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Mack-Cali Realty 10-Q 2015
form10qcorp.htm
 
 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One) 
SECURITIES EXCHANGE ACT OF 1934 
 
 
 
For the quarterly period ended June 30, 2015

 or 
 
[  ]           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
 
(Exact name of registrant as specified in its charter)
     
Maryland
 
 22-3305147
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
     
     
     
343 Thornall Street, Edison, New Jersey
 
08837-2206
(Address of principal executive offices)
 
(Zip Code)
     
     
     
     
 
(732) 590-1000
 
(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.  YES X NO ___
 
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes X   No ___
 
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. 
 
Large accelerated filer  x                                                                                                           Accelerated filer  ¨
 
Non-accelerated filer  ¨ (Do not check if a smaller reporting company)                            Smaller reporting company  ¨
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES___  NO X
 
As of July 20, 2015, there were 89,090,080 shares of the registrant’s Common Stock, par value $0.01 per share, outstanding.
 
 


 
 
 
 

 











       
   
MACK-CALI REALTY CORPORATION
 
       
   
FORM 10-Q
 
       
   
INDEX
 
       
Part I
Financial Information
Page
       
 
Item 1.
Financial Statements (unaudited):
3
       
   
Consolidated Balance Sheets as of June 30, 2015
4
   
     and December 31, 2014
 
       
   
Consolidated Statements of Operations for the three and six months 
5
   
     ended June 30, 2015 and 2014
 
       
   
Consolidated Statement of Changes in Equity for the six months 
6
   
     ended June 30, 2015
 
       
   
Consolidated Statements of Cash Flows for the six months 
7
   
     ended June 30, 2015 and 2014
 
       
   
Notes to Consolidated Financial Statements
8
       
 
Item 2.
Management’s Discussion and Analysis of Financial Condition 
37
   
     and Results of Operations
 
       
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
55
       
 
Item 4.
Controls and Procedures
55
       
Part II
Other Information
 
       
 
Item 1.
Legal Proceedings
56
       
 
Item 1A.
Risk Factors
56
       
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
56
       
 
Item 3.
Defaults Upon Senior Securities
56
       
 
Item 4.
Mine Safety Disclosures
56
       
 
Item 5.
Other Information
56
       
 
Item 6.
Exhibits
56
       
Signatures
   
57
       
Exhibit Index
   
58
       


 
2

 



MACK-CALI REALTY CORPORATION 
 
Part I – Financial Information



 
The accompanying unaudited consolidated balance sheets, statements of operations, 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 presentation 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
 
The results of operations for the three and six month periods ended June 30, 2015 are not necessarily indicative of the results to be expected for the entire fiscal year or any other period.


 
3

 

MACK-CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS> (in thousands, except per share amounts) (unaudited)
           
           
   
June 30,
   
December 31,
ASSETS
 
2015
   
2014
Rental property
         
Land and leasehold interests
$
 749,359
 
$
 760,855
Buildings and improvements
 
 3,751,805
   
 3,753,300
Tenant improvements
 
 414,166
   
 431,969
Furniture, fixtures and equipment
 
 12,867
   
 12,055
   
 4,928,197
   
 4,958,179
Less – accumulated depreciation and amortization
 
 (1,448,791)
   
 (1,414,305)
           
Net investment in rental property
 
 3,479,406
   
 3,543,874
Cash and cash equivalents
 
 19,813
   
 29,549
Investments in unconsolidated joint ventures
 
 284,507
   
 247,468
Unbilled rents receivable, net
 
 117,777
   
 123,885
Deferred charges, goodwill and other assets, net
 
 197,773
   
 204,650
Restricted cash
 
 42,052
   
 34,245
Accounts receivable, net of allowance for doubtful accounts
         
of $1,871 and $2,584
 
 12,137
   
 8,576
           
Total assets
$
 4,153,465
 
$
 4,192,247
           
LIABILITIES AND EQUITY
         
Senior unsecured notes
$
 1,268,293
 
$
 1,267,744
Mortgages, loans payable and other obligations
 
 766,526
   
 820,910
Dividends and distributions payable
 
 15,582
   
 15,528
Accounts payable, accrued expenses and other liabilities
 
 134,089
   
 126,971
Rents received in advance and security deposits
 
 49,093
   
 52,146
Accrued interest payable
 
 30,659
   
 26,937
Total liabilities
 
 2,264,242
   
 2,310,236
Commitments and contingencies
         
           
Equity:
         
Mack-Cali Realty Corporation stockholders’ equity:
         
Common stock, $0.01 par value, 190,000,000 shares authorized,
         
89,195,529 and 89,076,578 shares outstanding
 
 892
   
 891
Additional paid-in capital
 
 2,562,507
   
 2,560,183
Dividends in excess of net earnings
 
 (930,167)
   
 (936,293)
Total Mack-Cali Realty Corporation stockholders’ equity
 
 1,633,232
   
 1,624,781
           
Noncontrolling interests in subsidiaries:
         
Operating Partnership
 
 201,639
   
 202,173
Consolidated joint ventures
 
 54,352
   
 55,057
Total noncontrolling interests in subsidiaries
 
 255,991
   
 257,230
           
Total equity
 
 1,889,223
   
 1,882,011
           
Total liabilities and equity
$
 4,153,465
 
$
 4,192,247

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

 
4

 

MACK-CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS> (in thousands, except per share amounts) (unaudited)
                         
                         
     
              Three Months Ended
   
              Six Months Ended
       
  June 30,
     
  June 30,
REVENUES
   
2015
   
2014
   
2015
   
2014
Base rents
 
$
 121,246 
 
$
 133,210 
 
$
 245,039 
 
$
 267,261 
Escalations and recoveries from tenants
   
 15,842 
   
 16,996 
   
 34,241 
   
 42,564 
Real estate services
   
 7,401 
   
 7,009 
   
 15,045 
   
 13,701 
Parking income
   
 2,850 
   
 2,236 
   
 5,392 
   
 4,350 
Other income
   
 1,228 
   
 849 
   
 2,565 
   
 2,020 
Total revenues
   
 148,567 
   
 160,300 
   
 302,282 
   
 329,896 
                         
EXPENSES
                       
Real estate taxes
   
 21,410 
   
 23,375 
   
 43,862 
   
 47,726 
Utilities
   
 13,399 
   
 14,573 
   
 30,974 
   
 42,854 
Operating services
   
 25,844 
   
 27,840 
   
 54,072 
   
 57,062 
Real estate services expenses
   
 6,208 
   
 6,571 
   
 12,847 
   
 13,280 
General and administrative
   
 11,988 
   
 13,673 
   
 22,999 
   
 36,554 
Depreciation and amortization
   
 42,365 
   
 44,711 
   
 83,167 
   
 89,696 
Total expenses
   
 121,214 
   
 130,743 
   
 247,921 
   
 287,172 
Operating income
   
 27,353 
   
 29,557 
   
 54,361 
   
 42,724 
                         
OTHER (EXPENSE) INCOME
                       
Interest expense
   
 (26,773)
   
 (28,159)
   
 (53,988)
   
 (58,105)
Interest and other investment income
   
 291 
   
 922 
   
 558 
   
 1,308 
Equity in earnings (loss) of unconsolidated joint ventures
   
 (2,329)
   
 443 
   
 (5,858)
   
 (792)
Realized gains (losses) on disposition of rental property, net
   
 34,399 
   
 54,584 
   
 34,543 
   
 54,584 
Gain on sale of investment in unconsolidated joint venture
   
 6,448 
   
 -
   
 6,448 
   
 -
Total other (expense) income
   
 12,036 
   
 27,790 
   
 (18,297)
   
 (3,005)
Net income
   
 39,389 
   
 57,347 
   
 36,064 
   
 39,719 
Noncontrolling interest in consolidated joint ventures
   
 373 
   
 290 
   
 863 
   
 612 
Noncontrolling interest in Operating Partnership
   
 (4,383)
   
 (6,514)
   
 (4,069)
   
 (4,506)
Net income available to common shareholders
 
$
 35,379 
 
$
 51,123 
 
$
 32,858 
 
$
 35,825 
                         
Basic earnings per common share:
                       
Net income available to common shareholders
 
$
 0.40 
 
$
 0.58 
 
$
 0.37 
 
$
 0.40 
                         
Diluted earnings per common share:
                       
Net income available to common shareholders
 
$
 0.40 
 
$
 0.58 
 
$
 0.37 
 
$
 0.40 
                         
Basic weighted average shares outstanding
   
 89,244 
   
 88,691 
   
 89,218 
   
 88,491 
                         
Diluted weighted average shares outstanding
   
 100,314 
   
 100,023 
   
 100,313 
   
 99,964 

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

 
5

 


MACK-CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY >(in thousands) (unaudited)
                                   
                                   
         
Additional
   
Dividends in
   
Noncontrolling
     
   
Common Stock
   
Paid-In
   
Excess of
 
Interests
   
Total
   
Shares
   
Par Value
   
Capital
   
Net Earnings
   
in Subsidiaries
   
Equity
Balance at January 1, 2015
 
 89,077
 
$
 891
 
$
 2,560,183
 
$
 (936,293)
 
$
 257,230
 
$
 1,882,011
Net income
 
 -
   
 -
   
 -
   
 32,858
   
 3,206
   
 36,064
Common stock dividends
 
 -
   
 -
   
 -
   
 (26,732)
   
 -
   
 (26,732)
Common unit distributions
 
 -
   
 -
   
 -
   
 -
   
 (3,308)
   
 (3,308)
Increase in noncontrolling interest
                                 
  in consolidated joint ventures
 
 -
   
 -
   
 -
   
 -
   
 158
   
 158
Redemption of common units
                                 
  for common stock
 
 72
   
 1
   
 1,305
   
 -
   
 (1,306)
   
 -
Shares issued under Dividend
                                 
  Reinvestment and Stock Purchase Plan
 
 1
   
 -
   
 25
   
 -
   
 -
   
 25
Directors' deferred compensation plan
 
 -
   
 -
   
 197
   
 -
   
 -
   
 197
Stock compensation
 
 46
   
 -
   
 808
   
 -
   
 -
   
 808
Rebalancing of ownership percentage
                                 
  between parent and subsidiaries
 
 -
   
 -
   
 (11)
   
 -
   
 11
   
 -
Balance at June 30, 2015
 
 89,196
 
$
 892
 
$
 2,562,507
 
$
 (930,167)
 
$
 255,991
 
$
 1,889,223

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

 
6

 

MACK-CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS> (in thousands) (unaudited)
             
             
     
                    Six Months Ended
     
 
        June 30,
CASH FLOWS FROM OPERATING ACTIVITIES
   
2015
   
2014
Net income
 
$
 36,064 
 
$
 39,719 
Adjustments to reconcile net income to net cash provided by
           
Operating activities:
           
Depreciation and amortization, including related intangible assets
   
 83,930 
   
 90,460 
Amortization of deferred stock units
   
 197 
   
 213 
Amortization of stock compensation
   
 805 
   
 5,563 
Amortization of deferred financing costs
   
 1,901 
   
 1,528 
Amortization of debt discount and mark-to-market
   
 2,018 
   
 3,836 
Equity in (earnings) loss of unconsolidated joint ventures
   
 5,858 
   
 792 
Distributions of cumulative earnings from unconsolidated joint ventures
   
 2,698 
   
 3,756 
Realized (gains) loss on disposition of rental property, net
   
 (34,543)
   
 (54,584)
Realized (gains) loss on sale of investment in unconsolidated joint venture
   
 (6,448)
   
 -
Changes in operating assets and liabilities:
           
Decrease (increase) in unbilled rents receivable, net
   
 801 
   
 (3,551)
Increase in deferred charges, goodwill and other assets
   
 (14,802)
   
 (15,022)
Increase in accounts receivable, net
   
 (3,561)
   
 (2,325)
Increase in accounts payable, accrued expenses and other liabilities
   
 1,478 
   
 22,540 
Decrease in rents received in advance and security deposits
   
 (3,053)
   
 (4,798)
Increase (decrease) in accrued interest payable
   
 6,342 
   
 (3,180)
             
Net cash provided by operating activities
 
$
 79,685 
 
$
 84,947 
             
CASH FLOWS FROM INVESTING ACTIVITIES
           
Rental property acquisitions and related intangibles
 
$
 (4,057)
 
$
 (37,696)
Rental property additions and improvements
   
 (42,881)
   
 (41,825)
Development of rental property, other related costs and deposits
   
 (27,869)
   
 (7,896)
Proceeds from the sales of rental property
   
 80,581 
   
 190,798 
Proceeds from the sale of investment in unconsolidated joint venture
   
 6,448 
   
 -
Investments in notes receivable
   
 -
   
 (62,276)
Repayment of notes receivable
   
 7,750 
   
 250 
Investment in unconsolidated joint ventures
   
 (49,305)
   
 (38,948)
Distributions in excess of cumulative earnings from unconsolidated joint ventures
   
 1,985 
   
 837 
Increase in restricted cash
   
 (7,808)
   
 (6,611)
             
Net cash used in investing activities
 
$
 (35,156)
 
$
 (3,367)
             
CASH FLOW FROM FINANCING ACTIVITIES
           
Borrowings from revolving credit facility
 
$
 129,000 
 
$
 233,500 
Repayment of revolving credit facility
   
 (129,000)
   
 (177,500)
Repayment of senior unsecured notes
   
 -
   
 (200,000)
Proceeds from mortgages and loans payable
   
 2,897 
   
 28,135 
Repayment of mortgages, loans payable and other obligations
   
 (27,251)
   
 (42,469)
Payment of contingent consideration
   
 -
   
 (3,936)
Payment of financing costs
   
 (98)
   
 (198)
Cash from noncontrolling interests
   
 158 
   
 -
Payment of dividends and distributions
   
 (29,971)
   
 (59,875)
             
Net cash used in financing activities
 
$
 (54,265)
 
$
 (222,343)
             
Net decrease in cash and cash equivalents
 
$
 (9,736)
 
$
 (140,763)
Cash and cash equivalents, beginning of period
   
 29,549 
   
 221,706 
             
Cash and cash equivalents, end of period
 
$
 19,813 
 
$
 80,943 


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

 
7

 

MACK-CALI REALTY CORPORATION 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 “Company”), is a fully-integrated, self-administered, self-managed real estate investment trust (“REIT”) providing leasing, management, acquisition, development, construction and tenant-related services for its properties and third parties.  As of June 30, 2015, the Company owned or had interests in 279 properties, consisting of 260 commercial properties, primarily class A office and office/flex properties, totaling approximately 30.5 million square feet, leased to approximately 2,000  commercial tenants, and 19 multi-family rental properties containing 5,644 residential units, plus developable land (collectively, the “Properties”).  The Properties are comprised of 245 buildings, primarily office and office/flex buildings totaling approximately 30.0 million square feet (which include 36 buildings, primarily office buildings aggregating approximately 5.6 million square feet owned by unconsolidated joint ventures in which the Company has investment interests), six industrial/warehouse buildings totaling approximately 387,400 square feet, 19 multi-family properties totaling 5,644 apartments (which include 13 properties aggregating 4,343 apartments owned by unconsolidated joint ventures in which the Company has investment interests), five parking/retail properties totaling approximately 121,500 square feet (which include two buildings aggregating 81,500 square feet owned by unconsolidated joint ventures in which the Company has investment interests), one hotel (which is owned by an unconsolidated joint venture in which the Company has an investment interest) and three parcels of land leased to others.  The Properties are located in seven states, primarily 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 Mack-Cali Realty, L.P. (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 one or more of the essential characteristics of a controlling financial interest; (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 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.

As of June 30, 2015 and December 31, 2014, the Company’s investments in consolidated real estate joint ventures in which the Company is deemed to be the primary beneficiary have total real estate assets of $247.3 million and $242.9 million, respectively, mortgages of $96.9 million and $94.3 million, respectively, and other liabilities of $16.6 million and $15.7 million, respectively. 

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.  Actual results could differ from those estimates.  Certain reclassifications have been made to prior period amounts in order to conform with current period presentation. 

 

 
8

 

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 are expensed as incurred.  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 $1.2 million and $0.9 million for the three months ended June 30, 2015 and 2014, respectively, and $2.5 million and $1.8 million for the six months ended June 30, 2015 and 2014, respectively.  Included in total rental property is construction, tenant improvement and development in-progress of $83.2 million and $62.8 million as of June 30, 2015 and December 31, 2014, 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.

The Company considers a construction project as substantially completed and held available for occupancy upon the substantial completion of tenant 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 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 square footage of each portion, and capitalizes only those costs associated with the portion under construction.

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 fair values.  The Company records goodwill or a gain on bargain purchase (if any) if the net assets acquired/liabilities assumed exceed the purchase consideration of a 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.
 
 
 
9

 
 

 
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.

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, recently acquired properties, current and historical operating and/or cash flow losses, near-term mortgage debt maturities or other factors 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 loss shall be measured as the excess of the carrying amount 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 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.  If, in management’s opinion, the estimated net sales price of the assets which have been identified as held for sale is less than the net book value of the assets, a valuation allowance 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 amount 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.
 
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 amount 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. 
 
 
 
 
10

 
 
 
 
  
Cash and Cash
 
Equivalents
All highly liquid investments with a 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. Amortization of such costs is included in interest expense and was $948,000 and $759,000 for the three months ended June 30, 2015 and 2014, respectively, and $1,901,000 and $1,528,000 for the six months ended June 30, 2015 and 2014, respectively.  If a financing obligation is extinguished early, any unamortized deferred financing costs are written off and included in gains (loss) from early extinguishment of debt.  No such unamortized costs were written off for the six months ended June 30, 2015 and 2014.
 
 
Deferred
Leasing Costs
Costs incurred in connection with commercial leases are 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 are 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 is capitalized and amortized, approximated $846,000 and $845,000 for the three months ended June 30, 2015 and 2014, respectively, and $1,816,000 and $1,876,000 for the six months ended June 30, 2015 and 2014, respectively.
 
 
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 amount 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 amount.  If based on this assessment, management determines that the fair value of the reporting unit is not less than its carrying amount, then performing the additional two-step impairment test is unnecessary. If the carrying amount 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
Base rental revenue is 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.
 
 
 
11

 
 

 
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 base rental revenue over the remaining initial terms plus the terms of any below-market fixed-rate renewal options of the respective leases.

Escalations and recoveries from tenants are 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 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.

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
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, or aggregate 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 Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”).  As a REIT, the Company generally will not be subject to corporate federal income tax (including alternative minimum tax) on net income that it currently distributes to its shareholders, provided that the Company 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 Company retains and does not distribute any net capital gains, the Company will be required to pay federal, state and local taxes on such net capital gains at the rate applicable to capital gains of a corporation.  The Company has elected to treat certain of its corporate subsidiaries as taxable REIT subsidiaries (each a “TRS”).  In general, a TRS of the Company 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 Company 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.

As of June 30, 2015, the Company had a deferred tax asset related to its TRS activity with a balance of approximately $15.3 million which has been fully reserved for through a valuation allowance.  If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax (including any applicable alternative minimum 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.
 
 
 
12

 
 

 
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 June 30, 2015, the tax years that remain subject to examination by the major tax jurisdictions under the statute of limitations are generally from the year 2010 forward.
 
 
Earnings
 
Per Share
The Company presents both basic and diluted earnings per share (“EPS”).  Basic EPS excludes dilution and is computed by dividing net income available to common shareholders by the weighted average number of shares outstanding for the period.  Diluted EPS 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 from continuing operations amount.  Shares whose issuance is contingent upon the satisfaction of certain conditions shall be considered outstanding and included in the computation of diluted EPS as follows (i) if all necessary conditions have been satisfied by the end of the period (the events have occurred), those shares 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 included in diluted EPS shall be based on the number of shares, 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 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 shall be included in the denominator of diluted EPS 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 June 30, 2015 represents dividends payable to common shareholders (89,089,666 shares) and distributions payable to noncontrolling interest common unitholders of the Operating Partnership (11,012,069 common units) for all such holders of record as of July 6, 2015 with respect to the second quarter 2015.  The second quarter 2015 common stock dividends and common unit distributions of $0.15 per common share and unit were approved by the Board of Directors on May 11, 2015 and paid on July 14, 2015.

The dividends and distributions payable at December 31, 2014 represents dividends payable to common shareholders (88,866,652 shares) and distributions payable to noncontrolling interest common unitholders of the Operating Partnership (11,083,876 common units) for all such holders of record as of January 6, 2015 with respect to the fourth quarter 2014.  The fourth quarter 2014 common stock dividends and common unit distributions of $0.15 per common share and unit were approved by the Board of Directors on December 9, 2014 and paid on January 14, 2015.

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”), restricted stock units (“RSUs”), performance share units (“PSUs”), total stockholder return based performance shares (“TSR”)  and stock options at the grant date be amortized ratably into expense over the appropriate vesting period.  The Company recorded stock compensation expense of $492,000 and $877,000 for the three months ended June 30, 2015 and 2014, respectively, and $805,000 and $4,264,000 for the six months ended June 30, 2015 and 2014, respectively.  The amount for the six months ended June 30, 2014 included $3,203,000 related to the departure of certain executive officers.

 
13

 

Other
 
Comprehensive
 
Income
Other comprehensive income (loss), if any, includes items that are recorded in equity, such as unrealized holding gains or losses on marketable securities available for sale.  There was no difference in other comprehensive income to net income for the three and six months ended June 30, 2015 and 2014, and no accumulated other comprehensive income as of June 30, 2015 and December 31, 2014.

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.

Discontinued
 
Operations
In April 2014, the Financial Accounting Standards Board (“FASB”) issued guidance related to the reporting of discontinued operation and disclosures of disposals of components of an entity.  This guidance defines a discontinued operation as a component or group of components disposed or classified as held for sale and represents a strategic shift that has (or will have) a major effect on an entity’s operations and final result; the guidance states that a strategic shift could include a disposal of a major geographical area of operations, a major line of business, a major equity method investment or other major parts of an entity.  The guidance also provides for additional disclosure requirements in connection with both discontinued operations and other dispositions not qualifying as discontinued operations.  The guidance is effective for all companies for annual and interim periods beginning on or after December 15, 2014.  The guidance applies prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date.  All entities could early adopt the guidance for new disposals (or new classifications as held for sale) that had not been reported in financial statements previously issued or available for issuance. The Company elected to early adopt this standard effective with the interim period beginning January 1, 2014. Prior to January 1, 2014, properties identified as held for sale and/or disposed of were presented in discontinued operations for all periods presented. 

Impact Of
Recently-Issued
Accounting
Standards
In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. In adopting ASU 2014-09, companies may use either a full retrospective or a modified retrospective approach. Additionally, this guidance requires improved disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.  ASU 2014-09 is effective for the first interim period within annual reporting periods beginning after December 15, 2017, and early adoption is permitted for periods beginning after December 15, 2016.  The Company is currently in the process of evaluating the impact the adoption of ASU 2014-09 will have on the Company’s financial position or results of operations. 
 
 
 
14

 
 

 
In June 2014, the FASB issued ASU 2014-12 Compensation—Stock Compensation (Topic 718) - Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (“ASU 2014-12”). The amendments in ASU 2014-12 apply to all reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. That is, the employee would be eligible to vest in the award regardless of whether the employee is rendering service on the date the performance target is achieved. Current GAAP does not contain explicit guidance on how to account for those share-based payments. ASU 2014-12 is intended to resolve the accounting treatment of such awards. The amendments in ASU 2014-12 are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015 with early adoption permitted. The Company is currently in the process of evaluating the impact the adoption of ASU 2014-12 will have on the Company’s financial position or results of operations. 

In August 2014, the FASB issued ASU 2014-15, which requires management to evaluate whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern, and to provide certain disclosures when it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued. ASU 2014-15 is effective for the annual period ended December 31, 2016 and for annual periods and interim periods thereafter with early adoption permitted. The adoption of ASU 2014-15 is not expected to materially impact the Company’s consolidated financial statements.

In February 2015, the FASB issued ASU 2015-02, Consolidation–Amendments to the Consolidation Analysis (Topic 810) (“ASU 2015-02”).  ASU 2015-02 updates guidance related to accounting for consolidation of certain limited partnerships. ASU 2015-02 does not add or remove any of the five characteristics that determine if an entity is a VIE; however, it changes the manner in which a reporting entity assesses its ability to make decisions about the entity's activities. Additionally, ASU 2015-02 removes three of the six criteria that must be met for a fee arrangement to not be a VIE and modifies how an entity assesses interests held through related parties. ASU 2015-02 is effective for fiscal years and interim periods within those years beginning after December 15, 2015, with early adoption permitted. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements when adopted.

In April 2015, the FASB issued ASU 2015-03, Interest–Imputation of Interest-Simplifying the Presentation of Debt Issuance Costs (Subtopic 835-30) (“ASU 2015-03”).  ASU 2015-03 requires debt issuance costs related to a recognized debt liability paid to third parties other than the lender to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.  Early adoption of this guidance is permitted for financial statements that have not been previously issued, and an entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements when adopted. 

 
 
3.    RECENT TRANSACTIONS

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

·  
A term that ends on December 31, 2018 (the “Employment Term”) unless earlier terminated;
·  
An annual base salary for each of Messrs. Rudin and DeMarco of $700,000, subject to potential merit increases (but not decreases) each year;
·  
A target annual bonus opportunity of one hundred percent (100%) of base salary, or $700,000, for each of Messrs. Rudin and DeMarco, with a threshold bonus of fifty percent (50%) of base salary, or $350,000, and a maximum bonus of two hundred percent (200%) of base salary, or $1,400,000, a pro rata bonus opportunity for 2015 based on the assessment of the Executive Compensation and Option Committee of the Board of Directors (“Committee”) of each executive’s development of a strategic plan for the Company and bonuses for 2016 and subsequent years to be based on objective performance goals to be established annually by the Committee;
·  
2015 long-term incentive (“LTI”) awards under the Company’s 2013 Incentive Stock Plan (the “2015 LTI Awards”), consisting of the granting to each of Messrs. Rudin and DeMarco on June 5, 2015 of 18,775.27 restricted stock units subject to time-based vesting over three years, and of 56,325.82 performance share units (“PSUs”) which will vest from 0 to 150 percent of the number of PSUs granted based on the Company’s total shareholder return relative to a peer group of equity office REITs over a three-year performance period; and
·  
The grant on June 5, 2015 (the “Grant Date”) to each of Messrs. Rudin and DeMarco of options to purchase 400,000 shares of the Company’s common stock, exercisable for a period of ten years with an exercise price equal to the closing price of the Company’s common stock on the NYSE on the Grant Date (which price was $17.31 per share), with 200,000 of such options vesting in three equal annual installments commencing on the first anniversary of the Grant Date, and 200,000 of such options vesting if the Company’s common stock trades at or above $25.00 per share for 30 consecutive trading days while Mr. Rudin and Mr. DeMarco is employed, as applicable, or on or before June 30, 2019 if Mr. Rudin and Mr. DeMarco is employed for the entire Employment Term (except if the executive’s employment has been terminated by the Company for cause following expiration of the Employment Term).
 
 
 
 
15

 

 
Acquisition
On April 1, 2015, the Company acquired vacant land to accommodate the development of 365 multi-family residential units located in Worcester, Massachusetts (the “CitySquare Project”) for a purchase price of $3.1 million with an additional $1.25 million to be paid (which is accrued as of June 30, 2015), subject to certain conditions, in accordance with the terms of the purchase and sale agreement.  The purchase price for the acquisition was funded primarily through borrowing under the Company’s unsecured revolving credit facility.  The Company is required to begin construction of the CitySquare Project within 12 months of closing.  The Company plans to start construction in the third quarter 2015 and the total development costs are estimated to be approximately $91.4 million.

Dispositions
On June 26, 2015, the Company sold its 203,506 square foot office property located at 14 Sylvan Way in Parsippany, New Jersey for net sales proceeds of approximately $80 million, with a gain of approximately $24.7 million from the sale.

On June 1, 2015, the Company sold its 25 percent equity interest in Rosewood Lafayette Holdings L.L.C., a joint venture which owns the Highlands at Morristown Station, a 217-unit multi-family property located in Morristown, New Jersey, to its joint venture partner and realized a gain on the sale of $6.4 million.

On January 15, 2015, the Company sold its 21,600 square foot office/flex property located at 1451 Metropolitan Drive in West Deptford, New Jersey for net sales proceeds of approximately $1.1 million, with a gain of approximately $0.1 million from the sale.

During the quarter ended June 30, 2015, the Company transferred the deeds for two of its office properties to the lender in satisfaction of its mortgage loan obligations. The properties transferred consisted of 4 Sylvan Way in Parsippany, New Jersey, aggregating 105,135 square feet, which was collateral for a $14.6 million mortgage loan that matured on August 11, 2014, and 10 Independence Boulevard in Warren, New Jersey, aggregating 120,528 square feet, which was collateral for a $16.9 million mortgage loan that matured on August 11, 2014.   The Company had previously recorded impairment charges on the properties totaling $12.2 million at September 30, 2013. As a result, the Company recorded a gain on the disposal of the two office properties for a total of $9.7 million during the quarter.

On January 1, 2014, the Company early adopted the new discontinued operations accounting standard and as the properties disposed of during the six months ended June 30, 2015 will not represent a strategic shift (as the Company is not entirely exiting markets or property types), they have not been reflected as part of discontinued operations.


 
16

 

The following table summarizes income for the three and six month periods ended June 30, 2015 and 2014 from the properties disposed of during the six months ended June 30, 2015 and the 16 properties sold during the year ended December 31, 2014: (dollars in thousands)

                         
                         
     
              Three Months Ended
   
              Six Months Ended
       
     June 30,
     
      June 30,
     
2015
   
2014
   
2015
   
2014
Total revenues
 
$
 2,728
 
$
 14,424
 
$
 5,647
 
$
 32,797
Operating and other expenses
   
 (688)
   
 (7,025)
   
 (1,544)
   
 (17,320)
Depreciation and amortization
   
 (912)
   
 (3,045)
   
 (2,034)
   
 (7,035)
Interest income
   
 (557)
   
 (880)
   
 (1,355)
   
 (1,767)
                         
Income from properties disposed of
 
$
 571
 
$
 3,474
 
$
 714
 
$
 6,675
                         
Realized gains on dispositions
   
 34,399
   
 54,584
   
 34,543
   
 54,584
                         
Total income from properties disposed of
 
$
 34,970
 
$
 58,058
 
$
 35,257
 
$
 61,259

 


 
17

 

4.    INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES

As of June 30, 2015, the Company had an aggregate investment of approximately $284.5 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 June 30, 2015, the unconsolidated joint ventures owned: 36 office and two retail properties aggregating approximately 5.7 million square feet, 13 multi-family properties totaling 4,343 apartments, a 350-room hotel, development projects for up to approximately 1,074 apartments; and interests and/or rights to developable land parcels able to accommodate up to 2,910 apartments and 1.4 million square feet of office space.  The Company’s unconsolidated interests range from 7.5 percent to 85 percent subject to specified priority allocations in certain of the joint ventures.

On October 23, 2012, the Company acquired the real estate development and management businesses (the “Roseland Business”) of Roseland Partners, L.L.C. (“Roseland Partners”), a premier multi-family rental community developer and manager based in Short Hills, New Jersey, and the Roseland Partners’ interests (the “Roseland Transaction”), principally through unconsolidated joint venture interests in various entities which, directly or indirectly, own or have rights with respect to various residential and/or commercial properties or vacant land (collectively, the “Roseland Assets”).  The locations of the properties extend from New Jersey to Massachusetts, with the majority of the properties located in New Jersey.  Certain of the entities which own the Roseland Assets are controlled by the Company upon acquisition and are therefore consolidated. However, many of the entities are not controlled by the Company and, therefore, are accounted for under the equity method as investments in unconsolidated 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 June 30, 2015, such debt had a total facility amount of $477 million of which the Company agreed to guarantee up to $67.8 million.  As of June 30, 2015, the outstanding balance of such debt totaled $263.6 million of which $36.9 million was guaranteed by the Company.  The Company also posted a $4.1 million letter of credit in support of the South Pier at Harborside joint venture, half of which is indemnified by Hyatt Corporation, the Company’s joint venture partner.  The Company performed management, leasing, development and other services for the properties owned by the unconsolidated joint ventures and recognized $1.4 million and $1.4 million for such services in the three months ended June 30, 2015 and 2014, respectively, and $3.1 million and $2.8 million for the six months ended June 30, 2015 and 2014, respectively, which are included in real estate services revenue for the periods presented.  The Company had $0.8 million and $1.0 million in accounts receivable due from its unconsolidated joint ventures as of June 30, 2015 and December 31, 2014.

Included in the Company’s investments in unconsolidated joint ventures as of June 30, 2015 are nine 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 $154.3 million as of June 30, 2015.  The Company’s maximum exposure to loss as a result of its involvement with these VIEs is estimated to be approximately $206.1 million, which includes the Company’s current investment and estimated future funding commitments/guarantees of approximately $51.8 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 party will be funded with capital contributions from the Company and its outside partners in accordance with their respective ownership percentages.   




 
18

 



The following is a summary of the Company's unconsolidated joint ventures as of June 30, 2015 and December 31, 2014: (dollars in thousands)

                                   
                         
Property Debt
 
 
Number of
Company's
   
Carrying Amount
   
As of June 30, 2015
 
 
Apartment Units
Effective
   
June 30,
   
December 31,
     
Maturity
Interest
 
Entity / Property Name
or Square Feet (sf)
Ownership % (a)
   
2015
   
2014
   
Balance
Date
Rate
 
Multi-family
                                 
Marbella RoseGarden, L.L.C./ Marbella  (b)
 412
units
 24.27
%
 
$
 15,721
 
$
 15,779
 
$
 95,000
05/01/18
 4.99
%
 
RoseGarden Monaco Holdings, L.L.C./ Monaco   (b)
 523
units
 15.00
%
   
 1,532
   
 2,161
   
 165,000
02/01/21
 4.19
%
 
Rosewood Lafayette Holdings, L.L.C./ Highlands at Morristown Station (c)
 217
units
 25.00
%
   
 -
   
 62
   
 -
 -
-
   
PruRose Port Imperial South 15, LLC /RiversEdge at Port Imperial (b)
 236
units
 50.00
%
   
 -
   
 -
   
 57,500
09/01/20
 4.32
%
 
Rosewood Morristown, L.L.C. / Metropolitan at 40 Park  (d) (e)
 130
units
 12.50
%
   
 5,806
   
 6,029
   
 46,217
(f)
(f)
   
Overlook Ridge JV 2C/3B, L.L.C./The Chase at Overlook Ridge  (b)
 371
units
 50.00
%
   
 2,277
   
 2,524
   
 52,662
12/26/15
L+2.50
%
(g)
PruRose Riverwalk G, L.L.C./ RiverTrace at Port Imperial   (b)
 316
units
 25.00
%
   
 425
   
 955
   
 79,380
07/15/21
 6.00
%
(h)
Elmajo Urban Renewal Associates, LLC / Lincoln Harbor (Bldg A&C)  (b)
 355
units
 7.50
%
   
 -
   
 -
   
 128,100
03/01/30
 4.00
%
(i)
Crystal House Apartments Investors LLC / Crystal House  (j)
798
units
 25.00
%
   
 28,018
   
 27,051
   
 165,000
04/01/20
 3.17
%
 
Portside Master Company, L.L.C./ Portside at Pier One - Bldg 7  (b)
 176
units
 38.25
%
   
 379
   
 1,747
   
 42,108
12/04/15
L+2.50
%
(k)
PruRose Port Imperial South 13, LLC / RiverParc at Port Imperial  (b)
 280
units
 20.00
%
   
 274
   
 1,087
   
 64,927
06/27/16
L+2.15
%
(l)
Roseland/Port Imperial Partners, L.P./ Riverwalk C  (b) (m)
 363
units
 20.00
%
   
 1,678
   
 1,800
   
 -
-
-
   
RoseGarden Marbella South, L.L.C./ Marbella II
 311
units
 24.27
%
   
 14,149
   
 11,282
   
 51,206
03/30/17
L+2.25
%
(n)
Estuary Urban Renewal Unit B, LLC / Lincoln Harbor (Bldg B)  (b)
 227
units
 7.50
%
   
 -
   
 -
   
 81,900
03/01/30
 4.00
%
(o)
Riverpark at Harrison I, L.L.C./ Riverpark at Harrison
 141
units
 36.00
%
   
 4,420
   
 4,744
   
 23,400
06/27/16
L+2.35
%
(p)
Capitol Place Mezz LLC / Station Townhouses
 378
units
 50.00
%
   
 48,610
   
 49,327
   
 91,434
07/01/33
 4.82
%
(q)
Harborside Unit A Urban Renewal, L.L.C. / URL Harborside
 763
units
 85.00
%
   
 77,564
   
 34,954
   
 -
08/01/29
 5.197
%
(r)
RoseGarden Monaco, L.L.C./ San Remo Land
250
potential units
 41.67
%
   
 1,310
   
 1,283
   
 -
-
-
   
Grand Jersey Waterfront URA, L.L.C./ Liberty Landing
850
potential units
 50.00
%
   
 337
   
 337
   
 -
-
-
   
                                   
Office
                                 
Red Bank Corporate Plaza, L.L.C./ Red Bank
 92,878
sf
 50.00
%
   
 4,201
   
 3,963
   
 15,496
05/17/16
L+3.00
%
(s)
12 Vreeland Associates, L.L.C./ 12 Vreeland Road
 139,750
sf
 50.00
%
   
 5,692
   
 5,620
   
 13,278
07/01/23
 2.87
%
 
BNES Associates III / Offices at Crystal Lake
 106,345
sf
 31.25
%
   
 2,114
   
 1,993
   
 6,448
11/01/23
 4.76
%
 
Hillsborough 206 Holdings, L.L.C./ Hillsborough 206
 160,000
sf
 50.00
%
   
 1,962
   
 1,962
   
 -
-
-
   
KPG-P 100 IMW JV, LLC / 100 Independence Mall West
 339,615
sf
 33.33
%
   
 37
   
 -
   
 61,500
09/09/16
L+7.00
%
(t)
Keystone-Penn
 1,842,820
sf
(u)
     
 -
   
 -
   
 207,345
(v)
(v)
   
Keystone-TriState
 1,266,384
sf
(w)
     
 4,549
   
 6,140
   
 206,272
(x)
(x)
   
KPG-MCG Curtis JV, L.L.C./ Curtis Center  (y)
 885,000
sf
 50.00
%
   
 57,382
   
 59,911
   
(z)
(z)
(z)
   
                                   
Other
                                 
Plaza VIII & IX Associates, L.L.C./ Vacant land (parking operations)
 1,225,000
sf
 50.00
%
   
 3,867
   
 4,022
   
 -
-
-
   
Roseland/North Retail, L.L.C./ Riverwalk at Port Imperial  (b)
 30,745
sf
 20.00
%
   
 1,793
   
 1,828
   
 -
-
-
   
South Pier at Harborside / Hyatt Regency Jersey City on the Hudson
 350
rooms
 50.00
%
   
(aa)
   
(aa)
   
 64,968
(ab)
(ab)
   
Stamford SM LLC / Senior Mezzanine Loan  (ac)
n/a
n/a
 80.00
%
   
 -
   
 -
   
 -
-
-
   
Other (ad)
           
 410
   
 907
   
 -
-
-
   
Totals:
         
$
 284,507
 
$
 247,468
 
$
 1,719,141
       


   
   
(a)      
Company's effective ownership % represents the Company's entitlement to residual distributions after payments of priority returns, where applicable.
(b)      
The Company's ownership interests in this venture are subordinate to its partner's preferred capital balance and the Company is not expected to meaningfully participate in the venture's cash flows in the near term.
(c)      
See discussion in Recent Transactions following in this footnote for disposition of Company's interest in the unconsolidated joint ventures.
(d)      
Through the joint venture, the Company also owns a 12.5 percent interest in a 50,973 square feet retail building ("Shops at 40 Park") and a 25 percent interest in a to-be-built 59-unit, five story multi-family rental development property ("Lofts at 40 Park").
(e)      
The Company's ownership interests in this venture are subordinate to its partner's preferred capital balance and the payment of the outstanding balance remaining on a note ($975 as of June 30, 2015), and is not expected to meaningfully participate in the venture's cash flows in the near term.
(f)      
Property debt balance consists of: (i) a loan, collateralized by the Metropolitan at 40 Park, with a balance of $38,600, bears interest at 3.25 percent, matures in September 2020 and is interest only through September 2015; (ii) a loan, collateralized by the Shops at 40 Park, with a balance of $6,500, bears interest at 3.63 percent, matures in August 2018 and is interest-only through July 2015; and (iii) a loan, collateralized by the Lofts at 40 Park, with a balance of $1,117, bears interest at LIBOR plus 250 basis points and matures in September 2015.  The Shops at 40 Park mortgage loan also provides for additional borrowing proceeds of $1 million based on certain preferred thresholds being achieved.
(g)      
The construction loan has a maximum borrowing amount of $55,500 and provides, subject to certain conditions, two one-year extension options with a fee of 25 basis points each.  The joint venture has a swap agreement that fixes the all-in rate to 3.0875 percent per annum on an initial notional amount of $1,840, increasing to $52,000, for the period from September 3, 2013 to November 2, 2015.
(h)       
The permanent loan has a maximum borrowing amount of $80,249.
(i)       
The construction loan with a maximum borrowing amount of $91,000 converted to a permanent loan on February 27, 2015.
(j)      
The Company also owns a 50 percent interest in a vacant land to accommodate the development of approximately 295 additional units of which 252 are currently approved.
(k)       
The construction loan has a maximum borrowing amount of $42,500 and provides, subject to certain conditions, two two-year extension options with a fee of 12.5 basis points for the first two-year extension and 25 basis points for the second two-year extension.
(l)     
The construction loan has a maximum borrowing amount of $73,350 and provides, subject to certain conditions, one-year extension option followed by a six-month extension option with a fee of 25 basis points each. The joint venture has a swap agreement that fixes the all-in rate to 2.79 percent per annum on an initial notional amount of $1,620, increasing to $69,500 for the period from July 1, 2013 to January 1, 2016.
(m)      
The Company also owns a 20 percent residual interest in undeveloped land parcels: parcels 6, I, and J ("Port Imperial North Land") that can accommodate the development of 836 apartment units.
(n)      
The construction loan has a maximum borrowing amount of $77,400 and provides, subject to certain conditions, two one-year extension options with a fee of 25 basis points for each year.
(o)      
The construction loan with a maximum borrowing amount of $57,000 converted to a permanent loan on February 27, 2015.
(p)      
The construction loan has a maximum borrowing amount of $23,400 and provides, subject to certain conditions, two one-year extension options with a fee of 20 basis points for each year.
(q)       
The construction/permanent loan has a maximum borrowing amount of $100,700 with amortization starting in August 2017.
(r)    
The construction/permanent loan has a maximum borrowing amount of $192,000.
(s)      
The joint venture has a swap agreement that fixes the all-in rate to 3.99375 percent per annum on an initial notional amount of $13,650 and then adjusting in accordance with an amortization schedule, which is effective from October 17, 2011 through loan maturity.
(t)       
The mortgage loan has two one-year extension options, subject to certain conditions, and includes a $25 million construction escrow with a balance of $5.7 million to be drawn at June 30, 2015.
(u)      
The Company’s equity interests in the joint ventures will be subordinated to Keystone Entities receiving a 15 percent internal rate of return (“IRR”) after which the Company will receive a 10 percent IRR on its subordinate equity and then all profit will be split equally.
(v)      
Principal balance of $127,600 bears interest at 5.114 percent and matures in August 27, 2023; principal balance of $69,320 bears interest at rates ranging from LIBOR+5.0 percent to LIBOR+5.75 percent and matures in August 27, 2016; principal balance of $10,425 bears interest at LIBOR+6.0 percent matures in August 27, 2015.
(w)     
Includes the Company’s pari-passu interests of $4.5 million in five properties and Company’s subordinated equity interests to Keystone Entities receiving a 15 percent internal rate of return (“IRR”) after which the Company will receive a 10 percent IRR on its subordinate equity and then all profit will be split equally.
(x)      
Principal balance of $41,848 bears interest at 4.95 percent and matures on July 1, 2017; principal balance of $71,724 bears interest at rates ranging from 5.65 percent to 6.75 percent and matures on September 9, 2017; principal balance of $14,250 bears interest at 4.88 percent and matures on July 6, 2024; principal balance of $63,400 bears interest at 4.93 percent and matures on July 6, 2044; principal balance of $15,050 bears interest at 4.71 percent and matures on August 6, 2044.
(y)
Includes undivided interests in the same manner as investments in noncontrolling partnership, pursuant to ASC 970-323-25-12.
(z)
See Note 9: Mortgages, Loans Payable and Other Obligations for debt secured by interests in these assets.
(aa)
The negative carrying amount for this venture of $2,570 and $1,854 as of June 30, 2015 and December 31, 2014, respectively, were included in accounts payable, accrued expenses and other liabilities.
(ab)      
Balance includes: (i) mortgage loan, collateralized by the hotel property, with a balance of $60,844, bears interest at 6.15 percent and matures in November 2016, and (ii) loan with a balance of $4,124, bears interest at fixed rates ranging from 6.09 percent to 6.62 percent and matures in August 1, 2020.  The Company posted a $4.1 million letter of credit in support of this loan, half of which is indemnified by the partner.
(ac)      
The joint venture collected net proceeds of $47.2 million at maturity, of which the Company received its share of $37.8 million on August 6, 2014.
(ad)
The Company owns other interests in various unconsolidated joint ventures, including interests in assets previously owned and interest in ventures whose businesses are related to its core operations. These ventures are not expected to significantly impact the Company's operations in the near term. 

 
 
 
19

 
 

 
The following is a summary of the Company’s equity in earnings (loss) of unconsolidated joint ventures for the three and six months ended June 30, 2015 and 2014: (dollars in thousands)
                       
           
   
                Three Months Ended
   
                 Six Months Ended
     
       June 30,
     
       June 30,
Entity / Property Name
 
2015
   
2014
   
2015
   
2014
Multi-family
                     
Marbella RoseGarden, L.L.C./ Marbella
$
 61
 
$
 (9)
 
$
 122
 
$
 (15)
RoseGarden Monaco Holdings, L.L.C./ Monaco
 
 (313)
   
 (238)
   
 (629)
   
 (515)
Rosewood Lafayette Holdings, L.L.C./ Highlands at Morristown Station
 
 -
   
 (203)
   
 (62)
   
 (419)
PruRose Port Imperial South 15, LLC /RiversEdge at Port Imperial
 
 -
   
 -
   
 -
   
 -
Rosewood Morristown, L.L.C. / Metropolitan at 40 Park
 
 (91)
   
 (76)
   
 (185)
   
 (174)
Overlook Ridge JV 2C/3B, L.L.C./The Chase at Overlook Ridge
 
 (27)
   
 -
   
 (247)
   
 62
PruRose Riverwalk G, L.L.C./ RiverTrace at Port Imperial
 
 (276)
   
 (613)
   
 (530)
   
 (1,151)
Elmajo Urban Renewal Associates, LLC / Lincoln Harbor (Bldg A&C)
 
 -
   
 (91)
   
 -
   
 (203)
Crystal House Apartments Investors LLC / Crystal House
 
 13
   
 53
   
 3
   
 (274)
Portside Master Company, L.L.C./ Portside at Pier One - Bldg 7
 
 (637)
   
 (220)
   
 (1,357)
   
 (434)
PruRose Port Imperial South 13, LLC / RiverParc at Port Imperial
 
 (506)
   
 (213)
   
 (731)
   
 (418)
Roseland/Port Imperial Partners, L.P./ Riverwalk C
 
 (125)
   
 (180)
   
 (309)
   
 (345)
RoseGarden Marbella South, L.L.C./ Marbella II
 
 -
   
 -
   
 -
   
 -
Estuary Urban Renewal Unit B, LLC / Lincoln Harbor (Bldg B)
 
 -
   
 -
   
 -
   
 (15)
Riverpark at Harrison I, L.L.C./ Riverpark at Harrison
 
 (150)
   
 -
   
 (324)
   
 -
Capitol Place Mezz LLC / Station Townhouses
 
 (1,263)
   
 -
   
 (1,188)
   
 -
Harborside Unit A Urban Renewal, L.L.C. / URL Harborside
 
 -
   
 (212)
   
 -
   
 (212)
RoseGarden Monaco, L.L.C./ San Remo Land
 
 -
   
 -
   
 -
   
 -
Grand Jersey Waterfront URA, L.L.C./ Liberty Landing
 
 -
   
 (16)
   
 (19)
   
 (54)
Office
                     
Red Bank Corporate Plaza, L.L.C./ Red Bank
 
 112
   
 106
   
 222
   
 205
12 Vreeland Associates, L.L.C./ 12 Vreeland Road
 
 86
   
 54
   
 72
   
 144
BNES Associates III / Offices at Crystal Lake
 
 52
   
 110
   
 121
   
 147
Hillsborough 206 Holdings, L.L.C./ Hillsborough 206
 
 (5)
   
 -
   
 (5)
   
 (5)
KPG-P 100 IMW JV, LLC / 100 Independence Mall West
 
 (379)
   
 (483)
   
 (763)
   
 (1,136)
Keystone-Penn
 
 -
   
 -
   
 -
   
 -
Keystone-TriState
 
 (242)
   
 -
   
 (1,590)
   
 -
KPG-MCG Curtis JV, L.L.C./ Curtis Center
 
 232
   
 251
   
 428
   
 251
Other
                     
Plaza VIII & IX Associates, L.L.C./ Vacant land (parking operations)
 
 70
   
 44
   
 156
   
 146
Roseland/North Retail, L.L.C./ Riverwalk at Port Imperial
 
 (18)
   
 (23)
   
 (36)
   
 (47)
South Pier at Harborside / Hyatt Regency Jersey City on the Hudson
 
 868
   
 892
   
 784
   
 1,290
Stamford SM LLC / Senior Mezzanine Loan
 
 -
   
 928
   
 -
   
 1,844
Other
 
 209
   
 582
   
 209
   
 536
Company's equity in earnings (loss) of unconsolidated joint ventures
$
 (2,329)
 
$
 443
 
$
 (5,858)
 
$
 (792)


 
20

 

The following is a summary of the financial position of the unconsolidated joint ventures in which the Company had investment interests as of June 30, 2015 and December 31, 2014: (dollars in thousands)
             
             
     
June 30,
   
December 31,
     
2015
   
2014
Assets:
           
   Rental property, net
 
$
 1,597,359
 
$
 1,534,812 
   Other assets
   
 421,753
   
 398,222 
   Total assets
 
$
 2,019,112
 
$
 1,933,034 
Liabilities and partners'/
           
members' capital:
           
   Mortgages and loans payable
 
$
 1,193,461
 
$
 1,060,020 
   Other liabilities
   
 215,077
   
 211,340 
   Partners'/members' capital
   
 610,574
   
 661,674 
   Total liabilities and
           
   partners'/members' capital
 
$
 2,019,112
 
$
 1,933,034 
 
 
The following is a summary of the results from operations of the unconsolidated joint ventures for the period in which the Company had investment interests during the three and six months ended June 30, 2015 and 2014: (dollars in thousands)
                       
                       
   
              Three Months Ended
   
                Six Months Ended
   
 
       June 30,
     
      June 30,
   
2015
   
2014
   
2015
   
2014
Total revenues
$
 81,075
 
$
 113,118 
 
$
 155,552
 
$
 144,111 
Operating and other expenses
 
 (55,953)
   
 (96,605)
   
 (113,309)
   
 (114,958)
Depreciation and amortization
 
 (17,816)
   
 (8,213)
   
 (34,809)
   
 (16,581)
Interest expense
 
 (13,324)
   
 (8,786)
   
 (24,658)
   
 (15,127)
Net loss
$
 (6,018)
 
$
 (486)
 
$
 (17,224)
 
$
 (2,555)

Recent Transactions
OVERLOOK RIDGE JV, LLC/QUARRYSTONE AT OVERLOOK RIDGE
On May 13, 2015, LR Overlook Phase II, LLC, of which the Company held a 50 percent interest, sold its 251-unit multi-family rental property located in Malden, Massachusetts (“Quarrystone Property”) for approximately $74.6 million.  The Company received no share of the distributable cash from the sale as the Company’s equity interest in the venture is subordinated to its joint venture partner, and realized no gain or loss from the sale.

ROSEWOOD LAFAYETTE HOLDINGS, L.L.C./HIGHLANDS AT MORRISTOWN STATION
On June 1, 2015, the Company sold its 25 percent equity interest in Rosewood Lafayette Holdings L.L.C., a joint venture which owns the Highlands at Morristown Station, a 217-unit multi-family property located in Morristown, New Jersey, to its joint venture partner and realized a gain on the sale of $6.4 million.   


5.    DEFERRED CHARGES, GOODWILL AND OTHER ASSETS, NET
           
           
   
June 30,
   
December 31,
(dollars in thousands)
 
2015
   
2014
Deferred leasing costs
$
 229,989
 
$
 239,138
Deferred financing costs
 
 20,823
   
 24,042
   
 250,812
   
 263,180
Accumulated amortization
 
 (113,469)
   
 (122,358)
Deferred charges, net
 
 137,343
   
 140,822
Notes receivable (a)
 
 13,619
   
 21,491
In-place lease values, related intangibles and other assets, net
 
 5,458
   
 6,565
Goodwill
 
 2,945
   
 2,945
Prepaid expenses and other assets, net
 
 38,408
   
 32,827
           
Total deferred charges, goodwill and other assets, net
$
 197,773
 
$
 204,650

(a)
Includes as of June 30, 2015: a mortgage receivable for $10.4 million which bears interest at LIBOR plus six percent and matures in August 2016; and an interest-free note receivable with a net present value of $3.2 million and matures in April 2023.  The Company believes these balances are fully collectible.
 
 
 
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DERIVATIVE FINANCIAL INSTRUMENTS