Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2016

 

or

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                                to                                

 

Commission File Number: 1-13274

 

Mack-Cali Realty Corporation

(Exact name of registrant as specified in its charter)

 

Maryland

 

22-3305147

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

343 Thornall Street, Edison, New Jersey

 

08837-2206

(Address of principal executive offices)

 

(Zip Code)

 

(732) 590-1000

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety (90) days. YES x NO o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO x

 

As of July 29, 2016, there were 89,650,891 shares of the registrant’s Common Stock, par value $0.01 per share, outstanding.

 

 

 



Table of Contents

 

MACK-CALI REALTY CORPORATION

 

FORM 10-Q

 

INDEX

 

 

 

 

 

Page

Part I

Financial Information

 

 

 

 

 

 

 

 

Item 1.

Financial Statements (unaudited):

 

3

 

 

 

 

 

 

 

Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015

 

4

 

 

 

 

 

 

 

Consolidated Statements of Operations for the three and six months ended June 30, 2016 and 2015

 

5

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2016 and 2015

 

6

 

 

 

 

 

 

 

Consolidated Statement of Changes in Equity for the six months ended June 30, 2016

 

7

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015

 

8

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

9

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

40

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

61

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

61

 

 

 

 

 

Part II

Other Information

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

62

 

 

 

 

 

 

Item 1A.

Risk Factors

 

62

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

62

 

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

62

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures

 

62

 

 

 

 

 

 

Item 5.

Other Information

 

62

 

 

 

 

 

 

Item 6.

Exhibits

 

62

 

 

 

 

 

Signatures

 

63

 

 

 

Exhibit Index

 

64

 

2



Table of Contents

 

MACK-CALI REALTY CORPORATION

 

Part I — Financial Information

 

Item 1.       Financial Statements

 

The accompanying unaudited consolidated balance sheets, statements of operations, of comprehensive income, of changes in equity, and of cash flows and related notes thereto, have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission (“SEC”).  Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements.  The financial statements reflect all adjustments consisting only of normal, recurring adjustments, which are, in the opinion of management, necessary for a fair presentation for the interim periods.

 

The aforementioned financial statements should be read in conjunction with the notes to the aforementioned financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included in Mack-Cali Realty Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

 

The results of operations for the three and six-month periods ended June 30, 2016 are not necessarily indicative of the results to be expected for the entire fiscal year or any other period.

 

3



Table of Contents

 

MACK-CALI REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) (unaudited)

 

 

 

June 30,

 

December 31,

 

 

 

2016

 

2015

 

ASSETS

 

 

 

 

 

Rental property

 

 

 

 

 

Land and leasehold interests

 

$

709,335

 

$

735,696

 

Buildings and improvements

 

3,691,074

 

3,648,238

 

Tenant improvements

 

371,920

 

408,617

 

Furniture, fixtures and equipment

 

17,997

 

15,167

 

 

 

4,790,326

 

4,807,718

 

Less — accumulated depreciation and amortization

 

(1,393,073

)

(1,464,482

)

 

 

3,397,253

 

3,343,236

 

Rental property held for sale, net

 

73,190

 

 

Net investment in rental property

 

3,470,443

 

3,343,236

 

Cash and cash equivalents

 

29,457

 

37,077

 

Investments in unconsolidated joint ventures

 

315,200

 

303,457

 

Unbilled rents receivable, net

 

104,523

 

120,246

 

Deferred charges, goodwill and other assets, net

 

253,233

 

203,850

 

Restricted cash

 

34,891

 

35,343

 

Accounts receivable, net of allowance for doubtful accounts of $1,225 and $1,407

 

5,793

 

10,754

 

 

 

 

 

 

 

Total assets

 

$

4,213,540

 

$

4,053,963

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

Senior unsecured notes, net

 

$

1,064,942

 

$

1,263,782

 

Unsecured term loan, net

 

347,590

 

 

Revolving credit facility

 

75,000

 

155,000

 

Mortgages, loans payable and other obligations, net

 

769,423

 

726,611

 

Dividends and distributions payable

 

15,144

 

15,582

 

Accounts payable, accrued expenses and other liabilities

 

141,664

 

135,057

 

Rents received in advance and security deposits

 

49,180

 

49,739

 

Accrued interest payable

 

15,917

 

24,484

 

Total liabilities

 

2,478,860

 

2,370,255

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

Mack-Cali Realty Corporation stockholders’ equity:

 

 

 

 

 

Common stock, $0.01 par value, 190,000,000 shares authorized, 89,650,590 and 89,583,950 shares outstanding

 

897

 

896

 

Additional paid-in capital

 

2,573,173

 

2,570,392

 

Dividends in excess of net earnings

 

(1,031,922

)

(1,115,612

)

Accumulated other comprehensive loss

 

(8,283

)

 

Total Mack-Cali Realty Corporation stockholders’ equity

 

1,533,865

 

1,455,676

 

 

 

 

 

 

 

Noncontrolling interests in subsidiaries:

 

 

 

 

 

Operating Partnership

 

179,613

 

170,891

 

Consolidated joint ventures

 

21,202

 

57,141

 

Total noncontrolling interests in subsidiaries

 

200,815

 

228,032

 

 

 

 

 

 

 

Total equity

 

1,734,680

 

1,683,708

 

 

 

 

 

 

 

Total liabilities and equity

 

$

4,213,540

 

$

4,053,963

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4



Table of Contents

 

MACK-CALI REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2016

 

2015

 

2016

 

2015

 

REVENUES

 

 

 

 

 

 

 

 

 

Base rents

 

$

124,223 

 

$

121,246 

 

$

250,610 

 

$

245,039 

 

Escalations and recoveries from tenants

 

14,110

 

15,842

 

29,071

 

34,241

 

Real estate services

 

6,469

 

7,401

 

13,281

 

15,045

 

Parking income

 

3,532

 

2,850

 

6,688

 

5,392

 

Other income

 

893

 

1,228

 

2,500

 

2,565

 

Total revenues

 

149,227

 

148,567

 

302,150

 

302,282

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

Real estate taxes

 

22,418

 

21,410

 

45,644

 

43,862

 

Utilities

 

10,953

 

13,399

 

24,531

 

30,974

 

Operating services

 

24,024

 

25,844

 

50,756

 

54,072

 

Real estate services expenses

 

6,211

 

6,208

 

13,057

 

12,847

 

General and administrative

 

12,755

 

11,877

 

25,004

 

22,888

 

Acquisition-related costs

 

2,039

 

111

 

2,039

 

111

 

Depreciation and amortization

 

43,459

 

42,365

 

86,522

 

83,167

 

Total expenses

 

121,859

 

121,214

 

247,553

 

247,921

 

Operating income

 

27,368

 

27,353

 

54,597

 

54,361

 

 

 

 

 

 

 

 

 

 

 

OTHER (EXPENSE) INCOME

 

 

 

 

 

 

 

 

 

Interest expense

 

(22,932

)

(26,773

)

(47,925

)

(53,988

)

Interest and other investment income (loss)

 

146

 

291

 

(523

)

558

 

Equity in earnings (loss) of unconsolidated joint ventures

 

(614

)

(2,329

)

(2,168

)

(5,858

)

Gain on change of control of interests

 

5,191

 

 

15,347

 

 

Realized gains (losses) and unrealized losses on disposition of rental property, net

 

27,117

 

34,399

 

85,717

 

34,543

 

Gain on sale of investment in unconsolidated joint venture

 

5,670

 

6,448

 

5,670

 

6,448

 

Gain from extinguishment of debt

 

12,420

 

 

12,420

 

 

Total other income (expense)

 

26,998

 

12,036

 

68,538

 

(18,297

)

Net income

 

54,366

 

39,389

 

123,135

 

36,064

 

Noncontrolling interest in consolidated joint ventures

 

(311

)

373

 

395

 

863

 

Noncontrolling interest in Operating Partnership

 

(5,662

)

(4,383

)

(12,946

)

(4,069

)

Net income available to common shareholders

 

$

48,393

 

$

35,379

 

$

110,584

 

$

32,858

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share:

 

 

 

 

 

 

 

 

 

Net income available to common shareholders

 

$

0.54

 

$

0.40

 

$

1.23

 

$

0.37

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share:

 

 

 

 

 

 

 

 

 

Net income available to common shareholders

 

$

0.54

 

$

0.40

 

$

1.23

 

$

0.37

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

89,740

 

89,244

 

89,731

 

89,218

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding

 

100,401

 

100,314

 

100,359

 

100,313

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5



Table of Contents

 

MACK-CALI REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) (unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2016

 

2015

 

2016

 

2015

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

54,366

 

$

39,389

 

$

123,135

 

$

36,064

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Net unrealized loss on derivative instruments for interest rate swaps

 

(2,913

)

 

(9,253

)

 

Comprehensive income

 

$

51,453

 

$

39,389

 

$

113,882

 

$

36,064

 

Comprehensive income (loss) attributable to noncontrolling interest in consolidated joint ventures

 

(311

)

373

 

395

 

863

 

Comprehensive income (loss) attributable to noncontrolling interest in Operating Partnership

 

(5,357

)

(4,383

)

(11,976

)

(4,069

)

Comprehensive income attributable to common shareholders

 

$

45,785

 

$

35,379

 

$

102,301

 

$

32,858

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

6



Table of Contents

 

MACK-CALI REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (in thousands) (unaudited)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Dividends in

 

Other

 

Noncontrolling

 

 

 

 

 

Common Stock

 

Paid-In

 

Excess of

 

Comprehensive

 

Interests

 

Total

 

 

 

Shares

 

Par Value

 

Capital

 

Net Earnings

 

Income (Loss)

 

in Subsidiaries

 

Equity

 

Balance at January 1, 2016

 

89,584

 

$

896

 

$

2,570,392

 

$

(1,115,612

)

$

 

$

228,032

 

$

1,683,708

 

Net income

 

 

 

 

110,584

 

 

12,551

 

123,135

 

Common stock dividends

 

 

 

 

(26,894

)

 

 

(26,894

)

Unit distributions

 

 

 

 

 

 

(3,274

)

(3,274

)

Acquisition/increase in noncontrolling interest in consolidated joint ventures

 

 

 

414

 

 

 

(35,544

)

(35,130

)

Redemption of common units for common stock

 

19

 

 

308

 

 

 

(308

)

 

Shares issued under Dividend Reinvestment and Stock Purchase Plan

 

1

 

 

12

 

 

 

 

12

 

Directors’ deferred compensation plan

 

 

 

198

 

 

 

 

198

 

Stock compensation

 

47

 

1

 

1,410

 

 

 

842

 

2,253

 

Cancellation of restricted stock

 

 

 

(75

)

 

 

 

(75

)

Other comprehensive income (loss)

 

 

 

 

 

(8,283

)

(970

)

(9,253

)

Rebalancing of ownership percentage between parent and subsidiaries

 

 

 

514

 

 

 

(514

)

 

Balance at June 30, 2016

 

89,651

 

$

897

 

$

2,573,173

 

$

(1,031,922

)

$

(8,283

)

$

200,815

 

$

1,734,680

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

7



Table of Contents

 

MACK-CALI REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2016

 

2015

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net income

 

$

123,135

 

$

36,064

 

Adjustments to reconcile net income to net cash provided by Operating activities:

 

 

 

 

 

Depreciation and amortization, including related intangible assets

 

87,168

 

83,930

 

Amortization of directors deferred compensation stock units

 

198

 

197

 

Amortization of stock compensation

 

2,253

 

805

 

Amortization of deferred financing costs

 

2,349

 

1,901

 

Amortization of debt discount and mark-to-market

 

1,126

 

2,018

 

Equity in (earnings) loss of unconsolidated joint ventures

 

2,168

 

5,858

 

Distributions of cumulative earnings from unconsolidated joint ventures

 

2,415

 

2,698

 

Gain on change of control of interests

 

(15,347

)

 

Realized (gains) losses and unrealized losses on disposition of rental property, net

 

(85,717

)

(34,543

)

Gain on sale of investments in unconsolidated joint ventures

 

(5,670

)

(6,448

)

Gain from extinguishment of debt

 

(12,420

)

 

Changes in operating assets and liabilities:

 

 

 

 

 

(Increase) decrease in unbilled rents receivable, net

 

(6,745

)

801

 

Increase in deferred charges, goodwill and other assets

 

(25,470

)

(14,802

)

Decrease (increase) in accounts receivable, net

 

4,580

 

(3,561

)

Increase (decrease) in accounts payable, accrued expenses and other liabilities

 

(5,433

)

1,478

 

Decrease in rents received in advance and security deposits

 

(559

)

(3,053

)

(Decrease) increase in accrued interest payable

 

(3,196

)

6,342

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

64,835

 

$

79,685

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

Rental property acquisitions and related intangibles

 

$

(217,006

)

$

(4,057

)

Rental property additions and improvements

 

(51,638

)

(42,881

)

Development of rental property and other related costs

 

(77,386

)

(27,869

)

Proceeds from the sales of rental property

 

326,899

 

80,581

 

Proceeds from the sale of investments in unconsolidated joint ventures

 

6,420

 

6,448

 

Repayment of notes receivable

 

250

 

7,750

 

Acquisition of noncontrolling interests

 

(37,946

)

 

Investment in unconsolidated joint ventures

 

(23,657

)

(49,305

)

Distributions in excess of cumulative earnings from unconsolidated joint ventures

 

3,189

 

1,985

 

Decrease (increase) in restricted cash

 

452

 

(7,808

)

 

 

 

 

 

 

Net cash used in investing activities

 

$

(70,423

)

$

(35,156

)

 

 

 

 

 

 

CASH FLOW FROM FINANCING ACTIVITIES

 

 

 

 

 

Borrowings from revolving credit facility

 

$

355,000

 

$

129,000

 

Repayment of revolving credit facility

 

(435,000

)

(129,000

)

Repayment of senior unsecured notes

 

(200,000

)

 

Borrowings from unsecured term loan

 

350,000

 

 

Proceeds from mortgages and loans payable

 

106,906

 

2,897

 

Repayment of mortgages, loans payable and other obligations

 

(143,322

)

(27,251

)

Payment of financing costs

 

(6,656

)

(98

)

Contributions from noncontrolling interests

 

1,065

 

158

 

Payment of dividends and distributions

 

(30,025

)

(29,971

)

 

 

 

 

 

 

Net cash used in financing activities

 

$

(2,032

)

$

(54,265

)

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

$

(7,620

)

$

(9,736

)

Cash and cash equivalents, beginning of period

 

37,077

 

29,549

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

29,457

 

$

19,813

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

8



Table of Contents

 

MACK-CALI REALTY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

1.    ORGANIZATION AND BASIS OF PRESENTATION

 

ORGANIZATION

 

Mack-Cali Realty Corporation, a Maryland corporation, together with its subsidiaries (collectively, the “Company”), is a fully-integrated, self-administered, self-managed real estate investment trust (“REIT”) providing leasing, management, acquisition, development, construction and tenant-related services for its properties and third parties.  As of June 30, 2016, the Company owned or had interests in 269 properties, consisting of 142 office and 109 flex properties, totaling approximately 29.1 million square feet, leased to approximately 1,700 commercial tenants, and 18 multi-family rental properties containing 5,434 residential units, plus developable land (collectively, the “Properties”).  The Properties are comprised of 142 office buildings totaling approximately 23.8 million square feet (which include 36 buildings, aggregating approximately 5.6 million square feet owned by unconsolidated joint ventures in which the Company has investment interests), 94 office/flex buildings totaling approximately 4.8 million square feet, six industrial/warehouse buildings totaling approximately 387,400 square feet, 18 multi-family properties totaling 5,434 apartments (which include ten properties aggregating 3,587 apartments owned by unconsolidated joint ventures in which the Company has investment interests), five parking/retail properties totaling approximately 121,700 square feet (which include two buildings aggregating 81,700 square feet owned by unconsolidated joint ventures in which the Company has investment interests), one hotel (which is owned by an unconsolidated joint venture in which the Company has an investment interest) and three parcels of land leased to others.  The Properties are located in seven states, primarily in the Northeast, plus the District of Columbia.

 

BASIS OF PRESENTATION

 

The accompanying consolidated financial statements include all accounts of the Company, its majority-owned and/or controlled subsidiaries, which consist principally of Mack-Cali Realty, L.P. (the “Operating Partnership”), and variable interest entities for which the Company has determined itself to be the primary beneficiary, if any.  See Note 2: Significant Accounting Policies — Investments in Unconsolidated Joint Ventures, for the Company’s treatment of unconsolidated joint venture interests.  Intercompany accounts and transactions have been eliminated.

 

Accounting Standards Codification (“ASC”) 810, Consolidation, 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, if any, should consolidate the VIEs. Generally, the consideration of whether an entity is a VIE applies when either: (1) the equity investors (if any) lack (i) the ability to make decisions about the entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; (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 substantially all of the activities of the entity involve or are conducted on behalf of an investor with a disproportionately small voting interest.  The Company consolidates VIEs in which it is considered to be the primary beneficiary.  The primary beneficiary is defined by the entity having both of the following characteristics: (1) the power to direct the activities that, when taken together, most significantly impact the variable interest entity’s performance: and (2) the obligation to absorb losses and right to receive the returns from the VIE that would be significant to the VIE.

 

On January 1, 2016, the Company adopted accounting guidance under ASC 810, Consolidation, modifying the analysis it must perform to determine whether it should consolidate certain types of legal entities.  The guidance does not amend the existing disclosure requirements for variable interest entities or voting interest model entities.  The guidance, however, modified the requirements to qualify under the voting interest model.  Under the revised guidance, the Operating Partnership will be a variable interest entity of the parent company, Mack-Cali Realty Corporation.  As the Operating Partnership is already consolidated in the balance sheets of Mack-Cali Realty Corporation, the identification of this entity as a variable interest entity has no impact on the consolidated financial statements of Mack-Cali Realty Corporation.  There were no other legal entities qualifying under the scope of the revised guidance that were consolidated as a result of the adoption.

 

As of June 30, 2016 and December 31, 2015, the Company’s investments in consolidated real estate joint ventures, which are variable interest entities in which the Company is deemed to be the primary beneficiary have total real estate assets of $180 million and $273.4 million, respectively, mortgages of $60.5 million and $89.5 million, respectively, and other liabilities of $20.2 million and $17.5 million, respectively.

 

The financial statements have been prepared in conformity with GAAP.  The preparation of financial statements in conformity with 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

 

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during the reporting 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.

 

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.  Acquisition—related costs are expensed as incurred.  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.  Capitalized development and construction salaries and related costs approximated $0.8 million and $1.2 million for the three months ended June 30, 2016 and 2015, respectively, and $1.3 million and $2.5 million for the six months ended June 30, 2016 and 2015, respectively.  Included in total rental property is construction, tenant improvement and development in-progress of $226.7 million and $88.7 million as of June 30, 2016 and December 31, 2015, 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 Company considers a construction project as substantially completed and held available for occupancy upon the substantial 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 Company allocates costs incurred between the portions under construction and the portions substantially completed and held available for occupancy, primarily based on a percentage of the relative square footage of each portion, 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 Company estimates the fair value of acquired tangible assets, consisting of land, building and improvements, and identified intangible assets and liabilities assumed, generally consisting of the fair value of (i) above and below-market leases, (ii) in-place leases and (iii) tenant relationships.  The Company allocates the purchase price to the assets acquired and liabilities assumed based on their fair values.  The Company records goodwill or a gain on bargain purchase (if any) if the net assets acquired/liabilities assumed differ from the purchase consideration of a transaction.

 

In estimating the fair value of the tangible and intangible assets acquired, the Company 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 initially 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

 

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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 remaining 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 terms 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 Company’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 Company’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 Company’s rental properties held for use may be impaired.  In addition to identifying any specific circumstances which may affect a property or properties, management considers other criteria for determining which properties may require assessment for potential impairment.  The criteria considered by management include reviewing low leased percentages, significant near-term lease expirations, current and historical operating and/or cash flow losses, near-term mortgage debt maturities or other factors that might impact the Company’s intent and ability to hold the property.  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 value of the property over the fair value of the property.  The Company’s estimates of aggregate future cash flows expected to be generated by each property are based on a number of assumptions.  These assumptions are generally based on management’s experience in its local real estate markets and the effects of current market conditions.  The assumptions 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, and actual losses or impairments may be realized in the future.

 

Rental Property

Held for Sale                                               When assets are identified by management as held for sale, the Company discontinues depreciating the assets and estimates the sales price, net of selling costs, of such assets.  The Company generally considers assets to be held for sale when the transaction has received appropriate corporate authority, and there are no significant contingencies relating to the sale.   If, in management’s opinion, the estimated net sales price, net of selling costs, 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.

 

If circumstances arise that previously were considered unlikely and, as a result, the Company 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 value 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                                       The Company accounts for its investments in unconsolidated joint ventures under the equity method of accounting.  The Company applies the equity method by initially recording these investments at cost, as

 

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Investments in Unconsolidated Joint Ventures, subsequently adjusted for equity in earnings and cash contributions and distributions.  The outside basis portion of the Company’s joint ventures is amortized over the anticipated useful lives of the underlying ventures’ tangible and intangible assets acquired and liabilities assumed.  Generally, the Company would discontinue applying the equity method when the investment (and any advances) is reduced to zero and would not provide for additional losses unless the Company has guaranteed obligations of the venture or is otherwise committed to providing further financial support for the investee.    If the venture subsequently generates income, the Company only recognizes its share of such income to the extent it exceeds its share of previously unrecognized losses.

 

On a periodic basis, management assesses whether there are any indicators that the value of the Company’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 value of the investment over the value of the investment.  The Company’s estimates of value for each investment (particularly in real estate joint ventures) 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 operating costs.  As these factors are difficult to predict and are subject to future events that may alter management’s assumptions, the values estimated by management in its impairment analyses may not be realized, and actual losses or impairment may be realized in the future.  See Note 4: Investments in Unconsolidated Joint Ventures.

 

Cash and Cash

Equivalents                                                      All highly liquid investments with an original 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 over the term of the related indebtedness. Deferred financing costs are presented in the balance sheet as a direct deduction from the carrying value of the debt liability to which they relate, except deferred financing costs related to the revolving credit facility, which are presented in deferred charges, goodwill and other assets.  In all cases, amortization of such costs is included in interest expense and was $1,180,000 and $948,000 for the three months ended June 30, 2016 and 2015, respectively, and $2,349,000 and $1,901,000 for the six months ended June 30, 2016 and 2015, respectively.  If a financing obligation is extinguished early, any unamortized deferred financing costs are written off and included in gains (losses) from early extinguishment of debt.  No such unamortized costs were written off for the six months ended June 30, 2016 and 2015.

 

Deferred

Leasing Costs                                           Costs incurred in connection with commercial 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 Company are compensated for providing leasing services to the Properties.  The portion of such compensation related to commercial leases, which is capitalized and amortized, and included in deferred charges, goodwill and other assets, net, was approximately $870,000 and $846,000 for the three months ended June 30, 2016 and 2015, respectively, and $1,650,000 and $1,816,000 for the six months ended June 30, 2016 and 2015, respectively.

 

Goodwill                                                                     Goodwill represents the excess of the purchase price over the fair value of net tangible and intangible assets acquired in a business combination. Goodwill is allocated to various reporting units, as applicable.  Each of the Company’s segments consists of a reporting unit. Goodwill is not amortized.  Management performs an annual impairment test for goodwill during the fourth quarter and between annual tests, management evaluates the recoverability of goodwill whenever events or changes in circumstances indicate that the carrying value of goodwill may not be fully recoverable.  In its impairment tests of goodwill, management first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.  If, based on this assessment, management determines that the fair value of the reporting unit is not less than its carrying value, then performing the additional two-step impairment test is unnecessary. If the carrying value of goodwill exceeds its fair value, an impairment charge is recognized.

 

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Derivative

Instruments                                                       The Company 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 Company’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 cumulative 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 initially 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 remaining 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 terms 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.

 

Escalations and recoveries from tenants 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 14: Tenant Leases.

 

Real estate services revenue includes property management, development, construction and leasing commission fees and other services, and payroll and related costs reimbursed from clients.  Fee income derived from the Company’s unconsolidated joint ventures (which are capitalized by such ventures) are recognized to the extent attributable to the unaffiliated ownership interests.

 

Parking income includes income from parking spaces leased to tenants and others.

 

Other income includes income from tenants for additional services arranged for by the Company and income from tenants for early lease terminations.

 

Allowance for

Doubtful Accounts                 Management performs a detailed review of amounts due from tenants to determine if an allowance for doubtful accounts is required based on factors affecting the collectability of the accounts receivable balances. The factors considered by management in determining which individual tenant receivable balances, or aggregate receivable balances, require a collectability allowance include the age of the receivable, the tenant’s payment history, the nature of the charges, any communications regarding the charges and other related information. 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 Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”).  As a REIT, the Company generally will not be subject to corporate federal income tax (including alternative minimum tax) on net income that it currently distributes to its shareholders, provided that the Company satisfies certain organizational and operational requirements including the requirement to distribute at least 90 percent of its REIT taxable income (determined by excluding any net capital gains) to its shareholders.  If and to the extent the Company retains and does not distribute any net capital gains, the Company will be required to pay federal, state and local taxes on such net capital gains at the rate applicable to capital gains of a corporation.  The Company has elected to treat certain of its corporate subsidiaries as taxable REIT subsidiaries (each a “TRS”).  In general, a TRS of the Company may perform

 

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additional services for tenants of the Company and generally may engage in any real estate or non-real estate related business (except for the operation or management of health care facilities or lodging facilities or the providing to any person, under a franchise, license or otherwise, rights to any brand name under which any lodging facility or health care facility is operated).  A TRS is subject to corporate federal income tax.   The Company has conducted business through its TRS entities for certain property management, development, construction and other related services, as well as to hold a joint venture interest in a hotel and other matters.

 

As of June 30, 2016, the Company had a deferred tax asset related to its TRS activity with a balance of approximately $23.0 million which has been fully reserved for through a valuation allowance.  If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate tax rates.  The Company is subject to certain state and local taxes.

 

Pursuant to the amended provisions related to uncertain tax provisions of ASC 740, Income Taxes, the Company recognized no material adjustments regarding its tax accounting treatment.  The Company expects to recognize interest and penalties related to uncertain tax positions, if any, as income tax expense, which is included in general and administrative expense.

 

In the normal course of business, the Company or one of its subsidiaries is subject to examination by federal, state and local jurisdictions in which it operates, where applicable.  As of June 30, 2016, the tax years that remain subject to examination by the major tax jurisdictions under the statute of limitations are generally from the year 2011 forward.

 

Earnings

Per Share                                                                  The Company presents both basic and diluted earnings per share (“EPS”).  Basic EPS excludes dilution and is computed by dividing net income available to common shareholders by the weighted average number of shares outstanding for the period.  Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, where such exercise or conversion would result in a lower EPS from continuing operations amount.  Shares whose issuance is contingent upon the satisfaction of certain conditions shall be considered outstanding and included in the computation of diluted EPS as follows (i) if all necessary conditions have been satisfied by the end of the period (the events have occurred), those shares shall be included as of the beginning of the period in which the conditions were satisfied (or as of the date of the grant, if later) or (ii) if all necessary conditions have not been satisfied by the end of the period, the number of contingently issuable shares included in diluted EPS shall be based on the number of shares, if any, that would be issuable if the end of the reporting period were the end of the contingency period (for example, the number of shares that would be issuable based on current period earnings or period-end market price) and if the result would be dilutive. Those contingently issuable shares shall be included in the denominator of diluted EPS as of the beginning of the period (or as of the date of the grant, if later).

 

Dividends and

Distributions

Payable                                                                           The dividends and distributions payable at June 30, 2016 represents dividends payable to common shareholders (89,650,641 shares) and distributions payable to noncontrolling interest unitholders of the Operating Partnership (10,497,946 common units and 657,373 LTIP units) for all such holders of record as of July 6, 2016 with respect to the second quarter 2016.  The second quarter 2016 common stock dividends and unit distributions of $0.15 per common share and unit were approved by the Board of Directors on June 1, 2016 and paid on July 15, 2016.

 

The dividends and distributions payable at December 31, 2015 represents dividends payable to common shareholders (89,584,008 shares) and distributions payable to noncontrolling interest common unitholders of the Operating Partnership (10,516,844 common units) for all such holders of record as of January 6, 2016 with respect to the fourth quarter 2015.  The fourth quarter 2015 common stock dividends and common unit distributions of $0.15 per common share and unit were approved by the Board of Directors on December 8, 2015 and paid on January 15, 2016.

 

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Costs Incurred

For Stock

Issuances                                                                   Costs incurred in connection with the Company’s stock issuances are reflected as a reduction of additional paid-in capital.

 

Stock

Compensation                                        The Company accounts for stock compensation in accordance with the provisions of ASC 718, Compensation-Stock Compensation.  These provisions require that the estimated fair value of restricted stock (“Restricted Stock Awards”), restricted stock units (“RSUs”), performance share units (“PSUs”), long-term incentive plan awards and stock options at the grant date be amortized ratably into expense over the appropriate vesting period.  The Company recorded stock compensation expense of $1,469,000 and $492,000 for the three months ended June 30, 2016 and 2015, respectively, and $2,253,000 and $805,000 for the six months ended June 30, 2016 and 2015, respectively.

 

Other

Comprehensive

Income                                                                               Other comprehensive income (loss) includes items that are recorded in equity, such as effective portions of derivatives designated as cash flow hedges or unrealized holding gains or losses on marketable securities available for sale.

 

Fair Value

Hierarchy                                                                The standard Fair Value Measurements specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs).  The following summarizes the fair value hierarchy:

 

·                  Level 1: Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

·                  Level 2: Quoted prices for identical assets and liabilities in markets that are inactive, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly, such as interest rates and yield curves that are observable at commonly quoted intervals and

·                  Level 3: Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.  In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety.  The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

 

Discontinued

Operations                                                           In April 2014, the Financial Accounting Standards Board (“FASB”) issued guidance related to the reporting of discontinued operation and disclosures of disposals of components of an entity.  This guidance defines a discontinued operation as a component or group of components disposed or classified as held for sale and represents a strategic shift that has (or will have) a major effect on an entity’s operations and final result; the guidance states that a strategic shift could include a disposal of a major geographical area of operations, a major line of business, a major equity method investment or other major parts of an entity.  The guidance also provides for additional disclosure requirements in connection with both discontinued operations and other dispositions not qualifying as discontinued operations.  The guidance is effective for all companies for annual and interim periods beginning on or after December 15, 2014.  The guidance applies prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date.  The Company adopted this standard effective with the interim period beginning January 1, 2014.  Prior to January 1, 2014, properties identified as held for sale and/or disposed of were presented in discontinued operations.

 

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Impact Of

Recently-Issued

Accounting

Standards                                                                In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. In adopting ASU 2014-09, companies may use either a full retrospective or a modified retrospective approach. Additionally, this guidance requires improved disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.  ASU 2014-09 is effective for the first interim period within annual reporting periods beginning after December 15, 2017, and early adoption is permitted for periods beginning after December 15, 2016.  The Company is currently in the process of evaluating the impact the adoption of ASU 2014-09 will have on the Company’s financial position or results of operations.

 

In August 2014, the FASB issued ASU 2014-15, which requires management to evaluate whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern, and to provide certain disclosures when it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued. ASU 2014-15 is effective for the annual period ended December 31, 2016 and for annual periods and interim periods thereafter with early adoption permitted. The adoption of ASU 2014-15 is not expected to materially impact the Company’s consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02, modifying the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee.  This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively.  A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification.  Leases with a term of 12 months or less will be accounted for in the same manner as operating leases today.  The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases.  The guidance is expected to impact the consolidated financial statements as the Company has certain operating and land lease arrangements for which it is the lessee.  The guidance supersedes previously issued guidance under ASC Topic 840 “Leases.”  The guidance is effective on January 1, 2019, with early adoption permitted.  The Company is currently in the process of evaluating the impact the adoption of ASU 2016-02 will have on the Company’s consolidated financial statements.

 

In March 2016, the FASB issued ASU 2016-07, which eliminates a requirement for the retroactive adjustment on a step by step basis of the investment, results of operations, and retained earnings as if the equity method had been effective during all previous periods that the investment had been held when an investment qualifies for equity method accounting due to an increase in the level of ownership or degree of influence. The cost of acquiring the additional interest in the investee is to be added to the current basis of the investor’s previously held interest and the equity method of accounting should be adopted as of the date the investment becomes qualified for equity method accounting. This guidance is to be applied on a prospective basis and is effective for interim and annual periods beginning after December 15, 2016. Early adoption is permitted for financial statements that have not been previously issued. The Company is currently in the process of evaluating the impact the adoption of ASU 2016-07 will have on the Company’s consolidated financial statements.

 

In March 2016, the FASB issued ASU 2016-09, intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. The new guidance allows for entities to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. In addition, the guidance allows employers to withhold shares to satisfy minimum statutory tax withholding requirements up to the employees’ maximum individual tax rate without causing the award to be classified as a liability. The guidance also stipulates that cash paid by an employer to a taxing authority when directly withholding shares for tax-withholding purposes should be classified as a financing activity on the statement of cash flows. This guidance is effective for annual reporting

 

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periods beginning after December 15, 2016, and interim periods within that reporting period. Early adoption is permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. The Company is currently in the process of evaluating the impact the adoption of ASU 2016-09 will have on the Company’s consolidated financial statements.

 

3.    RECENT TRANSACTIONS

 

Acquisitions

 

The Company acquired the following office properties during the six months ended June 30, 2016 (dollars in thousands):

 

Acquisition

 

 

 

 

 

# of

 

Rentable

 

Acquisition

 

Date

 

Property Address

 

Location

 

Bldgs.

 

Square Feet

 

Cost

 

04/04/16

 

11 Martine Avenue (a)

 

White Plains, New York

 

1

 

82,000

 

$

10,750

 

04/07/16

 

320, 321 University Avenue (b)

 

Newark, New Jersey

 

2

 

147,406

 

23,000

 

06/02/16

 

101 Wood Avenue South (c)

 

Edison, New Jersey

 

1

 

262,841

 

82,300

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Acquisitions

 

 

 

 

 

4

 

492,247

 

$

116,050

 

 


(a) Acquisition represented four units of condominium interests which collectively comprise floors 2 through 5. Upon completion of the acquisition, the Company owns the entire 14-story 262,000 square-foot building. The acquisition was funded using available cash.

(b) This acquisition was funded through borrowings under the Company’s unsecured revolving credit facility.

(c) This acquisition was funded using available cash and through borrowings under the Company’s unsecured revolving credit facility.

 

The purchase prices were allocated to the net assets acquired, as follows (in thousands):

 

 

 

 

 

320, 321

 

 

 

 

 

11 Martine

 

University

 

101 Wood

 

 

 

Avenue

 

Avenue

 

Avenue

 

Land

 

$

2,460

 

$

7,305

 

$

8,509

 

Buildings and improvements

 

8,290

 

15,695

 

72,738

 

Above market leases (1)

 

 

 

58

 

In-place lease values (1)

 

 

 

6,743

 

 

 

 

 

 

 

88,048

 

Less: Below market lease values (1)

 

 

 

(5,748

)

Net assets recorded upon acquisition

 

$

10,750

 

$

23,000

 

$

82,300

 

 


(1)         Above market, in-place and below market leases will be amortized over a weighted-average term of 6.3 years.

 

On July 1, 2016, the Company acquired a 566,000 square-foot office property located in Hoboken, New Jersey, for approximately $235 million.  It was not practicable to finalize the purchase price allocation for this acquisition given the short period of time between the acquisition date and the issuance of this Report.

 

Consolidations

 

On January 5, 2016, the Company, which held a 50 percent subordinated interest in the unconsolidated joint venture, Overlook Ridge Apartment Investors LLC, a 371-unit multi-family operating property located in Malden, Massachusetts, acquired the remaining interest for $39.8 million in cash plus the assumption of a first mortgage loan secured by the property with a principal balance of $52.7 million.  The cash portion of the acquisition was funded primarily through borrowings under the Company’s unsecured revolving credit facility.  Upon acquisition, the Company consolidated the asset and accordingly, remeasured its equity interests, as required by the FASB’s consolidation guidance, at fair value (based upon the income approach using current rates and market cap rates and discount rates).  As a result, the Company recorded a gain on change of control of interests of $10.2 million in the six months ended June 30, 2016.  On January 19, 2016, the Company repaid the assumed loan and obtained a new loan secured by the property in the amount of $72.5 million, which bears interest at 3.625 percent and matures in February 2023.  See Note 10: Mortgages, Loans Payable and Other Obligations.

 

During the three months ended June 30, 2016, the Company, which held a 38.25 percent subordinate interest in the unconsolidated Portside Apartment Developers, L.L.C., a joint venture which owns a 175-unit operating multi-family property located in East Boston, Massachusetts, acquired the remaining interests of its joint venture partners for $39.6 million in cash plus the assumption of a mortgage loan secured by the property with a principal balance of $42.5 million and interest at LIBOR plus 215 basis points, with a floor of 275 basis points, maturing in December 2017.  See Note 10: Mortgages, loans payable.  The cash portion of the acquisition was funded primarily through borrowings under the Company’s unsecured revolving credit facility.  Upon acquisition, the Company

 

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consolidated the asset and accordingly, remeasured its equity interests, as required by the FASB’s consolidation guidance, at fair value (based upon the income approach using current rates and market cap rates and discount rates).  As a result, the Company recorded a gain on change of control of interests of $5.2 million in the three and six months ended June 30, 2016.

 

The purchase prices were allocated to the net assets acquired upon consolidation, as follows (in thousands):

 

 

 

Overlook

 

Portside

 

 

 

Ridge

 

Apts

 

Land and Leasehold Interest

 

$

11,072

 

$

9,160

 

Buildings and improvements

 

87,793

 

74,147

 

Furniture, fixtures and equipment

 

1,695

 

1,003

 

In-place lease values (1)

 

4,389

 

2,548

 

Below market lease values (1)

 

(489

)

(233

)

Other assets

 

237

 

703

 

Sub Total

 

104,697

 

87,328

 

 

 

 

 

 

 

Less: Debt assumed

 

(52,662

)

(42,500

)

 

 

 

 

 

 

Net assets recorded upon consolidation

 

$

52,035

 

$

44,828

 

 


(1)   In-place lease values and below-market lease values will be amortized over a weighted average term of 7.5 years.

 

Other Investments

 

On April 26, 2016, the Company acquired the remaining non-controlling interest in a development project located in Weehawken, NJ for $36.4 million.  The project includes developable land for approximately 1,100 multi-family units, 290,000 square feet of office space, a 52.5 percent ownership interest in Port Imperial 4/5 Garage and Retail operating properties.  The initial phase, Port Imperial South 11, a 295-unit multi-family project, began construction in the second quarter 2016.

 

Dispositions/Rental Property Held for Sale

 

The Company disposed of the following office properties during the six months ended June 30, 2016 (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized

 

 

 

 

 

 

 

 

 

Rentable

 

Net

 

Net

 

Gain (loss)/

 

Disposition

 

 

 

 

 

# of

 

Square

 

Sales

 

Book

 

Unrealized

 

Date

 

Property/Address

 

Location

 

Bldgs.

 

Feet

 

Proceeds

 

Value

 

Loss

 

03/11/16

 

2 Independence Way (a)

 

Princeton, New Jersey

 

1

 

67,401

 

$

4,119

 

$

4,283

 

$

(164

)

03/24/16

 

1201 Connecticut Avenue, NW

 

Washington, D.C.

 

1

 

169,549

 

90,591

 

31,827

 

58,764

 

04/26/16

 

125 Broad Street (b)

 

New York, New York

 

1

 

524,476

 

192,323

 

200,183

 

(7,860

)

05/09/16

 

9200 Edmonston Road

 

Greenbelt, Maryland

 

1

 

38,690

 

4,083

(c)

3,837

 

246

 

05/18/16

 

1400 L Street

 

Washington, D.C.

 

1

 

159,000

 

68,399

(d)

30,053

 

38,346

 

Sub-total

 

 

 

 

 

5

 

959,116

 

359,515

 

270,183

 

89,332

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

.

 

Unrealized losses on rental property held for sale

 

 

 

 

 

(3,615

)

Totals

 

 

 

 

 

5

 

959,116

 

$

359,515

 

$

270,183

 

$

85,717

 

 


(a)  The Company recorded an impairment charge of $3.2 million on this property during the year ended December 31, 2015 as it estimated that the carrying value of the property may not be recoverable over its anticipated holding period.

(b)  The Company recorded impairment charges of $83.2 million on this property during the year ended December 31, 2015 as it estimated that the carrying value of the property may not be recoverable over its anticipated holding period.

(c)  The Company transferred the deed for this property to the lender in satisfaction of its obligations. The Company recorded an impairment charge of $3.0 million on this property during the year ended December 31, 2012 as it estimated that the carrying value of the property may not be recoverable over its anticipated holding period.

(d)  $28.5 million of the net sales proceeds are held by a qualified intermediary until such funds are used in acquisitions.

 

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The following table summarizes income (loss) for the three and six month periods ended June 30, 2016 and 2015 from the properties disposed of during the six months ended June 30, 2016 and the six properties disposed of during the year ended December 31, 2015: (dollars in thousands)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2016

 

2015

 

2016

 

2015

 

Total revenues

 

$

1,859

 

$

12,203

 

$

11,608

 

$

27,680

 

Operating and other expenses

 

(2,408

)

(7,490

)

(8,022

)

(14,281

)

Depreciation and amortization

 

(3,173

)

(5,641

)

(7,275

)

(9,994

)

Interest expense

 

(665

)

(2,604

)

(1,386

)

(5,380

)

 

 

 

 

 

 

 

 

 

 

Income (loss) from properties disposed of

 

$

(4,387

)

$

(3,532

)

$

(5,075

)

$

(1,975

)

 

 

 

 

 

 

 

 

 

 

Realized gains on dispositions

 

30,731

 

34,399

 

89,332

 

34,543

 

 

 

 

 

 

 

 

 

 

 

Total income (loss) from properties disposed of

 

$

26,344

 

$

30,867

 

$

84,257

 

$

32,568

 

 

Rental Property Held for Sale, Net

 

During the three months ended June 30, 2016, the Company signed agreements to dispose of five office properties totaling approximately 567,000 square feet, and one 220-unit multi-family rental property, subject to certain conditions.  The office and multi-family rental properties are located in Parsippany, New Jersey, Upper Saddle River, New Jersey and Andover, Massachusetts.  The Company identified these properties as held for sale at June 30, 2016.  The total estimated sales proceeds expected from the four separate sales are approximately $84 million.  The Company determined that the carrying amounts of four of the office properties were not expected to be recovered from estimated net sales proceeds and accordingly recognized an unrealized loss allowance of $3.6 million at June 30, 2016.  In July 2016, the Company completed the disposition of four of these office properties for sales proceeds of approximately $24.9 million.  All the remaining dispositions are expected to be completed in the third quarter of 2016.

 

The following table summarizes the rental property held for sale, net, as of June 30, 2016: (dollars in thousands)

 

 

 

June 30,

 

 

 

2016

 

Land

 

$

20,229

 

Buildings and improvements

 

80,195

 

Less: Accumulated depreciation

 

(23,619

)

Less: Unrealized losses on properties held for sale

 

(3,615

)

Rental property held for sale,net

 

$

73,190

 

 

Other assets and liabilities related to the rental properties held for sale, as of June 30, 2016, include $2.0 million in deferred charges, and other assets, $1.5 million in Unbilled rents receivable, $0.9 million in Accounts payable, accrued expenses and other liabilities, and $1.2 million in Rents received in advance and security deposits.  Approximately $3.5 million of these assets and $1.2 million of these liabilities are expected to be written off with the completion of the sales.

 

Other Sales Agreement

 

During the three months ended June 30, 2016, the Company also signed an agreement to dispose of a land parcel located in Upper Saddle River, New Jersey, for approximately $41.9 million, subject to certain conditions.  The disposition is expected to be completed in the fourth quarter 2016.

 

Unconsolidated Joint Venture Activity

 

On April 1, 2016, the Company bought out its partner PruRose Riverwalk G, L.L.C. for $11.3 million and increased its subordinated interest in Riverwalk G Urban Renewal, L.L.C. from 25 percent to 50 percent using borrowings on the Company’s unsecured credit facility.  Riverwalk G Urban Renewal, L.L.C., owns a 316-unit operating multi-family property located in West New York, New Jersey.

 

On May 26, 2016, the Company sold its 50 percent interest in Port Imperial South 15, L.L.C. (“RiversEdge”) and its 20 percent interest in Port Imperial South 13 Urban Renewal, L.L.C. (“RiverParc”), joint ventures that own the 236-unit and the 280-unit multi-family operating properties, respectively, located in Weehawken, New Jersey for $6.4 million.  The Company realized a gain on the sale of $5.7 million.

 

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Table of Contents

 

4.    INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES

 

As of June 30, 2016, the Company had an aggregate investment of approximately $315.2 million in its equity method joint ventures.  The Company formed these ventures with unaffiliated third parties, or acquired interests in them, to develop or manage primarily office and multi-family rental properties, or to acquire land in anticipation of possible development of office and multi-family rental properties.  As of June 30, 2016, the unconsolidated joint ventures owned: 36 office and two retail properties aggregating approximately 5.7 million square feet, 10 multi-family properties totaling 3,587 apartments, a 350-room hotel, development projects for up to approximately 763 apartments; and interests and/or rights to developable land parcels able to accommodate up to 4,210 apartments.  The Company’s unconsolidated interests range from 7.5 percent to 85 percent subject to specified priority allocations in certain of the joint ventures.

 

The amounts reflected in the following tables (except for the Company’s share of equity in earnings) are based on the historical financial information of the individual joint ventures.  The Company does not record losses of the joint ventures in excess of its investment balances unless the Company is liable for the obligations of the joint venture or is otherwise committed to provide financial support to the joint venture.  The outside basis portion of the Company’s investments in joint ventures is amortized over the anticipated useful lives of the underlying ventures’ tangible and intangible assets acquired and liabilities assumed.  Unless otherwise noted below, the debt of the Company’s unconsolidated joint ventures generally is non-recourse to the Company, except for customary exceptions pertaining to such matters as intentional misuse of funds, environmental conditions, and material misrepresentations.

 

The Company has agreed to guarantee repayment of a portion of the debt of its unconsolidated joint ventures.  As of June 30, 2016, such debt had a total facility amount of $282.2 million of which the Company agreed to guarantee up to $32 million.  As of June 30, 2016, the outstanding balance of such debt totaled $199.5 million of which $23.1 million was guaranteed by the Company.  The Company also posted a $3.6 million letter of credit in support of the South Pier at Harborside joint venture, half of which is indemnified by Hyatt Corporation, the Company’s joint venture partner.  The Company performed management, leasing, development and other services for the properties owned by the unconsolidated joint ventures and recognized $1.0 million and $1.4 million for such services in the three months ended June 30, 2016 and 2015, respectively.  The Company had $0.6 million and $0.8 million in accounts receivable due from its unconsolidated joint ventures as of June 30, 2016 and December 31, 2015, respectively.

 

Included in the Company’s investments in unconsolidated joint ventures as of June 30, 2016 are four unconsolidated development joint ventures, which are VIEs for which the Company is not the primary beneficiary.  These joint ventures are primarily established to develop real estate property for long-term investment and were deemed VIEs primarily based on the fact that the equity investment at risk was not sufficient to permit the entities to finance their activities without additional financial support.  The initial equity contributed to these entities was not sufficient to fully finance the real estate construction as development costs are funded by the partners throughout the construction period.  The Company determined that it was not the primary beneficiary of these VIEs based on the fact that the Company has shared control of these entities along with the entity’s partners and therefore does not have controlling financial interests in these VIEs.  The Company’s aggregate investment in these VIEs was approximately $178.4 million as of June 30, 2016.  The Company’s maximum exposure to loss as a result of its involvement with these VIEs is estimated to be approximately $201.5 million, which includes the Company’s current investment and estimated future funding commitments/guarantees of approximately $23.1 million.  The Company has not provided financial support to these VIEs that it was not previously contractually required to provide.  In general, future costs of development not financed through third party will be funded with capital contributions from the Company and its outside partners in accordance with their respective ownership percentages.

 

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Table of Contents

 

The following is a summary of the Company’s unconsolidated joint ventures as of June 30, 2016 and December 31, 2015: (dollars in thousands, including footnotes)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property Debt

 

 

 

Number of

 

Company’s

 

Carrying Value

 

 

 

As of June 30, 2016

 

 

 

Apartment Units

 

Effective

 

June 30,

 

December 31,

 

 

 

Maturity

 

Interest

 

Entity / Property Name

 

or Square Feet (sf)

 

Ownership % (a)

 

2016

 

2015

 

Balance

 

Date

 

Rate

 

Multi-family

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marbella RoseGarden, L.L.C./ Marbella (b)

 

412

 

units

 

24.27

%

$

15,362

 

$

15,569

 

$

95,000

 

05/01/18

 

4.99

%

RoseGarden Monaco Holdings, L.L.C./ Monaco (b)

 

523

 

units

 

15.00

%

346

 

937

 

165,000

 

02/01/21

 

4.19

%

Rosewood Morristown, L.L.C. / Metropolitan at 40 Park (c) (d) 

 

130

 

units

 

12.50

%

5,784

 

5,723

 

45,533

 

 

(e)

 

(e)

Riverwalk G Urban Renewal, L.L.C./ RiverTrace at Port Imperial (b) (f)

 

316

 

units

 

50.00

%

10,683

 

 

79,393

 

07/15/21

 

6.00

%(g)

Elmajo Urban Renewal Associates, LLC / Lincoln Harbor (Bldg A&C) (b)

 

355

 

units

 

7.50

%

 

 

128,100

 

03/01/30

 

4.00

%

Crystal House Apartments Investors LLC / Crystal House (h)

 

794

 

units

 

25.00

%

29,687

 

28,114

 

165,000

 

04/01/20

 

3.17

%

Roseland/Port Imperial Partners, L.P./ Riverwalk C (b) (i)

 

363

 

units

 

20.00

%

1,678

 

1,678

 

 

 

 

RoseGarden Marbella South, L.L.C./ Marbella II

 

311

 

units

 

24.27

%

17,514

 

16,728

 

72,615

 

03/30/17

 

L+2.25

%(j)

Estuary Urban Renewal Unit B, LLC / Lincoln Harbor (Bldg B) (b)

 

227

 

units

 

7.50

%

 

 

81,900

 

03/01/30

 

4.00

%

Riverpark at Harrison I, L.L.C./ Riverpark at Harrison

 

141

 

units

 

45.00

%

2,257

 

2,544

 

30,000

 

08/01/25

 

3.70

%

Capitol Place Mezz LLC / Station Townhouses

 

378

 

units

 

50.00

%

44,923

 

46,267

 

100,700

 

07/01/33

 

4.82

%(k)

Harborside Unit A Urban Renewal, L.L.C. / URL Harborside

 

763

 

units

 

85.00

%

98,518

 

96,799

 

119,433

 

08/01/29

 

5.197

%(l)

RoseGarden Monaco, L.L.C./ San Remo Land

 

250

 

potential units

 

41.67

%

1,370

 

1,339

 

 

 

 

Grand Jersey Waterfront URA, L.L.C./ Liberty Landing

 

850

 

potential units

 

50.00

%

337

 

337

 

 

 

 

Hillsborough 206 Holdings, L.L.C./ Hillsborough 206

 

160,000

 

sf

 

50.00

%

1,962

 

1,962

 

 

 

 

Plaza VIII & IX Associates, L.L.C./ Vacant land (parking operations)

 

1,225,000

 

sf

 

50.00

%

4,230

 

4,055

 

 

 

 

PruRose Port Imperial South 15, LLC/RiversEdge at Port Imperial (x)

 

236

 

units

 

50.00

%

 

 

 

 

 

PruRose Port Imperial South 13, LLC/RiverParc at Port Imperial (x)

 

280

 

units

 

20.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Office

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Red Bank Corporate Plaza, L.L.C./ Red Bank

 

92,878

 

sf

 

50.00

%

4,085

 

4,140

 

14,776

 

05/17/16

 

L+3.00

%(m)

12 Vreeland Associates, L.L.C./ 12 Vreeland Road

 

139,750

 

sf

 

50.00

%

6,082

 

5,890

 

12,171

 

07/01/23

 

2.87

%

BNES Associates III / Offices at Crystal Lake

 

106,345

 

sf

 

31.25

%

2,587

 

2,295

 

5,810

 

11/01/23

 

4.76

%

KPG-P 100 IMW JV, LLC / 100 Independence Mall West

 

339,615

 

sf

 

33.33

%

 

 

72,000

 

09/09/16

 

L+7.00

%(n)

Keystone-Penn

 

1,842,820

 

sf

 

 

(o)

 

 

229,882

 

 

(p)

 

(p)

Keystone-TriState

 

1,266,384

 

sf

 

 

(q)

3,288

 

3,958

 

213,916

 

 

(r)

 

(r)

KPG-MCG Curtis JV, L.L.C./ Curtis Center (s)

 

885,000

 

sf

 

50.00

%

62,144

 

59,858

 

 

(t)

 

(t)

 

(t)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Roseland/North Retail, L.L.C./ Riverwalk at Port Imperial (b)

 

30,745

 

sf

 

20.00

%

1,733

 

1,758

 

 

 

 

South Pier at Harborside / Hyatt Regency Jersey City on the Hudson

 

350

 

rooms

 

50.00

%

 

(u)

 

(u)

63,023

 

 

(v)

 

(v)

Other (w)

 

 

 

 

 

 

 

630

 

3,506

 

 

 

 

Totals:

 

 

 

 

 

 

 

$

315,200

 

$

303,457

 

$

1,694,252

 

 

 

 

 

 


(a)

 

Company’s effective ownership% represents the Company’s entitlement to residual distributions after payments of priority returns, where applicable.

(b)

 

The Company’s ownership interests in this venture are subordinate to its partner’s preferred capital balance and the Company is not expected to meaningfully participate in the venture’s cash flows in the near term.

(c)

 

Through the joint venture, the Company also owns a 12.5 percent interest in a 50,973 square feet retail building (“Shops at 40 Park”) and a 25 percent interest in a to-be-built 59-unit, five story multi-family rental development property (“Lofts at 40 Park”).

(d)

 

The Company’s ownership interests in this venture are subordinate to its partner’s preferred capital balance and the payment of the outstanding balance remaining on a note ($975 as of June 30, 2016), and is not expected to meaningfully participate in the venture’s cash flows in the near term.

(e)

 

Property debt balance consists of: (i) a loan, collateralized by the Metropolitan at 40 Park, with a balance of $38,028, bears interest at 3.25 percent, matures in September 2020; (ii) an amortizable loan, collateralized by the Shops at 40 Park, with a balance of $6,388, bears interest at 3.63 percent, matures in August 2018; and (iii) a loan, collateralized by the Lofts at 40 Park, with a balance of $1,117, bears interest at LIBOR plus 250 basis points and matures in September 2016. The Shops at 40 Park mortgage loan also provides for additional borrowing proceeds of $1 million based on certain preferred thresholds being achieved.

(f)

 

During the three months ended June 30, 2016, the Company acquired the equity interests of its joint venture partner in Portside Apartment Holdings, L.L.C and PruRose Riverwalk G, L.L.C. for $39.6 million and $11.3 million, respectively, which increased its ownership to 100 percent in Portside Apartment Holdings, LLC and 50 percent in Riverwalk G Urban Renewal, L.L.C. (See Note 3: Recent Transactions — Acquisitions).

(g)

 

The permanent loan has a maximum borrowing amount of $80,249.

(h)

 

The Company also owns a 50 percent interest in a vacant land to accommodate the development of approximately 295 additional units of which 252 are currently approved.

(i)

 

The Company also owns a 20 percent residual interest in undeveloped land parcels: parcels 6, I, and J that can accommodate the development of 836 apartment units.

(j) 

 

The construction loan has a maximum borrowing amount of $77,400 and provides, subject to certain conditions, two one-year extension options with a fee of 25 basis points for each year.

(k)

 

The construction/permanent loan has a maximum borrowing amount of $100,700 with amortization starting in August 2017.

(l)

 

The construction/permanent loan has a maximum borrowing amount of $192,000.

(m)

 

The joint venture has a swap agreement that fixes the all-in rate to 3.99375 percent per annum on an initial notional amount of $13,650 and then adjusting in accordance with an amortization schedule, which is effective from October 17, 2011 through loan maturity.

(n)

 

The mortgage loan has two one-year extension options, subject to certain conditions.

(o)

 

The Company’s equity interests in the joint ventures will be subordinated to Keystone Entities receiving a 15 percent internal rate of return (“IRR”) after which the Company will receive a 10 percent IRR on its subordinate equity and then all profit will be split equally.

(p)

 

Principal balance of $127,600 bears interest at 5.114 percent and matures on August 27, 2023; principal balance of $45,500 bears interest at 5.01 percent and matures on September 6, 2025; principal balance of $35,107 bears interest at rates ranging from LIBOR+5.0 percent to LIBOR+5.75 percent and matures on August 27, 2016; principal balance of $11,250 bears interest at LIBOR+5.5 percent and matures on January 9, 2019; principal balance of $10,425 bears interest at LIBOR+6.0 percent matures on August 31, 2016.

(q)

 

Includes the Company’s pari-passu interests of $3.3 million in five properties and Company’s subordinated equity interests to Keystone Entities receiving a 15 percent internal rate of return (“IRR”) after which the Company will receive a 10 percent IRR on its subordinate equity and then all profit will be split equally.

(r)

 

Principal balance of $44,378 bears interest at 5.38 percent and matures on July 1, 2017; principal balance of $76,837 bears interest at rates ranging from 5.65 percent to 6.75 percent and matures on September 9, 2017; principal balance of $14,250 bears interest at 4.88 percent and matures on July 6, 2024; principal balance of $63,400 bears interest at 4.93 percent and matures on July 6, 2044; principal balance of $15,050 bears interest at 4.71 percent and matures on August 6, 2044.

 

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Table of Contents

 

(s)

 

Includes undivided interests in the same manner as investments in noncontrolling partnership, pursuant to ASC 970-323-25-12.

(t)

 

See Note 10: Mortgages, Loans Payable and Other Obligations for debt secured by interests in these assets.

(u)

 

The negative carrying value for this venture of $3,847 and $3,317 as of June 30, 2016 and December 31, 2015, respectively, were included in accounts payable, accrued expenses and other liabilities.

(v)

 

Balance includes: (i) mortgage loan, collateralized by the hotel property, with a balance of $59,429, bears interest at 6.15 percent and matures in November 2016, and (ii) loan with a balance of $3,594, bears interest at fixed rates ranging from 6.09 percent to 6.62 percent and matures in August 1, 2020. The Company posted a $3.6 million letter of credit in support of this loan, half of which is indemnified by the partner.

(w)

 

The Company owns other interests in various unconsolidated joint ventures, including interests in assets previously owned and interest in ventures whose businesses are related to its core operations. These ventures are not expected to significantly impact the Company’s operations in the near term. 

(x)

 

See discussion in Note 3: Recent Transactions - Unconsolidated Joint Venture Activity.

 

The following is a summary of the Company’s equity in earnings (loss) of unconsolidated joint ventures for the three and six months ended June 30, 2016 and 2015: (dollars in thousands)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

Entity / Property Name

 

2016

 

2015

 

2016

 

2015

 

Multi-family

 

 

 

 

 

 

 

 

 

Marbella RoseGarden, L.L.C./ Marbella

 

$

47

 

$

61

 

$

132

 

$

122

 

RoseGarden Monaco Holdings, L.L.C./ Monaco

 

(300

)

(313

)

(592

)

(629

)

Rosewood Morristown, L.L.C. / Metropolitan at 40 Park

 

(82

)

(91

)

(163

)

(185

)

Riverwalk G Urban Renewal, L.L.C./ RiverTrace at Port Imperial

 

(595

)

(276

)

(595

)

(530

)

Elmajo Urban Renewal Associates, LLC / Lincoln Harbor (Bldg A&C)

 

 

 

 

 

Crystal House Apartments Investors LLC / Crystal House

 

(110

)

13

 

(222

)

3

 

Roseland/Port Imperial Partners, L.P./ Riverwalk C

 

 

(125

)

 

(309

)

RoseGarden Marbella South, L.L.C./ Marbella II

 

(307

)

 

(307

)

 

Estuary Urban Renewal Unit B, LLC / Lincoln Harbor (Bldg B)

 

 

 

 

 

Riverpark at Harrison I, L.L.C./ Riverpark at Harrison

 

(102

)

(150

)

(130

)

(324

)

Capitol Place Mezz LLC / Station Townhouses

 

(727

)

(1,263

)

(1,495

)

(1,188

)

Harborside Unit A Urban Renewal, L.L.C. / URL Harborside

 

 

 

(17

)

 

RoseGarden Monaco, L.L.C./ San Remo Land

 

 

 

 

 

Grand Jersey Waterfront URA, L.L.C./ Liberty Landing

 

 

 

(60

)

(19

)

Hillsborough 206 Holdings, L.L.C./ Hillsborough 206

 

(13

)

(5

)

(32

)

(5

)

Plaza VIII & IX Associates, L.L.C./ Vacant land (parking operations)

 

98

 

70

 

175

 

156

 

Office

 

 

 

 

 

 

 

 

 

Red Bank Corporate Plaza, L.L.C./ Red Bank

 

108

 

112

 

210

 

222

 

12 Vreeland Associates, L.L.C./ 12 Vreeland Road

 

108

 

86

 

192

 

72

 

BNES Associates III / Offices at Crystal Lake

 

17

 

52

 

(177

)

121

 

KPG-P 100 IMW JV, LLC / 100 Independence Mall West

 

 

(379

)

 

(763

)

Keystone-Penn

 

 

 

 

 

Keystone-TriState

 

(191

)

(242

)

(668

)

(1,590

)

KPG-MCG Curtis JV, L.L.C./ Curtis Center

 

226

 

232

 

405

 

428

 

Other

 

 

 

 

 

 

 

 

 

Roseland/North Retail, L.L.C./ Riverwalk at Port Imperial

 

(9

)

(18

)

(25

)

(36

)

South Pier at Harborside / Hyatt Regency Jersey City on the Hudson

 

987

 

868

 

820

 

784

 

Other

 

231

 

(961

)

381

 

(2,188

)

Company’s equity in earnings (loss) of unconsolidated joint ventures

 

$

(614

)

$

(2,329

)

$

(2,168

)

$

(5,858

)

 

The following is a summary of the financial position of the unconsolidated joint ventures in which the Company had investment interests as of June 30, 2016 and December 31, 2015: (dollars in thousands)

 

 

 

June 30,

 

December 31,

 

 

 

2016

 

2015

 

Assets:

 

 

 

 

 

Rental property, net

 

$

1,598,623

 

$

1,781,621 

 

Other assets

 

269,073

 

307,000

 

Total assets

 

$

1,867,696

 

$

2,088,621 

 

Liabilities and partners’/members’ capital:

 

 

 

 

 

Mortgages and loans payable

 

$

1,187,866

 

$

1,298,293 

 

Other liabilities

 

229,941

 

215,951

 

Partners’/members’ capital

 

449,889

 

574,377

 

Total liabilities and partners’/members’ capital

 

$

1,867,696

 

$

2,088,621 

 

 

22



Table of Contents

 

The following is a summary of the results from operations of the unconsolidated joint ventures for the period in which the Company had investment interests during the three and six months ended June 30, 2016 and 2015: (dollars in thousands)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2016

 

2015

 

2016

 

2015

 

Total revenues

 

$

94,193

 

$

81,075

 

$

164,315

 

$

155,552

 

Operating and other expenses

 

(65,456

)

(55,953

)

(111,017

)

(113,309

)

Depreciation and amortization

 

(16,924

)

(17,816

)

(35,766

)

(34,809

)

Interest expense

 

(13,415

)

(13,324

)

(27,464

)

(24,658

)

Net loss

 

$

(1,602

)

$

(6,018

)

$

(9,932

)

$

(17,224

)

 

5.    DEFERRED CHARGES, GOODWILL AND OTHER ASSETS, NET

 

 

 

June 30,

 

December 31,

 

(dollars in thousands)

 

2016

 

2015

 

Deferred leasing costs

 

$

224,925

 

$

239,690

 

Deferred financing costs - revolving credit facility (1)

 

5,359

 

5,394

 

 

 

230,284

 

245,084