of lease expirations for the stand-alone retail properties beginning January 1, 2005, assuming that none of the tenants exercise renewal or termination options:
Year Of
Expiration
Number Of
Leases
Expiring (a)
Net Rentable
Area Subject
To Expiring
Leases
(Sq. Ft.)
Percentage Of
Total Leased
Square Feet
Represented By
Expiring
Leases (%)
Annualized
Base Rental
Revenue Under
Expiring
Leases ($) (b)
Average
Annual
Rent Per Net
Rentable
Square Foot
Represented
By Expiring
Leases ($)
Percentage Of
Annual Base
Rent Under
Expiring
Leases (%)
9,300
53.8
195,000
20.97
48.8
2016 and thereafter
8,000
46.2
205,000
25.62
51.2
Totals/Weighted
Average
17,300
100.0
400,000
23.12
100.0
(a)
Includes stand-alone retail property tenants only.
Annualized base rental revenue is based on actual December 2004 billings times 12. For leases whose rent commences after January 1, 2005, annualized base rental revenue is based on the first full month’s billing times 12. As annualized base rental revenue is not derived from historical GAAP results, historical results may differ from those set forth above.
INDUSTRY DIVERSIFICATION
The following table lists the Operating Partnership’s 30 largest industry classifications based on annualized contractual base rent of the Consolidated Properties:
Industry Classification (a)
Annualized
Base Rental
Revenue
($) (b) (c) (d)
Percentage of
Operating
Partnership
Annualized Base
Rental Revenue (%)
Square Feet
Leased (d)
Percentage of
Total Operating
Partnership
Leased
Sq. Ft. (%)
Securities, Commodity Contracts
& Other Financial
80,019,078
15.0
2,872,688
11.3
Manufacturing
52,257,077
9.9
2,664,069
10.4
Insurance Carriers & Related Activities
35,101,193
6.6
1,645,240
6.4
Telecommunications
32,569,286
6.2
1,711,784
6.7
Computer System Design Svcs.
30,124,419
5.7
1,504,148
5.9
Legal Services
27,059,289
5.1
1,016,968
4.0
Credit Intermediation & Related Activities
24,572,689
4.6
1,301,848
5.1
Health Care & Social Assistance
22,694,148
4.3
1,143,000
4.5
Scientific Research/Development
22,506,481
4.3
1,146,326
4.5
Wholesale Trade
20,783,783
3.9
1,368,135
5.4
Accounting/Tax Prep.
16,417,297
3.1
693,713
2.7
Retail Trade
15,744,862
3.0
962,541
3.8
Other Professional
15,259,311
2.9
732,189
2.9
Publishing Industries
13,195,819
2.5
534,245
2.1
Architectural/Engineering
11,040,673
2.1
494,096
1.9
Information Services
10,848,901
2.0
493,648
1.9
Other Services (except Public Administration)
10,732,628
2.0
678,540
2.7
Arts, Entertainment & Recreation
10,148,217
1.9
626,054
2.5
Advertising/Related Services
10,101,476
1.9
430,672
1.7
Real Estate & Rental & Leasing
8,175,916
1.5
470,440
1.8
Utilities
6,766,423
1.3
336,018
1.3
Transportation
6,181,566
1.2
341,965
1.3
Construction
5,831,860
1.1
310,173
1.2
Data Processing Services
5,279,238
1.0
238,363
0.9
Educational Services
4,739,515
0.9
256,296
1.0
Public Administration
4,542,186
0.9
210,262
0.8
Management of Companies & Finance
4,165,464
0.8
181,237
0.7
Specialized Design Services
3,701,563
0.7
239,348
0.9
Management/Scientific
2,992,442
0.6
140,712
0.6
Admin & Support, Waste Mgt.
& Remediation Svcs.
2,986,046
0.6
206,487
0.8
Other
12,799,182
2.4
593,883
2.3
Totals
529,338,028
100.0
25,545,088
100.0
(a)
The Operating Partnership’s tenants are classified according to the U.S. Government’s North American Industrial Classification System (NAICS) which has replaced the Standard Industrial Code (SIC) system.
(b)
Annualized base rental revenue is based on actual December 2004 billings times 12. For leases whose rent commences after January 1, 2005, annualized base rental revenue is based on the first full month’s billing times 12. As annualized base rental revenue is not derived from historical GAAP results, historical results may differ from those set forth above.
(c)
Includes office, office/flex, industrial/warehouse and stand-alone retail tenants only. Excludes leases for amenity, retail, parking and month-to-month tenants. Some tenants have multiple leases.
(d)
Includes leases expiring December 31, 2004 aggregating 429,725 square feet and representing annualized rent of $4,983,291 for which no new leases were signed.
MARKET DIVERSIFICATION
The following table lists the Operating Partnership’s markets (MSAs), based on annualized contractual base rent of the Consolidated Properties:
(a)
Annualized base rental revenue is based on actual December 2004 billings times 12. For leases whose rent commences after January 1, 2005, annualized base rental revenue is based on the first full month’s billing times 12. As annualized base rental revenue is not derived from historical GAAP results, historical results may differ from those set forth above.
(b)
Includes leases expiring December 31, 2004 aggregating 429,725 square feet and representing annualized rent of $4,983,291 for which no new leases were signed.
(c)
Includes office, office/flex, industrial/warehouse and stand-alone retail tenants only. Excludes leases for amenity, retail, parking and month-to-month tenants. Some tenants have multiple leases.
ITEM 3.
ITEM 3.
LEGAL PROCEEDINGS
On February 12, 2003, the New Jersey Sports and Exposition Authority (“NJSEA”) selected The Mills Corporation (“Mills”) and the Operating Partnership (collectively, the “Meadowlands Venture”) to redevelop the Continental Airlines Arena site (“Arena Site”) for mixed uses, including retail. Hartz Mountain Industries, Inc. (“Hartz”) has challenged the NJSEA’s selection. The NJSEA denied its protest. Westfield America, Inc. (“Westfield”) also protested the NJSEA’s selection of Mills and the Operating Partnership. Westfield’s protest was also denied by the NJSEA. Hartz and Westfield have appealed the denial of their protest. Hartz and Westfield also have appealed the NJSEA’s execution of the Final Redevelopment Agreement for the Arena Site. Four citizens, Elliot Braha, Richard DeLauro, George Perry and Carol Coronato (collectively, the “Braha Group,”) have also filed lawsuits challenging the NJSEA award to Mills and the Operating Partnership. On May 14, 2004, the Superior Court of New Jersey, Appellate Division, which has jurisdiction of all of the cases, issued an order deciding certain of the issues presented by the cases. The Appellate Division determined that the NJSEA had the statutory authority to develop the Arena Site for mixed uses, including retail, that the NJSEA, in selecting Mills and the Operating Partnership, did not have to utilize a traditional low bid procurement process, and that the NJSEA complied with the Open Public Meetings Act (“OPMA”) in considering and making its selection. The Appellate Division remanded Hartz’s claims for relief under the Open Public Records Act (“OPRA”). Hartz thereafter petitioned the Supreme Court of New Jersey for certification of the Appellate Division's decision. The Supreme Court denied the petition on November 5, 2004.
In August 2004, the Superior Court of New Jersey issued a decision on remand on the OPRA issues. The Court ordered the NJSEA to release certain documents to Hartz, but permitted the NJSEA to withhold other documents. Hartz has appealed that decision to the Appellate Division. The Court heard oral arguments on Hartz’s appeal on November 10, 2004. The Appellate Division stayed any further hearing before the NJSEA on Hartz’s bid protest until it decided the appeal. The Appellate Division issued its decision on November 24, 2004 denying all of Hartz’s claims for further relief and dissolved its stay of further hearings. Hartz thereafter petitioned the New Jersey Supreme Court for certification of the Appellate Division’s decision. The petition remains pending undecided. The supplemental hearing before the NJSEA went forward on December 15 and 16, 2004. The NJSEA’s hearing officer has yet to issue a decision on Hartz’s protest.
In addition to Hartz’s petition for certification pending in the Supreme Court of New Jersey, there are ten pending cases in the Appellate Division which challenge the NJSEA’s selection of the redevelopment proposal by the Meadowlands Venture and the result of the consultative process between the New Jersey Department of Environment Protection (“NJDEP”) and the New Jersey Meadowlands Commission (“NJMC”), on the one hand, and the NJSEA, on the other, conducted pursuant to the requirements of the applicable NJSEA statute. Four of these appeals were filed by Hartz and two each by Westfield and the Braha Group. A ninth case was filed by the Environmental Law Clinic at Columbia Law School on behalf of the Sierra Club, Environmental Defense, New Jersey Public Interest Research Group and New Jersey Environmental Federal.
The tenth case was filed by the Borough of Carlstadt, New Jersey on September 30, 2004. The case was initially filed in the Superior Court law division, but was transferred to the Appellate Division on motion by the NJSEA and the Meadowlands Venture. Carlstadt argues that: (i) the retail elements of Meadowlands Xanadu are not authorized by statute; (ii) the retail elements of Meadowlands Xanadu are not tax exempt under NJSEA’s enabling act; and (iii) the PILOT program for Meadowlands Xanadu is arbitrary and capricious.
Another action taken against Meadowlands Xanadu was filed in the Superior Court of New Jersey, Law Division, on December 20, 2004, by the New Jersey Builders Association (the “Builders Association”). The Builders Association claims that the NJSEA should be required to utilize its property in part for affordable housing. The Builders Association seeks an order prohibiting the development of Meadowlands Xanadu because, in the Builders Association’s view, the NJSEA’s “underutilized” parking lots should be available for the development of affordable housing. On February 4, 2005, the court denied the Builders Association’s application for a temporary restraining order. On February 18, 2005, the court denied the Builders Association’s application for a preliminary injunction and transferred the case to the Superior Court, Appellate Division, for future proceedings. The Operating Partnership and Mills are not parties to that action. The defendants are the NJMC, NJSEA, the Borough of East Rutherford, and the Planning Board of East Rutherford.
The Operating Partnership believes that its proposal fully complies with applicable laws and the request for proposals, and plans to vigorously enforce its rights concerning this project. The Operating Partnership does not believe that the ultimate resolution of this matter will have a material adverse effect on the Operating Partnership's financial condition taken as a whole.
There are no other material pending legal proceedings, other than ordinary routine litigation incidental to its business, to which the Operating Partnership is a party or to which any of the Properties is subject.
ITEM 4.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5.
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET INFORMATION
The shares of the Corporation’s Common Stock are traded on the New York Stock Exchange (“NYSE”) and the Pacific Exchange under the symbol “CLI.” The Operating Partnership does not have any publicly traded common equity.
HOLDERS
On February 25, 2005, the Operating Partnership had 92 owners of limited partnership units and one owner of General Partnership units.
RECENT SALES OF UNREGISTERED SECURITIES; USES OF PROCEEDS FROM REGISTERED SECURITIES
None.
DIVIDENDS AND DISTRIBUTIONS
During the year ended December 31, 2004, the Corporation and the Operating Partnership declared four quarterly common stock dividends and common unit distributions of $0.63 per share and per unit from the first to the fourth quarter. Additionally, in 2004, the Operating Partnership declared quarterly Series C preferred unit distributions of $50.00 per preferred unit from the first to the fourth quarter. The Operating Partnership also declared four quarterly Series B preferred unit distributions of $18.1818 per preferred unit from the first to the fourth quarter.
During the year ended December 31, 2003, the Corporation and the Operating Partnership declared four quarterly common stock dividends and common unit distributions of $0.63 per share and per unit from the first to the fourth quarter. Additionally, in 2003, the Operating Partnership declared quarterly Series C preferred unit distributions of $67.22, $50.00 and $50.00 per preferred share from the second to the fourth quarter, respectively. The Operating Partnership also declared four quarterly Series B preferred unit distributions of $18.1818 per preferred unit from the first to the fourth quarter.
The declaration and payment of dividends and distributions will continue to be determined by the Board of Directors of the Corporation in light of conditions then existing, including the Operating Partnership’s earnings, financial condition, capital requirements, applicable REIT and legal restrictions and other factors.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Information regarding securities authorized for issuance under the equity compensation plans of the Corporation is disclosed in Item 12: Security Ownership of Certain Beneficial Owners and Management.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
None.
ITEM 6.
ITEM 6.
SELECTED FINANCIAL DATA
The following table sets forth selected financial data on a consolidated basis for the Operating Partnership. The consolidated selected operating, balance sheet and other data of the Operating Partnership as of December 31, 2004, 2003, 2002, 2001 and 2000, and for the years then ended have been derived from the Operating Partnership’s financial statements for the respective periods.
________________________
(a)
Certain reclassifications have been made to prior period amounts in order to conform with current period presentation.
(b)
Property expenses is calculated by taking the sum of real estate taxes, utilities and operating services for each of the periods presented.
(c)
Total debt is calculated by taking the sum of senior unsecured notes, revolving credit facilities, mortgages, loans payable and other obligations.
ITEM 7.
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated Financial Statements of Mack-Cali Realty, L. P. and subsidiaries and the notes thereto (collectively, the “Financial Statements”). Certain defined terms used herein have the meaning ascribed to them in the Financial Statements.
Executive Overview
Mack-Cali Realty Corporation is one of the largest real estate investment trusts (REITs) in the United States, with a total market capitalization of approximately $5.2 billion at December 31, 2004. Mack-Cali Realty, L.P. (the “Operating Partnership”) has been involved in all aspects of commercial real estate development, management and ownership for over 50 years and has been a publicly-traded REIT since 1994. The Operating Partnership owns or has interests in 273 properties (collectively, the “Properties”), primarily class A office and office/flex buildings, totaling approximately 29.6 million square feet, leased to approximately 2,100 tenants. The properties are located primarily in suburban markets of the Northeast, some with adjacent, Operating Partnership-controlled developable land sites able to accommodate up to 8.5 million square feet of additional commercial space.
The Operating Partnership’s strategy is to be a significant real estate owner and operator in its core, high-barriers-to-entry markets, primarily in the Northeast.
As an owner of real estate, almost all of the Operating Partnership’s earnings and cash flow is derived from rental revenue received pursuant to leased office space at the Properties. Key factors that affect the Operating Partnership’s business and financial results include the following:
•
the general economic climate;
•
the occupancy rates of the Properties;
•
rental rates on new or renewed leases;
•
tenant improvement and leasing costs incurred to obtain and retain tenants;
•
the extent of early lease terminations;
•
operating expenses;
•
cost of capital; and
•
the extent of acquisitions, development and sales of real estate.
Any negative effects of the above key factors could potentially cause a deterioration in the Operating Partnership’s revenue and/or earnings. Such negative effects could include: (1) failure to renew or execute new leases as current leases expire; (2) failure to renew or execute new leases with rental terms at or above the terms of in-place leases; and (3) tenant defaults.
A failure to renew or execute new leases as current leases expire or to execute new leases with rental terms at or above the terms of in-place leases may be affected by several factors such as: (1) the local economic climate, which may be adversely impacted by business layoffs or downsizing, industry slowdowns, changing demographics and other factors; and (2) local real estate conditions, such as oversupply of office and office/flex space or competition within the market.
As a result of the economic climate since 2001, substantially all of the real estate markets the Operating Partnership operates in materially softened. Demand for office space declined significantly and vacancy rates increased in each of the Operating Partnership’s core markets over the period. Through February 25, 2005, the Operating Partnership’s core markets continued to be weak. The percentage leased in the Operating Partnership’s consolidated portfolio of stabilized operating properties decreased to 91.2 percent at December 31, 2004 as compared to 91.5 percent at December 31, 2003 and 92.3 percent at December 31, 2002. Percentage leased includes all leases in effect as of the period end date, some of which have commencement dates in the future, and leases that expire at the period end date. Excluded from percentage leased at December 31, 2004 was a non-strategic, non-core 318,224 square foot property acquired through a deed in lieu of foreclosure, which was 12.7 percent leased at December 31, 2004 and subsequently sold on February 4, 2005. Leases
that expired as of December 31, 2004, 2003 and 2002 aggregate 439,697, 143,059 and 41,438 square feet, respectively, or 1.5, 0.5 and 0.1 percentage of the net rentable square footage, respectively. Market rental rates have declined in most markets from peak levels in late 2000 and early 2001. Rental rates on the Operating Partnership’s space that was re-leased (based on first rents payable) during the year ended December 31, 2004 decreased an average of 8.7 percent compared to rates that were in effect under expiring leases, as compared to a 7.8 percent decrease in 2003 and a 3.0 percent increase in 2002. The Operating Partnership believes that vacancy rates may continue to increase in most of its markets in 2005. As a result, the Operating Partnership’s future earnings and cash flow may continue to be negatively impacted by current market conditions.
The remaining portion of this Management’s Discussion and Analysis of Financial Condition and Results of Operations should help the reader understand:
Property Transactions in 2004
Property Acquisitions
In 2004, the Operating Partnership acquired the following office properties:
Land Acquisitions
On May 14, 2004, the Operating Partnership acquired approximately five acres of land in Plymouth Meeting, Montgomery County, Pennsylvania. Previously, the Operating Partnership leased this land parcel, upon which the Operating Partnership owns a 167,748 square foot office building. The land was acquired for approximately $6.1 million.
On June 25, 2004, the Operating Partnership acquired approximately 59.9 acres of developable land located in West Windsor, Mercer County, New Jersey for approximately $20.6 million.
Property Sales
The Operating Partnership sold the following properties during the year ended December 31, 2004:
Subsequent Events
On February 3, 2005, the Operating Partnership signed agreements to sell its office building located at 600 Community Drive in Manhasset, New York and its office building located at 111 East Shore Road in North Hempstead, New York, which aggregate 292,849 square feet, for a total sales price of $72.5 million. The two agreements are with buyers affiliated with each other and represent a single indivisible transaction. The sale, which is expected to close in the second quarter of 2005, is subject to a right of first refusal in favor of the sole tenant of the Manhasset building, pursuant to terms of its lease agreement with the Operating Partnership.
On February 4, 2005, the Operating Partnership sold its 318,224 square foot office property located at 210 South 16th Street in Omaha, Nebraska for a sales price of approximately $8.7 million.
On February 11, 2005, the Operating Partnership sold its remaining, wholly-owned Texas property, 1122 North Alma Road, a 82,576 square foot office building in Richardson, for a sales price of approximately $2.1 million.
On February 15, 2005, the Operating Partnership sold its 75,668 square foot office property located at 3 Skyline Drive in Hawthorne, New York for a sales price of approximately $9.6 million.
On March 2, 2005, the Operating Partnership acquired a 1.2 million square-foot, 42-story high-rise office building located at 101 Hudson Street in Jersey City, New Jersey for a purchase price of approximately $329 million.
Critical Accounting Policies and Estimates
The Financial Statements have been prepared in conformity with generally accepted accounting principles. The preparation of the Financial Statements 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 reported period. These estimates and assumptions are based on management’s historical experience that are believed to be reasonable at the time. However, because future events and their effects cannot be determined with certainty, the determination of estimates requires the exercise of judgment. The Operating Partnership’s critical accounting policies are those which require assumptions to be made about matters that are highly uncertain. Different estimates could have a material effect on the Operating Partnership’s financial results. Judgments and uncertainties affecting the application of these policies and estimates may result in materially different amounts being reported under different conditions and circumstances.
Rental Property:
Rental properties are stated at cost less accumulated depreciation and amortization. Costs directly related to the acquisition, development and construction of rental properties are capitalized. Capitalized development and construction costs include pre-construction costs essential to the development of the property, development and construction costs, interest, property taxes, insurance, salaries and other project costs incurred during the period of development. Interest capitalized by the Operating Partnership for the years ended December 31, 2004, 2003 and 2002 was $3.9 million, $7.3 million and $19.7 million, respectively. Ordinary repairs and maintenance are expensed as incurred; major replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives. Fully-depreciated assets are removed from the accounts.
The Operating Partnership considers a construction project as substantially completed and held available for occupancy upon the completion of tenant improvements, but no later than one year from cessation of major construction activity (as distinguished from activities such as routine maintenance and cleanup). If portions of a rental project are substantially completed and occupied by tenants, or held available for occupancy, and other portions have not yet reached that stage, the substantially completed portions are accounted for as a separate project. The Operating Partnership allocates costs incurred between the portions under construction and the portions substantially completed and held available for occupancy and capitalizes only those costs associated with the portion under construction.
Properties are depreciated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives are as follows:
Leasehold interests
Remaining lease term
Buildings and improvements
5 to 40 years
Tenant improvements
The shorter of the term of the
related lease or useful life
Furniture, fixtures and equipment
5 to 10 years
Upon acquisition of rental property, the Operating Partnership estimates the fair value of acquired tangible assets, consisting of land, building and improvements, and identified intangible assets and liabilities generally consisting of the fair value of (i) above and below market leases, (ii) in-place leases and (iii) tenant relationships. The Operating Partnership allocates the purchase price to the assets acquired and liabilities assumed based on their relative fair values. In estimating the fair value of the tangible and intangible assets acquired, the Operating Partnership considers information obtained about each property as a result of its due diligence and marketing and leasing activities, and utilizes various valuation methods, such as estimated cash flow projections utilizing appropriate discount and capitalization rates, estimates of replacement costs net of depreciation, and available market information. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant.
Above-market and below-market lease values for acquired properties are recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases. The capitalized above-market lease values are amortized as a reduction of base rental revenue over the remaining term of the respective leases, and the capitalized below-market lease values are amortized as an increase to base rental revenue over the remaining initial terms plus the terms of any below-market fixed rate renewal options of the respective leases.
Other intangible assets acquired include amounts for in-place lease values and tenant relationship values which are based on management’s evaluation of the specific characteristics of each tenant’s lease and the Operating Partnership’s overall relationship with the respective tenant. Factors to be considered by management in its analysis of in-place lease values include an estimate of carrying costs during hypothetical expected lease-up periods considering current market conditions, and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, management considers leasing
commissions, legal and other related expenses. Characteristics considered by management in valuing tenant relationships include the nature and extent of the Operating Partnership’s existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals. The value of in-place leases are amortized to expense over the remaining initial terms of the respective leases. The value of tenant relationship intangibles will be amortized to expense over the anticipated life of the relationships.
On a periodic basis, management assesses whether there are any indicators that the value of the Operating Partnership’s rental properties may be impaired. A property’s value is impaired only if management’s estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property is less than the carrying value of the property. To the extent impairment has occurred, the loss shall be measured as the excess of the carrying amount of the property over the fair value of the property. The Operating Partnership’s estimates of aggregate future cash flows expected to be generated by each property are based on a number of assumptions that are subject to economic and market uncertainties including, among others, demand for space, competition for tenants, changes in market rental rates, and costs to operate each property. As these factors are difficult to predict and are subject to future events that may alter management’s assumptions, the future cash flows estimated by management in its impairment analyses may not be achieved. Management does not believe that the value of any of the Operating Partnership’s rental properties is impaired.
Rental Property Held for Sale and Discontinued Operations:
When assets are identified by management as held for sale, the Operating Partnership discontinues depreciating the assets and estimates the sales price, net of selling costs, of such assets. If, in management’s opinion, the net sales price of the assets which have been identified as held for sale is less than the net book value of the assets, a valuation allowance is established. Properties identified as held for sale and/or sold are presented in discontinued operations for all periods presented.
If circumstances arise that previously were considered unlikely and, as a result, the Operating Partnership decides not to sell a property previously classified as held for sale, the property is reclassified as held and used. A property that is reclassified is measured and recorded individually at the lower of (a) its carrying amount before the property was classified as held for sale, adjusted for any depreciation (amortization) expense that would have been recognized had the property been continuously classified as held and used, or (b) the fair value at the date of the subsequent decision not to sell.
Revenue Recognition:
Base rental revenue is recognized on a straight-line basis over the terms of the respective leases. Unbilled rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with the lease agreements. Above-market and below-market lease values for acquired properties are recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases. The capitalized above-market lease values are amortized as a reduction of base rental revenue over the remaining term of the respective leases, and the capitalized below-market lease values are amortized as an increase to base rental revenue over the remaining initial terms plus the terms of any below-market fixed rate renewal options of the respective leases. Parking and other revenue includes income from parking spaces leased to tenants, income from tenants for additional services provided by the Operating Partnership, income from tenants for early lease terminations and income from managing and/or leasing properties for third parties. Escalations and recoveries are received from tenants for certain costs as provided in the lease agreements. These costs generally include real estate taxes, utilities, insurance, common area maintenance and other recoverable costs.
Allowance for Doubtful Accounts:
Management periodically performs a detailed review of amounts due from tenants to determine if accounts receivable balances are impaired based on factors affecting the collectibility of those balances. Management’s estimate of the allowance for doubtful accounts requires management to exercise significant judgment about the timing, frequency and severity of collection losses, which affects the allowance and net income.
Results From Operations
The following comparisons for the year ended December 31, 2004 (“2004”), as compared to the year ended December 31, 2003 (“2003”), and for 2003, as compared to the year ended December 31, 2002 (“2002”), make reference to the following: (i) the effect of the “Same-Store Properties,” which represent all in-service properties owned by the Operating Partnership at December 31, 2002, excluding Dispositions as defined below (for the 2004 versus 2003 comparison) and which represent all in-service properties owned by the Operating Partnership at December 31, 2001, excluding Dispositions as defined below (for the 2003 versus 2002 comparison); (ii) the effect of the “Acquired Properties,” which represents all properties acquired by the Operating Partnership or commencing initial operations from January 1, 2003 through December 31, 2004 (for the 2004 versus 2003 comparison) and which represent all properties acquired by the Operating Partnership or commencing initial operation from January 1, 2002 through December 31, 2003 (for the 2003 versus 2002 comparison) and; (iii) the effect of the “Dispositions,” which represent results for each period for those rental properties sold by the Operating Partnership during the respective periods.
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
The following is a summary of the changes in revenue from rental operations and property expenses divided into Same-Store Properties and Acquired Properties (dollars in thousands):
Base rents for the Same-Store Properties increased $2.7 million, or 0.6 percent, for 2004 as compared to 2003, due primarily to increases in occupancies at the properties in 2004 from 2003. Escalations and recoveries from tenants for the Same-Store Properties increased $5.2 million, or 8.6 percent, for 2004 over 2003, due primarily to an increased amount of total property expenses in 2004. Parking and other income for the Same-Store Properties decreased $5.6 million, or 29.9 percent, due primarily to a decrease in lease termination fees of $3.9 million in 2004 as compared to 2003 and a construction management fee of $1.2 million in 2003.
Real estate taxes on the Same-Store Properties increased $4.5 million, or 7.1 percent, for 2004 as compared to 2003, due primarily to property tax rate increases in certain municipalities in 2004, partially offset by lower assessments on certain properties in 2004. Utilities for the Same-Store Properties increased $1.2 million, or 3.0 percent, for 2004 as compared to 2003, due primarily to increased electric rates in 2004. Operating services for the Same-Store Properties increased $3.3 million, or 4.6 percent, due primarily to increased repairs and maintenance expenses of $2.6 million, increased insurance costs of $2.1 million, and property management salaries and related expenses of $0.6 million in 2004 as compared to 2003, partially offset by a decrease in snow removal costs in 2004 of $2.0 million.
General and administrative increased by $0.5 million, or 1.5 percent, for 2004 as compared to 2003. This increase was due primarily to compensation costs incurred in connection with the 2004 resignation of the Corporation’s president of $1.3 million and an increase in other salaries and related expenses of $0.9 million in 2004, partially offset by costs for transactions not consummated of $1.7 million in 2003.
Depreciation and amortization increased by $14.7 million, or 12.7 percent, for 2004 over 2003. Of this increase, $9.4 million, or 8.1 percent, was attributable to the Same-Store Properties primarily on account of the amortization of additional tenant installation costs and $5.3 million, or 4.6 percent, was due to the Acquired Properties.
Interest expense decreased $5.9 million, or 5.1 percent, for 2004 as compared to 2003. This decrease was primarily as a result of the Operating Partnership’s ability to refinance maturing debt at lower rates, as well as lower average debt balances in 2004.
Interest income increased $0.3 million, or 24.2 percent, for 2004 as compared to 2003. This decrease was due primarily to higher average cash balances in 2004.
Loss on early retirement of debt, net, amounted to $2.4 million in 2003, which was due to costs incurred with the exchange in 2003 of $25.0 million face amount of 7.18 percent senior unsecured notes due December 31, 2003 for $26.1 million face amount of 5.82 percent senior unsecured notes due March 15, 2003, with interest payable semi-annually in arrears.
Equity in earnings of unconsolidated joint ventures decreased $17.4 million, or 128.8 percent, for 2004 as compared to 2003. This decrease was due primarily to the sale of the Operating Partnership’s investment in the American Financial Exchange in late 2003 resulting in a reduction of $11.3 million in 2004, the Operating Partnership’s share of a valuation allowance taken by the Ashford Loop joint venture of $4.9 million in 2004, and a reduction in 2004 of $1.7 million as a result of the sale in 2003 of a property in Anaheim, California, partially offset by an increase from operations of the Hyatt Hotel at Harborside South Pier of $2.2 million for 2004 as compared to 2003.
Gain on sale of investment in unconsolidated joint venture amounted to $0.7 million in 2004 on account of the receipt of additional contingent purchase consideration from the Harborside North Pier sale. Gain on sale of investment in unconsolidated joint venture amounted to $24.0 million in 2003 on account of the sale of the Operating Partnership’s investment in the American Financial Exchange joint venture in 2003.
Income from continuing operations before equity in earnings of unconsolidated joint ventures increased to $130.0 million in 2004 from $129.7 million in 2003. The increase of approximately $0.3 million was due to the factors discussed above.
Net income available to common unitholders decreased by $47.1 million, or 29.4 percent, from $160.5 million in 2003 to $113.4 million in 2004. This decrease was primarily the result of the Operating Partnership having realized a $24.0 million gain on sale of investment in unconsolidated joint venture in 2003 for the sale of its investment in the American Financial Exchange venture. The sale also resulted in a $11.3 million decrease in equity in earnings (loss) of unconsolidated joint ventures in 2004 as compared to 2003. In 2004, the Ashford Loop joint venture incurred a valuation allowance, which resulted in an additional decrease in equity in earnings (loss) from unconsolidated joint ventures of $4.9 million.
Year Ended December 31, 2003 Compared to Year Ended December 31, 2002
The following is a summary of the changes in revenue from rental operations and property expenses divided into Same-Store Properties, Acquired Properties and Dispositions (dollars in thousands):
Base rents for the Same-Store Properties decreased $3.5 million, or 0.6 percent, for 2003 as compared to 2002, due primarily to decreases in space leased and rental rates at the properties in 2003. Escalations and recoveries from tenants for the Same-Store Properties increased $2.4 million, or 4.3 percent, for 2003 over 2002, due primarily to an increased amount of total property expenses in 2003. Parking and other income for the Same-Store Properties decreased $0.2 million, or 1.3 percent, due primarily to a decrease in lease termination fees in 2003.
Real estate taxes on the Same-Store Properties increased $1.8 million, or 2.9 percent, for 2003 as compared to 2002, due primarily to property tax rate increases in certain municipalities in 2003, partially offset by lower assessments on certain properties in 2003. Utilities for the Same-Store Properties increased $1.5 million, or 3.9 percent, for 2003 as compared to 2002, due primarily to increased electric rates in 2003 and increased utility usage on account of the harsh 2003 winter. Operating services for the Same-Store Properties increased $4.9 million, or 7.7 percent, due primarily to increased snow removal costs from the harsh winter in 2003.
General and administrative increased by $4.4 million, or 16.4 percent, for 2003 as compared to 2002. This increase was due primarily to an increase in 2003 in costs for transactions not consummated of $2.0 million, salaries and related expenses of $1.8 million, and professional fees of $1.1 million, as compared to 2002.
Depreciation and amortization increased by $11.1 million, or 10.7 percent, for 2003 over 2002. Of this increase, $4.5 million, or 4.3 percent, is attributable to the Same-Store Properties, primarily on account of properties previously held for sale in 2002 not being depreciated during the period held for sale, which were no longer held for sale in 2003, and $6.6 million, or 6.4 percent, is due to the Acquired Properties.
Interest expense increased $8.8 million, or 8.2 percent, for 2003 as compared to 2002. This increase was due primarily to lower capitalized interest in 2003 on account of less development projects.
Interest income decreased $1.2 million, or 52.2 percent, for 2003 as compared to 2002. This decrease was due primarily to lower notes receivable balances and lower interest rates in 2003.
Loss on early retirement of debt, net, amounted to $2.4 million in 2003, which consisted primarily of: (a) $1.4 million in costs in connection with the exchange and repurchase of $50.0 million in 7.18 percent senior unsecured notes due December 31, 2003; (b) a write-off of the unamortized balance of $1.5 million of an interest rate contract in conjunction
with the repayment of mortgage debt; and (c) $1.4 million of costs incurred in connection with the repurchase of $45.3 million of 7.18 percent senior unsecured notes due December 31, 2003, partially offset by a discount of $1.7 million taken in conjunction with the early retirement of the same mortgage debt referred to in (b) above.
Equity in earnings of unconsolidated joint ventures decreased $1.3 million, or 8.9 percent, for 2003 as compared to 2002. The decrease was due primarily to the sale of the ARCap joint venture investment in late 2002 resulting in a reduction of $4.4 million in 2003 and the sale of properties owned by the HPMC joint ventures in late 2002 and 2003 resulting in a reduction of $3.5 million in 2003, partially offset by the initial operations of a 577,575 square foot office property owned by the American Financial Exchange joint venture (in which the Operating Partnership subsequently sold its interest) resulting in an increase in 2003 of $6.3 million.
Gain on sale of investment in unconsolidated joint venture amounted to $24.0 million in 2003. This was due to the sale of the Operating Partnership’s investment in the American Financial Exchange joint venture.
Income from continuing operations before equity in earnings of unconsolidated joint ventures decreased to $129.7 million in 2003 from $150.5 million in 2002. The decrease of approximately $20.8 million is due to the factors discussed above.
Net income available to common unitholders increased by $1.5 million, from $159.0 million in 2002 to $160.5 million in 2003. This increase was a result of a gain on sale of investment in American Financial Exchange of $24.0 million in 2003, realized gain on disposition of rental property of $3.5 million in 2003 and an increase in income from discontinued operations of $0.6 million. This was partially offset by a decrease in 2003 in income from continuing operations before equity in earnings of unconsolidated joint ventures of $20.8 million, realized gain on disposition of rental property of $2.8 million in 2002, an increase in preferred unit distributions of $1.7 million, and a decrease in equity in earnings of unconsolidated joint ventures of $1.3 million.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Overview:
Historically, rental revenue has been the principal source of funds to pay operating expenses, debt service, capital expenditures and dividends, excluding non-recurring capital expenditures. To the extent that the Operating Partnership’s cash flow from operating activities is insufficient to finance its non-recurring capital expenditures such as property acquisitions, development and construction costs and other capital expenditures, the Operating Partnership has and expects to continue to finance such activities through borrowings under its revolving credit facility and other debt and equity financings.
The Operating Partnership believes that with the general downturn in the economy in recent years, and the softening of the Operating Partnership’s markets specifically, it is reasonably likely that vacancy rates may continue to increase, effective rental rates on new and renewed leases may continue to decrease and tenant installation costs, including concessions, may continue to increase in most or all of its markets in 2005. As a result of the potential negative effects on the Operating Partnership’s revenue from the overall reduced demand for office space, the Operating Partnership’s cash flow could be insufficient to cover increased tenant installation costs over the short-term. If this situation were to occur, the Operating Partnership expects that it would finance any shortfalls through borrowings under its revolving credit facility and other debt financings of the Operating Partnership and equity financings of the Corporation.
The Operating Partnership expects to meet its short-term liquidity requirements generally through its working capital, net cash provided by operating activities and from its revolving credit facility. The Operating Partnership frequently examines potential property acquisitions and development projects and, at any given time, one or more of such acquisitions or development projects may be under consideration. Accordingly, the ability to fund property acquisitions and development projects is a major part of the Operating Partnership’s financing requirements. The Operating Partnership expects to meet its financing requirements through funds generated from operating activities, proceeds from
property sales, long-term and short-term borrowings (including draws on the Operating Partnership’s revolving credit facility) and the issuance of additional debt securities of the Operating Partnership and/or equity securities of the Corporation.
REIT Restrictions:
To maintain its qualification as a REIT, the Corporation must make annual distributions to its stockholders of at least 90 percent of its REIT taxable income, determined without regard to the dividends paid deduction and by excluding net capital gains. Moreover, the Corporation intends to continue to make regular quarterly distributions to its common stockholders which, based upon current policy, in the aggregate would equal approximately $154.8 million on an annualized basis. However, any such distribution, whether for federal income tax purposes or otherwise, would only be paid out of available cash, including borrowings and other sources, after meeting operating requirements, preferred stock and unit dividends and distributions, and scheduled debt service on the Operating Partnership’s debt.
Property Lock-Ups:
The Operating Partnership may not dispose of or distribute certain of its properties, currently comprising 72 properties with an aggregate net book value of approximately $1.2 billion, which were originally contributed by members of either the Mack Group (which includes William L. Mack, Chairman of the Corporation’s Board of Directors; David S. Mack, a director of the Corporation, Earle I. Mack, a former director of the Corporation; and Mitchell E. Hersh, president, chief executive officer and a director of the Corporation), the Robert Martin Group (which includes Robert F. Weinberg, a director of the Corporation; Martin S. Berger, a former director of the Corporation; and Timothy M. Jones, former president of the Corporation), or the Cali Group (which includes John J. Cali, a former director of the Corporation and John R. Cali, a director of the Corporation) without the express written consent of a representative of the Mack Group, the Robert Martin Group or the Cali Group, as applicable, except in a manner which does not result in recognition of any built-in-gain (which may result in an income tax liability) or which reimburses the appropriate Mack Group, Robert Martin Group or Cali Group members for the tax consequences of the recognition of such built-in-gains (collectively, the “Property Lock-Ups”). The aforementioned restrictions do not apply in the event that the Operating Partnership sells all of its properties or in connection with a sale transaction which the Corporation’s Board of Directors determines is reasonably necessary to satisfy a material monetary default on any unsecured debt, judgment or liability of the Operating Partnership or the Corporation or to cure any material monetary default on any mortgage secured by a property. The Property Lock-Ups expire periodically through 2008. Upon the expiration of the Property Lock-Ups, the Operating Partnership is required to use commercially reasonable efforts to prevent any sale, transfer or other disposition of the subject properties from resulting in the recognition of built-in gain to the appropriate Mack Group, Robert Martin Group or Cali Group members.
Unencumbered Properties:
As of December 31, 2004, the Operating Partnership had 248 unencumbered properties, totaling 23.1 million square feet, representing 80.4 percent of the Operating Partnership’s total portfolio on a square footage basis.
Credit Ratings:
The Operating Partnership has three investment grade credit ratings. Standard & Poor’s Rating Services (“S&P”) and Fitch, Inc. (“Fitch”) have each assigned their BBB rating to existing and prospective senior unsecured debt of the Operating Partnership. S&P and Fitch have also assigned their BBB- rating to existing and prospective preferred stock offerings of the Corporation. Moody’s Investors Service (“Moody’s”) has assigned its Baa2 rating to existing and prospective senior unsecured debt of the Operating Partnership and its Baa3 rating to its existing and prospective preferred stock offerings of the Corporation.
Cash Flows
Cash and cash equivalents decreased by $66.1 million to $12.3 million at December 31, 2004, compared to $78.4 million at December 31, 2003.
This decrease was the net result of $238.4 million provided by operating activities, partially offset by the following:
1)
$105.8 million used in investing activities, consisting primarily of the following
Debt Financing
Summary of Debt:
The following is a breakdown of the Operating Partnership’s debt between fixed and variable-rate financing as of December 31, 2004:
Balance
($000’s)
% of Total
Weighted Average
Interest Rate (a)
Weighted Average Maturity
in Years
Fixed Rate Unsecured Debt
$1,031,102
60.57
%
6.80
%
6.59
Fixed Rate Secured Debt and
Other Obligations
564,198
33.14
%
6.11
%
2.78
Variable Rate Unsecured Debt
107,000
6.29
%
2.77
%
2.90
Totals/Weighted Average:
$1,702,300
100.0
%
6.32
%
5.10
Debt Maturities:
Scheduled principal payments and related weighted average annual interest rates for the Operating Partnership’s debt as of December 31, 2004 are as follows:
Scheduled
Principal
Weighted Avg.
Amortization
Maturities
Total
Interest Rate of
Period
($000’s)
($000’s)
($000’s)
Future Repayments (a)
$23,573
$ 148,738
$ 172,311
6.50%
17,537
144,642
162,179
7.10%
16,681
116,364
133,045
3.34%
16,526
--
16,526
4.95%
5,297
300,000
305,297
7.45%
Thereafter
4,100
916,143
920,243
6.24%
Sub-total
83,714
1,625,887
1,709,601
6.32%
Adjustment for unamortized debt
discount/premium, net, as of
December 31, 2004
(7,301)
--
(7,301)
--
Totals/Weighted Average
$76,413
$1,625,887
$1,702,300
6.32%
(a) Actual weighted average LIBOR contract rates relating to the Operating Partnership’s outstanding debt as of December 31, 2004 of 2.34 percent was used in calculating revolving credit facility.
Senior Unsecured Notes:
On February 9, 2004, the Operating Partnership issued $100.0 million face amount of 5.125 percent senior unsecured notes due February 15, 2014 with interest payable semi-annually in arrears. The total proceeds from the issuance (net of selling commissions and discount) of approximately $98.5 million were held until March 15, 2004, when the Operating Partnership used the net proceeds from the sale, together with borrowings under the unsecured facility and available cash, to repay the $300 million 7.00 percent notes due March 15, 2004.
On March 15, 2004, the Operating Partnership retired $300.0 million face amount of 7.00 percent senior unsecured notes due on that date. Funds used for the retirement were obtained from the proceeds from the February 2004 $100.0 million senior unsecured notes offering (described below), borrowings under the unsecured facility and available cash.
On March 22, 2004, the Operating Partnership issued $100.0 million face amount of 5.125 percent senior unsecured notes due February 15, 2014 with interest payable semi-annually in arrears. The total proceeds from the issuance (including premium and net of selling commissions) of approximately $103.1 million was used primarily to reduce outstanding borrowings under the unsecured facility.
On January 25, 2005, the Operating Partnership issued $150.0 million face amount of 5.125 percent senior unsecured notes due January 15, 2015 with interest payable semi-annually in arrears. The proceeds from the issuance (net of selling commissions and discount) of approximately $148.1 million was used primarily to reduce outstanding borrowings under the unsecured facility.
The terms of the Operating Partnership’s senior unsecured notes (which totaled approximately $1.0 billion as of December 31, 2004) include certain restrictions and covenants which require compliance with financial ratios relating to the maximum amount of debt leverage, the maximum amount of secured indebtedness, the minimum amount of debt service coverage and the maximum amount of unsecured debt as a percent of unsecured assets.
Unsecured Revolving Credit Facility:
2004 Unsecured Facility
On November 23, 2004, the Operating Partnership obtained an unsecured revolving credit facility (the “2004 Unsecured Facility”) with a current borrowing capacity of $600.0 million from a group of 27 lenders. As of March 2, 2005, the Operating Partnership had $290 million outstanding borrowings under the 2004 Unsecured Facility.
The interest rate on any outstanding borrowings under the 2004 Unsecured Facility is currently LIBOR plus 65 basis points. The Operating Partnership may instead elect an interest rate representing the higher of the lender’s prime rate or the Federal Funds rate plus 50 basis points. The 2004 Unsecured Facility also currently requires a 20 basis point facility fee on the current borrowing capacity payable quarterly in arrears.
In the event of a change in the Operating Partnership’s unsecured debt rating, the interest and facility fee rates will be adjusted in accordance with the following table:
Operating Partnership’s
Interest Rate -
Unsecured Debt Ratings:
Applicable Basis Points
Facility Fee
S&P Moody’s/Fitch (a)
Above LIBOR
Basis Points
No ratings or less than BBB-/Baa3/BBB-
112.5
25.0
BBB-/Baa3/BBB-
80.0
20.0
BBB/Baa2/BBB (current)
65.0
20.0
BBB+/Baa1/BBB+
55.0
15.0
A-/A3/A- or higher
50.0
15.0
(a) If the Operating Partnership has debt ratings from two rating agencies, one of which is Standard & Poor’s Rating Services (“S&P”) or Moody’s Investors Service (“Moody’s”), the rates per the above table shall be based on the lower of such ratings. If the Operating Partnership has debt ratings from three rating agencies, one of which is S&P or Moody’s, the rates per the above table shall be based on the lower of the two highest ratings. If the Operating Partnership has debt ratings from only one agency, it will be considered to have no rating or less than BBB-/Baa3/BBB- per the above table.
The 2004 Unsecured Facility matures in November 2007, with an extension option of one year, which would require a payment of 25 basis points of the then borrowing capacity of the facility upon exercise. The Operating Partnership believes that the 2004 Unsecured Facility is sufficient to meet its revolving credit facility needs.
The terms of the 2004 Unsecured Facility include certain restrictions and covenants which limit, among other things, the payment of dividends (as discussed below), the incurrence of additional indebtedness, the incurrence of liens and the disposition of real estate properties (to the extent that: (i) such property dispositions cause the Operating Partnership to default on any of the financial ratios of the facility described below, or (ii) the property dispositions are completed while the Operating Partnership is under an event of default under the facility, unless, under certain circumstances, such disposition is being carried out to cure such default), and which require compliance with financial ratios relating to the maximum leverage ratio, the maximum amount of secured indebtedness, the minimum amount of tangible net worth, the minimum amount of interest coverage, the minimum amount of fixed charge coverage, the maximum amount of unsecured indebtedness, the minimum amount of unencumbered property interest coverage and certain investment limitations. The dividend restriction referred to above provides that, except to enable the Corporation to continue to qualify as a REIT under the Code, the Corporation will not during any four consecutive fiscal quarters make distributions with respect to common stock or other common equity interests in an aggregate amount in excess of 90 percent of funds from operations (as defined in the facility agreement) for such period, subject to certain other adjustments.
2002 Unsecured Facility
On September 27, 2002, the Operating Partnership obtained an unsecured revolving credit facility (the “2002 Unsecured Facility”) with a borrowing capacity of $600.0 million from a group of 15 lenders.
The interest rate on outstanding borrowings under the 2002 Unsecured Facility was LIBOR plus 70 basis points. The Operating Partnership could have instead elected an interest rate representing the higher of the lender’s prime rate or the Federal Funds rate plus 50 basis points. The 2002 Unsecured Facility also required a 20 basis point facility fee on the borrowing capacity payable quarterly in arrears.
In conjunction with obtaining the 2004 Unsecured Facility, the Operating Partnership drew funds on the new facility to repay in full and terminate the 2002 Unsecured Facility on November 23, 2004.
Mortgages, Loans Payable and Other Obligations:
The Operating Partnership has mortgages, loans payable and other obligations which consist of various loans collateralized by certain of the Operating Partnership’s rental properties. Payments on mortgages, loans payable and other obligations are generally due in monthly installments of principal and interest, or interest only.
On November 12, 2004, the Operating Partnership refinanced its $150 million, 7.10 percent portfolio mortgage loan with Prudential Insurance Company, which was scheduled to mature on May 15, 2005. The refinanced mortgage loan is secured by seven properties located in Bergen County, New Jersey. The mortgage loan, with a balance of $150 million at December 31, 2004, is interest only, carries an effective interest rate of 4.84 percent and matures on January 15, 2010.
Debt Strategy:
The Operating Partnership does not intend to reserve funds to retire the Operating Partnership’s senior unsecured notes or its mortgages, loans payable and other obligations upon maturity. Instead, the Operating Partnership will seek to refinance such debt at maturity or retire such debt through the issuance of additional equity or debt securities on or before the applicable maturity dates. If it cannot raise sufficient proceeds to retire the maturing debt, the Operating Partnership may draw on its revolving credit facility to retire the maturing indebtedness, which would reduce the future availability of funds under such facility. As of December 31, 2004, the Operating Partnership had $107 million of outstanding borrowings under its $600 million unsecured revolving credit facility. The Operating Partnership is reviewing various refinancing options, including the purchase of its senior unsecured notes in privately-negotiated transactions, the issuance
of additional, or exchange of current, unsecured debt, preferred stock, and/or obtaining additional mortgage debt, some or all of which may be completed during 2005. The Operating Partnership 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 Operating Partnership’s capital and liquidity needs both in the short and long-term. However, if these sources of funds are insufficient or unavailable, the Corporation’s ability to make the expected distributions discussed below may be adversely affected.
Equity Financing and Registration Statements
Equity Activity:
The following table presents the changes in the Corporation’s issued and outstanding shares of Common Stock and the Operating Partnership’s common units and preferred units (as converted) since December 31, 2003:
Share Repurchase Program:
On September 13, 2000, the Board of Directors of the Corporation authorized an increase to the Corporation’s repurchase program under which the Corporation was permitted to purchase up to an additional $150.0 million of the Corporation’s outstanding common stock (“Repurchase Program”). From that date through its last purchases on January 10, 2003, the Corporation purchased and retired, under the Repurchase Program, 3.7 million shares of its outstanding common stock for an aggregate cost of approximately $104.5 million. Concurrent with these purchases, the Corporation sold to the Operating Partnership 3.7 million of its outstanding common units for an aggregate cost of approximately $104.5 million. The Corporation has a remaining authorization to repurchase up to an additional $45.5 million of its outstanding common stock, which it may repurchase from time to time in open market transactions at prevailing prices or through privately negotiated transactions.
Shelf Registration Statements:
The Corporation has an effective shelf registration statement on Form S-3 filed with the Securities and Exchange Commission (“SEC”) for an aggregate amount of $2.0 billion in common stock, preferred stock and/or warrants of the Corporation, under which no securities have been sold. On July 1, 2004, the Corporation filed post-effective amendment no. 1 to this shelf registration statement, adding depositary shares and otherwise updating the disclosures contained therein. Such post-effective amendment was declared effective by the SEC on July 12, 2004.
The Corporation and the Operating Partnership also have an effective shelf registration statement on Form S-3 (the “Original Joint Shelf”) filed with the SEC for an aggregate amount of $2.0 billion in common stock, preferred stock, depositary shares and guarantees of the Corporation and debt securities of the Operating Partnership, under which $1,425,283,478 of securities have been sold. On July 1, 2004, the Corporation and the Operating Partnership filed a new shelf registration statement on Form S-3 (the “New Joint Shelf”) with the SEC for an aggregate amount of $2.5 billion in common stock, preferred stock, depositary shares and guarantees of the Corporation and debt securities of the Operating Partnership. Pursuant to Rule 429 under the Securities Act of 1933, as amended (the “Securities Act”), the New Joint Shelf is a combined registration statement which constitutes post-effective amendment no. 1 to the Original Joint Shelf,
and the $2.5 billion available for issuance under the New Joint Shelf included the $574,716,522 of remaining availability under the Original Joint Shelf. The New Joint Shelf was declared effective by the SEC on July 22, 2004. As of February 25, 2005, $2.35 billion remained available for issuance under the New Joint Shelf.
Off-Balance Sheet Arrangements
Unconsolidated Joint Venture Debt:
The debt of the Operating Partnership’s unconsolidated joint ventures aggregating $124.4 million, at December 31, 2004, is non-recourse to the Operating Partnership except for customary exceptions pertaining to such matters as intentional misuse of funds, environmental conditions and material misrepresentations. The Operating Partnership has severally guaranteed repayment of approximately $8.0 million on a mortgage at the Harborside South Pier joint venture. The Operating Partnership has also posted an $8.0 million letter of credit in support of the Harborside South Pier joint venture, $4.0 million of which is indemnified by Hyatt.
The Operating Partnership’s off-balance sheet arrangements are further discussed in Note 4 - “Investments in Unconsolidated Joint Ventures” to the Financial Statements.
Contractual Obligations
The following table outlines the timing of payment requirements related to the Operating Partnership’s debt, PILOT agreements, and ground lease agreements (dollars in thousands):
Other Commitments and Contingencies
Legal Proceedings:
On February 12, 2003, the New Jersey Sports and Exposition Authority (“NJSEA”) selected The Mills Corporation (“Mills”) and the Operating Partnership (collectively, the “Meadowlands Venture”) to redevelop the Continental Airlines Arena site (“Arena Site”) for mixed uses, including retail. Hartz Mountain Industries, Inc. (“Hartz”) has challenged the NJSEA’s selection. The NJSEA denied its protest. Westfield America, Inc. (“Westfield”) also protested the NJSEA’s selection of Mills and the Operating Partnership. Westfield’s protest was also denied by the NJSEA. Hartz and Westfield have appealed the denial of their protest. Hartz and Westfield also have appealed the NJSEA’s execution of the Final Redevelopment Agreement for the Arena Site. Four citizens, Elliot Braha, Richard DeLauro, George Perry and Carol Coronato (collectively, the “Braha Group,”) have also filed lawsuits challenging the NJSEA award to Mills and the Operating Partnership. On May 14, 2004, the Superior Court of New Jersey, Appellate Division, which has jurisdiction of all of the cases, issued an order deciding certain of the issues presented by the cases. The Appellate Division determined that the NJSEA had the statutory authority to develop the Arena Site for mixed uses, including retail, that the NJSEA, in selecting Mills and the Operating Partnership, did not have to utilize a traditional low bid procurement process, and that the NJSEA complied with the Open Public Meetings Act (“OPMA”) in considering and making its selection. The Appellate Division remanded Hartz’s claims for relief under the Open Public Records Act (“OPRA”).
Hartz thereafter petitioned the Supreme Court of New Jersey for certification of the Appellate Division’s decision. The Supreme Court denied the petition on November 5, 2004.
In August 2004, the Superior Court of New Jersey issued a decision on remand on the OPRA issues. The Court ordered the NJSEA to release certain documents to Hartz, but permitted the NJSEA to withhold other documents. Hartz has appealed that decision to the Appellate Division. The Court heard oral arguments on Hartz’s appeal on November 10, 2004. The Appellate Division stayed any further hearing before the NJSEA on Hartz’s bid protest until it decided the appeal. The Appellate Division issued its decision on November 24, 2004 denying all of Hartz’s claims for further relief and dissolved its stay of further hearings. Hartz thereafter petitioned the New Jersey Supreme Court for certification of the Appellate Division’s decision. The petition remains pending undecided. The supplemental hearing before the NJSEA went forward on December 15 and 16, 2004. The NJSEA’s hearing officer has yet to issue a decision on Hartz’s protest.
In addition to Hartz’s petition for certification pending in the Supreme Court of New Jersey, there are ten pending cases in the Appellate Division which challenge the NJSEA’s selection of the redevelopment proposal by the Meadowlands Venture and the result of the consultative process between the New Jersey Department of Environment Protection (“NJDEP”) and the New Jersey Meadowlands Commission (“NJMC”), on the one hand, and the NJSEA, on the other, conducted pursuant to the requirements of the applicable NJSEA statute. Four of these appeals were filed by Hartz and two each by Westfield and the Braha Group. A ninth case was filed by the Environmental Law Clinic at Columbia Law School on behalf of the Sierra Club, Environmental Defense, New Jersey Public Interest Research Group and New Jersey Environmental Federal.
The tenth case was filed by the Borough of Carlstadt, New Jersey on September 30, 2004. The case was initially filed in the Superior Court law division, but was transferred to the Appellate Division on motion by the NJSEA and the Meadowlands Venture. Carlstadt argues that: (i) the retail elements of Meadowlands Xanadu are not authorized by statute; (ii) the retail elements of Meadowlands Xanadu are not tax exempt under NJSEA’s enabling act; and (iii) the PILOT program for Meadowlands Xanadu is arbitrary and capricious.
Another action taken against Meadowlands Xanadu was filed in the Superior Court of New Jersey, Law Division, on December 20, 2004, by the New Jersey Builders Association (the “Builders Association”). The Builders Association claims that the NJSEA should be required to utilize its property in part for affordable housing. The Builders Association seeks an order prohibiting the development of Meadowlands Xanadu because, in the Builders Association’s view, the NJSEA’s “underutilized” parking lots should be available for the development of affordable housing. On February 4, 2005, the court denied the Builders Association’s application for a temporary restraining order. On February 18, 2005, the court denied the Builders Association’s application for a preliminary injunction and transferred the case to the Superior Court, Appellate Division, for future proceedings. The Operating Partnership and Mills are not parties to that action. The defendants are the NJMC, NJSEA, the Borough of East Rutherford, and the Planning Board of East Rutherford.
The Operating Partnership believes that its proposal fully complies with applicable laws and the request for proposals, and plans to vigorously enforce its rights concerning this project. The Operating Partnership does not believe that the ultimate resolution of this matter will have a material adverse effect on the Operating Partnership's financial condition taken as a whole.
Off-Balance Sheet Arrangements
The Operating Partnership’s off-balance sheet arrangements are discussed in Note 4: “Investments in Unconsolidated Joint Ventures” to the Financial Statements. Additional information about the debt of the Operating Partnership’s unconsolidated joint ventures is included in “Liquidity and Capital Resources” herein.
Inflation
The Operating Partnership’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 Operating Partnership’s exposure to increases in operating costs resulting from inflation.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
We consider portions of this information, including the documents incorporated by reference, to be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of such act. Such forward-looking statements relate to, without limitation, our future economic performance, plans and objectives for future operations and projections of revenue and other financial items. Forward-looking statements can be identified by the use of words such as “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “continue” or comparable terminology. Forward-looking statements are inherently subject to risks and uncertainties, many of which we cannot predict with accuracy and some of which we might not even anticipate. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions at the time made, we can give no assurance that such expectations will be achieved. Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements.
Among the factors about which we have made assumptions are:
changes in the general economic climate; conditions, including those affecting industries in which our principal tenants compete;
any failure of the general economy to recover from the current economic downturn;
the extent of any tenant bankruptcies or of any early lease terminations;
our ability to lease or re-lease space at current or anticipated rents;
changes in the supply of and demand for office, office/flex and industrial/warehouse properties;
changes in interest rate levels;
changes in operating costs;
our ability to obtain adequate insurance, including coverage for terrorist acts;
the availability of financing;
changes in governmental regulation, tax rates and similar matters; and
other risks associated with the development and acquisition of properties, including risks that the development may not be completed on schedule, that the tenants will not take occupancy or pay rent, or that development or operating costs may be greater than anticipated.
For further information on factors which could impact us and the statements contained herein, see Item 1: Business - Risk Factors. We assume no obligation to update and supplement forward-looking statements that become untrue because of subsequent events.
ITEM 7A.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. In pursuing its business plan, the primary market risk to which the Operating Partnership is exposed is interest rate risk. Changes in the general level of interest rates prevailing in the financial markets may affect the spread between the Operating Partnership’s yield on invested assets and cost of funds and, in turn, its ability to make distributions or payments to its investors.
Approximately $1.6 billion of the Operating Partnership’s long-term debt bears interest at fixed rates and therefore the fair value of these instruments is affected by changes in market interest rates. The following table presents principal cash flows (in thousands) based upon maturity dates of the debt obligations and the related weighted-average interest rates by expected maturity dates for the fixed rate debt. The interest rate on the variable rate debt as of December 31, 2004 was LIBOR plus 65 basis points.
December 31, 2004
Debt,
including current portion
($’s in thousands)
Thereafter
Total
Fair Value
Fixed Rate
$171,078
$161,140
$ 25,007
$15,487
$304,444
$918,144
$1,595,300
$1,699,536
Average Interest Rate
6.50%
7.10%
5.70%
4.95%
7.45%
6.15%
6.55%
Variable Rate
$107,000
$ 107,000
$ 107,000
While the Operating Partnership has not experienced any significant credit losses, in the event of a significant rising interest rate environment and/or economic downturn, defaults could increase and result in losses to the Operating Partnership which could adversely affect its operating results and liquidity.
ITEM 8.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is contained in the Consolidated Financial Statements, together with the notes to the Consolidated Financial Statements and the report of independent accountants.
ITEM 9.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures. The Corporation’s management, with the participation of the Corporation’s chief executive officer and chief financial officer, has evaluated the effectiveness of the Operating Partnership's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Corporation's chief executive officer and chief financial officer have concluded that, as of the end of such period, the Operating Partnership's disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Operating Partnership in the reports that it files or submits under the Exchange Act.
Management’s Report on Internal Control Over Financial Reporting. Internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, is a process designed by, or under the supervision of, the Corporation’s chief executive officer and chief financial officer, or persons performing similar functions, and effected by the Corporation’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Operating Partnership’s management, with the participation of the Corporation’s chief executive officer and chief financial officer, has established and maintained policies and procedures designed to maintain the adequacy of the Operating Partnership’s internal control over financial reporting, and includes those policies and procedures that:
(1)
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Operating Partnership;
(2)
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Operating Partnership are being made only in accordance with authorizations of management and directors of the Corporation; and
(3)
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Operating Partnership’s assets that could have a material effect on the financial statements.
The Operating Partnership’s management has evaluated the effectiveness of the Operating Partnership’s internal control over financial reporting as of December 31, 2004 based on the criteria established in a report entitled Internal Control-Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment and those criteria, the Operating Partnership’s management has concluded that the Operating Partnership’s internal control over financial reporting was effective as of December 31, 2004.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.
Management’s assessment of the effectiveness of the Operating Partnership’s internal control over financial reporting as of December 31, 2004 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
Changes In Internal Control Over Financial Reporting. There have not been any changes in the Operating Partnership’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Operating Partnership's internal control over financial reporting.
ITEM 9B.
ITEM 9B.
OTHER INFORMATION
Not Applicable.
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 Corporation’s definitive proxy statement for its annual meeting of shareholders expected to be held on June 23, 2005.
ITEM 11.
ITEM 11.
EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference to the Corporation’s definitive proxy statement for its annual meeting of shareholders expected to be held on June 23, 2005.
ITEM 12.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference to the Corporation’s definitive proxy statement for its annual meeting of shareholders expected to be held on June 23, 2005.
ITEM 13.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference to the Corporation’s definitive proxy statement for its annual meeting of shareholders expected to be held on June 23, 2005.
ITEM 14.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 14 is incorporated by reference to the Corporation’s definitive proxy statement for its annual meeting of shareholders expected to be held on June 23, 2005.
PART IV
ITEM 15.
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) 1.
Financial Statements and Report of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2004 and 2003
Consolidated Statements of Operations for the Years Ended December 31, 2004, 2003 and 2002
Consolidated Statements of Changes in Partners’ Capital for the Years Ended December 31, 2004, 2003 and 2002
Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002
Notes to Consolidated Financial Statements
(a) 2.
Financial Statement Schedules
Schedule III - Real Estate Investments and Accumulated Depreciation as of December 31, 2004
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 exhibits required by this item are set forth on the Exhibit Index attached hereto.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of Mack-Cali Realty, L.P.:
We have completed an integrated audit of Mack-Cali Realty, L.P.’s 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2004 and audits of its 2003 and 2002 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.
Consolidated financial statements and financial statement schedule
In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Mack-Cali Realty, L.P. and its subsidiaries (collectively, the “Operating Partnership”) at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Operating Partnership’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
Internal control over financial reporting
Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A, that the Operating Partnership maintained effective internal control over financial reporting as of December 31, 2004 based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Operating Partnership maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control - Integrated Framework issued by the COSO. The Operating Partnership’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Operating Partnership’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
March 2, 2005
MACK-CALI REALTY, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (in thousands, except per unit amounts)
MACK-CALI REALTY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per unit amounts
MACK-CALI REALTY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS’ CAPITAL (in thousands)
General
Limited
General
Limited
General
Limited
General
Limited
Partner
Partners
Partner
Partners
Partner
Partners
Partner
Partners
Preferred
Preferred
Common
Common
Preferred
Preferred
Common
Common
Unit
Units
Units
Units
Units
Unitholders
Unitholders
Unitholders
Unitholders
Warrants
Total
Balance at January 1, 2002
--
56,712
7,955
$ --
$226,005
$1,432,588
$211,715
$8,524
$1,878,832
Net income
--
--
--
--
--
15,656
139,722
19,269
--
174,647
Distributions
--
--
--
--
(15,656)
(143,782)
(19,648)
--
(179,086)
Redemption of preferred
units for common units
--
(4)
--
--
(4,560)
--
4,560
--
--
Redemption of limited partner
common units for shares
of common stock
--
--
(269)
--
--
8,299
(8,299)
--
--
Redemption of limited
partner units for cash
--
--
--
(1)
--
--
--
(29)
--
(29)
Expiration of Unit Warrants
--
--
--
--
--
--
7,501
1,023
(8,524)
--
Contributions - proceeds from
stock operations exercised
--
--
--
--
--
17,007
--
17,007
Contributions - proceeds from
Stock Warrants exercised
--
--
--
--
--
3,547
--
3,547
Directors Deferred comp. plan
--
--
--
--
--
--
--
Amortization of stock comp.
--
--
--
--
--
--
1,699
--
--
1,699
Repurchase of general
partner common units
--
--
(416)
--
--
--
(12,557)
--
--
(12,557)
Balance at December 31, 2002
--
57,318
7,813
$ --
$221,445
$1,454,194
$208,591
$ --
$1,884,230
Net income
--
--
--
--
1,672
15,668
141,381
19,105
--
177,826
Distributions
--
--
--
--
(1,672)
(15,668)
(147,136)
(19,657)
--
(184,133)
Issuance of preferred units
--
--
--
24,836
--
--
--
24,836
Redemption of preferred
units for common units
--
(1)
--
--
(898)
--
--
--
Redemption of limited partner
common units for
shares of common stock
--
--
(44)
--
--
1,385
(1,385)
--
--
Units issued under Dividend
Reinvestment & Stock
Repurchase Plan
--
--
--
--
--
--
--
Contributions - proceeds from
stock options exercised
--
--
1,421
--
--
--
47,196
--
--
47,196
Contributions - proceeds from
Stock Warrants exercised
--
--
--
--
--
16,581
--
--
16,581
Stock options expense
--
--
--
--
--
--
--
--
Directors Deferred comp. plan
--
--
--
--
--
--
--
--
Issuance of Restricted Stock Awards
--
--
--
--
--
1,586
--
--
1,586
Amortization of stock comp.
--
--
--
--
--
--
1,931
--
--
1,931
Repurchase of general
partner common units
--
--
(35)
--
--
--
(1,030)
--
--
(1,030)
Balance at December 31, 2003
59,420
7,795
$24,836
$220,547
$1,516,652
$207,552
--
$1,969,587
Net income
--
--
--
--
2,000
15,636
100,453
12,901
--
130,990
Distributions
--
--
--
--
(2,000)
(15,636)
(153,097)
(19,501)
--
(190,234)
Redemption of limited partners
common units for
shares of common stock
--
--
(179)
--
--
4,644
(4,644)
--
--
Units issued under Dividend
Reinvestment and Stock
Purchase Plan
--
--
--
--
--
--
--
Contributions - proceeds from
stock options exercised
--
--
1,251
--
--
--
40,520
--
--
40,520
Contributions - proceeds from
Stock Warrants exercised
--
--
--
--
--
4,925
--
--
4,925
Stock options expense
--
--
--
--
--
--
--
--
Directors Deferred comp. plan
--
--
--
--
--
--
--
--
Issuance of Restricted Stock Awards
--
--
--
--
--
1,528
--
--
1,528
Amortization of stock comp.
--
--
--
--
--
--
3,489
--
--
3,489
Repurchase of general
partner common units
--
--
(19)
--
--
--
--
--
--
--
Balance at December 31, 2003
61,039
7,616
$24,836
$220,547
$1,520,275
$196,308
$ --
$1,961,966
The accompanying notes are an integral part of these consolidated financial statements.
MACK-CALI REALTY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
MACK-CALI REALTY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share/unit amounts)
1.
ORGANIZATION AND BASIS OF PRESENTATION
Mack-Cali Realty, L.P., a Delaware limited partnership, together with its subsidiaries (the “Operating Partnership,”) was formed on May 31, 1994 to conduct the business of leasing, management, acquisition, development, construction and tenant-related services for its sole general partner, Mack-Cali Realty Corporation and its subsidiaries (the “Corporation” or “General Partner”). The Operating Partnership, through its operating divisions and subsidiaries, including the Mack-Cali property-owning partnerships and limited liability companies (collectively, the “Property Partnerships”) is the entity through which all of the General Partner’s operations are conducted.
The General Partner is a fully integrated, self-administered, self-managed real estate investment trust (“REIT”). The General Partner controls the Operating Partnership as its sole general partner, and owned an 88.9 percent and 88.4 percent common unit interest in the Operating Partnership as of December 31, 2004 and December 31, 2003, respectively.
The General Partner’s business is the ownership of interests in and operation of the Operating Partnership, and all of the General Partner’s expenses are incurred for the benefit of the Operating Partnership. The General Partner is reimbursed by the Operating Partnership for all expenses it incurs relating to the ownership and operation of the Operating Partnership.
As of December 31, 2004, the Operating Partnership owned or had interests in 273 properties plus developable land (collectively, the “Properties”). The Properties aggregate approximately 29.6 million square feet, which are comprised of 165 office buildings and 97 office/flex buildings, totaling approximately 29.2 million square feet (which include three office buildings and one office/flex building aggregating 836,000 square feet owned by unconsolidated joint ventures in which the Operating Partnership has investment interests), six industrial/warehouse buildings totaling approximately 387,400 square feet, two retail properties totaling approximately 17,300 square feet, one hotel (which is owned by an unconsolidated joint venture in which the Operating Partnership has an investment interest) and two parcels of land leased to others. The Properties are located in nine states, primarily in the Northeast, plus the District of Columbia.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include all accounts of the Operating Partnership and its majority-owned and/or controlled subsidiaries. See Investments in Unconsolidated Joint Ventures in Note 2 for the Operating Partnership’s treatment of unconsolidated joint venture interests. Intercompany accounts and transactions have been eliminated.
The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Certain reclassifications have been made to prior period amounts in order to conform with current period presentation.
2.
SIGNIFICANT ACCOUNTING POLICIES
Rental
Property
Rental properties are stated at cost less accumulated depreciation and amortization. Costs directly related to the acquisition, development and construction of rental properties are capitalized. Capitalized development and construction costs include pre-construction costs essential to the development of the property, development and construction costs, interest, property taxes, insurance, salaries and other project costs incurred during the period of development. Included in
total rental property is construction and development in-progress of $86,916 and $84,105 (including land of $53,705 and $49,045) as of December 31, 2004 and 2003, respectively. Ordinary repairs and maintenance are expensed as incurred; major replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives. Fully-depreciated assets are removed from the accounts.
The Operating Partnership considers a construction project as substantially completed and held available for occupancy upon the completion of tenant improvements, but no later than one year from cessation of major construction activity (as distinguished from activities such as routine maintenance and cleanup). If portions of a rental project are substantially completed and occupied by tenants, or held available for occupancy, and other portions have not yet reached that stage, the substantially completed portions are accounted for as a separate project. The Operating Partnership allocates costs incurred between the portions under construction and the portions substantially completed and held available for occupancy, and capitalizes only those costs associated with the portion under construction.
Properties are depreciated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives are as follows:
Leasehold interests
Remaining lease term
Buildings and improvements
5 to 40 years
Tenant improvements
The shorter of the term of the
related lease or useful life
Furniture, fixtures and equipment
5 to 10 years
Upon acquisition of rental property, the Operating Partnership estimates the fair value of acquired tangible assets, consisting of land, building and improvements, and identified intangible assets and liabilities, generally consisting of the fair value of (i) above and below market leases, (ii) in-place leases and (iii) tenant relationships. The Operating Partnership allocates the purchase price to the assets acquired and liabilities assumed based on their relative fair values. In estimating the fair value of the tangible and intangible assets acquired, the Operating Partnership considers information obtained about each property as a result of its due diligence and marketing and leasing activities, and utilizes various valuation methods, such as estimated cash flow projections utilizing appropriate discount and capitalization rates, estimates of replacement costs net of depreciation, and available market information. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant.
Above-market and below-market lease values for acquired properties are recorded based on the present value, (using a discount rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases. The capitalized above-market lease values are amortized as a reduction of base rental revenue over the remaining term of the respective leases, and the capitalized below-market lease values are amortized as an increase to base rental revenue over the remaining initial terms plus the terms of any below-market fixed rate renewal options of the respective leases.
Other intangible assets acquired include amounts for in-place lease values and tenant relationship values, which are based on management’s evaluation of the specific characteristics of each tenant’s lease and the Operating Partnership’s overall relationship with the respective tenant. Factors to be considered by management in its analysis of in-place lease values include an estimate of carrying costs during hypothetical expected lease-up periods considering current market conditions, and costs to execute similar leases. In estimating carrying costs, management
includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, management considers leasing commissions, legal and other related expenses. Characteristics considered by management in valuing tenant relationships include the nature and extent of the Operating Partnership’s existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals. The value of in-place leases are amortized to expense over the remaining initial terms of the respective leases. The value of tenant relationship intangibles are amortized to expense over the anticipated life of the relationships.
On a periodic basis, management assesses whether there are any indicators that the value of the Operating Partnership’s 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 is less than the carrying value of the property. To the extent impairment has occurred, the loss shall be measured as the excess of the carrying amount of the property over the fair value of the property. The Operating Partnership’s estimates of aggregate future cash flows expected to be generated by each property are based on a number of assumptions that are subject to economic and market uncertainties including, among others, demand for space, competition for tenants, changes in market rental rates, and costs to operate each property. As these factors are difficult to predict and are subject to future events that may alter management’s assumptions, the future cash flows estimated by management in its impairment analyses may not be achieved. Management does not believe that the value of any of the Operating Partnership’s rental properties is impaired.
Rental Property
Held for Sale and
Discontinued
Operations
When assets are identified by management as held for sale, the Operating Partnership discontinues depreciating the assets and estimates the sales price, net of selling costs, of such assets. If, in management’s opinion, the net sales price of the assets which have been identified as held for sale is less than the net book value of the assets, a valuation allowance is established. Properties identified as held for sale and/or sold are presented in discontinued operations for all periods presented. See Note 7: Discontinued Operations.
If circumstances arise that previously were considered unlikely and, as a result, the Operating Partnership decides not to sell a property previously classified as held for sale, the property is reclassified as held and used. A property that is reclassified is measured and recorded individually at the lower of (a) its carrying amount before the property was classified as held for sale, adjusted for any depreciation (amortization) expense that would have been recognized had the property been continuously classified as held and used, or (b) the fair value at the date of the subsequent decision not to sell.
Investments in
Unconsolidated
Joint Ventures, Net
The Operating Partnership accounts for its investments in unconsolidated joint ventures for which the Financial Accounting Standards Board ("FASB") issued Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46”) does not apply under the equity method of accounting as the Operating Partnership exercises significant influence, but does not control these entities. These investments are recorded initially at cost, as Investments in Unconsolidated Joint Ventures, and subsequently adjusted for equity in earnings and cash contributions and distributions.
FIN 46 provides guidance on the identification of entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and the determination of which business enterprise should consolidate the VIE (the “primary beneficiary”). Generally, FIN 46 applies when either (1) the equity investors (if any) lack one or more of the essential
characteristics of a controlling financial interest, (2) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support or (3) the equity investors have voting rights that are not proportionate to their economic interests and the activities of the entity involve or are conducted on behalf of an investor with a disproportionately small voting interest. The Company adopted FIN 46 in 2003. The effect of adoption was not material.
The Operating Partnership has evaluated its joint ventures with regards to FIN 46. As of December 31, 2004, the Operating Partnership has identified its Meadowlands Xanadu joint venture with the Mills Corporation as a VIE, but is not consolidating such venture as the Operating Partnership is not the primary beneficiary. Disclosure about this VIE is included in Note 4 - Investments in Unconsolidated Joint Ventures.
On a periodic basis, management assesses whether there are any indicators that the value of the Operating Partnership’s investments in unconsolidated joint ventures may be impaired. An investment is impaired only if management’s estimate of the value of the investment is less than the carrying value of the investment, and such decline in value is deemed to be other than temporary. To the extent impairment has occurred, the loss shall be measured as the excess of the carrying amount of the investment over the value of the investment. Management does not believe that the value of any of the Operating Partnership’s investments in unconsolidated joint ventures is impaired. See Note 4: Investments in Unconsolidated Joint Ventures.
Cash and Cash
Equivalents
All highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents.
Deferred
Financing Costs
Costs incurred in obtaining financing are capitalized and amortized on a straight-line basis, which approximates the effective interest method, over the term of the related indebtedness. Amortization of such costs is included in interest expense and was $4,163, $4,713 and $4,739 for the years ended December 31, 2004, 2003 and 2002, respectively.
Deferred
Leasing Costs
Costs incurred in connection with leases are capitalized and amortized on a straight-line basis over the terms of the related leases and included in depreciation and amortization. Unamortized deferred leasing costs are charged to amortization expense upon early termination of the lease. Certain employees of the Operating Partnership are compensated for providing leasing services to the Properties. The portion of such compensation, which is capitalized and amortized, approximated $3,907, $3,783 and $4,083 for the years ended December 31, 2004, 2003 and 2002, respectively.
Derivative
Instruments
The Operating Partnership measures derivative instruments, including certain derivative instruments embedded in other contracts, at fair value and records them as an asset or liability, depending on the Operating Partnership’s rights or obligations under the applicable derivative contract. For derivatives designated and qualifying as fair value hedges, the changes in the fair value of both the derivative instrument and the hedged item are recorded in earnings. For derivatives designated as cash flow hedges, the effective portions of the derivative are reported in other comprehensive income (“OCI”) and are subsequently reclassified into earnings when the hedged item affects earnings. Changes in fair value of derivative instruments not designated as hedging and ineffective portions of hedges are recognized in earnings in the affected period.
Revenue
Recognition
Base rental revenue is recognized on a straight-line basis over the terms of the respective leases. Unbilled rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with the lease agreements. Above-market and below-market
lease values for acquired properties are recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed-rate renewal options for below-market leases. The capitalized above-market lease values for acquired properties are amortized as a reduction of base rental revenue over the remaining term of the respective leases, and the capitalized below-market lease values are amortized as an increase to base rental revenue over the remaining initial terms plus the terms of any below-market fixed-rate renewal options of the respective leases. Parking and other revenue includes income from parking spaces leased to tenants, income from tenants for additional services arranged for the Operating Partnership, income from tenants for early lease terminations and income from managing and/or leasing properties for third parties. Escalations and recoveries are received from tenants for certain costs as provided in the lease agreements. These costs generally include real estate taxes, utilities, insurance, common area maintenance and other recoverable costs. See Note 16: Tenant Leases.
Allowance for
Doubtful Accounts
Management periodically performs a detailed review of amounts due from tenants to determine if accounts receivable balances are impaired based on factors affecting the collectibility of those balances. Management’s estimate of the allowance for doubtful accounts requires management to exercise significant judgment about the timing, frequency and severity of collection losses, which affects the allowance and net income.
Income and
Other Taxes
The Operating Partnership is a partnership and, as a result, all income and losses of the partnership are allocated to the partners for inclusion in their respective income tax returns. Accordingly, no provision or benefit for income taxes has been made in the accompanying financial statements.
As of December 31, 2004, the estimated net basis of the rental property for Federal income tax purposes was lower than the net assets as reported in the Operating Partnership’s financial statements by approximately $997,184. The Operating Partnership’s taxable income for the year ended December 31, 2004 was estimated to be approximately $174,249 and for the years ended December 31, 2003 and 2002 was approximately $182,178 and $184,783, respectively. The differences between book income and taxable income primarily result from differences in depreciation expense, the recording of rental income, differences in the deductibility of certain expenses for tax purposes, differences in revenue recognition and the rules for tax purposes of a property exchange.
Earnings
Per Unit
The Operating Partnership presents both basic and diluted earnings per unit (“EPU”). Basic EPU excludes dilution and is computed by dividing net income available to common unitholders by the weighted average number of units outstanding for the period. Diluted EPU reflects the potential dilution that could occur if securities or other contracts to issue common unit were exercised or converted into common unit, where such exercise or conversion would result in a lower EPU amount.
Distributions
Payable
The distributions payable at December 31, 2004 represents distributions payable to preferred unitholders (10,000 Series B preferred units) common unitholders (68,734,472 common units) and preferred distributions payable to preferred unitholders (215,018 Series B preferred units) for all such holders of record as of January 5, 2005 with respect to the fourth quarter 2004. The fourth quarter 2004 Series C preferred unit distributions of $50.00 per preferred unit, common unit distributions of $0.63 per common unit, as well as the fourth quarter 2004 Series B preferred
unit distributions of $18.1818 per preferred unit, were approved by the Corporation’s Board of Directors on December 7, 2004. The Series C preferred unit distribution and common and Series B preferred unit distributions payable were paid on January 18, 2005.
The distributions payable at December 31, 2003 represents distributions payable to preferred unitholders (10,000 Series C preferred units) common unitholders (67,402,002 common units) and preferred distributions payable to preferred unitholders (215,018 Series B preferred units) for all such holders of record as of January 6, 2004 with respect to the fourth quarter 2003. The fourth quarter 2003 Series C preferred unit distributions of $50.00 per preferred unit, common unit distributions of $0.63 per common unit, as well as the fourth quarter preferred unit distributions of $18.1818 per preferred unit, were approved by the Corporation’s Board of Directors on December 17, 2003. The Series C preferred unit distributions payable were paid on January 15, 2004. The common and Series B preferred unit distributions payable were paid on January 16, 2004.
Costs Incurred
For Preferred
Stock Issuances
Costs incurred in connection with the Corporation’s preferred stock issuances are reflected as a reduction of General Partners’ capital.
Stock
Compensation
The Operating Partnership accounts for stock options and restricted stock awards granted prior to 2002 using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations (“APB No. 25”). Under APB No. 25, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Corporation’s stock at the date of grant over the exercise price of the option granted. Compensation cost for stock options is recognized ratably over the vesting period. The Corporation’s policy is to grant options with an exercise price equal to the quoted closing market price of the Corporation’s stock on the business day preceding the grant date. Accordingly, no compensation cost has been recognized under the Corporation’s stock option plans for the granting of stock options made prior to 2002. Restricted stock awards granted prior to 2002 are valued at the vesting dates of such awards with compensation cost for such awards recognized ratably over the vesting period.
In 2002, the Operating Partnership adopted the provisions of FASB No. 123, which requires, on a prospective basis, that the estimated fair value of restricted stock (“Restricted Stock Awards”) and stock options at the grant date be amortized ratably into expense over the appropriate vesting period. For the years ended December 31, 2004, 2003 and 2002, the Operating Partnership recorded restricted stock and stock options expense of $5,432, $4,353 and $1,738, respectively. FASB No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, was issued in December 2002 and amends FASB No. 123, Accounting for Stock Based Compensation. FASB No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock based compensation. In addition, this Statement amends the disclosure requirements of FASB No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. FASB No. 148 disclosure requirements are presented as follows:
The following table illustrates the effect on net income and earnings per unit if the fair value based method had been applied to all outstanding and unvested stock awards in each period:
Basic EPS
Basic EPS
Basic EPS
Net income, as reported
$130,990
$177,826
$174,647
Add: Stock-based compensation expense included in reported
net income
5,432
4,353
1,738
Deduct: Total stock-based compensation expense determined
under fair value based method for all awards
(6,308)
(5,094)
(4,351)
Pro forma net income
130,114
177,085
172,034
Deduct: Preferred unit distributions
(17,636)
(17,340)
(15,656)
Pro forma net income available to common shareholders - basic
$112,478
$159,745
$156,378
Earnings Per Unit:
Basic - as reported
$ 1.66
$ 2.45
$ 2.44
Basic - pro forma
$ 1.65
$ 2.44
$ 2.40
Diluted - as reported
$ 1.65
$ 2.43
$ 2.43
Diluted - pro forma
$ 1.64
$ 2.42
$ 2.39
3.
REAL ESTATE PROPERTY TRANSACTIONS
2004 TRANSACTIONS
Property Acquisitions
The Operating Partnership acquired the following operating properties during the year ended December 31, 2004:
(d) Properties were acquired from AT&T Corporation (“AT&T”), a tenant of the Operating Partnership, for cash and assumed obligations, as follows:
(1) Acquired 30 Knightsbridge Road, a four-building office complex, aggregating 680,350 square feet and located in Piscataway, New Jersey. AT&T, which occupied the entire complex, has leased back from the Operating Partnership two of the buildings in the complex, totaling 275,000 square feet, for 10 years and seven months, and leased back the remaining 405,350 square feet of the complex through October 2004;
(2) Acquired Kemble Plaza II, a 475,100 square foot office building located in Morris Township, New Jersey, which the Operating Partnership had previously sold to AT&T in June of 2000. AT&T, which occupied the entire building, leased back the entire property from the Operating Partnership for one year from the date of acquisition;
(3) Signed a lease extension at the Operating Partnership’s Kemble Plaza I property in Morris Township, New Jersey, extending AT&T’s lease for the entire 387,000 square foot building for an additional five years to August 2014. Under the lease extension, the Operating Partnership agreed, among other things, to fund up to $2.1 million of tenant improvements to be performed by AT&T at the property;
(4) Paid cash consideration of approximately $12.9 million to AT&T; and
(5) Assumed AT&T’s lease obligations with third-party landlords at seven office buildings, aggregating 922,674 square feet, which carry a weighted average remaining term of 4.5 years. The Operating Partnership has estimated that the obligations, net of estimated sub-lease income, total approximately $84.8 million, with a net present value of approximately $76.2 million utilizing a weighted average discount rate of 4.85 percent. The net present value of the assumed obligations as of December 31, 2004 is included in mortgages, loans payable and other obligations (see Note 10: Mortgages, Loans Payable and Other Obligations).
(e) The Operating Partnership acquired a 62.5 percent interest in the property through the Operating Partnership’s conversion of its note receivable with a balance of $13.0 million into a controlling equity interest. The property is subject to a $45.5 million mortgage.
Land Acquisitions
On May 14, 2004, the Operating Partnership acquired approximately five acres of land in Plymouth Meeting, Pennsylvania. Previously, the Operating Partnership leased this land parcel, upon which the Operating Partnership owns a 167,748 square foot office building. The land was acquired for approximately $6,094.
On June 25, 2004, the Operating Partnership acquired approximately 59.9 acres of developable land located in West Windsor, New Jersey for approximately $20,572.
Property Sales
The Operating Partnership sold the following operating properties during the year ended December 31, 2004:
2003 TRANSACTIONS
Property Acquisitions
The Operating Partnership acquired the following operating properties during the year ended December 31, 2003:
(a)
Transactions were funded primarily through borrowings on the Operating Partnership’s revolving credit facility, from net proceeds received in the sale or sales of rental property, and/or from the Operating Partnership’s cash reserves. Amounts are as of December 31, 2003.
Sales
The Operating Partnership sold the following properties during the year ended December 31, 2003:
SUBSEQUENT EVENT TRANSACTIONS
On February 3, 2005, the Operating Partnership signed agreements to sell its office building located at 600 Community Drive in Manhasset, New York and its office building at 111 East Shore Road in North Hempstead, New York, which aggregate 292,849 square feet, for a total sales price of $72,500. The two agreements are with buyers affiliated with each other and represent a single indivisible transaction. The sale, which is expected to close in the second quarter of 2005, is subject to a right of first refusal in favor of the sole tenant of the Manhasset building, pursuant to terms of its lease agreement with the Operating Partnership.
On February 4, 2005, the Operating Partnership sold its 318,224 square foot office property located at 210 South 16th Street in Omaha, Nebraska for a sales price of approximately $8,675.
On February 11, 2005, the Operating Partnership sold its remaining, wholly-owned Texas property, 1122 North Alma Road, a 82,576 square foot office building in Richardson, for a sales price of approximately $2,125.
On February 15, 2005, the Operating Partnership sold its 75,668 square foot office property located at 3 Skyline Drive in Hawthorne, New York for a sales price of approximately $9,618.
On March 2, 2005, the Operating Partnership acquired a 1.2 million square-foot, 42-story high-rise office building located at 101 Hudson Street in Jersey City, New Jersey for a purchase price of approximately $329,000.
4.
INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
The debt of the Operating Partnership’s unconsolidated joint ventures aggregating $124,363 as of December 31, 2004 is non-recourse to the Operating Partnership, except for customary exceptions pertaining to such matters as intentional misuse of funds, environmental conditions and material misrepresentations, and except as otherwise indicated below.
MEADOWLANDS XANADU
On November 25, 2003, the Operating Partnership and affiliates of The Mills Corporation (“Mills”) entered into a joint venture to form Meadowlands Mills/Mack-Cali Limited Partnership (“Meadowlands Venture”) for the purpose of developing a $1.3 billion family entertainment and recreation complex with an office and hotel component to be built at the Meadowlands sports complex in East Rutherford, New Jersey (“Meadowlands Xanadu”). Meadowlands Xanadu’s approximately 4.76 million-square-foot complex is expected to feature a family entertainment destination comprising five themed zones: sports; entertainment; children’s education; fashion; and food and home, in addition to four office buildings, aggregating approximately 1.8 million square feet, and a 520-room hotel.
On December 3, 2003, the Meadowlands Venture entered into a redevelopment agreement (the “Redevelopment Agreement”) with the New Jersey Sports and Exposition Authority (“NJSEA”) for the redevelopment of the area surrounding the Continental Airlines Arena in East Rutherford, New Jersey and the construction of the Meadowlands Xanadu project. The Redevelopment Agreement provides for a 75-year ground lease, which requires the joint venture to pay the NJSEA a $160,000 development rights fee at the start of construction of the entertainment phase, when all permits and approvals are obtained, and the payment of fixed rent over the term. Fixed rent will be in the amount of $1 per year for the first 15 years, increasing to $7,500 from the 16th to the 18th year, increasing to $8,447 in the 19th year, increasing to $8,700 in the 20th year, increasing to $8,961 in the 21st year, then to $9,200 in the 23rd to 26th year, with additional increases over the remainder of the term, as set forth in the ground lease. The ground lease also allows for the potential for participation rent payments by the venture, as described in the ground lease agreement. On October 5, 2004, the Meadowlands Venture and the NJSEA entered into the First Amendment to the Redevelopment Agreement. Pursuant to the amendment, the ground lease was also executed on October 5, 2004, but payment of the $160,000 development rights fee has been postponed until the satisfaction of certain material conditions, such as the receipt of all necessary governmental permits and approvals for the project. If the material conditions are not satisfied by March 31, 2005, the Meadowlands Venture has the right to either terminate the transaction, or tender payment of the development rights fee, subject to: (i) the NJSEA’s obligation to refund this amount if certain events adversely impacting the project occur within 12 months thereafter, and (ii) an escrow of portions of the development rights fee for up to a 12-month period. Also pursuant to the First Amendment to the Redevelopment Agreement, the Meadowlands Venture is required to convey certain vacant land, known as the Empire Tract, to a conservancy trust in exchange for a payment of $26,800 from the NJSEA. This payment will be made upon the NJSEA’s receipt of the $160,000 development rights fee.
The Operating Partnership and Mills own a 20 percent and 80 percent interest, respectively, in the Meadowlands Venture. These interests were subject to certain participation rights by The New York Giants, which were subsequently terminated in April 2004. The joint venture agreement requires the Operating Partnership to make an equity contribution up to a maximum of $32,500. Pursuant to the joint venture agreement, Mills has received subordinated capital credit in the venture of approximately $118,000, which represents certain costs incurred by Mills in connection with the Empire Tract prior to the creation of the Meadowlands Venture. The joint venture agreement requires Mills to contribute the balance of the capital required to complete the entertainment phase, subject to certain limitations. The Operating Partnership will receive a nine percent preferred return on its equity investment, only after Mills receives a nine percent preferred return on its equity investment. Residual returns, subject to participation by other parties, will be in proportion to each partner’s respective percentage interest.
Mills will develop, lease and operate the entertainment phase of the Meadowlands Xanadu project. The joint venture agreement provides the Operating Partnership an option to cause the Meadowlands Venture to form component ventures for the future development of the office and hotel phases, which the Operating Partnership will develop, lease and operate. The Operating Partnership will own an 80 percent interest and Mills will own a 20 percent interest in such component ventures. The agreement provides for the first office or hotel component ventures to be formed no later than four years after the grand opening of the entertainment phase, and requires that all component ventures for the office and
hotel phases be formed no later than 10 years from such date, but does not require that any or all components be developed. However, under the Meadowlands Venture agreement, Mills has the ability to accelerate such formation schedule, subject to certain conditions. Should the Operating Partnership fail to meet the time schedule described above for the formation of the component ventures, the Operating Partnership will forfeit its rights to cause the Meadowlands Venture to form additional component ventures. If this occurs, Mills will have the ability to develop the additional phases, subject to the Operating Partnership’s right to participate, or to cause the Meadowlands Venture to sell such components to a third party, subject to a sales price limitation of 95 percent of the value that would have been the amount necessary to form such component ventures.
On February 12, 2003, the New Jersey Sports and Exposition Authority (“NJSEA”) selected The Mills Corporation (“Mills”) and the Operating Partnership to redevelop the Continental Airlines Arena site (“Arena Site”) for mixed uses, including retail. Hartz Mountain Industries, Inc. (“Hartz”) has challenged the NJSEA’s selection. The NJSEA denied its protest. Westfield America, Inc. (“Westfield”) also protested the NJSEA’s selection of Mills and the Operating Partnership. Westfield’s protest was also denied by the NJSEA. Hartz and Westfield have appealed the denial of their protest. Hartz and Westfield also have appealed the NJSEA’s execution of the Final Redevelopment Agreement for the Arena Site. Four citizens, Elliot Braha, Richard DeLauro, George Perry and Carol Coronato (collectively, the “Braha Group,”) have also filed lawsuits challenging the NJSEA award to Mills and the Operating Partnership. On May 14, 2004, the Superior Court of New Jersey, Appellate Division, which has jurisdiction of all of the cases, issued an order deciding certain of the issues presented by the cases. The Appellate Division determined that the NJSEA had the statutory authority to develop the Arena Site for mixed uses, including retail, that the NJSEA, in selecting Mills and the Operating Partnership, did not have to utilize a traditional low bid procurement process, and that the NJSEA complied with the Open Public Meetings Act (“OPMA”) in considering and making its selection. The Appellate Division remanded Hartz’s claims for relief under the Open Public Records Act (“OPRA”). Hartz thereafter petitioned the Supreme Court of New Jersey for certification of the Appellate Division's decision. The Supreme Court denied the petition on November 5, 2004.
In August 2004, the Superior Court of New Jersey issued a decision on remand on the OPRA issues. The Court ordered the NJSEA to release certain documents to Hartz, but permitted the NJSEA to withhold other documents. Hartz has appealed that decision to the Appellate Division. The Court heard oral arguments on Hartz’s appeal on November 10, 2004. The Appellate Division stayed any further hearing before the NJSEA on Hartz’s bid protest until it decided the appeal. The Appellate Division issued its decision on November 24, 2004 denying all of Hartz’s claims for further relief and dissolved its stay of further hearings. Hartz thereafter petitioned the New Jersey Supreme Court for certification of the Appellate Division’s decision. The petition remains pending undecided. The supplemental hearing before the NJSEA went forward on December 15 and 16, 2004. The NJSEA’s hearing officer has yet to issue a decision on Hartz’s protest.
In addition to Hartz’s petition for certification pending in the Supreme Court of New Jersey, there are ten pending cases in the Appellate Division which challenge the NJSEA’s selection of the redevelopment proposal by the Meadowlands Venture and the result of the consultative process between the New Jersey Department of Environment Protection (“NJDEP”) and the New Jersey Meadowlands Commission (“NJMC”), on the one hand, and the NJSEA, on the other, conducted pursuant to the requirements of the applicable NJSEA statute. Four of these appeals were filed by Hartz and two each by Westfield and the Braha Group. A ninth case was filed by the Environmental Law Clinic at Columbia Law School on behalf of the Sierra Club, Environmental Defense, New Jersey Public Interest Research Group and New Jersey Environmental Federal.
The tenth case was filed by the Borough of Carlstadt, New Jersey on September 30, 2004. The case was initially filed in the Superior Court law division, but was transferred to the Appellate Division on motion by the NJSEA and the Meadowlands Venture. Carlstadt argues that: (i) the retail elements of Meadowlands Xanadu are not authorized by statute; (ii) the retail elements of Meadowlands Xanadu are not tax exempt under NJSEA’s enabling act; and (iii) the PILOT program for Meadowlands Xanadu is arbitrary and capricious.
Another action taken against Meadowlands Xanadu was filed in the Superior Court of New Jersey, Law Division, on December 20, 2004, by the New Jersey Builders Association (the “Builders Association”). The Builders Association claims that the NJSEA should be required to utilize its property in part for affordable housing. The Builders Association
seeks an order prohibiting the development of Meadowlands Xanadu because, in the Builders Association’s view, the NJSEA’s “underutilized” parking lots should be available for the development of affordable housing. On February 4, 2005, the court denied the Builders Association’s application for a temporary restraining order. On February 18, 2005, the court denied the Builders Association’s application for a preliminary injunction and transferred the case to the Superior Court, Appellate Division, for future proceedings. The Operating Partnership and Mills are not parties to that action. The defendants are the NJMC, NJSEA, the Borough of East Rutherford, and the Planning Board of East Rutherford.
The Operating Partnership believes that its proposal fully complies with applicable laws and the request for proposals, and plans to vigorously enforce its rights concerning this project. The Operating Partnership does not believe that the ultimate resolution of this matter will have a material adverse effect on the Operating Partnership's financial condition taken as a whole.
HPMC
On July 21, 1998, the Operating Partnership entered into a joint venture with HCG Development, L.L.C. and Summit Partners I, L.L.C. to form HPMC Development Partners II, L.P. (formerly known as HPMC Lava Ridge Partners, L.P.). HPMC Development Partners II, L.P.’s efforts have focused on three development projects, commonly referred to as Lava Ridge, Pacific Plaza I & II and Stadium Gateway.
The Operating Partnership has a 50 percent ownership interest and HCG Development, L.L.C. and Summit Partners I, L.L.C. (both of which are not affiliated with the Operating Partnership) collectively have a 50 percent ownership interest in HPMC Development Partners II, L.P. Significant terms of the applicable partnership agreements, among other things, call for the Operating Partnership to provide 80 percent and HCG Development, L.L.C. and Summit Partners I, L.L.C. to collectively provide 20 percent of the development equity capital. As the Operating Partnership has agreed to fund development equity capital disproportionate to its ownership interest, it was granted a preferred return of 10 percent on its invested capital as a priority. Profits and losses are allocated to the partners based upon the priority of distributions specified in the respective agreements and entitle the Operating Partnership to a preferred return, as well as 50 percent of residual profits above the preferred returns. Equity in earnings recognized by the Operating Partnership consists of preferred returns and the Operating Partnership’s equity in earnings (loss) after giving effect to the payment of such preferred returns.
Lava Ridge
Lava Ridge is an office complex comprised of three two-story buildings, aggregating 183,200 square feet, located in Roseville, California, which was constructed and placed in service by the venture. On May 30, 2002, the venture sold the office complex for approximately $31,700.
Stadium Gateway
Stadium Gateway is a development joint venture project, located in Anaheim, California between HPMC Development Partners II, L.P. and a third-party entity. The venture constructed a six-story, 273,194 square foot office building, which commenced initial operations in January 2002. On April 1, 2003, the venture sold the office property for approximately $52,500.
Pacific Plaza I & II
Pacific Plaza I & II is a two-phase development joint venture project, located in Daly City, California between, HPMC Development Partners II, L.P. and a third-party entity. Phase I of the project, which commenced initial operations in August 2001, consists of a nine-story office building, aggregating 364,384 square feet. Phase II, which comprises a three-story retail and theater complex, commenced initial operations in June 2002. On August 27, 2004, the venture sold the Pacific Plaza I & II complex for approximately $143,000. The Operating Partnership performed management services for the property while it was owned by the venture and recognized $203, $318 and $315 in fees for such services in the years ended December 31, 2004, 2003 and 2002, respectively.
G&G MARTCO (Convention Plaza)
The Operating Partnership holds a 50 percent interest in G&G Martco, which owns Convention Plaza, a 305,618 square foot office building, located in San Francisco, California. The venture has a mortgage loan with a $43,236 balance at December 31, 2004 collateralized by its office property. The loan also provides the venture the ability to increase the
balance of the loan up to an additional $4,681 for the funding of qualified leasing costs. The loan bears interest at a rate of the London Inter-Bank Offered Rate (“LIBOR”) (2.40 percent at December 31, 2004) plus 162.5 basis points and matures in August 2006. The Operating Partnership performs management and leasing services for the property owned by the joint venture and recognized $131, $225 and $254 in fees for such services in the years ended December 31, 2004, 2003 and 2002, respectively.
AMERICAN FINANCIAL EXCHANGE L.L.C./PLAZA VIII AND IX ASSOCIATES, L.L.C.
On May 20, 1998, the Operating Partnership entered into a joint venture with Columbia Development Company, L.L.C. (“Columbia”) to form American Financial Exchange L.L.C. The venture was formed to acquire land for future development, located on the Hudson River waterfront in Jersey City, New Jersey, adjacent to the Operating Partnership’s Harborside Financial Center office complex. Among other things, the partnership agreement provides for a preferred return on the Operating Partnership’s invested capital in the venture, in addition to the Operating Partnership’s proportionate share of the venture’s profit, as defined in the agreement. The joint venture acquired land on which it initially constructed a parking facility, a portion of which is currently licensed to a parking operator. Such parking facility serves a ferry service between the Operating Partnership’s Harborside property and Manhattan. In the fourth quarter 2000, the joint venture started construction of Plaza 10, a 577,575 square foot office building, which was 100 percent pre-leased to Charles Schwab & Co. Inc. (“Schwab”) for a 15-year term, on certain of the land owned by the venture. The lease agreement with Schwab obligated the venture, among other things, to deliver space to the tenant by required timelines and offers expansion options, at the tenant’s election.
Such options may have obligated the venture to construct an additional building or, at the Operating Partnership’s option, to make space available in any of its existing Harborside properties. Had the venture been unable to, or chosen not to, provide such expansion space, the venture would have been liable to Schwab for its actual damages, in no event to exceed $15,000. The amount of Schwab’s actual damages, up to $15,000, had been guaranteed by the Operating Partnership. As described below, the Operating Partnership no longer has any remaining obligations to Schwab following the sale of the Operating Partnership’s interests in the venture. AFE has an agreement with the City of Jersey City, New Jersey, in which it is required to make payments in lieu of property taxes (“PILOT”). The agreement is for a term of 20 years. The PILOT is equal to two percent of Total Project Costs, as defined, with periodic increases, as defined. Total Project Costs, per the agreement, are the greater of $78,821 or actual Total Project Costs, as defined.
The Operating Partnership performed management, leasing and development services for the Plaza 10 property when it was owned by the venture and recognized $0, $2,692 and $156 in fees from the venture for such services in the years ended December 31, 2004, 2003 and 2002, respectively.
On September 29, 2003, the Operating Partnership sold its interest in AFE, in which it held a 50 percent interest, and received approximately $162,145 in net sales proceeds from the transaction, which the Operating Partnership used primarily to repay outstanding borrowings under its revolving credit facility. The Operating Partnership recognized a gain on the sale of approximately $23,952, which is recorded in gain on sale of investment in unconsolidated joint venture for the year ended December 31, 2003. Following completion of the sale of its interest, the Operating Partnership no longer has any remaining obligations to Schwab.
In advance of the transaction, AFE distributed its interests in Plaza VIII and IX Associates, L.L.C., which owned the undeveloped land currently used as a parking facility, to its then partners, the Operating Partnership and Columbia. The Operating Partnership and Columbia subsequently entered into a new joint venture to own and manage the undeveloped land and related parking operations through Plaza VIII and IX Associates, L.L.C. The Operating Partnership and Columbia each hold a 50 percent interest in the new venture.
RAMLAND REALTY ASSOCIATES L.L.C. (One Ramland Road)
On August 20, 1998, the Operating Partnership entered into a joint venture with S.B. New York Realty Corp. to form Ramland Realty Associates L.L.C. The venture was formed to own, manage and operate One Ramland Road, a 232,000 square foot office/flex building and adjacent developable land, located in Orangeburg, New York. In August 1999, the joint venture completed redevelopment of the property and placed the office/flex building in service. The Operating Partnership holds a 50 percent interest in the joint venture. The venture has a mortgage loan with a $14,936 balance at December 31, 2004 secured by its office/flex property. The mortgage bears interest at a rate of LIBOR plus 175 basis
points and matures in January 2007, with a two-year extension option.
In 2001, the property’s then principal tenant, Superior Bank, was closed by the Office of Thrift Supervision, and the Federal Deposit Insurance Corporation (“FDIC”) was named receiver. The tenant continued to meet its rental payment obligations through June 2002. In July 2002, the tenant vacated the premises and the FDIC notified the joint venture that it was rejecting the lease as of July 16, 2002. As a result of the uncertainty regarding the tenant’s ability to meet its obligations through the remainder of the term of its lease, the joint venture wrote off unbilled rents receivable of $1,573 and deferred lease costs of $705, which was included in the Operating Partnership’s equity in earnings for the year ended December 31, 2002. Subsequently, the venture’s management determined it was unlikely a prospective tenant would retain tenant improvements previously made to Superior Bank’s space and, accordingly, the venture accelerated amortization of those tenant improvements and recorded a charge of $3,586, which is included in the Operating Partnership’s equity in earnings in the year ended September 30, 2003. The Operating Partnership performs management, leasing and other services for the property owned by the joint venture and recognized $165, $12 and $56 in fees for such services in the years ended December 31, 2004, 2003 and 2002 respectively.
ASHFORD LOOP ASSOCIATES L.P. (1001 South Dairy Ashford/2100 West Loop South)
On September 18, 1998, the Operating Partnership entered into a joint venture with Prudential to form Ashford Loop Associates L.P. The venture was formed to own, manage and operate 1001 South Dairy Ashford, a 130,000 square foot office building acquired on September 18, 1998, and 2100 West Loop South, a 168,000 square foot office building acquired on November 25, 1998, both located in Houston, Texas. The Operating Partnership holds a 20 percent interest in the joint venture. Included in depreciation and amortization in the results of operations for the year ended December 31, 2004 presented herein for the joint venture is a valuation allowance of $24,575 on account of the carrying value of the venture’s assets exceeding the net realizable value as of December 31, 2004. Included in the Operating Partnership’s equity in earnings (loss) of unconsolidated joint venture for the year ended December 31, 2004 was a $4,915 loss representing the Operating Partnership’s share of the valuation allowance. The Operating Partnership performed management and leasing services through March 2002 for the properties owned by the joint venture and recognized $45 in fees for such services in the year ended March 31, 2002. On February 25, 2005, the Operating Partnership sold its interest in the venture to Prudential for approximately $2,700.
SOUTH PIER AT HARBORSIDE - HOTEL DEVELOPMENT
On November 17, 1999, the Operating Partnership entered into a joint venture with Hyatt Corporation (“Hyatt”) to develop a 350-room hotel on the South Pier at Harborside Financial Center, Jersey City, New Jersey, which was completed and commenced initial operations in July 2002. The Operating Partnership owns a 50 percent interest in the venture.
The venture had a mortgage loan with a commercial bank with a $62,902 balance at December 31, 2003 collateralized by its hotel property. The debt bore interest at a rate of LIBOR plus 275 basis points, which was scheduled to mature in December 2003, and was extended through January 29, 2004. On that date, the venture repaid the mortgage loan using the proceeds from a new $40,000 mortgage loan, collateralized by the hotel property, as well as capital contributions from the Operating Partnership and Hyatt of $10,750 each. The new loan carries an interest rate of LIBOR plus 200 basis points and matures in February 2006. The loan provides for three one-year extension options subject to certain conditions. The final two one-year extension options require payment of a fee. On May 25, 2004, the venture obtained a second mortgage loan with a commercial bank for $20,000 (with a balance as of December 31, 2004 of $16,000) collateralized by the hotel property, in which each partner, including the Operating Partnership, has severally guaranteed repayment of approximately $8,000. The loan carries an interest rate of LIBOR plus 175 basis points and matures in February 2006. The loan provides for three one-year extension options subject to certain conditions. The final two one-year extension options require payment of a fee. The proceeds from this loan were used to make distributions to the Operating Partnership and Hyatt in the amount of $10,000 each. Additionally, the venture has an $8,000 loan with the City of Jersey City, provided by the U.S. Department of Housing and Urban Development. The loan currently bears interest at fixed rates ranging from 6.09 percent to 6.62 percent and matures in August 2020. The Operating Partnership has posted an $8,000 letter of credit in support of this loan, $4,000 of which is indemnified by Hyatt.
NORTH PIER AT HARBORSIDE - RESIDENTIAL DEVELOPMENT
On April 3, 2001, the Operating Partnership sold its North Pier at Harborside Financial Center, Jersey City, New Jersey to an entity which planned on developing residential housing on the site. At the time, the Operating Partnership received
net sales proceeds of approximately $3,357 (which included a note receivable of $2,027 subsequently repaid in 2002), and recognized a gain of $439 from the transaction. On March 31, 2004, the Operating Partnership received additional purchase consideration of $720, for which the Operating Partnership recorded a gain of $720 in gain on sale of investment in unconsolidated joint ventures for the year ended December 31, 2004.
SUMMARIES OF UNCONSOLIDATED JOINT VENTURES
The following is a summary of the financial position of the unconsolidated joint ventures in which the Operating Partnership had investment interests as of December 31, 2004 and 2003:
The following is a summary of the results of operations of the unconsolidated joint ventures in which the Operating Partnership had investment interests for the years ended December 31, 2004, 2003 and 2002:
(a)
Represents results of operations for period in which Operating Partnership had ownership interest of January 1, 2003 through September 28, 2003.
5.
DEFERRED CHARGES AND OTHER ASSETS
6.
RESTRICTED CASH
Restricted cash includes security deposits for certain of the Operating Partnership’s properties, and escrow and reserve funds for debt service, real estate taxes, property insurance, capital improvements, tenant improvements, and leasing costs established pursuant to certain mortgage financing arrangements, and is comprised of the following:
7.
DISCONTINUED OPERATIONS
On December 3, 2004, the Operating Partnership identified its 318,224 square foot office property located at 210 South 16th Street in Omaha, Nebraska as held for sale. The property was subsequently sold by the Operating Partnership on February 4, 2005 for approximately $8,675.
On October 15, 2004, the Operating Partnership identified its 75,668 square foot office property located at 3 Skyline Drive in Hawthorne, New York as held for sale. The property was subsequently sold by the Operating Partnership on February 15, 2005 for approximately $9,618.
On August 5, 2004, the Operating Partnership identified its 387,000 square foot office property located at 340 Mount Kemble Avenue in Morris Township, New Jersey as held for sale. The property was subsequently sold by the Operating Partnership on October 5, 2004 for approximately $77,000.
On June 30, 2004, the Operating Partnership identified three office properties, which are located at 3030 L.B.J. Freeway, Dallas, Texas; 1122 Alma Road, Richardson, Texas; and 84 N.E. Loop 410, San Antonio, Texas, and which aggregate 636,906 square feet, as held for sale. During the three months ended June 30, 2004, the Operating Partnership determined that the carrying amounts of the properties identified as held for sale were not expected to be recovered from estimated net sale proceeds from these property sales and, accordingly, recognized a valuation allowance of $11,856 in that period. On November 23, 2004, the Operating Partnership sold 3030 L.B.J. Freeway, Dallas, Dallas County and 84 N.E. Loop 410, San Antonio, Bexar County in a single transaction with one buyer for approximately $39,100. On February 11, 2005, the Operating Partnership sold its remaining, wholly-owned Texas property, 1122 North Alma Road, a 82,576 square foot office building in Richardson, for approximately $2,125.
The above referenced properties identified as held for sale as of December 31, 2004 carried an aggregate book value of $19,132, net of accumulated depreciation of $1,550 and a valuation allowance of $1,247 at December 31, 2004.
The Operating Partnership has presented these assets as discontinued operations in its statements of operations for the periods presented. As the Operating Partnership sold 1770 St. James Place, Houston, Texas; 111 Soledad, San Antonio, Texas; and land in Hamilton Township, New Jersey during the year ended December 31, 2003, the Operating Partnership has also presented these assets as discontinued operations in its statements of operations for the periods presented.
The following tables summarize income from discontinued operations and the related realized gains (losses) and unrealized losses on disposition of rental property, net for the years ended December 31, 2004, 2003 and 2002:
8.
SENIOR UNSECURED NOTES
A summary of the Operating Partnership’s senior unsecured notes as of December 31, 2004 and 2003 is as follows:
On January 25, 2005, the Operating Partnership issued $150.0 million face amount of 5.125 percent senior unsecured notes due January 15, 2015 with interest payable semi-annually in arrears. The proceeds from the issuance (including premium and net of selling commissions) of approximately $148.1 million was used primarily to reduce outstanding borrowings under its unsecured facility.
On March 22, 2004, the Operating Partnership issued $100,000 face amount of 5.125 percent senior unsecured notes due February 15, 2014 with interest payable semi-annually in arrears. The total proceeds from the issuance (including premium and net of selling commissions) of approximately $103,137 were used primarily to reduce outstanding borrowings under the Operating Partnership’s unsecured facility.
On March 15, 2004, the Operating Partnership retired $300,000 face amount of 7.00 percent senior unsecured notes due on that date. Funds used for the retirement were obtained from proceeds from the February 2004 $100,000 senior unsecured notes offering, borrowings under the Operating Partnership’s unsecured facility and available cash.
On February 9, 2004, the Operating Partnership issued $100,000 face amount of 5.125 percent senior unsecured notes due February 15, 2014 with interest payable semi-annually in arrears. The total proceeds from the issuance (net of selling commissions and discount) of approximately $98,538 were held until March 15, 2004, when the Operating Partnership used the net proceeds from the sale, together with borrowings under the unsecured facility and available cash, to repay the $300,000 7.00 percent notes due March 15, 2004.
On June 25, 2003, the Operating Partnership repurchased $45,283 face amount of existing 7.18 percent senior unsecured notes due December 31, 2003, with interest payable monthly in arrears, for $46,707 from TIAA. The repurchase fully retired the 7.18 percent senior unsecured notes which were due December 31, 2003. The Operating Partnership recorded $1,437 in loss on early retirement of debt, net, for the year ended December 31, 2003 for costs incurred in connection with the notes repurchase.
On June 12, 2003, the Operating Partnership issued $100,000 face amount of 4.60 percent senior unsecured notes due June 15, 2013 with interest payable semi-annually in arrears. The total proceeds from the issuance (net of selling commissions and discount) of approximately $99,064 was used primarily to repay $62,800 of mortgage debt at a discount of $1,700 (recorded as a reduction in loss on early retirement of debt, net), and to reduce outstanding borrowings under the 2002 Unsecured Facility, as defined in Note 9. The Operating Partnership recorded $1,540 in loss on early retirement of debt, net, for the year ended December 31, 2003 for the write-off of the unamortized balance of an interest rate contract in conjunction with the repayment of mortgage debt (see Note 10: Mortgages, Loans Payable and Other Obligations). The unsecured notes were issued at a discount of approximately $286, which is being amortized over the term as an adjustment to interest expense.
On March 14, 2003, the Operating Partnership exchanged $25,000 face amount of existing 7.18 percent senior unsecured notes due December 31, 2003, with interest payable monthly in arrears, for $26,105 face amount of 5.82 percent senior unsecured notes due March 15, 2013, with interest payable semi-annually in arrears. The exchange was completed with Teachers Insurance and Annuity Association (“TIAA”). In addition, the Operating Partnership also repurchased $25,000 face amount of notes due December 31, 2003 from TIAA for $26,105. The Operating Partnership recorded $1,402 in loss on early retirement of debt, net, for the year ended December 31, 2003 for costs incurred in connection with the notes transactions.
9.
UNSECURED REVOLVING CREDIT FACILITY
2004 Unsecured Facility
On November 23, 2004, the Operating Partnership obtained an unsecured revolving credit facility (the “2004 Unsecured Facility”) with a current borrowing capacity of $600.0 million from a group of 27 lenders. The interest rate on any outstanding borrowings under the 2004 Unsecured Facility is currently LIBOR plus 65 basis points. The Operating Partnership may instead elect an interest rate representing the higher of the lender’s prime rate or the Federal Funds rate plus 50 basis points. The 2004 Unsecured Facility also currently requires a 20 basis point facility fee on the current borrowing capacity payable quarterly in arrears. The 2004 Unsecured Facility matures in November 2007, with an extension option of one year, which would require a payment of 25 basis points of the then borrowing capacity of the facility upon exercise.
In the event of a change in the Operating Partnership’s unsecured debt rating, the interest and facility fee rates will be adjusted in accordance with the following table:
Operating Partnership’s
Interest Rate -
Unsecured Debt Ratings:
Applicable Basis Points
Facility Fee
S&P Moody’s/Fitch (a)
Above LIBOR
Basis Points
No ratings or less than BBB-/Baa3/BBB-
112.5
25.0
BBB-/Baa3/BBB-
80.0
20.0
BBB/Baa2/BBB (current)
65.0
20.0
BBB+/Baa1/BBB+
55.0
15.0
A-/A3/A- or higher
50.0
15.0
(a) If the Operating Partnership has debt ratings from two rating agencies, one of which is Standard & Poor’s Rating Services (“S&P”) or Moody’s Investors Service (“Moody’s”), the rates per the above table shall be based on the lower of such ratings. If the Operating Partnership has debt ratings from three rating agencies, one of which is S&P or Moody’s, the rates per the above table shall be based on the lower of the two highest ratings. If the Operating Partnership has debt ratings from only one agency, it will be considered to have no rating or less than BBB-/Baa3/BBB- per the above table.
The terms of the 2004 Unsecured Facility include certain restrictions and covenants which limit, among other things, the payment of dividends (as discussed below), the incurrence of additional indebtedness, the incurrence of liens and the disposition of real estate properties (to the extent that: (i) such property dispositions cause the Operating Partnership to default on any of the financial ratios of the facility described below, or (ii) the property dispositions are completed while the Operating Partnership is under an event of default under the facility, unless, under certain circumstances, such disposition is being carried out to cure such default), and which require compliance with financial ratios relating to the maximum leverage ratio, the maximum amount of secured indebtedness, the minimum amount of tangible net worth, the minimum amount of interest coverage, the minimum amount of fixed charge coverage, the maximum amount of unsecured indebtedness, the minimum amount of unencumbered property interest coverage and certain investment limitations. The dividend restriction referred to above provides that, except to enable the Corporation to continue to qualify as a REIT under the Code, the Operating Partnership will not during any four consecutive fiscal quarters make distributions with respect to common stock or other common equity interests in an aggregate amount in excess of 90 percent of funds from operations (as defined in the facility agreement) for such period, subject to certain other adjustments.
The lending group for the 2004 Unsecured Facility consists of: JPMorgan Chase Bank, N.A., as administrative agent; Bank of America, N.A., as syndication agent; The Bank of Nova Scotia, New York Agency, as documentation agent; Wachovia Bank, National Association, as documentation agent; Wells Fargo Bank, National Association, as documentation agent; SunTrust Bank, as senior managing agent; PNC Bank, National Association, as managing agent; Citicorp North America, Inc., as managing agent; US Bank National Association, as managing agent; Allied Irish Bank; Amsouth Bank; Bank of China, New York Branch; The Bank of New York; Chevy Chase Bank, F.S.B.; Deutsche Bank Trust Company Americas; Mizuho Corporate Bank, Ltd.; UFJ Bank Limited, New York Branch; Bank of Ireland; Comerica Bank; Chang HWA Commercial Bank, Ltd., New York Branch; First Commercial Bank, New York Agency; First Horizon Bank, A Division of First Tennessee Bank, N.A.; Bank of Taiwan; Chiao Tung Bank, Ltd.; Citizens Bank; Hua Nan Commercial Bank, New York Agency; and Taipei Bank, New York Agency.
2002 Unsecured Facility
On September 27, 2002, the Operating Partnership obtained an unsecured revolving credit facility (the “2002 Unsecured Facility”) with a borrowing capacity of $600,000 from a group of 15 lenders. The interest rate on borrowings under the 2002 Unsecured Facility was LIBOR plus 70 basis points. The Operating Partnership could have instead elected an interest rate representing the higher of the lender’s prime rate or the Federal Funds rate plus 50 basis points. The 2002 Unsecured Facility also required a 20 basis point facility fee on the borrowing capacity payable quarterly in arrears.
Although the 2002 Unsecured Facility was scheduled to mature in September 2005, in conjunction with obtaining the 2004 Unsecured Facility, the Operating Partnership drew funds on the new facility to repay in full and terminate the 2002 Unsecured Facility on November 23, 2004.
SUMMARY
As of December 31, 2004 and 2003, the Operating Partnership had outstanding borrowings of $107,000 and $0, respectively, under its unsecured revolving credit facilities.
10.
MORTGAGES, LOANS PAYABLE AND OTHER OBLIGATIONS
The Operating Partnership has mortgages, loans payable and other obligations which primarily consist of various loans collateralized by certain of the Operating Partnership’s rental properties. Payments on mortgages, loans payable and other obligations are generally due in monthly installments of principal and interest, or interest only.
A summary of the Operating Partnership’s mortgages, loans payable and other obligations as of December 31, 2004 and 2003 is as follows:
SCHEDULED PRINCIPAL PAYMENTS
Scheduled principal payments and related weighted average annual interest rates for the Operating Partnership’s Senior Unsecured Notes (see Note 8), unsecured revolving credit facility and mortgages, loans payable and other obligations as of December 31, 2004 are as follows:
Weighted Avg.
Scheduled
Principal
Interest Rate of
Period
Amortization
Maturities
Total
Future Repayments (a)
$23,573
$ 148,738
$ 172,311
6.50%
17,537
144,642
162,179
7.10%
16,681
116,364
133,045
3.34%
16,526
--
16,526
4.95%
5,297
300,000
305,297
7.45%
Thereafter
4,100
916,143
920,243
6.24%
Sub-total
83,714
1,625,887
1,709,601
6.32%
Adjustment for unamortized debt
discount/premium, net, as of
December 31, 2004
(7,301)
--
(7,301)
--
Totals/Weighted Average
$76,413
$1,625,887
$1,702,300
6.32%
(a)
Actual weighted average LIBOR contract rates relating to the Operating Partnership’s outstanding debt as of December 31, 2004 of 2.34 percent was used in calculating revolving credit facility and other variable rate debt interest rates.
INTEREST RATE CONTRACT
On July 18, 2002, the Operating Partnership entered into a forward treasury rate lock agreement with a commercial bank. The agreement was used to fix the index rate on $61,525 of the Harborside-Plaza 1 mortgage at 3.285 percent per annum, for which the interest rate was re-set to the three-year U.S. Treasury Note plus 130 basis points for the three years beginning November 4, 2002. On November 4, 2002, the Operating Partnership paid $1,888 in settlement of the forward treasury rate lock agreement entered into in July 2002, which was being amortized to interest expense over a three-year period.
In conjunction with the repayment of the Harborside - Plaza 1 mortgage on June 12, 2003, the Operating Partnership wrote off the unamortized balance of the interest rate contract of $1,540, which was recorded in loss on early retirement of debt, net, for the year ended December 31, 2003.
CASH PAID FOR INTEREST AND INTEREST CAPITALIZED
Cash paid for interest for the years ended December 31, 2004, 2003 and 2002 was $110,092, $120,095 and $123,148, respectively. Interest capitalized by the Operating Partnership for the years ended December 31, 2004, 2003 and 2002 was $3,920, $7,285 and $19,664, respectively.
SUMMARY OF INDEBTEDNESS
As of December 31, 2004, the Operating Partnership’s total indebtedness of $1,702,300 (weighted average interest rate of 6.32 percent) was comprised of $107,000 of revolving credit facility borrowings (weighted average rate of 2.77 percent) and fixed rate debt and other obligations of $1,595,300 (weighted average rate of 6.55 percent).
As of December 31, 2003, the Operating Partnership’s total indebtedness of $1,628,584 (weighted average interest rate of 7.10 percent) was comprised of $32,178 of variable rate mortgage debt (weighted average rate of 1.84 percent) and fixed rate debt of $1,596,406 (weighted average rate of 7.21 percent).
11.
PARTNERS’ CAPITAL
Partners’ capital in the accompanying consolidated financial statements relates to: (a) General Partner’s capital, consisting of common units and Series C preferred units held by the Corporation in the Operating Partnership, and (b) Limited Partners’ capital, consisting of common units held by the limited partners and Series B preferred units.
Any transactions resulting in the issuance of additional common and preferred stock of the Corporation result in a corresponding issuance by the Operating Partnership of an equivalent amount of common and preferred units to the Corporation.
GENERAL PARTNER:
PREFERRED STOCK
On March 14, 2003, in a publicly registered transaction with a single institutional buyer, the Corporation completed the sale and issuance of 10,000 shares of eight-percent Series C cumulative redeemable perpetual preferred stock (“Series C Preferred Stock”) in the form of 1,000,000 depositary shares ($25 stated value per depositary share). Each depositary share represents 1/100th of a share of Series C Preferred Stock. The Corporation received net proceeds of approximately $24,836 from the sale.
The Series C Preferred Stock has preference rights with respect to liquidation and distributions over the common stock. Holders of the Series C Preferred Stock, except under certain limited conditions, will not be entitled to vote on any matters. In the event of a cumulative arrearage equal to six quarterly dividends, holders of the Series C Preferred Stock will have the right to elect two additional members to serve on the Corporation’s Board of Directors until dividends have been paid in full. At December 31, 2004, there were no dividends in arrears. The Corporation may issue unlimited additional preferred stock ranking on a parity with the Series C Preferred Stock but may not issue any preferred stock senior to the Series C Preferred Stock without the consent of two-thirds of its holders. The Series C Preferred Stock is essentially on an equivalent basis in priority with the Preferred Units.
Except under certain conditions relating to the Corporation’s qualification as a REIT, the Series C Preferred Stock is not redeemable prior to March 14, 2008. On and after such date, the Series C Preferred Stock will be redeemable at the option of the Corporation, in whole or in part, at $25 per depositary share, plus accrued and unpaid dividends.
In connection with the Corporation’s issuance of $25,000 of Series C cumulative redeemable perpetual preferred stock, the Corporation acquired from the Operating Partnership $25,000 of Series C Preferred Units (the “Series C Preferred Units”), which have terms essentially identical to the Series C preferred stock and rank equal with the Series B Preferred Units.
REPURCHASE OF GENERAL PARTNER UNITS
On September 13, 2000, the Board of Directors of the Corporation authorized an increase to the Corporation’s repurchase program under which the Corporation was permitted to purchase up to an additional $150,000 of the Corporation’s outstanding common stock (“Repurchase Program”). From that date through its last purchases on January 10, 2003, the Corporation purchased and retired, under the Repurchase Program, 3,746,400 shares of its outstanding common stock for an aggregate cost of approximately $104,512. Concurrent with these purchases, the Corporation sold to the Operating Partnership 3,746,400 of its outstanding common units for an aggregate cost of approximately $104,512. The Corporation has a remaining authorization to repurchase up to an additional $45,488 of its outstanding common stock, which it may repurchase from time to time in open market transactions at prevailing prices or through privately negotiated transactions.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The Corporation has a dividend reinvestment and stock purchase plan, which commenced in March 1999.
SHAREHOLDER RIGHTS PLAN
On June 10, 1999, the Board of Directors of the Corporation authorized a dividend distribution of one preferred share purchase right (“Right”) for each outstanding share of common stock which were distributed to all holders of record of
the common stock on July 6, 1999. Each Right entitles the registered holder to purchase from the Corporation one one-thousandth of a share of Series A junior participating preferred stock, par value $0.01 per share (“Preferred Shares”), at a price of $100.00 per one one-thousandth of a Preferred Share (“Purchase Price”), subject to adjustment as provided in the rights agreement. The Rights expire on July 6, 2009, unless the expiration date is extended or the Right is redeemed or exchanged earlier by the Corporation.
The Rights are attached to each share of common stock. The Rights are generally exercisable only if a person or group becomes the beneficial owner of 15 percent or more of the outstanding common stock or announces a tender offer for 15 percent or more of the outstanding common stock (“Acquiring Person”). In the event that a person or group becomes an Acquiring Person, each holder of a Right will have the right to receive, upon exercise, common stock having a market value equal to two times the Purchase Price of the Right.
STOCK OPTION PLANS
In May 2004, the Corporation established the 2004 Incentive Stock Plan under which a total of 2,500,000 shares have been reserved for issuance. No options have been granted through December 31, 2004 under this plan. In September 2000, the Corporation established the 2000 Employee Stock Option Plan (“2000 Employee Plan”) and the 2000 Director Stock Option Plan (“2000 Director Plan”). In May 2002, shareholders of the Corporation approved amendments to both plans to increase the total shares reserved for issuance under both of the 2000 plans from 2,700,000 to 4,350,000 shares of the Corporation’s common stock (from 2,500,000 to 4,000,000 shares under the 2000 Employee Plan and from 200,000 to 350,000 shares under the 2000 Director Plan). In 1994, and as subsequently amended, the Corporation established the Mack-Cali Employee Stock Option Plan (“Employee Plan”) and the Mack-Cali Director Stock Option Plan (“Director Plan”) under which a total of 5,380,188 shares (subject to adjustment) of the Corporation’s common stock have been reserved for issuance (4,980,188 shares under the Employee Plan and 400,000 shares under the Director Plan). Stock options granted under the Employee Plan in 1994 and 1995 became exercisable over a three-year period. Stock options granted under the 2000 Employee Plan and those options granted subsequent to 1995 under the Employee Plan become exercisable over a five-year period. All stock options granted under both the 2000 Director Plan and Director Plan become exercisable in one year. All options were granted at the fair market value at the dates of grant and have terms of ten years. As of December 31, 2004 and December 31, 2003, the stock options outstanding had a weighted average remaining contractual life of approximately 6.5 and 6.9 years, respectively.
Information regarding the Corporation’s stock option plans is summarized below:
Weighted Average
Shares Under Options
Exercise Price
Outstanding at January 1, 2002
4,511,886
$31.28
Granted
--
--
Exercised
(646,027)
$26.37
Lapsed or canceled
(279,929)
$31.22
Outstanding at December 31, 2002
3,585,930
$32.19
Granted
954,800
$28.50
Exercised
(1,421,455)
$33.21
Lapsed or canceled
(129,140)
$30.54
Outstanding at December 31, 2003
2,990,135
$30.56
Granted
10,000
$38.07
Exercised
(1,250,864)
$32.40
Lapsed or canceled
(45,640)
$28.49
Outstanding at December 31, 2004
1,703,631
$29.31
Options exercisable at December 31, 2003
1,688,245
$32.30
Options exercisable at December 31, 2004
1,048,691
$29.67
Available for grant at December 31, 2003
2,353,483
Available for grant at December 31, 2004
4,728,358
The weighted average fair value of options granted during 2004 and 2003 was $3.28 and $0.76 per option. 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 Corporation’s fair value calculations of stock options granted in 2004 and 2003:
Expected life (in years)
Risk-free interest rate
3.74%
3.65%
Volatility
19.50%
14.02%
Dividend yield
6.65%
8.85%
There were no stock options granted during the year ended December 31, 2002.
The Operating Partnership recognized stock options expense of $415, $189 and $0 for the years ended December 31, 2004, 2003 and 2002, respectively. Included in stock options expense for the year ended December 31, 2004 was a stock option charge of $246, which resulted from the accelerated vesting of 24,000 unvested options related to the resignation of Timothy M. Jones (see Note 15: Commitments and Contingencies - Management Changes).
STOCK WARRANTS
Information regarding the Corporation’s stock warrants (“Stock Warrants”), which enable the holders to purchase an equal number of shares of the Corporation’s common stock at the respective exercise price, is summarized below:
Weighted Average
Shares Under Warrants
Exercise Price
Outstanding at January 31, 2002
749,976
$35.99
Exercised
(107,500)
$33.00
Lapsed or canceled
--
--
Outstanding at December 31, 2002
642,476
$36.49
Exercised
(443,226)
$37.41
Lapsed or canceled
(50,000)
$38.75
Outstanding at December 31, 2003
149,250
$33.00
Exercised
(149,250)
$33.00
Outstanding at December 31, 2004
--
--
STOCK COMPENSATION
The Corporation has granted stock awards to officers, certain other employees, and non-employee members of the Board of Directors of the Corporation, which allow the holders to each receive a certain amount of shares of the Corporation’s common stock generally over a one to five-year vesting period. Certain Restricted Stock Awards are contingent upon the Corporation meeting certain performance and/or stock price appreciation objectives. All Restricted Stock Awards provided to the officers and certain other employees were granted under the 2000 Employee Plan and the Employee Plan. Restricted Stock Awards granted to directors were granted under the 2000 Director Plan.
Information regarding the Restricted Stock Awards is summarized below:
DEFERRED STOCK COMPENSATION PLAN FOR DIRECTORS
The Deferred Compensation Plan for Directors, which commenced January 1, 1999, allows non-employee directors of the Corporation to elect to defer up to 100 percent of their annual retainer fee into deferred stock units. The deferred stock units are convertible into an equal number of shares of common stock upon the directors’ termination of service from the Board of Directors or a change in control of the Corporation, as defined in the plan. Deferred stock units are credited to each director quarterly using the closing price of the Corporation’s common stock on the applicable dividend record date for the respective quarter. Each participating director’s account is also credited for an equivalent amount of deferred stock units based on the dividend rate for each quarter.
During the years ended December 31, 2004, 2003 and 2002, 6,230, 6,256 and 5,324 deferred stock units were earned, respectively. As of December 31, 2004 and 2003, there were 29,222 and 23,131 director stock units outstanding, respectively.
LIMITED PARTNERS’ CAPITAL:
SERIES B PREFERRED UNITS
The Series B Preferred Units have a stated value of $1,000 per unit and are preferred as to assets over any class of
common units or other class of preferred units of the Operating Partnership, based on circumstances per the applicable unit certificates. The quarterly distribution on each Series B Preferred Unit is an amount equal to the greater of (i) $16.875 (representing 6.75 percent of the Series B Preferred Unit stated value of an annualized basis) or (ii) the quarterly distribution attributable to a Series B Preferred Unit determined as if such unit had been converted into common units, subject to adjustment for customary anti-dilution rights. Each of the Series B Preferred Units may be converted at any time into common units at a conversion price of $34.65 per unit. Common units received pursuant to such conversion may be redeemed for an equal number of shares of common stock. At any time after June 11, 2005, the Operating Partnership may cause the mandatory conversion of the Series B Preferred Units into common units at the conversion price of $34.65 per unit if, for at least 20 of the prior consecutive 30 days, the closing price of the Corporation’s common stock equals or exceeds $34.65. The Operating Partnership is prohibited from taking certain actions that would adversely affect the rights of the holders of Series B Preferred Units without the consent of at least 66 2/3 percent of the outstanding Series B Preferred Units, including authorizing, creating or issuing any additional preferred units ranking senior to or equal with the Series B Preferred Units; provided, however, that such consent is not required if the Operating Partnership issues preferred units ranking equal (but not senior) to the Series B Preferred Units in an aggregate amount up to the greater of (a) $200,000 in stated value or (b) 10 percent of the sum of (1) the combined market capitalization of the Corporation’s common stock and the Operating Partnership’s common units and Series B Preferred Units, as if converted into common stock, and (2) the aggregate liquidation preference on any of the Corporation’s non-convertible preferred stock or the Operating Partnership’s non-convertible preferred units. As of December 31, 2004, the calculation in the above clause (b) was $347,084.
As of December 31, 2004, 2003 and 2002, the Operating Partnership had 215,018, 215,018 and 215,894 Series B Preferred Units outstanding (convertible into 6,205,425, 6,205,425 and 6,230,707 common units), respectively.
COMMON UNITS
Certain individuals and entities own common units in the Operating Partnership. A common unit and a share of common stock of the Corporation have substantially the same economic characteristics in as much as they effectively share equally in the net income or loss of the Operating Partnership. Common units are redeemable by the common unitholders at their option, subject to certain restrictions, on the basis of one common unit for either one share of common stock or cash equal to the fair market value of a share at the time of the redemption. The Corporation has the option to deliver shares of common stock in exchange for all or any portion of the cash requested. The common unitholders may not put the units for cash to the Corporation or the Operating Partnership. When a unitholder redeems a common unit for common stock of the Corporation, limited partners’ capital is reduced and the General Partners’ Capital is increased.
As of December 31, 2004, 2003 and 2002, the Operating Partnership had 7,616,447, 7,795,498 and 7,813,806 common units outstanding, respectively.
EARNINGS PER UNIT
Basic EPU excludes dilution and is computed by dividing net income available to common unitholders by the weighted average number of units outstanding for the period. Diluted EPU reflects the potential dilution that could occur if securities or other contracts to issue common units were exercised or converted into common units.
The following information presents the Operating Partnership’s results for the years ended December 31, 2004, 2003 and 2002 in accordance with FASB No. 128:
The following schedule reconciles the shares used in the basic EPU calculation to the units used in the diluted EPU calculation:
Not included in the computations of diluted EPU were 0, 738,003 and 1,534,775 stock options; 0, 0 and 642,476 Stock Warrants; and 6,205,425, 6,219,001 and 6,288,008 Series B Preferred Units, as such securities were anti-dilutive during the years ended December 31, 2004, 2003 and 2002, respectively. Unvested restricted stock outstanding as of December 31, 2004, 2003 and 2002 were 198,703, 280,869 and 153,736, respectively.
12.
MINORITY INTEREST IN CONSOLIDATED JOINT VENTURES
On November 23, 2004, the Operating Partnership acquired a 62.5 percent interest in One River Center, a three-building 457,472 square-foot office complex located in Middletown, New Jersey, through the Operating Partnership’s conversion of its note receivable into a controlling equity interest. Minority Interests: Consolidated joint ventures consists of the 37.5 percent non-controlling interest owned by the third party.
13.
EMPLOYEE BENEFIT 401(k) PLAN
All employees of the Corporation who meet certain minimum age and period of service requirements are eligible to participate in a 401(k) defined contribution plan (the “401(k) Plan”). The 401(k) Plan allows eligible employees to defer up to 15 percent of their annual compensation, subject to certain limitations imposed by federal law. The amounts contributed by employees are immediately vested and non-forfeitable. The Operating Partnership, at management’s discretion, may match employee contributions and/or make discretionary contributions. Total expense recognized by the Operating Partnership for the years ended December 31, 2004, 2003 and 2002 was $400, $336 and $313, respectively.
14.
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 judgement is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Operating Partnership could realize on disposition of the financial instruments at December 31, 2004 and 2003. 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 as of December 31, 2004 and 2003.
The fair value of the fixed-rate mortgage debt and unsecured notes as of December 31, 2004 was approximately $104.2 million higher than the book value of approximately $1.6 billion primarily due to the general decrease in market interest rates on secured and unsecured debt. As of December 31, 2003, the fair value of fixed-rate mortgage debt and unsecured notes was approximately $141.8 million higher than the book value of approximately $1.6 billion. The fair value of the mortgage debt and the unsecured notes was determined by discounting the future contractual interest and principal payments by a market rate.
Disclosure about fair value of financial instruments is based on pertinent information available to management as of December 31, 2004 and 2003. 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, 2004 and current estimates of fair value may differ significantly from the amounts presented herein.
15.
COMMITMENTS AND CONTINGENCIES
MANAGEMENT CHANGES
On May 7, 2004, the Corporation announced the resignation of Timothy M. Jones as President and an employee of the Corporation, effective as of May 7, 2004 (the “Effective Date”). Subsequent to the Effective Date, Mr. Jones served as a consultant to the Corporation until December 31, 2004.
In addition, the Corporation announced that as of the Effective Date, Mitchell E. Hersh, Chief Executive Officer, was appointed to the additional position of President, and will continue to serve as Chief Executive Officer and President.
In consideration of Mr. Jones’ years of outstanding service to the Corporation and his service as a consultant to the Corporation, on the Effective Date, outstanding and unvested options to acquire 24,000 shares of the Corporation’s Common Stock granted to Mr. Jones on December 5, 2000 pursuant to the Corporation’s employee stock option plans (the “Plans”), which were not scheduled to vest until December 31, 2004, were declared fully vested and exercisable in accordance with the provisions of the Plans. Also on the Effective Date, 19,285 shares of unvested restricted stock which were originally granted to Mr. Jones pursuant to Restricted Stock Award agreements dated as of July 1, 1999 (as amended by the First Amendment thereto dated January 2, 2003) and January 2, 2003 and were subject to deferred vesting as described in such Restricted Stock Award agreements, were declared fully vested in accordance with the provisions of the Restricted Stock Award agreements. An additional 19,284 outstanding and unvested Restricted Stock Awards previously granted to Mr. Jones pursuant to the Restricted Stock Award agreements were canceled on the Effective Date in accordance with the provisions of the Plans.
In connection with the vesting of 19,285 Restricted Stock Awards of Mr. Jones on the Effective Date, Mr. Jones received a tax gross-up payment from the Operating Partnership in accordance with the provisions of the Restricted Stock Awards, which payment was calculated based on the closing price of the Corporation’s Common Stock on the business day immediately preceding the Effective Date.
In conjunction with the resignation of Mr. Jones, the Operating Partnership incurred compensation expense of approximately $1,254, which is included in general and administrative expense for the year ended December 31, 2004, on account of the accelerated vesting of stock options and Restricted Stock Awards, and the related tax gross-up payment on the Restricted Stock Awards.
TAX ABATEMENT AGREEMENTS
Harborside Financial Center
Pursuant to an agreement with the City of Jersey City, New Jersey, the Operating Partnership is required to make payments in lieu of property taxes (“PILOT”) on its Harborside Plaza 2, 3, 4-A and 5 properties. The Plaza 2 and 3 agreement, commenced in 1990 and expires in 2005. Such PILOT is equal to two percent of Total Project Costs, as defined, in year one and increases by $75 per annum through year 15. Total Project Costs, as defined, are $145,644.
The PILOT totaled $3,913, $3,838 and $3,763 for the years ended December 31, 2004, 2003 and 2002, respectively.
The Plaza 4-A agreement, which commenced in 2000, is for a term of 20 years. The PILOT is equal to two percent of Total Project costs, as defined, and increases by 10 percent in years 7, 10 and 13 and by 50 percent in year 16. Total Project costs, as defined, are $45,497. The PILOT was $910 for each of the years ended December 31, 2004, 2003 and 2002.
The Plaza 5 agreement, which commenced in 2002 upon substantial completion of the property, as defined, is for a term of 20 years. The PILOT is equal to two percent of Total Project Costs, as defined, and increases by 10 percent in years 7, 10 and 13, and by 50 percent in year 16. Total Project Costs, as defined are $159,625. The PILOT totaled $3,193,
$3,329 and $867 for the years ended December 31, 2004, 2003 and 2002, respectively.
At the conclusion of the above-referenced PILOT agreements, it is expected that the properties will be assessed by the municipality and be subject to real estate taxes at the then prevailing rates.
LITIGATION
The Operating Partnership is a defendant in litigation arising in the normal course of its business activities. Management does not believe that the ultimate resolution of these matters will have a materially adverse effect upon the Operating Partnership’s financial condition taken as whole.
GROUND LEASE AGREEMENTS
Future minimum rental payments under the terms of all non-cancelable ground leases under which the Operating Partnership is the lessee, as of December 31, 2004, are as follows:
Year
Amount
$ 530
2010 through 2080
20,142
Total
$22,747
Ground lease expense incurred by the Operating Partnership during the years ended December 31, 2004, 2003 and 2002 amounted to $583, $1,017 and $1,346, respectively.
OTHER
The Operating Partnership may not dispose of or distribute certain of its properties, currently comprising 72 properties with an aggregate net book value of approximately $1,221,024, which were originally contributed by members of either the Mack Group (which includes William L. Mack, Chairman of the Corporation’s Board of Directors; David S. Mack, a director of the Corporation; Earle I. Mack, a former director of the Corporation; and Mitchell E. Hersh, president, chief executive officer and a director of the Corporation), the Robert Martin Group (which includes Martin W. Berger, a former director of the Corporation; Robert F. Weinberg, a director of the Corporation; and Timothy M. Jones, former president of the Corporation) or the Cali Group (which includes John R. Cali, a director of the Corporation and John J. Cali, a former director of the Corporation) without the express written consent of a representative of the Mack Group, the Robert Martin Group or the Cali Group, as applicable, except in a manner which does not result in recognition of any built-in-gain (which may result in an income tax liability) or which reimburses the appropriate Mack Group, Robert Martin Group or Cali Group members for the tax consequences of the recognition of such built-in-gains (collectively, the “Property Lock-Ups”). The aforementioned restrictions do not apply in the event that the Operating Partnership sells all of its properties or in connection with a sale transaction which the Corporation’s Board of Directors determines is reasonably necessary to satisfy a material monetary default on any unsecured debt, judgment or liability of the Operating Partnership or the Corporation or to cure any material monetary default on any mortgage secured by a property. The Property Lock-Ups expire periodically through 2008. Upon the expiration of the Property Lock-Ups, the Operating Partnership is required to use commercially reasonable efforts to prevent any sale, transfer or other disposition of the subject properties from resulting in the recognition of built-in gain to the appropriate Mack Group, Robert Martin Group or Cali Group members.
16.
TENANT LEASES
The Properties are leased to tenants under operating leases with various expiration dates through 2020. Substantially all of the leases provide for annual base rents plus recoveries and escalation charges based upon the tenant’s proportionate share of and/or increases in real estate taxes and certain operating costs, as defined, and the pass-through of charges for
electrical usage.
Future minimum rentals to be received under non-cancelable operating leases at December 31, 2004 are as follows:
Year
Amount
$ 504,714
461,694
406,961
349,102
298,541
2010 and thereafter
938,492
Total
$2,959,504
17.
SEGMENT REPORTING
The Operating Partnership operates in one business segment - real estate. The Operating Partnership provides leasing, management, acquisition, development, construction and tenant-related services for its portfolio. The Operating Partnership does not have any foreign operations. The accounting policies of the segments are the same as those described in Note 2, excluding straight-line rent adjustments and depreciation and amortization.
The Operating Partnership evaluates performance based upon net operating income from the combined properties in the segment.
Selected results of operations for the years ended December 31, 2004, 2003 and 2002 and selected asset information as of December 31, 2004 and 2003 regarding the Operating Partnership’s operating segment are as follows:
(a)
Total contract revenues represent all revenues during the period (including the Operating Partnership’s share of net income from unconsolidated joint ventures), excluding adjustments for straight-lining of rents, the Operating Partnership’s share of straight-line rent adjustments from unconsolidated joint ventures and rent adjustments on above/below markets leases.
(b)
Total operating and interest expenses represent the sum of real estate taxes, utilities, operating services, general and administrative and interest expense. All interest expense (including for property-level mortgages) is excluded from segment amounts and classified in Corporate & Other for all periods.
(c)
Net operating income represents total contract revenues [as defined in Note (a)] less total operating and interest expenses [as defined in Note (b)] for the period.
(d)
Long-lived assets are comprised of total rental property, unbilled rents receivable and investments in unconsolidated joint ventures.
(e)
Corporate & Other represents all corporate-level items (including interest and other investment income, interest expense and non-property general and administrative expense) as well as intercompany eliminations necessary to reconcile to consolidated Operating Partnership totals.
(f)
Excludes $10,691 of adjustments for straight-lining of rents, $1,931 for rent adjustments on above/below market leases, and $545 for Operating Partnership’s share of straight-line rent adjustments from unconsolidated joint ventures.
(g)
Excludes $8,986 of adjustments for straight-lining of rents, $13 for rent adjustments on above/below market leases, and $3,087 for the Operating Partnership’s share of straight-line rent adjustments from unconsolidated joint ventures.
(h)
Excludes $9,245 of adjustments for straight-lining of rents and $52 for the Operating Partnership’s share of straight-line rent adjustments from unconsolidated joint ventures.
(i)
Excludes $130,254 of depreciation and amortization.
(j)
Excludes $115,549 of depreciation and amortization.
(k)
Excludes $104,417 of depreciation and amortization.
18.
RELATED PARTY TRANSACTIONS
William L. Mack, Chairman of the Board of Directors of the Corporation (“W. Mack”), is a principal in the Apollo real estate funds, which owned approximately a 7.5 percent interest in Insignia/ESG, Inc. (“Insignia”), a publicly-traded commercial leasing and real estate services company. The interest in Insignia was subsequently disposed of in 2003. Prior to 2003, the Operating Partnership paid Insignia commissions on numerous leasing transactions, as well as for the sale of five of its properties. The Operating Partnership paid commissions to Insignia amounting to approximately $1,975 for the year ended December 31, 2002. The Operating Partnership had engaged Insignia as its exclusive leasing agent at Harborside Financial Center through late 2002. Additionally, an affiliate of Insignia leased 40,504 square feet at one of the Operating Partnership’s office properties, which was sold by the Operating Partnership in May 2002. The Operating Partnership recognized $386 in revenue under this lease for the year ended December 31, 2002.
W. Mack, David S. Mack, a director of the Corporation, and Earle I. Mack, a former director of the Corporation (“E. Mack”), are the executive officers, directors and stockholders of a corporation that entered into a lease in 2000 at one of the Operating Partnership’s office properties for approximately 7,801 square feet, which was scheduled to expire in November 2005. In November 2004, the lease was renewed for an additional three years, and is now scheduled to expire in November 2008. The Operating Partnership has recognized $227, $218 and $220 in revenue under this lease for the years ended December 31, 2004, 2003 and 2002, respectively, and had no accounts receivable from the corporation as of December 31, 2004 and 2003.
The Operating Partnership has conducted business with certain entities (“RMC Entity” or “RMC Entities”), whose principals include Timothy M. Jones, Robert F. Weinberg and Martin S. Berger, each of whom are affiliated with the Operating Partnership as the former president of the Corporation, a current member of the Board of Directors of the Corporation and a former member of the Board of Directors of the Corporation, respectively. In connection with the Operating Partnership’s acquisition of 65 Class A properties from The Robert Martin Company (“Robert Martin”) on January 31, 1997, as subsequently modified, the Operating Partnership granted Robert Martin the right to designate one seat on the Corporation’s Board of Directors (“RM Board Seat”), which right has since expired. Robert Martin designated Martin S. Berger and Robert F. Weinberg to jointly share the RM Board Seat, as follows: Mr. Weinberg served as a member of the Board of Directors of the Corporation from 1997 until December 1, 1998, at which time Mr. Weinberg resigned and Mr. Berger was appointed to serve in such capacity. Mr. Berger served as a member of the Board of Directors of the Corporation from December 1, 1998 until March 6, 2001, at which time Mr. Berger resigned and Mr. Weinberg was appointed to serve in such capacity until the Corporation’s 2003 annual meeting of stockholders. The Corporation elected to nominate for re-election to its Board of Directors Mr. Berger at the Corporation’s 2003 annual meeting of stockholders. Mr. Berger was elected to the Board of Directors of the Corporation, and Mr. Berger and Mr. Weinberg have agreed that the seat will be rotated among Mr. Berger and Mr. Weinberg annually at the time of each annual meeting of stockholders. Mr. Weinberg currently serves in this capacity. Upon the death of Mr. Berger or Mr. Weinberg, the surviving person shall solely fill the remainder of the term of the RM Board Seat. Such business was as follows:
(1)
On June 12, 2002, the Operating Partnership acquired from RMC Entities three land parcels located in Hawthorne and Yonkers, Westchester County, New York in one transaction for a total cost of approximately $2,600.
(2)
The Operating Partnership had a loan payable of $500 to an RMC Entity in connection with the Operating Partnership’s acquisition in May 1999 of 2.5 acres of land, which the Operating Partnership acquired for a total cost of approximately $2,200, of which $1,500 was paid in cash. The loan required quarterly payments of interest only at an annual interest rate of 10.5 percent. The Operating Partnership repaid the loan in full in October 2002 and incurred $43 in interest expense for the year ended December 2002 in connection with the loan.
(3)
The Operating Partnership provides management, leasing and construction-related services to properties in which RMC Entities have an ownership interest. The Operating Partnership recognized approximately $1,996, $1,831 and $2,024 in revenue from RMC Entities for the years ended December 31, 2004, 2003 and 2002, respectively. As of December 31, 2004 and 2003, respectively, the Operating Partnership had no accounts receivable from RMC Entities.
(4)
An RMC Entity leases space at one of the Operating Partnership’s office properties for approximately 3,330 square feet, which carries a month-to-month term. The Operating Partnership has recognized $91, $89 and $89,
in revenue under this lease for the years ended December 31, 2004, 2003 and 2002, respectively, and had no accounts receivable due from the RMC Entity, as of December 31, 2004 and 2003.
Mr. Berger holds a 24 percent interest, acts as chairman and chief executive officer, Mr. Weinberg also holds a 24 percent interest and is a director, and W. Mack holds a nine percent interest and is a director of City and Suburban Federal Savings Bank and/or one of its affiliates, which leases a total of 15,879 square feet of space at two of the Operating Partnership’s office properties, comprised of 3,037 square feet scheduled to expire in June 2008 and 12,842 square feet scheduled to expire in April 2013. The Operating Partnership has recognized $459, $429 and $306 in revenue under the leases for the years ended December 31, 2004, 2003 and 2002, respectively, and had no accounts receivable from the company as of December 31, 2004 and 2003.
Vincent Tese, a director of the Corporation, is also currently a director of Cablevision, Inc. who, through its affiliates, leases an aggregate of 58,885 square feet of office space, as well as has several telecom licensing agreements at the Operating Partnership’s properties. The Operating Partnership recognized approximately $1,695, $1,645 and $1,464 in total revenue from affiliates of Cablevision for the years ended December 31, 2004, 2003 and 2002, respectively, and had accounts receivable of $2 and $0, respectively, as of December 31, 2004 and 2003.
Vincent Tese is currently a member of the Board of Directors of Bear, Stearns & Co. Inc. W. Mack had been a member of the Board of Bear Stearns until October 2004. Bear Stearns acted as underwriter on several of the Operating Partnership’s previously-completed public debt offerings.
The son of Mr. Berger, a former officer of the Corporation, served as an officer and had a financial interest which was sold in 2004 in a company which provides cleaning and other related services to certain of the Operating Partnership’s properties. The Operating Partnership has incurred costs from this company of approximately $5,906, $6,177 and $5,648 for the years ended December 31, 2004, 2003 and 2002, respectively. As of December 31, 2004 and 2003, respectively, the Operating Partnership had accounts payable of approximately $0 and $1 to this company.
Pursuant to an agreement between the Operating Partnership and certain members and associates of the Cali family executed June 27, 2000, John J. Cali was to serve as the Chairman Emeritus and a Board member of the Corporation, and as a consultant to the Operating Partnership and was paid an annual salary of $150 from June 27, 2000 through June 27, 2003. Additionally, the Operating Partnership provides office space and administrative support to John J. Cali, Angelo Cali, his brother, and Ed Leshowitz, his business partner (the “Cali Group”). Such services were in effect from June 27, 2000 through June 27, 2004. Subsequent to June 27, 2004, the Operating Partnership agreed to provide office space at no cost to the Cali Group for one additional year, as well as provide administrative support and related services for which it would be reimbursed. The Operating Partnership was reimbursed $55 from the Cali Group for the year ended December 31, 2004 in connection with providing such services.
19.
IMPACT OF RECENTLY-ISSUED ACCOUNTING STANDARDS
EITF 03-6, Participating Securities and the Two-Class Method under SFAS 128
In March 2004, the Emerging Issues Task Force reached a final consensus regarding Issue 03-6, Participating Securities and the Two-Class Method under SFAS 128 (“EITF 03-6”). The issue addresses a number of questions regarding the computation of earnings per share by companies that have issued securities other than common stock that participate in dividends and earnings of the issuing entity. Such securities are contractually entitled to receive dividends when and if the entity declares dividends on common stock. The issue also provides further guidance on applying the two-class method of calculating earnings per share once it is determined that a security is participating. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. This consensus is effective for the period ended June 30, 2004 and is applied by restating previously reported earnings per share. Upon the adoption of EITF 03-6, the Operating Partnership determined that its Series B Preferred Units are participating securities, however, their reclassification as participating securities had no impact on the Operating Partnership's computation or presentation of basic or diluted EPU for all periods presented.
SFAS No. 123 (revised 2004), Share-Based Payment
In October 2004, the FASB issued SFAS No. 123R (revised 2004), “Share-Based Payment” (“SFAS 123R”). SFAS 123R requires companies to categorize share-based payments as either liability or equity awards. For liability awards, companies will remeasure the award at fair value at each balance sheet date until the award is settled. Equity classified awards are measured at the grant-date fair value and are not remeasured. SFAS 123R will be effective for interim or annual periods beginning after June 15, 2005. Awards issued, modified, or settled after the effective date will be measured and recorded in accordance with SFAS 123R. The Company believes that the implementation of this standard will not have a material effect on the Company’s consolidated financial position or results of operations.
SFAS No. 153, Accounting for Non-monetary Transactions
In December 2004, the FASB issued SFAS No. 153, “Accounting for Non-monetary Transactions” (“SFAS 153”). SFAS 153 requires non-monetary exchanges to be accounted for at fair value, recognizing any gain or loss, if the transactions meet a commercial-substance criterion and fair value is determinable. SFAS No. 153 is effective for non-monetary transactions occurring in fiscal years beginning after June 15, 2005. The Company believes that the implementation of this standard will not have a material effect on the Company’s consolidated financial position or results of operations.
EIFT 03-13, Applying the Conditions in Paragraph 42 of FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” in Determining Whether to Report Discontinued Operations
At its September 2004 meeting, the Task Force reached the following conclusions:
•
A reassessment period is necessary in evaluating whether a disposal meets the criteria for discounted operations reporting; the reassessment period should include the point at which the component initially meets the criteria to be classified as held for sale through one year after the component’s disposal date. However, the Task Force concluded that the reassessment will be required only when significant changes in events or circumstances make it likely that the criteria in paragraph 42 of SFAS 144 will, or will no longer, be met one year after the disposal date.
•
There is a presumption that the continued sale of a commodity in an active market should be considered a migration of customers.
•
For the purpose of determining whether operations and cash flows are eliminated, the determination will be limited to evaluating gross cash inflows (revenues) and outflows (costs) versus evaluating other operating measures such as gross profit or net income.
•
The retention of risks associated with the ongoing operations of the disposed component or the ability to obtain benefits associated with the ongoing operations of the disposed component should be considered in evaluating whether the entity has the ability to influence the operating and/or financial policies of the disposed component.
As a result, factors (b) and (c) were eliminated from paragraph 9 of the draft abstract.
The Task Force affirmed the consensus as previously exposed with the following modifications/clarifications:
•
The period for assessing whether a component has met the criteria for discontinued operations could extend beyond one year if events or circumstance beyond an entity’s control extend the period required to eliminate direct cash flows of the disposed component or eliminate significant continuing involvement in the ongoing operations of the disposed component provided that the entity (1) takes actions necessary to respond to those situations, and (2) expects to eliminate the direct cash flows and the significant continuing involvement. The extension of the assessment period is only for determining whether a component has met the criteria for discontinued operations, and is not an extension of the assessment period for the held-for-sale classification of the component.
•
For a component disposed of or classified as held for sale at the balance sheet date, significant events or circumstances that occur after the balance sheet date but before issuance of the financial statements should be taken into account in determining whether to report the results of operations of the component as discontinued operations. This guidance is limited to whether the operations of a component should be presented as discontinued operations, and it does not affect the classification as held for sale.
The consensus is effective for components classified as held for sale or disposed of in fiscal periods beginning after December 15, 2004. Application of the consensus to disposal transactions initiated in the current year is permitted but not required and would result in a reclassification of previously issued results of operations.
20.
CONDENSED QUARTERLY FINANCIAL INFORMATION (unaudited)
The following summarizes the condensed quarterly financial information for the Operating Partnership:
Quarter Ended 2004:
December 31
September 30
June 30
March 31
Total revenues
$152,143
$150,302
$144,403
$142,143
Operating and other expenses
50,097
47,737
45,611
45,224
General and administrative
9,129
7,568
8,689
6,407
Depreciation and amortization
35,066
32,889
32,071
30,228
Interest expense
26,779
27,321
26,511
29,038
Interest income
(327)
(99)
(220)
(720)
Loss on early retirement of debt, net
--
--
--
--
Total expenses
120,744
115,416
112,662
110,177
Income from continuing operations before
equity in earnings of
unconsolidated joint ventures
31,399
34,886
31,741
31,966
Equity in earnings of unconsolidated joint ventures,
net
(4,463)
(690)
1,090
Gain on sale of investment in unconsolidated
joint ventures
--
--
--
Income before continuing operation
26,936
34,196
32,831
32,863
Discontinued operations:
Income from discontinued operations
1,949
1,218
1,299
Realized gains (losses) and unrealized losses
on disposition of rental property, net
11,130
--
(11,856)
--
Total discontinued operations, net
11,554
1,949
(10,638)
1,299
Net income
38,490
36,145
22,193
34,162
Preferred unit distributions
(4,409)
(4,409)
(4,409)
(4,409)
Net income available to common unitholders
$ 34,081
$ 31,736
$ 17,784
$ 29,753
Basic earning per unit:
Income from continuing operations
$ 0.33
$ 0.43
$ 0.42
$ 0.42
Discontinued operations
0.17
0.03
(0.16)
0.02
Net income available to common unitholders
$ 0.50
$ 0.46
$ 0.26
$ 0.44
Diluted earnings per unit:
Income from continuing operations
$ 0.33
$ 0.43
$ 0.42
$ 0.42
Discontinued operations
0.16
0.03
(0.16)
0.02
Net income available to common unitholders
$ 0.49
$ 0.46
$ 0.26
$ 0.44
Distributions declared per common unit
$ 0.63
$ 0.63
$ 0.63
$ 0.63
Quarter Ended 2003:
December 31
September 30
June 30
March 31
Total revenues
$143,708
$142,498
$140,503
$142,564
Operating and other expenses
45,200
43,717
41,724
45,237
General and administrative
9,102
8,615
6,873
6,730
Depreciation and amortization
30,490
28,540
28,302
28,217
Interest expense
28,994
28,734
28,548
29,316
Interest income
(265)
(243)
(265)
(327)
Loss on early retirement of debt, net
--
--
1,402
Total expenses
113,521
109,363
106,152
110,575
Income from continuing operations before
equity in earnings of
unconsolidated joint ventures
30,187
33,135
34,351
31,989
Equity in earnings of unconsolidated joint ventures,
net
3,575
6,819
2,380
Gain on sale of investment in unconsolidated
joint ventures
23,140
--
--
Income before continuing operation
31,705
59,850
41,170
34,369
Discontinued operations:
Income from discontinued operations
1,575
1,749
1,561
2,306
Realized gains (losses) and unrealized losses
on disposition of rental property, net
2,217
--
--
1,324
Total discontinued operations, net
3,792
1,749
1,561
3,630
Net income
35,497
61,599
42,731
37,999
Preferred unit distributions
(4,409)
(4,417)
(4,589)
(3,925)
Net income available to common unitholders
$ 31,088
$ 57,182
$ 38,142
$ 34,074
Basic earning per unit:
Income from continuing operations
$ 0.41
$ 0.84
$ 0.56
$ 0.47
Discontinued operations
0.06
0.03
0.02
0.05
Net income available to common unitholders
$ 0.47
$ 0.87
$ 0.58
$ 0.52
Diluted earnings per unit:
Income from continuing operations
$ 0.41
$ 0.84
$ 0.56
$ 0.47
Discontinued operations
0.06
0.02
0.02
0.05
Net income available to common unitholders
$ 0.47
$ 0.86
$ 0.58
$ 0.52
Dividends declared per common unit
$ 0.63
$ 0.63
$ 0.63
$ 0.63
(a)
The aggregate cost for federal income tax purposes at December 31, 2004 was approximately $3.2 billion.
(b)
Legend of Property Codes:
(O)=Office Property
(R)=Stand-alone Retail Property
(F)=Office/Flex Property
(L)=Land Lease
(I)=Industrial/Warehouse Property
MACK-CALI REALTY, L.P.
NOTE TO SCHEDULE III
Changes in rental properties and accumulated depreciation for the periods ended December 31, 2004, 2003 and 2002 are as follows (in thousands):
Rental Properties
Balance at beginning of year
$3,954,632
$3,857,657
$3,378,071
Additions
340,472
115,882
202,082
Rental property held for sale -
before accumulated depreciation
(21,929)
--
453,469
Properties sold
(112,179)
(16,951)
(168,245)
Retirements/disposals
(37)
(1,956)
(7,720)
Balance at end of year
$4,160,959
$3,954,632
$3,857,657
Accumulated Depreciation
Balance at beginning of year
$ 546,007
$ 445,569
$ 350,705
Depreciation expense
111,975
103,483
98,050
Rental property held for sale
(1,550)
--
16,455
Properties sold
(14,797)
(2,462)
(12,121)
Retirements/disposals
(9)
(583)
(7,520)
Balance at end of year
$ 641,626
$ 546,007
$ 445,569
MACK-CALI REALTY, L.P.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Mack-Cali Realty, L.P.
(Registrant)
Date: March 2, 2005
By:
/s/ BARRY LEFKOWITZ
Barry Lefkowitz
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Name
Title
Date
/S/ WILLIAM L. MACK
Chairman of the Board
March 2, 2005
William L. Mack
/S/ MITCHELL E. HERSH
President and Chief Executive
March 2, 2005
Mitchell E. Hersh
Officer and Director
/S/ BARRY LEFKOWITZ
Executive Vice President and
March 2, 2005
Barry Lefkowitz
Chief Financial Officer
/S/ ALAN S. BERNIKOW
Director
March 2, 2005
Alan S. Bernikow
/S/ JOHN R. CALI
Director
March 2, 2005
John R. Cali
/S/ NATHAN GANTCHER
Director
March 2, 2005
Nathan Gantcher
/S/ MARTIN D. GRUSS
Director
March 2, 2005
Martin D. Gruss
Name
Title
Date
/S/ DAVID S. MACK
Director
March 2, 2005
David S. Mack
/S/ ALAN G. PHILIBOSIAN
Director
March 2, 2005
Alan G. Philibosian
/S/ IRVIN D. REID
Director
March 2, 2005
Irvin D. Reid
/S/ VINCENT TESE
Director
March 2, 2005
Vincent Tese
/S/ ROBERT F. WEINBERG
Director
March 2, 2005
Robert F. Weinberg
/S/ ROY J. ZUCKERBERG
Director
March 2, 2005
Roy J. Zuckerberg
MACK-CALI REALTY, L.P.
EXHIBIT INDEX
Exhibit
Number
Exhibit Title
3.1
Restated Charter of Mack-Cali Realty Corporation dated June 11, 2001 (filed as Exhibit 3.1 to the Operating Partnership’s Form 10-Q dated June 30, 2001 and incorporated herein by reference).
3.2
Amended and Restated Bylaws of Mack-Cali Realty Corporation dated June 10, 1999 (filed as Exhibit 3.2 to the Corporation’s Form 8-K dated June 10, 1999 and incorporated herein by reference).
3.3
Amendment No. 1 to the Amended and Restated Bylaws of Mack-Cali Realty Corporation dated March 4, 2003, (filed as Exhibit 3.3 to the Operating Partnership’s Form 10-Q dated March 31, 2003 and incorporated herein by reference).
3.4
Second Amended and Restated Agreement of Limited Partnership of Mack-Cali Realty, L.P. dated December 11, 1997 (filed as Exhibit 10.110 to the Corporation’s Form 8-K dated December 11, 1997 and incorporated herein by reference).
3.5
Amendment No. 1 to the Second Amended and Restated Agreement of Limited Partnership of Mack-Cali Realty, L.P. dated August 21, 1998 (filed as Exhibit 3.1 to the Corporation’s and the Operating Partnership’s Registration Statement on Form S-3, Registration No. 333-57103, and incorporated herein by reference).
3.6
Second Amendment to the Second Amended and Restated Agreement of Limited Partnership of Mack-Cali Realty, L.P. dated July 6, 1999 (filed as Exhibit 10.1 to the Operating Partnership’s Form 8-K dated July 6, 1999 and incorporated herein by reference).
3.7
Third Amendment to the Second Amended and Restated Agreement of Limited Partnership of Mack-Cali Realty, L.P. dated September 30, 2003 (filed as Exhibit 3.7 to the Operating Partnership’s Form 10-Q dated September 30, 2003 and incorporated herein by reference).
3.8
Certificate of Designation of Series B Preferred Operating Partnership Units of Limited Partnership Interest of Mack-Cali Realty, L.P. (filed as Exhibit 10.101 to the Corporation’s Form 8-K dated December 11, 1997 and incorporated herein by reference).
3.9
Articles Supplementary for the 8% Series C Cumulative Redeemable Perpetual Preferred Stock dated March 11, 2003 (filed as Exhibit 3.1 to the Corporation’s Form 8-K dated March 14, 2003 and incorporated herein by reference).
3.10
Certificate of Designation for the 8% Series C Cumulative Redeemable Perpetual Preferred Operating Partnership Units dated March 14, 2003 (filed as Exhibit 3.2 to the Operating Partnership’s Form 8-K dated March 14, 2003 and incorporated herein by reference).
4.1
Amended and Restated Shareholder Rights Agreement, dated as of March 7, 2000, between Mack-Cali Realty Corporation and EquiServe Trust Company, N.A., as Rights Agent (filed as Exhibit 4.1 to the Operating Partnership’s Form 8-K dated March 7, 2000 and incorporated herein by reference).
Exhibit
Number
Exhibit Title
4.2
Amendment No. 1 to the Amended and Restated Shareholder Rights Agreement, dated as of June 27, 2000, by and among Mack-Cali Realty Corporation and EquiServe Trust Company, N.A. (filed as Exhibit 4.1 to the Operating Partnership’s Form 8-K dated June 27, 2000 and incorporated herein by reference).
4.3
Indenture dated as of March 16, 1999, by and among Mack-Cali Realty, L.P., as issuer, Mack-Cali Realty Corporation, as guarantor, and Wilmington Trust Company, as trustee (filed as Exhibit 4.1 to the Operating Partnership’s Form 8-K dated March 16, 1999 and incorporated herein by reference).
4.4
Supplemental Indenture No. 1 dated as of March 16, 1999, by and among Mack-Cali Realty, L.P., as issuer, and Wilmington Trust Company, as trustee (filed as Exhibit 4.2 to the Operating Partnership’s Form 8-K dated March 16, 1999 and incorporated herein by reference).
4.5
Supplemental Indenture No. 2 dated as of August 2, 1999, by and among Mack-Cali Realty, L.P., as issuer, and Wilmington Trust Company, as trustee (filed as Exhibit 4.4 to the Operating Partnership’s Form 10-Q dated June 30, 1999 and incorporated herein by reference).
4.6
Supplemental Indenture No. 3 dated as of December 21, 2000, by and among Mack-Cali Realty, L.P., as issuer, and Wilmington Trust Company, as trustee (filed as Exhibit 4.2 to the Operating Partnership’s Form 8-K dated December 21, 2000 and incorporated herein by reference).
4.7
Supplemental Indenture No. 4 dated as of January 29, 2001, by and among Mack-Cali Realty, L.P., as issuer, and Wilmington Trust Company, as trustee (filed as Exhibit 4.2 to the Operating Partnership’s Form 8-K dated January 29, 2001 and incorporated herein by reference).
4.8
Supplemental Indenture No. 5 dated as of December 20, 2002, by and between Mack-Cali Realty, L.P., as issuer, and Wilmington Trust Company, as trustee (filed as Exhibit 4.2 to the Operating Partnership’s Form 8-K dated December 20, 2002 and incorporated herein by reference).
4.9
Supplemental Indenture No. 6 dated as of March 14, 2003, by and between Mack-Cali Realty, L.P., as issuer, and Wilmington Trust Company, as trustee (filed as Exhibit 4.2 to the Operating Partnership’s Form 8-K dated March 14, 2003 and incorporated herein by reference).
4.10
Supplemental Indenture No. 7 dated as of June 12, 2003, by and between Mack-Cali Realty, L.P., as issuer, and Wilmington Trust Company, as trustee (filed as Exhibit 4.2 to the Operating Partnership’s Form 8-K dated June 12, 2003 and incorporated herein by reference).
4.11
Supplemental Indenture No. 8 dated as of February 9, 2004, by and between Mack-Cali Realty, L.P., as issuer, and Wilmington Trust Company, as trustee (filed as Exhibit 4.2 to the Operating Partnership’s Form 8-K dated February 9, 2004 and incorporated herein by reference).
4.12
Supplemental Indenture No. 9 dated as of March 22, 2004, by and between Mack-Cali Realty, L.P., as issuer, and Wilmington Trust Company, as trustee (filed as Exhibit 4.2 to the Operating Partnership’s Form 8-K dated March 22, 2004 and incorporated herein by reference).
Exhibit
Number
Exhibit Title
4.13
Supplemental Indenture No. 10 dated as of January 25, 2005, by and between Mack-Cali Realty, L.P., as issuer, and Wilmington Trust Company, as trustee (filed as Exhibit 4.2 to the Operating Partnership’s Form 8-K dated January 25, 2005 and incorporated herein by reference).
4.14
Deposit Agreement dated March 14, 2003 by and among Mack-Cali Realty Corporation, EquiServe Trust Company, N.A., and the holders from time to time of the Depositary Receipts described therein (filed as Exhibit 4.1 to the Corporation’s Form 8-K dated March 14, 2003 and incorporated herein by reference).
10.1
Amended and Restated Employment Agreement dated as of July 1, 1999 between Mitchell E. Hersh and Mack-Cali Realty Corporation (filed as Exhibit 10.2 to the Operating Partnership’s Form 10-Q dated June 30, 1999 and incorporated herein by reference).
10.2
Second Amended and Restated Employment Agreement dated as of July 1, 1999 between Timothy M. Jones and Mack-Cali Realty Corporation (filed as Exhibit 10.3 to the Operating Partnership’s Form 10-Q dated June 30, 1999 and incorporated herein by reference).
10.3
Second Amended and Restated Employment Agreement dated as of July 1, 1999 between Barry Lefkowitz and Mack-Cali Realty Corporation (filed as Exhibit 10.6 to the Operating Partnership’s Form 10-Q dated June 30, 1999 and incorporated herein by reference).
10.4
Second Amended and Restated Employment Agreement dated as of July 1, 1999 between Roger W. Thomas and Mack-Cali Realty Corporation (filed as Exhibit 10.7 to the Operating Partnership’s Form 10-Q dated June 30, 1999 and incorporated herein by reference).
10.5
Employment Agreement dated as of December 5, 2000 between Michael Grossman and Mack-Cali Realty Corporation (filed as Exhibit 10.5 to the Operating Partnership’s Form 10-K for the year ended December 31, 2000 and incorporated herein by reference).
10.6
Restricted Share Award Agreement dated as of July 1, 1999 between Mitchell E. Hersh and Mack-Cali Realty Corporation (filed as Exhibit 10.8 to the Operating Partnership’s Form 10-Q dated June 30, 1999 and incorporated herein by reference).
10.7
Restricted Share Award Agreement dated as of July 1, 1999 between Timothy M. Jones and Mack-Cali Realty Corporation (filed as Exhibit 10.9 to the Operating Partnership’s Form 10-Q dated June 30, 1999 and incorporated herein by reference).
10.8
Restricted Share Award Agreement dated as of July 1, 1999 between Barry Lefkowitz and Mack-Cali Realty Corporation (filed as Exhibit 10.12 to the Operating Partnership’s Form 10-Q dated June 30, 1999 and incorporated herein by reference).
10.9
Restricted Share Award Agreement dated as of July 1, 1999 between Roger W. Thomas and Mack-Cali Realty Corporation (filed as Exhibit 10.13 to the Operating Partnership’s Form 10-Q dated June 30, 1999 and incorporated herein by reference).
10.10
Restricted Share Award Agreement dated as of March 12, 2001 between Roger W. Thomas and Mack-Cali Realty Corporation (filed as Exhibit 10.10 to the Operating Partnership’s Form 10-Q dated March 31, 2001 and incorporated herein by reference).
10.11
Restricted Share Award Agreement dated as of March 12, 2001 between Michael Grossman and Mack-Cali Realty Corporation (filed as Exhibit 10.11 to the Operating Partnership’s Form 10-Q dated March 31, 2001 and incorporated herein by reference).
Exhibit
Number
Exhibit Title
10.12
Restricted Share Award Agreement effective as of January 2, 2003 by and between Mack-Cali Realty Corporation and Mitchell E. Hersh (filed as Exhibit 10.1 to the Corporation’s Form 8-K dated January 2, 2003 and incorporated herein by reference).
10.13
Tax Gross Up Agreement effective as of January 2, 2003 by and between Mack-Cali Realty Corporation and Mitchell E. Hersh (filed as Exhibit 10.2 to the Corporation’s Form 8-K dated January 2, 2003 and incorporated herein by reference).
10.14
First Amendment effective as of January 2, 2003 to the Restricted Share Award Agreement dated July 1, 1999 between Mack-Cali Realty Corporation and Mitchell E. Hersh (filed as Exhibit 10.3 to the Corporation’s Form 8-K dated January 2, 2003 and incorporated herein by reference).
10.15
Restricted Share Award Agreement effective as of January 2, 2003 by and between Mack-Cali Realty Corporation and Timothy M. Jones (filed as Exhibit 10.4 to the Corporation’s Form 8-K dated January 2, 2003 and incorporated herein by reference).
10.16
Tax Gross Up Agreement effective as of January 2, 2003 by and between Mack-Cali Realty Corporation and Timothy M. Jones (filed as Exhibit 10.5 to the Corporation’s Form 8-K dated January 2, 2003 and incorporated herein by reference).
10.17
First Amendment effective as of January 2, 2003 to the Restricted Share Award Agreement dated July 1, 1999 between Mack-Cali Realty Corporation and Timothy M. Jones (filed as Exhibit 10.6 to the Corporation’s Form 8-K dated January 2, 2003 and incorporated herein by reference).
10.18
Restricted Share Award Agreement effective as of January 2, 2003 by and between Mack-Cali Realty Corporation and Barry Lefkowitz (filed as Exhibit 10.7 to the Corporation’s Form 8-K dated January 2, 2003 and incorporated herein by reference).
10.19
Tax Gross Up Agreement effective as of January 2, 2003 by and between Mack-Cali Realty Corporation and Barry Lefkowitz (filed as Exhibit 10.8 to the Corporation’s Form 8-K dated January 2, 2003 and incorporated herein by reference).
10.20
First Amendment effective as of January 2, 2003 to the Restricted Share Award Agreement dated July 1, 1999 between Mack-Cali Realty Corporation and Barry Lefkowitz (filed as Exhibit 10.9 to the Corporation’s Form 8-K dated January 2, 2003 and incorporated herein by reference).
10.21
Restricted Share Award Agreement effective as of January 2, 2003 by and between Mack-Cali Realty Corporation and Roger W. Thomas (filed as Exhibit 10.10 to the Corporation’s Form 8-K dated January 2, 2003 and incorporated herein by reference).
10.22
Tax Gross Up Agreement effective as of January 2, 2003 by and between Mack-Cali Realty Corporation and Roger W. Thomas (filed as Exhibit 10.11 to the Corporation’s Form 8-K dated January 2, 2003 and incorporated herein by reference).
10.23
First Amendment effective as of January 2, 2003 to the Restricted Share Award Agreement dated July 1, 1999 between Mack-Cali Realty Corporation and Roger W. Thomas (filed as Exhibit 10.12 to the Corporation’s Form 8-K dated January 2, 2003 and incorporated herein by reference).
Exhibit
Number
Exhibit Title
10.24
First Amendment effective as of January 2, 2003 to the Restricted Share Award Agreement dated March 12, 2001 between Mack-Cali Realty Corporation and Roger W. Thomas (filed as Exhibit 10.13 to the Corporation’s Form 8-K dated January 2, 2003 and incorporated herein by reference).
10.25
Restricted Share Award Agreement effective as of January 2, 2003 by and between Mack-Cali Realty Corporation and Michael A. Grossman (filed as Exhibit 10.14 to the Corporation’s Form 8-K dated January 2, 2003 and incorporated herein by reference).
10.26
Tax Gross Up Agreement effective as of January 2, 2003 by and between Mack-Cali Realty Corporation and Michael A. Grossman (filed as Exhibit 10.15 to the Corporation’s Form 8-K dated January 2, 2003 and incorporated herein by reference).
10.27
Restricted Share Award Agreement dated December 6, 1999 by and between Mack-Cali Realty Corporation and Michael A. Grossman (filed as Exhibit 10.16 to the Corporation’s Form 8-K dated January 2, 2003 and incorporated herein by reference).
10.28
First Amendment effective as of January 2, 2003 to the Restricted Share Award Agreement dated December 6, 1999 between Mack-Cali Realty Corporation and Michael A. Grossman (filed as Exhibit 10.17 to the Corporation’s Form 8-K dated January 2, 2003 and incorporated herein by reference).
10.29
First Amendment effective as of January 2, 2003 to the Restricted Share Award Agreement dated March 12, 2001 between Mack-Cali Realty Corporation and Michael A. Grossman (filed as Exhibit 10.18 to the Corporation’s Form 8-K dated January 2, 2003 and incorporated herein by reference).
10.30
Restricted Share Award Agreement effective as of December 2, 2003 by and between Mack-Cali Realty Corporation and Mitchell E. Hersh (filed as Exhibit 10.1 to the Corporation’s Form 8-K dated December 2, 2003 and incorporated herein by reference).
10.31
Tax Gross Up Agreement effective as of December 2, 2003 by and between Mack-Cali Realty Corporation and Mitchell E. Hersh (filed as Exhibit 10.2 to the Corporation’s Form 8-K dated December 2, 2003 and incorporated herein by reference).
10.32
Restricted Share Award Agreement effective as of December 2, 2003 by and between Mack-Cali Realty Corporation and Timothy M. Jones (filed as Exhibit 10.3 to the Corporation’s Form 8-K dated December 2, 2003 and incorporated herein by reference).
10.33
Tax Gross Up Agreement effective as of December 2, 2003 by and between Mack-Cali Realty Corporation and Timothy M. Jones (filed as Exhibit 10.4 to the Corporation’s Form 8-K dated December 2, 2003 and incorporated herein by reference).
10.34
Restricted Share Award Agreement effective as of December 2, 2003 by and between Mack-Cali Realty Corporation and Barry Lefkowitz (filed as Exhibit 10.5 to the Corporation’s Form 8-K dated December 2, 2003 and incorporated herein by reference).
10.35
Tax Gross Up Agreement effective as of December 2, 2003 by and between Mack-Cali Realty Corporation and Barry Lefkowitz (filed as Exhibit 10.6 to the Corporation’s Form 8-K dated December 2, 2003 and incorporated herein by reference).
Exhibit
Number
Exhibit Title
10.36
Restricted Share Award Agreement effective as of December 2, 2003 by and between Mack-Cali Realty Corporation and Roger W. Thomas (filed as Exhibit 10.7 to the Corporation’s Form 8-K dated December 2, 2003 and incorporated herein by reference).
10.37
Tax Gross Up Agreement effective as of December 2, 2003 by and between Mack-Cali Realty Corporation and Roger W. Thomas (filed as Exhibit 10.8 to the Corporation’s Form 8-K dated December 2, 2003 and incorporated herein by reference).
10.38
Restricted Share Award Agreement effective as of December 2, 2003 by and between Mack-Cali Realty Corporation and Michael Grossman (filed as Exhibit 10.9 to the Corporation’s Form 8-K dated December 2, 2003 and incorporated herein by reference).
10.39
Tax Gross Up Agreement effective as of December 2, 2003 by and between Mack-Cali Realty Corporation and Michael Grossman (filed as Exhibit 10.10 to the Corporation’s Form 8-K dated December 2, 2003 and incorporated herein by reference).
10.40
Restricted Share Award Agreement effective December 7, 2004 by and between Mack-Cali Realty Corporation and Mitchell E. Hersh (filed as Exhibit 10.2 to the Corporation’s Form 8-K dated December 7, 2004 and incorporated herein by reference).
10.41
Tax Gross Up Agreement effective December 7, 2004 by and between Mack-Cali Realty Corporation and Mitchell E. Hersh (filed as Exhibit 10.3 to the Corporation’s Form 8-K dated December 7, 2004 and incorporated herein by reference).
10.42
Restricted Share Award Agreement effective December 7, 2004 by and between Mack-Cali Realty Corporation and Barry Lefkowitz (filed as Exhibit 10.4 to the Corporation’s Form 8-K dated December 7, 2004 and incorporated herein by reference).
10.43
Tax Gross Up Agreement effective December 7, 2004 by and between Mack-Cali Realty Corporation and Barry Lefkowitz (filed as Exhibit 10.5 to the Corporation’s Form 8-K dated December 7, 2004 and incorporated herein by reference).
10.44
Restricted Share Award Agreement effective December 7, 2004 by and between Mack-Cali Realty Corporation and Roger W. Thomas (filed as Exhibit 10.6 to the Corporation’s Form 8-K dated December 7, 2004 and incorporated herein by reference).
10.45
Tax Gross Up Agreement effective December 7, 2004 by and between Mack-Cali Realty Corporation and Roger W. Thomas (filed as Exhibit 10.7 to the Corporation’s Form 8-K dated December 7, 2004 and incorporated herein by reference).
10.46
Restricted Share Award Agreement effective December 7, 2004 by and between Mack-Cali Realty Corporation and Michael A. Grossman (filed as Exhibit 10.8 to the Corporation’s Form 8-K dated December 7, 2004 and incorporated herein by reference).
10.47
Tax Gross Up Agreement effective December 7, 2004 by and between Mack-Cali Realty Corporation and Michael A. Grossman (filed as Exhibit 10.9 to the Corporation’s Form 8-K dated December 7, 2004 and incorporated herein by reference).
Exhibit
Number
Exhibit Title
10.48
Amended and Restated Revolving Credit Agreement dated as of September 27, 2002, among Mack-Cali Realty, L.P. and JPMorgan Chase Bank, Fleet National Bank and Other Lenders Which May Become Parties Thereto with JPMorgan Chase Bank, as administrative agent, swing lender and fronting bank, Fleet National Bank and Commerzbank AG, New York and Grand Cayman branches as syndication agents, Bank of America, N.A. and Wells Fargo Bank, National Association, as documentation agents, and J.P. Morgan Securities Inc. and Fleet Securities, Inc, as arrangers (filed as Exhibit 10.1 to the Operating Partnership’s Form 8-K dated September 27, 2002 and incorporated herein by reference).
10.49
Second Amended and Restated Revolving Credit Agreement among Mack-Cali Realty, L.P., JPMorgan Chase Bank, N.A., Bank of America, N.A., and other lending institutions that are or may become a party to the Second Amended and Restated Revolving Credit Agreement dated as of November 23, 2004 (filed as Exhibit 10.1 to the Operating Partnership’s Form 8-K dated November 23, 2004 and incorporated herein by reference).
10.50
Amended and Restated Master Loan Agreement dated as of November 12, 2004 among Mack-Cali Realty, L.P., and Affiliates of Mack-Cali Realty Corporation and Mack-Cali Realty, L.P., as Borrowers, Mack-Cali Realty Corporation and Mack-Cali Realty L.P., as Guarantors and The Prudential Insurance Company of America, as Lender (filed as Exhibit 10.1 to the Operating Partnership’s Form 8-K dated November 12, 2004 and incorporated herein by reference).
10.51
Contribution and Exchange Agreement among The MK Contributors, The MK Entities, The Patriot Contributors, The Patriot Entities, Patriot American Management and Leasing Corp., Cali Realty, L.P. and Cali Realty Corporation, dated September 18, 1997 (filed as Exhibit 10.98 to the Corporation’s Form 8-K dated September 19, 1997 and incorporated herein by reference).
10.52
First Amendment to Contribution and Exchange Agreement, dated as of December 11, 1997, by and among the Operating Partnership, the Corporation and the Mack Group (filed as Exhibit 10.99 to the Corporation’s Form 8-K dated December 11, 1997 and incorporated herein by reference).
10.53
Employee Stock Option Plan of Mack-Cali Realty Corporation (filed as Exhibit 10.1 to the Corporation’s Post-Effective Amendment No. 1 to Form S-8, Registration No. 333-44443, and incorporated herein by reference).
10.54
Director Stock Option Plan of Mack-Cali Realty Corporation (filed as Exhibit 10.2 to the Corporation’s Post-Effective Amendment No. 1 to Form S-8, Registration No. 333-44443, and incorporated herein by reference).
10.55
2000 Employee Stock Option Plan (filed as Exhibit 10.1 to the Corporation’s Registration Statement on Form S-8, Registration No. 333-52478, and incorporated herein by reference), as amended by the First Amendment to the 2000 Employee Stock Option Plan (filed as Exhibit 10.17 to the Corporation’s Form 10-Q dated June 30, 2002 and incorporated herein by reference).
10.56
Amended and Restated 2000 Director Stock Option Plan (filed as Exhibit 10.2 to the Corporation’s Post-Effective Amendment No. 1 to Registration Statement on Form S-8, Registration No. 333-100244, and incorporated herein by reference).
Exhibit
Number
Exhibit Title
10.57
Mack-Cali Realty Corporation 2004 Incentive Stock Plan (filed as Exhibit 10.1 to the Corporation’s Registration Statement on Form S-8, Registration No. 333-116437, and incorporated herein by reference).
10.58
Deferred Compensation Plan for Directors (filed as Exhibit 10.1 to the Corporation’s Registration Statement on Form S-8, Registration No. 333-80081, and incorporated herein by reference).
10.59
Form of Indemnification Agreement by and between Mack-Cali Realty Corporation and each of William L. Mack, John J. Cali, Mitchell E. Hersh, Earle I. Mack, John R. Cali, Alan S. Bernikow, Brendan T. Byrne, Martin D. Gruss, Nathan Gantcher, Vincent Tese, Roy J. Zuckerberg, Alan G. Philibosian, Irvin D. Reid, Robert F. Weinberg, Timothy M. Jones, Barry Lefkowitz, Roger W. Thomas, Michael A. Grossman, James Clabby, Anthony Krug, Dean Cingolani, Anthony DeCaro Jr., Mark Durno, William Fitzpatrick, John Kropke, Nicholas Mitarotonda, Jr., Michael Nevins, Virginia Sobol, Albert Spring and Daniel Wagner (filed as Exhibit 10.28 to the Operating Partnership’s Form 10-Q dated September 30, 2002 and incorporated herein by reference).
10.60
Indemnification Agreement dated October 22, 2002 by and between Mack-Cali Realty Corporation and John Crandall (filed as Exhibit 10.29 to the Operating Partnership’s Form 10-Q dated September 30, 2002 and incorporated herein by reference).
10.61
Second Amendment to Contribution and Exchange Agreement, dated as of June 27, 2000, between RMC Development Company, LLC f/k/a Robert Martin Company, LLC, Robert Martin Eastview North Company, L.P., the Corporation and the Operating Partnership (filed as Exhibit 10.44 to the Operating Partnership’s Form 10-K dated December 31, 2002 and incorporated herein by reference.)
10.62
Limited Partnership Agreement of Meadowlands Mills/Mack-Cali Limited Partnership by and between Meadowlands Mills Limited Partnership, Mack-Cali Meadowlands Entertainment L.L.C. and Mack-Cali Meadowlands Special L.L.C. dated November 25, 2003 (filed as Exhibit 10.1 to the Corporation’s Form 8-K dated December 3, 2003 and incorporated herein by reference).
10.63
Redevelopment Agreement by and between the New Jersey Sports and Exposition Authority and Meadowlands Mills/Mack-Cali Limited Partnership dated December 3, 2003 (filed as Exhibit 10.2 to the Corporation’s Form 8-K dated December 3, 2003 and incorporated herein by reference).
10.64
First Amendment to Redevelopment Agreement by and between the New Jersey Sports and Exposition Authority and Meadowlands Mills/Mack-Cali Limited Partnership dated October 5, 2004 (filed as Exhibit 10.54 to the Operating Partnership’s Form 10-Q dated September 30, 2004 and incorporated herein by reference).
10.65
Letter Agreement by and between Mack-Cali Realty Corporation and The Mills Corporation dated October 5, 2004 (filed as Exhibit 10.55 to the Operating Partnership’s Form 10-Q dated September 30, 2004 and incorporated herein by reference).
10.66
Agreement of Sale and Purchase [30 Knightsbridge Road, Piscataway, New Jersey] by and between Mack-Cali Realty Corporation and AT&T Corp. dated as of April 2, 2004 (filed as Exhibit 10.1 to the Operating Partnership’s Form 8-K dated June 1, 2004 and incorporated herein by reference).
Exhibit
Number
Exhibit Title
10.67
First Amendment to Agreement of Sale and Purchase [30 Knightsbridge Road, Piscataway, New Jersey] by and between Knightsbridge Realty L.L.C. and AT&T Corp. dated as of June 1, 2004 (filed as Exhibit 10.2 to the Operating Partnership’s Form 8-K dated June 1, 2004 and incorporated herein by reference).
10.68
Agreement of Sale and Purchase [Kemble Plaza II - 412 Mt. Kemble Avenue, Morris Township, NJ] by and between Mack-Cali Realty Corporation and AT&T Corp. dated as of April 2, 2004 (filed as Exhibit 10.3 to the Operating Partnership’s Form 8-K dated June 1, 2004 and incorporated herein by reference).
10.69
First Amendment to Agreement of Sale and Purchase [Kemble Plaza II - 412 Mt. Kemble Avenue, Morris Township, NJ] by and between Kemble Plaza II Realty L.L.C. and AT&T Corp. dated as of June 1, 2004 (filed as Exhibit 10.4 to the Operating Partnership’s Form 8-K dated June 1, 2004 and incorporated herein by reference).
10.70
Master Assignment and Assumption Agreement by and between AT&T Corp. and Mack-Cali Realty Corporation dated as of April 2, 2004 (filed as Exhibit 10.5 to the Operating Partnership’s Form 8-K dated June 1, 2004 and incorporated herein by reference).
10.71
First Amendment to Master Assignment and Assumption Agreement by and between AT&T Corp. and Mack-Cali Realty Corporation dated as of June 1, 2004 (filed as Exhibit 10.6 to the Operating Partnership’s Form 8-K dated June 1, 2004 and incorporated herein by reference).
10.72
Nominee Agreement between Mack-Cali Realty Corporation and Mack-Cali Realty, L.P. dated as of April 2, 2004 (filed as Exhibit 10.7 to the Operating Partnership’s Form 8-K dated June 1, 2004 and incorporated herein by reference).
10.73
Agreement of Sale and Purchase by and among Kemble-Morris L.L.C. and Pergola Holding, Inc. dated August 5, 2004 (filed as Exhibit 10.63 to the Operating Partnership’s Form 10-Q dated September 30, 2004 and incorporated herein by reference).
10.74
Agreement of Sale and Purchase by and between Mack-Cali Texas Property L.P., Centennial Acquisition Company and Waramaug Acquisition Corp. dated August 10, 2004 (filed as Exhibit 10.64 to the Operating Partnership’s Form 10-Q dated September 30, 2004 and incorporated herein by reference).
10.75
Amendment to Agreement of Sale and Purchase by and between Mack-Cali Texas Property L.P., Centennial Acquisition Company and Waramaug Acquisition Corp. dated as of October 12, 2004 (filed as Exhibit 10.65 to the Operating Partnership’s Form 10-Q dated September 30, 2004 and incorporated herein by reference).
10.76
Second Amendment to Agreement of Sale and Purchase by and between Mack-Cali Texas Property L.P., Centennial Acquisition Company and Waramaug Acquisition Corp. dated as of October 18, 2004 (filed as Exhibit 10.66 to the Operating Partnership’s Form 10-Q dated September 30, 2004 and incorporated herein by reference).
10.77
Third Amendment to Agreement of Sale and Purchase by and between Mack-Cali Texas Property L.P., Centennial Acquisition Company and Waramaug Acquisition Corp. dated as of October 20, 2004 (filed as Exhibit 10.67 to the Operating Partnership’s Form 10-Q dated September 30, 2004 and incorporated herein by reference).
Exhibit
Number
Exhibit Title
10.78
Fourth Amendment to Agreement of Sale and Purchase by and between Mack-Cali Texas Property L.P., Centennial Acquisition Company and Waramaug Acquisition Corp. dated as of October 21, 2004 (filed as Exhibit 10.68 to the Operating Partnership’s Form 10-Q dated September 30, 2004 and incorporated herein by reference).
10.79
Fifth Amendment to Agreement of Sale and Purchase by and between Mack-Cali Texas Property L.P., Centennial Acquisition Company and Waramaug Acquisition Corp. dated as of October 25, 2004 (filed as Exhibit 10.69 to the Operating Partnership’s Form 10-Q dated September 30, 2004 and incorporated herein by reference).
10.80
Sixth Amendment to Agreement of Sale and Purchase by and between Mack-Cali Texas Property L.P., Centennial Acquisition Company and Waramaug Acquisition Corp. dated as of October 27, 2004 (filed as Exhibit 10.70 to the Operating Partnership’s Form 10-Q dated September 30, 2004 and incorporated herein by reference).
10.81
Seventh Amendment to Agreement of Sale and Purchase by and between Mack-Cali Texas Property L.P., Centennial Acquisition Company and Waramaug Acquisition Corp. dated as of October 28, 2004 (filed as Exhibit 10.71 to the Operating Partnership’s Form 10-Q dated September 30, 2004 and incorporated herein by reference).
10.82
Commitment letter from Mack-Cali Property Trust to Centennial Acquisition Company and Waramaug Acquisition Corp. dated October 28, 2004 (filed as Exhibit 10.72 to the Operating Partnership’s Form 10-Q dated September 30, 2004 and incorporated herein by reference).
10.83*
Agreement of Purchase and Sale of Partnership Interests among Hudson Street Owners Limited Partnership I, Hudson Street Owners Limited Partnership II, Hudson Street Owners SPE, Inc., and Hudson Street Owners SPE II, Inc., collectively as Sellers, and MC Hudson Holding L.L.C. and MC Hudson Realty L.L.C., collectively as Purchasers, dated November 23, 2004.
10.84*
First Amendment to Agreement of Purchase and Sale dated December 23, 2004 by and among Hudson Street Owners Limited Partnership I, Hudson Street Owners Limited Partnership II, Hudson Street Owners SPE, Inc., and Hudson Street Owners SPE II, Inc., collectively as Sellers, and MC Hudson Holding L.L.C. and MC Hudson Realty L.L.C., collectively as Purchasers.
10.85*
Second Amendment to Agreement of Purchase and Sale dated February 9, 2005 by and among Hudson Street Owners Limited Partnership I, Hudson Street Owners Limited Partnership II, Hudson Street Owners SPE, Inc., and Hudson Street Owners SPE II, Inc., collectively as Sellers, and MC Hudson Holding L.L.C. and MC Hudson Realty L.L.C., collectively as Purchasers.
21.1*
Subsidiaries of the Operating Partnership.
23.1*
Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm.
31.1*
Certification of the Corporation’s President and Chief Executive Officer, Mitchell E. Hersh, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification of the Corporation’s Chief Financial Officer, Barry Lefkowitz, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
Certification of the Corporation’s President and Chief Executive Officer, Mitchell E. Hersh, and the Corporation’s Chief Financial Officer, Barry Lefkowitz, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
______________
*filed herewith