The Company was incorporated on May 24, 1994, as a Maryland corporation, and commenced operations effective with the completion of its Initial Public Offering ("IPO") on August 31, 1994, which was simultaneous with effecting a business combination with the Cali Group (not a legal entity). The Cali Group was engaged in development, ownership and operation of a portfolio of twelve office buildings and one multi-family residential property, all located in New Jersey.
Following the IPO, during 1994 and 1995, the Company acquired 28 office and office/flex properties, aggregating approximately 1.7 million square feet, for a total cost of $157.5 million. The financing for the 1994 and 1995 acquisitions was primarily facilitated by a public stock offering in November 1995 (from which the Company raised $72.5 million in net proceeds) and funds made available from the Company's credit facility. Additionally, in conjunction with one of the 1995 acquisitions, the Company issued 93,458 Units in the Operating Partnership and assumed an $18.8 million mortgage loan.
At the end of 1995, the Company's portfolio of 39 Class A office and office/flex properties, and one multi-family residential property, were located in New Jersey, except for one office property located in Rockland County, New York. The Company's portfolio at December 31, 1995 aggregated approximately 3.9 million square feet, which was an increase of 78 percent over the Company's portfolio square feet at its IPO.
In 1996, the Company acquired 15 office and office/flex properties, aggregating approximately 3.3 million square feet, for a total cost of $459.4 million. The financing for the 1996 acquisitions was facilitated by two public stock offerings in 1996, from which the Company raised an aggregate of $518.2 million in net proceeds, and the assumption of $150.0 million in mortgage financing in connection with the acquisition of the Harborside Financial Center ("Harborside").
At the end of 1996, the Company's portfolio of 56 office and office/flex properties, and a multi-family residential property, was located primarily in New Jersey, except for seven office properties acquired in 1996 in suburban Philadelphia, and one office property located in Rockland County, New York. The Company's portfolio at December 31, 1996 aggregated 7.1 million square feet, which represented an increase of 82 percent over the Company's portfolio square feet at December 31, 1995.
As a result of the acquisitions by the Company in 1995 and 1996, the operating results of the Company during such periods are not directly comparable.
RESULTS OF OPERATIONS
The following comparisons for the year ended December 31, 1996 ("1996"), as compared to the year ended December 31, 1995 ("1995") and for 1995 as compared to the twelve month period ended December 31, 1994 makes reference to the following: (i) the effect of the "Initial Properties," which represent all properties owned by the Company at December 31, 1994, (ii) the effect of the "Acquired Properties," which represent all properties acquired since January 1, 1995, and (iii) the effect of the "Disposition," which refers to the Company's sale of Essex Road on March 20, 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Total revenues increased $33.1 million, or 53.2 percent, for 1996 over 1995. Base rents increased $26.1 million, or 51.4 percent, of which an increase of $26.4 million, or 52.0 percent, was attributable to the Acquired Properties, and an increase of $0.9 million, or 1.8 percent, as a result of occupancy changes at the Initial Properties, offset by a decrease of $1.2 million, or 2.4 percent, as a result of the Disposition. Escalations and recoveries increased $4.9 million, or 51.8 percent, of which an increase of $4.6 million, or 49.0 percent, was attributable to the Acquired Properties, and $0.4 million, or 4.0 percent, as a result of occupancy changes at the Initial Properties, offset by a decrease of $0.1 million, or 1.2 percent, due to the Disposition. Interest income increased $1.6 million for 1996 over 1995, due primarily to the funds held at December 31, 1996 from the Company's common stock offering in November 1996. Parking and other income increased $0.5 million, or 29.5 percent, of which $0.3 million, or 17.9 percent, was attributable to the Initial Properties, and $0.3 million, or 15.9 percent, due to the Acquired Properties, offset by a decrease of $0.1 million, or 4.3 percent, due to the Disposition.
Total expenses for 1996 increased $18.7 million, or 41.5 percent, as compared to 1995. Real estate taxes increased $3.5 million, or 60.4 percent, for 1996 over 1995, of which $3.6 million, or 60.9 percent, was a result of the Acquired Properties, and $0.1 million, or 2.6 percent, related to the Initial Properties, offset by a decrease of $0.2 million, or 3.1 percent, due to the Disposition. Additionally, operating services increased $3.6 million, or 42.4 percent, and utilities increased $1.8 million, or 28.6 percent. The aggregate increase in operating services and utilities of $5.4 million, or 36.5 percent, consists of $5.9 million, or 39.9 percent, attributable to the Acquired Properties, offset by a decrease of $0.5 million, or 3.5 percent, as a result of the Disposition. General and administrative expense increased $2.1 million, or 56.3 percent, of which $2.2 million, or 57.5 percent, is primarily attributable to an increase in payroll and related costs as a result of the Company's expansion in 1996, offset by a decrease of $0.1 million, or 1.2 percent, due to the Disposition. Depreciation and amortization increased $3.7 million, or 30.6 percent, for 1996 over 1995, of which $4.4 million, or 36.7 percent, related to depreciation on the Acquired Properties, offset by decreases of $0.5 million, or 4.1 percent, for amortization of deferred financing costs due to reduction in debt outstanding on the Initial Properties, and $0.2 million, or 2.0 percent, as a result of the Disposition. Interest expense increased $4.0 million, or 46.4 percent, primarily due to an increase in the average outstanding borrowings on the Company's credit facilities during 1996 over 1995 in connection with an increase in property acquisitions, as well as the increase in mortgage indebtedness assumed in connection with the acquisition of Harborside.
Income before gain on sale of rental property, minority interest and extraordinary item increased to $31.5 million in 1996 from $17.1 million in 1995. The increase of $14.4 million was due to the factors discussed above.
Net income increased $18.3 million for 1996, from $13.6 million in 1995 to $31.9 million in 1996, as a result of an increase in income before gain on sale of property, minority interest and extraordinary item of $14.4 million and a gain on sale of the Disposition property of $5.7 million, offset by the increase in minority interest of $1.3 million and the recognition in 1996 of an extraordinary loss for the early retirement of debt of $0.5 million (net of minority interest's share of $0.1 million).
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
The following comparison is for Cali Realty Corporation Consolidated Operations for the year ended December 31, 1995 as compared to Cali Realty Corporation Consolidated Operations for the period August 31, 1994 to December 31, 1994, plus Cali Group Combined Operations for the period January 1, 1994 to August 30, 1994 (collectively, "1994").
Total revenues increased $11.9 million, or 23.5 percent, for 1995 over 1994. Base rents increased $10.4 million, or 25.6 percent, of which $9.3 million, or 22.8 percent, was attributable to the Acquired Properties and $1.1 million, or 2.8 percent, was due to increased occupancy at the Initial Properties. Escalations and recoveries increased $1.4 million, or 17.6 percent, of which $1.1 million, or 13.6 percent, was attributable to the Acquired Properties and $0.3 million, or 4.0 percent, to the Initial Properties.
Total expenses for 1995 decreased $0.4 million from 1994. Interest expense decreased $6.7 million, or 43.7 percent, primarily due to the reduction in indebtedness resulting from the repayment of the mortgages and loans in connection with the IPO. Additionally, in 1994, the Cali Group recognized an expense of $0.7 million, in connection with the settlement of a tenant participation agreement and ground rent of $0.6 million was eliminated as a result of the purchase by the Company of the land previously leased.
These decreases were partially offset by an increase in depreciation and amortization of $2.9 million, or 31.4 percent, for 1995 over 1994. This increase is primarily attributable to increases of $1.9 million in rental property depreciation, of which $1.3 million is attributable to the Acquired Properties, and increases of $0.7 million in amortization of costs relating to the Mortgage Financing and $0.3 million related to amortization of leasing-related costs. In addition, utilities increased $1.5 million, or 29.8 percent, of which $1.1 million, or 23.5 percent, is attributable to the Acquired Properties; real estate taxes increased $0.9 million, or 18.0 percent, of which $1.1 million, or 21.8 percent, was attributable to the Acquired Properties offset by a decrease of $0.2 million, or 3.8 percent, for the Initial Properties; operating services increased $2.0 million, or 29.9 percent, of which $1.4 million, or 20.9 percent, was attributable to the Acquired Properties, and general and administrative costs increased $0.3 million as a result of increased salaries and benefits.
Income before gain on sale of rental property, minority interest and extraordinary item increased to $17.1 million for 1995 from $4.9 million for 1994. The increase of $12.2 million was due to the factors discussed above.
Net income decreased $2.0 million from $15.7 million in 1994 to $13.6 million in 1995 as a result of recognition in 1994 of an $11.9 million extraordinary gain primarily due to the early retirement of indebtedness at less than carrying value.
LIQUIDITY AND CAPITAL RESOURCES
Statement of Cash Flows
During the year ended December 31, 1996, the Company generated $46.8 million in cash flow from operating activities, and, together with $518.2 million in net proceeds from its common stock offerings in 1996, $10.3 million of proceeds from the sale of a rental property, $2.0 million in proceeds from stock options exercised, and funds from escrow cash balances relating to the Mortgage Financing of $0.1 million, used an aggregate $577.4 million to (i) purchase 15 rental properties for $304.2 million, (ii) complete construction of two office/flex properties for $2.7 million, (iii) acquire land for future development, tenant improvements and building improvements for $11.3 million (including $2.9 million for tenant improvement costs incurred in connection with the DLJ Expansion and $1.8 million in tenant improvement costs in connection with the leasing of 62,275 square feet to Berlitz International Inc. at the Company's 400 Alexander Park, Princeton, Mercer County, New Jersey office property), (iv) pay quarterly dividends and distributions of $32.4 million, (v) prepay a portion of its mortgage notes and prepayment penalties and other related costs for $5.8 million, (vi) pay the amortization on mortgage principal of $0.3 million, (vii) reduce its outstanding borrowings on its credit facilities by a net amount of $16.9 million, and (viii) increase its cash and cash equivalents balance by $203.8 million.
Acquisition and Development Activity
On March 20, 1996, the Company sold its office building located at 15 Essex Road in Paramus, Bergen County, New Jersey ("Essex Road") and concurrently acquired a 96,000 square foot office building at 103 Carnegie Center in Princeton, Mercer County, New Jersey. The concurrent transactions with unrelated parties qualified as a tax-free exchange, as the Company used substantially all of the proceeds from the sale of Essex Road to acquire the Princeton property. The financial statements for the year ended December 31, 1996 include a gain of $5.7 million relating to this transaction.
On May 2, 1996, the Company acquired Rose Tree Corporate Center, a two-building suburban office complex totaling 260,000 square feet, located in Media, Delaware County, Pennsylvania, for approximately $28.1 million, which was drawn from one of the Company's credit facilities.
During the second quarter of 1996, the Company completed its construction of tenant improvements to 400 Alexander Park, a three-story, 70,550 square foot office building located in Princeton, Mercer County, New Jersey, which the Company acquired in December 1995 and leased the property in its entirety to Berlitz International Inc. Also during the second quarter of 1996, the Company entered into a lease agreement with Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") for an additional 73,200 square feet of office space located at 95 Christopher Columbus Drive in Jersey City, increasing DLJ's occupancy to approximately 66 percent of the property.
On July 23, 1996, the Company acquired 222 and 233 Mount Airy Road, two suburban office buildings totaling 115,000 square feet, located in Basking Ridge, Somerset County, New Jersey, for approximately $10.5 million, which was drawn from one of the Company's credit facilities.
On November 4, 1996, the Company acquired Harborside, a 1.9 million square foot office complex located in Jersey City, Hudson County, New Jersey for approximately $292.7 million. The acquisition cost included the assumption of existing and seller-provided mortgage financing aggregating $150.0 million. The balance of the cost was paid primarily in cash and was financed substantially through drawings from the Company's credit facilities. As part of the purchase, the Company also acquired 11.3 acres of land fully zoned and permitted for an additional 4.1 million square feet of development and the water rights associated with 27.4 acres of land extending into the Hudson River immediately east of Harborside, including two piers with an area of 5.8 acres.
On November 7, 1996, the Company acquired Five Sentry Parkway East & West, a two-building office complex comprised of approximately 130,000 square feet located in Plymouth Meeting, Montgomery County, Pennsylvania for approximately $12.5 million, which was drawn from one of the Company's credit facilities.
On December 10, 1996, the Company acquired 300 Tice Boulevard, a 230,000 square foot office building located in Woodcliff Lake, Bergen County, New Jersey, for approximately $35.1 million in cash, made available from the net proceeds received from the Company's common stock offering in November 1996 (the "November 1996 Offering").
On December 16, 1996, the Company acquired One Bridge Plaza, a 200,000 square foot office building located in Fort Lee, Bergen County, New Jersey, for approximately $26.9 million in cash, made available from the net proceeds received from the November 1996 Offering.
On December 17, 1996, the Company acquired the International Court at Airport Business Center, a three-building office complex comprised of approximately 371,000 square feet located in Lester, Delaware County, Pennsylvania for approximately $43.2 million in cash, made available from the net proceeds received from the November 1996 Offering.
In December 1996, the Company completed the construction of two office/flex properties on vacant land purchased in the Company's Totowa, Passaic County, New Jersey office park acquired in November 1995. The two properties, which were 25 percent leased at December 31, 1996, aggregated 47,100 square feet, and were constructed for an aggregate cost of $2.7 million.
On January 28, 1997, the Company acquired 1345 Campus Parkway, a 76,000 square foot office/flex property, located in Wall Township, Monmouth County, New Jersey, for approximately $6.8 million in cash, made available from the net proceeds received from the November 1996 Offering. The property is located in the same office park in which the Company previously acquired two office properties and four office/flex properties in November 1995.
On January 31, 1997, the Company acquired 65 properties (the "RM Properties") of Robert Martin Company LLC and affiliates ("RM"), for a total cost of approximately $450.0 million. The cost of the transaction was financed through the assumption of $185.3 million in mortgage indebtedness, approximately $220.0 million in cash, substantially all of which was obtained from the Company's cash reserves, and the issuance of 1,401,225 Units in the Operating Partnership.
The RM Properties consist primarily of 54 office and office/flex properties aggregating approximately 3.7 million square feet and six industrial/warehouse properties aggregating approximately 400,000 square feet. The RM Properties are located primarily in established business parks in Westchester County, New York and Fairfield County, Connecticut. The Company has agreed not to sell certain of the RM Properties for a period of seven years without the consent of the RM principals, except for sales made under certain circumstances and/or conditions.
In connection with the RM transaction, the Company was granted a three-year option to acquire a 115,000 square foot office property and an 84,000 square foot office/flex property (the "Option Properties") for an aggregate minimum price of $19.0 million and has granted RM the right to put such properties to the Company between a range of an aggregate purchase price of $11.6 million to $21.3 million, under certain conditions. The purchase prices, under the agreement, are subject to adjustment based on different formulas and are payable in cash or Units.
Financing Activities
Mortgage Debt, Credit Facilities and Interest Rate Swaps
Concurrent with the IPO, the Company's initial operating subsidiaries, which own the Initial Properties, issued five-year mortgage notes with an aggregate principal balance of $144.5 million secured and cross-collateralized by the Initial Properties to an affiliate ("PSI") of Prudential Securities Inc. PSI then issued commercial mortgage pay-through bonds ("Bonds") collateralized by the mortgage notes. Bonds with an aggregate principal balance of $70.0 million were purchased by unrelated third parties. Bonds with an aggregate principal balance of $74.5 million were purchased by the Company. As a result, the Company's initial mortgage financing was $70.0 million (the "Mortgage Financing"). Approximately $38.0 million of the Mortgage Financing is guaranteed under certain conditions by certain partners of the Cali Group partnerships which owned the Initial Properties. The Mortgage Financing requires monthly payments of interest only, with all principal and any accrued but unpaid interest due in August 1999. $46.0 million of the $70.0 million Mortgage Financing bears interest at a net cost to the Company equal to a fixed rate of 8.02 percent per annum and the remaining $24.0 million bears interest at a net cost to the Company equal to a floating rate of 100 basis points over one-month LIBOR (5.53 percent at December 31, 1996) with a lifetime interest rate cap of 11.6 percent. Pursuant to the terms of the Mortgage Financing, the Company is required to escrow $143,000 per month for tenant improvements and leasing commissions and $53,000 per month for capital improvements.
In advance of the sale of Essex Road, on March 12, 1996, the Company prepaid $5.5 million ($1.7 million-fixed rate, $3.8 million-floating rate debt) of the Mortgage Financing, resulting in outstanding balances of $44.3 million for the 8.02 percent fixed rate debt and $20.2 million for the floating rate debt.
At the IPO, the Company obtained a $70.0 million revolving credit facility from Prudential Securities Credit Corp. ("PSC") (the "First Prudential Facility"), which may be used to fund acquisitions and new development projects and for general working capital purposes, including capital expenditures and tenant improvements. In connection with the Mortgage Financing, the Company obtained a $6.0 million letter of credit, secured by the First Prudential Facility, to meet certain tenant improvement and capital expenditure reserve requirements. The First Prudential Facility bore interest at a floating rate equal to 150 basis points over one-month LIBOR for January 1, 1996 through August 31, 1996. Effective September 1, 1996, the interest rate was reduced to a floating rate equal to 125 basis points over one-month LIBOR. The First Prudential Facility is a recourse liability of the Operating Partnership and is secured by a pledge of the $74.5 million Bonds held by the Company. The First Prudential Facility requires monthly payments of interest only, with outstanding advances and any accrued but unpaid interest due November 30, 1997 and is subject to renewal at the lender's sole discretion. Subsequent to December 31, 1996 and through March 1, 1997, the Company did not draw any additional funds from the First Prudential Facility.
In connection with the acquisition of an office building in Fair Lawn, Bergen County, New Jersey on March 3, 1995, the Company assumed an $18.8 million non-recourse mortgage loan ("Fair Lawn Mortgage") bearing interest at a fixed rate of 8.25 percent per annum. The loan requires payment of interest only through March 15, 1996 and payment of principal and interest thereafter, on a 20-year amortization schedule, with the remaining principal balance due October 1, 2003. For the year ended December 31, 1996, the Company paid $319,000 for amortization of principal on the Fair Lawn Mortgage.
On May 24, 1995, the Company entered into an interest rate swap agreement with a commercial bank. The swap agreement fixes the Company's one-month LIBOR base to a fixed 6.285 percent per annum on a notional amount of $24.0 million through August 1999.
On January 23, 1996, the Company entered into an interest rate swap agreement with one of the participating banks in the Bank Facility. The swap agreement has a three-year term and a notional amount of $26.0 million, which fixes the Company's one-month LIBOR base to 5.265 percent on its floating rate credit facilities.
On February 1, 1996, the Company obtained a credit facility (the "Bank Facility"), secured by certain of its properties, in the amount of $75.0 million from two participating banks. The Bank Facility has a three-year term and bears interest at 150 basis points over one-month LIBOR. The terms of the Bank Facility include certain restrictions and covenants which limit, among other things, dividend payments and additional indebtedness and which require compliance with specified financial ratios and other financial measurements. The Bank Facility also requires a fee equal to one quarter of one percent of the unused balance payable quarterly in arrears.
In connection with the acquisition of Harborside, on November 4, 1996, the Company assumed existing mortgage debt and was provided seller-mortgage debt aggregating $150.0 million. The existing financing of approximately $107.5 million bears interest at a fixed rate of 7.32 percent for a term of approximately nine years. The seller-provided financing of approximately $42.5 million also has a term of nine years and initially bears interest at a rate of 6.99 percent. The interest rate on the seller-provided financing will be reset at the end of the third and sixth loan years based on the yield of the three-year treasury obligation at that time, with spreads of 110 basis points in years four through six and 130 basis points in years seven through maturity.
As part of the Harborside acquisition, the Company agreed to make payments (with an estimated net present value of approximately $5.3 million) to the seller for development rights ("Contingent Obligation") if and when the Company commences construction on the acquired site during the next several years. However, the agreement provides, among other things, that even if the Company does not commence construction, the seller may nevertheless require the Company to acquire these rights during the six-month period after the end of the sixth year. After such period, the seller's option lapses, but any development in years 7 through 30 will require a payment, on an increasing scale, for the development rights.
On November 4, 1996, the Company obtained a revolving credit facility ("Second Prudential Facility") from PSC totaling $80.0 million which bears interest at 125 basis points over one-month LIBOR, and matures on January 15, 1998, unless the Company or PSC elects to extend the maturity date to not earlier than June 30, 1998, or the facility is refinanced prior to such date at the election of either the Company or PSC. The Second Prudential Facility is a recourse liability of the Operating Partnership and is secured by the Company's equity interest in Harborside. The terms of the Second Prudential Facility include certain restrictions and covenants that limit, among other things, dividend payments and additional indebtedness and that require compliance with specified financial ratios and other financial measurements.
In connection with the RM transaction on January 31, 1997, the Company assumed a $185.3 million non-recourse mortgage loan with Teachers Insurance and Annuity Association of America with interest only payable monthly at a fixed annual rate of 7.18 percent (the "TIAA Mortgage"). The TIAA Mortgage is secured and cross-collateralized by 43 of the RM Properties and matures on December 31, 2003. The Company, at its option, may convert the TIAA Mortgage to unsecured public debt upon achievement by the Company of an investment credit rating of Baa3/BBB- or better. The TIAA Mortgage is prepayable in whole or in part subject to certain provisions, including yield maintenance.
Common Stock Offerings and Shelf Registrations
On May 13, 1996, the stockholders approved an increase in the authorized shares of common stock in the Company from 25 million to 95 million.
On July 29, 1996, the Company filed a shelf registration statement (File No. 333-09081) with the Securities and Exchange Commission ("SEC") for an aggregate amount of $500.0 million in equity securities of the Company. The registration statement was declared effective by the SEC on August 2, 1996.
On August 13, 1996, the Company sold 3,450,000 shares of its common stock through a public stock offering (the "August 1996 Offering"), which included an exercise of the underwriters' over-allotment option of 450,000 shares. Net proceeds from the August 1996 Offering (after offering costs) were approximately $76.8 million. The offering was conducted using one underwriter and the shares were issued from the Company's $250.0 million shelf registration statement (File No. 33-96538).
Pursuant to the Company's Registration Statement on Form S-3 (File No. 333-09081), on November 22, 1996, the Company completed an underwritten public offer and sale of 17,537,500 shares of its common stock using several different underwriters to underwrite such public offer and sale (which included an exercise of the underwriters' over-allotment option of 2,287,500 shares). The Company received approximately $441.2 million in net proceeds (after offering costs) from the November 1996 Offering, and used such funds to acquire certain of the Company's property acquisitions in November and December, pay down outstanding borrowings on its revolving credit facilities, and invested the excess funds in Overnight Investments.
On December 31, 1996, the Company filed a shelf registration statement (File No. 333-19101) with the SEC for an aggregate amount of $1.0 billion in equity securities of the Company. The registration statement was declared effective by the SEC on January 7, 1997.
STRATEGIC PLAN
Historically, rental revenue has been the principal source of funds to pay operating expenses, debt service and capital expenditures, excluding non-recurring capital expenditures. Management believes that the Company will have access to the capital resources necessary to expand and develop its business. To the extent that the Company's cash flow from operating activities is insufficient to finance its non-recurring capital expenditures such as property acquisition costs and other capital expenditures, the Company expects to finance such activities through the credit facilities and other debt and equity financing.
The Company presently has no plans for major capital improvements to the existing properties, other than normal recurring expenditures.
The Company expects to meet its short-term liquidity requirements generally through its working capital and net cash provided by operating activities along with the First Prudential Facility, the Bank Facility and the Second Prudential Facility. The Company is frequently examining potential property acquisitions and, at any one given time, one or more of such acquisitions may be under consideration. Accordingly, the ability to fund property acquisitions is a major part of the Company's financing requirements. The Company expects to meet its financing requirements through funds generated from operating activities, long-term or short-term borrowings (including draws on the Company's credit facilities), and the issuance of debt securities or additional equity securities. In addition, the Company anticipates utilizing the First Prudential Facility, the Bank Facility and the Second Prudential Facility primarily to fund property acquisition activities.
The Company does not intend to reserve funds to retire the existing Mortgage Financing, indebtedness under the credit facilities or other mortgages and loans payable upon maturity. Instead, the Company will seek to refinance such debt at maturity or retire such debt through the issuance of additional equity securities. The Company anticipates that its available cash and cash equivalents and cash flows from operating activities, together with cash available from borrowings and other sources, will be adequate to meet the Company's capital and liquidity needs both in the short and long-term. However, if these sources of funds are insufficient or unavailable, the Company's ability to make the expected distributions discussed below may be adversely affected.
To maintain its qualification as a real estate investment trust, the Company must make annual distributions to its stockholders of at least 95 percent of its REIT taxable income, excluding the dividends paid deduction and net capital gains. Moreover, the Company intends to continue to make regular quarterly distributions to its stockholders which, based upon current policy, in the aggregate would equal approximately $66.0 million on an annual basis. However, any such distribution, whether for federal income tax purposes or otherwise, would only be paid out of available cash after meeting both operating requirements and scheduled debt service on mortgages and loans payable and required annual capital expenditure reserves pursuant to its mortgage indenture.
FUNDS FROM OPERATIONS
The Company considers Funds from Operations ("FFO") after adjustment for the straight-lining of rents one measure of REIT performance. FFO is defined as net income (loss) before minority interest of unitholders, computed in accordance with Generally Accepted Accounting Principles, excluding gains (or losses) from debt restructuring and sales of property, plus real estate-related depreciation and amortization. FFO should not be considered as an alternative to net income as an indication of the Company's performance or to cash flows as a measure of liquidity.
FFO for the years ended December 31, 1996 and 1995, as calculated in accordance with the National Association of Real Estate Investment Trusts ("NAREIT") definition published in March 1995, are summarized in the following table (in thousands):
====================================================================================== Year Ended December 31, 1996 1995 ______________________________________________________________________________________ Income before gain on sale of property, minority interest, and extraordinary item $31,521 $17,146 Add: Real estate-related depreciation and amortization 14,677 10,563 ______________________________________________________________________________________ Funds from Operations 46,198 27,709 Deduct: Rental income adjustment for straight-lining of rents (978) (312) ______________________________________________________________________________________ Funds from Operations after adjustment for straight-lining of rents $45,220 $27,397 ______________________________________________________________________________________ Weighted average shares outstanding (1) 21,171 13,986 ______________________________________________________________________________________