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S&P Asgns Reckson Associates Realty & Unit 'BBB-'.

NEW YORK--(BUSINESS WIRE)--Standard & Poor's CreditWire 10/13/98-- Standard & Poor's today assigned its triple-'B'-minus corporate credit rating to Reckson Associates Realty Corp. and Reckson Operating Partnership, L.P.

The outlook is stable.

The ratings reflect the following strengths of this established office and industrial REIT:

-- Dominant regional position,

-- A high quality, well-located portfolio of properties,

-- A moderately conservative capital structure, and

-- Adequate coverage ratios.

These strengths are offset to some extent by a more entrepreneurial and opportunistic operating strategy than Reckson's sector peers, and the possible strain this strategy could place on financial policy and flexibility in the future.

Reckson is a Melville, N.Y.-based equity umbrella partnership REIT that went public on June 2, 1995. Reckson has grown more than five-fold to a portfolio of 191 properties totaling 19.3 million square feet as of June 30, 1998. In the process, Reckson has established itself as a provider of Class A office and industrial space with a dominant regional presence in the New York metropolitan area.

In 1997, Reckson formed Reckson Strategic Venture Partners to explore new opportunities in noncore real estate businesses, and Reckson Service Industries Inc. to focus on lines of business that service Reckson's existing office and industrial tenants. In July 1998, Reckson announced the formation of Metropolitan Partners, a strategic joint venture controlled equally by Reckson Associates Realty Corp. and Crescent Real Estate Equities Co., for the purpose of creating a platform to invest in the New York City real estate market. Metropolitan has agreed to purchase Tower Realty Trust Inc., a New York City-based REIT that owns and manages 4.3 million square feet of office space in 25 buildings, including 2.3 million square feet in New York City.

The company's business position is moderately strong. With a total market capitalization of $2 billion, Reckson maintains a high quality, well-located portfolio that is geographically concentrated in the tristate metropolitan area. However, this concentration is mitigated to a large extent by the breath and depth of the greater New York marketplace. While seasoning of the portfolio is somewhat of a concern, with 40% of the portfolio net operating income having been acquired in the last 18 months, this concern is mitigated to a great extent by the successful integration of the Capelli, Halpern, Robert Heller, F.D. Rich, and Morris portfolios and management teams as well as good same-store net operating income and rental revenue growth. Internal growth is enhanced by the potential to realize a 30% increase in base rents, with 3.9 million square feet of office space expiring by 2003 at average contract rents reported to be below the market.

Reckson's leverage is moderate although the company has higher-than-average exposure to variable-rate debt. For first half of 1998, debt to book value capital was 44% and debt to market value capital was 36%. Management is looking to maintain leverage in the 25%-to-40%-of-book-value range. Debt service coverage and fixed charge coverage were both adequate at 2.64 times (x) and 2.59x, respectively in the first half of 1998. These coverage levels are being subsidized to some extent by short-term, low-cost bank debt. Debt service coverage is projected to be in the mid 3x area in 1999 and 2000. Fixed-charge coverage is expected to be in the high 2x to the low 3x range for the same period. Reckson's profitability measures are at or about average compared to its peer group, with strong property level returns of 16% in 1998 on a pro forma basis. Financial flexibility is adequately supplied by a portfolio that has only 33% of its net operating income encumbered.


The outlook reflects the stability and quality of the company's cash flow which is supported by long-term leases and high occupancy rates. Standard & Poor's expects management to work within the parameters of its financial policy and maintain financial flexibility as the company executes a more entrepreneurial and opportunistic operating strategy. -- CreditWire
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Publication:Business Wire
Geographic Code:1USA
Date:Oct 13, 1998
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