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 September 30, 2018

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

For the transition period from to

Commission File Number: 1-13274 Mack-Cali Realty Corporation

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

Mack-Cali Realty Corporation

Mack-Cali Realty, L.P.

(Exact name of registrant as specified in its charter)

Maryland (Mack-Cali Realty Corporation)		22-3305147 (Mack-Cali Realty Corporation)
Delaware (Mack-Cali Realty, L.P.)		22-3315804 (Mack-Cali Realty, L.P.)
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Harborside 3, 210 Hudson St., Ste. 400, Jersey City, New Jersey		07311
(Address of principal executive offices)		(Zip Code)

(732) 590-1010

(Registrant’s telephone number, including area code)

Not Applicable

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety (90) days.

Mack-Cali Realty Corporation	YES x NO o
Mack-Cali Realty, L.P.	YES x NO o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Mack-Cali Realty Corporation	YES x NO o
Mack-Cali Realty, L.P.	YES x NO o

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

Mack-Cali Realty Corporation:

Large accelerated filer x

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o

Emerging Growth Company o

Mack-Cali Realty, L.P.:

Large accelerated filer x

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o

Emerging Growth Company o

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

Mack-Cali Realty Corporation o

Mack-Cali Realty, L.P. o

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

Mack-Cali Realty Corporation	YES o NO x
Mack-Cali Realty, L.P.	YES o NO x

As of October 29, 2018, there were 90,320,226 shares of Mack-Cali Realty Corporation’s Common Stock, par value $0.01 per share, outstanding.

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

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EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended September 30, 2018 of Mack-Cali Realty Corporation and Mack-Cali Realty, L.P. Unless stated otherwise or the context otherwise requires, references to the “Operating Partnership” mean Mack-Cali Realty, L.P., a Delaware limited partnership, and references to the “General Partner” mean Mack-Cali Realty Corporation, a Maryland corporation and real estate investment trust (“REIT”), and its subsidiaries, including the Operating Partnership. References to the “Company,” “we,” “us” and “our” mean collectively the General Partner, the Operating Partnership and those entities/subsidiaries consolidated by the General Partner.

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

As of September 30, 2018, the General Partner owned an approximate 89.8 percent common unit interest in the Operating Partnership. The remaining approximate 10.2 percent common unit interest is owned by limited partners. The limited partners of the Operating Partnership are (1) persons who contributed their interests in properties to the Operating Partnership in exchange for common units (each, a “Common Unit”) or preferred units of limited partnership interest in the Operating Partnership or (2) recipients of long term incentive plan units of the Operating Partnership pursuant to the General Partner’s executive compensation plans.

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

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

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

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

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

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

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MACK-CALI REALTY CORPORATION AND SUBSIDIARIES

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

	September 30,			December 31,
	2018			2017
ASSETS
Rental property
Land and leasehold interests	$	820,953		$	786,789
Buildings and improvements	4,144,911			3,955,122
Tenant improvements	333,304			330,686
Furniture, fixtures and equipment	41,059			30,247
	5,340,227			5,102,844
Less — accumulated depreciation and amortization	(1,086,215		)	(1,087,083		)
	4,254,012			4,015,761
Rental property held for sale, net	83,152			171,578
Net investment in rental property	4,337,164			4,187,339
Cash and cash equivalents	10,823			28,180
Restricted cash	20,119			39,792
Investments in unconsolidated joint ventures	230,614			252,626
Unbilled rents receivable, net	99,320			100,842
Deferred charges, goodwill and other assets, net	340,957			342,320
Accounts receivable, net of allowance for doubtful accounts of $537 and $1,138	7,197			6,786

Total assets	$	5,046,194		$	4,957,885

LIABILITIES AND EQUITY
Senior unsecured notes, net	$	570,022		$	569,145
Unsecured revolving credit facility and term loans	870,313			822,288
Mortgages, loans payable and other obligations, net	1,367,383			1,418,135
Dividends and distributions payable	21,691			21,158
Accounts payable, accrued expenses and other liabilities	179,487			192,716
Rents received in advance and security deposits	38,840			43,993
Accrued interest payable	14,377			9,519
Total liabilities	3,062,113			3,076,954
Commitments and contingencies

Redeemable noncontrolling interests	307,415			212,208

Equity:
Mack-Cali Realty Corporation stockholders’ equity:
Common stock, $0.01 par value, 190,000,000 shares authorized, 90,307,280 and 89,914,113 shares outstanding	903			899
Additional paid-in capital	2,563,165			2,565,136
Dividends in excess of net earnings	(1,110,258		)	(1,096,429		)
Accumulated other comprehensive income (loss)	13,234			6,689
Total Mack-Cali Realty Corporation stockholders’ equity	1,467,044			1,476,295

Noncontrolling interests in subsidiaries:
Operating Partnership	166,379			171,395
Consolidated joint ventures	43,243			21,033
Total noncontrolling interests in subsidiaries	209,622			192,428

Total equity	1,676,666			1,668,723

Total liabilities and equity	$	5,046,194		$	4,957,885

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

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MACK-CALI REALTY CORPORATION AND SUBSIDIARIES

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
REVENUES
Base rents	$	107,239		$	128,643		$	323,725		$	382,915
Escalations and recoveries from tenants	12,656			16,385			35,748			47,455
Real estate services	4,432			5,748			13,167			17,980
Parking income	5,499			5,766			16,583			15,047
Other income	2,288			3,476			8,447			9,274
Total revenues	132,114			160,018			397,670			472,671

EXPENSES
Real estate taxes	15,680			21,300			52,007			63,609
Utilities	9,990			11,480			30,049			33,251
Operating services	27,107			26,312			75,664			80,495
Real estate services expenses	4,400			6,207			13,696			18,376
General and administrative	11,620			13,140			41,160			37,223
Depreciation and amortization	45,813			52,375			128,523			157,768
Total expenses	114,610			130,814			341,099			390,722
Operating income	17,504			29,204			56,571			81,949

OTHER (EXPENSE) INCOME
Interest expense	(21,094		)	(25,634		)	(60,168		)	(70,898		)
Interest and other investment income (loss)	851			762			2,620			1,358
Equity in earnings (loss) of unconsolidated joint ventures	(687		)	(1,533		)	833			(4,882		)
Gain on change of control of interests	14,217			—			14,217			—
Realized gains (losses) and unrealized losses on disposition of rental property, net	(9,102		)	31,336			50,094			(2,112		)
Gain on sale of investment in unconsolidated joint venture	—			10,568			—			23,131
Loss from extinguishment of debt, net	—			—			(10,289		)	(239		)
Total other income (expense)	(15,815		)	15,499			(2,693		)	(53,642		)
Net income	1,689			44,703			53,878			28,307
Noncontrolling interest in consolidated joint ventures	451			447			576			865
Noncontrolling interest in Operating Partnership	167			(4,413		)	(4,574		)	(2,412		)
Redeemable noncontrolling interest	(3,785		)	(2,683		)	(9,573		)	(6,157		)
Net income (loss) available to common shareholders	$	(1,478	)	$	38,054		$	40,307		$	20,603

Basic earnings per common share:
Net income (loss) available to common shareholders	$	(0.05	)	$	0.39		$	0.35		$	0.06

Diluted earnings per common share:
Net income (loss) available to common shareholders	$	(0.05	)	$	0.39		$	0.35		$	0.06

Basic weighted average shares outstanding	90,468			90,023			90,355			89,997

Diluted weighted average shares outstanding	100,712			100,727			100,684			100,701

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						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017

Net income	$	1,689		$	44,703		$	53,878		$	28,307
Other comprehensive income:
Net unrealized gain (loss) on derivative instruments for interest rate swaps	354			730			7,287			604
Comprehensive income (loss)	$	2,043		$	45,433		$	61,165		$	28,911
Comprehensive (income) loss attributable to noncontrolling interest in consolidated joint ventures	451			447			576			865
Comprehensive (income) loss attributable to redeemable noncontrolling interest	(3,785		)	(2,683		)	(9,573		)	(6,157		)
Comprehensive (income) loss attributable to noncontrolling interest in Operating Partnership	131			(4,489		)	(5,316		)	(2,475		)
Comprehensive income (loss) attributable to common shareholders	$	(1,160	)	$	38,708		$	46,852		$	21,144

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

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MACK-CALI REALTY CORPORATION AND SUBSIDIARIES

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

											Accumulated
					Additional			Dividends in			Other		Noncontrolling
	Common Stock				Paid-In			Excess of			Comprehensive		Interests			Total
	Shares		Par Value		Capital			Net Earnings			Income (Loss)		in Subsidiaries			Equity
Balance at January 1, 2018	89,914		$	899	$	2,565,136		$	(1,096,429	)	$	6,689	$	192,428		$	1,668,723
Net income	—		—		—			40,307			—		13,571			53,878
Common stock dividends	—		—		—			(54,136		)	—		—			(54,136		)
Common unit distributions	—		—		—			—			—		(6,760		)	(6,760		)
Redeemable noncontrolling interest	—		—		(8,799		)	—			—		(10,572		)	(19,371		)
Increase in noncontrolling interest from acquisition	—		—		—			—			—		22,786			22,786
Redemption of common units for common stock	252		3		4,138			—			—		(4,141		)	—
Shares issued under Dividend Reinvestment and Stock Purchase Plan	3		—		(41		)	—			—		—			(41		)
Directors’ deferred compensation plan	—		—		378			—			—		—			378
Stock compensation	147		1		1,152			—			—		3,806			4,959
Cancellation of restricted shares	(9	)	—		(583		)	—			—		(454		)	(1,037		)
Other comprehensive income (loss)	—		—		—			—			6,545		742			7,287
Rebalancing of ownership percentage between parent and subsidiaries	—		—		1,784			—			—		(1,784		)	—
Balance at September 30, 2018	90,307		$	903	$	2,563,165		$	(1,110,258	)	$	13,234	$	209,622		$	1,676,666

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)

	Nine Months Ended
	September 30,
	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	53,878		$	28,307
Adjustments to reconcile net income (loss) to net cash provided by Operating activities:
Depreciation and amortization, including related intangible assets	124,894			153,057
Amortization of directors deferred compensation stock units	378			358
Amortization of stock compensation	4,959			5,268
Amortization of deferred financing costs	3,543			3,462
Amortization of debt discount and mark-to-market	(711		)	(86		)
Write-off of unamortized deferred finance costs related to early extinguishment	105			—
Equity in (earnings) loss of unconsolidated joint ventures	(833		)	4,882
Distributions of cumulative earnings from unconsolidated joint ventures	7,736			6,502
Gain on change of control of interests	(14,217		)	—
Realized (gains) losses and unrealized losses on disposition of rental property, net	(50,094		)	2,112
Gain on sale of investments in unconsolidated joint ventures	—			(23,131		)
Loss from extinguishment of debt	10,289			239
Changes in operating assets and liabilities:
Increase in unbilled rents receivable, net	(5,224		)	(11,270		)
Increase in deferred charges, goodwill and other assets	(19,933		)	(13,244		)
(Increase) decrease in accounts receivable, net	(442		)	2,038
Increase (decrease) in accounts payable, accrued expenses and other liabilities	10,043			(3,715		)
Decrease in rents received in advance and security deposits	(2,972		)	(720		)
Increase in accrued interest payable	4,858			8,553

Net cash provided by operating activities	$	126,257		$	162,612

CASH FLOWS FROM INVESTING ACTIVITIES
Rental property acquisitions and related intangibles	$	(163,885	)	$	(543,414	)
Rental property additions and improvements	(132,252		)	(67,797		)
Development of rental property and other related costs	(141,795		)	(201,513		)
Proceeds from the sales of rental property	259,388			242,743
Proceeds from the sale of investments in unconsolidated joint ventures	—			95,339
Investments in notes receivable	—			(47,049		)
Repayment of notes receivable	7,977			9,620
Investment in unconsolidated joint ventures	(6,658		)	(19,279		)
Distributions in excess of cumulative earnings from unconsolidated joint ventures	9,707			4,699
Proceeds from investment receivable	—			3,625

Net cash used in investing activities	$	(167,518	)	$	(523,026	)

CASH FLOW FROM FINANCING ACTIVITIES
Borrowings from revolving credit facility	$	428,000		$	428,000
Repayment of revolving credit facility	(381,000		)	(714,000		)
Borrowings from unsecured term loan	—			325,000
Proceeds from mortgages and loans payable	227,778			400,722
Repayment of mortgages, loans payable and other obligations	(277,987		)	(108,468		)
Acquisition of noncontrolling interests	—			(2,011		)
Issuance of redeemable noncontrolling interests, net	85,000			139,002
Payment of financing costs	(1,022		)	(9,051		)
Distributions to noncontrolling interests	(6,939		)	(19		)
Payment of dividends and distributions	(69,599		)	(55,062		)

Net cash provided by financing activities	$	4,231		$	404,113

Net (decrease) increase in cash and cash equivalents	$	(37,030	)	$	43,699
Cash, cash equivalents and restricted cash, beginning of period (1)	67,972			85,563

Cash, cash equivalents and restricted cash, end of period (2)	$	30,942		$	129,262

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

(2) Includes Restricted Cash of $20,119 and $40,473 as of September 30, 2018 and 2017, respectively, pursuant to the adoption of ASU 2016-15.

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

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MACK-CALI REALTY, L.P. AND SUBSIDIARIES

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

	September 30,			December 31,
	2018			2017
ASSETS
Rental property
Land and leasehold interests	$	820,953		$	786,789
Buildings and improvements	4,144,911			3,955,122
Tenant improvements	333,304			330,686
Furniture, fixtures and equipment	41,059			30,247
	5,340,227			5,102,844
Less — accumulated depreciation and amortization	(1,086,215		)	(1,087,083		)
	4,254,012			4,015,761
Rental property held for sale, net	83,152			171,578
Net investment in rental property	4,337,164			4,187,339
Cash and cash equivalents	10,823			28,180
Restricted cash	20,119			39,792
Investments in unconsolidated joint ventures	230,614			252,626
Unbilled rents receivable, net	99,320			100,842
Deferred charges, goodwill and other assets, net	340,957			342,320
Accounts receivable, net of allowance for doubtful accounts of $537 and $1,138	7,197			6,786

Total assets	$	5,046,194		$	4,957,885

LIABILITIES AND EQUITY
Senior unsecured notes, net	$	570,022		$	569,145
Unsecured revolving credit facility and term loans	870,313			822,288
Mortgages, loans payable and other obligations, net	1,367,383			1,418,135
Distributions payable	21,691			21,158
Accounts payable, accrued expenses and other liabilities	179,487			192,716
Rents received in advance and security deposits	38,840			43,993
Accrued interest payable	14,377			9,519
Total liabilities	3,062,113			3,076,954
Commitments and contingencies

Redeemable noncontrolling interests	307,415			212,208

Partners’ Capital:
General Partner, 90,307,280 and 89,914,113 common units outstanding	1,389,786			1,407,366
Limited partners, 10,186,785 and 10,438,855 common units outstanding	230,403			233,635
Accumulated other comprehensive income (loss)	13,234			6,689
Total Mack-Cali Realty, L.P. partners’ capital	1,633,423			1,647,690

Noncontrolling interests in consolidated joint ventures	43,243			21,033

Total equity	1,676,666			1,668,723

Total liabilities and equity	$	5,046,194		$	4,957,885

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

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MACK-CALI REALTY, L.P. AND SUBSIDIARIES

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
REVENUES
Base rents	$	107,239		$	128,643		$	323,725		$	382,915
Escalations and recoveries from tenants	12,656			16,385			35,748			47,455
Real estate services	4,432			5,748			13,167			17,980
Parking income	5,499			5,766			16,583			15,047
Other income	2,288			3,476			8,447			9,274
Total revenues	132,114			160,018			397,670			472,671

EXPENSES
Real estate taxes	15,680			21,300			52,007			63,609
Utilities	9,990			11,480			30,049			33,251
Operating services	27,107			26,312			75,664			80,495
Real estate services expenses	4,400			6,207			13,696			18,376
General and administrative	11,620			13,140			41,160			37,223
Depreciation and amortization	45,813			52,375			128,523			157,768
Total expenses	114,610			130,814			341,099			390,722
Operating income	17,504			29,204			56,571			81,949

OTHER (EXPENSE) INCOME
Interest expense	(21,094		)	(25,634		)	(60,168		)	(70,898		)
Interest and other investment income (loss)	851			762			2,620			1,358
Equity in earnings (loss) of unconsolidated joint ventures	(687		)	(1,533		)	833			(4,882		)
Gain on change of control of interests	14,217			—			14,217			—
Realized gains (losses) and unrealized losses on disposition of rental property, net	(9,102		)	31,336			50,094			(2,112		)
Gain on sale of investment in unconsolidated joint venture	—			10,568			—			23,131
Loss from extinguishment of debt, net	—			—			(10,289		)	(239		)
Total other income (expense)	(15,815		)	15,499			(2,693		)	(53,642		)
Net income	1,689			44,703			53,878			28,307
Noncontrolling interest in consolidated joint ventures	451			447			576			865
Redeemable noncontrolling interest	(3,785		)	(2,683		)	(9,573		)	(6,157		)
Net income (loss) available to common unitholders	$	(1,645	)	$	42,467		$	44,881		$	23,015

Basic earnings per common unit:
Net income (loss) available to common unitholders	$	(0.05	)	$	0.39		$	0.35		$	0.06

Diluted earnings per common unit:
Net income (loss) available to common unitholders	$	(0.05	)	$	0.39		$	0.35		$	0.06

Basic weighted average units outstanding	100,712			100,462			100,606			100,391

Diluted weighted average units outstanding	100,712			100,727			100,684			100,701

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

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MACK-CALI REALTY, L.P. AND SUBSIDIARIES

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017

Net income	$	1,689		$	44,703		$	53,878		$	28,307
Other comprehensive income:
Net unrealized gain (loss) on derivative instruments for interest rate swaps	354			730			7,287			604
Comprehensive income (loss)	$	2,043		$	45,433		$	61,165		$	28,911
Comprehensive (income) loss attributable to noncontrolling interest in consolidated joint ventures	451			447			576			865
Comprehensive (income) loss attributable to redeemable noncontrolling interest	(3,785		)	(2,683		)	(9,573		)	(6,157		)
Comprehensive income (loss) attributable to common unitholders	$	(1,291	)	$	43,197		$	52,168		$	23,619

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

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MACK-CALI REALTY, L.P. AND SUBSIDIARIES

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

											Accumulated		Noncontrolling
					General Partner			Limited Partner			Other		Interest
	General Partner		Limited Partner		Common			Common			Comprehensive		in Consolidated
	Common Units		Common Units		Unitholders			Unitholders			Income (Loss)		Joint Ventures			Total Equity
Balance at January 1, 2018	89,914		10,438		$	1,407,366		$	233,635		$	6,689	$	21,033		$	1,668,723
Net income	—		—		40,307			4,574			—		8,997			53,878
Distributions	—		—		(54,136		)	(6,760		)	—		—			(60,896		)
Redeemable noncontrolling interest	—		—		(8,799		)	(999		)	—		(9,573		)	(19,371		)
Increase in noncontrolling interest from acquisition	—		—		—			—			—		22,786			22,786
Redemption of limited partner common units for shares of general partner common units	252		(252	)	4,141			(4,141		)	—		—			—
Shares issued under Dividend Reinvestment and Stock Purchase Plan	3		—		(41		)	—			—		—			(41		)
Directors’ deferred compensation plan	—		—		378			—			—		—			378
Other comprehensive income	—		—		—			742			6,545		—			7,287
Stock compensation	147		—		1,153			3,806			—		—			4,959
Cancellation of restricted shares	(9	)	—		(583		)	(454		)	—		—			(1,037		)
Balance at September 30, 2018	90,307		10,186		$	1,389,786		$	230,403		$	13,234	$	43,243		$	1,676,666

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

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MACK-CALI REALTY, L.P. AND SUBSIDIARIES

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

	Nine Months Ended
	September 30,
	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	53,878		$	28,307
Adjustments to reconcile net income (loss) to net cash provided by Operating activities:
Depreciation and amortization, including related intangible assets	124,894			153,057
Amortization of directors deferred compensation stock units	378			358
Amortization of stock compensation	4,959			5,268
Amortization of deferred financing costs	3,543			3,462
Amortization of debt discount and mark-to-market	(711		)	(86		)
Write-off of unamortized deferred finance costs related to early extinguishment	105			—
Equity in (earnings) loss of unconsolidated joint ventures	(833		)	4,882
Distributions of cumulative earnings from unconsolidated joint ventures	7,736			6,502
Gain on change of control of interests	(14,217		)	—
Realized (gains) losses and unrealized losses on disposition of rental property, net	(50,094		)	2,112
Gain on sale of investments in unconsolidated joint ventures	—			(23,131		)
Loss from extinguishment of debt	10,289			239
Changes in operating assets and liabilities:
Increase in unbilled rents receivable, net	(5,224		)	(11,270		)
Increase in deferred charges, goodwill and other assets	(19,933		)	(13,244		)
(Increase) decrease in accounts receivable, net	(442		)	2,038
Increase (decrease) in accounts payable, accrued expenses and other liabilities	10,043			(3,715		)
Decrease in rents received in advance and security deposits	(2,972		)	(720		)
Increase in accrued interest payable	4,858			8,553

Net cash provided by operating activities	$	126,257		$	162,612

CASH FLOWS FROM INVESTING ACTIVITIES
Rental property acquisitions and related intangibles	$	(163,885	)	$	(543,414	)
Rental property additions and improvements	(132,252		)	(67,797		)
Development of rental property and other related costs	(141,795		)	(201,513		)
Proceeds from the sales of rental property	259,388			242,743
Proceeds from the sale of investments in unconsolidated joint ventures	—			95,339
Investments in notes receivable	—			(47,049		)
Repayment of notes receivable	7,977			9,620
Investment in unconsolidated joint ventures	(6,658		)	(19,279		)
Distributions in excess of cumulative earnings from unconsolidated joint ventures	9,707			4,699
Proceeds from investment receivable	—			3,625
Net cash used in investing activities	$	(167,518	)	$	(523,026	)

CASH FLOW FROM FINANCING ACTIVITIES
Borrowings from revolving credit facility	$	428,000		$	428,000
Repayment of revolving credit facility	(381,000		)	(714,000		)
Borrowings from unsecured term loan	—			325,000
Proceeds from mortgages and loans payable	227,778			400,722
Repayment of mortgages, loans payable and other obligations	(277,987		)	(108,468		)
Acquisition of noncontrolling interests	—			(2,011		)
Issuance of redeemable noncontrolling interests, net	85,000			139,002
Payment of financing costs	(1,022		)	(9,051		)
Distributions to noncontrolling interests	(6,939		)	(19		)
Payment of distributions	(69,599		)	(55,062		)

Net cash provided by financing activities	$	4,231		$	404,113

Net (decrease) increase in cash and cash equivalents	$	(37,030	)	$	43,699
Cash, cash equivalents and restricted cash, beginning of period (1)	67,972			85,563

Cash, cash equivalents and restricted cash, end of period (2)	$	30,942		$	129,262

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

(2) Includes Restricted Cash of $20,119 and $40,473 as of September 30, 2018 and 2017, respectively, pursuant to the adoption of ASU 2016-15.

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

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MACK-CALI REALTY CORPORATION, MACK-CALI REALTY, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. ORGANIZATION AND BASIS OF PRESENTATION

ORGANIZATION

Mack-Cali Realty Corporation, a Maryland corporation, together with its subsidiaries (collectively, the “General Partner”) is a fully-integrated self-administered, self-managed real estate investment trust (“REIT”). The General Partner controls Mack-Cali Realty, L.P., a Delaware limited partnership, together with its subsidiaries (collectively, the “Operating Partnership”), as its sole general partner and owned an 89.8 and 89.6 percent common unit interest in the Operating Partnership as of September 30, 2018 and December 31, 2017, respectively. The General Partner’s business is the ownership of interests in and operation of the Operating Partnership and all of the General Partner’s expenses are incurred for the benefit of the Operating Partnership. The General Partner is reimbursed by the Operating Partnership for all expenses it incurs relating to the ownership and operation of the Operating Partnership.

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

As of September 30, 2018, the Company owned or had interests in 138 properties, consisting of 56 office and 61 flex properties, totaling approximately 15.8 million square feet, leased to approximately 700 commercial tenants, and 21 multi-family rental properties containing 6,082 apartments, plus developable land (collectively, the “Properties”). The Properties are comprised of 56 office buildings totaling approximately 12.6 million square feet (which include four buildings, aggregating approximately 0.5 million square feet owned by unconsolidated joint ventures in which the Company has investment interests), 47 office/flex buildings totaling approximately 2.7 million square feet, six industrial/warehouse buildings totaling approximately 387,400 square feet, 21 multi-family properties totaling 6,082 apartments (which include eight properties aggregating 2,922 apartments owned by unconsolidated joint ventures in which the Company has investment interests), six parking/retail properties totaling approximately 137,000 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 a parcel of land leased to others. The Properties are located in six states, primarily in the Northeast, plus the District of Columbia.

BASIS OF PRESENTATION

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

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

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

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As of September 30, 2018 and December 31, 2017, the Company’s investments in consolidated real estate joint ventures, which are variable interest entities in which the Company is deemed to be the primary beneficiary, other than Roseland Residential, L.P. (See Note 14: Rockpoint Transaction), have total real estate assets of $471.3 million and $215.5 million, respectively, mortgages of $236.7 million and $81.2 million, respectively, and other liabilities of $22.8 million and $19.3 million, respectively.

The financial statements have been prepared in conformity with GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are based on management’s historical experience that are believed to be reasonable at the time. However, because future events and their effects cannot be determined with certainty, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates. Certain reclassifications have been made to prior period amounts in order to conform with current period presentation.

2. SIGNIFICANT ACCOUNTING POLICIES

Rental

Property Rental properties are stated at cost less accumulated depreciation and amortization. Costs directly related to the acquisition, development and construction of rental properties are capitalized. Acquisition—related costs were expensed as incurred through December 31, 2016. The Company early adopted the recently issued FASB guidance Accounting Standards Update (“ASU”) 2017-01 on January 1, 2017 which revises the definition of a business and is expected to result in more transactions to be accounted for as asset acquisitions and significantly limit transactions that would be accounted for as business combinations. Where an acquisition has been determined to be an asset acquisition, acquisition-related costs are capitalized. Capitalized development and construction costs include pre-construction costs essential to the development of the property, development and construction costs, interest, property taxes, insurance, salaries and other project costs incurred during the period of development. Capitalized development and construction salaries and related costs approximated $0.6 million and $0.6 million for the three months ended September 30, 2018 and 2017, respectively, and $1.7 million and $1.8 million for the nine months ended September 30, 2018 and 2017, respectively. Ordinary repairs and maintenance are expensed as incurred; major replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives. Fully-depreciated assets are removed from the accounts.

Included in rental property as of September 30, 2018 and December 31, 2017 is real estate and building and tenant improvements not in service; as follows: (dollars in thousands)

	September 30,		December 31,
	2018		2017
Land held for development (including pre-development costs, if any) (a)	$	508,342	$	483,432
Development and construction in progress, including land (b)	405,853		535,971
Total	$	914,195	$	1,019,403

(a) Includes predevelopment and infrastructure costs included in buildings and improvements of $220.7 million and $188.1 million as of September 30, 2018 and December 31, 2017, respectively.

(b) Includes land of $49.6 million and $77.0 million as of September 30, 2018 and December 31, 2017, respectively.

The Company considers a construction project as substantially completed and held available for occupancy upon the substantial completion of 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 residents, 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 commercial square footage or multi-family units 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:

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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

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

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

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

On a periodic basis, management assesses whether there are any indicators that the value of the Company’s rental properties held for use may be impaired. In addition to identifying any specific circumstances which may affect a property or properties, management considers other criteria for determining which properties may require assessment for potential impairment. The criteria considered by management include reviewing low leased percentages, significant near-term lease expirations, current and historical operating and/or cash flow losses, near-term mortgage debt maturities and/or other factors, including those that might impact the Company’s intent and ability to hold the property. A property’s value is impaired only if management’s estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property is less than the carrying value of the property. To the extent impairment has occurred, the impairment loss shall be measured as the excess of the carrying value of the property over the fair value of the property. The Company’s estimates of aggregate future cash flows expected to be generated by each property are based on a number of assumptions. These assumptions are generally based on management’s experience in its local real estate markets and the effects of current market conditions. The assumptions are subject to economic and market uncertainties including, among 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

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assumptions, the future cash flows estimated by management in its impairment analyses may not be achieved, and actual losses or impairments may be realized in the future.

Rental Property

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

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

Investments in

Unconsolidated

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

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

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

Cash and Cash

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

Deferred

Financing Costs Costs incurred in obtaining financing are capitalized and amortized over the term of the related indebtedness. Deferred financing costs are presented in the balance sheet as a direct deduction from the carrying value of the debt liability to which they relate, except deferred financing costs related to the revolving credit facility, which are presented in deferred charges, goodwill and other assets. In all cases, amortization of such costs is included in interest expense and was $1,302,000 and $1,184,000 for the three months ended September 30, 2018 and 2017, respectively, and $3,543,000 and $3,462,000 for the nine months September 30, 2018 and 2017, respectively. If a financing obligation is extinguished early, any unamortized deferred financing costs are written off and included

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in gains (losses) from extinguishment of debt. Included in loss from extinguishment of debt, net of gains, of $10.3 million and $0.2 million for the nine months ended September 30, 2018 and 2017 were unamortized deferred financing costs which were written off amounting to $105,000 and zero, respectively.

Deferred

Leasing Costs Costs incurred in connection with successfully executed commercial and residential 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 $598,000 and $607,000 for the three months ended September 30, 2018 and 2017, respectively, and $2,226,000 and $2,595,000 for the nine months ended September 30, 2018 and 2017, respectively.

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

Derivative

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

Revenue

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

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

Escalations and recoveries from tenants are received from tenants for certain costs as provided in the lease agreements. These costs generally include real estate taxes, utilities, insurance, common area maintenance and other recoverable costs. See Note 13: Tenant Leases.

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

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

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

Allowance for

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

Income and

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

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

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

The deferred tax balance at September 30, 2018 is $9.8 million which has been fully reserved through a valuation allowance. New tax reform legislation enacted in late 2017 reduces the corporate tax rate to 21 percent, effective January 1, 2018. Consequently, the Company’s deferred tax assets were re-measured to reflect the reduction in the future U.S. corporate income tax rate as of the enactment date. If the General Partner fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax on its taxable income at regular corporate tax rates. The Company is subject to certain state and local taxes.

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

In the normal course of business, the Company or one of its subsidiaries is subject to examination by federal, state and local jurisdictions in which it operates, where applicable. As of September 30, 2018, the tax years that remain subject to examination by the major tax jurisdictions under the statute of limitations are generally from the year 2013 forward.

Earnings

Per Share

or Unit The Company presents both basic and diluted earnings per share or unit (“EPS or EPU”). Basic EPS or EPU excludes dilution and is computed by dividing net income available to common shareholders or unitholders by the weighted average number of shares or units outstanding for the period. Diluted EPS or EPU reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, where such exercise or conversion would result in a lower EPS or EPU from

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3. RECENT TRANSACTIONS

Management Changes

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

In June 2018, the Company announced that the employment of Mitchell E. Rudin as Vice Chairman of the General Partner was terminated effective as of June 5, 2018. In addition, the Company also restructured certain other corporate and property management personnel during the nine month period ended September 30, 2018.

As a result of the executive management changes as well as other personnel changes during the period, the Company incurred total net severance and related expenses in the nine months ended September 30, 2018 of $7.5 million, $6.2 million of which was included in general and administrative expense (including $1.1 million of stock compensation expense due to accelerated vesting and a net reversal of $1.7 million of amortization of stock compensation expense due to the forfeiture of unvested securities) and $1.3 million of which was included in operating services expense for the period. Included in the three month period ended September 30, 2018 was $0.6 million of these expenses, which was primarily recorded in operating services expense.

Properties Commencing Initial Operations

The following property commenced initial operations during the nine months ended September 30, 2018 (dollars in thousands):

Total

In-Service

# of

Development

Date

Property

Location

Type

Apartment Units

Costs

03/01/18

145 Front at City Square

Worcester, MA

Multi-Family

365

97,172

(a)

04/01/18

Signature Place at Morris Plains

Morris Plains, NJ

Multi-Family

197

56,643

(b)

05/01/18

Portside 5/6

East Boston, MA

Multi-Family

296

114,723

(c)

08/01/18

Riverhouse 11 at Port Imperial

Weehawken, NJ

Multi-Family

295

127,518

(d)

Totals

1,153

396,056

(a) Development costs as of September 30, 2018 included approximately $4.4 million in land costs. As of September 30, 2018, the Company anticipates additional costs of approximately $3.5 million, which will be primarily funded from a construction loan.

(b) Development costs as of September 30, 2018 included approximately $0.9 million in land costs. As of September 30, 2018, the Company anticipates additional costs of approximately $0.2 million, which will be primarily funded from a construction loan.

(c) As of September 30, 2018, the Company anticipates additional costs of approximately $3.3 million, which will be primarily funded from a construction loan.

(d) As of September 30, 2018, the Company anticipates additional costs of $8.2 million of which $2.7 million will be funded by the Company and $5.5 million will be funded from a construction loan.

Consolidation

On August 2, 2018, the Company, which held a 24.27 percent subordinated interest in the unconsolidated joint venture, Marbella Tower Urban Renewal Associates LLC, a 412-unit multi-family operating property located in Jersey City, New Jersey, acquired its equity partner’s 50 percent interest for $65.6 million in cash. The property was subject to a mortgage loan that had a principal balance of $95 million. The cash portion of the acquisition was funded primarily through borrowings under the Company’s unsecured revolving credit facility. Concurrently with the closing, the joint venture repaid the $95 million mortgage loan in full and obtained a new loan collateralized by the property in the amount of $131 million, which bears interest at 4.07 percent and matures in August 2026. The venture distributed $37.4 million of the loan proceeds, of which the Company’s share was $30.4 million. As a result of the acquisition, the Company increased its ownership of the property from a 24.27 percent subordinated interest to a 74.27 percent controlling interest. In accordance with ASC 810, Consolidation, the Company evaluated the acquisition and determined that the entity meets the criteria of a VIE. As such, the Company consolidated the asset upon acquisition 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 $14.2 million (a non-cash item) in the three and nine months ended September 30, 2018, in which the Company accounted the transaction as a VIE that is not a business in accordance with ASC 810-10-30-4. Additional non-cash items included in the acquisition were the Company’s carrying value of its interest in the joint venture of $14 million and the noncontrolling interest’s fair value of $29.8 million. See Note 9: Mortgages, Loans Payable and Other Obligations.

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	Marbella
Land and leasehold interest	$	48,820
Buildings and improvements and other assets, net	162,958
In-place lease values (a)	6,947
Less: Below market lease values (a)	(108		)
	218,617
Less: Debt	(131,000		)
Net Assets	87,617
Less: Noncontrolling interest (b)	(22,812		)
Net assets recorded upon consolidation	$	64,805

(a) In-place and below market leases are being amortized over a weighted-average term of 9.3 months.

(b) Noncontrolling interest balance reflects distribution of $7.0 million of loan proceeds at closing.

Dispositions/Rental Property Held for Sale

The Company disposed of the following office properties during the nine months ended September 30, 2018 (dollars in thousands):

										Realized
										Gains
				Rentable	Net			Net		(losses)/
Disposition			# of	Square	Sales			Carrying		Unrealized
Date	Property/Address	Location	Bldgs.	Feet	Proceeds			Value		Losses, net
02/15/18	35 Waterview Boulevard (a)	Parsippany, New Jersey	1	172,498	$	25,994		$	25,739	$	255
03/05/18	Hamilton portfolio (b)	Hamilton, New Jersey	6	239,262	17,546			17,501		45
03/07/18	Wall portfolio first closing	Wall, New Jersey	5	179,601	14,053			10,526		3,527
03/22/18	700 Horizon Drive	Hamilton, New Jersey	1	120,000	33,020			16,053		16,967
03/23/18	Wall portfolio second closing	Wall, New Jersey	3	217,822	30,209			12,961		17,248
03/28/18	75 Livingston Avenue	Roseland, New Jersey	1	94,221	7,983			5,609		2,374
03/28/18	20 Waterview Boulevard (c)	Parsippany, New Jersey	1	225,550	12,475			11,795		680
03/30/18	Westchester Financial Center (d)	White Plains, New York	2	489,000	81,769			64,679		17,090
06/27/18	65 Jackson Drive	Cranford, New Jersey	—	—	1,510		(e)	—		1,510
08/02/18	600 Horizon Drive	Hamilton, New Jersey	1	95,000	15,127			6,191		8,936
09/05/18	1 & 3 Barker Avenue	White Plains, New York	2	133,300	15,140		(f)	13,543		1,597
Sub-total			23	1,966,254	254,826			184,597		70,229

Unrealized losses on rental property held for sale (see below)										(20,135		)

Totals			23	1,966,254	$	254,826		$	184,597	$	50,094

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

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

(c) The Company recorded a valuation allowance of $11 million on this property during the year ended December 31, 2017. Prior to closing, the Company provided short term financing through a note receivable to an affiliate of the buyers of $2.8 million. The note was paid off in the second quarter of 2018.

(d) Prior to closing, the Company provided financing through a note receivable to an affiliate of the buyers of $4.0 million, which is a noncash component of the net sales proceeds. The note was paid off in October 2018. See Note 5: Deferred Charges, Goodwill and Other Assets, Net.

(e) Represents the receipt by the Company in the second quarter 2018 of variable contingent sales consideration, net of costs, of $1.5 million subsequent to disposition of the property, which was sold in January 2017.

(f) The sale proceeds were held by a qualified intermediary, which is noncash and recorded in deferred charges, goodwill and other assets as of September 30, 2018. The Company received these proceeds in October 2018.

Rental Property Held for Sale, Net

The Company identified as held for sale four office properties, totaling approximately 680,000 square feet, and a 159-unit multi-family rental property as of September 30, 2018. The properties are located in Paramus, Bridgewater, Rochelle Park, Morris Plains and Rahway, New Jersey. The total estimated sales proceeds, net of expected selling costs, from the sales are expected to be approximately $85.5 million. The Company determined that the carrying value of four of the properties was not expected to be recovered from estimated net sales proceeds and accordingly recognized an unrealized loss allowance of $20.1 million for the nine months ended September 30, 2018, of which $19.6 million was recognized during the three months ended September 30, 2018.

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The following table summarizes the rental property held for sale, net, as of September 30, 2018: (dollars in thousands)

	September 30,
	2018
Land	$	23,317
Buildings and improvements	132,546
Less: Accumulated depreciation	(52,576		)
Less: Unrealized losses on properties held for sale	(20,135		)
Rental property held for sale, net	$	83,152

Other assets and liabilities related to the rental properties held for sale, as of September 30, 2018, include $2.7 million in Deferred charges and other assets, $1.0 million in Unbilled rents receivable and $2.4 million in Accounts payable, accrued expenses and other liabilities. Approximately $3.0 million of these assets and $1.6 million of these liabilities are expected to be removed with the completion of the sales.

4. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES

As of September 30, 2018, the Company had an aggregate investment of approximately $230.6 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 September 30, 2018, the unconsolidated joint ventures owned: four office properties aggregating approximately 0.5 million square feet, eight multi-family properties totaling 2,922 apartments, two retail properties aggregating approximately 81,700 square feet, a 351-room hotel, a development project for up to approximately 360 apartments; and interests and/or rights to developable land parcels able to accommodate up to 3,738 apartments. The Company’s unconsolidated interests range from 12.5 percent to 85 percent subject to specified priority allocations in certain of the joint ventures.

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

The Company has agreed to guarantee repayment of a portion of the debt of its unconsolidated joint ventures. As of September 30, 2018, such debt had a total facility amount of $318 million of which the Company agreed to guarantee up to $36 million. As of September 30, 2018, the outstanding balance of such debt totaled $204.9 million of which $24.6 million was guaranteed by the Company. The Company performed management, leasing, development and other services for the properties owned by the unconsolidated joint ventures and recognized $0.5 million and $0.7 million for such services in the three months ended September 30, 2018 and 2017, respectively. The Company had $0.4 million and $0.7 million in accounts receivable due from its unconsolidated joint ventures as of September 30, 2018 and December 31, 2017, respectively.

Included in the Company’s investments in unconsolidated joint ventures as of September 30, 2018 are four unconsolidated development joint ventures, which are VIEs for which the Company is not the primary beneficiary. These joint ventures are primarily established to develop real estate property for long-term investment and were deemed VIEs primarily based on the fact that the equity investment at risk was not sufficient to permit the entities to finance their activities without additional financial support. The initial equity contributed to these entities was not sufficient to fully finance the real estate construction as development costs are funded by the partners throughout the construction period. The Company determined that it was not the primary beneficiary of these VIEs based on the fact that the Company has shared control of these entities along with the entity’s partners and therefore does not have controlling financial interests in these VIEs. The Company’s aggregate investment in these VIEs was approximately $128.4 million as of September 30, 2018. The Company’s maximum exposure to loss as a result of its involvement with these VIEs is estimated to be approximately $164.2 million, which includes the Company’s current investment and estimated future funding commitments/guarantees of approximately $35.8 million. The Company has not provided financial support to these VIEs that it was not previously contractually required to provide. In general, future costs of development not financed through third parties will be funded with capital contributions from the Company and its outside partners in accordance with their respective ownership percentages.

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The following is a summary of the Company’s unconsolidated joint ventures as of September 30, 2018 and December 31, 2017: (dollars in thousands)

									Property Debt
	Number of		Company’s		Carrying Value				As of September 30, 2018
	Apartment Units		Effective		September 30,		December 31,				Maturity		Interest
Entity / Property Name	or Rentable Square Feet (sf)		Ownership % (a)		2018		2017		Balance		Date		Rate
Multi-family
Marbella (b)	412	units	24.27	%	$	—	$	14,544	$	—	—		—	%
Metropolitan at 40 Park (c) (d)	189	units	12.50	%	6,472		6,834		55,436			(e)		(e)
RiverTrace at Port Imperial	316	units	22.50	%	8,311		8,864		82,000		11/10/26		3.21	%
Crystal House (f)	825	units	25.00	%	29,252		30,570		163,661		04/01/20		3.17	%
PI North - Riverwalk C	360	units	40.00	%	23,342		16,844		—		12/06/21		L+2.75	%(g)
Marbella II	311	units	24.27	%	15,705		16,471		74,690		03/30/19		L+2.25	%(h)
Riverpark at Harrison	141	units	45.00	%	1,343		1,604		29,957		08/01/25		3.70	%
Station House	378	units	50.00	%	38,329		40,124		98,902		07/01/33		4.82	%
Urby at Harborside	762	units	85.00	%	87,723		94,429		191,732		08/01/29		5.197	%(i)
PI North -Land (j)	836	potential units	20.00	%	1,678		1,678		—		—		—
Liberty Landing	850	potential units	50.00	%	337		337		—		—		—
Hillsborough 206	160,000	sf	50.00	%	1,962		1,962		—		—		—

Office
Red Bank	92,878	sf	50.00	%	3,148		4,602		14,000		08/01/23		L+2.25	%(k)
12 Vreeland Road	139,750	sf	50.00	%	6,891		6,734		8,306		07/01/23		2.87	%
Offices at Crystal Lake	106,345	sf	31.25	%	3,425		3,369		4,258		11/01/23		4.76	%

Other
Riverwalk Retail	30,745	sf	20.00	%	1,560		1,625		—		—		—
Hyatt Regency Jersey City	351	rooms	50.00	%	—		440		100,000		10/01/26		3.668	%
Other (l)					1,136		1,595		—		—		—
Totals:					$	230,614	$	252,626	$	822,942

(a)	Company’s effective ownership % represents the Company’s entitlement to residual distributions after payments of priority returns, where applicable.
(b)	On August 2, 2018, the Company acquired one of its equity partner’s 50 percent interest and as a result, increased its ownership from 24.27 percent subordinated interest to 74.27 percent controlling interest. See Note 3: Recent Transactions - Consolidation.
(c)	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.
(d)	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 59-unit, five story multi-family rental property (“Lofts at 40 Park”).
(e)	Property debt balance consists of: (i) an amortizable loan, collateralized by the Metropolitan at 40 Park, with a balance of $36,224, bears interest at 3.25 percent, matures in September 2020; (ii) an interest only loan, collateralized by the Shops at 40 Park, with a balance of $6,067, bears interest at LIBOR +2.25%, matures in September 2019; (iii) a construction loan with a maximum borrowing amount of $13,950 for the Lofts at 40 Park with a balance of $13,145, which bears interest at LIBOR plus 250 basis points and matures in February 2020.
(f)	Included in this is the Company’s unconsolidated 50 percent interest in a vacant land to accommodate the development of approximately 295 additional units of which 252 are currently approved.
(g)	The venture has a construction loan with a maximum borrowing amount of $112,000.
(h)	The construction loan which had a maximum borrowing amount of $75,000 was amended on 3/30/18 and, subject to certain conditions, provided for four 3-month extension options with a fee of 6.25 basis points for each extension.
(i)	The construction/permanent loan has a maximum borrowing amount of $192,000. The Company owns an 85 percent interest with shared control over major decisions such as, approval of budgets, property financings and leasing guidelines.
(j)	The Company also owns a 20 percent residual interest in undeveloped land parcels: parcels 6, I, and J that can accommodate the development of 836 apartment units.
(k)	On August 1, 2018, the venture refinanced its mortgage loan with a maximum borrowing amount of $16,500, bears interest at LIBOR +2.25%, matures on August 1, 2023 and subject to certain conditions, provided for two extension options.
(l)	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.

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The following is a summary of the Company’s equity in earnings (loss) of unconsolidated joint ventures for the nine months ended September 30, 2018 and 2017: (dollars in thousands)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
Entity / Property Name	2018			2017			2018			2017
Multi-family
Marbella (b)	$	21		$	52		$	205		$	261
Metropolitan at 40 Park	(131		)	(81		)	(362		)	(234		)
RiverTrace at Port Imperial	33			52			122			143
Crystal House	(192		)	(171		)	(617		)	(752		)
PI North - Riverwalk C	(51		)	(298		)	(88		)	(712		)
Marbella II	11			25			42			86
Riverpark at Harrison	(26		)	(85		)	(174		)	(162		)
Station House	(531		)	(447		)	(1,443		)	(1,272		)
Urby at Harborside	(990		)	(2,053		)	157		(c)	(5,174		)
Liberty Landing	—			—			—			(15		)
Hillsborough 206	—			—			15			(25		)
Office
Red Bank	(65		)	90			(193		)	306
12 Vreeland Road	119			186			157			317
Offices at Crystal Lake	37			29			57			74
Other
Riverwalk Retail	(20		)	(23		)	(65		)	(60		)
Hyatt Regency Jersey City	1,024			973			2,560			2,310
Other	74			218			460			27
Company’s equity in earnings (loss) of unconsolidated joint ventures (a)	$	(687	)	$	(1,533	)	$	833		$	(4,882	)

(a) Amounts are net of amortization of basis differences of $230 and $289 for the three months ended September 30, 2018 and 2017, respectively and $809 and $838 for the nine months ended September 30, 2018 and 2017. respectively.

(b) On August 2, 2018, the Company acquired one of its equity partner’s 50 percent interest and as a result, increased its ownership from 24.27 percent subordinated interest to 74.27 percent controlling interest. See Note 3: Recent Transactions - Consolidation.

(c) Includes $2.6 million of the Company’s share of the venture’s income from its first annual sale of an economic tax credit certificate from the State of New Jersey to a third party. The venture has an agreement with a third party to sell it the tax credits over the next nine years for $3 million per year for a total of $27 million. The sales are subject to the venture obtaining the tax credits from the State of New Jersey and transferring the credit certificates each year.

5. DEFERRED CHARGES, GOODWILL AND OTHER ASSETS, NET

	September 30,			December 31,
(dollars in thousands)	2018			2017
Deferred leasing costs	$	170,672		$	199,515
Deferred financing costs - unsecured revolving credit facility (a)	5,328			4,945
	176,000			204,460
Accumulated amortization	(67,896		)	(98,956		)
Deferred charges, net	108,104			105,504
Notes receivable (b)	50,910			50,167
In-place lease values, related intangibles and other assets, net	95,652			102,757
Goodwill (c)	2,945			2,945
Prepaid expenses and other assets, net	83,346			80,947

Total deferred charges, goodwill and other assets, net	$	340,957		$	342,320

(a) Deferred financing costs related to all other debt liabilities (other than for the unsecured revolving credit facility) are netted against those debt liabilities for all periods presented. See Note 2: Significant Accounting Policies — Deferred Financing Costs.

(b) Includes as of September 30, 2018: a mortgage receivable with a balance of $44.6 million (acquired in August 2017) which bears interest at 5.85 percent and matures in July 2019 with a three-month extension option; a note receivable for $4.0 million (provided to an affiliate of the buyers in connection with a property sale in March 2018), which bore interest at 3.0 percent and was paid off in October 2018; and an interest-free note receivable with a net present value of $2.3 million which matures in April 2023. The Company believes these balances are fully collectible.

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 September 30, 2018, the Company had outstanding interest rate swaps with a combined notional value of $675 million

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that were designated as cash flow hedges of interest rate risk. During the nine months ending September 30, 2018, 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. The Company recorded ineffectiveness gain (loss) of $47,000 and $6,000 during the three months ended September 30, 2018 and 2017, respectively, and $(127,000) and $(26,000) during the nine months ended September 30, 2018 and 2017, respectively, 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 $7.2 million will be reclassified as a decrease to interest expense.

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 September 30, 2018 and December 31, 2017. (dollars in thousands)

	Fair Value
Asset Derivatives designated	September 30,		December 31,
as hedging instruments	2018		2017		Balance sheet location
Interest rate swaps	$	15,221	$	8,060	Deferred charges, goodwill and other assets

The table below presents the effect of the Company’s derivative financial instruments on the Statement of Operations for the three and nine months ending September 30, 2018 and 2017. (dollars in thousands)

Derivatives in Cash Flow Hedging	Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)					Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective	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	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)
Relationships	2018		2017			Portion)	2018		2017			Effectiveness Testing)	2018			2017
Three months ended September 30,

Interest rate swaps	$	1,283	$	172		Interest expense	$	929	$	(558	)	Interest and other investment income (loss)	$	47		$	6

Nine months ended September 30,

Interest rate swaps	$	8,938	$	(1,322	)	Interest expense	$	1,650	$	(1,926	)	Interest and other investment income (loss)	$	(127	)	$	(26	)

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 September 30, 2018, the Company did not have derivatives in a net liability position including accrued interest but excluding any adjustment for nonperformance risk related to these agreements. As of September 30, 2018, the Company has not posted any collateral related to these agreements.

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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)

	September 30,		December 31,
	2018		2017
Security deposits	$	11,040	$	9,446
Escrow and other reserve funds	9,079		30,346

Total restricted cash	$	20,119	$	39,792

7. SENIOR UNSECURED NOTES

A summary of the Company’s senior unsecured notes as of September 30, 2018 and December 31, 2017 is as follows: (dollars in thousands)

	September 30,			December 31,			Effective
	2018			2017			Rate (1)
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	575,000			575,000
Adjustment for unamortized debt discount	(3,005		)	(3,505		)
Unamortized deferred financing costs	(1,973		)	(2,350		)

Total senior unsecured notes, net	$	570,022		$	569,145

(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.

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 September 30, 2018.

8. UNSECURED REVOLVING CREDIT FACILITY AND TERM LOANS

On January 25, 2017, the Company entered into an amended revolving credit facility and new term loan agreement (“2017 Credit Agreement”) with a group of 13 lenders. Pursuant to the 2017 Credit Agreement, the Company refinanced its existing $600 million unsecured revolving credit facility (“2017 Credit Facility”) and entered into a new $325 million unsecured, delayed-draw term loan facility (“2017 Term Loan”).

The terms of the 2017 Credit Facility include: (1) a four-year term ending in January 2021, with two six-month extension options; (2) revolving credit loans may be made to the Company in an aggregate principal amount of up to $600 million (subject to increase as discussed below), with a sublimit under the 2017 Credit Facility for the issuance of letters of credit in an amount not to exceed $60 million (subject to increase as discussed below); (3) an interest rate, currently the London Inter-Bank Offered Rate (“LIBOR”) plus 130 basis points, based on the Operating Partnership’s unsecured debt ratings from Moody’s or S&P or, at the Operating Partnership’s option, if it no longer maintains a debt rating from Moody’s or S&P or such debt ratings fall below Baa3 and BBB-, based on a defined leverage ratio; and (4) a facility fee, currently 25 basis points, payable quarterly based on the Operating Partnership’s unsecured debt ratings from Moody’s or S&P, or, at the Operating Partnership’s option, if it no longer maintains a debt rating from Moody’s or S&P or such debt ratings fall below Baa3 and BBB-, based on a defined leverage ratio.

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The interest rates on outstanding borrowings, alternate base rate loans and the facility fee on the current borrowing capacity payable quarterly in arrears on the 2017 Credit Facility are based upon the Operating Partnership’s unsecured debt ratings, as follows:

		Interest Rate -
		Applicable
	Interest Rate -	Basis Points
Operating Partnership’s	Applicable	Above LIBOR for
Unsecured Debt Ratings:	Basis Points	Alternate Base	Facility Fee
Higher of S&P or Moody’s	Above LIBOR	Rate Loans	Basis Points
No ratings or less than BBB-/Baa3	155.0	55.0	30.0
BBB- or Baa3 (interest rate based on Company’s election through March 5, 2018)	120.0	20.0	25.0
BBB or Baa2	100.0	0.0	20.0
BBB+ or Baa1	90.0	0.0	15.0
A- or A3 or higher	87.5	0.0	12.5

On March 6, 2018, the Company elected to use the defined leverage ratio and the interest rate under the 2017 Credit Facility is based on the following total leverage ratio grid:

		Interest Rate -
		Applicable
	Interest Rate -	Basis Points
	Applicable	Above LIBOR for
	Basis Points	Alternate Base	Facility Fee
Total Leverage Ratio	Above LIBOR	Rate Loans	Basis Points
<45%	125.0	25.0	20.0
>45% and <50% (current ratio)	130.0	30.0	25.0
>50% and <55%	135.0	35.0	30.0
>55%	160.0	60.0	35.0

The terms of the 2017 Term Loan include: (1) a three-year term ending in January 2020, with two one-year extension options; (2) multiple draws of the term loan commitments may be made within 12 months of the effective date of the 2017 Credit Agreement up to an aggregate principal amount of $325 million (subject to increase as discussed below), with no requirement to be drawn in full; provided, that, if the Company does not borrow at least 50 percent of the initial term commitment from the term lenders (i.e. 50 percent of $325 million) on or before July 25, 2017, the amount of unused term loan commitments shall be reduced on such date so that, after giving effect to such reduction, the amount of unused term loan commitments is not greater than the outstanding term loans on such date; (3) an interest rate, currently the LIBOR plus 155 basis points, based on the Operating Partnership’s unsecured debt ratings from Moody’s or S&P or, at the Operating Partnership’s option if it no longer maintains a debt rating from Moody’s or S&P or such debt ratings fall below Baa3 and BBB-, based on a defined leverage ratio; and (4) a term commitment fee on any unused term loan commitment during the first 12 months after the effective date of the 2017 Credit Agreement at a rate of 0.25 percent per annum on the sum of the average daily unused portion of the aggregate term loan commitments.

On March 22, 2017, the Company drew the full $325 million available under the 2017 Term Loan. On March 29, 2017, the Company executed interest rate swap arrangements to fix LIBOR with an aggregate average rate of 1.6473% for the swaps and a current aggregate fixed rate of 3.1973% on borrowings under the 2017 Term Loan.

The interest rate on the 2017 Term Loan is based upon Operating Partnership’s unsecured debt ratings, as follows:

		Interest Rate -
		Applicable
	Interest Rate -	Basis Points
Operating Partnership’s	Applicable	Above LIBOR for
Unsecured Debt Ratings:	Basis Points	Alternate Base Rate
Higher of S&P or Moody’s	Above LIBOR	Loans
No ratings or less than BBB-/Baa3	185.0	85.0
BBB- or Baa3 (interest rate based on Company’s election through March 5, 2018)	140.0	40.0
BBB or Baa2	115.0	15.0
BBB+ or Baa1	100.0	0.0
A- or A3 or higher	90.0	0.0

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On March 6, 2018, the Company elected to use the defined leverage ratio and the interest rate under the 2017 Term Loan is based on the following total leverage ratio grid:

		Interest Rate -
		Applicable
	Interest Rate -	Basis Points
	Applicable	Above LIBOR for
	Basis Points	Alternate Base Rate
Total Leverage Ratio	above LIBOR	Loans
<45%	145.0	45.0
>45% and <50% (current ratio)	155.0	55.0
>50% and <55%	165.0	65.0
>55%	195.0	95.0

On up to four occasions at any time after the effective date of the 2017 Credit Agreement, the Company may elect to request (1) an increase to the existing revolving credit commitments (any such increase, the “New Revolving Credit Commitments”) and/or (2) the establishment of one or more new term loan commitments (the “New Term Commitments”, together with the 2017 Credit Commitments, the “Incremental Commitments”), by up to an aggregate amount not to exceed $350 million for all Incremental Commitments. The Company may also request that the sublimit for letters of credit available under the 2017 Credit Facility be increased to $100 million (without arranging any New Revolving Credit Commitments). No lender or letter of credit issued has any obligation to accept any Incremental Commitment or any increase to the letter of credit subfacility. There is no premium or penalty associated with full or partial prepayment of borrowings under the 2017 Credit Agreement.

The 2017 Credit Agreement, which applies to both the 2017 Credit Facility and 2017 Term Loan, includes 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 2017 Credit Agreement (described below), or (ii) the property dispositions are completed while the Company is under an event of default under the 2017 Credit Agreement, 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 entire outstanding balance under the 2017 Credit Agreement may (or, in the case of any bankruptcy event of default, shall) become immediately due and payable, and the Company will not make any excess distributions except to enable the General Partner to continue to qualify as a REIT under the IRS Code.

Before it amended and restated its unsecured revolving credit facility in January 2017, the Company had a $600 million unsecured revolving credit facility with a group of 17 lenders that was scheduled to mature in July 2017. 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 was based upon the Operating Partnership’s unsecured debt ratings at the time, 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 (since January 2017 amendment)	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

In January 2016, the Company obtained a $350 million unsecured term loan (“2016 Term Loan”), which matures in January 2019 with two one-year extension options. The interest rate for the term loan is currently 155 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 3.28 percent. The proceeds from the loan were used primarily to repay outstanding borrowings on the Company’s then existing unsecured revolving credit facility and to repay $200 million senior unsecured notes that matured on January 15, 2016.

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The interest rate on the 2016 Term Loan was 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 (interest rate based on Company’s election through March 5, 2018)		140.0
BBB or Baa2		115.0
BBB+ or Baa1		100.0
A- or A3 or higher		90.0

On March 6, 2018, the Company elected to use the defined leverage ratio and the interest rate under the 2016 Term Loan is based on the following total leverage ratio grid:

		Interest Rate -
		Applicable Basis
Total Leverage Ratio		Points above LIBOR
<45%		145.0
>45% and <50% (current ratio)		155.0
>50% and <55%		165.0
>55%		195.0

The terms of the 2016 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 General Partner to continue to qualify as a REIT under the IRS Code.

On August 30, 2018, the Company entered into an amendment to the 2017 Credit Agreement (the “2017 Credit Agreement Amendment”) and an amendment to the 2016 Term Loan (the “2016 Term Loan Amendment”).

Each of the 2017 Credit Agreement Amendment and the 2016 Term Loan Amendment was effective as of June 30, 2018 and provides for the following material amendments to the terms of both the 2017 Credit Agreement and the 2016 Term Loan:

1. The unsecured debt ratio covenant has been modified with respect to the measurement of the unencumbered collateral pool of assets in the calculation of such ratio for the period commencing July 1, 2018 and continuing until December 31, 2019 to allow the Operating Partnership to utilize the “as-is” appraised value of the properties known as ‘Harborside Plaza I’ and ‘Harborside Plaza V’ properties located in Jersey City, NJ in such calculation; and

2. A new covenant has been added that prohibits the Company from making any optional or voluntary payment, repayment, repurchase or redemption of any unsecured indebtedness of the Company (or any subsidiaries) that matures after January 25, 2022, at any time when any of the Total Leverage Ratio or the unsecured debt ratio covenants exceeds 60 percent (all as defined in the 2017 Credit Agreement and the 2016 Term Loan) or an appraisal is being used to determine the value of Harborside Plaza I and Harborside Plaza V for the unsecured debt ratio covenant.

All other terms and conditions of the 2017 Credit Agreement and the 2016 Term Loan remain unchanged.

The Company was in compliance with its debt covenants under its unsecured revolving credit facility and term loans as of September 30, 2018.

As of September 30, 2018 and December 31, 2017, the Company’s unsecured credit facility and term loans totaled $870.3 million and $822.3 million, respectively, comprised of: $197.0 million of outstanding borrowings under its unsecured revolving credit facility, $349.7 million from the 2016 Term Loan (net of unamortized deferred financing costs of $0.3 million) and $323.6 million from the 2017 Term Loan (net of unamortized deferred financing costs of $1.7 million) as of September 30, 2018; and $150 million of outstanding borrowings under its unsecured revolving credit facility and $349.0 million from the 2016 Term Loan (net of unamortized deferred

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financing costs of $1.0 million) and $323.3 million from the 2017 Term Loan (net of unamortized deferred financing costs of $1.7 million) as of December 31, 2017.

9. 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 September 30, 2018, 16 of the Company’s properties, with a total carrying value of approximately $2.0 billion, and one of the Company’s land and development projects, with a total carrying value of approximately $135 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. The Company was in compliance with its debt covenants under its mortgages and loans payable as of September 30, 2018.

A summary of the Company’s mortgages, loans payable and other obligations as of September 30, 2018 and December 31, 2017 is as follows: (dollars in thousands)

		Effective		September 30,			December 31,
Property/Project Name	Lender	Rate (a)		2018			2017			Maturity
Harborside Plaza 5 (b)	The Northwestern Mutual Life Insurance Co. & New York Life Insurance Co.	6.84	%	$	—		$	209,257		—

23 Main Street (c)	Berkadia CMBS	5.59	%	—			27,090			—
One River Center (d)	Guardian Life Insurance Co.	7.31	%	—			40,485			—
Park Square	Wells Fargo Bank N.A.	LIBOR+1.87	%	25,517			26,567			04/10/19
250 Johnson (e)	M&T Bank	LIBOR+2.35	%	41,768			32,491			05/20/19
Portside 5/6 (f)	Citizens Bank	LIBOR+2.50	%	69,787			45,778			09/29/19
Port Imperial 4/5 Hotel (g)	Fifth Third Bank & Santander	LIBOR+4.50	%	68,928			43,674			10/06/19
Port Imperial South 11 (h)	JPMorgan Chase	LIBOR+2.35	%	67,427			46,113			11/24/19
Worcester (i)	Citizens Bank	LIBOR+2.50	%	54,743			37,821			12/10/19
Monaco (j)	The Northwestern Mutual Life Insurance Co.	3.15	%	168,774			169,987			02/01/21
Port Imperial South 4/5 Retail	American General Life & A/G PC	4.56	%	4,000			4,000			12/01/21
Portside 7	CBRE Capital Markets/FreddieMac	3.57	%	58,998			58,998			08/01/23
Alterra I & II	Capital One/FreddieMac	3.85	%	100,000			100,000			02/01/24
The Chase at Overlook Ridge	New York Community Bank	3.74	%	135,750			135,750			01/01/25
Marbella	New York Life Insurance Company	4.17	%	131,000			—			08/10/26
101 Hudson	Wells Fargo CMBS	3.20	%	250,000			250,000			10/11/26
Short Hills Portfolio (k)	Wells Fargo CMBS	4.15	%	124,500			124,500			04/01/27
150 Main St.	Natixis Real Estate Capital LLC	4.48	%	41,000			41,000			08/05/27
Port Imperial South 4/5 Garage	American General Life & A/G PC	4.85	%	32,600			32,600			12/01/29

Principal balance outstanding				1,374,792			1,426,111
Unamortized deferred financing costs				(7,409		)	(7,976		)

Total mortgages, loans payable and other obligations, net				$	1,367,383		$	1,418,135

(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)	On January 8, 2018, the Company prepaid this loan in full upon payment of a fee of approximately $8.4 million using borrowings from the Company’s unsecured revolving credit facility.
(c)	On March 1, 2018, the Company prepaid this loan in full upon payment of a fee of approximately $0.1 million using borrowings from the Company’s unsecured revolving credit facility.
(d)	Mortgage was collateralized by the three properties comprising One River Center. On March 29, 2018, the Company prepaid this loan in full upon payment of a fee of approximately $1.8 million using borrowings from the Company’s unsecured revolving credit facility.
(e)	This construction loan has a maximum borrowing capacity of $42 million and provides, subject to certain conditions, a one-year extension option with a fee of 25 basis points.
(f)	This construction loan has a maximum borrowing capacity of $73 million and provides, subject to certain conditions, two one-year extension options with a fee of 15 basis points each year.
(g)	This construction loan has a maximum borrowing capacity of $94 million and provides, subject to certain conditions, two one-year extension options with a fee of 20 basis points for each year. See Note 12: Commitments and Contingencies - Construction Projects.
(h)	This construction loan has a maximum borrowing capacity of $78 million and provides, subject to certain conditions, two one-year extension options with a fee of 15 basis points each year. See Note 12: Commitments and Contingencies - Construction Projects
(i)	This construction loan has a maximum borrowing capacity of $58 million and provides, subject to certain conditions, two one-year extension options with a fee of 15 basis points each year.
(j)	This mortgage loan, which includes unamortized fair value adjustment of $3.8 million as of September 30, 2018, was assumed by the Company in April 2017 with

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	the consolidation of all the interests in Monaco Towers.
(k)	This mortgage loan was obtained by the Company in March 2017 to partially fund the acquisition of the Short Hills/Madison portfolio.

CASH PAID FOR INTEREST AND INTEREST CAPITALIZED

Cash paid for interest for the nine months ended September 30, 2018 and 2017 was $66,044,000 and $70,114,000, respectively. Interest capitalized by the Company for the nine months ended September 30, 2018 and 2017 was $21,274,000 and $13,955,000, respectively (which amounts included $562,000 and $1,009,000 for the nine months ended September 30, 2018 and 2017, respectively, of interest capitalized on the Company’s investments in unconsolidated joint ventures which were substantially in development).

SUMMARY OF INDEBTEDNESS

As of September 30, 2018, the Company’s total indebtedness of $2,821,793,000 (weighted average interest rate of 3.83 percent) was comprised of $525,170,000 of unsecured revolving credit facility borrowings and other variable rate mortgage debt (weighted average rate of 4.41 percent) and fixed rate debt and other obligations of $2,296,623,000 (weighted average rate of 3.69 percent).

As of December 31, 2017, the Company’s total indebtedness of $2,826,110,000 (weighted average interest rate of 3.93 percent) was comprised of $382,443,000 of unsecured revolving credit facility borrowings and other variable rate mortgage debt (weighted average rate of 3.63 percent) and fixed rate debt and other obligations of $2,443,667,000 (weighted average rate of 3.98 percent).

10. EMPLOYEE BENEFIT 401(k) PLANS

Employees of the General Partner, 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 September 30, 2018 and 2017 was $237,000 and $246,000, respectively, and $735,000 and $821,000 for the nine months ended September 30, 2018 and 2017, respectively.

11. 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 September 30, 2018 and December 31, 2017. 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 September 30, 2018 and December 31, 2017.

The fair value of the Company’s long-term debt, consisting of senior unsecured notes, unsecured term loans, an unsecured revolving credit facility and mortgages, loans payable and other obligations aggregated approximately $2,577,049,000 and $2,764,033,000 as compared to the book value of approximately $2,807,718,000 and $2,809,568,000 as of September 30, 2018 and December 31, 2017, 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

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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 that were utilized in the fair value calculations include estimated holding periods, discount rates, market capitalization rates, expected lease rental rates, and third party broker information.

Valuations of rental property identified as held for sale are based on estimated sale prices, net of estimated selling costs, of such property.

The Company identified as held for sale four office properties and a multi-family rental property as of September 30, 2018 with an aggregate carrying value for the rental property of $83.2 million. The total estimated sales proceeds, net of expected selling costs, from the sales were expected to be approximately $85.5 million. The Company determined that the carrying value of four of the properties was not expected to be recovered from estimated net sales proceeds and accordingly recognized an unrealized loss allowance of $20.1 million for the nine months ended September 30, 2018, of which $19.6 million was recognized during the three months ended September 30, 2018.

The Company identified as held for sale 21 office properties as of December 31, 2017 with an aggregate carrying value of $171.6 million. The Company determined that the carrying value of seven of these properties was not expected to be recovered from estimated net sales proceeds and accordingly recognized an unrealized loss allowance of $12.3 million during the year ended December 31, 2017.

Disclosure about fair value of assets and liabilities is based on pertinent information available to management as of September 30, 2018 and December 31, 2017. 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 September 30, 2018 and current estimates of fair value may differ significantly from the amounts presented herein.

12. 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 $270,000 and $345,000 for the three months ended September 30, 2018 and 2017, respectively, and $810,000 and $1.0 million for the nine months ended September 30, 2018 and 2017, 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 $1.1 million and $1.2 million for the three months ended September 30, 2018 and 2017, respectively, and $3.3 million and $3.8 million for the nine months ended September 30, 2018 and 2017, respectively.

The Port Imperial 4/5 Garage development project agreement with the City of Weehawken has a term of five years beginning when the project is substantially complete, which occurred in 2013. The agreement, which expires in December 2018, 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 at zero percent year one and 80 percent in years two through five.

The Port Imperial South 1/3 Garage development project agreement with the City of Weehawken has a term of five years beginning when the project is substantially complete, which occurred in the fourth quarter of 2015. The agreement provides that real estate taxes be paid at 100 percent on the land value of the project only over the five year period and allows for a phase in of real estate taxes on the building improvement value at zero percent in year one and 95 percent in years two through five.

The Port Imperial Hotel development project agreement with the City of Weehawken is for a term of 15 years following substantial completion, which is anticipated to be in the fourth quarter 2018. The annual PILOT is equal to two percent of Total Project Costs, as defined.

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The Port Imperial South 11 development project agreement with the City of Weehawken is for a term of 15 years following substantial completion, which commenced initial operation in August 2018. The annual PILOT is equal to 10 percent of Gross Revenues, as defined.

The 111 River Realty agreement with the City of Hoboken, which commenced on October 1, 2001 expires in April 2022. The PILOT payment equaled $1,227,708 annually through April 2017 and then increased to $1,406,064 annually until expiration. The PILOT totaled $352,000 and $381,000 for the three months ended September 30, 2018 and 2017, respectively, and $1.1 million and $995,000 for the nine months ended September 30, 2018 and 2017, respectively.

The Monaco Towers agreement with the City of Jersey City, which commenced in 2011, is for a term of 10 years. The annual PILOT is equal to 10 percent of gross revenues, as defined. The PILOT totaled $635,000 and $558,000 for the three months ended September 30, 2018 and 2017, respectively, and $1,865,000 and $1,106,000 for the nine months ended September 30, 2018 and the period from acquisition (April 2017), through September 30, 2017, respectively.

The Marbella Tower agreement with the City of Jersey City, which commenced in 2003, expires in December 2018. The annual PILOT is equal to 15 percent of gross revenues, as defined. The PILOT totaled $378,000 for the period from acquisition (August 2018), through September 30, 2018.

The Port Imperial South Parcel 8/9 development project agreement with the City of Weehawken is for a term of 25 years following substantial completion, which is anticipated to be in the fourth quarter 2020. The annual PILOT is equal to 11 percent of gross revenue for Years 1-10, 12.5 percent for Years 11-18 and 14 percent for Years 19-25, as defined.

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 September 30, 2018, are as follows: (dollars in thousands)

Year	Amount
October 1 through December 31, 2018	$	615
2019	2,471
2020	2,491
2021	2,491
2022	2,491
2023 through 2084	212,609

Total	$	223,168

Ground lease expense incurred by the Company amounted to $608,000 and $626,000 during the three months ended September 30, 2018 and 2017, respectively, and $1.7 million and $1.8 million for the nine months ended September 30, 2018 and 2017, respectively.

CONSTRUCTION PROJECTS

In 2015, the Company entered into a 90-percent owned joint venture with XS Port Imperial Hotel, LLC to form XS Hotel Urban Renewal Associates LLC, which is developing a 372-key hotel in Weehawken, New Jersey. The project is expected to be ready for occupancy by fourth quarter 2018. The construction of the project is estimated to cost $153.1 million, with construction costs of $135.1 million incurred by the venture through September 30, 2018. The project costs are expected to be funded from a $94 million construction loan (with $68.9 million outstanding as of September 30, 2018).

The Company is developing a 313-unit multi-family project known as Building 8/9 at Port Imperial, in Weehawken, New Jersey, which began construction in third quarter 2018. The construction project, which is estimated to cost $142.6 million of which construction costs of $29.7 million have been incurred through September 30, 2018, is expected to be ready for occupancy in fourth quarter 2020. The Company is expected to fund $50.6 million of construction costs (of which the Company has funded $29.7 million as of September 30, 2018) and the remaining construction costs are expected to be funded primarily from a $92 million construction loan.

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The Company is developing a 326-unit multi-family project known as Chase III at Overlook Ridge, in Malden, Massachusetts, which began construction in third quarter 2018. The construction project, which is estimated to cost $99.9 million of which $14.4 million have been incurred through September 30, 2018, is expected to be ready for occupancy in fourth quarter 2020. The Company is expected to fund $37.9 million of construction costs (of which the Company has funded $14.4 million as of September 30, 2018) and the remaining construction costs are expected to be funded primarily from a $62 million construction loan.

CHANGES IN EXECUTIVE OFFICERS

In June 2018, the General Partner entered into a separation and general release agreement with Mitchell E. Rudin, pursuant to which Mr. Rudin’s employment with the Company as its Vice Chairman was terminated effective as of June 5, 2018. The Company’s total estimated costs in connection with the departure of Mr. Rudin of approximately $1.2 million (net of a reversal of $1.6 million of amortization of stock compensation expense due to the forfeiture of the unvested securities) during the nine months ended September 30, 2018 was included in general and administrative expense (approximately $28,000 was included in accounts payable, accrued expenses and other liabilities as of September 30, 2018).

Under the terms of the Rudin separation agreement, Mr. Rudin is entitled to receive the following separation payments:

· Accrued but unpaid base salary through June 5, 2018;

· A lump sum cash payment of $2,558,082;

· Payment of unreimbursed expenses incurred by Mr. Rudin prior to termination, in the amount of $50,000 in the aggregate; and

· COBRA payments for up to 18 months after termination, in an amount equal to approximately $34,047.

· The Rudin separation agreement reflects that certain equity awards previously issued to Mr. Rudin, including time-vesting options, restricted stock units and performance share units, vested in full as of June 5, 2018 in accordance with their terms. Pursuant to the Rudin separation agreement, other than the equity awards that were fully vested as of June 5, 2018, as set forth in the Rudin separation agreement, all other equity awards granted to Mr. Rudin, including 32,311 LTIP Units subject to time-based vesting and 175,127 LTIP Units subject to performance-based vesting, expired and were immediately forfeited and canceled, effective as of June 5, 2018.

In January 2018, the Company announced the appointment of David J. Smetana as chief financial officer and Nicholas Hilton as executive vice president of leasing of the General Partner. Mr. Smetana began to perform his duties as chief financial officer and Anthony Krug ceased to serve as chief financial officer immediately following the filing of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. Mr. Krug remained an employee of the General Partner and provided transition services through March 31, 2018. Mr. Hilton’s employment commenced on February 12, 2018 following the departure of Christopher DeLorenzo. In connection with these management changes, the General Partner entered into a separation agreement and release with each of Messrs. Krug and DeLorenzo. The Company’s total estimated costs in connection with the departure of Messrs. Krug and DeLorenzo of approximately $2.7 million during the nine months ended September 30, 2018 was included in general and administrative expense (approximately $53,000 was included in accounts payable, accrued expenses and other liabilities as of September 30, 2018).

Under the terms of the Krug separation agreement, Mr. Krug is entitled to receive the following severance benefits:

· Earned but unpaid compensation through the date of termination, including base salary, 2017 bonus (when determined), a pro rata portion of his annual car allowance, and any unused vacation time;

· A lump sum cash severance payment of $1,312,500;

· A prorated portion of his 2018 target bonus equal to $93,750;

· COBRA payments for up to two years after termination, in an amount equal to approximately $42,000; and

· Accelerated vesting of all unvested LTIP units in the Operating Partnership, consisting of 13,306 LTIP units subject to time-based vesting and 18,665 LTIP units subject to performance-based vesting, with LTIP units subject to performance-based vesting criteria vesting at target performance.

Under the terms of the DeLorenzo separation agreement, Mr. DeLorenzo is entitled to receive the following severance benefits:

· Earned but unpaid compensation through the date of termination, including base salary, 2017 bonus (when determined), a pro rata portion of his annual car allowance, and any unused vacation time;

· A lump sum cash severance payment of $500,000;

· COBRA payments for up to 18 months after termination, in an amount equal to approximately $42,000; and

· Partial accelerated vesting of unvested LTIP units in the Operating Partnership, consisting of 9,111 LTIP units subject to time based vesting and 13,982 LTIP units subject to performance-based vesting, with LTIP units subject to performance based vesting criteria vesting at target performance.

OTHER

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as applicable, except in a manner which did not result in recognition of any built-in-gain (which may 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”). Upon the expiration in February 2016 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 General Partner’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 the General Partner’s Advisory Board), and the Cali Group (which includes John R. Cali, a former director and current member of the General Partner’s Advisory Board). As of September 30, 2018, 74 of the Company’s properties, primarily a portfolio of flex properties in Westchester County, New York with an aggregate carrying value of approximately $919 million, are subject to these conditions.

On August 11, 2017, the Company acquired an existing mortgage note receivable encumbering a vacant developable land parcel located in Jersey City, New Jersey (the “Land Property”) with a balance of $44.7 million (the “Land Note Receivable”). The Land Note Receivable matures in July 2019 and earns interest at an annual rate of 5.85 percent which accrues monthly and is payable at maturity. In March 2018, the Company received a partial prepayment of $3 million. The Land Property is currently an unimproved land parcel which operates as a surface parking facility. Additionally, the Company entered into an agreement to acquire the Land Property, subject to the Company’s ability to obtain all necessary development rights and entitlements to develop an apartment building on the land, and other related conditions to ensure that the Company can develop the project. The purchase price is $73 million, subject to adjustment based on the level of development rights obtained for the construction of a multifamily apartment building.

13. TENANT LEASES

The Properties are leased to tenants under operating leases with various expiration dates through 2036. 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 September 30, 2018 are as follows (dollars in thousands):

Year	Amount
October 1 through December 31, 2018	$	101,119
2019	319,132
2020	304,539
2021	281,725
2022	258,220
2023 and thereafter	1,183,865

Total	$	2,448,600

Multi-family rental property residential leases are excluded from the above table as they generally expire within one year.

14. REDEEMABLE NONCONTROLLING INTERESTS

The Company evaluates the terms of the partnership units issued in accordance with the FASB’s Distinguishing Liabilities from Equity guidance. Units which embody an unconditional obligation requiring the Company to redeem the units for cash after a specified or determinable date (or dates) or upon the occurrence of an event that is not solely within the control of the issuer are determined to be contingently redeemable under this guidance and are included as Redeemable noncontrolling interests and classified within the mezzanine section between Total liabilities and Stockholders’ equity on the Company’s Consolidated Balance Sheets. Convertible units for which the Company has the option to settle redemption amounts in cash or Common Stock are included in the caption Noncontrolling interests in subsidiaries within the equity section on the Company’s Consolidated Balance Sheet.

Rockpoint Transaction

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million of equity units of limited partnership interests of RRLP (the “Rockpoint Units”). The initial closing under the Investment Agreement occurred on March 10, 2017 for $150 million of Rockpoint Units and the parties agreed that the Company’s contributed equity value, (“RRT Contributed Equity Value”), was $1.23 billion at closing. Additional closings of Rockpoint Units to be issued and sold to Rockpoint pursuant to the Investment Agreement may occur from time to time in increments of not less than $10 million per closing, with the balance of the full $300 million by March 1, 2019. During the nine months ended September 30, 2018, a total additional amount of $85 million of Rockpoint Units were issued and sold to Rockpoint pursuant to the Investment Agreement.

The Company has a participation right, where prior to March 1, 2022 and following either the full investment of $300 million by Rockpoint or in certain other limited circumstances, the Company may contribute up to $200 million to obtain equity units on substantially the same terms and conditions as the Rockpoint Units to be issued and sold to Rockpoint.

Under the terms of the transaction, the cash flow from operations of RRLP will be distributable to RRT and Rockpoint as follows:

first, to provide a 6% annual return to Rockpoint (and to the Company after it contributes to RRT to obtain equity units, as described above) on its invested capital (“Preferred Base Return”);

second, to provide a 6% annual return on the equity value of the properties contributed by it to the partnership (“RRT Base Return”) with 95% of the RRT Base Return to RRT and 5% of the RRT Base Return to Rockpoint; and

third, pro rata between Rockpoint (and the Company upon its contribution to obtain equity units) and RRT based on total respective invested capital by Rockpoint and RRT Initial Capital Contribution.

Based on Rockpoint’s $235 million invested capital and RRT’s Initial Capital Contribution, at September 30, 2018 this pro rata distribution would be approximately 16.0% to Rockpoint and 84.0% to RRT.

RRLP’s cash flow from capital events will generally be distributable to RRT and Rockpoint as follows:

first, to Rockpoint (and the Company after it contributes to RRT to obtain equity units) to the extent there is any unpaid, accrued Preferred Base Return;

second, as a return of capital to Rockpoint (and the Company after it contributes to RRT to obtain equity units);

third, to RRT to the extent there is any unpaid, accrued RRT Base Return (with Rockpoint entitled to 5% of the amounts distributable to RRT);

fourth, as a return of capital to RRT based on the equity value of the properties contributed by it to the partnership (with Rockpoint entitled to 5% of the amounts distributable to RRT);

fifth, pro rata between Rockpoint (and the Company after it contributes to RRT to obtain equity units) and RRT based on total respective invested capital and contributed equity value until Rockpoint has achieved an 11% internal rate of return; and

sixth, to Rockpoint (and to the Company after it contributes to RRT to obtain equity units) based on 50% of its pro rata share described in “fifth” above and the balance to RRT.

In general, RRLP may not sell its properties in a taxable transaction, although it may engage in tax-deferred like-kind exchanges of properties or it may proceed in another manner designed to avoid the recognition of gains for tax purposes.

Beginning March 1, 2022, except in certain limited circumstances as defined in the agreement, either RRT or Rockpoint may cause RRT to redeem (a “Put/Call Event”) all, but not less than all, of Rockpoint’s interest in the Rockpoint Units based on a net asset value of RRLP to be determined by a third party valuation and generally based on the capital event waterfall described above. On a Put/Call Event, other than the sale of RRLP, Rockpoint can either demand payment in cash or may elect to convert all, but not less than all, of its investment to common equity in RRLP. As such, the Rockpoint Units contain a substantive redemption feature that is outside of the Company’s control and accordingly, pursuant to ASC 480-1—S99-3A, the Rockpoint Units are classified in mezzanine equity measured based on the estimated future redemption value as of September 30, 2018. The Company determines the redemption value of these interests by hypothetically liquidating the estimated Net Asset Value (NAV) of the Roseland portfolio through the applicable waterfall provisions of the RRLP partnership agreement. The estimation of NAV includes unobservable inputs that consider assumptions of market participants in pricing the underlying assets and liabilities of RRLP. For properties under development, the Company applies a discount rate to the estimated future cash flows allocable to the Company during the period under construction and then applies a direct capitalization method to the estimated stabilized cash flows. For operating properties the direct capitalization method is used by applying a capitalization rate to the projected net operating income. Estimated future cash flows used in such analyses are based on the Company’s business plan for each respective property including capital expenditures, management’s views of market and economic conditions, and considers items such as current and future rental rates, occupancies and market transactions for comparable properties. The estimated future redemption value of Rockpoint Units is approximately $311 million as of September 30, 2018.

Preferred Units

On February 3, 2017, the Operating Partnership issued 42,800 shares of a new class of 3.5 percent Series A Preferred Limited Partnership Units of the Operating Partnership (the “Series A Units”). The Series A Units were issued to the Company’s partners in the Plaza VIII

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& IX Associates L.L.C. joint venture that owns a development site adjacent to the Company’s Harborside property in Jersey City, New Jersey as non-cash consideration for their approximate 37.5 percent interest in the joint venture.

Each Series A Unit has a stated value of $1,000, pays dividends quarterly at an annual rate of 3.5 percent (subject to increase under certain circumstances), is convertible into 28.15 common units of limited partnership interests of the Operating Partnership beginning generally five years from the date of issuance, or an aggregate of up to 1,204,820 common units. The conversion rate was based on a value of $35.52 per common unit. The Series A Units have a liquidation and dividend preference senior to the common units and include customary anti-dilution protections for stock splits and similar events. The Series A Units are redeemable for cash at their stated value beginning five years from the date of issuance at the option of the holder.

On February 28, 2017, the Operating Partnership authorized the issuance of 9,213 shares of a new class of 3.5 percent Series A-1 Preferred Limited Partnership Units of the Operating Partnership (the “Series A-1 Units”). 9,122 Series A-1 Units were issued on February 28, 2017 and an additional 91 Series A-1 Units were issued in April 2017 pursuant to acquiring additional interests in a joint venture that owns Monaco Towers in Jersey City, New Jersey. The Series A-1 Units were issued as non-cash consideration for the partner’s approximate 13.8 percent ownership interest in the joint venture.

Each Series A-1 Unit has a stated value of $1,000 (the “Stated Value”), pays dividends quarterly at an annual rate equal to the greater of (x) 3.5 percent, or (y) the then-effective annual dividend yield on the General Partner’s common stock, and is convertible into 27.936 common units of limited partnership interests of the Operating Partnership beginning generally five years from the date of issuance, or an aggregate of up to 257,375 Common Units. The conversion rate was based on a value of $35.80 per common unit. The Series A-1 Units have a liquidation and dividend preference senior to the Common Units and include customary anti-dilution protections for stock splits and similar events. The Series A-1 Units are redeemable for cash at their stated value beginning five years from the date of issuance at the option of the holder. The Series A-1 Units are pari passu with the 42,800 3.5% Series A Units issued on February 3, 2017.

The following table sets forth the changes in Redeemable noncontrolling interests for the nine months ended September 30, 2018 (dollars in thousands):

	Series A and						Total
	A-1 Preferred			Rockpoint			Redeemable
	Units			Interests			Noncontrolling
	In MCRLP			in RRT			Interests
Balance January 1, 2018	$	52,324		$	159,884		$	212,208
Redeemable Noncontrolling Interests Issued	—			85,000			85,000
Net	52,324			244,884			297,208
Income Attributed to Noncontrolling Interests	1,365			8,208			9,573
Distributions	(1,365		)	(8,208		)	(9,573		)
Redemption Value Adjustment	—			10,207			10,207
Redeemable noncontrolling interests as of September 30, 2018	$	52,324		$	255,091		$	307,415

15. MACK-CALI REALTY CORPORATION STOCKHOLDERS’ EQUITY AND MACK-CALI REALTY, L.P.’S PARTNERS’ CAPITAL

To maintain its qualification as a REIT, not more than 50 percent in value of the outstanding shares of the General Partner may be owned, directly or indirectly, by five or fewer individuals at any time during the last half of any taxable year of the General Partner, other than its initial taxable year (defined to include certain entities), applying certain constructive ownership rules. To help ensure that the General Partner will not fail this test, the General Partner’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 General Partner 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.

Partners’ Capital in the accompanying consolidated financial statements relates to (a) General Partners’ capital consisting of common units in the Operating Partnership held by the General Partner, and (b) Limited Partners’ capital consisting of common units and LTIP units held by the limited partners. See Note 16: Noncontrolling Interests in Subsidiaries.

Any transactions resulting in the issuance of additional common and preferred stock of the General Partner result in a corresponding issuance by the Operating Partnership of an equivalent amount of common and preferred units to the General Partner.

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SHARE/UNIT REPURCHASE PROGRAM

In September 2012, the Board of Directors of the General Partner renewed and authorized an increase to the General Partner’s repurchase program (“Repurchase Program”). The General Partner 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. As of September 30, 2018, the General Partner has repurchased 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. Concurrent with these repurchases, the General Partner sold to the Operating Partnership common units for approximately $11 million.

DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN

The General Partner has a Dividend Reinvestment and Stock Purchase Plan (the “DRIP”) which commenced in March 1999 under which approximately 5.5 million shares of the General Partner’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 General Partner’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 General Partner’s common stock reserved for issuance under the DRIP.

STOCK OPTION PLANS

In May 2013, the General Partner established the 2013 Incentive Stock Plan (the “2013 Plan”) under which a total of 4,600,000 shares have been reserved for issuance.

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 General Partner’s common stock, exercisable for a period of ten years with an exercise price equal to the closing price of the General Partner’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 fully vesting on June 5, 2018, and 400,000 of such options vesting if the General Partner’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. The Price Vesting Options vested on July 5, 2016 on account of the price vesting condition being achieved.

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, 2018	800,000	$	17.31	$	3,400
Granted, Lapsed or Cancelled	—	—
Outstanding at September 30, 2018 ($17.31)	800,000	$	17.31	$	3,160
Options exercisable at September 30, 2018	800,000
Available for grant at September 30, 2018	1,521,655

There were no stock options exercised under any stock option plans for the nine months ended September 30, 2018 and 2017, respectively. The Company has a policy of issuing new shares to satisfy stock option exercises. As of September 30, 2018 and December 31, 2017, the stock options outstanding had a weighted average remaining contractual life of approximately 6.7 and 7.4 years, respectively.

The Company recognized stock options expense of zero and $116,000 for the three months ended September 30, 2018 and 2017, respectively, and $193,000 and $348,000 for the nine months ended September 30, 2018 and 2017, 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 General Partner, which allow the holders to each receive a certain amount of shares of the General Partner’s common stock generally over a one to seven-year vesting period, of which 67,289 unvested shares were legally outstanding at September 30, 2018. Vesting of the Restricted Stock Awards issued to executive officers and certain other employees is based on time and service.

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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 vested 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 General Partner 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, 2018	108,318		$	25.49
Granted	40,185		20.16
Vested	(72,502	)	25.33
Cancelled	(8,712	)	25.83
Outstanding at September 30, 2018	67,289		$	22.43

As of September 30, 2018, the Company had $0.8 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 was to 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 General Partner’s common stock upon vesting. The PSUs were 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 PSUs vested at 100 percent on June 5, 2018 based on the calculation of the achievement of the Company’s total shareholder return, for which shares of the General Partner’s common stock were issued under the 2013 Plan.

As of September 30, 2018, the Company had no unrecognized compensation cost as there are no unvested PSUs outstanding under the Company’s stock compensation plans.

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 the General Partner’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 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 General Partner’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 was 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. 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.

On April 4, 2017, the Company granted LTIP awards to senior management of the Company, including the General Partner’s executive officers (the “2017 LTIP Awards”). All of the 2017 LTIP Awards were in the form of LTIP Units and constitute awards under the 2013 Plan. For Messrs. DeMarco, Tycher and Rudin, approximately twenty-five percent (25%) of the 2017 LTIP Award was in the form of a time-based award that vest after three years on April 4, 2020 (the “2017 TBV LTIP Units”), and the remaining approximately seventy-five percent (75%) of the 2017 LTIP Award was in the form of a performance-based award under the Company’s Outperformance Plan (the “2017 OPP”) adopted by the General Partner’s Board of Directors, consisting of a multi-year, performance-based equity compensation plan and related forms of award agreement (the “2017 PBV LTIP Units”). For all other executive officers, approximately forty percent (40%) of the 2017 LTIP Award was in the form of 2017 TBV LTIP Units and the remaining approximately sixty percent (60%) of the 2017 LTIP Award was in the form of 2017 PBV LTIP Units.

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The 2017 OPP was designed to align the interests of senior management to relative and absolute performance of the Company over a three-year performance period from April 4, 2017 through April 3, 2020. Participants in the 2017 OPP will only earn the full awards if, over the three-year performance period, the Company achieves a thirty-six percent (36%) absolute TSR and if the Company is in the 75th percentile of performance as compared to the NAREIT office index.

On April 20, 2018, the Company granted LTIP awards to senior management of the Company, including the General Partner’s executive officers (the “2018 LTIP Awards”). All of the 2018 LTIP Awards were in the form of LTIP Units and constitute awards under the 2013 Plan. For Messrs. DeMarco and Tycher, approximately twenty-five percent (25%) of the grant date fair value of the 2018 LTIP Award was in the form of a time-based award that vest after three years on April 20, 2021 (the “2018 TBV LTIP Units”), and the remaining approximately seventy-five percent (75%) of the grant date fair value of the 2018 LTIP Award was in the form of a performance-based award under the Company’s Outperformance Plan (the “2018 OPP”) adopted by the General Partner’s Board of Directors, consisting of a multi-year, performance-based equity compensation plan and related forms of award agreement (the “2018 PBV LTIP Units”). For all other executive officers, approximately fifty percent (50%) of the grant date fair value of the 2018 LTIP Award was in the form of 2018 TBV LTIP Units and the remaining approximately fifty percent (50%) of the grant date fair value of the 2018 LTIP Award was in the form of 2018 PBV LTIP Units.

The 2018 OPP was designed to align the interests of senior management to relative and absolute performance of the Company over a three-year performance period from April 20, 2018 through April 19, 2021. Participants in the 2018 OPP will only earn the full awards if, over the three-year performance period, the Company achieves a thirty-six percent (36%) absolute TSR and if the Company’s TSR is in the 75th percentile of performance as compared to the office REITs in the NAREIT index.

LTIP Units will remain subject to forfeiture depending on the extent that the 2016 LTIP Awards, 2017 LTIP Awards and 2018 LTIP Awards vest. The number of LTIP Units to be issued initially to recipients of the 2016 PBV LTIP Awards, 2017 PBV LTIP Awards and 2018 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, 2017 TBV LTIP Units and 2018 LTIP Awards or the end of the measurement period for the 2016 PBV LTIP Units, 2017 PBV LTIP Units and 2018 PBV LTIP Awards, 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.

As a result of certain executive management and other personnel changes during the nine months ended September 30, 2018, the former employees forfeited and cancelled 182,456 2016 LTIP Awards, 87,521 2017 LTIP Awards and 3,540 2018 LTIP Awards, and the Company accelerated the vesting of 22,215 2016 LTIP Awards and 32,849 2017 LTIP Awards. As of September 30, 2018, a total of 339,119 2016 PBV LTIP Units, 108,764 2016 TBV LTIP Units, 383,982 2017 PBV LTIP Units, 73,971 2017 TBV LTIP Units, 651,928 2018 PBV LTIP Units and 208,556 2018 TBV LTIP Units, net of LTIP Units forfeited and cancelled resulting from executive management and other personnel changes, were outstanding. 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 September 30, 2018, the Company had $13.4 million of total unrecognized compensation cost related to unvested LTIP awards granted under the Company’s stock compensation plans. That cost is expected to be recognized over a weighted average period of 2.6 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 nine months ended September 30, 2018 and 2017, 19,918 and 14,002 deferred stock units were earned, respectively. As of September 30, 2018 and December 31, 2017, there were 230,052 and 210,738 deferred stock units outstanding, respectively.

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EARNINGS PER SHARE/UNIT

Basic EPS or EPU excludes dilution and is computed by dividing net income available to common shareholders or unitholders by the weighted average number of shares or units outstanding for the period. Diluted EPS or EPU reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

The following information presents the Company’s results for the three and nine months ended September 30, 2018 and 2017 in accordance with ASC 260, Earnings Per Share: (dollars in thousands, except per share amounts)

Mack-Cali Realty Corporation:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
Computation of Basic EPS
Net income	$	1,689		$	44,703		$	53,878		$	28,307
Add (deduct): Noncontrolling interest in consolidated joint ventures	451			447			576			865
Add (deduct): Noncontrolling interest in Operating Partnership	167			(4,413		)	(4,574		)	(2,412		)
Add (deduct): Redeemable noncontrolling interest	(3,785		)	(2,683		)	(9,573		)	(6,157		)
Add (deduct): Redemption value adjustment of redeemable noncontrolling interests attributable to common shareholders	(2,666		)	(2,728		)	(8,799		)	(15,139		)
Net income (loss) available to common shareholders for basic earnings per share	$	(4,144	)	$	35,326		$	31,508		$	5,464

Weighted average common shares	90,468			90,023			90,355			89,997

Basic EPS:
Net income (loss) available to common shareholders	$	(0.05	)	$	0.39		$	0.35		$	0.06

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
Computation of Diluted EPS
Net income (loss) available to common shareholders for basic earnings per share	$	(4,144	)	$	35,326		$	31,508		$	5,464
Add (deduct): Noncontrolling interest in Operating Partnership	(167		)	4,413			4,574			2,412
Add (deduct): Redemption value adjustment of redeemable noncontrolling interests attributable to the Operating Partnership unitholders	(302		)	(316		)	(999		)	(1,748		)
Net income (loss) available for diluted earnings per share	$	(4,613	)	$	39,423		$	35,083		$	6,128

Weighted average common shares	100,712			100,727			100,684			100,701

Diluted EPS:
Net income (loss) available to common shareholders	$	(0.05	)	$	0.39		$	0.35		$	0.06

The following schedule reconciles the weighted average shares used in the basic EPS calculation to the shares used in the diluted EPS calculation: (in thousands)


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2018	2017	2018	2017
Basic EPS shares	90,468	90,023	90,355	89,997
Add: Operating Partnership — common and vested LTIP Units	10,244	10,439	10,251	10,394
Restricted Stock Awards	—	32	—	37
Stock Options	—	233	78	273
Diluted EPS Shares	100,712	100,727	100,684	100,701

Contingently issuable shares under the PSU Awards were excluded from the denominator in 2017 because the criteria had not been met for the periods. Shares issuable under all outstanding stock options were excluded from the denominator in the three months ended September 30, 2018 as such securities were anti-dilutive during the period. Also not included in the computations of diluted EPS were the unvested LTIP Units as such securities were anti-dilutive during all periods presented. Contingently issuable shares under Restricted Stock Awards were excluded from the denominator in the three and nine months ended September 30, 2018 as such securities were anti-

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dilutive during the periods. Unvested LTIP Units outstanding as of September 30, 2018 and September 30, 2017 were 1,766,320 and 1,230,877 LTIP Units, respectively. Unvested restricted stock outstanding as of September 30, 2018 and 2017 were 67,289 and 95,801 shares, respectively.

Dividends declared per common share for the three month periods ended September 30, 2018 and 2017 was $0.20 and $0.20 per share, respectively. Dividends declared per common share for the nine month periods ended September 30, 2018 and 2017 was $0.60 and $0.55 per share, respectively.

Mack-Cali Realty, L.P.:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
Computation of Basic EPU
Net income	$	1,689		$	44,703		$	53,878		$	28,307
Add (deduct): Noncontrolling interest in consolidated joint ventures	451			447			576			865
Add (deduct): Redeemable noncontrolling interest	(3,785		)	(2,683		)	(9,573		)	(6,157		)
Add (deduct): Redemption value adjustment of redeemable noncontrolling interests	(2,968		)	(3,044		)	(9,798		)	(16,887		)
Net income (loss) available to common unitholders for basic earnings per unit	$	(4,613	)	$	39,423		$	35,083		$	6,128

Weighted average common units	100,712			100,462			100,606			100,391

Basic EPU:
Net income (loss) available to common unitholders	$	(0.05	)	$	0.39		$	0.35		$	0.06

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
Computation of Diluted EPU
Net income (loss) available to common unitholders for diluted earnings per unit	$	(4,613	)	$	39,423		$	35,083		$	6,128

Weighted average common unit	100,712			100,727			100,684			100,701

Diluted EPU:
Net income (loss) available to common unitholders	$	(0.05	)	$	0.39		$	0.35		$	0.06

The following schedule reconciles the weighted average units used in the basic EPU calculation to the units used in the diluted EPU calculation: (in thousands)


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2018	2017	2018	2017
Basic EPU units	100,712	100,462	100,606	100,391
Add: Restricted Stock Awards	—	32	—	37
Add: Stock Options	—	233	78	273
Diluted EPU Units	100,712	100,727	100,684	100,701

Distributions declared per common unit for the three month periods ended September 30, 2018 and 2017 was $0.20 and $0.20 per unit, respectively. Distributions declared per common unit for the nine month periods ended September 30, 2018 and 2017 was $0.60 and $0.55 per unit, respectively.

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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 General Partner (“Limited Partners”), 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 nine months ended September 30, 2018 and 2017, respectively (dollars in thousands):

	Nine Months Ended
	September 30,
	2018			2017
Balance at January 1	$	192,428		$	199,516
Net income	13,571			7,704
Issuance of limited partner common units	—			2,793
Unit distributions	(6,760		)	(6,295		)
Redeemable noncontrolling interest	(10,572		)	(7,905		)
Increase (decrease) in noncontrolling interests in consolidated joint ventures	22,786			(1,082		)
Redemption of common units for common stock	(4,141		)	(2,531		)
Stock compensation	3,806			3,302
Cancellation of restricted shares	(454		)	—
Other comprehensive income (loss)	742			63
Rebalancing of ownership percentage between parent and subsidiaries	(1,784		)	(3,757		)
Balance at September 30	$	209,622		$	191,808

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 nine months ended September 30, 2018, 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 $1.8 million as of September 30, 2018.

NONCONTROLLING INTEREST IN OPERATING PARTNERSHIP (applicable only to General Partner)

Common Units

Certain individuals and entities own common units in the Operating Partnership. A common unit and a share of Common Stock of the General Partner 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 General Partner’s Common Stock, or cash equal to the fair market value of a share of the General Partner’s Common Stock at the time of redemption, for each common unit. The General Partner, in its sole discretion, determines the form of redemption of common units (i.e., whether a common unitholder receives Common Stock, cash, or any combination thereof). If the General Partner 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 General Partner 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 the General Partner’s executive officers. On April 4, 2017, the Company granted 2017 LTIP Awards to senior management of the Company, including the General Partner’s executive officers. On April 20, 2018, the Company granted 2018 LTIP Awards to senior management of the Company, including the General Partner’s executive officers. All of the 2016 LTIP Awards, 2017 LTIP Awards and 2018 LTIP Awards are in the form of units in the Operating Partnership. See Note 15: Mack-Cali Realty Corporation Stockholders’ Equity and Mack-Cali Realty, L.P.’s Partners’ Capital — Long-Term Incentive Plan Awards.

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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 General Partner’s common stock, and are redeemable on a one-for-one basis for cash or, at the election of the Company, shares of the General Partner’s common stock.

Unit Transactions

The following table sets forth the changes in noncontrolling interests in subsidiaries which relate to the common units and LTIP Units in the Operating Partnership for the nine months ended September 30, 2018:

	Common		LTIP
	Units		Units
Balance at January 1, 2018	10,438,855		1,230,877
Issuance of units	—		864,024
Redemption of common units for shares of common stock	(252,070	)	—
Cancellation of units	—		(273,517	)

Balance at September 30, 2018	10,186,785		1,821,384

Noncontrolling Interest Ownership in Operating Partnership

As of September 30, 2018 and December 31, 2017, the noncontrolling interest common unitholders owned 10.2 percent and 10.4 percent of the Operating Partnership, respectively.

NONCONTROLLING INTEREST IN CONSOLIDATED JOINT VENTURES (applicable to General Partner and Operating Partnership)

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 (two 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 two business segments: (i) commercial and other real estate and (ii) multi-family real estate and 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 had no revenues from foreign countries recorded for the nine months ended September 30, 2018 and 2017. The Company had no long lived assets in foreign locations as of September 30, 2018 and December 31, 2017. 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 and operations in each of its real estate segments (commercial and other real estate and multi-family real estate and services).

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Selected results of operations for the nine months ended September 30, 2018 and 2017 and selected asset information as of September 30, 2018 and December 31, 2017 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)

	Commercial		Multi-family			Corporate			Total
	& Other Real Estate		Real Estate & Services (d)			& Other (e)			Company
Total revenues:
Three months ended:
September 30, 2018	$	100,489	$	30,942		$	683		$	132,114
September 30, 2017	133,962		24,606			1,450			160,018
Nine months ended:
September 30, 2018	317,467		79,582			621			397,670
September 30, 2017	403,830		65,813			3,028			472,671

Total operating and interest expenses (a):
Three months ended:
September 30, 2018	$	43,774	$	19,272		$	25,994		$	89,040
September 30, 2017	60,524		16,725			26,062			103,311
Nine months ended:
September 30, 2018	140,872		51,563			77,689			270,124
September 30, 2017	182,447		47,722			72,325			302,494


Equity in earnings (loss) of unconsolidated joint ventures:
Three months ended:
September 30, 2018	$	713	$	(1,400	)	$	—		$	(687	)
September 30, 2017	1,058		(2,591		)	—			(1,533		)
Nine months ended:
September 30, 2018	1,482		(649		)	—			833
September 30, 2017	1,453		(6,335		)	—			(4,882		)

Net operating income (loss) (b):
Three months ended:
September 30, 2018	$	57,428	$	10,270		$	(25,311	)	$	42,387
September 30, 2017	74,496		5,290			(24,612		)	55,174
Nine months ended:
September 30, 2018	178,077		27,370			(77,068		)	128,379
September 30, 2017	222,836		11,756			(69,297		)	165,295

Total assets:
September 30, 2018	$	2,734,813	$	2,246,208		$	65,173		$	5,046,194
December 31, 2017	2,915,646		1,937,708			104,531			4,957,885

Total long-lived assets (c):
September 30, 2018	$	2,439,588	$	1,966,570		$	33,271		$	4,439,429
December 31, 2017	2,613,815		1,645,410			31,901			4,291,126

Total investments in unconsolidated joint ventures:
September 30, 2018	$	13,464	$	216,902		$	248		$	230,614
December 31, 2017	15,143		237,321			162			252,626

(a) Total operating and interest expenses represent the sum of: real estate taxes; utilities; operating services; real estate services expenses; general and administrative, acquisition related costs 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.

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(d) Segment assets and operations were owned through a consolidated variable interest entity commencing in February 2017.

(e) Corporate & Other represents all corporate-level items (including interest and other investment income, interest expense, non-property general and administrative expense), as well as intercompany eliminations necessary to reconcile to consolidated Company totals.

Mack-Cali Realty Corporation

The following schedule reconciles net operating income to net income (loss) available to common shareholders: (dollars in thousands)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
Net operating income	$	42,387		$	55,174		$	128,379		$	165,295
Add (deduct):
Depreciation and amortization	(45,813		)	(52,375		)	(128,523		)	(157,768		)
Gain on change of control of interests	14,217			—			14,217			—
Realized gains (losses) and unrealized losses on disposition of rental property, net	(9,102		)	31,336			50,094			(2,112		)
Gain on sale of investment in unconsolidated joint venture	—			10,568			—			23,131
Loss from extinguishment of debt, net	—			—			(10,289		)	(239		)
Net income	1,689			44,703			53,878			28,307
Noncontrolling interest in consolidated joint ventures	451			447			576			865
Noncontrolling interest in Operating Partnership	167			(4,413		)	(4,574		)	(2,412		)
Redeemable noncontrolling interest	(3,785		)	(2,683		)	(9,573		)	(6,157		)
Net income (loss) available to common shareholders	$	(1,478	)	$	38,054		$	40,307		$	20,603

Mack-Cali Realty, L.P.

The following schedule reconciles net operating income to net income (loss) available to common unitholders: (dollars in thousands)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
Net operating income	$	42,387		$	55,174		$	128,379		$	165,295
Add (deduct):
Depreciation and amortization	(45,813		)	(52,375		)	(128,523		)	(157,768		)
Gain on change of control of interests	14,217			—			14,217			—
Realized gains (losses) and unrealized losses on disposition of rental property, net	(9,102		)	31,336			50,094			(2,112		)
Gain on sale of investment in unconsolidated joint venture	—			10,568			—			23,131
Loss from extinguishment of debt, net	—			—			(10,289		)	(239		)
Net income	1,689			44,703			53,878			28,307
Noncontrolling interest in consolidated joint ventures	451			447			576			865
Redeemable noncontrolling interest	(3,785		)	(2,683		)	(9,573		)	(6,157		)
Net income (loss) available to common unitholders	$	(1,645	)	$	42,467		$	44,881		$	23,015

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Consolidated Financial Statements of Mack-Cali Realty Corporation and Mack-Cali Realty, L.P. and the notes thereto (collectively, the “Financial Statements”). Certain defined terms used herein have the meaning ascribed to them in the Financial Statements.

Executive Overview

Mack-Cali Realty Corporation together with its subsidiaries, (collectively, the “General Partner”), including Mack-Cali Realty, L.P. (the “Operating Partnership”), has been involved in all aspects of commercial real estate development, management and ownership for over 60 years and the General Partner has been a publicly traded real estate investment trust (“REIT”) since 1994.

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

As of September 30, 2018, the Company owns or has interests in 138 properties (collectively, the “Properties”), consisting of 56 office and 61 flex properties, totaling approximately 15.8 million square feet which are leased to approximately 700 commercial tenants, and 21 multi-family rental properties containing 6,082 apartments. The Properties are located primarily in the Northeast, some with adjacent, Company-controlled developable land sites able to accommodate up to approximately 3.4 million square feet of additional commercial space and over 10,000 apartment units.

The Company’s historical strategy has been to focus its operations, acquisition and development of office properties in high-barrier-to-entry markets and sub-markets where it believes it is, or can become, a significant and preferred owner and operator. In September 2015, the Company announced a three-year strategic initiative to transform into a more concentrated owner of New Jersey Hudson River waterfront and transit-oriented office properties and a regional owner of luxury multi-family residential properties. As part of this plan, over the past year, the Company has sold or has contracted to sell multiple properties, primarily commercial office, which it believes do not meet its long-term goals.

As an owner of real estate, almost all of the Company’s earnings and cash flow are derived from rental revenue received pursuant to leased space at the Properties. Key factors that affect the Company’s business and financial results include the following:

· the general economic climate;

· the occupancy rates of the Properties;

· rental rates on new or renewed leases;

· tenant improvement and leasing costs incurred to obtain and retain tenants;

· the extent of early lease terminations;

· the value of our office properties and the cash flow from the sale of such properties;

· operating expenses;

· anticipated acquisition and development costs for office and multi-family rental properties and the revenues and earnings from these properties;

· cost of capital; and

· the extent of acquisitions, development and sales of real estate, including the execution of the Company’s current strategic initiative.

Any negative effects of the above key factors could potentially cause a deterioration in the Company’s revenue and/or earnings. Such negative effects could include: (1) failure to renew or execute new leases as current leases expire; (2) failure to renew or execute new leases with rental terms at or above the terms of in-place leases; and (3) tenant defaults.

A failure to renew or execute new leases as current leases expire or to execute new leases with rental terms at or above the terms of in-place leases may be affected by several factors such as: (1) the local economic climate, which may be adversely impacted by business

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layoffs or downsizing, industry slowdowns, changing demographics and other factors; and (2) local real estate conditions, such as oversupply of the Company’s product types or competition within the market.

Of the Company’s core office markets, most continue to show signs of rental rate improvement, while the lease percentages have declined or stabilized. The percentage leased in the Company’s consolidated portfolio of stabilized core operating commercial properties aggregating 14.5 million, 14.6 million and 15.9 million square feet at September 30, 2018, June 30, 2018 and September 30, 2017, respectively, was 84.2 percent leased at September 30, 2018 as compared to 83.2 percent leased at June 30, 2018 and 89.6 percent leased at September 30, 2017 (after adjusting for properties identified as non-core at the time). Percentage leased includes all leases in effect as of the period end date, some of which have commencement dates in the future and leases that expire at the period end date. Leases that expired at September 30, 2018, June 30, 2018 and September 30, 2017 aggregate 9,771, 26,638 and 443,771 square feet, respectively, or 0.1, 0.2 and 2.8 percentage of the net rentable square footage, respectively. Rental rates (including escalations) on the Company’s commercial space that was renewed (based on first rents payable) during the three months ended September 30, 2018 (on 378,909 square feet of renewals) increased an average of 33.7 percent compared to rates that were in effect under the prior leases, as compared to a 1.0 percent decrease during the three months ended September 30, 2017 (on 552,527 square feet of renewals). Estimated lease costs for the renewed leases during the three months ended September 30, 2018 averaged $4.93 per square foot per year for a weighted average lease term of 5.5 years, and estimated lease costs for the renewed leases during the three months ended September 30, 2017 averaged $1.72 per square foot per year for a weighted average lease term of 10.4 years. The Company believes that vacancy rates at its commercial properties will begin to bottom through the end of 2018 as the majority of the known move-outs at its waterfront portfolio have already occurred, and commercial rental rates may increase in some of its markets through year end 2018 and into 2019. As of September 30, 2018, commercial leases which comprise approximately 1.5 and 11.5 percent of the Company’s annualized base rent are scheduled to expire during the three months ending December 31, 2018 and the year ending December 31, 2019, respectively. With the positive rental rate results the Company has achieved in most of its markets recently, the Company believes that rental rates on new leases will generally be, on average, not lower than rates currently being paid.

Although the expirations of existing leases have not exceeded the amount of new leasing recently, the Company believes that the leased percentage in its portfolio will end the year at approximately its current levels. To the Company has more recently achieved positive rental rate activity and expects it to continue, primarily in its core markets. If these recent leasing results do not prove to be sustaining through year end 2018 and into 2019, the Company may receive less revenue from the same space.

During 2017, Moody’s downgraded its investment grade rating on the Company’s senior unsecured debt to sub-investment grade and during 2018, Standard & Poor’s lowered its investment grade rating on the Company’s senior unsecured debt to sub-investment grade. Amongst other things, such downgrade would have increased the interest rate on outstanding borrowings under the Company’s current $600 million unsecured revolving credit facility (which was amended in January 2017) from LIBOR plus 120 basis points to LIBOR plus 155 basis points and the annual credit facility fee it pays would have increased from 25 to 30 basis points. Additionally, any such downgrade would have increased the current interest rate on each of the Company’s $350 million unsecured term loan and $325 million unsecured term loan from LIBOR plus 140 basis points to LIBOR plus 185 points. Effective March 6, 2018, the Company elected to utilize the leverage grid pricing available under the unsecured revolving credit facility and both unsecured term loans. This resulted in an interest rate of LIBOR plus 130 basis points for the Company’s unsecured revolving credit facility and 25 basis points for the facility fee and LIBOR plus 155 basis points for both unsecured term loans at the Company’s current total leverage ratio. In addition, a downgrade in its ratings to sub-investment grade would result in higher interest rates on senior unsecured debt that the Company may issue in the future as compared to issuing such debt with investment grade ratings.

The remaining portion of this Management’s Discussion and Analysis of Financial Condition and Results of Operations should help the reader understand our:

· recent transactions;

· critical accounting policies and estimates;

· results from operations for the three and nine months ended September 30, 2018, as compared to the three and nine months ended September 30, 2017, and

· liquidity and capital resources.

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Recent Transactions

Properties Commencing Initial Operations

The following property commenced initial operations during the nine months ended September 30, 2018 (dollars in thousands):

Total

In-Service

# of

Development

Date

Property

Location

Type

Apartment Units

Costs

03/01/18

145 Front at City Square

Worcester, MA

Multi-Family

365

97,172

(a)

04/01/18

Signature Place at Morris Plains

Morris Plains, NJ

Multi-Family

197

56,643

(b)

05/01/18

Portside 5/6

East Boston, MA

Multi-Family

296

114,723

(c)

08/01/18

Riverhouse 11 at Port Imperial

Weehawken, NJ

Multi-Family

295

127,518

(d)

Totals

1,153

396,056

(c) As of September 30, 2018, the Company anticipates additional costs of approximately $3.3 million, which will be primarily funded from a construction loan.

(d) As of September 30, 2018, the Company anticipates additional costs of $8.2 million of which $2.7 million will be funded by the Company and $5.5 million will be funded from a construction loan.

Consolidation

On August 2, 2018, the Company, which held a 24.27 percent subordinated interest in the unconsolidated joint venture, Marbella Tower Urban Renewal Associates LLC, a 412-unit multi-family operating property located in Jersey City, New Jersey, acquired one of its equity partner’s 50 percent interest for $65.6 million in cash. The property was subject to a mortgage loan that had a principal balance of $95 million. The cash portion of the acquisition was funded primarily through borrowings under the Company’s unsecured revolving credit facility. Concurrently with the closing, the joint venture repaid the $95 million mortgage loan in full and obtained a new loan collateralized by the property in the amount of $131 million, which bears interest at 4.07 percent and matures in August 2026. The venture distributed $37.4 million of the loan proceeds, of which the Company’s share was $30.4 million. As a result of the acquisition, the Company increased its ownership of the property from a 24.27 percent subordinated interest to a 74.27 percent controlling interest. In accordance with ASC 810, Consolidation, the Company evaluated the acquisition and determined that the entity meets the criteria of a VIE. As such, the Company consolidated the asset upon acquisition 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 $14.2 million (a non-cash item) in the three and nine months ended September 30, 2018, in which the Company accounted the transaction as a VIE that is not a business in accordance with ASC 810-10-30-4. Additional non-cash items included in the acquisition were the Company’s carrying value of its interest in the joint venture of $14 million and the noncontrolling interest’s fair value of $29.8 million. See Note 9: Mortgages, Loans Payable and Other Obligations. See Note 9: Mortgages, Loans Payable and Other Obligations.

	Marbella
Land and leasehold interest	$	48,820
Buildings and improvements and other assets, net	162,958
In-place lease values (a)	6,947
Less: Below market lease values (a)	(108		)
	218,617
Less: Debt	(131,000		)
Net Assets	87,617
Less: Noncontrolling interest (b)	(22,812		)
Net assets recorded upon consolidation	$	64,805

(a) In-place and below market leases are being amortized over a weighted-average term of 9.3 months.

(b) Noncontrolling interest balance reflects distribution of $7.0 million of loan proceeds at closing.

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Dispositions/Rental Property Held for Sale

The Company disposed of the following office properties during the nine months ended September 30, 2018 (dollars in thousands):

										Realized
										Gains
				Rentable	Net			Net		(losses)/
Disposition			# of	Square	Sales			Carrying		Unrealized
Date	Property/Address	Location	Bldgs.	Feet	Proceeds			Value		Losses, net
02/15/18	35 Waterview Boulevard (a)	Parsippany, New Jersey	1	172,498	$	25,994		$	25,739	$	255
03/05/18	Hamilton portfolio (b)	Hamilton, New Jersey	6	239,262	17,546			17,501		45
03/07/18	Wall portfolio first closing	Wall, New Jersey	5	179,601	14,053			10,526		3,527
03/22/18	700 Horizon Drive	Hamilton, New Jersey	1	120,000	33,020			16,053		16,967
03/23/18	Wall portfolio second closing	Wall, New Jersey	3	217,822	30,209			12,961		17,248
03/28/18	75 Livingston Avenue	Roseland, New Jersey	1	94,221	7,983			5,609		2,374
03/28/18	20 Waterview Boulevard (c)	Parsippany, New Jersey	1	225,550	12,475			11,795		680
03/30/18	Westchester Financial Center (d)	White Plains, New York	2	489,000	81,769			64,679		17,090
06/27/18	65 Jackson Drive	Cranford, New Jersey	—	—	1,510		(e)	—		1,510
08/02/18	600 Horizon Drive	Hamilton, New Jersey	1	95,000	15,127			6,191		8,936
09/05/18	1 & 3 Barker Avenue	White Plains, New York	2	133,300	15,140		(f)	13,543		1,597
Sub-total			23	1,966,254	254,826			184,597		70,229

Unrealized losses on rental property held for sale (see below)										(20,135		)

Totals			23	1,966,254	$	254,826		$	184,597	$	50,094

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

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

Rental Property Held for Sale, Net

Rockpoint Transaction

On February 27, 2017, the Company, Roseland Residential Trust (“RRT”), the Company’s wholly-owned subsidiary through which the Company conducts its multi-family residential real estate operations, Roseland Residential, L.P. (“RRLP”), the operating partnership through which RRT conducts all of its operations, and certain other affiliates of the Company entered into an equity investment agreement (the “Investment Agreement”) with Rockpoint Group, L.L.C. and certain of its affiliates (collectively, “Rockpoint”). The Investment Agreement provides for multiple equity investments by Rockpoint in RRLP from time to time for up to an aggregate of $300 million of equity units of limited partnership interests of RRLP (the “Rockpoint Units”). The initial closing under the Investment Agreement occurred on March 10, 2017 for $150 million of Rockpoint Units, inclusive of a $30 million deposit paid by Rockpoint to RRLP on signing the Investment Agreement. Additional closings of Rockpoint Units to be issued and sold to Rockpoint pursuant to the Investment Agreement may occur from time to time in increments of not less than $10 million per closing, with the balance of the full $300 million by March 1, 2019. During the nine months ended September 30, 2018, a total of $85 million of Rockpoint Units were issued and sold to Rockpoint pursuant to the Investment Agreement.

RRLP has been identified as a variable interest entity in which the Company is deemed to be the primary beneficiary. As of September 30, 2018 and December 31, 2017, the Company’s consolidated RRLP entity had total assets of $2.2 billion and $1.9 billion, respectively, total mortgages & loan payable of $995.5 million and $769.7 million, respectively, and other liabilities of $90 million and $95.9 million, respectively.

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The Company shall have a participation right, where prior to March 1, 2022 and following either the full investment of $300 million by Rockpoint or in certain other limited circumstances, the Company may purchase up to $200 million of equity units on substantially the same terms and conditions as the Rockpoint Units to be issued and sold to Rockpoint.

RRT serves as the General Partner of the operating partnership and will receive contributed equity value at closing of $1.23 billion.

Under the terms of the transaction, the cash flow from operations of RRLP will be distributable to RRT and Rockpoint as follows:

first, to provide a 6% annual return to Rockpoint (and to the Company upon acquisition of equity units by the Company, as described above) on its invested capital (“Preferred Base Return”);

second, to provide a 6% annual return to RRT on the equity value of the properties contributed by it to the partnership (“RRT Base Return”) with 95% of the RRT Base Return to RRT and 5% of the RRT Base Return to Rockpoint; and

third, pro rata between Rockpoint (and the Company upon acquisition of equity units) and RRT based on total respective invested capital and contributed equity value (approximately 17% to Rockpoint and 83% to RRT upon full investment of Rockpoint’s $300 million commitment and the Company’s $200 million participation right).

RRLP’s cash flow from capital events will generally be distributable to RRT and Rockpoint as follows:

first, to Rockpoint (and the Company upon acquisition of equity units) to the extent there is any unpaid, accrued Preferred Base Return;

second, as a return of capital to Rockpoint (and the Company upon acquisition of equity units);

third, to RRT to the extent there is any unpaid, accrued RRT Base Return (with Rockpoint entitled to an additional amount equal to 5% of the amounts distributable to RRT);

fourth, as a return of capital to RRT based on the equity value of the properties contributed by it to the partnership (with Rockpoint entitled to an additional amount equal to 5% of the amounts distributable to RRT);

fifth, pro rata between Rockpoint (and the Company upon acquisition of equity units) and RRT based on total respective invested capital and contributed equity value (approximately 17% to Rockpoint and 83% to RRT upon full investment of Rockpoint’s $300 million commitment and the Company’s $200 million participation right) until Rockpoint has achieved an 11% internal rate of return; and

sixth, to Rockpoint (and to the Company upon acquisition of equity units) based on 50% of its pro rata share described in “fifth” above and the balance to RRT (approximately 9% to Rockpoint and 91% to RRT upon full investment of Rockpoint’s $300 million commitment and the Company’s $200 million participation right).

Except in the case of a sale of RRLP or an initial public offering or spin-off of RRT (“Liquidity Events”), Rockpoint’s interest in the Rockpoint Units may not be redeemed or repurchased by RRT for a period of approximately five years from the initial closing under the Investment Agreement (“Lockout Period”). If there is a Liquidity Event during the Lockout Period, RRT may acquire Rockpoint’s Rockpoint Units for a purchase price generally equal to the greater of (i) the fair market value of such Rockpoint Units as determined by the process set forth below; or (ii) an amount that provides Rockpoint with 1.5 times Rockpoint’s return of capital taking into account prior distributions to Rockpoint (an “Early Repurchase”). Beginning on March 1, 2022, either RRT or Rockpoint may cause an acquisition (a “Put/Call Event”) of all, but not less than all, of Rockpoint’s interest in the Rockpoint Units at the fair market value per unit based on a net asset value (“NAV”) of RRLP to be determined by a third party valuation to be completed within ninety (90) calendar days of March 1, 2022 and every year thereafter and generally based on the capital event waterfall described above. Any acquisition of Rockpoint’s interest in the Rockpoint Units pursuant to a Put/Call Event is generally required to be structured as a purchase of the common equity in the applicable Rockpoint entities that hold direct or indirect interests in the Rockpoint Units. Subject to certain exceptions, Rockpoint also shall have a right of first offer and a participation right with respect to other common equity interests of RRLP or any subsidiary of RRLP that may be offered for sale by RRLP or its subsidiaries from time to time. On a Put/Call Event, other than the sale of RRLP, Rockpoint may elect to convert all, but not less than all, of its investment to common equity in RRLP.

The foregoing and following terms and conditions of the investment will be implemented by the parties pursuant to an amended and restated partnership agreement of RRLP (the “Partnership Agreement”) and shareholders agreement of RRT (the “Shareholders Agreement”) to be entered into at the initial closing of the Rockpoint Units to be issued and sold to Rockpoint. Pursuant to the Partnership Agreement and Shareholders Agreement, and concurrent with the issuance and sale of the Rockpoint Units to be issued and sold at the initial closing, RRT has agreed to increase the size of its board of trustees from five to six persons, with five trustees being designated by the Company and one trustee being designated by Rockpoint.

In addition, RRT and RRLP shall be required to obtain Rockpoint’s consent with respect to:

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· Debt financings in excess of a 65% loan-to-value ratio;

· Corporate level financings that are pari-passu or senior to the Rockpoint Units;

· New investment opportunities to the extent the opportunity requires an equity capitalization in excess of 10% of RRLP’s NAV;

· New investment opportunities located in a Metropolitan Statistical Area where RRLP owns no property as of the previous quarter;

· Declaration of bankruptcy of RRT;

· Transactions between RRT and the Company, subject to certain limited exceptions;

· Any equity granted or equity incentive plan adopted by RRLP or any of its subsidiaries; and

· Certain matters relating to the Discretionary Demand Promissory Note between the Operating Partnership and RRLP (other than ordinary course borrowings or repayments thereunder).

The Partnership Agreement provides that any of the following will constitute an event of default (each, an “Event of Default”) with respect to the equity securities: (i) failure by RRLP to pay Rockpoint any financial obligations due to it, subject to certain cure rights, (ii) any of the General Partner, Operating Partnership, RRT or RRLP, or their respective affiliates that are party to the Investment Agreement, failing to perform or observe any material covenant or agreement contained in any of the transaction documents and such failure continues for 20 business days after notice, or (iii) the violation of certain tax related covenants. If an Event of Default occurs, (i) at any time and is continuing, subject to a cure period, Rockpoint’s preferred return in respect of operating cash flows shall increase from six percent (6%) to eighteen percent (18%) per annum; and (ii) during the Lockout Period, if it remains uncured for 120 days after notice, Rockpoint may cause an Early Repurchase of Rockpoint’s interest in the Rockpoint Units by RRT. In addition, if any nonpayment of a financial obligation remains unpaid for 120 days following notice from Rockpoint, and remains uncured following the 10th anniversary of the effective date of the Partnership Agreement, Rockpoint shall have the right to designate a majority of the members of the board of trustees of RRT, which is the General Partner of RRLP.

Also on the initial closing date, the Operating Partnership and RRLP executed a Discretionary Demand Promissory Note, whereby the Operating Partnership may provide periodic cash advances to RRLP. The Discretionary Demand Promissory Note provides for an interest rate equal to the London Inter-Bank Offered Rate plus fifty (50) basis points above the applicable interest rate under the Company’s unsecured revolving credit facility. The maximum aggregate principal amount of advances at any one time outstanding under the Note will be limited to $25,000,000.

RRT and RRLP also entered into a registration rights agreement (the “Registration Rights Agreement”) with Rockpoint pursuant to which RRT and RRLP have agreed to register the Rockpoint Units or securities issuable in exchange of Rockpoint Units under certain circumstances in the future, in the event RRT or RRLP becomes a publicly traded company.

The Operating Partnership and RRLP also entered into a Shared Services Agreement (the “Shared Services Agreement”), which will provide for the performance of back office, administrative and other operational services by the Operating Partnership for the benefit of RRLP. The Shared Services Agreement provides for a fixed fee of $1,000,000/year to be paid by RRLP to the Operating Partnership, with a three percent (3%) increase year to year.

In connection with the transaction, the Company also entered into a Recourse Agreement (the “Recourse Agreement”) with Rockpoint. The Recourse Agreement provides that, in the event of distributions or transfers by RRLP of cash flow or property in breach of the Partnership Agreement, or failure to make required distributions or payments (including complying with any put by Rockpoint) in each case, which remain uncured, the Company will have direct liability for losses of Rockpoint resulting therefrom.

Rockpoint will indemnify the Company (or its affiliates) pursuant to an indemnity agreement (the “Indemnity Agreement”) for liability (pursuant to the provisions of said agreement) resulting from the likely requirement for RRLP to acquire the equity interest of the entities holding Rockpoint’s interest in RRLP upon any Rockpoint exit, including for losses relating to certain REIT matters.

Critical Accounting Policies and Estimates

The accompanying consolidated financial statements include all accounts of the Company, its majority-owned and/or controlled subsidiaries, which consist principally of the Operating Partnership and variable interest entities for which the Company has determined itself to be the primary beneficiary, if any. See Note 2: Significant Accounting Policies — to the Financial Statements, for the Company’s treatment of unconsolidated joint venture interests. Intercompany accounts and transactions have been eliminated.

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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.

The Financial Statements have been prepared in conformity with generally accepted accounting principles (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Financial Statements, and the reported amounts of revenues and expenses during the reported period. Actual results could differ from these estimates. Certain reclassifications have been made to prior period amounts in order to conform with current period presentation. 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. The Company’s critical accounting policies are those which require assumptions to be made about matters that are highly uncertain. Different estimates could have a material effect on the Company’s financial results. Judgments and uncertainties affecting the application of these policies and estimates may result in materially different amounts being reported under different conditions and circumstances.

Rental Property:

Rental properties are stated at cost less accumulated depreciation and amortization. Costs directly related to the acquisition, development and construction of rental properties are capitalized. Acquisition-related costs were expensed as incurred through December 31, 2016. The Company early adopted the recently issued FASB guidance Accounting Standards Update (“ASU”) 2017-01 on January 1, 2017 which revises the definition of a business and is expected to result in more transactions to be accounted for as asset acquisitions and significantly limit transactions that would be accounted for as business combinations. Where an acquisition has been determined to be an asset acquisition, acquisition-related costs are capitalized. Capitalized development and construction costs include pre-construction costs essential to the development of the property, development and construction costs, interest, property taxes, insurance, salaries and other project costs incurred during the period of development. Interest capitalized by the Company for the nine months ended September 30, 2018 and 2017 was $21.3 million and $14.0 million, 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.

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

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Upon acquisition of rental property, the Company estimates the fair value of acquired tangible assets, consisting of land, building and improvements, and identified intangible assets and liabilities assumed, generally consisting of the fair value of (i) above and below market leases, (ii) in-place leases and (iii) tenant relationships. The Company allocates the purchase price to the assets acquired and liabilities assumed based on their fair values. The Company records goodwill or a gain on bargain purchase (if any) if the net assets acquired/liabilities assumed differ from the purchase consideration of a business transaction. In estimating the fair value of the tangible and intangible assets acquired, the Company considers information obtained about each property as a result of its due diligence and marketing and leasing activities, and utilizes various valuation methods, such as estimated cash flow projections utilizing appropriate discount and capitalization rates, estimates of replacement costs net of depreciation, and available market information. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant.

Rental Property Held for Sale:

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

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Investments in Unconsolidated Joint Ventures:

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

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.

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.

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Results From Operations

The following comparisons for the three and nine months ended September 30, 2018 (“2018”), as compared to the three and nine months ended September 30, 2017 (“2017”), make reference to the following: (i) the effect of the “Same-Store Properties,” which represent all in-service properties owned by the Company at June 30, 2017 (for the three-month period comparisons), and which represent all in-service properties owned by the Company at December 31, 2016 (for the nine-month period comparisons), excluding properties that were sold, disposed of, removed from service, or being redeveloped or repositioned from January 1, 2017 through September 30, 2018; (ii) the effect of the “Acquired Properties,” which represent all properties acquired by the Company or commencing initial operations from July 1, 2017 through September 30, 2018 (for the three-month period comparisons), and which represent all properties acquired by the Company or commencing initial operations from January 1, 2017 through September 30, 2018 (for the nine-month period comparisons), and (iii) the effect of “Properties Sold”, which represent all properties sold, disposed of, or removed from service (including properties being redeveloped or repositioned) by the Company from January 1, 2017 through September 30, 2018. During 2018 and 2017, six office properties, aggregating 638,481 square feet, were removed from service as they were being redeveloped by the Company.

Three Months Ended September 30, 2018 Compared to Three Months Ended September 30, 2017

	Three Months Ended
	September 30,						Dollar			Percent
(dollars in thousands)	2018			2017			Change			Change
Revenue from rental operations and other:
Base rents	$	107,239		$	128,643		$	(21,404	)	(16.6	)%
Escalations and recoveries from tenants	12,656			16,385			(3,729		)	(22.8	)
Parking income	5,499			5,766			(267		)	(4.6	)
Other income	2,288			3,476			(1,188		)	(34.2	)
Total revenues from rental operations	127,682			154,270			(26,588		)	(17.2	)

Property expenses:
Real estate taxes	15,680			21,300			(5,620		)	(26.4	)
Utilities	9,990			11,480			(1,490		)	(13.0	)
Operating services	27,107			26,312			795			3.0
Total property expenses	52,777			59,092			(6,315		)	(10.7	)

Non-property revenues:
Real estate services	4,432			5,748			(1,316		)	(22.9	)
Total non-property revenues	4,432			5,748			(1,316		)	(22.9	)

Non-property expenses:
Real estate services expenses	4,400			6,207			(1,807		)	(29.1	)
General and administrative	11,620			13,140			(1,520		)	(11.6	)
Depreciation and amortization	45,813			52,375			(6,562		)	(12.5	)
Total non-property expenses	61,833			71,722			(9,889		)	(13.8	)
Operating income	17,504			29,204			(11,700		)	(40.1	)
Other (expense) income:
Interest expense	(21,094		)	(25,634		)	4,540			17.7
Interest and other investment income (loss)	851			762			89			11.7
Equity in earnings (loss) of unconsolidated joint ventures	(687		)	(1,533		)	846			55.2
Gain on change of control of interests	14,217			—			14,217			—
Realized gains (losses) and unrealized losses on disposition of rental property, net	(9,102		)	31,336			(40,438		)	(129.0	)
Gain on sale of investment in unconsolidated joint venture	—			10,568			(10,568		)	(100.0	)
Total other (expense) income	(15,815		)	15,499			(31,314		)	(202.0	)
Net income	$	1,689		$	44,703		$	(43,014	)	(96.2	)%

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The following is a summary of the changes in revenue from rental operations and property expenses in 2018 as compared to 2017 divided into Same-Store Properties, Acquired Properties and Properties Sold in 2017 and 2018 (dollars in thousands):

	Total					Same-Store					Acquired				Properties
	Company					Properties					Properties				Sold in 2017 and 2018
	Dollar			Percent		Dollar			Percent		Dollar		Percent		Dollar			Percent
(dollars in thousands)	Change			Change		Change			Change		Change		Change		Change			Change
Revenue from rental operations and other:
Base rents	$	(21,404	)	(16.6	)%	$	(6,923	)	(5.4	)%	$	5,632	4.4	%	$	(20,113	)	(15.6	)%
Escalations and recoveries from tenants	(3,729		)	(22.8	)	(680		)	(4.2	)	493		3.0		(3,542		)	(21.6	)
Parking income	(267		)	(4.6	)	(944		)	(16.3	)	986		17.1		(309		)	(5.4	)
Other income	(1,188		)	(34.2	)	(1,183		)	(34.1	)	118		3.4		(123		)	(3.5	)
Total	$	(26,588	)	(17.2	)%	$	(9,730	)	(6.3	)%	$	7,229	4.7	%	$	(24,087	)	(15.6	)%

Property expenses:
Real estate taxes	$	(5,620	)	(26.4	)%	$	(2,289	)	(10.8	)%	$	570	2.7	%	$	(3,901	)	(18.3	)%
Utilities	(1,490		)	(13.0	)	152			1.3		468		4.1		(2,110		)	(18.4	)
Operating services	795			3.0		2,620			10.0		1,854		7.0		(3,679		)	(14.0	)
Total	$	(6,315	)	(10.7	)%	$	483		0.8	%	$	2,892	4.9	%	$	(9,690	)	(16.4	)%

OTHER DATA:
Number of Consolidated Properties	123					119					4				91
Commercial Square feet (in thousands)	15,244					15,062					182				7,282
Multi-family portfolio (number of units)	3,160					2,551					609				—

Base rents. Base rents for the Same-Store Properties decreased $6.9 million, or 5.4 percent, for 2018 as compared to 2017, due primarily to a 670 basis point decrease in the average same store percent leased of the commercial portfolio from 89.3 percent in 2017 to 82.6 percent in 2018.

Escalations and recoveries. Escalations and recoveries from tenants for the Same-Store Properties decreased $0.7 million, or 4.2 percent, for 2018 over 2017 due primarily to lower real estate tax expenses, as well as lower percent leased in 2018, at its commercial properties in Jersey City, New Jersey, which resulted in lower recoveries in 2018 as compared to 2017.

Parking income. Parking income for the Same-Store Properties decreased $0.9 million, or 16.3 percent million, for 2018 as compared to 2017, due primarily to higher parking fees from tenants received in 2017.

Other income. Other income for the Same-Store Properties decreased $1.2 million, or 34.1 percent, for 2018 as compared to 2017, due primarily to a decrease in lease breakage fees recognized in 2018 as compared to 2017.

Real estate taxes. Real estate taxes on the Same-Store Properties decreased $2.3 million, or 10.8 percent, for 2018 as compared to 2017, due primarily to lower tax assessment values for the Company’s properties in Jersey City, New Jersey in 2018.

Utilities. Utilities for the Same-Store Properties increased $0.2 million, or 1.3 percent, for 2018 as compared to 2017, due primarily to increased electricity rates in 2018.

Operating services. Operating services for the Same-Store Properties increased $2.6 million, or 10.0 percent, due primarily to severance, separation and related costs in 2018 from property management restructurings of $0.6 million and an increase of $2.0 million in property maintenance and outside labor costs for 2018 as compared to 2017.

Real estate services revenue. Real estate services revenue (primarily reimbursement of property personnel costs) decreased $1.3 million, or 22.9 percent, for 2018 as compared to 2017, due primarily to decreased third party development and management activity in multi-family services in 2018 as compared to 2017.

Real estate services expense. Real estate services expense decreased $1.8 million, or 29.1 percent, for 2018 as compared to 2017, due primarily to decreased salaries and related expenses from lower third party services activities.

General and administrative. General and administrative expenses decreased $1.5 million, or 11.6 percent in 2018 as compared to 2017, due primarily to a decrease in overhead salaries and related expenses in 2018 as compared to 2017.

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Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017

	Nine Months Ended
	September 30,						Dollar			Percent
(dollars in thousands)	2018			2017			Change			Change
Revenue from rental operations and other:
Base rents	$	323,725		$	382,915		$	(59,190	)	(15.5	)%
Escalations and recoveries from tenants	35,748			47,455			(11,707		)	(24.7	)
Parking income	16,583			15,047			1,536			10.2
Other income	8,447			9,274			(827		)	(8.9	)
Total revenues from rental operations	384,503			454,691			(70,188		)	(15.4	)

Property expenses:
Real estate taxes	52,007			63,609			(11,602		)	(18.2	)
Utilities	30,049			33,251			(3,202		)	(9.6	)
Operating services	75,664			80,495			(4,831		)	(6.0	)
Total property expenses	157,720			177,355			(19,635		)	(11.1	)

Non-property revenues:
Real estate services	13,167			17,980			(4,813		)	(26.8	)
Total non-property revenues	13,167			17,980			(4,813		)	(26.8	)

Non-property expenses:
Real estate services expenses	13,696			18,376			(4,680		)	(25.5	)
General and administrative	41,160			37,223			3,937			10.6
Depreciation and amortization	128,523			157,768			(29,245		)	(18.5	)
Total non-property expenses	183,379			213,367			(29,988		)	(14.1	)
Operating income	56,571			81,949			(25,378		)	(31.0	)
Other (expense) income:
Interest expense	(60,168		)	(70,898		)	10,730			15.1
Interest and other investment income	2,620			1,358			1,262			92.9
Equity in earnings (loss) of unconsolidated joint ventures	833			(4,882		)	5,715			117.1
Gain on change of control of interests	14,217			—			14,217			—
Realized gains (losses) and unrealized losses on disposition of rental property, net	50,094			(2,112		)	52,206			2,471.9
Gain on sale of investment in unconsolidated joint venture	—			23,131			(23,131		)	(100.0	)
Loss from extinguishment of debt, net	(10,289		)	(239		)	(10,050		)	(4,205.0	)
Total other (expense) income	(2,693		)	(53,642		)	50,949			95.0
Net income	$	53,878		$	28,307		$	25,571		90.3	%

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	Total					Same-Store					Acquired				Properties
	Company					Properties					Properties				Sold in 2017 and 2018
	Dollar			Percent		Dollar			Percent		Dollar		Percent		Dollar			Percent
(dollars in thousands)	Change			Change		Change			Change		Change		Change		Change			Change
Revenue from rental operations and other:
Base rents	$	(59,190	)	(15.5	)%	$	(15,829	)	(4.2	)%	$	18,312	4.8	%	$	(61,673	)	(16.1	)%
Escalations and recoveries from tenants	(11,707		)	(24.7	)	(2,487		)	(5.2	)	1,387		2.9		(10,607		)	(22.4	)
Parking income	1,536			10.2		534			3.6		1,527		10.1		(525		)	(3.5	)
Other income	(827		)	(8.9	)	(203		)	(2.2	)	42		0.5		(666		)	(7.2	)
Total	$	(70,188	)	(15.4	)%	$	(17,985	)	(3.9	)%	$	21,268	4.7	%	$	(73,471	)	(16.2	)%

Property expenses:
Real estate taxes	$	(11,602	)	(18.2	)%	$	(2,891	)	(4.5	)%	$	1,849	2.9	%	$	(10,560	)	(16.6	)%
Utilities	(3,202		)	(9.6	)	1,342			4.0		1,419		4.3		(5,963		)	(17.9	)
Operating services	(4,831		)	(6.0	)	374			0.4		5,366		6.7		(10,571		)	(13.1	)
Total	$	(19,635	)	(11.1	)%	$	(1,175	)	(0.7	)%	$	8,634	4.9	%	$	(27,094	)	(15.3	)%

OTHER DATA:
Number of Consolidated Properties	123					111					12				91
Commercial Square feet (in thousands)	15,244					13,988					1,256				7,282
Multi-family portfolio (number of units)	3,160					2,028					1,132				—

Base rents. Base rents for the Same-Store Properties decreased $15.8 million, or 4.2 percent, for 2018 as compared to 2017, due primarily to a 690 basis point decrease in the average same store percent leased of the office portfolio from 90.5 percent in 2017 to 83.6 percent in 2018.

Escalations and recoveries. Escalations and recoveries from tenants for the Same-Store Properties decreased $2.5 million, or 5.2 percent, for 2018 over 2017 due primarily to lower real estate tax expenses, as well as lower percent leased, in 2018 at its commercial properties in Jersey City, New Jersey, which resulted in lower recoveries in 2018 as compared to 2017.

Parking income. Parking income for the Same-Store Properties increased $0.5 million, or 3.6 percent, for 2018 as compared to 2017, due primarily to an overall greater amount of parking fees collected in 2018.

Other income. Other income for the Same-Store Properties decreased $0.2 million, or 2.2 percent, for 2018 as compared to 2017, due primarily to a decrease in lease breakage fees recognized in 2018.

Real estate taxes. Real estate taxes on the Same-Store Properties decreased $2.9 million, or 4.5 percent, for 2018 as compared to 2017, due primarily to an increase in tax appeal proceeds received in 2018 as compared to 2017. Real estate taxes, without the effect of net tax appeal proceeds, decreased $1.8 million, or 3.9 percent, for 2018 as compared to 2017 due primarily to lower tax assessment values for the Company’s properties in Jersey City, New Jersey in 2018.

Utilities. Utilities for the Same-Store Properties increased $1.3 million, or 4.0 percent, for 2018 as compared to 2017, due primarily to increased electricity rates in 2018.

Operating services. Operating services for the Same-Store Properties increased $0.4 million, or 0.4 percent, due primarily to severance, separation and related costs in 2018 from property management restructurings of $1.3 million, partially offset by a decrease of $1.1 million in property maintenance costs in 2018 as compared to 2017.

Real estate services revenue. Real estate services revenue (primarily reimbursement of property personnel costs) decreased $4.8 million, or 26.8 percent, for 2018 as compared to 2017, due primarily to decreased third party development and management activity in multi-family services in 2018 as compared to 2017.

Real estate services expense. Real estate services expense decreased $4.7 million, or 25.5 percent, for 2018 as compared to 2017, due primarily to decreased salaries and related expenses from lower third party services activities.

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General and administrative. General and administrative expenses increased $3.9 million, or 10.6 percent in 2018 as compared to 2017, due primarily to severance, separation and related costs in 2018 from management restructurings of $6.2 million, partially offset by a decrease in overhead salaries and related expenses for 2018 as compared to 2017 of $2.2 million.

Depreciation and amortization. Depreciation and amortization decreased $29.2 million, or 18.5 percent, for 2018 over 2017. This decrease was due primarily to lower depreciation of $30.4 million in 2018 as compared to 2017 for properties sold or removed from service and a decrease of approximately $1.8 million for 2018 as compared to 2017 on the Same-Store Properties due to assets becoming fully amortized. These were partially offset by an increase in depreciation of $3.0 million for 2018 as compared to 2017 on the Acquired Properties.

Interest expense. Interest expense decreased $10.7 million, or 15.1 percent, for 2018 as compared to 2017. This decrease was primarily the result of lower average interest rates for 2018 as compared to 2017.

Interest and other investment income. Interest and other investment income increased $1.3 million, or 92.9 percent, for 2018 as compared to 2017, due primarily to higher average notes receivable balances outstanding in 2018 as compared to 2017.

Equity in earnings (loss) of unconsolidated joint ventures. Equity in earnings of unconsolidated joint ventures increased $5.7 million, or 117.1 percent, for 2018 as compared to 2017. The increase was due primarily to an increase of $5.3 million for 2018 as compared to 2017 from the Urby at Harborside venture, which was placed in service in late 2017, and also included in 2018 the Company’s share of $2.6 million from the venture’s sale of an economic tax credit to a third party.

Gain on change of control of interests. The Company recorded a gain on change of control of interests of $14.2 million in 2018 as a result of its acquisition of its equity partners’ interest in a multi-family property located in Jersey City, New Jersey. See Note 3: Recent Transactions — Consolidation — to the Financial Statements.

Realized gains (losses) and unrealized losses on disposition of rental property, net. The Company had realized gains (unrealized losses) on disposition of rental property of a net gain of $50.1 million in 2018, as compared to a net loss of $2.1 million in 2017. See Note 3: Recent Transactions — Dispositions — to the Financial Statements.

Gain on sale of investment in unconsolidated joint venture. The Company recorded a $23.1 million gain on the sale in 2017 of its interests in certain joint ventures.

Loss from early extinguishment of debt, net. In 2018, the Company recognized a loss from extinguishment of debt of $10.3 million in connection with the early prepayment of certain mortgage payables. See Note 9 to the Financial Statements: Mortgages, Loans Payable and Other Obligations. In 2017, the Company recognized a loss from extinguishment of debt of $0.2 million due to the allocated costs as a result of the amendment of its revolving credit facility in 2017. See Note 8 to the Financial Statements: Unsecured Revolving Credit Facility and Term Loans.

Net income. Net income increased to $53.9 million in 2018 from $28.3 million in 2017. The increase of approximately $25.6 million was due to the factors discussed above.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Overview:

Historically, rental revenue has been the Company’s principal source of funds to pay operating expenses, debt service, capital expenditures and dividends, excluding non-recurring capital expenditures. To the extent that the Company’s cash flow from operating activities is insufficient to finance its non-recurring capital expenditures such as property acquisitions, development and construction costs and other capital expenditures, the Company has and expects to continue to finance such activities through borrowings under its unsecured revolving credit facility, other debt and equity financings, proceeds from the sale of properties and joint venture capital.

The Company expects to meet its short-term liquidity requirements generally through its working capital, which may include proceeds from the sales of office properties, net cash provided by operating activities and draw from its unsecured revolving credit facility. The Company frequently examines potential property acquisitions and development projects and, at any given time, one or more of such acquisitions or development projects may be under consideration. Accordingly, the ability to fund property acquisitions and development projects is a major part of the Company’s financing requirements. The Company expects to meet its financing requirements through funds generated from operating activities, to the extent available, proceeds from property sales, joint venture capital, long-term

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and short-term borrowings (including draws on the Company’s unsecured revolving credit facility) and the issuance of additional debt and/or equity securities.

Repositioning of the Company’s Portfolio:

As described earlier relative to its current strategic initiative, the Company’s management has been reviewing its portfolio and identifying opportunities to divest of non-core office properties that no longer meet its long-term strategy, have reached their potential, are less efficient to operate, or when market conditions are favorable to be sold at attractive prices. The Company anticipates continuing to redeploy the proceeds from non-core rental property sales in the near-term to acquire office properties, enhance amenities and infrastructure at existing office properties, develop, redevelop and acquire multi-family rental properties, as well as reposition certain office properties into multi-family residential and/or mixed use properties, in its core Northeast sub-markets.

Construction Projects:

In August 2017, the Company acquired an existing mortgage note receivable encumbering a vacant developable land parcel located in Jersey City, New Jersey (the “Land Property”) with a balance of $44.7 million (the “Land Note Receivable”). The Land Note Receivable matures in July 2019 and earns interest at an annual rate of 5.85 percent which accrues monthly and is payable at maturity. In March 2018, the Company received a partial prepayment of $3 million. The Land Property is currently an unimproved land parcel which operates as a surface parking facility. Additionally, the Company entered into an agreement to acquire the Land Property, subject to the Company’s ability to obtain all necessary development rights and entitlements to develop an apartment building on the land, and other related conditions to ensure that the Company can develop the project. The purchase price is $73 million, subject to adjustment based on the level of development rights obtained for the construction of a multifamily apartment building.

REIT Restrictions:

To maintain its qualification as a REIT under the IRS Code, the General Partner must make annual distributions to its stockholders of at least 90 percent of its REIT taxable income, determined without regard to the dividends paid deduction and by excluding net capital gains. Moreover, the General Partner intends to continue to make regular quarterly distributions to its common stockholders. Based upon the most recently paid common stock dividend rate of $0.20 per common share, in the aggregate, such distributions would equal approximately $72.2 million ($81.8 million, including units in the Operating Partnership, held by parties other than the General Partner) on an annualized basis. However, any such distributions, whether for federal income tax purposes or otherwise, would be paid out of available cash, including borrowings and other sources, after meeting operating requirements, preferred stock dividends and distributions, and scheduled debt service on the Company’s debt. If and to the extent the Company retains and does not distribute any net capital gains, the General Partner 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.

Property Lock-Ups:

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 may 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”). Upon the expiration in February 2016 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 General Partner’s Board of Directors; David S. Mack, director; and Earle I. Mack, a former director),

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the Robert Martin Group (which includes Robert F. Weinberg, a former director and current member of the General Partner’s Advisory Board), and the Cali Group (which includes John R. Cali, a former director and current member of the General Partner’s Advisory Board). As of September 30, 2018, 74 of the Company’s properties, primarily a portfolio of flex properties in Westchester County, New York with an aggregate carrying value of approximately $919 million, are subject to these conditions.

Unencumbered Properties:

As of September 30, 2018, the Company had 110 unencumbered properties with a carrying value of $2.2 billion representing 88.7 percent of the Company’s total consolidated property count.

Cash Flows

Cash, cash equivalents and restricted cash decreased by $37.0 million to $30.9 million at September 30, 2018, compared to $67.9 million at December 31, 2017. This increase is comprised of the following net cash flow items:

(1) $126.2 million provided by operating activities.

(2) $167.5 million used in investing activities, consisting primarily of the following:

(a) $6.7 million used for investments in unconsolidated joint ventures; plus

(b) $163.9 million used for rental property acquisitions and related intangibles; plus

(d) $141.8 million used for the development of rental property, other related costs and deposits; minus

(e) $259.4 million from proceeds from the sales of rental property; minus

(f) $8 million received from repayments of notes receivables; minus

(g) $9.7 million received from distributions in excess of cumulative earnings from unconsolidated joint ventures.

(3) $4.2 million used in financing activities, consisting primarily of the following:

(a) $428 million from borrowings under the revolving credit facility; plus

(b) $227.8 million from proceeds received from mortgages and loans payable; plus

(d) $381 million used for repayments of revolving credit facility; minus

(e) $278 million used for repayments of mortgages, loans payable and other obligations; minus

(f) $69.6 million used for payments of dividends and distributions; minus

(g) $6.9 million used for distribution to noncontrolling interests; minus

(h) $1 million used for payment of finance cost.

Debt Financing

Summary of Debt:

The following is a breakdown of the Company’s debt between fixed and variable-rate financing as of September 30, 2018:

	Balance					Weighted Average		Weighted Average
	($000’s)			% of Total		Interest Rate (a)		Maturity in Years
Fixed Rate Unsecured Debt and Other Obligations	$	1,250,000		44.30	%	3.70	%	2.29
Fixed Rate Secured Debt	1,046,623			37.09	%	3.68	%	6.59
Variable Rate Secured Debt	328,170			11.63	%	4.98	%	0.98
Variable Rate Unsecured Debt (b)	197,000			6.98	%	3.47	%	2.32

Totals/Weighted Average:	$	2,821,793		100.00	%	3.83	%(b)	3.73
Adjustment for unamortized debt discount	(3,005		)
Unamortized deferred financing costs	(11,070		)
Total Debt, Net	$	2,807,718

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(a) The actual weighted average LIBOR rate for the Company’s outstanding variable rate debt was 2.16 percent as of September 30, 2018, plus the applicable spread.

(b) Excludes amortized deferred financing costs primarily pertaining to the Company’s unsecured revolving credit facility which amounted to $0.8 million and $2.4 million for the three and nine months ended September 30, 2018.

Debt Maturities:

Scheduled principal payments and related weighted average annual effective interest rates for the Company’s debt as of September 30, 2018 are as follows:

	Scheduled			Principal					Weighted Avg.
	Amortization			Maturities		Total			Effective Interest Rate of
Period	($000’s)			($000’s)		($000’s)			Future Repayments (a)
2018	$	350		$	—	$	350		3.99	%
2019	532			677,354		677,886			4.10	%
2020	2,903			325,000		327,903			3.46	%
2021 (b)	3,227			365,800		369,027			3.34	%
2022	3,284			300,000		303,284			4.60	%
Thereafter	10,642			1,128,927		1,139,569			3.72	%
Sub-total	20,938			2,797,081		2,818,019			3.83
Adjustment for unamortized debt discount/premium, net as of September 30, 2018	(3,005		)	—		(3,005		)
Unamortized mark-to-market	3,774			—		3,774
Unamortized deferred financing costs	(11,070		)	—		(11,070		)
Totals/Weighted Average	$	10,637		$	2,797,081	$	2,807,718		3.83	%(c)

(a) The actual weighted average LIBOR rate for the Company’s outstanding variable rate debt was 2.16 percent as of September 30, 2018, plus the applicable spread.

(b) Includes outstanding borrowings of the Company’s unsecured revolving credit facility of $197 million.

(c) Excludes amortized deferred financing costs primarily pertaining to the Company’s unsecured revolving credit facility which amounted to $0.8 million and $2.4 million for the three and nine months ended September 30, 2018.

Senior Unsecured Notes:

The terms of the Company’s senior unsecured notes (which totaled approximately $575.0 million as of September 30, 2018) 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.

Unsecured Revolving Credit Facility and Term Loans:

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		Interest Rate -
		Applicable
	Interest Rate -	Basis Points
Operating Partnership’s	Applicable	Above LIBOR for
Unsecured Debt Ratings:	Basis Points	Alternate Base	Facility Fee
Higher of S&P or Moody’s	Above LIBOR	Rate Loans	Basis Points
No ratings or less than BBB-/Baa3	155.0	55.0	30.0
BBB- or Baa3 (interest rate based on Company’s election through March 5, 2018)	120.0	20.0	25.0
BBB or Baa2	100.0	0.0	20.0
BBB+ or Baa1	90.0	0.0	15.0
A- or A3 or higher	87.5	0.0	12.5

On March 6, 2018, the Company elected to use the defined leverage ratio and the interest rate under the 2017 Credit Facility is based on the following total leverage ratio grid:

		Interest Rate -
		Applicable
	Interest Rate -	Basis Points
	Applicable	Above LIBOR for
	Basis Points	Alternate Base	Facility Fee
Total Leverage Ratio	Above LIBOR	Rate Loans	Basis Points
<45%	125.0	25.0	20.0
>45% and <50% (current ratio)	130.0	30.0	25.0
>50% and <55%	135.0	35.0	30.0
>55%	160.0	60.0	35.0

On March 29, 2017, the Company executed interest rate swap arrangements to fix LIBOR with an aggregate average rate of 1.6473% for the swaps and a current aggregate fixed rate of 3.0473% for borrowings under the 2017 Term Loan.

The interest rate on the 2017 Term Loan is based upon Operating Partnership’s unsecured debt ratings, as follows:

		Interest Rate -
		Applicable
	Interest Rate -	Basis Points
Operating Partnership’s	Applicable	Above LIBOR for
Unsecured Debt Ratings:	Basis Points	Alternate Base Rate
Higher of S&P or Moody’s	Above LIBOR	Loans
No ratings or less than BBB-/Baa3	185.0	85.0
BBB- or Baa3 (interest rate based on Company’s election through March 5, 2018)	140.0	40.0
BBB or Baa2	115.0	15.0
BBB+ or Baa1	100.0	0.0
A- or A3 or higher	90.0	0.0

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On March 6, 2018, the Company elected to use the defined leverage ratio and the interest rate under the 2017 Term Loan is based on the following total leverage ratio grid:

		Interest Rate -
		Applicable
	Interest Rate -	Basis Points
	Applicable	Above LIBOR for
	Basis Points	Alternate Base Rate
Total Leverage Ratio	above LIBOR	Loans
<45%	145.0	45.0
>45% and <50% (current ratio)	155.0	55.0
>50% and <55%	165.0	65.0
>55%	195.0	95.0

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 (since January 2017 amendment)	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

In January 2016, the Company obtained a $350 million unsecured term loan (“2016 Term Loan”), which matures in January 2019 with two one-year extension options. The interest rate for the term loan is currently 155 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 then existing unsecured revolving credit facility and to repay $200 million senior unsecured notes that matured on January 15, 2016.

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The interest rate on the 2016 Term Loan was 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 (interest rate based on Company’s election through March 5, 2018)		140.0
BBB or Baa2		115.0
BBB+ or Baa1		100.0
A- or A3 or higher		90.0

On March 6, 2018, the Company elected to use the defined leverage ratio and the interest rate under the 2016 Term Loan is based on the following total leverage ratio grid:

		Interest Rate -
		Applicable Basis
Total Leverage Ratio		Points above LIBOR
<45%		145.0
>45% and <50% (current ratio)		155.0
>50% and <55%		165.0
>55%		195.0

Each of the 2017 Credit Agreement Amendment and the 2016 Term Loan Amendment is effective as of June 30, 2018 and provides for the following material amendments to the terms of both the 2017 Credit Agreement and 2016 Term Loan):

All other terms and conditions of the 2017 Credit Agreement and the 2016 Term Loan remain unchanged.

Mortgages, Loans Payable and Other Obligations:

The Company has other mortgages, loans payable and other obligations which consist of various loans collateralized by certain of the Company’s rental properties. Payments on mortgages, loans payable and other obligations are generally due in monthly installments of principal and interest, or interest only.

Debt Strategy:

The Company does not intend to reserve funds to retire the Company’s senior unsecured notes, outstanding borrowings under its unsecured revolving credit facility, its unsecured term loans, or its mortgages, loans payable and other obligations upon maturity. Instead, the Company will seek to refinance such debt at maturity or retire such debt through the issuance of additional equity or debt

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securities on or before the applicable maturity dates. If it cannot raise sufficient proceeds to retire the maturing debt, the Company may draw on its revolving credit facility to retire the maturing indebtedness, which would reduce the future availability of funds under such facility. As of October 29, 2018, the Company had outstanding borrowings of $220 million under its unsecured revolving credit facility. The Company is reviewing various financing and refinancing options, including the redemption or purchase of the Operating Partnership’s senior unsecured notes in public tender offers or privately-negotiated transactions, the issuance of additional, or exchange of current, unsecured debt of the Operating Partnership or common and preferred stock of the General Partner, and/or obtaining additional mortgage debt of the Operating Partnership, some or all of which may be completed by year end 2018 and in 2019. The Company currently anticipates that its available cash and cash equivalents, cash flows from operating activities and proceeds from the sale of office properties, together with cash available from borrowings and other sources, will be adequate to meet the Company’s capital and liquidity needs in the short term. However, if these sources of funds are insufficient or unavailable, due to current economic conditions or otherwise, or if capital needs to fund acquisition and development opportunities in the multi-family rental sector arise, the Company’s ability to make the expected distributions discussed in “REIT Restrictions” above may be adversely affected.

Equity Financing and Registration Statements

Common Equity:

The following table presents the changes in the General Partner’s issued and outstanding shares of common stock and the Operating Partnership’s common units for the nine months ended September 30, 2018:

	Common		Common
	Stock		Units		Total
Outstanding at January 1, 2018	89,914,113		10,438,855		100,352,968
Restricted stock issued	147,108		—		147,108
Common units redeemed for common stock	252,070		(252,070	)	—
Shares issued under Dividend Reinvestment and Stock Purchase Plan	2,701		—		2,701
Cancellation of restricted shares	(8,712	)	—		(8,712	)

Outstanding at September 30, 2018	90,307,280		10,186,785		100,494,065

Share/Unit Repurchase Program:

The General Partner has a share repurchase program which was renewed and authorized by its Board of Directors in September 2012 to purchase up to $150 million of the General Partner’s outstanding common stock (“Repurchase Program”), which it may repurchase from time to time in open market transactions at prevailing prices or through privately negotiated transactions. As of September 30, 2018, the General Partner has a remaining authorization under the Repurchase Program of $139 million. There were no common stock repurchases in 2017 and through October 29, 2018.

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 General Partner’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 General Partner’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 Securities and Exchange Commission (“SEC”) for the approximately 5.5 million shares of the General Partner’s common stock reserved for issuance under the DRIP.

Shelf Registration Statements:

The General Partner has an effective shelf registration statement on Form S-3 filed with the SEC for an aggregate amount of $2.0 billion in common stock, preferred stock, depositary shares, and/or warrants of the General Partner, under which no securities have been sold as of October 29, 2018.

The General Partner and the Operating Partnership also have an effective shelf registration statement on Form S-3 filed with the SEC for an aggregate amount of $2.5 billion in common stock, preferred stock, depositary shares and guarantees of the General Partner and debt securities of the Operating Partnership, under which no securities have been sold as of October 29, 2018.

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Off-Balance Sheet Arrangements

Unconsolidated Joint Venture Debt:

The debt of the Company’s unconsolidated joint ventures generally provide for recourse to the Company for customary matters such 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. Such debt has a total facility amount of $318 million of which the Company has agreed to guarantee up to $36 million. As of September 30, 2018, the outstanding balance of such debt totaled $204.9 million of which $24.6 million was guaranteed by the Company.

The Company’s off-balance sheet arrangements are further discussed in Note 4: Investments in Unconsolidated Joint Ventures to the Financial Statements.

Contractual Obligations

The following table outlines the timing of payment requirements related to the Company’s debt (principal and interest), PILOT agreements, ground lease agreements and other obligations, as of September 30, 2018:

			Payments Due by Period
			Less than 1			2 — 3			4 — 5		6 — 10		After 10
(dollars in thousands)	Total		Year			Years			Years		Years		Years
Senior unsecured notes	$	672,313	$	22,163		$	44,325		$	605,825	$	—	—
Unsecured revolving credit facility and term loans (a)	905,872		371,165		(c)	534,707		(d)	—		—		—
Mortgages, loans payable and other obligations (b)	1,519,935		184,129		(e)	451,977		(f)	132,022		722,948		$	28,859
Payments in lieu of taxes (PILOT)	28,742		8,656			15,853			4,233		—		—
Ground lease payments	223,168		2,470			4,977			4,981		12,130		198,610
Other	1,250		—			1,250			—		—		—
Total	$	3,351,280	$	588,583		$	1,053,089		$	747,061	$	735,078	$	227,469

(a) Interest payments assume LIBOR rate of 2.16 percent, which is the weighted average rate on this outstanding variable rate debt at September 30, 2018, plus the applicable spread.

(b) Interest payments assume LIBOR rate of 2.16 percent, which is the weighted average rate on its outstanding variable rate mortgage debt at September 30, 2018, plus the applicable spread.

(c) Includes $350 million pertaining to the 2016 Term Loan currently maturing in January 2019, with two one-year extension options.

(d) Includes $325 million pertaining to the 2017 Term Loan currently maturing in January 2020, with two one-year extension options. Also includes $197 million pertaining to current borrowings on the unsecured revolving credit facility with a four-year term ending in January 2021, with two six-month extension options.

(e) Includes $112 million pertaining to various mortgages with one-year extension options.

(f) Includes $191 million pertaining to various mortgages with maturities ranging from April 2019 to February 2021, which have one-year extension options.

Changes in Executive Officers

Under the terms of the Rudin separation agreement, Mr. Rudin is entitled to receive the following separation payments:

· Accrued but unpaid base salary through June 5, 2018;

· A lump sum cash payment of $2,558,082;

· Payment of unreimbursed expenses incurred by Mr. Rudin prior to termination, in the amount of $50,000 in the aggregate; and

· COBRA payments for up to 18 months after termination, in an amount equal to approximately $34,047.

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As the Company considers its primary earnings measure, net income available to common shareholders, as defined by GAAP, to be the most comparable earnings measure to FFO, the following table presents a reconciliation of net income available to common shareholders to FFO, as calculated in accordance with NAREIT’s current definition, for the three and nine months ended September 30, 2018 and 2017 (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
Net income (loss) available to common shareholders	$	(1,478	)	$	38,054		$	40,307		$	20,603
Add (deduct): Noncontrolling interests in Operating Partnership	(167		)	4,413			4,574			2,412
Real estate-related depreciation and amortization on continuing operations (a)	49,433			57,231			140,816			172,144
Gain on change of control of interests	(14,217		)	—			(14,217		)	—
Gain on sale of investment in unconsolidated joint venture	—			(10,568		)	—			(23,131		)
Realized (gains) losses and unrealized losses on disposition of rental property, net	9,102			(31,336		)	(50,094		)	2,112
Funds from operations available to common stock and Operating Partnership unitholders	$	42,673		$	57,794		$	121,386		$	174,140

(a) Includes the Company’s share from unconsolidated joint ventures, and adjustments for noncontrolling interest, of $4,155 and $5,362 for the three months ended September 30, 2018 and 2017, respectively, and $13,873 and $15,607 for the nine months ended September 30, 2018 and 2017, respectively. Excludes non-real estate-related depreciation and amortization of $535 and $505 for the three months ended September 30, 2018 and 2017, respectively, and $1,582 and $1,231 for the nine months ended September 30, 2018 and 2017, respectively.

Inflation

The Company’s leases with the majority of its commercial tenants provide for recoveries and escalation charges based upon the tenant’s proportionate share of, and/or increases in, real estate taxes and certain operating costs, which reduce the Company’s exposure to increases in operating costs resulting from inflation. The Company believes that inflation did not materially impact the Company’s results of operations and financial condition for the periods presented.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

We consider portions of this information, including the documents incorporated by reference, to be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of such act. Such forward-looking statements relate to, without limitation, our future economic performance, plans and objectives for future operations and projections of revenue and other financial items. Forward-looking statements can be identified by the use of words such as “may,” “will,” “plan,” “potential,” “projected,” “should,” “expect,” “anticipate,” “estimate,” “target,” “continue” or comparable terminology. Forward-looking statements are inherently subject to risks and uncertainties, many of which we cannot predict with accuracy and some of which we might not even anticipate. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions at the time made, we can give no assurance that such expectations will be achieved. Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements.

Among the factors about which we have made assumptions are:

· risks and uncertainties affecting the general economic climate and conditions, which in turn may have a negative effect on the fundamentals of our business and the financial condition of our tenants and residents;

· the value of our real estate assets, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing secured by our properties or on an unsecured basis;

· the extent of any tenant bankruptcies or of any early lease terminations;

· our ability to lease or re-lease space at current or anticipated rents;

· changes in the supply of and demand for our properties;

· changes in interest rate levels and volatility in the securities markets;

· our ability to complete construction and development activities on time and within budget, including without limitation obtaining regulatory permits and the availability and cost of materials, labor and equipment;

· forward-looking financial and operational information, including information relating to future development projects, potential acquisitions or dispositions, leasing activities, capitalization rates, and projected revenue and income;

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· changes in operating costs;

· our ability to obtain adequate insurance, including coverage for terrorist acts;

· our credit worthiness and the availability of financing on attractive terms or at all, which may adversely impact our ability to pursue acquisition and development opportunities and refinance existing debt and our future interest expense;

· changes in governmental regulation, tax rates and similar matters; and

· other risks associated with the development and acquisition of properties, including risks that the development may not be completed on schedule, that the tenants or residents will not take occupancy or pay rent, or that development or operating costs may be greater than anticipated.

For further information on factors which could impact us and the statements contained herein, see Item 1A: Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2017. We assume no obligation to update and supplement forward-looking statements that become untrue because of subsequent events, new information or otherwise.

Item 3. Quantitative And Qualitative Disclosures About Market Risk

Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. In pursuing its business plan, the primary market risk to which the Company is exposed is interest rate risk. Changes in the general level of interest rates prevailing in the financial markets may affect the spread between the Company’s yield on invested assets and cost of funds and, in turn, its ability to make distributions or payments to its investors.

Approximately $2.3 billion of the Company’s long-term debt as of September 30, 2018 bears interest at fixed rates and therefore the fair value of these instruments is affected by changes in market interest rates. The following table presents principal cash flows (in thousands) based upon maturity dates of the debt obligations and the related weighted-average interest rates by expected maturity dates for the fixed rate debt. The interest rates on the Company’s variable rate debt as of September 30, 2018 ranged from LIBOR plus 130 basis points to LIBOR plus 450 basis points. Assuming interest-rate swaps and caps are not in effect, if market rates of interest on the Company’s variable rate debt increased or decreased by 100 basis points, then the increase or decrease in interest costs on the Company’s variable rate debt would be approximately $5.2 million annually and the increase or decrease in the fair value of the Company’s fixed rate debt as of September 30, 2018 would be approximately $101.5 million.

September 30, 2018
Debt,
including current portion	10/1/2018 -																										Fair
($s in thousands)	12/31/2018			2019			2020			2021			2022			Thereafter			Sub-total		Other (a)			Total			Value

Fixed Rate	$	—		$	350,066		$	327,903		$	172,027		$	303,284		$	1,139,569		$	2,292,849	$	(9,246	)	$	2,283,603		$	2,052,934
Average Interest Rate	—		%	3.28		%	3.46		%	3.20		%	4.60		%	3.72		%						3.69		%
Variable Rate	$	350		$	327,820		$	—		$	197,000	(b)	$	—		$	—		$	525,170	$	(1,055	)	$	524,115		$	524,115

(a) Adjustment for unamortized debt discount/premium, net, unamortized deferred financing costs, net, and unamortized mark-to-market, net as of September 30, 2018.

(b) Includes $197 million of outstanding borrowings under the Company’s unsecured revolving credit facility.

While the Company has not experienced any significant credit losses, in the event of a significant rising interest rate environment and/or economic downturn, defaults could increase and result in losses to the Company which could adversely affect its operating results and liquidity.

Item 4. Controls and Procedures

Mack-Cali Realty Corporation

Disclosure Controls and Procedures. The General Partner’s management, with the participation of the General Partner’s chief executive officer and chief financial officer, has evaluated the effectiveness of the General Partner’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the General Partner’s chief executive officer and chief financial officer have concluded that, as of the end of such period, the General Partner’s disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the General Partner in the reports that it files or submits under the Exchange Act.

Changes In Internal Control Over Financial Reporting. There have not been any changes in the General Partner’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the General Partner’s internal control over financial reporting.

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MACK-CALI REALTY CORPORATION

MACK-CALI REALTY, L.P.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		Mack-Cali Realty Corporation
		(Registrant)


Date: October 31, 2018	By:	/s/ Michael J. DeMarco
		Michael J. DeMarco
		Chief Executive Officer
		(principal executive officer)


Date: October 31, 2018	By:	/s/ David J. Smetana
		David J. Smetana
		Chief Financial Officer
		(principal financial officer and
		principal accounting officer)


		Mack-Cali Realty, L.P.
		(Registrant)
		By: Mack-Cali Realty Corporation
		its General Partner


Date: October 31, 2018	By:	/s/ Michael J. DeMarco
		Michael J. DeMarco
		Chief Executive Officer
		(principal executive officer)


Date: October 31, 2018	By:	/s/ David J. Smetana
		David J. Smetana
		Chief Financial Officer
		(principal financial officer and
		principal accounting officer)

			Page
Part I	Financial Information

	Item 1.	Financial Statements (unaudited):	5

		Mack-Cali Realty Corporation

		Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017	6

		Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017	7

		Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2018 and 2017	8

		Consolidated Statement of Changes in Equity for the nine months ended September 30, 2018	9

		Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017	10

		Mack-Cali Realty, L.P.

		Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017	11

		Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017	12

		Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2018 and 2017	13

		Consolidated Statement of Changes in Equity for the nine months ended September 30, 2018	14

		Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017	15

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

		Notes to Consolidated Financial Statements	16

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	51

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	77

	Item 4.	Controls and Procedures	77

Part II	Other Information

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

	Item 1.	Legal Proceedings	79

	Item 1A.	Risk Factors	79

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	79

	Item 3.	Defaults Upon Senior Securities	79

	Item 4.	Mine Safety Disclosures	79

	Item 5.	Other Information	79

	Item 6.	Exhibits	79

Exhibit Index			80

Signatures			93

Exhibit
Number		Exhibit Title

3.1		Articles of Restatement of Mack-Cali Realty Corporation dated September 18, 2009 (filed as Exhibit 3.2 to the Company’s Form 8-K dated September 17, 2009 and incorporated herein by reference).

3.2		Articles of Amendment to the Articles of Restatement of Mack-Cali Realty Corporation as filed with the State Department of Assessments and Taxation of Maryland on May 14, 2014 (filed as Exhibit 3.1 to the Company’s Form 8-K dated May 12, 2014 and incorporated herein by reference).

3.3		Second Amended and Restated Bylaws of Mack-Cali Realty Corporation dated March 14, 2018 (filed as Exhibit 3.1 to the Company’s Form 8-K dated March 14, 2018 and incorporated herein by reference).

3.4		Second Amended and Restated Agreement of Limited Partnership of Mack-Cali Realty, L.P. dated December 11, 1997 (filed as Exhibit 10.110 to the Company’s Form 8-K dated December 11, 1997 and incorporated herein by reference).

3.5		Amendment No. 1 to the Second Amended and Restated Agreement of Limited Partnership of Mack-Cali Realty, L.P. dated August 21, 1998 (filed as Exhibit 3.1 to the Company’s and the Operating Partnership’s Registration Statement on Form S-3, Registration No. 333-57103, and incorporated herein by reference).

3.6		Second Amendment to the Second Amended and Restated Agreement of Limited Partnership of Mack-Cali Realty, L.P. dated July 6, 1999 (filed as Exhibit 10.1 to the Company’s Form 8-K dated July 6, 1999 and incorporated herein by reference).

3.7		Third Amendment to the Second Amended and Restated Agreement of Limited Partnership of Mack-Cali Realty, L.P. dated September 30, 2003 (filed as Exhibit 3.7 to the Company’s Form 10-Q dated September 30, 2003 and incorporated herein by reference).

3.8		Fourth Amendment dated as of March 8, 2016 to Second Amended and Restated Agreement of Limited Partnership of Mack-Cali Realty, L.P. dated as of December 11, 1997 (Filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated March 8, 2016 and incorporated herein by reference).

3.9		Fifth Amendment dated as of April 4, 2017 to Second Amended and Restated Agreement of Limited Partnership of Mack-Cali Realty, L.P. dated as of December 11, 1997 (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated April 4, 2017 and incorporated herein by reference).

3.10		Sixth Amendment dated as of April 20, 2018 to Second Amended and Restated Agreement of Limited Partnership of Mack-Cali Realty, L.P., dated as of December 11, 1997 (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated April 20, 2018 and incorporated herein by reference).

3.11		Certificate of Designation of 3.5% Series A Preferred Limited Partnership Units of Mack-Cali Realty, L.P. dated February 3, 2017 (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated February 3, 2017 and incorporated herein by reference).

3.12		Certificate of Designation of 3.5% Series A-1 Preferred Limited Partnership Units of Mack-Cali Realty, L.P. dated February 28, 2017 (filed as Exhibit 3.13 to the Company’s Annual Report on Form10-K for the year ended December 31, 2016 and incorporated herein by reference).

3.13		Amendment No. 1 to the Second Amended and Restated Bylaws of Mack-Cali Realty Corporation (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated April 30, 2018 and incorporated herein by reference).

4.1		Indenture dated as of March 16, 1999, by and among Mack-Cali Realty, L.P., as issuer, Mack-Cali Realty Corporation, as guarantor, and Wilmington Trust Company, as trustee (filed as Exhibit 4.1 to the Operating Partnership’s Form 8-K dated March 16, 1999 and incorporated herein by reference).

4.2		Supplemental Indenture No. 1 dated as of March 16, 1999, by and among Mack-Cali Realty, L.P., as issuer, and Wilmington Trust Company, as trustee (filed as Exhibit 4.2 to the Operating Partnership’s Form 8-K dated March 16, 1999 and incorporated herein by reference).