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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended June 30, 2016

 

or

 

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

 

For the transition period from                                to                                

 

Commission File Number: 1-13274

 

Mack-Cali Realty Corporation

(Exact name of registrant as specified in its charter)

 

 

(732) 590-1000

(Registrant’s telephone number, including area code)

 

Not Applicable

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

 

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

 

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

 

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

 

 

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

 

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

 

 

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MACK-CALI REALTY CORPORATION

 

FORM 10-Q

 

INDEX

 

				Page
Part I	Financial Information
	Item 1.	Financial Statements (unaudited):		3
		Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015		4
		Consolidated Statements of Operations for the three and six months ended June 30, 2016 and 2015		5
		Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2016 and 2015		6
		Consolidated Statement of Changes in Equity for the six months ended June 30, 2016		7
		Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015		8
		Notes to Consolidated Financial Statements		9
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		40
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		61
	Item 4.	Controls and Procedures		61
Part II	Other Information
	Item 1.	Legal Proceedings		62
	Item 1A.	Risk Factors		62
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		62
	Item 3.	Defaults Upon Senior Securities		62
	Item 4.	Mine Safety Disclosures		62
	Item 5.	Other Information		62
	Item 6.	Exhibits		62
Signatures				63
Exhibit Index				64

 

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MACK-CALI REALTY CORPORATION

 

Part I — Financial Information

 

Item 1.       Financial Statements

 

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

 

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

 

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

 

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MACK-CALI REALTY CORPORATION AND SUBSIDIARIES

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

 

		June 30,			December 31,
		2016			2015
ASSETS
Rental property
Land and leasehold interests		$	709,335		$	735,696
Buildings and improvements		3,691,074			3,648,238
Tenant improvements		371,920			408,617
Furniture, fixtures and equipment		17,997			15,167
		4,790,326			4,807,718
Less — accumulated depreciation and amortization		(1,393,073		)	(1,464,482		)
		3,397,253			3,343,236
Rental property held for sale, net		73,190			—
Net investment in rental property		3,470,443			3,343,236
Cash and cash equivalents		29,457			37,077
Investments in unconsolidated joint ventures		315,200			303,457
Unbilled rents receivable, net		104,523			120,246
Deferred charges, goodwill and other assets, net		253,233			203,850
Restricted cash		34,891			35,343
Accounts receivable, net of allowance for doubtful accounts of $1,225 and $1,407		5,793			10,754
Total assets		$	4,213,540		$	4,053,963
LIABILITIES AND EQUITY
Senior unsecured notes, net		$	1,064,942		$	1,263,782
Unsecured term loan, net		347,590			—
Revolving credit facility		75,000			155,000
Mortgages, loans payable and other obligations, net		769,423			726,611
Dividends and distributions payable		15,144			15,582
Accounts payable, accrued expenses and other liabilities		141,664			135,057
Rents received in advance and security deposits		49,180			49,739
Accrued interest payable		15,917			24,484
Total liabilities		2,478,860			2,370,255
Commitments and contingencies
Equity:
Mack-Cali Realty Corporation stockholders’ equity:
Common stock, $0.01 par value, 190,000,000 shares authorized, 89,650,590 and 89,583,950 shares outstanding		897			896
Additional paid-in capital		2,573,173			2,570,392
Dividends in excess of net earnings		(1,031,922		)	(1,115,612		)
Accumulated other comprehensive loss		(8,283		)	—
Total Mack-Cali Realty Corporation stockholders’ equity		1,533,865			1,455,676
Noncontrolling interests in subsidiaries:
Operating Partnership		179,613			170,891
Consolidated joint ventures		21,202			57,141
Total noncontrolling interests in subsidiaries		200,815			228,032
Total equity		1,734,680			1,683,708
Total liabilities and equity		$	4,213,540		$	4,053,963

 

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

 

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MACK-CALI REALTY CORPORATION AND SUBSIDIARIES

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

 

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2016			2015			2016			2015
REVENUES
Base rents		$	124,223		$	121,246		$	250,610		$	245,039
Escalations and recoveries from tenants		14,110			15,842			29,071			34,241
Real estate services		6,469			7,401			13,281			15,045
Parking income		3,532			2,850			6,688			5,392
Other income		893			1,228			2,500			2,565
Total revenues		149,227			148,567			302,150			302,282
EXPENSES
Real estate taxes		22,418			21,410			45,644			43,862
Utilities		10,953			13,399			24,531			30,974
Operating services		24,024			25,844			50,756			54,072
Real estate services expenses		6,211			6,208			13,057			12,847
General and administrative		12,755			11,877			25,004			22,888
Acquisition-related costs		2,039			111			2,039			111
Depreciation and amortization		43,459			42,365			86,522			83,167
Total expenses		121,859			121,214			247,553			247,921
Operating income		27,368			27,353			54,597			54,361
OTHER (EXPENSE) INCOME
Interest expense		(22,932		)	(26,773		)	(47,925		)	(53,988		)
Interest and other investment income (loss)		146			291			(523		)	558
Equity in earnings (loss) of unconsolidated joint ventures		(614		)	(2,329		)	(2,168		)	(5,858		)
Gain on change of control of interests		5,191			—			15,347			—
Realized gains (losses) and unrealized losses on disposition of rental property, net		27,117			34,399			85,717			34,543
Gain on sale of investment in unconsolidated joint venture		5,670			6,448			5,670			6,448
Gain from extinguishment of debt		12,420			—			12,420			—
Total other income (expense)		26,998			12,036			68,538			(18,297		)
Net income		54,366			39,389			123,135			36,064
Noncontrolling interest in consolidated joint ventures		(311		)	373			395			863
Noncontrolling interest in Operating Partnership		(5,662		)	(4,383		)	(12,946		)	(4,069		)
Net income available to common shareholders		$	48,393		$	35,379		$	110,584		$	32,858
Basic earnings per common share:
Net income available to common shareholders		$	0.54		$	0.40		$	1.23		$	0.37
Diluted earnings per common share:
Net income available to common shareholders		$	0.54		$	0.40		$	1.23		$	0.37
Basic weighted average shares outstanding		89,740			89,244			89,731			89,218
Diluted weighted average shares outstanding		100,401			100,314			100,359			100,313

 

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

 

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MACK-CALI REALTY CORPORATION AND SUBSIDIARIES

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

 

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2016			2015			2016			2015
Net income		$	54,366		$	39,389		$	123,135		$	36,064
Other comprehensive income (loss):
Net unrealized loss on derivative instruments for interest rate swaps		(2,913		)	—			(9,253		)	—
Comprehensive income		$	51,453		$	39,389		$	113,882		$	36,064
Comprehensive income (loss) attributable to noncontrolling interest in consolidated joint ventures		(311		)	373			395			863
Comprehensive income (loss) attributable to noncontrolling interest in Operating Partnership		(5,357		)	(4,383		)	(11,976		)	(4,069		)
Comprehensive income attributable to common shareholders		$	45,785		$	35,379		$	102,301		$	32,858

 

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

 

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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, 2016		89,584		$	896		$	2,570,392		$	(1,115,612	)	$	—		$	228,032		$	1,683,708
Net income		—		—			—			110,584			—			12,551			123,135
Common stock dividends		—		—			—			(26,894		)	—			—			(26,894		)
Unit distributions		—		—			—			—			—			(3,274		)	(3,274		)
Acquisition/increase in noncontrolling interest in consolidated joint ventures		—		—			414			—			—			(35,544		)	(35,130		)
Redemption of common units for common stock		19		—			308			—			—			(308		)	—
Shares issued under Dividend Reinvestment and Stock Purchase Plan		1		—			12			—			—			—			12
Directors’ deferred compensation plan		—		—			198			—			—			—			198
Stock compensation		47		1			1,410			—			—			842			2,253
Cancellation of restricted stock		—		—			(75		)	—			—			—			(75		)
Other comprehensive income (loss)		—		—			—			—			(8,283		)	(970		)	(9,253		)
Rebalancing of ownership percentage between parent and subsidiaries		—		—			514			—			—			(514		)	—
Balance at June 30, 2016		89,651		$	897		$	2,573,173		$	(1,031,922	)	$	(8,283	)	$	200,815		$	1,734,680

 

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

 

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MACK-CALI REALTY CORPORATION AND SUBSIDIARIES

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

 

		Six Months Ended
		June 30,
		2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	123,135		$	36,064
Adjustments to reconcile net income to net cash provided by Operating activities:
Depreciation and amortization, including related intangible assets		87,168			83,930
Amortization of directors deferred compensation stock units		198			197
Amortization of stock compensation		2,253			805
Amortization of deferred financing costs		2,349			1,901
Amortization of debt discount and mark-to-market		1,126			2,018
Equity in (earnings) loss of unconsolidated joint ventures		2,168			5,858
Distributions of cumulative earnings from unconsolidated joint ventures		2,415			2,698
Gain on change of control of interests		(15,347		)	—
Realized (gains) losses and unrealized losses on disposition of rental property, net		(85,717		)	(34,543		)
Gain on sale of investments in unconsolidated joint ventures		(5,670		)	(6,448		)
Gain from extinguishment of debt		(12,420		)	—
Changes in operating assets and liabilities:
(Increase) decrease in unbilled rents receivable, net		(6,745		)	801
Increase in deferred charges, goodwill and other assets		(25,470		)	(14,802		)
Decrease (increase) in accounts receivable, net		4,580			(3,561		)
Increase (decrease) in accounts payable, accrued expenses and other liabilities		(5,433		)	1,478
Decrease in rents received in advance and security deposits		(559		)	(3,053		)
(Decrease) increase in accrued interest payable		(3,196		)	6,342
Net cash provided by operating activities		$	64,835		$	79,685
CASH FLOWS FROM INVESTING ACTIVITIES
Rental property acquisitions and related intangibles		$	(217,006	)	$	(4,057	)
Rental property additions and improvements		(51,638		)	(42,881		)
Development of rental property and other related costs		(77,386		)	(27,869		)
Proceeds from the sales of rental property		326,899			80,581
Proceeds from the sale of investments in unconsolidated joint ventures		6,420			6,448
Repayment of notes receivable		250			7,750
Acquisition of noncontrolling interests		(37,946		)	—
Investment in unconsolidated joint ventures		(23,657		)	(49,305		)
Distributions in excess of cumulative earnings from unconsolidated joint ventures		3,189			1,985
Decrease (increase) in restricted cash		452			(7,808		)
Net cash used in investing activities		$	(70,423	)	$	(35,156	)
CASH FLOW FROM FINANCING ACTIVITIES
Borrowings from revolving credit facility		$	355,000		$	129,000
Repayment of revolving credit facility		(435,000		)	(129,000		)
Repayment of senior unsecured notes		(200,000		)	—
Borrowings from unsecured term loan		350,000			—
Proceeds from mortgages and loans payable		106,906			2,897
Repayment of mortgages, loans payable and other obligations		(143,322		)	(27,251		)
Payment of financing costs		(6,656		)	(98		)
Contributions from noncontrolling interests		1,065			158
Payment of dividends and distributions		(30,025		)	(29,971		)
Net cash used in financing activities		$	(2,032	)	$	(54,265	)
Net decrease in cash and cash equivalents		$	(7,620	)	$	(9,736	)
Cash and cash equivalents, beginning of period		37,077			29,549
Cash and cash equivalents, end of period		$	29,457		$	19,813

 

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

 

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MACK-CALI REALTY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

1.    ORGANIZATION AND BASIS OF PRESENTATION

 

ORGANIZATION

 

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

 

BASIS OF PRESENTATION

 

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

 

Accounting Standards Codification (“ASC”) 810, Consolidation, provides guidance on the identification of entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and the determination of which business enterprise, if any, should consolidate the VIEs. Generally, the consideration of whether an entity is a VIE applies when either: (1) the equity investors (if any) lack (i) the ability to make decisions about the entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; (2) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support; or (3) the equity investors have voting rights that are not proportionate to their economic interests and substantially all of the activities of the entity involve or are conducted on behalf of an investor with a disproportionately small voting interest.  The Company consolidates VIEs in which it is considered to be the primary beneficiary.  The primary beneficiary is defined by the entity having both of the following characteristics: (1) the power to direct the activities that, when taken together, most significantly impact the variable interest entity’s performance: and (2) the obligation to absorb losses and right to receive the returns from the VIE that would be significant to the VIE.

 

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

 

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

 

The financial statements have been prepared in conformity with GAAP.  The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses

 

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during the reporting period.  These estimates and assumptions are based on management’s historical experience that are believed to be reasonable at the time.  However, because future events and their effects cannot be determined with certainty, the determination of estimates requires the exercise of judgment.

 

Actual results could differ from those estimates.  Certain reclassifications have been made to prior period amounts in order to conform with current period presentation.

 

2.    SIGNIFICANT ACCOUNTING POLICIES

 

Rental

Property                                                                        Rental properties are stated at cost less accumulated depreciation and amortization.  Costs directly related to the acquisition, development and construction of rental properties are capitalized.  Acquisition—related costs are expensed as incurred.  Capitalized development and construction costs include pre-construction costs essential to the development of the property, development and construction costs, interest, property taxes, insurance, salaries and other project costs incurred during the period of development.  Capitalized development and construction salaries and related costs approximated $0.8 million and $1.2 million for the three months ended June 30, 2016 and 2015, respectively, and $1.3 million and $2.5 million for the six months ended June 30, 2016 and 2015, respectively.  Included in total rental property is construction, tenant improvement and development in-progress of $226.7 million and $88.7 million as of June 30, 2016 and December 31, 2015, respectively.  Ordinary repairs and maintenance are expensed as incurred; major replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives.  Fully-depreciated assets are removed from the accounts.

 

The Company considers a construction project as substantially completed and held available for occupancy upon the substantial completion of tenant improvements, but no later than one year from cessation of major construction activity (as distinguished from activities such as routine maintenance and cleanup).  If portions of a rental project are substantially completed and occupied by tenants, or held available for occupancy, and other portions have not yet reached that stage, the substantially completed portions are accounted for as a separate project.  The Company allocates costs incurred between the portions under construction and the portions substantially completed and held available for occupancy, primarily based on a percentage of the relative square footage of each portion, and capitalizes only those costs associated with the portion under construction.

 

Properties are depreciated using the straight-line method over the estimated useful lives of the assets.  The estimated useful lives are as follows:

 

Leasehold interests		Remaining lease term
Buildings and improvements		5 to 40 years
Tenant improvements		The shorter of the term of the related lease or useful life
Furniture, fixtures and equipment		5 to 10 years

 

Upon acquisition of rental property, the Company estimates the fair value of acquired tangible assets, consisting of land, building and improvements, and identified intangible assets and liabilities assumed, generally consisting of the fair value of (i) above and below-market leases, (ii) in-place leases and (iii) tenant relationships.  The Company allocates the purchase price to the assets acquired and liabilities assumed based on their fair values.  The Company records goodwill or a gain on bargain purchase (if any) if the net assets acquired/liabilities assumed differ from the purchase consideration of a transaction.

 

In estimating the fair value of the tangible and intangible assets acquired, the Company considers information obtained about each property as a result of its due diligence and marketing and leasing activities, and utilizes various valuation methods, such as estimated cash flow projections utilizing appropriate discount and capitalization rates, estimates of replacement costs net of depreciation, and available market information.  The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant.

 

Above-market and below-market lease values for acquired properties are initially recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of

 

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fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the remaining initial term plus the term of any below-market fixed rate renewal options for below-market leases. The capitalized above-market lease values are amortized as a reduction of base rental revenue over the remaining terms of the respective leases, and the capitalized below-market lease values are amortized as an increase to base rental revenue over the remaining initial terms plus the terms of any below-market fixed rate renewal options of the respective leases.

 

Other intangible assets acquired include amounts for in-place lease values and tenant relationship values, which are based on management’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with the respective tenant.  Factors to be considered by management in its analysis of in-place lease values include an estimate of carrying costs during hypothetical expected lease-up periods considering current market conditions, and costs to execute similar leases.  In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions.  In estimating costs to execute similar leases, management considers leasing commissions, legal and other related expenses.  Characteristics considered by management in valuing tenant relationships include the nature and extent of the Company’s existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals.  The value of in-place leases are amortized to expense over the remaining initial terms of the respective leases.  The value of tenant relationship intangibles are amortized to expense over the anticipated life of the relationships.

 

On a periodic basis, management assesses whether there are any indicators that the value of the Company’s rental properties held for use may be impaired.  In addition to identifying any specific circumstances which may affect a property or properties, management considers other criteria for determining which properties may require assessment for potential impairment.  The criteria considered by management include reviewing low leased percentages, significant near-term lease expirations, current and historical operating and/or cash flow losses, near-term mortgage debt maturities or other factors that might impact the Company’s intent and ability to hold the property.  A property’s value is impaired only if management’s estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property is less than the carrying value of the property.  To the extent impairment has occurred, the loss shall be measured as the excess of the carrying value of the property over the fair value of the property.  The Company’s estimates of aggregate future cash flows expected to be generated by each property are based on a number of assumptions.  These assumptions are generally based on management’s experience in its local real estate markets and the effects of current market conditions.  The assumptions are subject to economic and market uncertainties including, among others, demand for space, competition for tenants, changes in market rental rates, and costs to operate each property.  As these factors are difficult to predict and are subject to future events that may alter management’s assumptions, the future cash flows estimated by management in its impairment analyses may not be achieved, and actual losses or impairments may be realized in the future.

 

Rental Property

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

 

If circumstances arise that previously were considered unlikely and, as a result, the Company decides not to sell a property previously classified as held for sale, the property is reclassified as held and used.  A property that is reclassified is measured and recorded individually at the lower of (a) its carrying value before the property was classified as held for sale, adjusted for any depreciation (amortization) expense that would have been recognized had the property been continuously classified as held and used, or (b) the fair value at the date of the subsequent decision not to sell.

 

Investments in

Unconsolidated

Joint Ventures                                       The Company accounts for its investments in unconsolidated joint ventures under the equity method of accounting.  The Company applies the equity method by initially recording these investments at cost, as

 

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

 

On a periodic basis, management assesses whether there are any indicators that the value of the Company’s investments in unconsolidated joint ventures may be impaired.  An investment is impaired only if management’s estimate of the value of the investment is less than the carrying value of the investment, and such decline in value is deemed to be other than temporary.  To the extent impairment has occurred, the loss shall be measured as the excess of the carrying value of the investment over the value of the investment.  The Company’s estimates of value for each investment (particularly in real estate joint ventures) are based on a number of assumptions that are subject to economic and market uncertainties including, among others, demand for space, competition for tenants, changes in market rental rates, and operating costs.  As these factors are difficult to predict and are subject to future events that may alter management’s assumptions, the values estimated by management in its impairment analyses may not be realized, and actual losses or impairment may be realized in the future.  See Note 4: Investments in Unconsolidated Joint Ventures.

 

Cash and Cash

Equivalents                                                      All highly liquid investments with an original maturity of three months or less when purchased are considered to be cash equivalents.

 

Deferred

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

 

Deferred

Leasing Costs                                           Costs incurred in connection with commercial leases are capitalized and amortized on a straight-line basis over the terms of the related leases and included in depreciation and amortization.  Unamortized deferred leasing costs are charged to amortization expense upon early termination of the lease.  Certain employees of the Company are compensated for providing leasing services to the Properties.  The portion of such compensation related to commercial leases, which is capitalized and amortized, and included in deferred charges, goodwill and other assets, net, was approximately $870,000 and $846,000 for the three months ended June 30, 2016 and 2015, respectively, and $1,650,000 and $1,816,000 for the six months ended June 30, 2016 and 2015, respectively.

 

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

 

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Derivative

Instruments                                                       The Company measures derivative instruments, including certain derivative instruments embedded in other contracts, at fair value and records them as an asset or liability, depending on the Company’s rights or obligations under the applicable derivative contract.  For derivatives designated and qualifying as fair value hedges, the changes in the fair value of both the derivative instrument and the hedged item are recorded in earnings.  For derivatives designated as cash flow hedges, the effective portions of the derivative are reported in other comprehensive income (“OCI”) and are subsequently reclassified into earnings when the hedged item affects earnings. Changes in fair value of derivative instruments not designated as hedging and ineffective portions of hedges are recognized in earnings in the affected period.

 

Revenue

Recognition                                                    Base rental revenue is recognized on a straight-line basis over the terms of the respective leases.  Unbilled rents receivable represents the cumulative amount by which straight-line rental revenue exceeds rents currently billed in accordance with the lease agreements.

 

Above-market and below-market lease values for acquired properties are initially recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the remaining initial term plus the term of any below-market fixed-rate renewal options for below-market leases.  The capitalized above-market lease values for acquired properties are amortized as a reduction of base rental revenue over the remaining terms of the respective leases, and the capitalized below-market lease values are amortized as an increase to base rental revenue over the remaining initial terms plus the terms of any below-market fixed-rate renewal options of the respective leases.

 

Escalations and recoveries from tenants are received from tenants for certain costs as provided in the lease agreements.  These costs generally include real estate taxes, utilities, insurance, common area maintenance and other recoverable costs.  See Note 14: Tenant Leases.

 

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

 

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

 

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

 

Allowance for

Doubtful Accounts                 Management performs a detailed review of amounts due from tenants to determine if an allowance for doubtful accounts is required based on factors affecting the collectability of the accounts receivable balances. The factors considered by management in determining which individual tenant receivable balances, or aggregate receivable balances, require a collectability allowance include the age of the receivable, the tenant’s payment history, the nature of the charges, any communications regarding the charges and other related information. Management’s estimate of the allowance for doubtful accounts requires management to exercise significant judgment about the timing, frequency and severity of collection losses, which affects the allowance and net income.

 

Income and

Other Taxes                                                     The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”).  As a REIT, the Company generally will not be subject to corporate federal income tax (including alternative minimum tax) on net income that it currently distributes to its shareholders, provided that the Company satisfies certain organizational and operational requirements including the requirement to distribute at least 90 percent of its REIT taxable income (determined by excluding any net capital gains) to its shareholders.  If and to the extent the Company retains and does not distribute any net capital gains, the Company will be required to pay federal, state and local taxes on such net capital gains at the rate applicable to capital gains of a corporation.  The Company has elected to treat certain of its corporate subsidiaries as taxable REIT subsidiaries (each a “TRS”).  In general, a TRS of the Company may perform

 

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

 

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

 

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

 

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

 

Earnings

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

 

Dividends and

Distributions

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

 

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

 

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Costs Incurred

For Stock

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

 

Stock

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

 

Other

Comprehensive

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

 

Fair Value

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

 

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

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

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

 

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

 

Discontinued

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

 

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Impact Of

Recently-Issued

Accounting

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

 

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

 

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

 

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

 

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

 

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

 

3.    RECENT TRANSACTIONS

 

Acquisitions

 

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

 

Acquisition						# of		Rentable		Acquisition
Date		Property Address		Location		Bldgs.		Square Feet		Cost
04/04/16		11 Martine Avenue (a)		White Plains, New York		1		82,000		$	10,750
04/07/16		320, 321 University Avenue (b)		Newark, New Jersey		2		147,406		23,000
06/02/16		101 Wood Avenue South (c)		Edison, New Jersey		1		262,841		82,300
Total Acquisitions						4		492,247		$	116,050

 

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

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

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

 

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

 

					320, 321
		11 Martine			University			101 Wood
		Avenue			Avenue			Avenue
Land		$	2,460		$	7,305		$	8,509
Buildings and improvements		8,290			15,695			72,738
Above market leases (1)		—			—			58
In-place lease values (1)		—			—			6,743
								88,048
Less: Below market lease values (1)		—			—			(5,748		)
Net assets recorded upon acquisition		$	10,750		$	23,000		$	82,300

 

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

 

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

 

Consolidations

 

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

 

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

 

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

 

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

 

		Overlook			Portside
		Ridge			Apts
Land and Leasehold Interest		$	11,072		$	9,160
Buildings and improvements		87,793			74,147
Furniture, fixtures and equipment		1,695			1,003
In-place lease values (1)		4,389			2,548
Below market lease values (1)		(489		)	(233		)
Other assets		237			703
Sub Total		104,697			87,328
Less: Debt assumed		(52,662		)	(42,500		)
Net assets recorded upon consolidation		$	52,035		$	44,828

 

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

 

Other Investments

 

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

 

Dispositions/Rental Property Held for Sale

 

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

 

																Realized
								Rentable		Net			Net			Gain (loss)/
Disposition						# of		Square		Sales			Book			Unrealized
Date		Property/Address		Location		Bldgs.		Feet		Proceeds			Value			Loss
03/11/16		2 Independence Way (a)		Princeton, New Jersey		1		67,401		$	4,119		$	4,283		$	(164	)
03/24/16		1201 Connecticut Avenue, NW		Washington, D.C.		1		169,549		90,591			31,827			58,764
04/26/16		125 Broad Street (b)		New York, New York		1		524,476		192,323			200,183			(7,860		)
05/09/16		9200 Edmonston Road		Greenbelt, Maryland		1		38,690		4,083		(c)	3,837			246
05/18/16		1400 L Street		Washington, D.C.		1		159,000		68,399		(d)	30,053			38,346
Sub-total						5		959,116		359,515			270,183			89,332
																.
Unrealized losses on rental property held for sale						—		—		—			—			(3,615		)
Totals						5		959,116		$	359,515		$	270,183		$	85,717

 

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

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

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

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

 

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