Dispositions
The Company disposed of the following office properties during the three months ended March 31, 2016
(dollars in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rentable
|
|
|
Net
|
|
|
Net
|
|
|
|
|
Disposition
|
|
|
# of
|
Square
|
|
|
Sales
|
|
|
Book
|
|
|
Realized
|
|
Date
|
Property/Address
|
Location
|
Bldgs.
|
Feet
|
|
|
Proceeds
|
|
|
Value
|
|
|
Gain (loss)
|
|
03/11/16
|
2 Independence Way (a)
|
Princeton, New Jersey
|
1
|
67,401
|
|
$
|
4,119
|
|
$
|
4,283
|
|
$
|
(164)
|
|
03/24/16
|
1201 Connecticut Avenue, NW
|
Washington, D.C.
|
1
|
169,549
|
|
|
90,591
|
|
|
31,827
|
|
|
58,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
2
|
236,950
|
|
$
|
94,710
|
|
$
|
36,110
|
|
$
|
58,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) The Company recorded an impairment charge of $3.2 million on this property during the year ended December 31, 2015 as it estimated that the carrying value of the property may not be recoverable over its anticipated holding period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental Properties Held for Sale
During the three months ended March 31, 2016, the Company signed agreements to dispose of two office properties totaling approximately 683,000 square feet, located at 1400 L Street, NW in Washington, D.C. and 125 Broad Street in New York, New York, subject to certain conditions. The total estimated sales proceeds expected from the two separate sales are approximately $272 million. The dispositions are expected to be completed in the second quarter of 2016. The Company identified these properties as held for sale at March 31, 2016.
The following table summarizes the rental property held for sale, net, as of March 31, 2016:
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2016
|
Land
|
|
$
|
46,883
|
Buildings and improvements
|
|
|
210,925
|
Less: Accumulated depreciation
|
|
|
(57,764)
|
Rental property held for sale,net
|
|
$
|
200,044
|
Other assets and liabilities related to the rental properties held for sale, as of March 31, 2016, include $13.2 million in Deferred charges, and other assets, $20.1 million in Unbilled rents receivable, net, $1.3 million in Accounts receivable, net of allowance, $3.4 million in Accounts payable, accrued expenses and other liabilities, and $1.2 million in Rents received in advance and security deposits. Approximately $31.3 million of these assets and $796,000 of these liabilities are expected to be written off with the completion of the sales.
The following table summarizes income (loss) for the three month periods ended March 31, 2016 and 2015 from the properties disposed of during the three months ended March 31, 2016 and the six properties disposed of during the year ended December 31, 2015:
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
Total revenues
|
|
$
|
1,608
|
|
$
|
7,629
|
Operating and other expenses
|
|
|
(1,379)
|
|
|
(2,524)
|
Depreciation and amortization
|
|
|
(2,797)
|
|
|
(1,685)
|
Interest expense
|
|
|
(626)
|
|
|
(2,710)
|
|
|
|
|
|
|
|
Income (loss) from properties disposed of
|
|
$
|
(3,194)
|
|
$
|
710
|
|
|
|
|
|
|
|
Realized gains on dispositions
|
|
|
58,600
|
|
|
144
|
|
|
|
|
|
|
|
Total income (loss) from properties disposed of
|
|
$
|
55,406
|
|
$
|
854
|
4.
INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
As of March 31, 2016, the Company had an aggregate investment of approximately $303.6 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, 2016, the unconsolidated joint ventures owned: 36 office and two retail properties aggregating approximately 5.7 million square feet, 12 multi-family properties totaling 3,972 apartments, a 350-room hotel, development projects for up to approximately 1,074 apartments; and interests and/or rights to developable land parcels able to accommodate up to 2,910 apartments and 1.4 million square feet of office space. The Company’s unconsolidated interests range from 7.5 percent to 85 percent subject to specified priority allocations in certain of the joint ventures.
The amounts reflected in the following tables (except for the Company’s share of equity in earnings) are based on the historical financial information of the individual joint ventures. The Company does not record losses of the joint ventures in excess of its investment balances unless the Company is liable for the obligations of the joint venture or is otherwise committed to provide financial support to the joint venture. The outside basis portion of the Company’s investments in joint ventures is amortized over the anticipated useful lives of the underlying ventures’ tangible and intangible assets acquired and liabilities assumed. Unless otherwise noted below, the debt of the Company’s unconsolidated joint ventures generally is non-recourse to the Company, except for customary exceptions pertaining to such matters as intentional misuse of funds, environmental conditions, and material misrepresentations.
The Company has agreed to guarantee repayment of a portion of the debt of its unconsolidated joint ventures. As of March 31, 2016, such debt had a total facility amount of $492.1 million of which the Company agreed to guarantee up to $66.3 million. As of March 31, 2016, the outstanding balance of such debt totaled $286.7 million of which $44.8 million was guaranteed by the Company. The Company also posted a $3.6 million letter of credit in support of the South Pier at Harborside joint venture, half of which is indemnified by Hyatt Corporation, the Company’s joint venture partner. The Company performed management, leasing, development and other services for the properties owned by the unconsolidated joint ventures and recognized $1.0 million and $1.6 million for such services in the three months ended March 31, 2016 and 2015, respectively. The Company had $0.7 million and $0.8 million in accounts receivable due from its unconsolidated joint ventures as of March 31, 2016 and December 31, 2015.
Included in the Company’s investments in unconsolidated joint ventures as of March 31, 2016 are five 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 $177.1 million as of March 31, 2016. The Company’s maximum exposure to loss as a result of its involvement with these VIEs is estimated to be approximately $210.8 million, which includes the Company’s current investment and estimated future funding commitments/guarantees of approximately $33.7 million. The Company has not provided financial support to these VIEs that it was not previously contractually required to provide. In general, future costs of development not financed through third party will be funded with capital contributions from the Company and its outside partners in accordance with their respective ownership percentages.
The following is a summary of the Company's unconsolidated joint ventures as of March 31, 2016 and December 31, 2015:
(dollars in thousands, including footnotes)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Debt
|
|
|
Number of
|
Company's
|
|
|
Carrying Value
|
|
|
As of March 31, 2016
|
|
|
Apartment Units
|
Effective
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
Maturity
|
Interest
|
|
Entity / Property Name
|
or Square Feet (sf)
|
Ownership % (a)
|
|
|
2016
|
|
|
2015
|
|
|
Balance
|
Date
|
Rate
|
|
Multi-family
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marbella RoseGarden, L.L.C./ Marbella (b)
|
412
|
units
|
24.27
|
%
|
|
$
|
15,486
|
|
$
|
15,569
|
|
$
|
95,000
|
05/01/18
|
4.99
|
%
|
|
RoseGarden Monaco Holdings, L.L.C./ Monaco (b)
|
523
|
units
|
15.00
|
%
|
|
|
646
|
|
|
937
|
|
|
165,000
|
02/01/21
|
4.19
|
%
|
|
PruRose Port Imperial South 15, LLC /RiversEdge at Port Imperial (b)
|
236
|
units
|
50.00
|
%
|
|
|
-
|
|
|
-
|
|
|
57,500
|
09/01/20
|
4.32
|
%
|
|
Rosewood Morristown, L.L.C. / Metropolitan at 40 Park (c) (d)
|
130
|
units
|
12.50
|
%
|
|
|
5,741
|
|
|
5,723
|
|
|
45,756
|
(e)
|
(e)
|
|
|
PruRose Riverwalk G, L.L.C./ RiverTrace at Port Imperial (b) (f)
|
316
|
units
|
25.00
|
%
|
|
|
-
|
|
|
-
|
|
|
79,392
|
07/15/21
|
6.00
|
%
|
(g)
|
Elmajo Urban Renewal Associates, LLC / Lincoln Harbor (Bldg A&C) (b)
|
355
|
units
|
7.50
|
%
|
|
|
-
|
|
|
-
|
|
|
128,100
|
03/01/30
|
4.00
|
%
|
|
Crystal House Apartments Investors LLC / Crystal House (h)
|
798
|
units
|
25.00
|
%
|
|
|
28,855
|
|
|
28,114
|
|
|
165,000
|
04/01/20
|
3.17
|
%
|
|
Portside Master Company, L.L.C./ Portside at Pier One - Bldg 7 (b) (f)
|
175
|
units
|
38.25
|
%
|
|
|
-
|
|
|
-
|
|
|
42,500
|
12/04/17
|
L+2.50
|
%
|
(i)
|
PruRose Port Imperial South 13, LLC / RiverParc at Port Imperial (b)
|
280
|
units
|
20.00
|
%
|
|
|
-
|
|
|
-
|
|
|
70,731
|
06/27/16
|
L+2.15
|
%
|
(j)
|
Roseland/Port Imperial Partners, L.P./ Riverwalk C (b) (k)
|
363
|
units
|
20.00
|
%
|
|
|
1,678
|
|
|
1,678
|
|
|
-
|
-
|
-
|
|
|
RoseGarden Marbella South, L.L.C./ Marbella II
|
311
|
units
|
24.27
|
%
|
|
|
17,155
|
|
|
16,728
|
|
|
69,681
|
03/30/17
|
L+2.25
|
%
|
(l)
|
Estuary Urban Renewal Unit B, LLC / Lincoln Harbor (Bldg B) (b)
|
227
|
units
|
7.50
|
%
|
|
|
-
|
|
|
-
|
|
|
81,900
|
03/01/30
|
4.00
|
%
|
|
Riverpark at Harrison I, L.L.C./ Riverpark at Harrison
|
141
|
units
|
45.00
|
%
|
|
|
2,426
|
|
|
2,544
|
|
|
30,000
|
08/01/25
|
3.70
|
%
|
|
Capitol Place Mezz LLC / Station Townhouses
|
378
|
units
|
50.00
|
%
|
|
|
45,500
|
|
|
46,267
|
|
|
100,700
|
07/01/33
|
4.82
|
%
|
(m)
|
Harborside Unit A Urban Renewal, L.L.C. / URL Harborside
|
763
|
units
|
85.00
|
%
|
|
|
97,615
|
|
|
96,799
|
|
|
92,937
|
08/01/29
|
5.197
|
%
|
(n)
|
RoseGarden Monaco, L.L.C./ San Remo Land
|
250
|
potential units
|
41.67
|
%
|
|
|
1,356
|
|
|
1,339
|
|
|
-
|
-
|
-
|
|
|
Grand Jersey Waterfront URA, L.L.C./ Liberty Landing
|
850
|
potential units
|
50.00
|
%
|
|
|
337
|
|
|
337
|
|
|
-
|
-
|
-
|
|
|
Hillsborough 206 Holdings, L.L.C./ Hillsborough 206
|
160,000
|
sf
|
50.00
|
%
|
|
|
1,962
|
|
|
1,962
|
|
|
-
|
-
|
-
|
|
|
Plaza VIII & IX Associates, L.L.C./ Vacant land (parking operations)
|
1,225,000
|
sf
|
50.00
|
%
|
|
|
4,132
|
|
|
4,055
|
|
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Red Bank Corporate Plaza, L.L.C./ Red Bank
|
92,878
|
sf
|
50.00
|
%
|
|
|
4,250
|
|
|
4,140
|
|
|
14,950
|
05/17/16
|
L+3.00
|
%
|
(o)
|
12 Vreeland Associates, L.L.C./ 12 Vreeland Road
|
139,750
|
sf
|
50.00
|
%
|
|
|
5,974
|
|
|
5,890
|
|
|
12,171
|
07/01/23
|
2.87
|
%
|
|
BNES Associates III / Offices at Crystal Lake
|
106,345
|
sf
|
31.25
|
%
|
|
|
2,101
|
|
|
2,295
|
|
|
5,973
|
11/01/23
|
4.76
|
%
|
|
KPG-P 100 IMW JV, LLC / 100 Independence Mall West
|
339,615
|
sf
|
33.33
|
%
|
|
|
-
|
|
|
-
|
|
|
61,500
|
09/09/16
|
L+7.00
|
%
|
(p)
|
Keystone-Penn
|
1,842,820
|
sf
|
(q)
|
|
|
|
-
|
|
|
-
|
|
|
228,600
|
(r)
|
(r)
|
|
|
Keystone-TriState
|
1,266,384
|
sf
|
(s)
|
|
|
|
3,480
|
|
|
3,958
|
|
|
212,536
|
(t)
|
(t)
|
|
|
KPG-MCG Curtis JV, L.L.C./ Curtis Center (u)
|
885,000
|
sf
|
50.00
|
%
|
|
|
62,247
|
|
|
59,858
|
|
|
(v)
|
(v)
|
(v)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roseland/North Retail, L.L.C./ Riverwalk at Port Imperial (b)
|
30,745
|
sf
|
20.00
|
%
|
|
|
1,742
|
|
|
1,758
|
|
|
-
|
-
|
-
|
|
|
South Pier at Harborside / Hyatt Regency Jersey City on the Hudson
|
350
|
rooms
|
50.00
|
%
|
|
|
(w)
|
|
|
(w)
|
|
|
63,384
|
(x)
|
(x)
|
|
|
Other (y)
|
|
|
|
|
|
|
964
|
|
|
3,506
|
|
|
-
|
-
|
-
|
|
|
Totals:
|
|
|
|
|
|
$
|
303,647
|
|
$
|
303,457
|
|
$
|
1,823,311
|
|
|
|
|
|
|
|
|
(a)
|
Company's effective ownership % represents the Company's entitlement to residual distributions after payments of priority returns, where applicable.
|
(b)
|
The Company's ownership interests in this venture are subordinate to its partner's preferred capital balance and the Company is not expected to meaningfully participate in the venture's cash flows in the near term.
|
(c)
|
Through the joint venture, the Company also owns a 12.5 percent interest in a 50,973 square feet retail building ("Shops at 40 Park") and a 25 percent interest in a to-be-built 59-unit, five story multi-family rental development property ("Lofts at 40 Park").
|
(d)
|
The Company's ownership interests in this venture are subordinate to its partner's preferred capital balance and the payment of the outstanding balance remaining on a note ($975 as of December 31, 2015), and is not expected to meaningfully participate in the venture's cash flows in the near term.
|
(e)
|
Property debt balance consists of: (i) a loan, collateralized by the Metropolitan at 40 Park, with a balance of $38,218, bears interest at 3.25 percent, matures in September 2020; (ii) an amortizable loan, collateralized by the Shops at 40 Park, with a balance of $6,421, bears interest at 3.63 percent, matures in August 2018; and (iii) a loan, collateralized by the Lofts at 40 Park, with a balance of $1,117, bears interest at LIBOR plus 250 basis points and matures in September 2016. The Shops at 40 Park mortgage loan also provides for additional borrowing proceeds of $1 million based on certain preferred thresholds being achieved.
|
(f)
|
On April 1, 2016, the Company acquired the equity interests of its joint venture partner in Portside Apartment Holdings, L.L.C and PruRose Riverwalk G, L.L.C. for $38.1 million and $11.3 million, respectively, which increased its ownership to 85 percent in Portside Apartment Holdings, LLC and 50 percent in PruRose Riverwalk G, L.L.C. (See Note 3: Recent Transactions – Acquisitions).
|
(g)
|
The permanent loan has a maximum borrowing amount of $80,249.
|
(h)
|
The Company also owns a 50 percent interest in a vacant land to accommodate the development of approximately 295 additional units of which 252 are currently approved.
|
(i)
|
The construction loan has a maximum borrowing amount of $42,500 and provides, subject to certain conditions, two two-year extension options with a fee of 12.5 basis points for the first two-year extension and 25 basis points for the second two-year extension.
|
(j)
|
The construction loan has a maximum borrowing amount of $73,350 and provides, subject to certain conditions, one-year extension option followed by a six-month extension option with a fee of 25 basis points each. The joint venture has a swap agreement that fixes the all-in rate to 2.79 percent per annum on an initial notional amount of $1,620, increasing to $69,500 for the period from July 1, 2013 to January 1, 2016.
|
(k)
|
The Company also owns a 20 percent residual interest in undeveloped land parcels: parcels 6, I, and J ("Port Imperial North Land") that can accommodate the development of 836 apartment units.
|
(l)
|
The construction loan has a maximum borrowing amount of $77,400 and provides, subject to certain conditions, two one-year extension options with a fee of 25 basis points for each year.
|
(m)
|
The construction/permanent loan has a maximum borrowing amount of $100,700 with amortization starting in August 2017.
|
(n)
|
The construction/permanent loan has a maximum borrowing amount of $192,000.
|
(o)
|
The joint venture has a swap agreement that fixes the all-in rate to 3.99375 percent per annum on an initial notional amount of $13,650 and then adjusting in accordance with an amortization schedule, which is effective from October 17, 2011 through loan maturity.
|
(p)
|
The mortgage loan has two one-year extension options, subject to certain conditions.
|
(q)
|
The Company’s equity interests in the joint ventures will be subordinated to Keystone Entities receiving a 15 percent internal rate of return (“IRR”) after which the Company will receive a 10 percent IRR on its subordinate equity and then all profit will be split equally.
|
(r)
|
Principal balance of $127,600 bears interest at 5.114 percent and matures on August 27, 2023; principal balance of $45,500 bears interest at 5.01 percent and matures on September 6, 2025; principal balance of $33,825 bears interest at rates ranging from LIBOR+5.0 percent to LIBOR+5.75 percent and matures on August 27, 2016; principal balance of $11,250 bears interest at LIBOR+5.5 percent and matures on January 9, 2019; principal balance of $10,425 bears interest at LIBOR+6.0 percent matures on August 31, 2016.
|
(s)
|
Includes the Company’s pari-passu interests of $3.5 million in five properties and Company’s subordinated equity interests to Keystone Entities receiving a 15 percent internal rate of return (“IRR”) after which the Company will receive a 10 percent IRR on its subordinate equity and then all profit will be split equally.
|
(t)
|
Principal balance of $43,954 bears interest at 5.38 percent and matures on July 1, 2017; principal balance of $75,882 bears interest at rates ranging from 5.65 percent to 6.75 percent and matures on September 9, 2017; principal balance of $14,250 bears interest at 4.88 percent and matures on July 6, 2024; principal balance of $63,400 bears interest at 4.93 percent and matures on July 6, 2044; principal balance of $15,050 bears interest at 4.71 percent and matures on August 6, 2044.
|
(u)
|
Includes undivided interests in the same manner as investments in noncontrolling partnership, pursuant to ASC 970-323-25-12.
|
(v)
|
See Note 10: Mortgages, Loans Payable and Other Obligations for debt secured by interests in these assets.
|
(w)
|
The negative carrying value for this venture of $4,235 and $3,317 as of March 31, 2016 and 2015, respectively, were included in accounts payable, accrued expenses and other liabilities.
|
(x)
|
Balance includes: (i) mortgage loan, collateralized by the hotel property, with a balance of $59,790, bears interest at 6.15 percent and matures in November 2016, and (ii) loan with a balance of $3,594, bears interest at fixed rates ranging from 6.09 percent to 6.62 percent and matures in August 1, 2020. The Company posted a $3.6 million letter of credit in support of this loan, half of which is indemnified by the partner.
|
(y)
|
The Company owns other interests in various unconsolidated joint ventures, including interests in assets previously owned and interest in ventures whose businesses are related to its core operations. These ventures are not expected to significantly impact the Company's operations in the near term.
|
The following is a summary of the Company’s equity in earnings (loss) of unconsolidated joint ventures for the three months ended March 31, 2016 and 2015:
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
Entity / Property Name
|
|
2016
|
|
|
2015
|
Multi-family
|
|
|
|
|
|
Marbella RoseGarden, L.L.C./ Marbella
|
$
|
84
|
|
$
|
61
|
RoseGarden Monaco Holdings, L.L.C./ Monaco
|
|
(291)
|
|
|
(317)
|
PruRose Port Imperial South 15, LLC /RiversEdge at Port Imperial
|
|
-
|
|
|
-
|
Rosewood Morristown, L.L.C. / Metropolitan at 40 Park
|
|
(81)
|
|
|
(94)
|
PruRose Riverwalk G, L.L.C./ RiverTrace at Port Imperial
|
|
-
|
|
|
(254)
|
Elmajo Urban Renewal Associates, LLC / Lincoln Harbor (Bldg A&C)
|
|
-
|
|
|
-
|
Crystal House Apartments Investors LLC / Crystal House
|
|
(112)
|
|
|
(10)
|
Portside Master Company, L.L.C./ Portside at Pier One - Bldg 7
|
|
-
|
|
|
(719)
|
PruRose Port Imperial South 13, LLC / RiverParc at Port Imperial
|
|
-
|
|
|
(225)
|
Roseland/Port Imperial Partners, L.P./ Riverwalk C
|
|
-
|
|
|
(184)
|
RoseGarden Marbella South, L.L.C./ Marbella II
|
|
-
|
|
|
-
|
Estuary Urban Renewal Unit B, LLC / Lincoln Harbor (Bldg B)
|
|
-
|
|
|
-
|
Riverpark at Harrison I, L.L.C./ Riverpark at Harrison
|
|
(28)
|
|
|
(173)
|
Capitol Place Mezz LLC / Station Townhouses
|
|
(767)
|
|
|
75
|
Harborside Unit A Urban Renewal, L.L.C. / URL Harborside
|
|
(17)
|
|
|
-
|
RoseGarden Monaco, L.L.C./ San Remo Land
|
|
-
|
|
|
-
|
Grand Jersey Waterfront URA, L.L.C./ Liberty Landing
|
|
(60)
|
|
|
(19)
|
Hillsborough 206 Holdings, L.L.C./ Hillsborough 206
|
|
(19)
|
|
|
-
|
Plaza VIII & IX Associates, L.L.C./ Vacant land (parking operations)
|
|
77
|
|
|
86
|
Office
|
|
|
|
|
|
Red Bank Corporate Plaza, L.L.C./ Red Bank
|
|
101
|
|
|
110
|
12 Vreeland Associates, L.L.C./ 12 Vreeland Road
|
|
84
|
|
|
(14)
|
BNES Associates III / Offices at Crystal Lake
|
|
(194)
|
|
|
68
|
KPG-P 100 IMW JV, LLC / 100 Independence Mall West
|
|
-
|
|
|
(384)
|
Keystone-Penn
|
|
-
|
|
|
-
|
Keystone-TriState
|
|
(477)
|
|
|
(1,348)
|
KPG-MCG Curtis JV, L.L.C./ Curtis Center
|
|
179
|
|
|
196
|
Other
|
|
|
|
|
|
Roseland/North Retail, L.L.C./ Riverwalk at Port Imperial
|
|
(16)
|
|
|
(18)
|
South Pier at Harborside / Hyatt Regency Jersey City on the Hudson
|
|
(167)
|
|
|
(84)
|
Other
|
|
150
|
|
|
(282)
|
Company's equity in earnings (loss) of unconsolidated joint ventures
|
$
|
(1,554)
|
|
$
|
(3,529)
|
The following is a summary of the financial position of the unconsolidated joint ventures in which the Company had investment interests as of March 31, 2016 and December 31, 2015:
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
Assets:
|
|
|
|
|
|
|
Rental property, net
|
|
$
|
1,736,842
|
|
$
|
1,781,621
|
Other assets
|
|
|
294,444
|
|
|
307,000
|
Total assets
|
|
$
|
2,031,286
|
|
$
|
2,088,621
|
Liabilities and partners'/
|
|
|
|
|
|
|
members' capital:
|
|
|
|
|
|
|
Mortgages and loans payable
|
|
$
|
1,279,688
|
|
$
|
1,298,293
|
Other liabilities
|
|
|
215,552
|
|
|
215,951
|
Partners'/members' capital
|
|
|
536,046
|
|
|
574,377
|
Total liabilities and
|
|
|
|
|
|
|
partners'/members' capital
|
|
$
|
2,031,286
|
|
$
|
2,088,621
|
The following is a summary of the results from operations of the unconsolidated joint ventures for the period in which the Company had investment interests during the three months ended March 31, 2016 and 2015:
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2016
|
|
|
2015
|
Total revenues
|
$
|
70,122
|
|
$
|
74,477
|
Operating and other expenses
|
|
(45,561)
|
|
|
(57,356)
|
Depreciation and amortization
|
|
(18,842)
|
|
|
(16,993)
|
Interest expense
|
|
(14,049)
|
|
|
(11,334)
|
Net loss
|
$
|
(8,330)
|
|
$
|
(11,206)
|
5.
DEFERRED CHARGES, GOODWILL AND OTHER ASSETS, NET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
(dollars in thousands)
|
|
2016
|
|
|
2015
|
Deferred leasing costs
|
$
|
237,209
|
|
$
|
239,690
|
Deferred financing costs - revolving credit facility (1)
|
|
5,359
|
|
|
5,394
|
|
|
242,568
|
|
|
245,084
|
Accumulated amortization
|
|
(103,316)
|
|
|
(118,014)
|
Deferred charges, net
|
|
139,252
|
|
|
127,070
|
Notes receivable (2)
|
|
13,435
|
|
|
13,496
|
In-place lease values, related intangibles and other assets, net
|
|
12,736
|
|
|
10,931
|
Goodwill
|
|
2,945
|
|
|
2,945
|
Prepaid expenses and other assets, net (3)
|
|
52,629
|
|
|
49,408
|
|
|
|
|
|
|
Total deferred charges, goodwill and other assets, net
|
$
|
220,997
|
|
$
|
203,850
|
(1)
|
Pursuant to recently issued accounting standards, deferred financing costs related to all other debt liabilities (other than for the revolving credit facility) are classified to net against those debt liabilities for all periods presented. See Note 2: Significant Accounting Policies – Deferred Financing Costs.
|
(2)
|
Includes as of March 31, 2016: a mortgage receivable for $10.4 million which bears interest at LIBOR plus six percent and matures in August 2016; and an interest-free note receivable with a net present value of $3.0 million and matures in April 2023. The Company believes these balances are fully collectible.
|
(3)
|
Includes as of March 31, 2016, deposits of $12.7 million for acquisitions and developments.
|
DERIVATIVE FINANCIAL INSTRUMENTS
|
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. As of March 31, 2016, the Company had outstanding interest rate swaps with a combined notional value of $350 million that were designated as cash flow hedges of interest rate risk. During the three months ending March 31, 2016, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the three months ended March 31, 2016, the Company recorded ineffectiveness of $913,000 in expense, which is included in interest and other investment income (loss) in the consolidated statements of operations, attributable to a floor mismatch in the underlying indices of the derivatives and the hedged interest payments made on its variable-rate debt. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next 12 months, the Company estimates that an additional $3.1 million will be reclassified as an increase to interest expense.
Undesignated Cash Flow Hedges of Interest Rate Risk
Interest rate caps not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements but do not meet the strict hedge accounting requirements. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings. The Company recognized expenses of $1,000 and $63,000 during the three months ended March 31, 2016 and 2015, respectively, which is included in interest and other investment income (loss) in the consolidated statements of operations.
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Balance Sheet as of March 31, 2016 and December 31, 2015
. (dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
Liability Derivatives designated
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
as hedging instruments
|
|
|
2016
|
|
|
2015
|
|
|
Balance sheet location
|
|
Interest rate swaps
|
|
$
|
7,253
|
|
$
|
-
|
|
|
Accounts payable, accrued expenses and other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives not designated
|
|
|
|
|
|
|
|
|
|
|
as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
Interest rate caps
|
|
$
|
-
|
|
$
|
2
|
|
|
Deferred charges, goodwill and other assets
|
|
The table below presents the effect of the Company’s derivative financial instruments on the Income Statement for the three months ending March 31, 2016 and 2015.
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Cash Flow Hedging Relationships
|
|
Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)
|
|
Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
|
|
|
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
|
|
Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
|
|
|
Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion, Reclassification for Forecasted Transactions No Longer Probable of Occurring and Amount Excluded from Effectiveness Testing)
|
|
|
2016
|
|
|
2015
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
2016
|
|
|
2015
|
Three months ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
(7,187)
|
|
$
|
-
|
|
Interest expense
|
|
$
|
(847)
|
|
$
|
-
|
|
Interest and other investment income (loss)
|
|
$
|
(913)
|
|
$
|
-
|
Credit-risk-related Contingent Features
The Company has agreements with each of its derivative counterparties that contain a provision where the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company's default on the indebtedness. As of March 31, 2016, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $7.7 million. As of March 31, 2016, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions at March 31, 2016, it could have been required to settle its obligations under the agreements at their termination value of $7.7 million.
6.
RESTRICTED CASH
Restricted cash generally includes tenant and resident security deposits for certain of the Company’s properties, and escrow and reserve funds for debt service, real estate taxes, property insurance, capital improvements, tenant improvements, and leasing costs established pursuant to certain mortgage financing arrangements, and is comprised of the following:
(dollars in thousands)
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
2016
|
|
|
2015
|
Security deposits
|
$
|
8,297
|
|
$
|
7,785
|
Escrow and other reserve funds
|
|
19,269
|
|
|
27,558
|
|
|
|
|
|
|
Total restricted cash
|
$
|
27,566
|
|
$
|
35,343
|
7.
SENIOR UNSECURED NOTES
A summary of the Company’s senior unsecured notes as of March 31, 2016 and December 31, 2015 is as follows:
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
Effective
|
|
|
|
|
2016
|
|
|
2015
|
|
Rate (1)
|
|
5.800% Senior Unsecured Notes, due January 15, 2016 (2)
|
|
|
-
|
|
$
|
200,000
|
|
5.806
|
%
|
2.500% Senior Unsecured Notes, due December 15, 2017
|
|
$
|
250,000
|
|
|
250,000
|
|
2.803
|
%
|
7.750% Senior Unsecured Notes, due August 15, 2019
|
|
|
250,000
|
|
|
250,000
|
|
8.017
|
%
|
4.500% Senior Unsecured Notes, due April 18, 2022
|
|
|
300,000
|
|
|
300,000
|
|
4.612
|
%
|
3.150% Senior Unsecured Notes, due May 15, 2023
|
|
|
275,000
|
|
|
275,000
|
|
3.517
|
%
|
Principal balance outstanding
|
|
|
1,075,000
|
|
|
1,275,000
|
|
|
|
Adjustment for unamortized debt discount
|
|
|
(5,872)
|
|
|
(6,156)
|
|
|
|
Unamortized deferred financing costs
|
|
|
(4,765)
|
|
|
(5,062)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total senior unsecured notes, net
|
|
$
|
1,064,363
|
|
$
|
1,263,782
|
|
|
|
(1)
|
Includes the cost of terminated treasury lock agreements (if any), offering and other transaction costs and the discount/premium on the notes, as applicable.
|
(2)
|
On January 15, 2016, the Company repaid these notes at their maturity using proceeds from a new unsecured term loan and borrowings under the Company’s unsecured revolving credit facility.
|
The terms of the Company’s senior unsecured notes include certain restrictions and covenants which require compliance with financial ratios relating to the maximum amount of debt leverage, the maximum amount of secured indebtedness, the minimum amount of debt service coverage and the maximum amount of unsecured debt as a percent of unsecured assets. The Company was in compliance with its debt covenants under the indenture relating to its senior unsecured notes as of March 31, 2016.
8.
UNSECURED TERM LOAN
On January 7, 2016, the Company obtained a new $350 million unsecured term loan, which matures in January 2019 with two one-year extension options. The interest rate for the new term loan is currently 140 basis points over LIBOR, subject to adjustment on a sliding scale based on the Operating Partnership’s unsecured debt ratings, or at the Company's option, a defined leverage ratio. The Company entered into interest rate swap arrangements to fix LIBOR for the duration of the term loan. Including costs, the current all-in fixed rate is 3.13 percent. The proceeds from the loan were used primarily to repay outstanding borrowings on the Company’s unsecured revolving credit facility and to repay the Company's $200 million, 5.8 percent senior unsecured notes that matured on January 15, 2016.
The interest rate on the unsecured term loan is based upon the Operating Partnership’s unsecured debt ratings, as follows:
|
|
|
Operating Partnership's
|
|
Interest Rate -
|
Unsecured Debt Ratings:
|
|
Applicable Basis Points
|
Higher of S&P or Moody's
|
|
Above LIBOR
|
No ratings or less than BBB-/Baa3
|
|
185.0
|
BBB- or Baa3 (current interest rate based on Company's election)
|
|
140.0
|
BBB or Baa2
|
|
115.0
|
BBB+ or Baa1
|
|
100.0
|
A- or A3 or higher
|
|
90.0
|
If the Company elected to use a defined leverage ratio, the interest rate under the unsecured term loan would be based on the following total leverage ratio grid:
|
|
|
|
|
Interest Rate -
|
|
|
Applicable Basis
|
Total Leverage Ratio
|
|
Points above LIBOR
|
<45%
|
|
145
|
≥45% and <50% (current ratio)
|
|
155
|
≥50% and <55%
|
|
165
|
≥55%
|
|
195
|
The terms of the unsecured term loan include certain restrictions and covenants which limit, among other things the incurrence of additional indebtedness, the incurrence of liens and the disposition of real estate properties (to the extent that: (i) such property dispositions cause the Company to default on any of the financial ratios of the term loan described below, or (ii) the property dispositions are completed while the Company is under an event of default under the term loan, unless, under certain circumstances, such disposition is being carried out to cure such default), and which require compliance with financial ratios relating to the maximum leverage ratio (60 percent), the maximum amount of secured indebtedness (40 percent), the minimum amount of fixed charge coverage (1.5 times), the maximum amount of unsecured indebtedness (60 percent), the minimum amount of unencumbered property interest coverage (2.0 times) and certain investment limitations (generally 15 percent of total capitalization). If an event of default has occurred and is continuing, the Company will not make any excess distributions except to enable the Company to continue to qualify as a REIT under the Code. The Company was in compliance with its debt covenants under its unsecured term loan as of March 31, 2016.
9.
UNSECURED REVOLVING CREDIT FACILITY
The Company has a $600 million unsecured revolving credit facility with a group of 17 lenders. The facility is expandable to $1 billion and matures in July 2017. It has two six-month extension options each requiring the payment of a 7.5 basis point fee. The interest rate on outstanding borrowings (not electing the Company’s competitive bid feature) and the facility fee on the current borrowing capacity payable quarterly in arrears are based upon the Operating Partnership’s unsecured debt ratings, as follows:
|
|
|
|
|
|
|
|
|
|
Operating Partnership's
|
|
Interest Rate -
|
|
|
Unsecured Debt Ratings:
|
|
Applicable Basis Points
|
|
Facility Fee
|
Higher of S&P or Moody's
|
|
Above LIBOR
|
|
Basis Points
|
No ratings or less than BBB-/Baa3
|
|
170.0
|
|
35.0
|
BBB- or Baa3 (current)
|
|
130.0
|
|
30.0
|
BBB or Baa2
|
|
110.0
|
|
20.0
|
BBB+ or Baa1
|
|
100.0
|
|
15.0
|
A- or A3 or higher
|
|
92.5
|
|
12.5
|
The facility has a competitive bid feature, which allows the Company to solicit bids from lenders under the facility to borrow up to $300 million at interest rates less than those above.
The terms of the unsecured facility include certain restrictions and covenants which limit, among other things the incurrence of additional indebtedness, the incurrence of liens and the disposition of real estate properties (to the extent that: (i) such property dispositions cause the Company to default on any of the financial ratios of the facility described below, or (ii) the property dispositions are completed while the Company is under an event of default under the facility, unless, under certain circumstances, such disposition is being carried out to cure such default), and which require compliance with financial ratios relating to the maximum leverage ratio (60 percent), the maximum amount of secured indebtedness (40 percent), the minimum amount of fixed charge coverage (1.5 times), the maximum amount of unsecured indebtedness (60 percent), the minimum amount of unencumbered property interest coverage (2.0 times) and certain investment limitations (generally 15 percent of total capitalization). If an event of default has occurred and is continuing, the Company will not make any excess distributions except to enable the Company to continue to qualify as a REIT under the Code. The Company was in compliance with its debt covenants under its revolving credit facility as of March 31, 2016.
As of March 31, 2016 and December 31, 2015, the Company had outstanding borrowings of $90 million and $155 million, respectively, under its unsecured revolving credit facility.
10.
MORTGAGES, LOANS PAYABLE AND OTHER OBLIGATIONS
The Company has mortgages, loans payable and other obligations which primarily consist of various loans collateralized by certain of the Company’s rental properties, land and development projects. As of March 31, 2016, 24 of the Company’s properties, with a total carrying value of approximately $853 million, and four of the Company’s land and development projects, with a total carrying value of approximately $222 million, are encumbered by the Company’s mortgages and loans payable. Payments on mortgages, loans payable and other obligations are generally due in monthly installments of principal and interest, or interest only. Except as noted below, the Company was in compliance with its debt covenants under its mortgages and loans payable as of March 31, 2016.
A summary of the Company’s mortgages, loans payable and other obligations as of March 31, 2016 and December 31, 2015 is as follows:
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
Property/Project Name
|
Lender
|
|
Rate (a)
|
|
|
|
2016
|
|
|
2015
|
|
Maturity
|
|
Port Imperial South (b)
|
Wells Fargo Bank N.A.
|
LIBOR+1.75
|
%
|
|
|
-
|
|
$
|
34,962
|
|
01/17/16
|
|
6 Becker, 85 Livingston,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75 Livingston & 20 Waterview
|
Wells Fargo CMBS
|
|
10.260
|
%
|
|
$
|
63,279
|
|
|
63,279
|
|
08/11/14
|
(c)
|
9200 Edmonston Road
|
Principal Commercial Funding L.L.C.
|
|
9.780
|
%
|
|
|
3,793
|
|
|
3,793
|
|
05/01/15
|
(d)
|
4 Becker
|
Wells Fargo CMBS
|
|
9.550
|
%
|
|
|
40,478
|
|
|
40,631
|
|
05/11/16
|
|
Curtis Center (e)
|
CCRE & PREFG
|
LIBOR+5.912
|
%
|
(f)
|
|
64,000
|
|
|
64,000
|
|
10/09/16
|
|
Various (g)
|
Prudential Insurance
|
|
6.332
|
%
|
|
|
142,983
|
|
|
143,513
|
|
01/15/17
|
|
150 Main St. (h)
|
Webster Bank
|
LIBOR+2.35
|
%
|
|
|
16,103
|
|
|
10,937
|
|
03/30/17
|
|
23 Main Street
|
JPMorgan CMBS
|
|
5.587
|
%
|
|
|
28,367
|
|
|
28,541
|
|
09/01/18
|
|
Harborside Plaza 5
|
The Northwestern Mutual Life
|
|
6.842
|
%
|
|
|
216,738
|
|
|
217,736
|
|
11/01/18
|
|
|
Insurance Co. & New York Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Co.
|
|
|
|
|
|
|
|
|
|
|
|
|
100 Walnut Avenue
|
Guardian Life Insurance Co.
|
|
7.311
|
%
|
|
|
18,202
|
|
|
18,273
|
|
02/01/19
|
|
One River Center (i)
|
Guardian Life Insurance Co.
|
|
7.311
|
%
|
|
|
41,698
|
|
|
41,859
|
|
02/01/19
|
|
Park Square
|
Wells Fargo Bank N.A.
|
LIBOR+1.872
|
%
|
(j)
|
|
27,500
|
|
|
27,500
|
|
04/10/19
|
|
Port Imperial South 4/5 Retail
|
American General Life & A/G PC
|
|
4.559
|
%
|
|
|
4,000
|
|
|
4,000
|
|
12/01/21
|
|
The Chase at Overlook Ridge
|
New York Community Bank
|
|
3.740
|
%
|
|
|
72,500
|
|
|
-
|
|
02/01/23
|
|
Port Imperial South 4/5 Garage
|
American General Life & A/G PC
|
|
4.853
|
%
|
|
|
32,600
|
|
|
32,600
|
|
12/01/29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal balance outstanding
|
|
|
|
|
|
772,241
|
|
|
731,624
|
|
|
|
Adjustment for unamortized debt discount
|
|
|
|
|
|
(222)
|
|
|
(548)
|
|
|
|
Unamortized deferred financing costs
|
|
|
|
|
|
|
(4,446)
|
|
|
(4,465)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgages, loans payable and other obligations, net
|
|
|
|
|
$
|
767,573
|
|
$
|
726,611
|
|
|
|
|
|
(a)
|
Reflects effective rate of debt, including deferred financing costs, comprised of the cost of terminated treasury lock agreements (if any), debt initiation costs, mark-to-market adjustment of acquired debt and other transaction costs, as applicable.
|
(b)
|
The loan was repaid in full at maturity, using borrowings from the Company's revolving credit facility.
|
(c)
|
Mortgage is cross collateralized by the four properties. On April 22, 2016, the loan was repaid for $51.5 million.
|
(d)
|
Excess cash flow, as defined, is being held by the lender for re-leasing costs. The deed for the property was placed in escrow and is available to the lender in the event of default or non-payment at maturity. The mortgage loan was not repaid at maturity on May 1, 2015. The Company is in discussions with the lender regarding a further extension of the loan.
|
(e)
|
The Company owns a 50 percent tenants-in-common interest in the Curtis Center property. The Company’s $64.0 million loan consists of its 50 percent interest in a $102 million senior loan with a current rate of 3.7311 percent at March 31, 2016 and its 50 percent interest in a $26 million mezzanine loan (with a maximum borrowing capacity of $48 million) with a current rate of 9.937 percent at March 31, 2016. The senior loan rate is based on a floating rate of one-month LIBOR plus 329 basis points and the mezzanine loan rate is based on a floating rate of one-month LIBOR plus 950 basis points. The Company has entered into LIBOR caps for the periods of the loans. The loans provide for three one-year extension options.
|
(f)
|
The effective interest rate includes amortization of deferred financing costs of 1.362 percent.
|
(g)
|
Mortgage is cross collateralized by seven properties. The Company has agreed, subject to certain conditions, to guarantee repayment of $61.1 million of the loan.
|
(h)
|
This construction loan has a maximum borrowing capacity of $28.8 million.
|
(i)
|
Mortgage is collateralized by the three properties comprising One River Center.
|
(j)
|
The effective interest rate includes amortization of deferred financing costs of 0.122 percent.
|
CASH PAID FOR INTEREST AND INTEREST CAPITALIZED
Cash paid for interest for the three months ended March 31, 2016 and 2015 was $28,090,000 and $25,922,000, respectively. Interest capitalized by the Company for the three months ended March 31, 2016 and 2015 was $4,561,000 and $3,607,000, respectively (which amounts included $1,458,000 and $1,256,000 for the three months ended March 31, 2016 and 2015, respectively, of interest capitalized on the Company’s investments in unconsolidated joint ventures which were substantially in development).
SUMMARY OF INDEBTEDNESS
As of March 31, 2016, the Company’s total indebtedness of $2,281,147,000 (weighted average interest rate of 4.95 percent) was comprised of $197,603,000 of revolving credit facility borrowings and other variable rate mortgage debt (weighted average rate of 3.40 percent) and fixed rate debt and other obligations of $2,089,638,000 (weighted average rate of 5.10 percent).
As of December 31, 2015, the Company’s total indebtedness of $2,154,920,000 (weighted average interest rate of 5.22 percent) was comprised of $292,399,000 of revolving credit facility borrowings and other variable rate mortgage debt (weighted average rate of 2.81 percent) and fixed rate debt and other obligations of $1,862,521,000 (weighted average rate of 5.60 percent).
11.
EMPLOYEE BENEFIT 401(k) PLANS
|
Employees of the Company, who meet certain minimum age and service requirements, are eligible to participate in the Mack-Cali Realty Corporation 401(k) Savings/Retirement Plan (the “401(k) Plan”). Eligible employees may elect to defer from one percent up to 60 percent of their annual compensation on a pre-tax basis to the 401(k) Plan, subject to certain limitations imposed by federal law. The amounts contributed by employees are immediately vested and non-forfeitable. The Company may make discretionary matching or profit sharing contributions to the 401(k) Plan on behalf of eligible participants in any plan year. Participants are always 100 percent vested in their pre-tax contributions and will begin vesting in any matching or profit sharing contributions made on their behalf after two years of service with the Company at a rate of 20 percent per year, becoming 100 percent vested after a total of six years of service with the Company. All contributions are allocated as a percentage of compensation of the eligible participants for the Plan year. The assets of the 401(k) Plan are held in trust and a separate account is established for each participant. A participant may receive a distribution of his or her vested account balance in the 401(k) Plan in a single sum or in installment
payments upon his or her termination of service with the Company. Total expense recognized by the Company for the 401(k) Plan for the three months ended March 31, 2016 and 2015 was $237,000 and zero, respectively.
12.
DISCLOSURE OF FAIR VALUE OF ASSETS AND LIABILITIES
The following disclosure of estimated fair value was determined by management using available market information and appropriate valuation methodologies. However, considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the assets and liabilities at March 31, 2016 and December 31, 2015. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
Cash equivalents, receivables, notes receivables, accounts payable, and accrued expenses and other liabilities are carried at amounts which reasonably approximate their fair values as of March 31, 2016 and December 31, 2015.
The fair value of the Company’s long-term debt, consisting of senior unsecured notes, an unsecured term loan, an unsecured revolving credit facility and mortgages, loans payable and other obligations aggregated approximately $2,299,752,000 and $2,150,507,000 as compared to the book value of approximately $2,269,287,000 and $2,145,393,000 as of March 31, 2016 and December 31, 2015, respectively. The fair value of the Company’s long-term debt was categorized as a level 3 basis (as provided by ASC 820, Fair Value Measurements and Disclosures). The fair value was estimated using a discounted cash flow analysis valuation based on the borrowing rates currently available to the Company for loans with similar terms and maturities. The fair value of the mortgage debt and the unsecured notes was determined by discounting the future contractual interest and principal payments by a market rate. Although the Company has determined that the majority of the inputs used to value its derivative financial instruments fall within level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivative financial instruments utilize level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. The Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivative financial instruments. As a result, the Company has determined that its derivative financial instruments valuations in their entirety are classified in level 2 of the fair value hierarchy.
The fair value measurements used in the evaluation of the Company’s rental properties are considered to be Level 3 valuations within the fair value hierarchy, as there are significant unobservable inputs. Examples of inputs utilized in the fair value calculations include estimated holding periods, discount rates, market capitalization rates, expected lease rental rates, and third party broker information. For rental properties identified as held for sale, fair value measurements used represent estimated fair value of properties, less selling costs, based on contract prices when available.
Disclosure about fair value of assets and liabilities is based on pertinent information available to management as of March 31, 2016 and December 31, 2015. Although management is not aware of any factors that would significantly affect the fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since March 31, 2016 and current estimates of fair value may differ significantly from the amounts presented herein.
13.
COMMITMENTS AND CONTINGENCIES
TAX ABATEMENT AGREEMENTS
Pursuant to agreements with certain municipalities, the Company is required to make payments in lieu of property taxes (“PILOT”) on certain of its properties and has tax abatement agreements on other properties, as follows:
The Harborside Plaza 4-A agreement with the City of Jersey City, as amended, which commenced in 2002, is for a term of 20 years. The annual PILOT is equal to two percent of Total Project Costs, as defined. Total Project Costs are $49.5 million. The PILOT totaled $247,000 and $247,000 for the three months ended March 31, 2016 and 2015, respectively.
The Harborside Plaza 5 agreement, also with the City of Jersey City, as amended, which commenced in 2002, is for a term of 20 years. The annual PILOT is equal to two percent of Total Project Costs, as defined. Total Project Costs are $170.9 million. The PILOT totaled $854,000 and $854,000 for the three months ended March 31, 2016 and 2015, respectively.
The agreement with the City of Weehawken for its Port Imperial 4/5 garage development project has a term of five years beginning when the project is substantially complete, which occurred in the third quarter of 2013. The agreement provides that real estate taxes be paid initially on the land value of the project only and allows for a phase in of real estate taxes on the value of the improvements over a five year period.
At the conclusion of the above-referenced agreements, it is expected that the properties will be assessed by the municipality and be subject to real estate taxes at the then prevailing rates.
LITIGATION
The Company is a defendant in litigation arising in the normal course of its business activities. Management does not believe that the ultimate resolution of these matters will have a materially adverse effect upon the Company’s financial condition taken as whole.
GROUND LEASE AGREEMENTS
Future minimum rental payments under the terms of all non-cancelable ground leases under which the Company is the lessee, as of March 31, 2016, are as follows:
(dollars in thousands)
|
|
|
Year
|
|
Amount
|
April 1 through December 31, 2016
|
$
|
290
|
2017
|
|
267
|
2018
|
|
232
|
2019
|
|
235
|
2020
|
|
235
|
2021 through 2084
|
|
15,348
|
|
|
|
Total
|
$
|
16,607
|
Ground lease expense incurred by the Company during the three months ended March 31, 2016 and 2015 amounted to $102,000 and $102,000, respectively.
CONSTRUCTION PROJECTS
The Company owns a 76.25 percent interest in a consolidated joint venture which is constructing a 108-unit multi-family development rental property located in Eastchester, New York (the “Eastchester Project”). The project is expected to be ready for occupancy by the second quarter of 2016. The Eastchester Project is estimated to cost a total of $50.0 million (of which development costs of $35.9 million have been incurred through March 31, 2016). The venture has a $28.8 million construction loan (with $16.1 million outstanding as of March 31, 2016). The Company expects to fund costs of approximately $20.9 million for the development of the project (of which, as of March 31, 2016, the Company has incurred $16.1 million of the development costs and estimates it will need to fund an additional $4.8 million for the completion of the project).
On April 1, 2015, the Company acquired vacant land in Worcester, Massachusetts to accommodate a two-phase development of the CitySquare Project for a purchase price of $3.1 million with an additional $1.25 million to be paid (which is accrued as of March 31, 2016), subject to certain conditions, in accordance with the terms of the purchase and sale agreement. The first phase with 237 units started construction in the third quarter 2015 with anticipated initial deliveries in the second quarter 2017. The Company has a construction loan with a maximum borrowing amount of $41.5 million (with no outstanding balance as of March 31, 2016). Total development costs are estimated to be approximately $92.5 million (of which $10.6 million was incurred by the Company through March 31, 2016 and estimates it will need to fund an additional $40.4 million for the completion of the project).
On October 6, 2015, the Company entered into a joint venture partnership with XS Port Imperial Hotel, LLC (“XS”) to form XS Hotel Urban Renewal Associates LLC (“XS Hotel URA”) for the development and ownership of a 364-key dual branded hotel property located in Weehawken, New Jersey (“Port Imperial Hotel”). Concurrently, the Company and XS entered into a separate joint venture partnership to form XS Hotel Associates, L.L.C. (“XS Hotel”) for the management and operations of the completed hotel development. The Company holds a 90 percent interest and XS holds the remaining 10 percent interest in the consolidated joint ventures, XS Hotel URA and XS Hotel, with the Company having full and complete authority, power, and discretion to manage and control the ventures’ business, affairs, and property. The construction of the Port Imperial Hotel is estimated to cost a total of $105.9 million. The venture has a $94 million construction loan (with no outstanding balance as of March 31, 2016). As of March 31, 2016, the Company incurred development costs of $4.7 million and estimates it will need to fund an additional $0.5 million for the completion of the project.
The Company owns developable land to accommodate a multi-phase development project of approximately 1,034-unit multi-family rental property located in Malden, Massachusetts. The initial phase commenced construction of 292 units in the third quarter of 2015 (the “Chase II Project”). The Chase II project is estimated to cost a total of $74.9 million (of which the Company has incurred $26.4 million through March 31, 2016) and is expected to be ready for occupancy by second quarter of 2017. The Company has a construction loan with a maximum borrowing amount of $48 million (with no outstanding balance as of March 31, 2016). The Company estimates it will need to fund additional costs of $0.5 million for the completion of the Chase II Project.
The Company owns an office property that it repurposed for residential use. The 197-unit multi-family development project, which is located in Morris Plains, New Jersey (“Signature Place Project”), is expected to be ready for occupancy by the fourth quarter of 2017. The Signature Place Project, which is estimated to cost a total of $61.4 million (of which development costs of $5.1 million have been incurred through March 31, 2016) is expected to be funded by a $42 million construction loan. The Company expects to fund costs of approximately $19.4 million for the development of the project, of which the Company has incurred $4.7 million as of March 31, 2016.
The Company owns an 85 percent interest in a consolidated joint venture, which is constructing a 296-unit multi-family development rental property located in East Boston, Massachusetts (“Portside 5/6 Project”). The project is expected to be ready for occupancy by the first quarter of 2018. The Portside 5/6 Project, which is estimated to cost a total of $112.4 million (of which development costs of $8.5 million have been incurred through March 31, 2016), is expected to be funded by a $73 million construction loan. The Company expects to fund costs of approximately $33.5 million for the development of the project, of which the Company has incurred $6.2 million as of March 31, 2016.
OTHER
Through February 2016, the Company could not dispose of or distribute certain of its properties which were originally contributed by certain unrelated common unitholders of the Operating Partnership, without the express written consent of such common unitholders, as applicable, except in a manner which did not result in recognition of any built-in-gain (which could result in an income tax liability) or which reimbursed the appropriate specific common unitholders for the tax consequences of the recognition of such built-in-gains (collectively, the “Property Lock-Ups”). The aforementioned restrictions did not apply in the event that the Company sold all of its properties or in connection with a sale transaction which the Company’s Board of Directors determined was reasonably necessary to satisfy a material monetary default on any unsecured debt, judgment or liability of the Company or to cure any material monetary default on any mortgage secured by a property. The Property Lock-Ups expired as of February 2016. Upon the expiration of the Property Lock-Ups, the Company is generally required to use commercially reasonable efforts to prevent any sale, transfer or other disposition of the subject properties from resulting in the recognition of built-in gain to the specific common unitholders, which include members of the Mack Group (which includes William L. Mack, Chairman of the Company’s Board of Directors; David S. Mack, director; and Earle I. Mack, a former director); the Robert Martin Group (which includes Robert F. Weinberg, a former director and current member of its Advisory Board), and the Cali Group (which includes John R. Cali, a former director and current member of its Advisory Board). As of March 31, 2016, 117 of the Company’s properties, with an aggregate net book value of approximately $1.3 billion, have lapsed restrictions and are subject to these conditions.
14.
TENANT LEASES
The Properties are leased to tenants under operating leases with various expiration dates through 2035. Substantially all of the commercial leases provide for annual base rents plus recoveries and escalation charges based upon the tenant’s proportionate share of and/or increases in real estate taxes and certain operating costs, as defined, and the pass-through of charges for electrical usage.
Future minimum rentals to be received under non-cancelable commercial operating leases at March 31, 2016 are as follows
(dollars in thousands)
:
|
|
|
Year
|
|
Amount
|
April 1 through December 31, 2016
|
$
|
344,351
|
2017
|
|
435,004
|
2018
|
|
361,934
|
2019
|
|
299,626
|
2020
|
|
259,333
|
2021 and thereafter
|
|
1,048,288
|
|
|
|
Total
|
$
|
2,748,536
|
Multi-family rental property residential leases are excluded from the above table as they generally expire within one year.
15.
MACK-CALI REALTY CORPORATION STOCKHOLDERS’ EQUITY
To maintain its qualification as a REIT, not more than 50 percent in value of the outstanding shares of the Company may be owned, directly or indirectly, by five or fewer individuals at any time during the last half of any taxable year of the Company, other than its initial taxable year (defined to include certain entities), applying certain constructive ownership rules. To help ensure that the Company will not fail this test, the Company’s Charter provides, among other things, certain restrictions on the transfer of common stock to prevent further concentration of stock ownership. Moreover, to evidence compliance with these requirements, the Company must maintain records that disclose the actual ownership of its outstanding common stock and demands written statements each year from the holders of record of designated percentages of its common stock requesting the disclosure of the beneficial owners of such common stock.
SHARE REPURCHASE PROGRAM
In September 2012, the Board of Directors renewed and authorized an increase to the Company’s repurchase program (“Repurchase Program”). The Company has authorization to repurchase up to $150 million of its outstanding common stock under the renewed Repurchase Program, which it may repurchase from time to time in open market transactions at prevailing prices or through privately negotiated transactions. The Company has purchased and retired 394,625 shares of its outstanding common stock for an aggregate cost of approximately $11 million (all of which occurred in the year ended December 31, 2012), with a remaining authorization under the Repurchase Program of $139 million.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The Company has a Dividend Reinvestment and Stock Purchase Plan (the “DRIP”) which commenced in March 1999 under which approximately 5.5 million shares of the Company’s common stock have been reserved for future issuance. The DRIP provides for automatic reinvestment of all or a portion of a participant’s dividends from the Company’s shares of common stock. The DRIP also permits participants to make optional cash investments up to $5,000 a month without restriction and, if the Company waives this limit, for additional amounts subject to certain restrictions and other conditions set forth in the DRIP prospectus filed as part of the Company’s effective registration statement on Form S-3 filed with the SEC for the approximately 5.5 million shares of the Company’s common stock reserved for issuance under the DRIP.
STOCK OPTION PLANS
In May 2013, the Company established the 2013 Incentive Stock Plan (the “2013 Plan”) under which a total of 4,600,000 shares have been reserved for issuance. In September 2000, the Company established the 2000 Employee Stock Option Plan (“2000 Employee Plan”) and the Amended and Restated 2000 Director Stock Option Plan (“2000 Director Plan” and together with the 2000 Employee Plan, the “2000 Plans”). In May 2002, shareholders of the Company approved amendments to both of the 2000 Plans to increase the total shares reserved for issuance under both of the 2000 Plans from 2,700,000 to 4,350,000 shares of the Company’s common stock (from 2,500,000 to 4,000,000 shares under the 2000 Employee Plan and from 200,000 to 350,000 shares under the 2000 Director Plan). As the 2000 Plans expired in 2010, stock options may no longer be issued under those plans. Stock options granted under the 2000 Employee Plan became exercisable over a five-year period. All stock options granted under the 2000 Director Plan became exercisable in one year. All options were granted at the fair market value at the dates of grant and have terms of 10 years. As of March 31, 2016 and December 31, 2015, the stock options outstanding had a weighted average remaining contractual life of approximately 9.2 and 9.4 years, respectively.
On June 5, 2015, in connection with employment agreements entered into with each of Messrs. Rudin and DeMarco (together, the “Executive Employment Agreements”), the Company granted options to purchase a total of 800,000 shares of the Company’s common stock, exercisable for a period of ten years with an exercise price equal to the closing price of the Company’s common stock on the grant date of $17.31 per share, with 400,000 of such options vesting in three equal annual installments commencing on the first anniversary of the grant date (“Time Vesting Options”), and 400,000 of such options vesting if the Company’s common stock trades at or above $25.00 per share for 30 consecutive trading days while the executive is employed (“Price Vesting Options”), or on or before June 30, 2019, subject to certain conditions.
Information regarding the Company’s stock option plans is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
|
Average
|
|
|
Intrinsic
|
|
Shares
|
|
|
Exercise
|
|
|
Value
|
|
Under Options
|
|
|
Price
|
|
|
$(000’s)
|
Outstanding at January 1, 2016
|
805,000
|
|
$
|
17.33
|
|
$
|
4,843
|
Lapsed or Cancelled
|
-
|
|
|
-
|
|
|
|
Outstanding at March 31, 2016 ($17.31 – $21.25)
|
805,000
|
|
$
|
17.33
|
|
$
|
4,963
|
Options exercisable at March 31, 2016
|
5,000
|
|
|
|
|
|
|
Available for grant at March 31, 2016
|
2,722,338
|
|
|
|
|
|
|
There were no stock options exercised under all stock option plans for the three months ended March 31, 2016 and 2015, respectively. The Company has a policy of issuing new shares to satisfy stock option exercises.
The Company recognized stock options expense of $183,000 and $1,000 for the three months ended March 31, 2016 and 2015, respectively.
RESTRICTED STOCK AWARDS
The Company has issued stock awards (“Restricted Stock Awards”) to officers, certain other employees and non-employee members of the Board of Directors of the Company, which allow the holders to each receive a certain amount of shares of the Company’s common stock generally over a one to seven-year vesting period, of which 90,090 unvested shares were legally outstanding at March 31, 2016. Vesting of the Restricted Stock Awards issued to executive officers and certain other employees is based on time and service.
On June 5, 2015, in connection with the Executive Employment Agreements, the Company granted a total of 37,550.54 Restricted Stock Awards, which were valued in accordance with ASC 718 – Stock Compensation, at their fair value. These awards are scheduled to vest equally over a three-year period on each annual anniversary date of the grant date.
All currently outstanding and unvested Restricted Stock Awards provided to the officers, certain other employees, and members of the Board of Directors of the Company were issued under the 2013 Plan.
Information regarding the Restricted Stock Awards grant activity is summarized below:
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
Grant – Date
|
|
Shares
|
|
|
Fair Value
|
Outstanding at January 1, 2016
|
136,220
|
|
$
|
19.36
|
Granted
|
36,870
|
|
|
21.70
|
Vested
|
(45,449)
|
|
|
19.16
|
Outstanding at March 31, 2016
|
127,641
|
|
$
|
20.11
|
As of March 31, 2016, the Company had $1.3 million of total unrecognized compensation cost related to unvested Restricted Stock Awards granted under the Company’s stock compensation plans. That cost is expected to be recognized over a weighted average period of 0.8 years.
PERFORMANCE SHARE UNITS
On June 5, 2015, in connection with the Executive Employment Agreements, the Company granted a total of 112,651.64 performance share units (“PSUs”) which will vest from 0 to 150 percent of the number of PSUs granted based on the Company’s total shareholder return relative to a peer group of equity office REITs over a three-year performance period starting from the grant date, each PSU evidencing the right to receive a share of the Company’s common stock upon vesting. The PSUs are also entitled to the payment of dividend equivalents in respect of vested PSUs in the form of additional PSUs. The PSUs were valued in accordance with ASC 718, Compensation - Stock Compensation, at their fair value on the grant date, utilizing a Monte-Carlo simulation to estimate the probability of the vesting conditions being satisfied.
The Company has reserved shares of common stock under the 2013 Plan for issuance upon vesting of the PSUs in accordance with their terms and conditions.
As of March 31, 2016, the Company had $1.1 million of total unrecognized compensation cost related to unvested PSUs granted under the Company’s stock compensation plans. That cost is expected to be recognized over a weighted average period of 2.2 years.
LONG-TERM INCENTIVE PLAN AWARDS
On March 8, 2016, the Company granted Long-Term Incentive Plan (“LTIP”) awards to senior management of the Company, including all of the Company’s executive officers (the “2016 LTIP Awards”). All of the 2016 LTIP Awards were in the form of units in the Operating Partnership (“LTIP Units”) and constitute awards under the 2013 Plan. For Messrs. Rudin, DeMarco and Tycher, approximately 25 percent of the target 2016 LTIP Award was in the form of a time-based award that will vest after three years on March 8, 2019 (the “2016 TBV LTIP Units”), and the remaining approximately 75 percent of the target 2016 LTIP Award was in the form of a performance-based award under a new Outperformance Plan (the “2016 OPP”) adopted by the Company’s Board of Directors consisting of a multi-year, performance-based equity compensation plan and related forms of award agreement (the “2016 PBV LTIP Units”). For all other executive officers, approximately 40 percent of the target 2016 LTIP Award was in the form of 2016 TBV LTIP Units and the remaining approximately 60 percent of the target 2016 LTIP Award was in the form of 2016 PBV LTIP Units.
The 2016 OPP is designed to align the interests of senior management to relative and absolute performance of the Company over a three-year performance period from March 8, 2016 through March 7, 2019. The senior management team that received 2016 LTIP Awards includes the Company’s eight executive officers. Participants in the 2016 OPP will only earn the full awards if, over the three-year performance period, the Company achieves a 50 percent absolute total stockholder return (“TSR”) and if the Company is in the 75th percentile of performance versus the NAREIT Office Index.
LTIP Units will remain subject to forfeiture depending on the extent that the 2016 LTIP Awards vest. The number of LTIP Units to be issued initially to recipients of the 2016 PBV LTIP Awards is the maximum number of LTIP Units that may be earned under the awards. The number of LTIP Units that actually vest for each award recipient will be determined at the end of the performance measurement period. TSR for the Company and for the Index over the three-year measurement period and other circumstances will determine how many LTIP Units vest for each recipient; if they are fewer than the number issued initially, the balance will be forfeited as of the performance measurement date.
Prior to vesting, recipients of LTIP Units will be entitled to receive per unit distributions equal to one-tenth (10 percent) of the regular quarterly distributions payable on a common unit of limited partnership interest in the Operating Partnership (a “common unit”), but will not be entitled to receive any special distributions. Distributions with respect to the other nine-tenths (90 percent) of regular quarterly distributions payable on a common unit will accrue but shall only become payable upon vesting of the LTIP Unit. After vesting of the 2016 TBV LTIP Units or the end of the measurement period for the 2016 PBV LTIP Units, the number of LTIP Units, both vested and unvested, will be entitled to receive distributions in an amount per unit equal to distributions, both regular and special, payable on a common unit.
The Company granted a total of 499,756 PBV LTIP Units and 157,617 TBV LTIP Units. The LTIP Units were valued in accordance with ASC 718 – Stock Compensation, at their fair value. The Company has reserved shares of common stock under the 2013 Plan for issuance upon vesting and conversion of the LTIP Units in accordance with their terms and conditions.
As of March 31, 2016, the Company had $8.7 million of total unrecognized compensation cost related to unvested 2016 LTIP Awards granted under the Company’s stock compensation plans. That cost is expected to be recognized over a weighted average period of 3.4 years.
DEFERRED STOCK COMPENSATION PLAN FOR DIRECTORS
The Amended and Restated Deferred Compensation Plan for Directors, which commenced January 1, 1999, allows non-employee directors of the Company to elect to defer up to 100 percent of their annual retainer fee into deferred stock units. The deferred stock units are convertible into an equal number of shares of common stock upon the directors’ termination of service from the Board of Directors or a change in control of the Company, as defined in the plan. Deferred stock units are credited to each director quarterly using the closing price of the Company’s common stock on the applicable dividend record date for the respective quarter. Each participating director’s account is also credited for an equivalent amount of deferred stock units based on the dividend rate for each quarter.
During the three months ended March 31, 2016 and 2015, 4,373 and 5,002 deferred stock units were earned, respectively. As of March 31, 2016 and December 31, 2015, there were 182,463 and 178,039 deferred stock units outstanding, respectively.
EARNINGS PER SHARE
Basic EPS excludes dilution and is computed by dividing net income available to common shareholders by the weighted average number of shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.
The following information presents the Company’s results for the three months ended March 31, 2016 and 2015 in accordance with ASC 260, Earnings Per Share:
(dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
Computation of Basic EPS
|
|
2016
|
|
|
2015
|
Net income (loss)
|
$
|
68,769
|
|
$
|
(3,325)
|
Add: Noncontrolling interest in consolidated joint ventures
|
|
706
|
|
|
490
|
Add (deduct): Noncontrolling interest in Operating Partnership
|
|
(7,284)
|
|
|
314
|
Net income (loss) available to common shareholders
|
$
|
62,191
|
|
$
|
(2,521)
|
|
|
|
|
|
|
Weighted average common shares
|
|
89,721
|
|
|
89,192
|
|
|
|
|
|
|
Basic EPS
:
|
|
|
|
|
|
Net income (loss) available to common shareholders
|
$
|
0.69
|
|
$
|
(0.03)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
Computation of Diluted EPS
|
|
2016
|
|
|
2015
|
Net income (loss) available to common shareholders
|
$
|
62,191
|
|
$
|
(2,521)
|
Add (deduct): Noncontrolling interest in Operating Partnership
|
|
7,284
|
|
|
(314)
|
Net income (loss) for diluted earnings per share
|
$
|
69,475
|
|
$
|
(2,835)
|
|
|
|
|
|
|
Weighted average common shares
|
|
100,315
|
|
|
100,266
|
|
|
|
|
|
|
Diluted EPS
:
|
|
|
|
|
|
Net income (loss) available to common shareholders
|
$
|
0.69
|
|
$
|
(0.03)
|
|
|
|
|
|
|
The following schedule reconciles the shares used in the basic EPS calculation to the shares used in the diluted EPS calculation:
(in thousands)
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2016
|
2015
|
Basic EPS shares
|
89,721
|
89,192
|
Add: Operating Partnership – common units
|
10,509
|
11,074
|
Restricted Stock Awards
|
56
|
-
|
Stock Options
|
29
|
-
|
Diluted EPS Shares
|
100,315
|
100,266
|
Contingently issuable shares under the PSUs and Price Vesting Options were excluded from the denominator in 2016 and 2015 because the criteria had not been met for the period ended March 31, 2016. Not included in the computations of diluted EPS were 5,000 and 10,000 stock options as such securities were anti-dilutive during the periods ended March 31, 2016 and 2015, respectively. Also, not included in the computations of diluted EPS were all of the LTIP Units as such securities were anti-dilutive during the periods. Unvested restricted stock outstanding as of March 31, 2016 and 2015 were 90,090 and 103,337 shares, respectively.
Dividends declared per common share for each of the three month periods ended March 31, 2016 and 2015 was $0.15 per share.
16.
NONCONTROLLING INTERESTS IN SUBSIDIARIES
Noncontrolling interests in subsidiaries in the accompanying consolidated financial statements relate to (i) common units and LTIP units in the Operating Partnership, held by parties other than the Company, and (ii) interests in consolidated joint ventures for the portion of such ventures not owned by the Company.
The following table reflects the activity of noncontrolling interests for the three months ended March 31, 2016 and 2015, respectively
(dollars in thousands):
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2016
|
|
|
2015
|
Balance at January 1
|
$
|
228,032
|
|
$
|
257,230
|
Net income (loss)
|
|
6,578
|
|
|
(804)
|
Unit distributions
|
|
(1,601)
|
|
|
(1,656)
|
Increase in noncontrolling interests in consolidated joint ventures
|
|
997
|
|
|
94
|
Redemption of common units
|
|
|
|
|
|
for common stock
|
|
(276)
|
|
|
(857)
|
Stock compensation
|
|
173
|
|
|
-
|
Other comprehensive income (loss)
|
|
(665)
|
|
|
-
|
Rebalancing of ownership percentage
|
|
|
|
|
|
between parent and subsidiaries
|
|
(118)
|
|
|
45
|
Balance at March 31
|
$
|
233,120
|
|
$
|
254,052
|
Pursuant to ASC 810, Consolidation, on the accounting and reporting for noncontrolling interests and changes in ownership interests of a subsidiary, changes in a parent’s ownership interest (and transactions with noncontrolling interest unitholders in the subsidiary) while the parent retains its controlling interest in its subsidiary should be accounted for as equity transactions. The carrying value of the noncontrolling interest shall be adjusted to reflect the change in its ownership interest in the subsidiary, with the offset to equity attributable to the parent. Accordingly, as a result of equity transactions which caused changes in ownership percentages between Mack-Cali Realty Corporation stockholders’ equity and noncontrolling interests in the Operating Partnership that occurred during the three months ended March 31, 2016, the Company has decreased noncontrolling interests in the Operating Partnership and increased additional paid-in capital in Mack-Cali Realty Corporation stockholders’ equity by approximately $0.1 million as of March 31, 2016.
OPERATING PARTNERSHIP
Common Units
Certain individuals and entities own common units in the Operating Partnership. A common unit and a share of Common Stock of the Company have substantially the same economic characteristics in as much as they effectively share equally in the net income or loss of the Operating Partnership. Common unitholders have the right to redeem their common units, subject to certain restrictions. The redemption is required to be satisfied in shares of Common Stock, cash, or a combination thereof, calculated as follows: one share of the Company’s Common Stock, or cash equal to the fair market value of a share of the Company’s Common Stock at the time of redemption, for each common unit. The Company, in its sole discretion, determines the form of redemption of common units (i.e., whether a common unitholder receives Common Stock, cash, or any combination thereof). If the Company elects to satisfy the redemption with shares of Common Stock as opposed to cash, it 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 Operating Partnership under any circumstances. When a unitholder redeems a common unit, noncontrolling interest in the Operating Partnership is reduced and Mack-Cali Realty Corporation Stockholders’ equity is increased.
LTIP Units
On March 8, 2016, the Company granted 2016 LTIP awards to senior management of the Company, including all of the Company’s executive officers. All of the 2016 LTIP Awards will be in the form of units in the Operating Partnership. See Note 15: Mack-Cali Realty Corporation Stockholders’ Equity – Long-Term Incentive Plan Awards.
LTIP Units are designed to qualify as “profits interests” in the Operating Partnership for federal income tax purposes. As a general matter, the profits interests characteristics of the LTIP Units mean that initially they will not be economically equivalent in value to a common unit. If and when events specified by applicable tax regulations occur, LTIP Units can over time increase in value up to the point where they are equivalent to common units on a one-for-one basis. After LTIP Units are fully vested, and to the extent the special tax rules applicable to profits interests have allowed them to become equivalent in value to common units, LTIP Units may be converted on a one-for-one basis into common units. Common units in turn have a one-for-one relationship in value with shares of the Company’s common stock, and are redeemable on a one-for-one basis for cash or, at the election of the Company, shares of the Company’s common stock.
Unit Transactions
The following table sets forth the changes in noncontrolling interests in the Operating Partnership which relate to the common units and LTIP units in the Operating Partnership for the three months ended March 31, 2016:
|
|
|
|
Common
|
LTIP
|
|
Units
|
Units
|
Balance at January 1, 2016
|
10,516,844
|
-
|
Granted
|
-
|
657,373
|
Redemption of common units for shares of common stock
|
(17,000)
|
-
|
Balance at March 31, 2016
|
10,499,844
|
657,373
|
Noncontrolling Interest Ownership in Operating Partnership
As of March 31, 2016 and December 31, 2015, the noncontrolling interest common unitholders owned 10.5 percent and 10.5 percent of the Operating Partnership, respectively.
CONSOLIDATED JOINT VENTURES
The Company consolidates certain joint ventures in which it has ownership interests. Various entities and/or individuals hold noncontrolling interests in these ventures.
PARTICIPATION RIGHTS
The Company’s interests in certain real estate projects (three properties and a future development) each provide for the initial distributions of net cash flow solely to the Company, and thereafter, other parties have participation rights in 50 percent of the excess net cash flow remaining after the distribution to the Company of the aggregate amount equal to the sum of: (a) the Company’s capital contributions, plus (b) an IRR of 10 percent per annum.
17.
SEGMENT REPORTING
The Company operates in three business segments: (i) commercial and other real estate, (ii) multi-family real estate, and (iii) multi-family services. The Company provides leasing, property management, acquisition, development, construction and tenant-related services for its commercial and other real estate and multi-family real estate portfolio. The Company’s multi-family services business also provides similar services for third parties. The Company no longer considers construction services as a reportable segment as it phased out this line of business in 2014. The Company had no revenues from foreign countries recorded for the three months ended March 31, 2016 and 2015. The Company had no long lived assets in foreign locations as of March 31, 2016 and December 31, 2015. The accounting policies of the segments are the same as those described in Note 2: Significant Accounting Policies, excluding depreciation and amortization.
The Company evaluates performance based upon net operating income from the combined properties in each of its real estate segments (commercial and other, and multi-family) and from its multi-family services segment.
Selected results of operations for the three months ended March 31, 2016 and 2015 and selected asset information as of March 31, 2016 and December 31, 2015 regarding the Company’s operating segments are as follows. Amounts for prior periods have been restated to conform to the current period segment reporting presentation:
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
Multi-family
|
|
|
|
Corporate
|
|
|
Total
|
|
|
& Other
|
|
|
Multi-family
|
|
|
Services
|
|
|
|
& Other (d)
|
|
|
Company
|
Total revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
$
|
136,952
|
|
$
|
8,986
|
|
$
|
8,727
|
(e)
|
|
$
|
(1,742)
|
|
$
|
152,923
|
March 31, 2015
|
|
139,759
|
|
|
6,584
|
|
|
8,232
|
(f)
|
|
|
(860)
|
|
|
153,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest expenses (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
$
|
65,955
|
|
$
|
5,415
|
|
$
|
10,820
|
(g)
|
|
$
|
26,103
|
|
$
|
108,293
|
March 31, 2015
|
|
72,198
|
|
|
3,321
|
|
|
9,655
|
(h)
|
|
|
27,679
|
|
|
112,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings (loss) of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
unconsolidated joint ventures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
$
|
(1,926)
|
|
$
|
(1,231)
|
|
$
|
1,603
|
|
|
$
|
-
|
|
$
|
(1,554)
|
March 31, 2015
|
|
(1,368)
|
|
|
(2,161)
|
|
|
-
|
|
|
|
-
|
|
|
(3,529)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income (loss) (b):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
$
|
69,071
|
|
$
|
2,340
|
|
$
|
(490)
|
|
|
$
|
(27,845)
|
|
$
|
43,076
|
March 31, 2015
|
|
66,193
|
|
|
1,102
|
|
|
(1,423)
|
|
|
|
(28,539)
|
|
|
37,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
$
|
3,136,311
|
|
$
|
955,980
|
|
$
|
11,039
|
|
|
$
|
125,120
|
|
$
|
4,228,450
|
December 31, 2015
|
|
3,166,577
|
|
|
836,020
|
|
|
9,831
|
|
|
|
41,535
|
|
|
4,053,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets (c):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
$
|
2,848,674
|
|
$
|
703,605
|
|
$
|
3,623
|
|
|
$
|
(2,649)
|
|
$
|
3,553,253
|
December 31, 2015
|
|
2,886,583
|
|
|
577,705
|
|
|
3,670
|
|
|
|
(1,531)
|
|
|
3,466,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
unconsolidated joint ventures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
$
|
78,052
|
|
$
|
224,631
|
|
$
|
964
|
|
|
$
|
-
|
|
$
|
303,647
|
December 31, 2015
|
|
76,140
|
|
|
225,850
|
|
|
1,467
|
|
|
|
-
|
|
|
303,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Total operating and interest expenses represent the sum of: real estate taxes; utilities; operating services; direct construction costs; real estate services expenses; general and administrative and interest expense (net of interest income). All interest expense, net of interest and other investment income, (including for property-level mortgages) is excluded from segment amounts and classified in Corporate & Other for all periods.
|
(b)
|
Net operating income represents total revenues less total operating and interest expenses (as defined in Note “a”), plus equity in earnings (loss) of unconsolidated joint ventures, for the period.
|
(c)
|
Long-lived assets are comprised of net investment in rental property, unbilled rents receivable and goodwill.
|
(d)
|
Corporate & Other represents all corporate-level items (including interest and other investment income, interest expense, non-property general and administrative expense, construction services revenue and direct construction costs) as well as intercompany eliminations necessary to reconcile to consolidated Company totals.
|
(e)
|
Includes $2.7 million of fees and salary reimbursements earned for this period from the multi-family real estate segment, which are eliminated in consolidation.
|
(f)
|
Includes $1.2 million of fees and salary reimbursements earned for this period from the multi-family real estate segment, which are eliminated in consolidation.
|
(g)
|
Includes $1.4 million of management fees and salary reimbursement expenses for this period from the multi-family real estate segment, which are eliminated in consolidation.
|
(h)
|
Includes $0.9 million of management fees and salary reimbursement expenses for this period from the multi-family real estate segment, which are eliminated in consolidation.
|
The following schedule reconciles net operating income to net income available to common shareholders:
(dollars in thousands)
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2016
|
|
|
2015
|
Net operating income
|
$
|
43,076
|
|
$
|
37,333
|
Add (deduct):
|
|
|
|
|
|
Depreciation and amortization
|
|
(43,063)
|
|
|
(40,802)
|
Gain on change of control of interests
|
|
10,156
|
|
|
-
|
Realized gains on disposition of
|
|
|
|
|
|
rental property, net
|
|
58,600
|
|
|
144
|
Net income (loss)
|
|
68,769
|
|
|
(3,325)
|
Noncontrolling interest in consolidated joint ventures
|
|
706
|
|
|
490
|
Noncontrolling interest in Operating Partnership
|
|
(7,284)
|
|
|
314
|
Net income (loss) available to common shareholders
|
$
|
62,191
|
|
$
|
(2,521)
|