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 March 14, 2018.  Mr. DeMarco’s addition to the Board expanded the total number of members from nine to ten.  In February 2019, the Company announced that the Board of Directors increased its size from ten to eleven members, effective immediately, and nominated a slate of eleven candidates consisting of Lisa Myers, Laura Pomerantz and all of the current directors of the Company (other than Kenneth M. Duberstein, who decided not to stand for re-election and will retire from the Board of Directors at the Company’s 2019 annual meeting of shareholders) for election to the Board of Directors at the Company’s 2019 annual meeting of shareholders, which is expected to be held on June 12, 2019.



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 Company and provided transition services through March 31, 2018.  Mr. Hilton’s employment commenced on February 12, 2018 following the departure of Christopher DeLorenzo. 



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 November 2018, the Company announced that the employment of Robert Andrew Marshall as President and Executive Vice President of Development of RRT was terminated effective as of October 31, 2018.  In addition, the Company also restructured certain other corporate and property management personnel during the year ended December 31, 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 year ended December 31, 2018 of $7.9 million, $6.5 million of which was included in general and administrative expense (including $1.0 million of stock compensation expense due to accelerated vesting and a net reversal of $2.0 million of amortization of stock compensation expense due to the forfeiture of unvested securities) and $1.4 million of which was included in operating services expense for the period. 



Acquisitions

On February 6, 2019, the Company completed the acquisition of a 271,988 square foot office property located in Iselin, New Jersey, for a purchase price of $61.5 million, which was funded using funds available with the Company’s qualified intermediary and borrowings under the Company’s unsecured revolving credit facility.



On January 25, 2019, the Company signed an agreement to acquire a 377-unit multi-family rental property located in Jersey City, New Jersey for approximately $264 million, subject to certain conditions.  The acquisition is expected to be completed in the second quarter 2019.



2017

The Company acquired the following office properties (which were determined to be asset acquisitions in accordance with ASU 2017-01) during the year ended December 31, 2017 (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 5.4 years.



The Company acquired three separate developable land parcels located in Jersey City, Morris Township and Red Bank, New Jersey, for approximately $80 million during the year ended December 31, 2017.  The acquisitions were funded using available cash and borrowings under the Company’s unsecured revolving credit facility.



Properties Commencing Initial Operations

The following properties commenced initial operations during the year ended December 31, 2018  (dollars in thousands):



 



Consolidations

2018

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 from a different lender, 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 year ended December 31, 2018, when the Company accounted for 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 (non-cash allocation).  See Note 9: Mortgages, Loans Payable and Other Obligations.



Net assets recorded upon consolidation were as follows (in thousands):





2017

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”) valued at $42.8 million.  The Series A 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 non-cash consideration for their approximate 37.5 percent interest in the joint venture.  Concurrent with the issuance of the Series A 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.  Upon these acquisitions, the Company consolidated Plaza VIII & IX Associates L.L.C., a voting interest entity, substantially all of which is comprised of land for development.  As an acquisition of the additional 50 percent of the land, the Company accounted for the transaction as an asset acquisition under a cost accumulation model, resulting in total consolidated assets of $60.6 million, substantially all of which is classified as land on the Balance Sheet.



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, valued at $9.1 million, to the Company’s partner in a joint venture with the Operating Partnership, which owns Monaco Towers in Jersey City, New Jersey that includes 523 apartment homes in two fifty-story towers with 558 parking spaces and 12,300 square feet of ground floor retail space.  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 to increase the Company’s unconsolidated investment to 29 percent.  In April 2017, an additional 91 Series A-1 Units were issued by the Operating Partnership to purchase from other partners in the same joint venture their approximate 71.2 percent ownership interest for approximately $130.9 million in cash and $171.2 million in assumed debt in transactions which closed in April 2017. The results of these transactions increased the Company’s interests in the joint venture to 100 percent.  Upon these acquisitions, the Company consolidated RoseGarden Monaco Holdings, L.L.C., a voting interest entity. 



As an acquisition of the remaining interests in the venture which owns the Monaco Towers, the Company accounted for the transaction as an asset acquisition under a cost accumulation model, resulting in total consolidated net assets of $139.9 million which is allocated, as follows (in thousands):





(a)Above market, in-place and below market leases are being amortized over a weighted-average term of 8 months.



Dispositions/Rental Property Held for Sale



2018

The Company disposed of the following office properties during the year ended December 31, 2018 (dollars in thousands):





The Company disposed of the following developable land holding during the year ended December 31, 2018 (dollars in thousands):





The Company identified as held for sale six office properties, totaling approximately 845,000 square feet, and a 159 unit multi-family rental property as of December 31, 2018.  The properties are located in Fort Lee, Newark, Paramus, Bridgewater, Morris Plains and Rahway, New Jersey.  The total estimated sales proceeds, net of expected selling costs, from the sales are expected to be approximately $124 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 year ended December 31, 2018.  In January 2019, the Company completed the disposition of three of these properties for sales proceeds of approximately $54.5 million.



The following table summarizes the rental property held for sale, net, as of December 31, 2018 (dollars in thousands):    





Other assets and liabilities related to the rental properties held for sale, as of December 31, 2018, include $2.9 million in Deferred charges and other assets, $1.7 million in Unbilled rents receivable and $2.3 million in Accounts payable, accrued expenses and other liabilities.  Approximately $3.9 million of these assets and $1.7 million of these liabilities are expected to be removed with the completion of the sales.



2017

The Company disposed of the following office properties during the year ended December 31, 2017 (dollars in thousands):





The Company identified as held for sale 21 office properties totaling approximately 2 million square feet as of December 31, 2017.  The properties are located in Parsippany, Paramus, Rochelle Park, Hamilton and Wall, New Jersey and White Plains, New York.  The total estimated sales proceeds from the sales were expected to be approximately $223 million.  The Company determined that the carrying value of seven of the office 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.



The following table summarizes the rental property held for sale, net, as of December 31, 2017 (dollars in thousands):    







Other assets and liabilities related to the rental properties held for sale, as of December 31, 2017, included $9.8 million in deferred charges, and other assets, $4.7 million in Unbilled rents receivable and $4.6 million in Accounts payable, accrued expenses and other liabilities.  Approximately $13.4 million of these assets and $0.3 million of these liabilities were expected to be written off with the completion of the sales.



Land Impairments

The Company owns two separate developable land parcels in Conshohocken and Bala Cynwyd, Pennsylvania, that were being considered for development into multi-family rental properties.  During the fourth quarter 2018, the Company made the decision to pursue selling the land parcels as opposed to development.  Due to the shortening of the expected periods of ownership, the Company determined that it was necessary to reduce the carrying values of the land parcels to their estimated fair values (ascertained by broker opinions of value obtained during the marketing process) and recorded total land impairments charges of $24.6 million at December 31, 2018.



Rockpoint Transaction

On February 27, 2017, the Company, 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.  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.  See Note 14: Redeemable Noncontrolling Interests.



RRLP has been identified as a variable interest entity in which the Company is deemed to be the primary beneficiary.  As of December 31, 2018 and December 31, 2017, the Company’s consolidated RRLP entity had total assets of $2.3 billion and $1.9 billion, respectively, total mortgages and loan payable of $1.1 billion and $769.7 million, respectively, and other liabilities of $57 million and $95.9 million, respectively.



Unconsolidated Joint Venture Activity

On January 31, 2019, the Company, which held a 24.27 percent subordinated interest in the unconsolidated joint venture Marbella Tower Urban Renewal Associates South LLC, a 311-unit multi-family operating property located in Jersey City, New Jersey, acquired its equity partner’s 50 percent interest for $77.5 million in cash.  The acquisition was funded primarily using available cash.  Concurrently with the closing, the joint venture repaid in full the property’s $74.7 million mortgage loan and obtained a new loan in the amount of $117 million.



On December 11, 2018, the Company acquired one of its partner’s interest in the Metropolitan and Shops at 40 Park and the Lofts at 40 Park for $1.3 million and as a result, increased its ownership from 12.5 percent interest to 25 percent interest in the Metropolitan and Shops at 40 Park and from 25 percent interest to 50 percent interest in the Lofts at 40 Park.



On September 29, 2017, the Company sold its interests in the KPG-MCG Curtis joint venture that owns an operating property located in Philadelphia, Pennsylvania for a sales price of $102.5 million, which included the retirement of the Company’s share in a mortgage payable of $75 million, and realized a gain on the sale of the unconsolidated joint venture of $12 million.  $5.6 million of the net sales proceeds from this sale were held by a qualified intermediary, which is considered non cash and recorded in deferred charges, goodwill and other assets.  See Note 5: Deferred Charges, Goodwill and Other Assets, Net.





On September 21, 2017, the RoseGarden Monaco, L.L.C. joint venture agreement was terminated.  Accordingly, the Company wrote off the carrying value of its investment in the joint venture and recorded a loss of $1.4 million on the disposition of its joint venture interest.



On February 15, 2017, the Company sold its 7.5 percent interest in the Elmajo Urban Renewal Associates, LLC and Estuary Urban Renewal Unit B, LLC joint ventures that own operating multi-family properties located in Weehawken, New Jersey for a sales price of $5.1 million and realized a gain on the sale of the unconsolidated joint venture of $5.1 million. 



On January 31, 2017, the Company sold its interest in the KPG-P 100 IMW JV, LLC, Keystone-Penn and Keystone-Tristate joint ventures that own operating properties, located in Philadelphia, Pennsylvania for an aggregate sales price of $9.7 million and realized a gain on the sale of the unconsolidated joint venture of $7.4 million.