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Section 1: 10-Q (10-Q)

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 March 31, 2018

 

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

Commission File Number: 333-57103  Mack-Cali Realty, L.P.

 

Mack-Cali Realty Corporation

Mack-Cali Realty, L.P.

(Exact name of registrant as specified in its charter)

 

Maryland (Mack-Cali Realty Corporation)

 

22-3305147 (Mack-Cali Realty Corporation)

Delaware (Mack-Cali Realty, L.P.)

 

22-3315804 (Mack-Cali Realty, L.P.)

(State or other jurisdiction of incorporation or organization)

 

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

 

 

 

Harborside 3, 210 Hudson St., Ste. 400, Jersey City, New Jersey

 

07311

(Address of principal executive offices)

 

(Zip Code)

 

(732) 590-1010

(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.

Mack-Cali Realty Corporation

 

YES x NO o

Mack-Cali Realty, L.P.

 

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).

Mack-Cali Realty Corporation

 

YES x NO o

Mack-Cali Realty, L.P.

 

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.

Mack-Cali Realty Corporation:

Large accelerated filer x

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o

Emerging Growth Company o

 

 

(Do not check if a smaller reporting company)

 

 

Mack-Cali Realty, L.P.:

Large accelerated filer x

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o

Emerging Growth Company o

 

 

(Do not check if a smaller reporting company)

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Mack-Cali Realty Corporation

o

 

 

Mack-Cali Realty, L.P.

o

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Mack-Cali Realty Corporation

 

YES o NO x

Mack-Cali Realty, L.P.

 

YES o NO x

 

As of April 30, 2018, there were 90,135,896 shares of Mack-Cali Realty Corporation’s Common Stock, par value $0.01 per share, outstanding.

 

Mack-Cali Realty, L.P. does not have any class of common equity that is registered pursuant to Section 12 of the Exchange Act.

 

 

 



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EXPLANATORY NOTE

 

This report combines the quarterly reports on Form 10-Q for the period ended March 31, 2018 of Mack-Cali Realty Corporation and Mack-Cali Realty, L.P.  Unless stated otherwise or the context otherwise requires, references to the “Operating Partnership” mean Mack-Cali Realty, L.P., a Delaware limited partnership, and references to the “General Partner” mean Mack-Cali Realty Corporation, a Maryland corporation and real estate investment trust (“REIT”), and its subsidiaries, including the Operating Partnership.  References to the “Company,” “we,” “us” and “our” mean collectively the General Partner, the Operating Partnership and those entities/subsidiaries consolidated by the General Partner.

 

The Operating Partnership conducts the business of providing leasing, management, acquisition, development, construction and tenant-related services for its General Partner.  The Operating Partnership, through its operating divisions and subsidiaries, including the Mack-Cali property-owning partnerships and limited liability companies is the entity through which all of the General Partner’s operations are conducted.  The General Partner is the sole general partner of the Operating Partnership and has exclusive control of the Operating Partnership’s day-to-day management.

 

As of March 31, 2018, the General Partner owned an approximate 89.8 percent common unit interest in the Operating Partnership.  The remaining approximate 10.2 percent common unit interest is owned by limited partners.  The limited partners of the Operating Partnership are (1) persons who contributed their interests in properties to the Operating Partnership in exchange for common units (each, a “Common Unit”) or preferred units of limited partnership interest in the Operating Partnership or (2) recipients of long term incentive plan units of the Operating Partnership pursuant to the General Partner’s executive compensation plans.

 

A Common Unit of the Operating Partnership and a share of common stock of the General Partner (the “Common Stock”) have substantially the same economic characteristics in as much as they effectively share equally in the net income or loss of the Company.  The General Partner owns a number of common units of the Operating Partnership equal to the number of issued and outstanding shares of the General Partner’s common stock.  Common unitholders (other than the General Partner) have the right to redeem their Common Units, subject to certain restrictions under the Second Amended and Restated Agreement of Limited Partnership of the Operating Partnership, as amended (the “Partnership Agreement”) and agreed upon at the time of issuance of the units that may restrict such right for a period of time, generally one year from issuance.  The redemption is required to be satisfied in shares of Common Stock of the General Partner, cash, or a combination thereof, calculated as follows:  one share of the General Partner’s Common Stock, or cash equal to the fair market value of a share of the General Partner’s Common Stock at the time of redemption, for each Common Unit.  The General Partner, in its sole discretion, determines the form of redemption of Common Units (i.e., whether a common unitholder receives Common Stock of the General Partner, cash, or any combination thereof).  If the General Partner elects to satisfy the redemption with shares of Common Stock of the General Partner as opposed to cash, the General Partner is obligated to issue shares of its Common Stock to the redeeming unitholder.  Regardless of the rights described above, the common unitholders may not put their units for cash to the Company or the General Partner under any circumstances.  With each such redemption, the General Partner’s percentage ownership in the Operating Partnership will increase. In addition, whenever the General Partner issues shares of its Common Stock other than to acquire Common Units, the General Partner must contribute any net proceeds it receives to the Operating Partnership and the Operating Partnership must issue to the General Partner an equivalent number of Common Units.  This structure is commonly referred to as an umbrella partnership REIT, or UPREIT.

 

The Company believes that combining the quarterly reports on Form 10-Q of the General Partner and the Operating Partnership into this single report provides the following benefits:

 

·                  enhance investors’ understanding of the General Partner and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business of the Company;

 

·                  eliminate duplicative disclosure and provide a more streamlined and readable presentation because a substantial portion of the disclosure applies to both the General Partner and the Operating Partnership; and

 

·                  create time and cost efficiencies through the preparation of one combined report instead of two separate reports.

 

The Company believes it is important to understand the few differences between the General Partner and the Operating Partnership in the context of how they operate as a consolidated company.  The financial results of the Operating Partnership are consolidated into the financial statements of the General Partner.  The General Partner does not have any other significant assets, liabilities or operations, other than its interests in the Operating Partnership, nor does the Operating Partnership have employees of its own.  The Operating Partnership, not the General Partner, generally executes all significant business relationships other than transactions involving the securities of the General Partner.  The Operating Partnership holds substantially all of the assets of the General Partner, including ownership interests in joint ventures.  The Operating Partnership conducts the operations of the business and is structured as a partnership

 

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with no publicly traded equity.  Except for the net proceeds from equity offerings by the General Partner, which are contributed to the capital of the Operating Partnership in consideration of common or preferred units in the Operating Partnership, as applicable, the Operating Partnership generates all remaining capital required by the Company’s business. These sources include working capital, net cash provided by operating activities, borrowings under the Company’s unsecured revolving credit facility and unsecured term loan facilities, the issuance of secured and unsecured debt and equity securities and proceeds received from the disposition of properties and joint ventures.

 

Shareholders’ equity, partners’ capital and noncontrolling interests are the main areas of difference between the consolidated financial statements of the General Partner and the Operating Partnership.  The limited partners of the Operating Partnership are accounted for as partners’ capital in the Operating Partnership’s financial statements as is the General Partner’s interest in the Operating Partnership.  The noncontrolling interests in the Operating Partnership’s financial statements comprise the interests of unaffiliated partners in various consolidated partnerships and development joint venture partners.  The noncontrolling interests in the General Partner’s financial statements are the same noncontrolling interests at the Operating Partnership’s level and include limited partners of the Operating Partnership.  The differences between shareholders’ equity and partners’ capital result from differences in the equity issued at the General Partner and Operating Partnership levels.

 

To help investors better understand the key differences between the General Partner and the Operating Partnership, certain information for the General Partner and the Operating Partnership in this report has been separated, as set forth below:

 

·                                          Item 1.   Financial Statements (unaudited), which includes the following specific disclosures for the General Partner and the Operating Partnership:

 

·                  Note 2.     Significant Accounting Policies, where applicable;

·                  Note 14.   Redeemable Noncontrolling Interests;

·                  Note 15.   Mack-Cali Realty Corporation’s Stockholders’ Equity and Mack-Cali Realty, L.P.’s Partners’ Capital;

·                  Note 16.   Noncontrolling Interests in Subsidiaries; and

·                  Note 17.   Segment Reporting, where applicable.

 

·                                          Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations includes information specific to each entity, where applicable.

 

This report also includes separate Part I, Item 4. Controls and Procedures sections and separate Exhibits 31 and 32 certifications for each of the General Partner and the Operating Partnership in order to establish that the requisite certifications have been made and that the General Partner and Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 and 18 U.S.C. §1350.

 

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MACK-CALI REALTY CORPORATION

MACK-CALI REALTY, L.P.

 

FORM 10-Q

 

INDEX

 

 

 

 

 

Page

Part I

Financial Information

 

 

 

 

 

 

 

 

Item 1.

Financial Statements (unaudited):

 

5

 

 

 

 

 

 

 

Mack-Cali Realty Corporation

 

 

 

 

Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017

 

6

 

 

 

 

 

 

 

Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017

 

7

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income for the three months ended March 31, 2018 and 2017

 

8

 

 

 

 

 

 

 

Consolidated Statement of Changes in Equity for the three months ended March 31, 2018

 

9

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017

 

10

 

 

 

 

 

 

 

Mack-Cali Realty, L.P.

 

 

 

 

Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017

 

11

 

 

 

 

 

 

 

Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017

 

12

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income for the three months ended March 31, 2018 and 2017

 

13

 

 

 

 

 

 

 

Consolidated Statement of Changes in Equity for the three months ended March 31, 2018

 

14

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017

 

15

 

 

 

 

 

 

 

Mack-Cali Realty Corporation and Mack-Cali Realty, L.P.

 

 

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

16

 

 

 

 

 

 

Item 2.

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

 

49

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

69

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

70

 

 

 

 

 

Part II

Other Information

 

 

 

 

 

 

 

 

 

Mack-Cali Realty Corporation and Mack-Cali Realty, L.P.

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

71

 

 

 

 

 

 

Item 1A.

Risk Factors

 

71

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

71

 

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

71

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures

 

71

 

 

 

 

 

 

Item 5.

Other Information

 

71

 

 

 

 

 

 

Item 6.

Exhibits

 

71

 

 

 

 

 

Exhibit Index

 

72

 

 

 

Signatures

 

85

 

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MACK-CALI REALTY CORPORATION

MACK-CALI REALTY, L.P.

 

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 statement 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 and Mack-Cali Realty, L.P.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

 

The results of operations for the three-month periods ended March 31, 2018 are not necessarily indicative of the results to be expected for the entire fiscal year or any other period.

 

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MACK-CALI REALTY CORPORATION AND SUBSIDIARIES

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

 

 

 

March 31,

 

December 31,

 

 

 

2018

 

2017

 

ASSETS

 

 

 

 

 

Rental property

 

 

 

 

 

Land and leasehold interests

 

$

784,619

 

$

786,789

 

Buildings and improvements

 

3,982,190

 

3,955,122

 

Tenant improvements

 

311,778

 

330,686

 

Furniture, fixtures and equipment

 

32,059

 

30,247

 

 

 

5,110,646

 

5,102,844

 

Less – accumulated depreciation and amortization

 

(1,055,562

)

(1,087,083

)

 

 

4,055,084

 

4,015,761

 

Rental property held for sale, net

 

38,566

 

171,578

 

Net investment in rental property

 

4,093,650

 

4,187,339

 

Cash and cash equivalents

 

25,307

 

28,180

 

Restricted cash

 

34,830

 

39,792

 

Investments in unconsolidated joint ventures

 

249,513

 

252,626

 

Unbilled rents receivable, net

 

98,418

 

100,842

 

Deferred charges, goodwill and other assets, net

 

306,557

 

342,320

 

Accounts receivable, net of allowance for doubtful accounts of $763 and $1,138

 

7,331

 

6,786

 

 

 

 

 

 

 

Total assets

 

$

4,815,606

 

$

4,957,885

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

Senior unsecured notes, net

 

$

569,438

 

$

569,145

 

Unsecured revolving credit facility and term loans

 

863,738

 

822,288

 

Mortgages, loans payable and other obligations, net

 

1,182,035

 

1,418,135

 

Dividends and distributions payable

 

21,357

 

21,158

 

Accounts payable, accrued expenses and other liabilities

 

198,005

 

192,716

 

Rents received in advance and security deposits

 

40,610

 

43,993

 

Accrued interest payable

 

14,186

 

9,519

 

Total liabilities

 

2,889,369

 

3,076,954

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

225,326

 

212,208

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

Mack-Cali Realty Corporation stockholders’ equity:

 

 

 

 

 

Common stock, $0.01 par value, 190,000,000 shares authorized, 90,136,278 and 89,914,113 shares outstanding

 

901

 

899

 

Additional paid-in capital

 

2,567,300

 

2,565,136

 

Dividends in excess of net earnings

 

(1,071,420

)

(1,096,429

)

Accumulated other comprehensive income (loss)

 

11,310

 

6,689

 

Total Mack-Cali Realty Corporation stockholders’ equity

 

1,508,091

 

1,476,295

 

 

 

 

 

 

 

Noncontrolling interests in subsidiaries:

 

 

 

 

 

Operating Partnership

 

171,817

 

171,395

 

Consolidated joint ventures

 

21,003

 

21,033

 

Total noncontrolling interests in subsidiaries

 

192,820

 

192,428

 

 

 

 

 

 

 

Total equity

 

1,700,911

 

1,668,723

 

 

 

 

 

 

 

Total liabilities and equity

 

$

4,815,606

 

$

4,957,885

 

 

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

 

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MACK-CALI REALTY CORPORATION AND SUBSIDIARIES

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

2017

 

REVENUES

 

 

 

 

 

Base rents

 

$

112,902

 

$

121,255

 

Escalations and recoveries from tenants

 

12,791

 

15,119

 

Real estate services

 

4,661

 

6,465

 

Parking income

 

5,327

 

4,229

 

Other income

 

3,286

 

2,819

 

Total revenues

 

138,967

 

149,887

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

Real estate taxes

 

18,361

 

21,092

 

Utilities

 

12,504

 

11,414

 

Operating services

 

25,618

 

27,091

 

Real estate services expenses

 

4,936

 

6,270

 

General and administrative

 

16,085

 

11,592

 

Depreciation and amortization

 

41,297

 

47,631

 

Total expenses

 

118,801

 

125,090

 

Operating income

 

20,166

 

24,797

 

 

 

 

 

 

 

OTHER (EXPENSE) INCOME

 

 

 

 

 

Interest expense

 

(20,075

)

(20,321

)

Interest and other investment income (loss)

 

1,128

 

474

 

Equity in earnings (loss) of unconsolidated joint ventures

 

1,572

 

(51

)

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

 

58,186

 

5,506

 

Gain on sale of investment in unconsolidated joint venture

 

 

12,563

 

Loss from extinguishment of debt, net

 

(10,289

)

(239

)

Total other income (expense)

 

30,522

 

(2,068

)

Net income

 

50,688

 

22,729

 

Noncontrolling interest in consolidated joint ventures

 

30

 

237

 

Noncontrolling interest in Operating Partnership

 

(4,883

)

(2,295

)

Redeemable noncontrolling interest

 

(2,799

)

(792

)

Net income available to common shareholders

 

$

43,036

 

$

19,879

 

 

 

 

 

 

 

Basic earnings per common share:

 

 

 

 

 

Net income available to common shareholders

 

$

0.45

 

$

0.11

 

 

 

 

 

 

 

Diluted earnings per common share:

 

 

 

 

 

Net income available to common shareholders

 

$

0.45

 

$

0.11

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

90,263

 

89,955

 

 

 

 

 

 

 

Diluted weighted average shares outstanding

 

100,604

 

100,637

 

 

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

 

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MACK-CALI REALTY CORPORATION AND SUBSIDIARIES

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

2017

 

 

 

 

 

 

 

Net income

 

$

50,688

 

$

22,729

 

Other comprehensive income:

 

 

 

 

 

Net unrealized gain (loss) on derivative instruments for interest rate swaps

 

5,145

 

1,227

 

Comprehensive income (loss)

 

$

55,833

 

$

23,956

 

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

 

30

 

237

 

Comprehensive (income) loss attributable to redeemable noncontrolling interest

 

(2,799

)

(792

)

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

 

(5,407

)

(2,422

)

Comprehensive income (loss) attributable to common shareholders

 

$

47,657

 

$

20,979

 

 

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

 

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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, 2018

 

89,914

 

$

899

 

$

2,565,136

 

$

(1,096,429

)

$

6,689

 

$

192,428

 

$

1,668,723

 

Net income

 

 

 

 

43,036

 

 

7,652

 

50,688

 

Common stock dividends

 

 

 

 

(18,027

)

 

 

(18,027

)

Common unit distributions

 

 

 

 

 

 

(2,260

)

(2,260

)

Redeemable noncontrolling interest

 

 

 

(2,754

)

 

 

(3,112

)

(5,866

)

Redemption of common units for common stock

 

224

 

2

 

3,688

 

 

 

(3,690

)

 

Shares issued under Dividend Reinvestment and Stock Purchase Plan

 

1

 

 

28

 

 

 

 

28

 

Directors’ deferred compensation plan

 

 

 

125

 

 

 

 

125

 

Stock compensation

 

 

 

517

 

 

 

2,015

 

2,532

 

Cancellation of restricted shares

 

(3

)

 

 

 

 

(177

)

(177

)

Other comprehensive income (loss)

 

 

 

 

 

4,621

 

524

 

5,145

 

Rebalancing of ownership percentage between parent and subsidiaries

 

 

 

560

 

 

 

(560

)

 

Balance at March 31, 2018

 

90,136

 

$

901

 

$

2,567,300

 

$

(1,071,420

)

$

11,310

 

$

192,820

 

$

1,700,911

 

 

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

 

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MACK-CALI REALTY CORPORATION AND SUBSIDIARIES

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

2017

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net income

 

$

50,688

 

$

22,729

 

Adjustments to reconcile net income to net cash provided by

 

 

 

 

 

Operating activities:

 

 

 

 

 

Depreciation and amortization, including related intangible assets

 

39,489

 

46,338

 

Amortization of directors deferred compensation stock units

 

125

 

115

 

Amortization of stock compensation

 

2,532

 

1,053

 

Amortization of deferred financing costs

 

1,096

 

1,103

 

Amortization of debt discount and mark-to-market

 

(237

)

241

 

Write-off of unamortized deferred finance costs related to early extinguishment

 

105

 

 

Equity in (earnings) loss of unconsolidated joint ventures

 

(1,572

)

51

 

Distributions of cumulative earnings from unconsolidated joint ventures

 

2,119

 

2,684

 

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

 

(58,186

)

(5,506

)

Gain on sale of investments in unconsolidated joint ventures

 

 

(12,563

)

Loss from extinguishment of debt

 

10,289

 

239

 

Changes in operating assets and liabilities:

 

 

 

 

 

Increase in unbilled rents receivable, net

 

(3,788

)

(2,950

)

Increase in deferred charges, goodwill and other assets

 

(1,899

)

(2,842

)

(Increase) decrease in accounts receivable, net

 

(545

)

13

 

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

 

14,134

 

(11,396

)

(Decrease) Increase in rents received in advance and security deposits

 

(2,118

)

3,891

 

Increase in accrued interest payable

 

4,667

 

8,113

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

56,899

 

$

51,313

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

Rental property acquisitions and related intangibles

 

$

(365

)

$

(413,115

)

Rental property additions and improvements

 

(55,935

)

(22,471

)

Development of rental property and other related costs

 

(50,038

)

(55,511

)

Proceeds from the sales of rental property

 

243,244

 

48,221

 

Proceeds from the sale of investments in unconsolidated joint ventures

 

 

14,849

 

Investments in notes receivable

 

 

(2,254

)

Repayment of notes receivable

 

3,337

 

9,062

 

Investment in unconsolidated joint ventures

 

(1,266

)

(6,625

)

Distributions in excess of cumulative earnings from unconsolidated joint ventures

 

4,571

 

1,689

 

Proceeds from investment receivable

 

 

3,625

 

 

 

 

 

 

 

Net cash provided by (used in) investing activities

 

$

143,548

 

$

(422,530

)

 

 

 

 

 

 

CASH FLOW FROM FINANCING ACTIVITIES

 

 

 

 

 

Borrowings from revolving credit facility

 

$

322,000

 

$

275,000

 

Repayment of revolving credit facility

 

(281,000

)

(471,000

)

Borrowings from unsecured term loan

 

 

325,000

 

Proceeds from mortgages and loans payable

 

41,090

 

268,642

 

Repayment of mortgages, loans payable and other obligations

 

(277,287

)

(1,430

)

Issuance of redeemable noncontrolling interests, net

 

10,000

 

139,002

 

Payment of financing costs

 

(255

)

(8,627

)

(Distribution to) contributions from noncontrolling interests

 

 

(15

)

Payment of dividends and distributions

 

(22,830

)

(15,006

)

 

 

 

 

 

 

Net cash (used in) provided by financing activities

 

$

(208,282

)

$

511,566

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

$

(7,835

)

$

140,349

 

Cash, cash equivalents and restricted cash, beginning of period (1)

 

67,972

 

85,563

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash, end of period (2)

 

$

60,137

 

$

225,912

 

 


(1)         Includes Restricted Cash of $39,792 and $53,952 as of December 31, 2017 and 2016, respectively, pursuant to the adoption of ASU 2016-15.

(2)         Includes Restricted Cash of $34,830 and $57,596 as of March 31, 2018 and 2017, respectively, pursuant to the adoption of ASU 2016-15..

 

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

 

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Table of Contents

 

MACK-CALI REALTY, L.P. AND SUBSIDIARIES

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

 

 

 

March 31,

 

December 31,

 

 

 

2018

 

2017

 

ASSETS

 

 

 

 

 

Rental property

 

 

 

 

 

Land and leasehold interests

 

$

784,619

 

$

786,789

 

Buildings and improvements

 

3,982,190

 

3,955,122

 

Tenant improvements

 

311,778

 

330,686

 

Furniture, fixtures and equipment

 

32,059

 

30,247

 

 

 

5,110,646

 

5,102,844

 

Less — accumulated depreciation and amortization

 

(1,055,562

)

(1,087,083

)

 

 

4,055,084

 

4,015,761

 

Rental property held for sale, net

 

38,566

 

171,578

 

Net investment in rental property

 

4,093,650

 

4,187,339

 

Cash and cash equivalents

 

25,307

 

28,180

 

Restricted cash

 

34,830

 

39,792

 

Investments in unconsolidated joint ventures

 

249,513

 

252,626

 

Unbilled rents receivable, net

 

98,418

 

100,842

 

Deferred charges, goodwill and other assets, net

 

306,557

 

342,320

 

Accounts receivable, net of allowance for doubtful accounts of $763 and $1,138

 

7,331

 

6,786

 

 

 

 

 

 

 

Total assets

 

$

4,815,606

 

$

4,957,885

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

Senior unsecured notes, net

 

$

569,438

 

$

569,145

 

Unsecured revolving credit facility and term loans

 

863,738

 

822,288

 

Mortgages, loans payable and other obligations, net

 

1,182,035

 

1,418,135

 

Distributions payable

 

21,357

 

21,158

 

Accounts payable, accrued expenses and other liabilities

 

198,005

 

192,716

 

Rents received in advance and security deposits

 

40,610

 

43,993

 

Accrued interest payable

 

14,186

 

9,519

 

Total liabilities

 

2,889,369

 

3,076,954

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

225,326

 

212,208

 

 

 

 

 

 

 

Partners’ Capital:

 

 

 

 

 

General Partner, 90,136,278 and 89,914,113 common units outstanding

 

1,433,981

 

1,407,366

 

Limited partners, 10,214,140 and 10,438,855 common units outstanding

 

234,617

 

233,635

 

Accumulated other comprehensive income (loss)

 

11,310

 

6,689

 

Total Mack-Cali Realty, L.P. partners’ capital

 

1,679,908

 

1,647,690

 

 

 

 

 

 

 

Noncontrolling interests in consolidated joint ventures

 

21,003

 

21,033

 

 

 

 

 

 

 

Total equity

 

1,700,911

 

1,668,723

 

 

 

 

 

 

 

Total liabilities and equity

 

$

4,815,606

 

$

4,957,885

 

 

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

 

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Table of Contents

 

MACK-CALI REALTY, L.P. AND SUBSIDIARIES

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

2017

 

REVENUES

 

 

 

 

 

Base rents

 

$

112,902

 

$

121,255

 

Escalations and recoveries from tenants

 

12,791

 

15,119

 

Real estate services

 

4,661

 

6,465

 

Parking income

 

5,327

 

4,229

 

Other income

 

3,286

 

2,819

 

Total revenues

 

138,967

 

149,887

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

Real estate taxes

 

18,361

 

21,092

 

Utilities

 

12,504

 

11,414

 

Operating services

 

25,618

 

27,091

 

Real estate services expenses

 

4,936

 

6,270

 

General and administrative

 

16,085

 

11,592

 

Depreciation and amortization

 

41,297

 

47,631

 

Total expenses

 

118,801

 

125,090

 

Operating income

 

20,166

 

24,797

 

 

 

 

 

 

 

OTHER (EXPENSE) INCOME

 

 

 

 

 

Interest expense

 

(20,075

)

(20,321

)

Interest and other investment income (loss)

 

1,128

 

474

 

Equity in earnings (loss) of unconsolidated joint ventures

 

1,572

 

(51

)

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

 

58,186

 

5,506

 

Gain on sale of investment in unconsolidated joint venture

 

 

12,563

 

Loss from extinguishment of debt, net

 

(10,289

)

(239

)

Total other income (expense)

 

30,522

 

(2,068

)

Net income

 

50,688

 

22,729

 

Noncontrolling interest in consolidated joint ventures

 

30

 

237

 

Redeemable noncontrolling interest

 

(2,799

)

(792

)

Net income available to common unitholders

 

$

47,919

 

$

22,174

 

 

 

 

 

 

 

Basic earnings per common unit:

 

 

 

 

 

Net income available to common unitholders

 

$

0.45

 

$

0.11

 

 

 

 

 

 

 

Diluted earnings per common unit:

 

 

 

 

 

Net income available to common unitholders

 

$

0.45

 

$

0.11

 

 

 

 

 

 

 

Basic weighted average units outstanding

 

100,505

 

100,339

 

 

 

 

 

 

 

Diluted weighted average units outstanding

 

100,604

 

100,637

 

 

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

 

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Table of Contents

 

MACK-CALI REALTY, L.P. AND SUBSIDIARIES

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

2017

 

 

 

 

 

 

 

Net income

 

$

50,688

 

$

22,729

 

Other comprehensive income:

 

 

 

 

 

Net unrealized gain (loss) on derivative instruments for interest rate swaps

 

5,145

 

1,227

 

Comprehensive income (loss)

 

$

55,833

 

$

23,956

 

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

 

30

 

237

 

Comprehensive (income) loss attributable to redeemable noncontrolling interest

 

(2,799

)

(792

)

Comprehensive income (loss) attributable to common unitholders

 

$

53,064

 

$

23,401

 

 

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

 

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Table of Contents

 

MACK-CALI REALTY, L.P. AND SUBSIDIARIES

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

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

Noncontrolling

 

 

 

 

 

 

 

 

 

General Partner

 

Limited Partner

 

Other

 

Interest

 

 

 

 

 

General Partner

 

Limited Partner

 

Common

 

Common

 

Comprehensive

 

in Consolidated

 

 

 

 

 

Common Units

 

Common Units

 

Unitholders

 

Unitholders

 

Income (Loss)

 

Joint Ventures

 

Total Equity

 

Balance at January 1, 2018

 

89,914

 

10,438

 

$

1,407,366

 

$

233,635

 

$

6,689

 

$

21,033

 

$

1,668,723

 

Net income

 

 

 

43,036

 

4,883

 

 

2,769

 

50,688

 

Distributions

 

 

 

(18,027

)

(2,260

)

 

 

(20,287

)

Redeemable noncontrolling interest

 

 

 

(2,754

)

(313

)

 

(2,799

)

(5,866

)

Redemption of limited partner common units for shares of general partner common units

 

224

 

(224

)

3,690

 

(3,690

)

 

 

 

Shares issued under Dividend Reinvestment and Stock Purchase Plan

 

1

 

 

28

 

 

 

 

28

 

Directors’ deferred compensation plan

 

 

 

125

 

 

 

 

125

 

Other comprehensive income

 

 

 

 

524

 

4,621

 

 

5,145

 

Stock compensation

 

 

 

517

 

2,015

 

 

 

2,532

 

Cancellation of restricted shares

 

(3

)

 

 

(177

)

 

 

(177

)

Balance at March 31, 2018

 

90,136

 

10,214

 

$

1,433,981

 

$

234,617

 

$

11,310

 

$

21,003

 

$

1,700,911

 

 

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

 

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Table of Contents

 

MACK-CALI REALTY, L.P. AND SUBSIDIARIES

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

2017

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net income

 

$

50,688

 

$

22,729

 

Adjustments to reconcile net income to net cash provided by

 

 

 

 

 

Operating activities:

 

 

 

 

 

Depreciation and amortization, including related intangible assets

 

39,489

 

46,338

 

Amortization of directors deferred compensation stock units

 

125

 

115

 

Amortization of stock compensation

 

2,532

 

1,053

 

Amortization of deferred financing costs

 

1,096

 

1,103

 

Amortization of debt discount and mark-to-market

 

(237

)

241

 

Write-off of unamortized deferred finance costs related to early extinguishment

 

105

 

 

Equity in (earnings) loss of unconsolidated joint ventures

 

(1,572

)

51

 

Distributions of cumulative earnings from unconsolidated joint ventures

 

2,119

 

2,684

 

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

 

(58,186

)

(5,506

)

Gain on sale of investments in unconsolidated joint ventures

 

 

(12,563

)

Loss from extinguishment of debt

 

10,289

 

239

 

Changes in operating assets and liabilities:

 

 

 

 

 

Increase in unbilled rents receivable, net

 

(3,788

)

(2,950

)

Increase in deferred charges, goodwill and other assets

 

(1,899

)

(2,842

)

(Increase) decrease in accounts receivable, net

 

(545

)

13

 

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

 

14,134

 

(11,396

)

(Decrease) Increase in rents received in advance and security deposits

 

(2,118

)

3,891

 

Increase in accrued interest payable

 

4,667

 

8,113

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

56,899

 

$

51,313

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

Rental property acquisitions and related intangibles

 

$

(365

)

$

(413,115

)

Rental property additions and improvements

 

(55,935

)

(22,471

)

Development of rental property and other related costs

 

(50,038

)

(55,511

)

Proceeds from the sales of rental property

 

243,244

 

48,221

 

Proceeds from the sale of investments in unconsolidated joint ventures

 

 

14,849

 

Investments in notes receivable

 

 

(2,254

)

Repayment of notes receivable

 

3,337

 

9,062

 

Investment in unconsolidated joint ventures

 

(1,266

)

(6,625

)

Distributions in excess of cumulative earnings from unconsolidated joint ventures

 

4,571

 

1,689

 

Proceeds from investment receivable

 

 

3,625

 

 

 

 

 

 

 

Net cash provided by (used in) investing activities

 

$

143,548

 

$

(422,530

)

 

 

 

 

 

 

CASH FLOW FROM FINANCING ACTIVITIES

 

 

 

 

 

Borrowings from revolving credit facility

 

$

322,000

 

$

275,000

 

Repayment of revolving credit facility

 

(281,000

)

(471,000

)

Borrowings from unsecured term loan

 

 

325,000

 

Proceeds from mortgages and loans payable

 

41,090

 

268,642

 

Repayment of mortgages, loans payable and other obligations

 

(277,287

)

(1,430

)

Issuance of redeemable noncontrolling interests, net

 

10,000

 

139,002

 

Payment of financing costs

 

(255

)

(8,627

)

(Distribution to) contributions from noncontrolling interests

 

 

(15

)

Payment of distributions

 

(22,830

)

(15,006

)

 

 

 

 

 

 

Net cash (used in) provided by financing activities

 

$

(208,282

)

$

511,566

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

$

(7,835

)

$

140,349

 

Cash, cash equivalents and restricted cash, beginning of period (1)

 

67,972

 

85,563

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash, end of period (2)

 

$

60,137

 

$

225,912

 

 


(1)   Includes Restricted Cash of $39,792 and $53,952 as of December 31, 2017 and 2016, respectively, pursuant to the adoption of ASU 2016-15.

(2)   Includes Restricted Cash of $34,830 and $57,596 as of March 31, 2018 and 2017, respectively, pursuant to the adoption of ASU 2016-15.

 

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

 

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Table of Contents

 

MACK-CALI REALTY CORPORATION, MACK-CALI REALTY, L.P. 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 “General Partner”) is a fully-integrated self-administered, self-managed real estate investment trust (“REIT”).  The General Partner controls Mack-Cali Realty, L.P., a Delaware limited partnership, together with its subsidiaries (collectively, the “Operating Partnership”), as its sole general partner and owned an 89.8 and 89.6 percent common unit interest in the Operating Partnership as of March 31, 2018 and December 31, 2017, respectively.  The General Partner’s business is the ownership of interests in and operation of the Operating Partnership and all of the General Partner’s expenses are incurred for the benefit of the Operating Partnership.  The General Partner is reimbursed by the Operating Partnership for all expenses it incurs relating to the ownership and operation of the Operating Partnership.

 

The Operating Partnership conducts the business of providing leasing, management, acquisition, development and tenant-related services for its General Partner.  The Operating Partnership, through its operating divisions and subsidiaries, including the Mack-Cali property-owning partnerships and limited liability companies, is the entity through which all of the General Partner’s operations are conducted.  Unless stated otherwise or the context requires, the “Company” refers to the General Partner and its subsidiaries, including the Operating Partnership and its subsidiaries.

 

As of March 31, 2018, the Company owned or had interests in 138 properties, consisting of 59 office and 61 flex properties, totaling approximately 16.0 million square feet, leased to approximately 750 commercial tenants, and 18 multi-family rental properties containing 5,826 apartments, plus developable land (collectively, the “Properties”).  The Properties are comprised of 59 office buildings totaling approximately 12.8 million square feet (which include four buildings, aggregating approximately 0.5 million square feet owned by unconsolidated joint ventures in which the Company has investment interests), 47 office/flex buildings totaling approximately 2.7 million square feet, six industrial/warehouse buildings totaling approximately 387,400 square feet, 18 multi-family properties totaling 5,826 apartments (which include eight properties aggregating 3,275 apartments owned by unconsolidated joint ventures in which the Company has investment interests), six parking/retail properties totaling approximately 137,100 square feet (which include two buildings aggregating 81,700 square feet owned by unconsolidated joint ventures in which the Company has investment interests), a hotel (which is owned by an unconsolidated joint venture in which the Company has an investment interest) and a parcel of land leased to others.  The Properties are located in six 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 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.

 

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Table of Contents

 

As of March 31, 2018 and December 31, 2017, 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, other than Roseland Residential, L.P.  (See Note 14: Rockpoint Transaction), have total real estate assets of $229.1 million and $215.5 million, respectively, mortgages of $88.4 million and $81.2 million, respectively, and other liabilities of $25.2 million and $19.3 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 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 were expensed as incurred through December 31, 2016.  The Company early adopted the recently issued FASB guidance Accounting Standards Update (“ASU”) 2017-01 on January 1, 2017 which revises the definition of a business and is expected to result in more transactions to be accounted for as asset acquisitions and significantly limit transactions that would be accounted for as business combinations.  Where an acquisition has been determined to be an asset acquisition, acquisition-related costs are capitalized.  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 $0.6 million and $0.6 million for the three months ended March 31, 2018 and 2017, 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.

 

Included in rental property as of March 31, 2018 and December 31, 2017 is real estate and building and tenant improvements not in service; as follows: (dollars in thousands)

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

 

 

 

2018

 

2017

 

 

 

Land held for development (including pre-development costs, if any) (a)

 

$

492,754

 

$

483,432

 

 

 

Development and construction in progress, including land (b)

 

 

573,030

 

 

535,971

 

 

 

Total

 

$

1,065,784

 

$

1,019,403

 

 

 

 

 

 

(a)         Includes predevelopment and infrastructure costs included in buildings and improvements of $197.5 million and $188.1 million as of March 31, 2018 and December 31, 2017, respectively.

(b)         Includes land of $72.6 million and $77.0 million as of March 31, 2018 and December 31, 2017, respectively.

 

 

 

 

 

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.

 

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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 business 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 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 and/or other factors, including those 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 impairment 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

 

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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 carrying value of the assets, a valuation allowance (which is recorded as unrealized losses on disposition of rental property) 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 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.

 

If the venture subsequently makes distributions and the Company does not have an implied or actual commitment to support the operations of the venture, including a general partner interest in the investee, the Company will not record a basis less than zero, rather such amounts will be recorded as equity in earnings of unconsolidated joint ventures.

 

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 $1,096,000 and $1,103,000 for the three months ended March 31, 2018 and 2017,

 

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respectively. If a financing obligation is extinguished early, any unamortized deferred financing costs are written off and included in gains (losses) from extinguishment of debt. Included in loss from extinguishment of debt, net, of $10.3 million and $0.2 million for the three months ended March 31, 2018 and 2017 were unamortized deferred financing costs which were written off amounting to $105,000 and zero, respectively.

 

 

 

Deferred
Leasing Costs

 

Costs incurred in connection with successfully executed 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 $693,000 and $1,042,000 for the three months ended March 31, 2018 and 2017, 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.

 

 

 

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 13: 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.

 

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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 General Partner has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “IRS Code”). As a REIT, the General Partner generally will not be subject to corporate federal income tax on net income that it currently distributes to its shareholders, provided that the General Partner 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 General Partner retains and does not distribute any net capital gains, the General Partner will be required to pay federal, state and local taxes, as applicable, on such net capital gains at the rate applicable to capital gains of a corporation.

 

 

 

 

 

The Operating Partnership is a partnership, and, as a result, all income and losses of the partnership are allocated to the partners for inclusion in their respective tax returns. Accordingly, no provision or benefit for income taxes has been made in the accompanying financial statements.

 

 

 

 

 

The General Partner has elected to treat certain of its corporate subsidiaries as taxable REIT subsidiaries (each a “TRS”). In general, a TRS of the General Partner may perform 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 General Partner 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.

 

 

 

 

 

The deferred tax balance at March 31, 2018 is $9.7 million which has been fully reserved through a valuation allowance. New tax reform legislation enacted in late 2017 reduces the corporate tax rate to 21 percent, effective January 1, 2018.  Consequently, the Company’s deferred tax assets were re-measured to reflect the reduction in the future U.S. corporate income tax rate as of the enactment date. If the General Partner fails to qualify as a REIT in any taxable year, the Company will be subject to federal income 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 March 31, 2018, the tax years that remain subject to examination by the major tax jurisdictions under the statute of limitations are generally from the year 2013 forward.

 

 

 

Earnings
Per Share
or Unit

 

The Company presents both basic and diluted earnings per share or unit (“EPS or EPU”). Basic EPS or EPU excludes dilution and is computed by dividing net income available to common shareholders or unitholders by the weighted average number of shares or units outstanding for the period. Diluted EPS or EPU 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 or EPU from

 

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Table of Contents

 

 

 

continuing operations amount. Shares or Units whose issuance is contingent upon the satisfaction of certain conditions shall be considered outstanding and included in the computation of diluted EPS or EPU as follows (i) if all necessary conditions have been satisfied by the end of the period (the events have occurred), those shares or units 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 or units included in diluted EPS or EPU shall be based on the number of shares or units, 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 or units 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 or units shall be included in the denominator of diluted EPS or EPU 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 March 31, 2018 represents dividends payable to common shareholders (90,135,433 shares) and distributions payable to noncontrolling interest unitholders of the Operating Partnership (10,214,140 common units and 1,200,836 LTIP units), for all such holders of record as of April 3, 2018 with respect to the first quarter 2018. The first quarter 2018 common stock dividends and unit distributions of $0.20 per common share, common unit and LTIP unit were approved by the General Partner’s Board of Directors on March 14, 2018 and paid on April 13, 2018.

 

 

 

 

 

The dividends and distributions payable at December 31, 2017 represents dividends payable to common shareholders (89,914,658 shares) and distributions payable to noncontrolling interest unitholders of the Operating Partnership (10,438,855 common units and 1,230,877 LTIP units) for all such holders of record as of January 3, 2018 with respect to the fourth quarter 2017. The fourth quarter 2017 common stock dividends and unit distributions of $0.20 per common share, common unit and LTIP unit were approved by the General Partner’s Board of Directors on December 12, 2017 and paid on January 12, 2018.

 

 

 

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”), performance share units, 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 $2,532,000 and $1,053,000 for the three months ended March 31, 2018 and 2017, respectively.

 

 

 

Other
Comprehensive
Income (Loss)

 

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.

 

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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.

 

 

 

Impact Of
Recently-Issued
Accounting
Standards

 

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 June 2016, the FASB issued ASU 2016-13 (“ASU 2016-13”), Financial Instruments — Credit Losses. The guidance introduces a new model for estimating credit losses for certain types of financial instruments, including trade and lease receivables, loans receivable, held-to-maturity debt securities, and net investments in direct financing leases, amongst other financial instruments. ASU 2016-13 also modifies the impairment model for available-for-sale debt securities and expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for losses. ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. The Company is currently in the process of evaluating the impact the adoption of ASU 2016-13 will have on the Company’s consolidated financial statements.

 

 

 

 

 

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”). The purpose of ASU 2017-12 is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. ASU 2017-12 is effective for annual reporting periods beginning after December 15, 2018, with early adoption permitted. ASU 2017-12 requires a modified retrospective transition method which requires a cumulative effect of the change on the opening balance of each affected component of equity in the Company’s consolidated financial statements as of the date of adoption. The Company is currently in the process of evaluating the impact the adoption of ASU 2017-12 will have on the Company’s consolidated financial statements.

 

3.    RECENT TRANSACTIONS

 

Management Changes

On March 15, 2018, the Company announced the appointment of Michael J. DeMarco, Chief Executive Officer of the General Partner, to its Board of Directors effective immediately.  Mr. DeMarco’s addition to the Board expanded the total number of members from nine to ten.

 

On January 29, 2018, the Company announced the appointment of David J. Smetana as chief financial officer and Nicholas Hilton as executive vice president of leasing of the General Partner.  Mr. Smetana began to perform his duties as chief financial officer and Anthony Krug ceased to serve as chief financial officer immediately following the filing of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.  Mr. Krug remained an employee of the Company and provided transition services through March 31, 2018.  Mr. Hilton’s employment commenced on February 12, 2018 following the departure of Christopher DeLorenzo.  In addition, the Company also restructured certain corporate and property management personnel during the three months ended March 31, 2018.   As a result of the executive management changes and other personnel changes, the Company incurred total severance and related expenses in the quarter of $5.05 million, $4.5 million of which was included in general and administrative expense (of which $0.6 million pertained to stock compensation), and $539,000 of which was in operating services for the period.

 

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Properties Commencing Initial Operations

The following property commenced initial operations during the three months ended March 31, 2018 (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

Total

 

In-Service

 

 

 

 

 

 

 

# of

 

Development

 

Date

 

Property

 

Location

 

Type

 

Apartment Units

 

Costs

 

03/01/18

 

145 Front at City Square

 

Worcester, MA

 

Multi-Family

 

365

 

$

94,753

(a)

Totals

 

 

 

 

 

 

 

365

 

$

94,753

 

 


(a)   Development costs as of March 31, 2018 included approximately $4.4 million in land costs.  As of March 31, 2018, the Company anticipates additional costs of approximately $3.2 million, which will be primarily funded from a construction loan.

 

Dispositions/Rental Property Held for Sale

The Company disposed of the following office properties during the three months ended March 31, 2018 (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gains

 

 

 

 

 

 

 

 

 

Rentable

 

Net

 

Net

 

(losses)/

 

Disposition

 

 

 

 

 

# of

 

Square

 

Sales

 

Carrying

 

Unrealized

 

Date

 

Property/Address

 

Location

 

Bldgs.

 

Feet

 

Proceeds

 

Value

 

Losses, net

 

02/15/18

 

35 Waterview Boulevard (a)

 

Parsippany, New Jersey

 

1

 

172,498

 

$

25,994

 

$

25,739

 

$

255

 

03/05/18

 

Hamilton portfolio (b)

 

Hamilton, New Jersey

 

6

 

239,262

 

17,546

 

17,501

 

45

 

03/07/18

 

Wall portfolio first closing

 

Wall, New Jersey

 

5

 

179,601

 

14,053

 

10,526

 

3,527

 

03/22/18

 

700 Horizon Drive

 

Hamilton, New Jersey

 

1

 

120,000

 

33,020

 

16,053

 

16,967

 

03/23/18

 

Wall portfolio second closing

 

Wall, New Jersey

 

3

 

217,822

 

30,209

 

12,961

 

17,248

 

03/28/18

 

75 Livingston Avenue

 

Roseland, New Jersey

 

1

 

94,221

 

7,983

 

5,609

 

2,374

 

03/28/18

 

20 Waterview Boulevard (c)

 

Parsippany, New Jersey

 

1

 

225,550

 

12,475

 

11,795

 

680

 

03/30/18

 

Westchester Financial Center (d)

 

White Plains, New York

 

2

 

489,000

 

81,769

 

64,679

 

17,090

 

Totals

 

 

 

 

 

20

 

1,737,954

 

$

223,049

 

$

164,863

 

$

58,186

 

 


(a)         The Company recorded a valuation allowance of $0.7 million on this property during the year ended December 31, 2017. 

(b)         The Company recorded a valuation allowance of $0.6 million on these properties during the year ended December 31, 2017. The disposition additionally included two land properties.

(c)          The Company recorded a valuation allowance of $11 million on this property during the year ended December 31, 2017.  Prior to closing, the Company provided short term financing through a note receivable to an affiliate of the buyers of $2.8 million, which is a noncash component of the net sales proceeds.  See Note 5: Deferred charges, goodwill and other assets, net.

(d)         Prior to closing, the Company provided financing through a note receivable to an affiliate of the buyers of $4.0 million, which is a noncash component of the net sales proceeds.

See Note 5: Deferred Charges, Goodwill and Other Assets, Net.

 

Rental Property Held for Sale, Net

The Company identified as held for sale two office properties totaling approximately 400,000 square feet as of March 31, 2018.  The properties are located in Paramus and Rochelle Park, New Jersey.  The total estimated sales proceeds, net of expected selling costs, from the sales are expected to be approximately $41.4 million.

 

The following table summarizes the rental property held for sale, net, as of March 31, 2018: (dollars in thousands)

 

 

 

March 31,

 

 

 

2018

 

Land

 

$

12,428

 

Buildings and improvements

 

55,809

 

Less: Accumulated depreciation

 

(29,671

)

Rental property held for sale, net

 

$

38,566

 

 

Other assets and liabilities related to the rental properties held for sale, as of March 31, 2018, include $2.7 million in Deferred charges, and other assets, $0.4 million in Unbilled rents receivable and $1.6 million in Accounts payable, accrued expenses and other liabilities.  Approximately $2.6 million of these assets and $0.9 million of these liabilities are expected to be removed with the completion of the sales.

 

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4.    INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES

 

As of March 31, 2018, the Company had an aggregate investment of approximately $249.5 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 March 31, 2018, the unconsolidated joint ventures owned: four office properties aggregating approximately 0.5 million square feet, eight multi-family properties totaling 3,275 apartments, two retail properties aggregating approximately 81,700 square feet, a 350-room hotel, development projects for up to approximately 419 apartments; and interests and/or rights to developable land parcels able to accommodate up to 3,738 apartments.  The Company’s unconsolidated interests range from 12.5 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 March 31, 2018, such debt had a total facility amount of $318 million of which the Company agreed to guarantee up to $36 million.  As of March 31, 2018, the outstanding balance of such debt totaled $202.7 million of which $24.4 million was guaranteed by the Company.  The Company performed management, leasing, development and other services for the properties owned by the unconsolidated joint ventures and recognized $0.6 million and $0.9 million for such services in the three months ended March 31, 2018 and 2017, respectively.  The Company had $0.5 million and $0.7 million in accounts receivable due from its unconsolidated joint ventures as of March 31, 2018 and December 31, 2017, respectively.

 

Included in the Company’s investments in unconsolidated joint ventures as of March 31, 2018 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 $128.6 million as of March 31, 2018.  The Company’s maximum exposure to loss as a result of its involvement with these VIEs is estimated to be approximately $164.6 million, which includes the Company’s current investment and estimated future funding commitments/guarantees of approximately $36.0 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 parties 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 March 31, 2018 and December 31, 2017: (dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Property Debt