3.    RECENT TRANSACTIONS

 

Acquisitions

On January 5, 2016, the Company, which held a 50 percent interest in the property-owning entity, Overlook Ridge Apartment Investors LLC, acquired its remaining interest in a 371-unit multi-family operating property located in Malden, Massachusetts for $39.8 million.

 

2015

On December 23, 2015, the Company acquired a vacant 147,241 square-foot office property located in the Mack-Cali Business Campus in Parsippany, New Jersey, for approximately $10.3 million, which was funded primarily through borrowings under the Company’s unsecured revolving credit facility.  This property is currently in redevelopment by the Company.

 

On November 12, 2015, the Company acquired a 196,128 square-foot, 95.6 percent leased office property adjacent to an existing Mack-Cali property located in Edison, New Jersey, for approximately $53.1 million, which was funded primarily through borrowings under the Company’s unsecured revolving credit facility.

 

The purchase prices were allocated to the net assets acquired during the year ended December 31, 2015, as follows (in thousands):

 

 

(1)In-place lease values will be amortized over four years or less, and above market leases will be amortized over 10 years or less.

 

2014

On December 2, 2014, the Company acquired developable land in Conshohocken, Pennsylvania, for approximately $15.3 million, which was funded using available cash.

 

On August 15, 2014, the Company acquired the equity interests of its joint venture partner in Overlook Ridge, L.L.C, Overlook Ridge JV, L.L.C. and Overlook Ridge JV 2C/3B, L.L.C. for $16.6 million, which was funded primarily through borrowing under the Company’s unsecured revolving credit facility.  As a result, the Company increased its ownership to 100 percent of the developable land and now consolidates these entities, which were previously accounted for through unconsolidated joint ventures, (collectively, the “Consolidated Land”); and acquired an additional 25 percent, for a total of 50 percent of its subordinated, unconsolidated interests in two operating multi-family properties owned by those entities.  See Note 4: Investments in Unconsolidated Joint Ventures.  In conjunction with the Company’s acquisition of the Consolidated Land, the Company assumed loans with a total principal balance of $23.0 million, which bore interest in the range of LIBOR plus 2.50 to 3.50 percent.  See Note 10: Mortgages, Loans Payable and Other Obligations.

 

On April 10, 2014, the Company acquired Andover Place, a 220-unit multi-family rental property located in Andover, Massachusetts, for approximately $37.7 million, which was funded primarily through borrowing under the Company’s unsecured revolving credit facility.

 

The purchase price was allocated to the net assets acquired, as follows during the year ended December 31, 2014 (in thousands):

 

(1)In-place lease values and below market lease values will be amortized over one year or less.

 

Excluded from the cash flow statement for the year ended December 31, 2014 was $44.4 million of acquisition and other investment fundings (of which $40.1 million related to the acquisition of 50 percent tenants in common interests in the Curtis Center property.  See Unconsolidated Joint Venture Transactions in Note 4: Investments in Unconsolidated Joint Ventures), which were handled through a qualified intermediary using proceeds from prior sales structured for tax purposes as Section 1031 transactions.

 

Dispositions

2015

The Company disposed of the following office properties during the year ended December 31, 2015 (dollars in thousands):

 

 

2014

The Company sold the following office properties during the year ended December 31, 2014 (dollars in thousands):

 

(a)The Company completed the sale of these properties for approximately $221 million, comprised of: $192.5 million in cash from a combination of affiliates of Keystone Property Group’s (“Keystone Entities”) senior and pari-passu equity and mortgage financing; Company subordinated equity interests in each of the properties sold with capital accounts aggregating $21.2 million; and Company pari-passu equity interests in five of the properties sold aggregating $7.3 million.  Net sale proceeds from the sale aggregated $196.8 million which was comprised of the $221 million gross sales price less the subordinated equity interests of $21.2 million and $3 million in closing costs.  The purchasers of these properties are unconsolidated joint ventures formed between the Company and the Keystone Entities.  The senior and pari-passu equity will receive a 15 percent internal rate of return (“IRR”) after which the subordinated equity will receive a 10 percent IRR and then all distributable cash flow will be split equally between the Keystone Entities and the Company.  See Note 4: Investments in Unconsolidated Joint Ventures.  In connection with certain of these partial sale transactions, because the buyer received a preferential return on certain of the ventures for which the Company received subordinated equity interests, the Company only recognized profit to the extent that they received net proceeds in excess of their entire carrying value of the properties, effectively reflecting their retained subordinated equity interest at zero.    

(b)The Company recorded an impairment charge of $20.8 million on these properties at December 31, 2013 as it estimated that the carrying value of the properties may not be recoverable over their anticipated holding periods.

 

On January 1, 2014, the Company early adopted the new discontinued operations accounting standard and as the properties disposed of during the year ended December 31, 2015 and 2014 did not represent a strategic shift (as the Company is not entirely exiting markets or property types), they have not been reflected as part of discontinued operations.

 

The following table summarizes income (loss) from the properties disposed of during the years ended December 31, 2015 and 2014, for the years ended December 31, 2015, 2014 and 2013: (dollars in thousands)    

 

 

2015

 

Impairments on Properties Held and Used

In September 2015, the Company announced a three-year strategic initiative to transform the Company 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.  In connection with the transformation of the Company’s portfolio, management began developing a disposition plan in September 2015, which will be an ongoing assessment process.  Through this plan, the Company, in the coming years, expects to dispose of primarily office properties considered non-core to its ongoing operations.  As a result, at September 30, 2015, the Company evaluated the recoverability of the carrying values of these non-core properties, and determined that due to the shortening of the expected periods of ownership, it was necessary to reduce the carrying values of 22 rental properties to their estimated fair values.  Accordingly, the Company recorded an impairment charge of $158.6 million at September 30, 2015 reducing the aggregate carrying values of these properties from $554.3 million to their estimated fair values of $395.7 million.  At December 31, 2015, as a result of its periodic evaluation of the recoverability of the carrying values resulting from its ongoing assessment of non-core properties, the Company recorded an additional impairment charge of $33.7 million.

 

Four of the Company’s office properties are collateral for a mortgage loan that matured on August 11, 2014, with a principal balance of $63.3 million as of December 31, 2015.  The loan was not repaid at maturity and the Company is in discussions with the lender regarding potential options in satisfaction of the obligation (see Note 10: Mortgages, Loans Payable and Other Obligations).   As of September 30, 2015, the Company estimated that the carrying value of three of these properties, aggregating 479,877 square feet and located in Roseland and Parsippany, New Jersey, may not be recoverable over their anticipated holding periods.  In order to reduce the carrying values of the properties to their estimated fair values, the Company recorded impairment charges of $5.6 million at September 30, 2015, which resulted from the current decline in leasing activity and market rents of the properties identified.   The Company had previously recorded impairment charges on these properties at September 30, 2013 of $12.5 million.

 

Appointment of executive officers

On June 3, 2015, the Company announced the appointments of Mitchell E. Rudin as chief executive officer and Michael J. DeMarco as president and chief operating officer of the Company, effective immediately.  The Company entered into employment agreements dated June 3, 2015 with each of Messrs. Rudin and DeMarco (together, the “Executive Employment Agreements”) that each provide as follows: