Exhibit 99.1
RECKSON ASSOCIATES, CRESCENT REAL ESTATE AND TOWER REALTY
ANNOUNCE REVISED MERGER AGREEMENT
_________________________________________________________
MELVILLE and NEW YORK, NY and FORT WORTH, TX - December 8, 1998 -
Reckson Associates Realty Corp. (NYSE: RA), Crescent Real Estate Equities
Company (NYSE: CEI) and Tower Realty Trust, Inc. (NYSE: TOW) today said they
have replaced their previously announced merger agreement. The revised agreement
provides for Metropolitan Partners LLC ("Metropolitan"), an entity controlled by
Reckson in which Crescent holds an interest, to acquire Tower for a combination
of cash and a new Reckson equity security. Under the original agreement
announced on July 9, 1998, Metropolitan, which at that time was a 50/50 joint
venture with Crescent, would have acquired Tower for $24 per share in cash.
Under the terms of the revised transaction, each Tower share will be
exchanged for $5.75 in cash and 0.6273 of a newly issued Reckson Class B common
share. Tower shareholders can elect to receive a higher proportion of stock or
cash, subject to proration. Each share of Reckson Class B common stock will be
convertible at any time into existing Reckson common stock on a one-for-one
basis. Reckson common stock closed at $23.31 today. The Class B shares will pay
an initial cash dividend of $2.24 per share, resulting in an initial yield of
8.15%, based on a notional value of $27.50 per Class B share. The initial cash
dividend on the Class B shares will be adjusted annually beginning in year two
by a percentage equal to 70% of the cumulative percentage change in Reckson's
funds from operations (FFO) per share above the base year (FFO) per share. Each
Class B share can be redeemed by Reckson for one Reckson common share beginning
at the end of 4 1/2 years. Under the agreement, Xxxxxxx will also assume
approximately $300 million in Tower debt, some of which is expected to be
refinanced. In addition, Metropolitan has today purchased $40 million of
convertible preferred stock of Tower for $18.44 per share. The preferred stock
will initially have a dividend equal to the dividend on the Tower common stock
(currently $1.69 per share), resulting in a yield of 9.16%.
Metropolitan has been restructured whereby Xxxxxxx now owns a 100%
common equity interest and Crescent will own an $85 million convertible
preferred interest. Crescent's investment will have a preference of 7.5% for a
two year period and may be redeemed by Metropolitan at any time during that
period for $85 million, plus an amount sufficient to provide a 9.5% internal
rate of return. If Metropolitan does not redeem the preferred interest upon
expiration of the two year period, then Crescent must convert the interest
either into (i) a common equity interest in Metropolitan or (ii) shares of
common stock of Reckson at a conversion price of $24.61. In connection with the
revised transaction, Tower, Reckson and Crescent have agreed to exchange mutual
releases for any claims relating to the previous agreement.
The transaction is expected to close in the first quarter of 1999,
subject to the approval of Tower shareholders. A vote of Reckson shareholders
will determine whether the transaction will be structured as outlined above or a
more leverage structured, in which approximately one-third of the Class B shares
will be replaced with 7% senior unsecured 10-year notes, will be utilized.
Xxxxxxx's Board is recommending that its shareholders approve the issuance of
the additional Class B shares rather than the more leveraged structure.
Tower's 2.3 million square feet of prime New York City office space
will complement Xxxxxxx's 22 million square feet of Class A suburban office and
industrial properties, enhancing Reckson's position as one of the largest owners
and managers of commercial real estate in the New York metropolitan area.
Xxxxxxx estimates that it is purchasing Tower's assets at an approximate 40%
discount to replacement cost, an anticipated net operating income (NOI) yield in
excess of 9.1% and an FFO yield in excess of 10.1%. Xxxxxxx believes the
transaction will strengthen its capital structure and will be meaningfully
accretive to Xxxxxxx's FFO.
Xxxxx Xxxxxxx, Xxxxxxx's President and Chief Operating Officer, said,
"We are very pleased to have been able to negotiate a new agreement on terms
that are beneficial to all parties. This innovative structure enables Reckson to
issue common securities at an 18% premium to our closing common stock price at a
time of overall market illiquidity. Acquiring Tower on these terms will give
Reckson the initial presence and capital structure necessary to launch our New
York City platform." Xxxxx Xxxxxxx added, "Metropolitan will be structured in a
manner similar to existing Reckson divisions in Long Island, Westchester County,
Southern Connecticut and New Jersey. We intend to recruit an experienced local
management team, including a managing director and high-caliber leasing,
operations and asset management professionals."
Xxxxxx X. Xxxxxxx, Xxxxxxxx's President and Chief Executive Officer,
stated, "We are pleased to have resolved the issues presented in the original
transaction and to continue our participation in Metropolitan through a
preferred investment which provides Crescent with a preferred return as well as
an opportunity to participate along with Xxxxxxx in the upside created by
Metropolitan's consolidation platform for the New York market."
Reckson plans to sell Tower's non-New York assets, comprised of 1.9
million square feet of existing properties located in Phoenix, Tucson and
Orlando, a 160,000 square foot office building under development in Phoenix, and
40 acres of undeveloped land in Phoenix, on timing and terms intended to
maximize value to Metropolitan.
Xxxxxx X. Xxxxxxxxx, Tower's Chief Financial Officer and Executive Vice
President for Finance and Administration, stated, "The Board and management of
Tower have been committed to achieving a transaction that serves the best
interest of Tower shareholders. With this transaction, Tower shareholders are
able to realize both a cash return and the ability to participate in the future
of the combined entity. We are pleased that the parties were able to resolve our
differences and that we are moving forward with this compelling combination."
"We have spent the last three years expanding the Reckson franchise in
the surrounding tri-state area suburban marketplace," said Xxxxxx Xxxxxxx,
Xxxxxxx's Chairman and Chief Executive Officer. "This transaction adds the
valuable New York City marketplace, which will create operating and leasing
synergies with our suburban markets, thereby increasing the overall value of the
Reckson franchise and positioning the Company for further growth. Given
Manhattan's unique supply and demand characteristics, the enormous size of the
market with over 340 million square feet of office space, and highly fragmented
ownership, we believe that this transaction will provide Reckson with
substantial new opportunities."
Tower Realty Trust is a self-managed real estate investment trust
engaged in the development, acquisition, ownership, renovation, management and
leasing of office properties. Tower Realty Trust owns interests in 25 buildings
with an aggregate of approximately 4.6 million square feet in the Manhattan,
Phoenix/Tucson and Orlando markets, with two-thirds of the Company's rental
stream derived from its Manhattan office properties. In addition, the Company
owns or has options to acquire approximately 50 acres of land upon which it can
build 2.2 million square feet.
Crescent is a fully integrated real estate company which owns through
its subsidiaries a portfolio of real estate assets, consisting of 89 office
properties and 7 retail properties totaling 32.6 million square feet, a 38%
interest in 97 refrigerated warehouse facilities, 90 behavioral healthcare
facilities, 7 full-service hotels totaling 2,257 rooms, 2 destination health and
fitness resorts, and economic interests in 5 residential development
corporations. The office and retail properties are located primarily in 17
metropolitan submarkets in Texas.
Reckson is a self-administered and self-managed real estate investment
trust specializing in acquisition, leasing, financing, management, and
development of office and industrial properties. Reckson is one of the largest
publicly traded owners and managers of Class A suburban office and industrial
properties in New York Tri-State area, with properties comprising approximately
22 million square feet either owned or under contract. Xxxxxxx's growth strategy
is focused on the New York Tri-State area. Since the completion of its initial
public offering in May 1995, excluding this transaction Reckson has acquired or
contracted to acquire approximately $1.3 billion of properties comprising
approximately 17.5 million square feet of space.
Certain matters discussed within this press release are forward-looking
statements within the meaning of the federal securities laws, and the
transactions contemplated herein are subject to certain closing conditions.
Although Xxxxxxx, Crescent and Tower believe that the expectations reflected in
such forward-looking statements are based upon reasonable assumptions, they can
give no assurance that its expectations will be achieved. Factors that could
cause actual results to differ materially from Reckson, Crescent and Tower
expectations include changes in real estate conditions (including rental rates
and competing properties) or in industries in which their principal tenants
compete, failure to consummate anticipated transactions, timely leasing of
unoccupied square footage, timely releasing of occupied square footage upon
expiration, finding acquisition opportunities which meet their investment
strategy and other risks detailed from time to time in the Reckson, Crescent and
Tower reports filed with the Securities and Exchange Commission, including
annual reports on Form 10-K, quarterly reports on Form 10-Q and reports on Form
8-K.
