MOODY'S RATES RECKSON OPERATING PARTNERSHIP, L.P. SENIOR DEBT Baa3, CONFIRMS RECKSON ASSOCIATES REALTY CORP. CUMULATIVE PREFERRED STOCK AT "ba2"
Moody's Investors Service is assigning a Baa3 rating to the Reckson Operating Partnership, L.P. (Reckson O.P.) senior debt securities being marketed for sale. The sale is expected to consist of a $200 million tranche with a ten-year term and a $100 million tranche with a five-year term. Moody's also assigned prospective ratings to securities issuable under Reckson O.P.'s shelf registration, and confirmed its existing credit ratings on the securities of Reckson Associates Realty Corp. The outlook for Reckson's ratings is stable to the extent that the REIT maintains a prudent capital structure and continues to diversify beyond Long Island to its other New York City Tri-State area markets.
According to Moody's, these rating actions reflect Reckson's primary focus on suburban class A office buildings in markets with high barriers to entry, which exhibit healthy property fundamentals and sound financial position, as well as its proven track record as an integrated owner, manager and developer of suburban office and industrial space. Reckson's experienced management team, and highly automated and efficient systems are also positive factors. While Reckson has been public only since June 1995, its predecessor organization, primarily an integrated development company, was founded in 1958 by the Rechler family. The family dominates the senior management ranks and manages the day-to-day operations of the business. The rating agency also noted Reckson's scaleable, in-house design and development staff, which is popular among tenants and minimizes tenant improvement costs, competitively positions the REIT to enhance its tenant relationships.
These positive rating factors are offset by Reckson's rapid acquisition-led growth, risks associated with Reckson's concentration within the New York City Tri-State region, whose submarkets tend to be highly correlated, as well as its appetite for opportunistic rehabilitation and new development. The REIT's limited track record as a public company and its rapid growth since its June 1995 initial public offering (IPO) are additional risk factors. Since its IPO, Reckson has invested more than $1 billion in new acquisitions. Although the REIT appears to have absorbed its acquisitions well thus far, Moody's anticipates that Reckson's appetite for opportunistic rehabilitation and new development is likely to continue over the medium-term, as evidenced by its agreement to acquire Tower Realty Trust, a publicly-traded REIT.
Concerning geographic concentration, the company's Long Island property portfolio represents almost half of its base rent. While Moody's recognizes that the REIT is more diversified now than in 1995, it also expects the REIT to operate with a relatively high degree of volatility in that its primary submarkets in Long Island, Westchester County, New Jersey, New York and Fairfield County, Connecticut, are highly correlated and historically have provided limited benefits from diversification. Moody's added that the region's competitive landscape and high business operating costs may also contribute to the volatility in the REIT's operations. Reckson's business position appears favorable overall in light of its quality tenant roster, manageable lease expiration schedule, and high occupancy rates relative to the surrounding submarkets.
Reckson is one of the largest owners and managers of suburban office and industrial space in the New York City Tri-State area, with over 200 properties and a total market capitalization of over $2.1 billion. Structured as an UPREIT, property operations are primarily conducted through Reckson O.P., which is 85% owned by Reckson Associates Realty Corp. In addition, the REIT has interests in several related entities engaged in real estate operations other than office and industrial markets, and a relatively small investment in commercial mortgages.
The following ratings have been assigned:
Reckson Operating Partnership, L.P.: Baa3 rating on the $300 mil. senior debt, and (P)Baa3 rating on the senior debt shelf.
The following ratings have been confirmed:
Reckson Associates Realty Corp.: "ba2" rating on the Series A convertible cumulative preferred stock, (P)"ba2" rating on the cumulative preferred stock shelf, and (P)"ba3" rating on the noncumulative and junior preferred stock shelf.
Reckson Associates Realty Corp. (NYSE: RA), headquartered in Melville, New York, USA, is a fully integrated Real Estate Investment Trust and is one of the largest owners and managers of suburban office and industrial space in the New York City, Tri-State area. Reckson had total assets of $1.85 billion (book value) and equity of $706 million (book value) as of December 31, 1998.
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