Company Quick10K Filing
Quick10K
Mack-Cali Realty
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$22.81 90 $2,060
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-06-12 Amend Bylaw, Shareholder Vote, Exhibits
8-K 2019-06-12 Officers, Other Events, Exhibits
8-K 2019-06-04 Regulation FD, Exhibits
8-K 2019-05-01 Earnings, Regulation FD, Exhibits
8-K 2019-04-15 Other Events, Exhibits
8-K 2019-03-29 M&A, Exhibits
8-K 2019-03-18 Other Events, Exhibits
8-K 2019-03-13 Officers, Amend Bylaw, Exhibits
8-K 2019-03-04 Regulation FD, Exhibits
8-K 2019-03-04 Enter Agreement, Exhibits
8-K 2019-02-21 Enter Agreement, Exhibits
8-K 2019-02-20 Earnings, Regulation FD, Exhibits
8-K 2019-02-08 Officers, Exhibits
8-K 2019-01-24 Regulation FD, Exhibits
8-K 2019-01-24 Regulation FD, Exhibits
8-K 2019-01-24 Earnings, Exhibits
8-K 2018-11-07 Regulation FD, Exhibits
8-K 2018-10-31 Earnings, Regulation FD, Exhibits
8-K 2018-10-31 Officers, Exhibits
8-K 2018-10-05 Officers
8-K 2018-09-25 Regulation FD, Exhibits
8-K 2018-08-30 Enter Agreement, Exhibits
8-K 2018-08-01 Earnings, Regulation FD, Exhibits
8-K 2018-06-14 Enter Agreement, Officers, Exhibits
8-K 2018-06-13 Shareholder Vote
8-K 2018-06-05 Regulation FD, Exhibits
8-K 2018-04-30 Amend Bylaw, Exhibits
8-K 2018-04-20 Officers, Amend Bylaw, Exhibits
8-K 2018-03-14 Officers, Amend Bylaw, Exhibits
8-K 2018-03-05 Regulation FD, Exhibits
8-K 2018-01-26 Enter Agreement, Officers, Exhibits
TGT Target 38,780
TEAM Atlassian 30,160
TSN Tyson Foods 28,430
ZAYO Zayo Group Holdings 7,750
CLW Clearwater Paper 300
ACT Advanced Credit Technologies 13
FLKS Flex Pharma 8
SFOR Strikeforce Technologies 0
OSMU Original Source Music 0
RLBY Reliability 0
CLI 2019-03-31
Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.91 a19-7698_1ex10d91.htm
EX-31.1 a19-7698_1ex31d1.htm
EX-31.2 a19-7698_1ex31d2.htm
EX-31.3 a19-7698_1ex31d3.htm
EX-31.4 a19-7698_1ex31d4.htm
EX-32.1 a19-7698_1ex32d1.htm
EX-32.2 a19-7698_1ex32d2.htm

Mack-Cali Realty Earnings 2019-03-31

CLI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 a19-7698_110q.htm 10-Q

Table of Contents

 

 

 

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 March 31, 2019

 

or

 

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 April 29, 2019, there were 90,338,180 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.

 

 

 


Table of Contents

 

EXPLANATORY NOTE

 

This report combines the quarterly reports on Form 10-Q for the period ended March 31, 2019 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 March 31, 2019, the General Partner owned an approximate 90 percent common unit interest in the Operating Partnership.  The remaining approximate 10 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

 

2


Table of Contents

 

with no publicly traded equity.  Except for the net proceeds from equity offerings by the General Partner, which are contributed to the capital of the Operating Partnership in consideration of common or preferred units in the Operating Partnership, as applicable, the Operating Partnership generates all remaining capital required by the Company’s business. These sources include working capital, net cash provided by operating activities, borrowings under the Company’s unsecured revolving credit facility and unsecured term loan facilities, the issuance of secured and unsecured debt and equity securities and proceeds received from the disposition of properties and joint ventures.

 

Shareholders’ equity, partners’ capital and noncontrolling interests are the main areas of difference between the consolidated financial statements of the General Partner and the Operating Partnership.  The limited partners of the Operating Partnership are accounted for as partners’ capital in the Operating Partnership’s financial statements as is the General Partner’s interest in the Operating Partnership.  The noncontrolling interests in the Operating Partnership’s financial statements comprise the interests of unaffiliated partners in various consolidated partnerships and development joint venture partners.  The noncontrolling interests in the General Partner’s financial statements are the same noncontrolling interests at the Operating Partnership’s level and include limited partners of the Operating Partnership.  The differences between shareholders’ equity and partners’ capital result from differences in the equity issued at the General Partner and Operating Partnership levels.

 

To help investors better understand the key differences between the General Partner and the Operating Partnership, certain information for the General Partner and the Operating Partnership in this report has been separated, as set forth below:

 

·          Item 1.   Financial Statements (unaudited), which includes the following specific disclosures for Mack-Cali Realty Corporation and Mack-Cali Realty, L.P.:

 

·                  Note 2.     Significant Accounting Policies, where applicable;

·                  Note 14.   Redeemable Noncontrolling Interests;

·                  Note 15.   Mack-Cali Realty Corporation’s Stockholders’ Equity and Mack-Cali Realty, L.P.’s Partners’ Capital;

·                  Note 16.   Noncontrolling Interests in Subsidiaries; and

·                  Note 17.   Segment Reporting, where applicable.

 

·          Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations includes information specific to each entity, where applicable.

 

This report also includes separate Part I, Item 4. Controls and Procedures sections and separate Exhibits 31 and 32 certifications for each of the General Partner and the Operating Partnership in order to establish that the requisite certifications have been made and that the General Partner and Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 and 18 U.S.C. §1350.

 

3


Table of Contents

 

MACK-CALI REALTY CORPORATION

MACK-CALI REALTY, L.P.

 

FORM 10-Q

 

INDEX

 

 

 

 

Page

Part I

Financial Information

 

 

 

 

 

 

Item 1.

Financial Statements (unaudited):

5

 

 

 

 

 

 

Mack-Cali Realty Corporation

 

 

 

Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018

6

 

 

 

 

 

 

Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018

7

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2019 and 2018

8

 

 

 

 

 

 

Consolidated Statement of Changes in Equity for the three months ended March 31, 2019

9

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018

10

 

 

 

 

 

 

Mack-Cali Realty, L.P.

 

 

 

Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018

11

 

 

 

 

 

 

Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018

12

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2019 and 2018

13

 

 

 

 

 

 

Consolidated Statement of Changes in Equity for the three months ended March 31, 2019

14

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018

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

54

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

73

 

 

 

 

 

Item 4.

Controls and Procedures

74

 

 

 

 

Part II

Other Information

 

 

 

 

 

 

 

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

 

 

 

 

 

 

Item 1.

Legal Proceedings

75

 

 

 

 

 

Item 1A.

Risk Factors

75

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

75

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

75

 

 

 

 

 

Item 4.

Mine Safety Disclosures

75

 

 

 

 

 

Item 5.

Other Information

75

 

 

 

 

 

Item 6.

Exhibits

75

 

 

 

 

Exhibit Index

76

 

 

 

 

Signatures

86

 

4


Table of Contents

 

MACK-CALI REALTY CORPORATION

MACK-CALI REALTY, L.P.

 

Part I — Financial Information

 

Item 1.                                 Financial Statements

 

The accompanying unaudited consolidated balance sheets, statements of operations, of comprehensive income, of changes in equity, and of cash flows and related notes thereto, have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission (“SEC”).  Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements.  The financial statements reflect all adjustments consisting only of normal, recurring adjustments, which are, in the opinion of management, necessary for a fair statement for the interim periods.

 

The aforementioned financial statements should be read in conjunction with the notes to the aforementioned financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included in Mack-Cali Realty Corporation’s and Mack-Cali Realty, L.P.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

 

The results of operations for the three-month period ended March 31, 2019 are not necessarily indicative of the results to be expected for the entire fiscal year or any other period.

 

5


Table of Contents

 

MACK-CALI REALTY CORPORATION AND SUBSIDIARIES

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

 

 

 

March 31,

 

December 31,

 

 

 

2019

 

2018

 

ASSETS

 

 

 

 

 

Rental property

 

 

 

 

 

Land and leasehold interests

 

$

814,694

 

$

807,236

 

Buildings and improvements

 

4,067,589

 

4,109,797

 

Tenant improvements

 

296,654

 

335,266

 

Furniture, fixtures and equipment

 

58,192

 

53,718

 

 

 

5,237,129

 

5,306,017

 

Less — accumulated depreciation and amortization

 

(935,339

)

(1,097,868

)

 

 

4,301,790

 

4,208,149

 

Rental property held for sale, net

 

33,239

 

108,848

 

Net investment in rental property

 

4,335,029

 

4,316,997

 

Cash and cash equivalents

 

12,061

 

29,633

 

Restricted cash

 

20,561

 

19,921

 

Investments in unconsolidated joint ventures

 

212,961

 

232,750

 

Unbilled rents receivable, net

 

91,846

 

100,737

 

Deferred charges, goodwill and other assets, net

 

594,624

 

355,234

 

Accounts receivable, net of allowance for doubtful accounts of $602 and $1,108

 

7,202

 

5,372

 

 

 

 

 

 

 

Total assets

 

$

5,274,284

 

$

5,060,644

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

Senior unsecured notes, net

 

$

570,607

 

$

570,314

 

Unsecured revolving credit facility and term loans

 

588,805

 

790,939

 

Mortgages, loans payable and other obligations, net

 

1,526,905

 

1,431,398

 

Dividends and distributions payable

 

21,341

 

21,877

 

Accounts payable, accrued expenses and other liabilities

 

196,707

 

168,115

 

Rents received in advance and security deposits

 

33,140

 

41,244

 

Accrued interest payable

 

14,417

 

9,117

 

Total liabilities

 

2,951,922

 

3,033,004

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

379,195

 

330,459

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

Mack-Cali Realty Corporation stockholders’ equity:

 

 

 

 

 

Common stock, $0.01 par value, 190,000,000 shares authorized, 90,325,783 and 90,320,306 shares outstanding

 

903

 

903

 

Additional paid-in capital

 

2,553,652

 

2,561,503

 

Dividends in excess of net earnings

 

(855,659

)

(1,084,518

)

Accumulated other comprehensive income (loss)

 

5,122

 

8,770

 

Total Mack-Cali Realty Corporation stockholders’ equity

 

1,704,018

 

1,486,658

 

 

 

 

 

 

 

Noncontrolling interests in subsidiaries:

 

 

 

 

 

Operating Partnership

 

188,829

 

168,373

 

Consolidated joint ventures

 

50,320

 

42,150

 

Total noncontrolling interests in subsidiaries

 

239,149

 

210,523

 

 

 

 

 

 

 

Total equity

 

1,943,167

 

1,697,181

 

 

 

 

 

 

 

Total liabilities and equity

 

$

5,274,284

 

$

5,060,644

 

 

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

 

6


Table of Contents

 

MACK-CALI REALTY CORPORATION AND SUBSIDIARIES

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

2018

 

REVENUES

 

 

 

 

 

Revenue from leases

 

$

123,015

 

$

125,693

 

Real estate services

 

3,842

 

4,661

 

Parking income

 

4,941

 

5,327

 

Hotel income

 

283

 

 

Other income

 

2,168

 

3,286

 

Total revenues

 

134,249

 

138,967

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

Real estate taxes

 

17,077

 

18,361

 

Utilities

 

10,451

 

12,504

 

Operating services

 

24,962

 

25,618

 

Real estate services expenses

 

4,266

 

4,936

 

Leasing personnel costs

 

742

 

 

General and administrative

 

12,593

 

16,085

 

Depreciation and amortization

 

48,046

 

41,297

 

Total expenses

 

118,137

 

118,801

 

 

 

 

 

 

 

OTHER (EXPENSE) INCOME

 

 

 

 

 

Interest expense

 

(24,774

)

(20,075

)

Interest and other investment income (loss)

 

824

 

1,128

 

Equity in earnings (loss) of unconsolidated joint ventures

 

(681

)

1,572

 

Gain on change of control of interests

 

13,790

 

 

Realized gains (losses) and unrealized losses on disposition of rental property, net

 

268,109

 

58,186

 

Gain on sale of investment in unconsolidated joint venture

 

903

 

 

Gain (loss) from extinguishment of debt, net

 

1,311

 

(10,289

)

Total other income (expense)

 

259,482

 

30,522

 

Net income

 

275,594

 

50,688

 

Noncontrolling interests in consolidated joint ventures

 

1,248

 

30

 

Noncontrolling interests in Operating Partnership

 

(27,680

)

(4,883

)

Redeemable noncontrolling interests

 

(4,667

)

(2,799

)

Net income available to common shareholders

 

$

244,495

 

$

43,036

 

 

 

 

 

 

 

Basic earnings per common share:

 

 

 

 

 

Net income available to common shareholders

 

$

2.67

 

$

0.45

 

 

 

 

 

 

 

Diluted earnings per common share:

 

 

 

 

 

Net income available to common shareholders

 

$

2.66

 

$

0.45

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

90,498

 

90,263

 

 

 

 

 

 

 

Diluted weighted average shares outstanding

 

100,943

 

100,604

 

 

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

 

7


Table of Contents

 

MACK-CALI REALTY CORPORATION AND SUBSIDIARIES

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

2018

 

Net income

 

$

275,594

 

$

50,688

 

Other comprehensive income:

 

 

 

 

 

Net unrealized gain (loss) on derivative instruments for interest rate swaps

 

(4,061

)

5,145

 

Comprehensive income

 

$

271,533

 

$

55,833

 

Comprehensive (income) loss attributable to noncontrolling interests in consolidated joint ventures

 

1,248

 

30

 

Comprehensive (income) loss attributable to redeemable noncontrolling interests

 

(4,667

)

(2,799

)

Comprehensive (income) loss attributable to noncontrolling interests in Operating Partnership

 

(27,267

)

(5,407

)

Comprehensive income attributable to common shareholders

 

$

240,847

 

$

47,657

 

 

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

 

8


Table of Contents

 

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

 

 

 

 

 

Shares

 

Par Value

 

Capital

 

Net Earnings

 

Income (Loss)

 

in Subsidiaries

 

Total Equity

 

Balance at January 1, 2019

 

90,320

 

$

903

 

$

2,561,503

 

$

(1,084,518

)

$

8,770

 

$

210,523

 

$

1,697,181

 

Net income

 

 

 

 

244,495

 

 

31,099

 

275,594

 

Common stock dividends

 

 

 

 

(18,065

)

 

 

(18,065

)

Common unit distributions

 

 

 

 

 

 

(1,696

)

(1,696

)

Redeemable noncontrolling interests

 

 

 

(3,152

)

 

 

(5,024

)

(8,176

)

Change in noncontrolling interests in consolidated joint ventures

 

 

 

(1,958

)

 

 

9,418

 

7,460

 

Redemption of common units for common stock

 

5

 

 

82

 

 

 

(82

)

 

Redemption of common units

 

 

 

(1,665

)

 

 

(4,965

)

(6,630

)

Shares issued under Dividend Reinvestment and Stock Purchase Plan

 

1

 

 

10

 

 

 

 

10

 

Directors’ deferred compensation plan

 

 

 

130

 

 

 

 

130

 

Stock compensation

 

 

 

265

 

 

 

1,615

 

1,880

 

Cancellation of unvested LTIP units

 

 

 

 

2,819

 

 

(2,889

)

(70

)

Other comprehensive income (loss)

 

 

 

 

(390

)

(3,648

)

(413

)

(4,451

)

Rebalancing of ownership percentage between parent and subsidiaries

 

 

 

(1,563

)

 

 

1,563

 

 

Balance at March 31, 2019

 

90,326

 

$

903

 

$

2,553,652

 

$

(855,659

)

$

5,122

 

$

239,149

 

$

1,943,167

 

 

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)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net income

 

$

275,594

 

$

50,688

 

Adjustments to reconcile net income (loss) to net cash provided by Operating activities:

 

 

 

 

 

Depreciation and amortization, including related intangible assets

 

47,294

 

39,489

 

Amortization of directors deferred compensation stock units

 

130

 

125

 

Amortization of stock compensation

 

1,880

 

2,532

 

Amortization of deferred financing costs

 

1,189

 

1,096

 

Amortization of debt discount and mark-to-market

 

(237

)

(237

)

Write-off of unamortized deferred finance costs related to early extinguishment

 

 

105

 

Equity in (earnings) loss of unconsolidated joint ventures

 

681

 

(1,572

)

Distributions of cumulative earnings from unconsolidated joint ventures

 

1,553

 

2,119

 

Gain on change of control of interests

 

(13,790

)

 

Realized (gains) losses and unrealized losses on disposition of rental property, net

 

(268,109

)

(58,186

)

Gain on sale of investments in unconsolidated joint ventures

 

(903

)

 

(Gain)Loss from extinguishment of debt

 

(1,311

)

10,289

 

Changes in operating assets and liabilities:

 

 

 

 

 

Increase in unbilled rents receivable, net

 

(2,789

)

(3,788

)

Increase in deferred charges, goodwill and other assets

 

(6,774

)

(1,899

)

Increase in accounts receivable, net

 

(1,830

)

(545

)

Increase in accounts payable, accrued expenses and other liabilities

 

15,942

 

14,134

 

Decrease in rents received in advance and security deposits

 

(7,784

)

(2,118

)

Increase in accrued interest payable

 

5,301

 

4,667

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

46,037

 

$

56,899

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

Rental property acquisitions and related intangibles

 

$

(222,893

)

$

(365

)

Rental property additions and improvements

 

(43,307

)

(55,935

)

Development of rental property and other related costs

 

(38,568

)

(50,038

)

Proceeds from the sales of rental property

 

330,369

 

243,244

 

Proceeds from the sale of investments in unconsolidated joint ventures

 

4,039

 

 

Repayment of notes receivable

 

125

 

3,337

 

Investment in unconsolidated joint ventures

 

(2,443

)

(1,266

)

Distributions in excess of cumulative earnings from unconsolidated joint ventures

 

1,566

 

4,571

 

 

 

 

 

 

 

Net cash provided by investing activities

 

$

28,888

 

$

143,548

 

 

 

 

 

 

 

CASH FLOW FROM FINANCING ACTIVITIES

 

 

 

 

 

Borrowings from revolving credit facility

 

$

92,000

 

$

322,000

 

Repayment of revolving credit facility

 

(204,000

)

(281,000

)

Repayment of unsecured term loan

 

(90,000

)

 

Proceeds from mortgages and loans payable

 

121,537

 

41,090

 

Repayment of mortgages, loans payable and other obligations

 

(25,183

)

(277,287

)

Acquisition of noncontrolling interests

 

(5,017

)

 

Issuance of redeemable noncontrolling interests, net

 

45,000

 

10,000

 

Payment of financing costs

 

(1,363

)

(255

)

Distributions to noncontrolling interests

 

(99

)

 

Payment of dividends and distributions

 

(24,732

)

(22,830

)

 

 

 

 

 

 

Net cash used in financing activities

 

$

(91,857

)

$

(208,282

)

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

$

(16,932

)

$

(7,835

)

Cash, cash equivalents and restricted cash, beginning of period (1)

 

49,554

 

67,972

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash, end of period (2)

 

$

32,622

 

$

60,137

 

 


(1)   Includes Restricted Cash of $19,921 and $39,792 as of December 31, 2018 and 2017, respectively.

(2)   Includes Restricted Cash of $20,561 and $34,830 as of March 31, 2019 and 2018, respectively.

 

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)

 

 

 

March 31,

 

December 31,

 

 

 

2019

 

2018

 

ASSETS

 

 

 

 

 

Rental property

 

 

 

 

 

Land and leasehold interests

 

$

814,694

 

$

807,236

 

Buildings and improvements

 

4,067,589

 

4,109,797

 

Tenant improvements

 

296,654

 

335,266

 

Furniture, fixtures and equipment

 

58,192

 

53,718

 

 

 

5,237,129

 

5,306,017

 

Less — accumulated depreciation and amortization

 

(935,339

)

(1,097,868

)

 

 

4,301,790

 

4,208,149

 

Rental property held for sale, net

 

33,239

 

108,848

 

Net investment in rental property

 

4,335,029

 

4,316,997

 

Cash and cash equivalents

 

12,061

 

29,633

 

Restricted cash

 

20,561

 

19,921

 

Investments in unconsolidated joint ventures

 

212,961

 

232,750

 

Unbilled rents receivable, net

 

91,846

 

100,737

 

Deferred charges, goodwill and other assets, net

 

594,624

 

355,234

 

Accounts receivable, net of allowance for doubtful accounts of $602 and $1,108

 

7,202

 

5,372

 

 

 

 

 

 

 

Total assets

 

$

5,274,284

 

$

5,060,644

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

Senior unsecured notes, net

 

$

570,607

 

$

570,314

 

Unsecured revolving credit facility and term loans

 

588,805

 

790,939

 

Mortgages, loans payable and other obligations, net

 

1,526,905

 

1,431,398

 

Distributions payable

 

21,341

 

21,877

 

Accounts payable, accrued expenses and other liabilities

 

196,707

 

168,115

 

Rents received in advance and security deposits

 

33,140

 

41,244

 

Accrued interest payable

 

14,417

 

9,117

 

Total liabilities

 

2,951,922

 

3,033,004

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

379,195

 

330,459

 

 

 

 

 

 

 

Partners’ Capital:

 

 

 

 

 

General Partner, 90,325,783 and 90,320,306 common units outstanding

 

1,636,068

 

1,413,497

 

Limited partners, 10,009,355 and 10,229,349 common units/LTIPs outstanding

 

251,657

 

232,764

 

Accumulated other comprehensive income (loss)

 

5,122

 

8,770

 

Total Mack-Cali Realty, L.P. partners’ capital

 

1,892,847

 

1,655,031

 

 

 

 

 

 

 

Noncontrolling interests in consolidated joint ventures

 

50,320

 

42,150

 

 

 

 

 

 

 

Total equity

 

1,943,167

 

1,697,181

 

 

 

 

 

 

 

Total liabilities and equity

 

$

5,274,284

 

$

5,060,644

 

 

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

 

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Table of Contents

 

MACK-CALI REALTY, L.P. AND SUBSIDIARIES

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

2018

 

REVENUES

 

 

 

 

 

Revenue from leases

 

$

123,015

 

$

125,693

 

Real estate services

 

3,842

 

4,661

 

Parking income

 

4,941

 

5,327

 

Hotel income

 

283

 

 

Other income

 

2,168

 

3,286

 

Total revenues

 

134,249

 

138,967

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

Real estate taxes

 

17,077

 

18,361

 

Utilities

 

10,451

 

12,504

 

Operating services

 

24,962

 

25,618

 

Real estate services expenses

 

4,266

 

4,936

 

Leasing personnel costs

 

742

 

 

General and administrative

 

12,593

 

16,085

 

Depreciation and amortization

 

48,046

 

41,297

 

Total expenses

 

118,137

 

118,801

 

 

 

 

 

 

 

OTHER (EXPENSE) INCOME

 

 

 

 

 

Interest expense

 

(24,774

)

(20,075

)

Interest and other investment income (loss)

 

824

 

1,128

 

Equity in earnings (loss) of unconsolidated joint ventures

 

(681

)

1,572

 

Gain on change of control of interests

 

13,790

 

 

Realized gains (losses) and unrealized losses on disposition of rental property, net

 

268,109

 

58,186

 

Gain on sale of investment in unconsolidated joint venture

 

903

 

 

Gain (loss) from extinguishment of debt, net

 

1,311

 

(10,289

)

Total other income (expense)

 

259,482

 

30,522

 

Net income

 

275,594

 

50,688

 

Noncontrolling interests in consolidated joint ventures

 

1,248

 

30

 

Redeemable noncontrolling interests

 

(4,667

)

(2,799

)

Net income available to common unitholders

 

$

272,175

 

$

47,919

 

 

 

 

 

 

 

Basic earnings per common unit:

 

 

 

 

 

Net income available to common unitholders

 

$

2.67

 

$

0.45

 

 

 

 

 

 

 

Diluted earnings per common unit:

 

 

 

 

 

Net income available to common unitholders

 

$

2.66

 

$

0.45

 

 

 

 

 

 

 

Basic weighted average units outstanding

 

100,740

 

100,505

 

 

 

 

 

 

 

Diluted weighted average units outstanding

 

100,943

 

100,604

 

 

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

 

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Table of Contents

 

MACK-CALI REALTY, L.P. AND SUBSIDIARIES

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

2018

 

 

 

 

 

 

 

Net income

 

$

275,594

 

$

50,688

 

Other comprehensive income:

 

 

 

 

 

Net unrealized gain (loss) on derivative instruments for interest rate swaps

 

(4,061

)

5,145

 

Comprehensive income

 

$

271,533

 

$

55,833

 

Comprehensive (income) loss attributable to noncontrolling interests in consolidated joint ventures

 

1,248

 

30

 

Comprehensive (income) loss attributable to redeemable noncontrolling interests

 

(4,667

)

(2,799

)

Comprehensive income attributable to common unitholders

 

$

268,114

 

$

53,064

 

 

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

 

 

 

 

 

 

 

Limited Partner

 

General Partner

 

Limited Partner

 

Other

 

Interest

 

 

 

 

 

General Partner

 

Common Units/

 

Common

 

Common

 

Comprehensive

 

in Consolidated

 

 

 

 

 

Common Units

 

Vested LTIP Units

 

Unitholders

 

Unitholders

 

Income (Loss)

 

Joint Ventures

 

Total Equity

 

Balance at January 1, 2019

 

90,320

 

10,229

 

$

1,413,497

 

$

232,764

 

$

8,770

 

$

42,150

 

$

1,697,181

 

Net income

 

 

 

244,495

 

27,680

 

 

3,419

 

275,594

 

Distributions

 

 

 

(18,065

)

(1,696

)

 

 

(19,761

)

Redeemable noncontrolling interests

 

 

 

(3,152

)

(357

)

 

(4,667

)

(8,176

)

Change in noncontrolling interests in consolidated joint ventures

 

 

 

(1,958

)

 

 

9,418

 

7,460

 

Redemption of limited partner common units for shares of general partner common units

 

5

 

4

 

82

 

(82

)

 

 

 

Vested LTIP units

 

 

77

 

 

 

 

 

 

Redemption of limited partners common units

 

 

(301

)

(1,665

)

(4,965

)

 

 

(6,630

)

Shares issued under Dividend Reinvestment and Stock Purchase Plan

 

1

 

 

10

 

 

 

 

10

 

Directors’ deferred compensation plan

 

 

 

130

 

 

 

 

130

 

Other comprehensive income

 

 

 

(390

)

(413

)

(3,648

)

 

(4,451

)

Stock compensation

 

 

 

265

 

1,615

 

 

 

1,880

 

Cancellation of unvested LTIP units

 

 

 

2,819

 

(2,889

)

 

 

(70

)

Balance at March 31, 2019

 

90,326

 

10,009

 

$

1,636,068

 

$

251,657

 

$

5,122

 

$

50,320

 

$

1,943,167

 

 

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)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net income

 

$

275,594

 

$

50,688

 

Adjustments to reconcile net income (loss) to net cash provided by Operating activities:

 

 

 

 

 

Depreciation and amortization, including related intangible assets

 

47,294

 

39,489

 

Amortization of directors deferred compensation stock units

 

130

 

125

 

Amortization of stock compensation

 

1,880

 

2,532

 

Amortization of deferred financing costs

 

1,189

 

1,096

 

Amortization of debt discount and mark-to-market

 

(237

)

(237

)

Write-off of unamortized deferred finance costs related to early extinguishment

 

 

105

 

Equity in (earnings) loss of unconsolidated joint ventures

 

681

 

(1,572

)

Distributions of cumulative earnings from unconsolidated joint ventures

 

1,553

 

2,119

 

Gain on change of control of interests

 

(13,790

)

 

Realized (gains) losses and unrealized losses on disposition of rental property, net

 

(268,109

)

(58,186

)

Gain on sale of investments in unconsolidated joint ventures

 

(903

)

 

(Gain)Loss from extinguishment of debt

 

(1,311

)

10,289

 

Changes in operating assets and liabilities:

 

 

 

 

 

Increase in unbilled rents receivable, net

 

(2,789

)

(3,788

)

Increase in deferred charges, goodwill and other assets

 

(6,774

)

(1,899

)

Increase in accounts receivable, net

 

(1,830

)

(545

)

Increase in accounts payable, accrued expenses and other liabilities

 

15,942

 

14,134

 

Decrease in rents received in advance and security deposits

 

(7,784

)

(2,118

)

Increase in accrued interest payable

 

5,301

 

4,667

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

46,037

 

$

56,899

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

Rental property acquisitions and related intangibles

 

$

(222,893

)

$

(365

)

Rental property additions and improvements

 

(43,307

)

(55,935

)

Development of rental property and other related costs

 

(38,568

)

(50,038

)

Proceeds from the sales of rental property

 

330,369

 

243,244

 

Proceeds from the sale of investments in unconsolidated joint ventures

 

4,039

 

 

Repayment of notes receivable

 

125

 

3,337

 

Investment in unconsolidated joint ventures

 

(2,443

)

(1,266

)

Distributions in excess of cumulative earnings from unconsolidated joint ventures

 

1,566

 

4,571

 

Proceeds from investment receivable

 

 

 

Net cash provided by investing activities

 

$

28,888

 

$

143,548

 

 

 

 

 

 

 

CASH FLOW FROM FINANCING ACTIVITIES

 

 

 

 

 

Borrowings from revolving credit facility

 

$

92,000

 

$

322,000

 

Repayment of revolving credit facility

 

(204,000

)

(281,000

)

Repayment of unsecured term loan

 

(90,000

)

 

Proceeds from mortgages and loans payable

 

121,537

 

41,090

 

Repayment of mortgages, loans payable and other obligations

 

(25,183

)

(277,287

)

Acquisition of noncontrolling interests

 

(5,017

)

 

Issuance of redeemable noncontrolling interests, net

 

45,000

 

10,000

 

Payment of financing costs

 

(1,363

)

(255

)

Distributions to noncontrolling interests

 

(99

)

 

Payment of distributions

 

(24,732

)

(22,830

)

 

 

 

 

 

 

Net cash used in financing activities

 

$

(91,857

)

$

(208,282

)

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

$

(16,932

)

$

(7,835

)

Cash, cash equivalents and restricted cash, beginning of period (1)

 

49,554

 

67,972

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash, end of period (2)

 

$

32,622

 

$

60,137

 

 


(1)   Includes Restricted Cash of $19,921 and $39,792 as of December 31, 2018 and 2017, respectively.

(2)   Includes Restricted Cash of $20,561 and $34,830 as of March 31, 2019 and 2018, respectively.

 

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

 

15


Table of Contents

 

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 a 90.0 and 89.8 percent common unit interest in the Operating Partnership as of March 31, 2019 and December 31, 2018, 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 March 31, 2019, the Company owned or had interests in 74 real estate properties (the “Properties”). The Properties are comprised of 45 office buildings totaling approximately 11.9 million square feet and leased to approximately 400 tenants (which include two buildings, aggregating approximately 0.2 million square feet owned by unconsolidated joint ventures in which the Company has investment interests), 22 multi-family properties, totaling 6,879 apartment units (which include seven properties aggregating 2,611 apartment units owned by unconsolidated joint ventures in which the Company has investment interests), four parking/retail properties totaling approximately 113,800 square feet (which include two buildings aggregating 81,700 square feet owned by unconsolidated joint ventures in which the Company has investment interests), two hotels (one of which is owned by an unconsolidated joint venture in which the Company has an investment interest) and a parcel of land leased to a third party.  The Properties are located in four states 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.

 

As of March 31, 2019 and December 31, 2018, 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:

 

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Rockpoint Transaction), have total real estate assets of $679.5 million and $480.4 million, respectively, mortgages of $361.4 million and $241.5 million, respectively, and other liabilities of $22.4 million and $23 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 for all real estate acquisitions classified as business combinations, which were substantially all of our operating property acquisitions through December 31, 2016.  The Company adopted 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 March 31, 2019 and 2018, 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 net investment in rental property as of March 31, 2019 and December 31, 2018 is real estate and building and tenant improvements not in service, as follows (dollars in thousands):

 

 

 

March 31,

 

December 31,

 

 

 

2019

 

2018

 

Land held for development (including pre-development costs, if any) (a)

 

$

487,853

 

$

465,930

 

Development and construction in progress, including land (b)

 

305,114

 

327,039

 

Total

 

$

792,967

 

$

792,969

 

 


(a)         Includes predevelopment and infrastructure costs included in buildings and improvements of $207.2 million and $204.9 million as of March 31, 2019 and December 31, 2018, respectively.

(b)         Includes land of $49.6 million as of both March 31, 2019 and December 31, 2018.

 

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.

 

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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

 

 

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 relative 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.

 

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 or leases.

 

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

 

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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 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

 

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in interest expense and was $1,189,000 and $1,096,000 for the three months ended March 31, 2019 and 2018, respectively.  If a financing obligation is extinguished early, any unamortized deferred financing costs are written off and included in gains (losses) from extinguishment of debt.  Included in gain (loss) from extinguishment of debt, net, of ($10.3) million for the three months ended March 31, 2018 were unamortized deferred financing costs which were written off (as non-cash transactions) amounting to $105,000.

 

Deferred Leasing

Costs/Leasing

Personnel Costs                                Costs incurred in connection with successfully executed commercial and residential leases were 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 were 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 was capitalized and amortized, and included in deferred charges, goodwill and other assets, net, was approximately $693,000 for the three months ended March 31, 2018.  Upon the adoption of ASC 842 on January 1, 2019, the Company no longer capitalizes such costs, and includes such costs in Leasing personnel costs in the Company’s Consolidated Statements of Operations, which amounted to $742,000 for the three months ended March 31, 2019.

 

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                                                    Revenue from leases includes fixed base rents under leases, which are 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 revenue from leases over the remaining initial terms plus the terms of any below-market fixed-rate renewal options of the respective leases.

 

Revenue from leases also includes reimbursements and recoveries from tenants 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

 

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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.

 

Hotel income includes all revenue earned from hotel properties.

 

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                 All bad debt expense is being recorded as a reduction of the corresponding revenue account starting on January 1, 2019.  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, 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 asset balance at March 31, 2019 amounted to $11.6 million which has been fully reserved through a valuation allowance.  New tax reform legislation enacted in late 2017 reduced 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.  As a result, the Company recorded a decrease related to its deferred tax assets of $5.3 million and a decrease to the associated valuation allowance of $5.3 million at December 31, 2017.  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 March 31, 2019, the tax years that remain

 

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subject to examination by the major tax jurisdictions under the statute of limitations are generally from the year 2014 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 continuing operations amount.  Shares or units whose issuance is contingent upon the satisfaction of certain conditions shall be considered outstanding and included in the computation of diluted EPS or EPU as follows (i) if all necessary conditions have been satisfied by the end of the period (the events have occurred), those shares or units shall be included as of the beginning of the period in which the conditions were satisfied (or as of the date of the grant, if later) or (ii) if all necessary conditions have not been satisfied by the end of the period, the number of contingently issuable shares or units included in diluted EPS or EPU shall be based on the number of shares or units, if any, that would be issuable if the end of the reporting period were the end of the contingency period (for example, the number of shares or units that would be issuable based on current period earnings or period-end market price) and if the result would be dilutive.  Those contingently issuable shares or units shall be included in the denominator of diluted EPS or EPU as of the beginning of the period (or as of the date of the grant, if later).

 

Dividends and

Distributions

Payable                                                                           The dividends and distributions payable at March 31, 2019 represents dividends payable to common shareholders (90,326,046 shares) and distributions payable to noncontrolling interests unitholders of the Operating Partnership (9,876,865 common units and 1,958,821 vested and unvested LTIP units), for all such holders of record as of April 2, 2019 with respect to the first quarter 2019.  The first quarter 2019 common stock dividends and unit distributions of $0.20 per common share, common unit and LTIP unit were approved by the General Partner’s Board of Directors on March 14, 2019 and paid on April 12, 2019.

 

The dividends and distributions payable at December 31, 2018 represents dividends payable to common shareholders (90,320,408 shares) and distributions payable to noncontrolling interests unitholders of the Operating Partnership (10,174,285 common units and 1,762,170 LTIP units) for all such holders of record as of January 3, 2019 with respect to the fourth quarter 2018.  The fourth quarter 2018 common stock dividends and unit distributions of $0.20 per common share, common unit and LTIP unit were approved by the General Partner’s Board of Directors on December 11, 2018 and paid on January 11, 2019.

 

Costs Incurred

For Stock

Issuances                                                                   Costs incurred in connection with the Company’s stock issuances are reflected as a reduction of additional paid-in capital.

 

Stock

Compensation                                        The Company accounts for stock compensation in accordance with the provisions of ASC 718, Compensation-Stock Compensation.  These provisions require that the estimated fair value of restricted stock (“Restricted Stock Awards”), performance share units, long-term incentive plan awards and stock options at the grant date be amortized ratably into expense over the appropriate vesting period.  The Company recorded stock compensation expense of $1,880,000 and $2,532,000 for the three months ended March 31, 2019 and 2018, respectively.

 

Other

Comprehensive

Income (Loss)                                           Other comprehensive income (loss) includes items that are recorded in equity, such as effective portions of derivatives designated as cash flow hedges or unrealized holding gains or losses on marketable securities available for sale.

 

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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.  The carrying amount of the redeemable noncontrolling interests will be changed by periodic accretions, so that the carrying amount will equal the estimated future redemption value at the redemption date.

 

Fair Value

Hierarchy                                                                The standard Fair Value Measurements specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs).  The following summarizes the fair value hierarchy:

 

·                  Level 1: Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

·                  Level 2: Quoted prices for identical assets and liabilities in markets that are inactive, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly, such as interest rates and yield curves that are observable at commonly quoted intervals and

·                  Level 3: Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.  In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety.  The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

 

Impact Of

Recently-Issued

Accounting

Standards                                                                In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), modifying the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors).  ASU 2016-02 provides new guidelines that change the accounting for leasing arrangements for lessees, whereby their rights and obligations under substantially all leases, existing and new, would be capitalized and recorded on the balance sheet. For lessors, however, the accounting remains largely equivalent to the current model, with the distinction between operating, sales-type, and direct financing leases retained, but updated to align with certain changes to the lessee model and the new revenue recognition standard.

 

ASU 2016-02 provides two transition methods. The first transition method allows for application of the new model at the beginning of the earliest comparative period presented. Under the second transition method, comparative periods would not be restated, with any cumulative effect adjustments recognized in the opening balance of retained earnings in the period of adoption.  In addition, a practical expedient was recently issued by the FASB that allows lessors to combine non-lease components with related lease components if certain conditions are met. The Company has adopted this guidance for its interim and annual periods beginning January 1, 2019 using the second transition method.

 

Under ASU 2016-02, lessors will only capitalize incremental direct leasing costs and will expense internal leasing costs that were previously capitalized prior to the adoption of ASU 2016-02. For leases where the Company is a lessee, primarily its ground leases, the Company is recognizing a right-of-use asset and a corresponding lease liability.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (“ASU 2016-13”).  The guidance introduces a new model for estimating credit losses for certain types of financial instruments, including trade and lease receivables, loans receivable, held-to-maturity debt securities, and net investments in direct financing leases, amongst other financial instruments.  ASU 2016-13 also modifies the impairment model for

 

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available-for-sale debt securities and expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for losses.  ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted.  The Company is currently in the process of evaluating the impact the adoption of ASU 2016-13 will have on the Company’s consolidated financial statements.

 

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”).  The purpose of ASU 2017-12 is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities.  The Company has adopted ASU 2017-12 on January 1, 2019. ASU 2017-12 requires a modified retrospective transition method which requires a cumulative effect of the change on the opening balance of each affected component of equity in the Company’s consolidated financial statements as of the date of adoption. Upon adoption the Company recorded a cumulative adjustment specifically related to the elimination of the requirement to for separate measurement of hedge ineffectiveness.  As a result, the Company recorded an opening balance adjustment as of January 1, 2019 to retained earnings of $0.4 million with a corresponding change to other comprehensive income.

 

3.              RECENT TRANSACTIONS

 

Acquisitions

 

The Company acquired the following office property (which was determined to be an asset acquisition in accordance with ASU 2017-01) during the three months ended March 31, 2019 (dollars in thousands):

 

Acquisition

 

 

 

 

 

# of

 

Rentable

 

Acquisition

 

Date

 

Property Address

 

Location

 

Bldgs.

 

Square Feet

 

Cost

 

2/6/19

 

99 Wood Avenue (a)

 

Iselin, New Jersey

 

1

 

271,988

 

$

61,858

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Acquisitions

 

 

 

 

 

1

 

271,988

 

$

61,858

 

 


(a)         This acquisition was funded using funds available with the Company’s qualified intermediary and through borrowing under the Company’s unsecured revolving credit facility.

 

The acquisition cost of 99 Wood Avenue was allocated to the net assets acquired, as follows (in thousands):

 

Land and leasehold interest

 

$

9,261

 

Buildings and improvements and other assets, net

 

45,576

 

Above market lease values (a)

 

431

 

In-place lease values (a)

 

8,264

 

 

 

63,532

 

Less: Below market lease values (a)

 

(1,674

)

Net assets recorded upon acquisition

 

$

61,858

 

 


(a)   Above market, in-place and below market lease values are being amortized over a weighted-average term of 4.3 years.

 

On April 1, 2019, the Company completed the acquisition of a 377-unit multi-family rental property located in Jersey City, New Jersey for approximately $264 million, which was funded primarily using funds available with the Company’s qualified intermediaries, and through borrowing under the Company’s unsecured revolving credit facility.

 

Consolidation

 

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 preferred controlling interest for $77.5 million in cash.  The property was subject to a mortgage loan that had a principal balance of $74.7 million.  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 collateralized by the property in the amount of $117 million, which bears interest at 4.2 percent and matures in August 2026.  The Company received $43.3 million in distribution from the loan proceeds which was used to acquire the equity partner’s 50 percent interest.  As the 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 $13.8 million (a non-cash item) in the three months ended March 31, 2019, in which the Company accounted for the transaction as a VIE that is not a business in accordance with ASC 810-

 

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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 $15.3 million and the noncontrolling interest’s fair value of $13.7 million.  See Note 9: Mortgages, Loans Payable and Other Obligations.

 

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

 

 

 

Marbella II

 

Land and leasehold interest

 

$

36,595

 

Buildings and improvements and other assets, net

 

153,974

 

In-place lease values (a)

 

4,611

 

Less: Below market lease values (a)

 

(80

)

 

 

195,100

 

Less: Debt

 

(117,000

)

Net assets

 

78,100

 

Less: Noncontrolling interests

 

(13,722

)

Net assets recorded upon consolidation

 

$

64,378

 

 


(a)   In-place and below market lease values are being amortized over a weighted-average term of 6.2 months.

 

Dispositions/Rental Property Held for Sale

 

The Company disposed of the following office and multi-family properties during the three months ended March 31, 2019 (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

 

01/11/19

 

721 Route 202-206 South (a)

 

Bridgewater, New Jersey

 

1

 

192,741

 

$

5,651

 

$

5,410

 

$

241

 

01/16/19

 

Park Square (b)

 

Rahway, New Jersey

 

1

 

159

 units

34,045

 

34,032

 

13

 

01/22/19

 

2115 Linwood Avenue

 

Fort Lee, New Jersey

 

1

 

68,000

 

15,197

 

7,433

 

7,764

 

02/27/19

 

201 Littleton Road (c)

 

Morris Plains, New Jersey

 

1

 

88,369

 

4,842

 

4,937

 

(95

)

03/13/19

 

320 & 321 University Avenue

 

Newark, New Jersey

 

2

 

147,406

 

25,552

 

18,456

 

7,096

 

03/29/19

 

Flex portfolio

 

New York and Connecticut

 

56

(d)

3,148,512

 

470,348

 

214,758

 

255,590

 

Sub-total

 

 

 

 

 

 

 

 

 

555,635

 

285,026

 

270,609

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

(2,500

)

Totals

 

 

 

 

 

62

 

3,645,028

 

$

555,635

 

$

285,026

 

$

268,109

 

 


(a)

The Company recorded a valuation allowance of $9.3 million on this property during the year ended December 31, 2018.

(b)

The Company recorded a valuation allowance of $6.3 million on this property during the year ended December 31, 2018. Approximately $9.0 million of the net sale proceeds were held by a qualified intermediary.

(c)

The Company recorded a valuation allowance of $3.6 million on this property during the year ended December 31, 2018. Approximately $4.9 million of the net sale proceeds were held by a qualified intermediary.

(d)

301,638 Common Units were redeemed by the Company at fair market value of $6.6 million as purchase consideration received for two of the properties disposed of in this transaction, which was a non-cash portion of this sales transaction. The Company used the net cash received at closing to repay approximately $119.9 million of borrowings under the unsecured revolving credit facility and to repay $90 million of its $350 million unsecured term loan. Approximately $251 million of the net sales proceeds were held by a qualified intermediary as of March 31, 2019. The Company utilized $217.4 million of these proceeds on April 1, 2019 to acquire a 377-unit multi-family property located in Jersey City, New Jersey.

 

The Company identified as held for sale a 348,000 square-foot office property located in Paramus, New Jersey as of March 31, 2019.  The total estimated sales proceeds, net of expected selling costs, from the sale is expected to be approximately $36.9 million.  The Company determined that the carrying value of the property was not expected to be recovered from estimated net sales proceeds and accordingly recognized an unrealized loss allowance of $2.5 million for the three months ended March 31, 2019.

 

The following table summarizes the rental property held for sale, net, as of March 31, 2019 (dollars in thousands):

 

 

 

March 31,

 

 

 

2019

 

Land

 

$

10,487

 

Buildings and improvements

 

50,997

 

Less: Accumulated depreciation

 

(24,845

)

Less: Cumulative unrealized losses on property held for sale

 

(3,400

)

Rental property held for sale, net

 

$

33,239

 

 

Other assets and liabilities related to the rental property held for sale, as of March 31, 2019, include $2.1 million in Deferred charges and other assets, $1.9 million in Unbilled rents receivable and $1.2 million in Accounts payable, accrued expenses and other liabilities.  Approximately $3.7 million of these assets and $0.1 million of these liabilities are expected to be removed with the completion of the sales.

 

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Consolidated Joint Venture Activity

 

On March 26, 2019, the Company, which held a 90 percent controlling interest in the joint venture, XS Hotel Urban Renewal LLC, which owns a 372-key hotel (164 keys in-service Residence Inn and 208 keys in-development Marriott Envue) located in Weehawken, New Jersey, acquired its partner’s 10 percent interest for $5 million in cash.  As a result of the acquisition, the Company increased its ownership of the property to 100 percent.

 

Unconsolidated Joint Venture Activity

 

On February 28, 2019, the Company sold its interest in the Red Bank Corporate Plaza joint venture that owns an operating property located in Red Bank, New Jersey for a sales price of $4.2 million, and realized a gain on the sale of the unconsolidated joint venture of $0.9 million.

 

4.    INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES

 

As of March 31, 2019, the Company had an aggregate investment of approximately $213 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 March 31, 2019, the unconsolidated joint ventures owned: two office properties aggregating approximately 0.2 million square feet, seven multi-family properties totaling 2,611 apartments units, two retail properties aggregating approximately 81,700 square feet, a 351-room hotel, a development project for up to approximately 360 apartments units; and interests and/or rights to developable land parcels able to accommodate up to 3,738 apartments units.  The Company’s unconsolidated interests range from 20 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 March 31, 2019, such debt had a total borrowing capacity of up to $317.1 million of which the Company agreed to guarantee up to $35.8 million.  As of March 31, 2019, the outstanding balance of such debt totaled $205.1 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 $0.3 million and $0.6 million for such services in the three months ended March 31, 2019 and 2018, respectively.  The Company had $0.4 million and $0.2 million in accounts receivable due from its unconsolidated joint ventures as of March 31, 2019 and December 31, 2018, respectively.

 

Included in the Company’s investments in unconsolidated joint ventures as of March 31, 2019 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 $115.5 million as of March 31, 2019.  The Company’s maximum exposure to loss as a result of its involvement with these VIEs is estimated to be approximately $151.3 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 March 31, 2019 and December 31, 2018 (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Property Debt

 

 

 

Number of

 

Company’s

 

Carrying Value

 

As of March 31, 2019

 

Entity / Property Name

 

Apartment Units
or Rentable Square

 

Effective
Ownership % (a)

 

March 31,
2019

 

December 31,
2018

 

Balance