3.    RECENT TRANSACTIONS



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 investment agreement (the “Investment Agreement”) with affiliates of 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 preferred units of limited partnership interests of RRLP (the “Preferred Units”).  The initial closing under the Investment Agreement is expected to occur by mid-March 2017 for $150 million of Preferred Units, inclusive of a $30 million deposit paid by Rockpoint to RRLP on signing the Investment Agreement.  Additional closings of Preferred 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.

Acquisitions



2016

The Company acquired the following office properties during the year ended December 31, 2016 (dollars in thousands):





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





(a)Above market, in-place and below market leases are being amortized over a weighted-average term of 8.1 years.    



On January 11, 2017, the Company acquired three office properties totaling approximately 280,000 square feet located in Red Bank, New Jersey, for approximately $26.8 million, which was funded primarily through borrowings under the Company’s unsecured revolving credit facility.  It was not practicable to finalize the purchase price allocation for this acquisition given the period of time between the acquisition date and the issuance of this Report.



On February 2, 2017, the Company agreed to acquire six office properties totaling approximately 1.1 million square feet, located in Short Hills and Madison, New Jersey for approximately $368 million, subject to certain conditions.  The acquisitions are expected to be completed in March 2017.



On February 27, 2017, the Company reached an agreement to acquire all joint venture partner interests in Monaco, a 523-apartment, two-tower, stabilized community located in Jersey City, New Jersey. The transaction, valued at $315 million, is expected to close in the second quarter of 2017.



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.



Properties Commencing Initial Operations

The following properties commenced initial operations during the year ended December 31, 2016 (dollars in thousands):





(a)Development costs as of December 31, 2016 included approximately $5.6 million in land costs.   

(b)Development costs as of December 31, 2016 included approximately $10.8 million in land costs.  As of December 31, 2016, the Company anticipates additional costs of approximately $9.7 million, which will be funded from a construction loan.



Consolidations in 2016

On January 5, 2016, the Company, which held a 50 percent subordinated interest in the unconsolidated joint venture, Overlook Ridge Apartment Investors LLC, a 371-unit multi-family operating property located in Malden, Massachusetts, acquired the remaining interest for $39.8 million in cash plus the assumption of a first mortgage loan secured by the property with a principal balance of $52.7 million.  The cash portion of the acquisition was funded primarily through borrowings under the Company’s unsecured revolving credit facility.  Upon acquisition, the Company consolidated the asset and accordingly, remeasured its equity interests, as required by the FASB’s consolidation guidance, at fair value (based upon the income approach using current rates and market cap rates and discount rates).  As a result, the Company recorded a gain on change of control of interests of $10.2 million in the year ended December 31, 2016.  On January 19, 2016, the Company repaid the assumed loan and obtained a new loan secured by the property in the amount of $72.5 million, which bears interest at 3.625 percent and matures in February 2023.  See Note 9: Mortgages, Loans Payable and Other Obligations.



During the second quarter 2016, the Company, which held a 38.25 percent subordinate interest in the unconsolidated Portside Apartment Developers, L.L.C., a joint venture which owns a 175-unit operating multi-family property located in East Boston, Massachusetts, acquired the remaining interests of its joint venture partners for $39.6 million in cash plus the assumption of a mortgage loan secured by the property with a principal balance of $42.5 million.  The cash portion of the acquisition was funded primarily through borrowings under the Company’s unsecured revolving credit facility.  Upon acquisition, the Company consolidated the asset and accordingly, remeasured its equity interests, as required by the FASB’s consolidation guidance, at fair value (based upon the income approach using current rates and market cap rates and discount rates).  As a result, the Company recorded a gain on change of control of interests of $5.2 million in the year ended December 31, 2016.  On July 8, 2016, the Company repaid the assumed loan and obtained a new loan secured by the property in the amount of $59 million, which bears interest at 3.44 percent and matures in August 2023.  See Note 9: Mortgages, Loans Payable and Other Obligations.



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





(a)In-place lease values and below-market lease values will be amortized over a weighted average term of 7.4 months.   



Other Investments in 2016

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



Dispositions/Rental Property Held for Sale



2016

The Company disposed of the following office and multi-family properties during the year ended December 31, 2016 (dollars in thousands):





During the year ended December 31, 2016, the Company signed agreements to sell eight office properties totaling approximately 750,000 square feet, subject to certain conditions, and identified them as held for sale as of December 31, 2016.  The properties are located in Princeton, Cranford and Bridgewater, New Jersey.  The Company determined that the carrying value of one of the office properties was not expected to be recovered from estimated net sales proceeds and accordingly recognized an unrealized loss allowance of $7.7 million at December 31, 2016.  In January and February 2017, the Company completed the disposition of these properties for net sales proceeds of approximately $45.8 million.



The following table summarizes the rental property held for sale, net, as of December 31, 2016: (dollars in thousands)    





Other assets and liabilities related to the rental properties held for sale, as of December 31, 2016, include $1.7 million in deferred charges, and other assets, $1.2 million in Unbilled rents receivable, $1.1 million in Accounts payable, accrued expenses and other liabilities, and $1.9 million in Rents received in advance and security deposits.  Approximately $2.9 million of these assets and $0.5 million of these liabilities are expected to be written off with the completion of the sales.



2015

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





The following table summarizes income (loss) from the properties disposed of during the years ended December 31, 2016, 2015 and 2014, for the years ended December 31, 2016,  2015 and 2014:  (dollars in thousands)    



 

Impairments on Properties Held and Used in 2015

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.  At September 30, 2015, the Company evaluated the recoverability of the carrying values of these non-core properties as well as three properties with near term debt maturities, and determined that due to the shortening of the expected periods of ownership, it was necessary to reduce the carrying values of 25 rental properties to their estimated fair values.  Accordingly, the Company recorded an impairment charge of $164.2 million at September 30, 2015 reducing the aggregate carrying values of these properties from $602.8 million to their estimated fair values of $438.6 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.



Unconsolidated Joint Venture Activity

On April 1, 2016, the Company bought out its partner PruRose Riverwalk G, L.L.C. for $11.3 million and increased its subordinated interest in Riverwalk G Urban Renewal, L.L.C. from 25 percent to 50 percent using borrowings on the Company’s unsecured credit facility.  Riverwalk G Urban Renewal, L.L.C., owns a 316-unit operating multi-family property located in West New York, New Jersey.  Concurrent with the refinancing in October 2016, the Company executed an agreement with the remaining partner which converted the 50 percent subordinated interest to 22.5 percent pari passu interest.



On May 26, 2016, the Company sold its 50 percent interest in Port Imperial South 15, L.L.C. (“RiversEdge”) and its 20 percent interest in Port Imperial South 13 Urban Renewal, L.L.C. (“RiverParc”), joint ventures that own the 236-unit and the 280-unit multi-family operating properties, respectively, located in Weehawken, New Jersey for $6.4 million.  The Company realized a gain on the sale of $5.7 million. 



On January 31, 2017, the Company sold its interest in KPG-P 100 IMW JV, LLC, Keystone-Penn and Keystone-Tristate joint ventures that own operating properties, located in Philadelphia, Pennsylvania for a combined sales price of $9.7 million.



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 “Preferred Units”). The Preferred Units were issued to the Company’s partners in the Plaza VIII & 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 consideration for their approximate 37.5 percent interest in the joint venture. Concurrent with the issuance of the Preferred Units, the Company purchased from other partners in the Plaza VIII & IX Associates L.L.C. joint venture their approximate 12.5 percent interest for approximately $14.3 million in cash.  The results of these transactions increased the Company’s interests in the joint venture from 50 percent to 100 percent.    

3.    RECENT TRANSACTIONS



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 investment agreement (the “Investment Agreement”) with affiliates of 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 preferred units of limited partnership interests of RRLP (the “Preferred Units”).  The initial closing under the Investment Agreement is expected to occur by mid-March 2017 for $150 million of Preferred Units, inclusive of a $30 million deposit paid by Rockpoint to RRLP on signing the Investment Agreement.  Additional closings of Preferred 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.

Acquisitions



2016

The Company acquired the following office properties during the year ended December 31, 2016 (dollars in thousands):





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





(a)Above market, in-place and below market leases are being amortized over a weighted-average term of 8.1 years.    



On January 11, 2017, the Company acquired three office properties totaling approximately 280,000 square feet located in Red Bank, New Jersey, for approximately $26.8 million, which was funded primarily through borrowings under the Company’s unsecured revolving credit facility.  It was not practicable to finalize the purchase price allocation for this acquisition given the period of time between the acquisition date and the issuance of this Report.



On February 2, 2017, the Company agreed to acquire six office properties totaling approximately 1.1 million square feet, located in Short Hills and Madison, New Jersey for approximately $368 million, subject to certain conditions.  The acquisitions are expected to be completed in March 2017.



On February 27, 2017, the Company reached an agreement to acquire all joint venture partner interests in Monaco, a 523-apartment, two-tower, stabilized community located in Jersey City, New Jersey. The transaction, valued at $315 million, is expected to close in the second quarter of 2017.



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.



Properties Commencing Initial Operations

The following properties commenced initial operations during the year ended December 31, 2016 (dollars in thousands):





(a)Development costs as of December 31, 2016 included approximately $5.6 million in land costs.   

(b)Development costs as of December 31, 2016 included approximately $10.8 million in land costs.  As of December 31, 2016, the Company anticipates additional costs of approximately $9.7 million, which will be funded from a construction loan.



Consolidations in 2016

On January 5, 2016, the Company, which held a 50 percent subordinated interest in the unconsolidated joint venture, Overlook Ridge Apartment Investors LLC, a 371-unit multi-family operating property located in Malden, Massachusetts, acquired the remaining interest for $39.8 million in cash plus the assumption of a first mortgage loan secured by the property with a principal balance of $52.7 million.  The cash portion of the acquisition was funded primarily through borrowings under the Company’s unsecured revolving credit facility.  Upon acquisition, the Company consolidated the asset and accordingly, remeasured its equity interests, as required by the FASB’s consolidation guidance, at fair value (based upon the income approach using current rates and market cap rates and discount rates).  As a result, the Company recorded a gain on change of control of interests of $10.2 million in the year ended December 31, 2016.  On January 19, 2016, the Company repaid the assumed loan and obtained a new loan secured by the property in the amount of $72.5 million, which bears interest at 3.625 percent and matures in February 2023.  See Note 9: Mortgages, Loans Payable and Other Obligations.



During the second quarter 2016, the Company, which held a 38.25 percent subordinate interest in the unconsolidated Portside Apartment Developers, L.L.C., a joint venture which owns a 175-unit operating multi-family property located in East Boston, Massachusetts, acquired the remaining interests of its joint venture partners for $39.6 million in cash plus the assumption of a mortgage loan secured by the property with a principal balance of $42.5 million.  The cash portion of the acquisition was funded primarily through borrowings under the Company’s unsecured revolving credit facility.  Upon acquisition, the Company consolidated the asset and accordingly, remeasured its equity interests, as required by the FASB’s consolidation guidance, at fair value (based upon the income approach using current rates and market cap rates and discount rates).  As a result, the Company recorded a gain on change of control of interests of $5.2 million in the year ended December 31, 2016.  On July 8, 2016, the Company repaid the assumed loan and obtained a new loan secured by the property in the amount of $59 million, which bears interest at 3.44 percent and matures in August 2023.  See Note 9: Mortgages, Loans Payable and Other Obligations.



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





(a)In-place lease values and below-market lease values will be amortized over a weighted average term of 7.4 months.   



Other Investments in 2016

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



Dispositions/Rental Property Held for Sale



2016

The Company disposed of the following office and multi-family properties during the year ended December 31, 2016 (dollars in thousands):





During the year ended December 31, 2016, the Company signed agreements to sell eight office properties totaling approximately 750,000 square feet, subject to certain conditions, and identified them as held for sale as of December 31, 2016.  The properties are located in Princeton, Cranford and Bridgewater, New Jersey.  The Company determined that the carrying value of one of the office properties was not expected to be recovered from estimated net sales proceeds and accordingly recognized an unrealized loss allowance of $7.7 million at December 31, 2016.  In January and February 2017, the Company completed the disposition of these properties for net sales proceeds of approximately $45.8 million.



The following table summarizes the rental property held for sale, net, as of December 31, 2016: (dollars in thousands)    





Other assets and liabilities related to the rental properties held for sale, as of December 31, 2016, include $1.7 million in deferred charges, and other assets, $1.2 million in Unbilled rents receivable, $1.1 million in Accounts payable, accrued expenses and other liabilities, and $1.9 million in Rents received in advance and security deposits.  Approximately $2.9 million of these assets and $0.5 million of these liabilities are expected to be written off with the completion of the sales.



2015

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





The following table summarizes income (loss) from the properties disposed of during the years ended December 31, 2016, 2015 and 2014, for the years ended December 31, 2016,  2015 and 2014:  (dollars in thousands)    



 

Impairments on Properties Held and Used in 2015

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.  At September 30, 2015, the Company evaluated the recoverability of the carrying values of these non-core properties as well as three properties with near term debt maturities, and determined that due to the shortening of the expected periods of ownership, it was necessary to reduce the carrying values of 25 rental properties to their estimated fair values.  Accordingly, the Company recorded an impairment charge of $164.2 million at September 30, 2015 reducing the aggregate carrying values of these properties from $602.8 million to their estimated fair values of $438.6 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.



Unconsolidated Joint Venture Activity

On April 1, 2016, the Company bought out its partner PruRose Riverwalk G, L.L.C. for $11.3 million and increased its subordinated interest in Riverwalk G Urban Renewal, L.L.C. from 25 percent to 50 percent using borrowings on the Company’s unsecured credit facility.  Riverwalk G Urban Renewal, L.L.C., owns a 316-unit operating multi-family property located in West New York, New Jersey.  Concurrent with the refinancing in October 2016, the Company executed an agreement with the remaining partner which converted the 50 percent subordinated interest to 22.5 percent pari passu interest.



On May 26, 2016, the Company sold its 50 percent interest in Port Imperial South 15, L.L.C. (“RiversEdge”) and its 20 percent interest in Port Imperial South 13 Urban Renewal, L.L.C. (“RiverParc”), joint ventures that own the 236-unit and the 280-unit multi-family operating properties, respectively, located in Weehawken, New Jersey for $6.4 million.  The Company realized a gain on the sale of $5.7 million. 



On January 31, 2017, the Company sold its interest in KPG-P 100 IMW JV, LLC, Keystone-Penn and Keystone-Tristate joint ventures that own operating properties, located in Philadelphia, Pennsylvania for a combined sales price of $9.7 million.



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 “Preferred Units”). The Preferred Units were issued to the Company’s partners in the Plaza VIII & 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 consideration for their approximate 37.5 percent interest in the joint venture. Concurrent with the issuance of the Preferred Units, the Company purchased from other partners in the Plaza VIII & IX Associates L.L.C. joint venture their approximate 12.5 percent interest for approximately $14.3 million in cash.  The results of these transactions increased the Company’s interests in the joint venture from 50 percent to 100 percent.