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Mack-Cali Realty 10-Q 2017

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 September 30, 2017

 

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 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).

 

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 ¨

Non-accelerated filer ¨

Smaller reporting company ¨

Emerging Growth Company ¨

 

(Do not check if a smaller reporting company)

 

Mack-Cali Realty, L.P.:

 

Large accelerated filer x

Accelerated filer ¨

Non-accelerated filer ¨

Smaller reporting company ¨

Emerging Growth Company ¨

 

(Do not check if a smaller reporting company)

 

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

¨

Mack-Cali Realty, L.P.

¨

 

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 ¨ NO x

Mack-Cali Realty, L.P.

 

YES ¨ NO x

 

As of November 3, 2017, there were 89,914,079 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  September 30, 2017 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 September 30, 2017, the General Partner owned an approximate 89.6 percent common unit interest in the Operating Partnership.  The remaining approximate 10.4 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

 

2



Table of Contents

 

and is structured as a partnership 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 the General Partner and the Operating Partnership:

 

·                  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 September 30, 2017 and December 31, 2016

6

 

 

 

 

 

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and 2016

7

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016

8

 

 

 

 

 

 

Consolidated Statement of Changes in Equity for the nine months ended September 30, 2017

9

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016

10

 

 

 

 

 

 

Mack-Cali Realty, L.P.

 

 

 

 

 

 

 

Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016

11

 

 

 

 

 

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and 2016

12

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016

13

 

 

 

 

 

 

Consolidated Statement of Changes in Equity for the nine months ended September 30, 2017

14

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016

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

51

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

76

 

 

 

 

 

Item 4.

Controls and Procedures

76

 

 

 

 

Part II

Other Information

 

 

 

 

 

 

 

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

 

 

 

 

 

 

Item 1.

Legal Proceedings

78

 

 

 

 

 

Item 1A.

Risk Factors

78

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

78

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

78

 

 

 

 

 

Item 4.

Mine Safety Disclosures

78

 

 

 

 

 

Item 5.

Other Information

78

 

 

 

 

 

Item 6.

Exhibits

78

 

 

 

Exhibit Index

 

79

 

 

 

Signatures

 

92

 

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, 2016.

 

The results of operations for the three and nine-month periods ended September 30, 2017 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)

 

 

 

September 30,

 

December 31,

 

 

 

2017

 

2016

 

ASSETS

 

 

 

 

 

Rental property

 

 

 

 

 

Land and leasehold interests

 

$

712,166

 

$

661,335

 

Buildings and improvements

 

4,021,241

 

3,758,210

 

Tenant improvements

 

344,465

 

364,092

 

Furniture, fixtures and equipment

 

29,355

 

21,230

 

 

 

5,107,227

 

4,804,867

 

Less — accumulated depreciation and amortization

 

(1,146,091

)

(1,332,073

)

 

 

3,961,136

 

3,472,794

 

Rental property held for sale, net

 

116,958

 

39,743

 

Net investment in rental property

 

4,078,094

 

3,512,537

 

Cash and cash equivalents

 

88,789

 

31,611

 

Investments in unconsolidated joint ventures

 

238,440

 

320,047

 

Unbilled rents receivable, net

 

102,280

 

101,052

 

Deferred charges, goodwill and other assets, net

 

439,864

 

267,950

 

Restricted cash

 

40,473

 

53,952

 

Accounts receivable, net of allowance for doubtful accounts of $1,320 and $1,335

 

7,579

 

9,617

 

 

 

 

 

 

 

Total assets

 

$

4,995,519

 

$

4,296,766

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

Senior unsecured notes, net

 

$

818,764

 

$

817,355

 

Unsecured revolving credit facility and term loans

 

671,838

 

634,069

 

Mortgages, loans payable and other obligations, net

 

1,348,584

 

888,585

 

Dividends and distributions payable

 

20,929

 

15,327

 

Accounts payable, accrued expenses and other liabilities

 

182,929

 

159,874

 

Rents received in advance and security deposits

 

46,355

 

46,442

 

Accrued interest payable

 

16,776

 

8,427

 

Total liabilities

 

3,106,175

 

2,570,079

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

209,070

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

Mack-Cali Realty Corporation stockholders’ equity:

 

 

 

 

 

Common stock, $0.01 par value, 190,000,000 shares authorized, 89,913,576 and 89,696,713 shares outstanding

 

899

 

897

 

Additional paid-in capital

 

2,566,069

 

2,576,473

 

Dividends in excess of net earnings

 

(1,081,028

)

(1,052,184

)

Accumulated other comprehensive income

 

2,526

 

1,985

 

Total Mack-Cali Realty Corporation stockholders’ equity

 

1,488,466

 

1,527,171

 

 

 

 

 

 

 

Noncontrolling interests in subsidiaries:

 

 

 

 

 

Operating Partnership

 

172,809

 

178,570

 

Consolidated joint ventures

 

18,999

 

20,946

 

Total noncontrolling interests in subsidiaries

 

191,808

 

199,516

 

 

 

 

 

 

 

Total equity

 

1,680,274

 

1,726,687

 

 

 

 

 

 

 

Total liabilities and equity

 

$

4,995,519

 

$

4,296,766

 

 

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

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2017

 

2016

 

2017

 

2016

 

REVENUES

 

 

 

 

 

 

 

 

 

Base rents

 

$

128,643

 

$

129,523

 

$

382,915

 

$

380,133

 

Escalations and recoveries from tenants

 

16,385

 

16,177

 

47,455

 

45,248

 

Real estate services

 

5,748

 

6,650

 

17,980

 

19,931

 

Parking income

 

5,766

 

3,443

 

15,047

 

10,131

 

Other income

 

3,476

 

1,724

 

9,274

 

4,224

 

Total revenues

 

160,018

 

157,517

 

472,671

 

459,667

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

Real estate taxes

 

21,300

 

20,606

 

63,609

 

66,250

 

Utilities

 

11,480

 

14,127

 

33,251

 

38,658

 

Operating services

 

26,312

 

25,553

 

80,495

 

76,309

 

Real estate services expenses

 

6,207

 

6,361

 

18,376

 

19,418

 

General and administrative

 

13,140

 

14,007

 

37,223

 

39,011

 

Acquisition-related costs

 

 

815

 

 

2,854

 

Depreciation and amortization

 

52,375

 

48,117

 

157,768

 

134,639

 

Total expenses

 

130,814

 

129,586

 

390,722

 

377,139

 

Operating income

 

29,204

 

27,931

 

81,949

 

82,528

 

 

 

 

 

 

 

 

 

 

 

OTHER (EXPENSE) INCOME

 

 

 

 

 

 

 

 

 

Interest expense

 

(25,634

)

(24,233

)

(70,898

)

(72,158

)

Interest and other investment income (loss)

 

762

 

1,262

 

1,358

 

739

 

Equity in earnings (loss) of unconsolidated joint ventures

 

(1,533

)

21,790

 

(4,882

)

19,622

 

Gain on change of control of interests

 

 

 

 

15,347

 

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

 

31,336

 

(17,053

)

(2,112

)

68,664

 

Gain on sale of investment in unconsolidated joint venture

 

10,568

 

 

23,131

 

5,670

 

Gain (loss) from extinguishment of debt, net

 

 

(19,302

)

(239

)

(6,882

)

Total other income (expense)

 

15,499

 

(37,536

)

(53,642

)

31,002

 

Net income (loss)

 

44,703

 

(9,605

)

28,307

 

113,530

 

Noncontrolling interest in consolidated joint ventures

 

447

 

65

 

865

 

460

 

Noncontrolling interest in Operating Partnership

 

(4,413

)

999

 

(2,412

)

(11,947

)

Redeemable noncontrolling interest

 

(2,683

)

 

(6,157

)

 

Net income (loss) available to common shareholders

 

$

38,054

 

$

(8,541

)

$

20,603

 

$

102,043

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share:

 

 

 

 

 

 

 

 

 

Net income (loss) available to common shareholders

 

$

0.39

 

$

(0.10

)

$

0.06

 

$

1.14

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share:

 

 

 

 

 

 

 

 

 

Net income (loss) available to common shareholders

 

$

0.39

 

$

(0.10

)

$

0.06

 

$

1.13

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

90,023

 

89,755

 

89,997

 

89,739

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding

 

100,727

 

100,253

 

100,701

 

100,486

 

 

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 (LOSS) (in thousands) (unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2017

 

2016

 

2017

 

2016

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

44,703

 

$

(9,605

)

$

28,307

 

$

113,530

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

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

 

730

 

1,725

 

604

 

(7,528

)

Comprehensive income (loss)

 

$

45,433

 

$

(7,880

)

$

28,911

 

$

106,002

 

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

 

447

 

65

 

865

 

460

 

Comprehensive (income) loss attributable to redeemable noncontrolling interest

 

(2,683

)

 

(6,157

)

 

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

 

(4,489

)

818

 

(2,475

)

(11,158

)

Comprehensive income (loss) attributable to common shareholders

 

$

38,708

 

$

(6,997

)

$

21,144

 

$

95,304

 

 

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

 

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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

 

Total

 

 

 

Shares

 

Par Value

 

Capital

 

Net Earnings

 

Income (Loss)

 

in Subsidiaries

 

Equity

 

Balance at January 1, 2017

 

89,697

 

$

897

 

$

2,576,473

 

$

(1,052,184

)

$

1,985

 

$

199,516

 

$

1,726,687

 

Net income (loss)

 

 

 

 

20,603

 

 

7,704

 

28,307

 

Common stock dividends

 

 

 

 

(49,447

)

 

 

(49,447

)

Common unit distributions

 

 

 

 

 

 

(6,295

)

(6,295

)

Issuance of limited partner common units

 

 

 

 

 

 

2,793

 

2,793

 

Redeemable noncontrolling interest

 

 

 

(15,139

)

 

 

(7,905

)

(23,044

)

Decrease in noncontrolling interest in consolidated joint ventures

 

 

 

(3,787

)

 

 

(1,082

)

(4,869

)

Redemption of common units for common stock

 

149

 

1

 

2,530

 

 

 

(2,531

)

 

Shares issued under Dividend Reinvestment and Stock Purchase Plan

 

2

 

 

58

 

 

 

 

58

 

Directors’ deferred compensation plan

 

 

 

358

 

 

 

 

358

 

Stock compensation

 

70

 

1

 

1,965

 

 

 

3,302

 

5,268

 

Cancellation of restricted shares

 

(4

)

 

(146

)

 

 

 

(146

)

Other comprehensive income (loss)

 

 

 

 

 

541

 

63

 

604

 

Rebalancing of ownership percentage between parent and subsidiaries

 

 

 

3,757

 

 

 

(3,757

)

 

Balance at September 30, 2017

 

89,914

 

$

899

 

$

2,566,069

 

$

(1,081,028

)

$

2,526

 

$

191,808

 

$

1,680,274

 

 

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

 

9



Table of Contents

 

MACK-CALI REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2017

 

2016

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net income

 

$

28,307

 

$

113,530

 

Adjustments to reconcile net income to net cash provided by Operating activities:

 

 

 

 

 

Depreciation and amortization, including related intangible assets

 

153,057

 

134,756

 

Amortization of directors deferred compensation stock units

 

358

 

285

 

Amortization of stock compensation

 

5,268

 

4,299

 

Amortization of deferred financing costs

 

3,462

 

3,583

 

Amortization of debt discount and mark-to-market

 

(86

)

1,417

 

Equity in (earnings) loss of unconsolidated joint ventures

 

4,882

 

(19,622

)

Distributions of cumulative earnings from unconsolidated joint ventures

 

6,502

 

4,833

 

Gain on change of control of interests

 

 

(15,347

)

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

 

2,112

 

(68,664

)

Gain on sale of investments in unconsolidated joint ventures

 

(23,131

)

(5,670

)

Loss (gain) from extinguishment of debt

 

239

 

(12,420

)

Changes in operating assets and liabilities:

 

 

 

 

 

Increase in unbilled rents receivable, net

 

(11,270

)

(9,860

)

Increase in deferred charges, goodwill and other assets

 

(13,244

)

(11,173

)

Decrease in accounts receivable, net

 

2,038

 

424

 

Increase (decrease) in accounts payable, accrued expenses and other liabilities

 

(3,715

)

(12,656

)

Decrease in rents received in advance and security deposits

 

(720

)

(1,425

)

Increase (decrease) in accrued interest payable

 

8,553

 

(1,500

)

 

 

 

 

 

 

Net cash provided by operating activities

 

$

162,612

 

$

104,790

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

Rental property acquisitions and related intangibles

 

$

(543,414

)

$

(405,808

)

Rental property additions and improvements

 

(67,797

)

(94,017

)

Development of rental property and other related costs

 

(201,513

)

(150,592

)

Proceeds from the sales of rental property

 

241,430

 

409,101

 

Proceeds from the sale of investments in unconsolidated joint ventures

 

107,009

 

6,420

 

Investments in notes receivable

 

(47,049

)

 

Repayment of notes receivable

 

9,620

 

375

 

Investment in unconsolidated joint ventures

 

(19,279

)

(31,318

)

Distributions in excess of cumulative earnings from unconsolidated joint ventures

 

4,699

 

20,906

 

Proceeds from investment receivable

 

3,625

 

 

Decrease (increase) in restricted cash

 

7,985

 

(287

)

 

 

 

 

 

 

Net cash used in investing activities

 

$

(504,684

)

$

(245,220

)

 

 

 

 

 

 

CASH FLOW FROM FINANCING ACTIVITIES

 

 

 

 

 

Borrowings from revolving credit facility

 

$

428,000

 

$

793,000

 

Repayment of revolving credit facility

 

(714,000

)

(853,000

)

Repayment of senior unsecured notes

 

 

(314,755

)

Borrowings from unsecured term loan

 

325,000

 

350,000

 

Proceeds from mortgages and loans payable

 

395,859

 

426,613

 

Repayment of mortgages, loans payable and other obligations

 

(108,468

)

(187,969

)

Acquisition of noncontrolling interests

 

(2,011

)

(37,946

)

Issuance of redeemable noncontrolling interests, net

 

139,002

 

 

Payment of financing costs

 

(9,051

)

(7,050

)

(Distribution to) contributions from noncontrolling interests

 

(19

)

1,065

 

Payment of dividends and distributions

 

(55,062

)

(45,050

)

 

 

 

 

 

 

Net cash provided by financing activities

 

$

399,250

 

$

124,908

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

$

57,178

 

$

(15,522

)

Cash and cash equivalents, beginning of period

 

31,611

 

37,077

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

88,789

 

$

21,555

 

 

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

 

10



Table of Contents

 

MACK-CALI REALTY, L.P. AND SUBSIDIARIES

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

 

 

 

September 30,

 

December 31,

 

 

 

2017

 

2016

 

ASSETS

 

 

 

 

 

Rental property

 

 

 

 

 

Land and leasehold interests

 

$

712,166

 

$

661,335

 

Buildings and improvements

 

4,021,241

 

3,758,210

 

Tenant improvements

 

344,465

 

364,092

 

Furniture, fixtures and equipment

 

29,355

 

21,230

 

 

 

5,107,227

 

4,804,867

 

Less — accumulated depreciation and amortization

 

(1,146,091

)

(1,332,073

)

 

 

3,961,136

 

3,472,794

 

Rental property held for sale, net

 

116,958

 

39,743

 

Net investment in rental property

 

4,078,094

 

3,512,537

 

Cash and cash equivalents

 

88,789

 

31,611

 

Investments in unconsolidated joint ventures

 

238,440

 

320,047

 

Unbilled rents receivable, net

 

102,280

 

101,052

 

Deferred charges, goodwill and other assets, net

 

439,864

 

267,950

 

Restricted cash

 

40,473

 

53,952

 

Accounts receivable, net of allowance for doubtful accounts of $1,320 and $1,335

 

7,579

 

9,617

 

 

 

 

 

 

 

Total assets

 

$

4,995,519

 

$

4,296,766

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

Senior unsecured notes, net

 

$

818,764

 

$

817,355

 

Unsecured revolving credit facility and term loans

 

671,838

 

634,069

 

Mortgages, loans payable and other obligations, net

 

1,348,584

 

888,585

 

Distributions payable

 

20,929

 

15,327

 

Accounts payable, accrued expenses and other liabilities

 

182,929

 

159,874

 

Rents received in advance and security deposits

 

46,355

 

46,442

 

Accrued interest payable

 

16,776

 

8,427

 

Total liabilities

 

3,106,175

 

2,570,079

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

209,070

 

 

 

 

 

 

 

 

Partners’ Capital:

 

 

 

 

 

General Partner, 89,913,576 and 89,696,713 common units outstanding

 

1,424,566

 

1,467,569

 

Limited partners, 10,438,855 and 10,488,105 common units outstanding

 

234,183

 

236,187

 

Accumulated other comprehensive income

 

2,526

 

1,985

 

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

 

1,661,275

 

1,705,741

 

 

 

 

 

 

 

Noncontrolling interests in consolidated joint ventures

 

18,999

 

20,946

 

 

 

 

 

 

 

Total equity

 

1,680,274

 

1,726,687

 

 

 

 

 

 

 

Total liabilities and equity

 

$

4,995,519

 

$

4,296,766

 

 

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

 

11



Table of Contents

 

MACK-CALI REALTY, L.P. AND SUBSIDIARIES

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

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2017

 

2016

 

2017

 

2016

 

REVENUES

 

 

 

 

 

 

 

 

 

Base rents

 

$

128,643

 

$

129,523

 

$

382,915

 

$

380,133

 

Escalations and recoveries from tenants

 

16,385

 

16,177

 

47,455

 

45,248

 

Real estate services

 

5,748

 

6,650

 

17,980

 

19,931

 

Parking income

 

5,766

 

3,443

 

15,047

 

10,131

 

Other income

 

3,476

 

1,724

 

9,274

 

4,224

 

Total revenues

 

160,018

 

157,517

 

472,671

 

459,667

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

Real estate taxes

 

21,300

 

20,606

 

63,609

 

66,250

 

Utilities

 

11,480

 

14,127

 

33,251

 

38,658

 

Operating services

 

26,312

 

25,553

 

80,495

 

76,309

 

Real estate services expenses

 

6,207

 

6,361

 

18,376

 

19,418

 

General and administrative

 

13,140

 

14,007

 

37,223

 

39,011

 

Acquisition-related costs

 

 

815

 

 

2,854

 

Depreciation and amortization

 

52,375

 

48,117

 

157,768

 

134,639

 

Total expenses

 

130,814

 

129,586

 

390,722

 

377,139

 

Operating income

 

29,204

 

27,931

 

81,949

 

82,528

 

 

 

 

 

 

 

 

 

 

 

OTHER (EXPENSE) INCOME

 

 

 

 

 

 

 

 

 

Interest expense

 

(25,634

)

(24,233

)

(70,898

)

(72,158

)

Interest and other investment income (loss)

 

762

 

1,262

 

1,358

 

739

 

Equity in earnings (loss) of unconsolidated joint ventures

 

(1,533

)

21,790

 

(4,882

)

19,622

 

Gain on change of control of interests

 

 

 

 

15,347

 

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

 

31,336

 

(17,053

)

(2,112

)

68,664

 

Gain on sale of investment in unconsolidated joint venture

 

10,568

 

 

23,131

 

5,670

 

Gain (loss) from extinguishment of debt, net

 

 

(19,302

)

(239

)

(6,882

)

Total other income (expense)

 

15,499

 

(37,536

)

(53,642

)

31,002

 

Net income (loss)

 

44,703

 

(9,605

)

28,307

 

113,530

 

Noncontrolling interest in consolidated joint ventures

 

447

 

65

 

865

 

460

 

Redeemable noncontrolling interest

 

(2,683

)

 

(6,157

)

 

Net income (loss) available to common unitholders

 

$

42,467

 

$

(9,540

)

$

23,015

 

$

113,990

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common unit:

 

 

 

 

 

 

 

 

 

Net income (loss) available to common unitholders

 

$

0.39

 

$

(0.10

)

$

0.06

 

$

1.14

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common unit:

 

 

 

 

 

 

 

 

 

Net income (loss) available to common unitholders

 

$

0.39

 

$

(0.10

)

$

0.06

 

$

1.13

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average units outstanding

 

100,462

 

100,253

 

100,391

 

100,241

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average units outstanding

 

100,727

 

100,253

 

100,701

 

100,486

 

 

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

 

12



Table of Contents

 

MACK-CALI REALTY, L.P. AND SUBSIDIARIES

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

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2017

 

2016

 

2017

 

2016

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

44,703

 

$

(9,605

)

$

28,307

 

$

113,530

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

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

 

730

 

1,725

 

604

 

(7,528

)

Comprehensive income (loss)

 

$

45,433

 

$

(7,880

)

$

28,911

 

$

106,002

 

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

 

447

 

65

 

865

 

460

 

Comprehensive (income) loss attributable to redeemable noncontrolling interest

 

(2,683

)

 

(6,157

)

 

Comprehensive income (loss) attributable to common unitholders

 

$

43,197

 

$

(7,815

)

$

23,619

 

$

106,462

 

 

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

 

13



Table of Contents

 

MACK-CALI REALTY, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (in thousands) (unaudited)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

Noncontrolling

 

 

 

 

 

 

 

 

 

General Partner

 

Limited Partner

 

Other

 

Interest

 

 

 

 

 

General Partner

 

Limited Partner

 

Common

 

Common

 

Comprehensive

 

in Consolidated

 

 

 

 

 

Common Units

 

Common Units

 

Unitholders

 

Unitholders

 

Income (Loss)

 

Joint Ventures

 

Total Equity

 

Balance at January 1, 2017

 

89,697

 

10,488

 

$

1,467,569

 

$

236,187

 

$

1,985

 

$

20,946

 

$

1,726,687

 

Net income (loss)

 

 

 

20,603

 

2,412

 

 

5,292

 

28,307

 

Distributions

 

 

 

(49,447

)

(6,295

)

 

 

(55,742

)

Issuance of limited partner common units

 

 

99

 

 

2,793

 

 

 

2,793

 

Redeemable noncontrolling interest

 

 

 

(15,139

)

(1,748

)

 

(6,157

)

(23,044

)

Decrease in noncontrolling interest

 

 

 

(3,787

)

 

 

(1,082

)

(4,869

)

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

 

149

 

(149

)

2,531

 

(2,531

)

 

 

 

Shares issued under Dividend Reinvestment and Stock Purchase Plan

 

2

 

 

58

 

 

 

 

58

 

Directors’ deferred compensation plan

 

 

 

358

 

 

 

 

358

 

Other comprehensive income

 

 

 

 

63

 

541

 

 

604

 

Stock compensation

 

70

 

 

1,966

 

3,302

 

 

 

5,268

 

Cancellation of restricted shares

 

(4

)

 

(146

)

 

 

 

(146

)

Balance at September 30, 2017

 

89,914

 

10,438

 

$

1,424,566

 

$

234,183

 

$

2,526

 

$

18,999

 

$

1,680,274

 

 

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

 

14



Table of Contents

 

MACK-CALI REALTY, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2017

 

2016

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net income

 

$

28,307 

 

$

113,530 

 

Adjustments to reconcile net income to net cash provided by Operating activities:

 

 

 

 

 

Depreciation and amortization, including related intangible assets

 

153,057

 

134,756

 

Amortization of directors deferred compensation stock units

 

358

 

285

 

Amortization of stock compensation

 

5,268

 

4,299

 

Amortization of deferred financing costs

 

3,462

 

3,583

 

Amortization of debt discount and mark-to-market

 

(86

)

1,417

 

Equity in (earnings) loss of unconsolidated joint ventures

 

4,882

 

(19,622

)

Distributions of cumulative earnings from unconsolidated joint ventures

 

6,502

 

4,833

 

Gain on change of control of interests

 

 

(15,347

)

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

 

2,112

 

(68,664

)

Gain on sale of investments in unconsolidated joint ventures

 

(23,131

)

(5,670

)

Loss (gain) from extinguishment of debt