3.    REAL ESTATE TRANSACTIONS

 

Acquisitions

 

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 (in thousands):

 

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

 

Sales

 

The Company sold the following office properties during the six months ended June 30, 2014 (dollars in thousands):

 

(a)The Company completed the sale of these properties for approximately $117 million: $114.6 million in cash and subordinated equity interests in each of the properties sold with capital accounts aggregating $2.4 million. Net sale proceeds from the sale aggregated $112.9 million which was comprised of the $117 million gross sales price less the subordinated equity interests of $2.4 million and $1.7 million in closing costs.  The purchasers of these properties are joint ventures formed between the Company and affiliates of the Keystone Property Group (“Keystone Entities”).  The senior equity will receive a 15 percent internal rate of return (“IRR”) after which the subordinated equity will receive a ten percent IRR and then all distributable cash flow will be split equally between the Keystone Entities and the Company. In connection with these partial sale transactions, because the buyer receives a preferential return, 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 subordinate equity interest at zero.  The Company has contracts with Keystone Entities to sell an additional seven of its office properties in New Jersey, New York and Connecticut, aggregating approximately 928,258 square feet, for approximately $104 million, comprised of: $78.3 million in cash from a combination of Keystone Entities senior and pari-passu equity and mortgage financing; Company subordinated equity interests in each of the properties being sold with capital accounts aggregating $18.8 million; and Company pari passu equity interests in three of the properties being sold aggregating $6.9 million.    

(b)The Company recorded an impairment charge of $3.9 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 standard and as the properties sold in the six months ended June 30, 2014 will 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 from the properties sold during the six months ended June 30, 2014 for the three and six months ended June 30, 2014 and 2013: (dollars in thousands)  See Note 7: Discontinued Operations for properties sold in 2013.

 

 

For the three and six months ended June 30, 2014, included in general and administrative expense was an aggregate of approximately $1.9 million in transactions costs related to the Company’s property and joint venture acquisitions.

 

Excluded from the cash flow statement for the six months ended June 30, 2014 was $4.4 million of sale proceeds and $40 million of acquisition and other investment fundings, which were handled through a qualified intermediary.