VERIS RESIDENTIAL, INC. The following discussion should be read in conjunction with the Consolidated Financial Statements ofMack-Cali Realty Corporation andMack-Cali Realty, L.P. and the notes thereto (collectively, the "Financial Statements"). Certain defined terms used herein have the meaning ascribed to them in the Financial Statements. 39
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Executive Overview
Mack-Cali Realty Corporation together with its subsidiaries, (collectively, the
"General Partner"), including Mack-Cali Realty, L.P. (the "Operating
Partnership"), has been involved in all aspects of commercial real estate
development, management and ownership for over 60 years and the General Partner
has been a publicly traded real estate investment trust (REIT) since 1994.
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. Unless stated otherwise or the context
requires, the "Company" refers to the General Partner and its subsidiaries,
including the Operating Partnership and its subsidiaries. The Company owns or
has interests in 52 properties (collectively, the "Properties"), consisting of
25 office properties, totaling approximately 8.1 million square feet leased to
approximately 225 commercial tenants, 19 multi-family rental properties
containing 5,825 apartment units, four parking/retail properties totaling
approximately 108,000 square feet, three hotels containing 723 rooms and a
parcel of land leased to a third party. The Properties are located in the
Northeast, some with adjacent, Company-controlled developable land sites able to
accommodate up to approximately 1.7 million square feet of additional commercial
space and approximately 9,500 apartment units.
The Company's historical strategy has been to focus its operations, acquisition
and development of office and multi-family rental properties in
high-barrier-to-entry markets and sub-markets where it believes it is, or can
become, a significant and preferred owner and operator.
STRATEGIC DIRECTION
OnDecember 19, 2019 , the Company announced that its Board had determined to sell the Company's entire suburbanNew Jersey office portfolio totaling approximately 6.6 million square feet (collectively, the "Suburban Office Portfolio"). This does not include the Company's waterfront office properties inJersey City andHoboken, New Jersey . As the decision to sell the Suburban Office Portfolio represented a strategic shift in the Company's operations, these properties' results (other than a property classified as held for sale) are being classified as discontinued operations for all periods presented herein. As ofDecember 31, 2020 , the Company determined that a 350,000 square foot office property in the Suburban Office Portfolio, located inHolmdel, New Jersey no longer met the held for sale criteria. The property had originally been classified as held for sale as ofDecember 31, 2019 . The reclassified property has an aggregate book value of$19.8 million as ofDecember 31, 2020 , net of accumulated depreciation of$10.5 million (including catch-up depreciation).$2.8 million of previously recorded valuation allowance was reversed upon the reclassification of the asset from held for sale atDecember 31, 2020 , and the corresponding property's results and valuation allowance are also reclassified out of discontinued operations to continuing operations for all periods presented. See Note 7: Discontinued Operations - to the Financial Statements. In late 2019 throughDecember 31, 2020 , the Company completed the sale of 20 of these suburban office properties, totaling 3.2 million square feet, for net sales proceeds of$377.4 million . As ofDecember 31, 2020 , the Company has identified as held for sale 16 office properties (comprised of six disposal groups) in the Suburban Office Portfolio, totaling 3.0 million square feet (of which the Company currently has 15 properties totaling 2.8 million square feet under contract for sale for aggregate gross proceeds of$652.4 million ). InJanuary 2021 , the Company completed the sale of one of the properties held for sale, which was a 149,600 square foot office property, for a gross sales price of$38 million . The Company plans to complete the sale of substantially all of its remaining Suburban Office Portfolio properties in 2021 and to use the available sales proceeds to pay down its corporate-level, unsecured indebtedness. However, the Company cannot predict whether or to what extent the timing of these sales and the expected amount may be impacted by the ongoing coronavirus ("COVID-19"). After the completion of the Suburban Office Portfolio sales, the Company's holdings will consist of its waterfront class A office portfolio and its multi-family rental portfolio, and related development projects and land holdings. As an owner of real estate, almost all of the Company's earnings and cash flow are derived from rental revenue received pursuant to leased space at the Properties. Key factors that affect the Company's business and financial results include the following:
?the general economic climate;
?the occupancy rates of the Properties;
?rental rates on new or renewed leases;
?tenant improvement and leasing costs incurred to obtain and retain tenants;
?the extent of early lease terminations;
?the value of our office properties and the cash flow from the sale of such properties;
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?operating expenses;
?anticipated acquisition and development costs for office and multi-family rental properties and the revenues and earnings from these properties;
?cost of capital; and
?the extent of acquisitions, development and sales of real estate, including the execution of the Company's current strategic initiative.
Any negative effects of the above key factors could potentially cause a continued deterioration in the Company's revenue and/or earnings. Such negative effects could include: (1) failure to renew or execute new leases as current leases expire; (2) failure to renew or execute new leases with rental terms at or above the terms of in-place leases; and (3) tenant defaults. The Company's ability to renew or execute new leases as current leases expire or to execute new leases with rental terms at or above the terms of in-place leases may be affected by several factors such as: (1) the local economic climate, which may be adversely impacted by business layoffs or downsizing, industry slowdowns, changing demographics and other factors; and (2) local real estate conditions, such as oversupply of the Company's product types or competition within the market. In addition, the COVID-19 pandemic could potentially cause deterioration in the financial condition or liquidity of the Company's tenants, which could impair their ability to pay rents. A number of the Company's tenants have requested rent relief during this pandemic. The COVID-19 pandemic could also potentially cause reduced demand for space at the Company's office properties and/or units at its multi-family residential properties, parking facilities and hotel properties, which could have a negative impact on the Company's prospects for leasing current or additional space and/or renewing leases with existing tenants. Of the Company's core office markets, most continue to show signs of rental rate improvement, while the lease percentage has declined or stabilized. The percentage leased in the Company's stabilized core operating commercial properties included in itsConsolidated Properties aggregating 7.9 million, 10.3 million and 14.1 million square feet atDecember 31, 2020 , 2019 and 2018, respectively, was 78.7 percent leased atDecember 31, 2020 , as compared to 80.7 percent leased atDecember 31, 2019 and 83.2 percent leased atDecember 31, 2018 (after adjusting for properties identified as non-core at the time). Percentage leased includes all leases in effect as of the period end date, some of which have commencement dates in the future and leases that expire at the period end date. Leases that expired as ofDecember 31, 2020 , 2019 and 2018 aggregate 145,404, 31,982 and 10,108 square feet, respectively, or 1.8, 0.3 and 0.1 percentage of the net rentable square footage, respectively. Rental rates (including escalations) on the Company's core commercial space that was renewed (based on first rents payable) during the year endedDecember 31, 2020 (on 489,280 square feet of renewals) increased an average of 7.9 percent compared to rates that were in effect under the prior leases, as compared to a 16.9 percent increase during 2019 (on 229,429 square feet of renewals) and a 21.7 percent increase in 2018 (on 950,548 square feet of renewals). Estimated lease costs for the renewed leases in 2020 averaged$8.61 per square foot per year for a weighted average lease term of 5.7 years, estimated lease costs for the renewed leases in 2019 averaged$4.34 per square foot per year for a weighted average lease term of 3.9 years and estimated lease costs for the renewed leases in 2018 averaged$3.46 per square foot per year for a weighted average lease term of 4.7 years. The Company believes, although there can be no assurance, that vacancy rates at most of its commercial properties have begun to bottom as the majority of the known move-outs at its waterfront portfolio have already occurred. As ofDecember 31, 2020 , commercial leases which comprise approximately 9.7 and 5.2 percent of the Company's annualized base rent are scheduled to expire during the years endingDecember 31, 2021 and 2022, respectively. With the positive rental rate results the Company has achieved in most of its markets recently, the Company believes, although there can be no assurance, that rental rates on new leases will generally be, on average, not lower than rates currently being paid. If these recent leasing results do not prove to be sustaining in 2021, the Company may receive less revenue from the same space. During 2017, Moody's downgraded its investment grade rating on the Company's senior unsecured debt to sub-investment grade and during 2018,Standard & Poor's lowered its investment grade rating on the Company's senior unsecured debt to sub-investment grade (current ratings are B1 and B+ by Moody's and S&P, respectively). Amongst other things, such downgrade would have increased the interest rate on outstanding borrowings under the Company's current$600 million unsecured revolving credit facility (which was amended inJanuary 2017 ) from the London Inter-Bank Offered Rate ("LIBOR") plus 120 basis points to LIBOR plus 155 basis points and the annual credit facility fee it pays would have increased from 25 to 30 basis points. Additionally, any such downgrade would have increased the current interest rate on each of the Company's 2016 Term Loan and 2017 Term Loan from LIBOR plus 140 basis points to LIBOR plus 185 points. EffectiveMarch 6, 2018 , the Company elected to utilize the leverage grid pricing available under the unsecured revolving credit facility and both unsecured term loans. This resulted in an interest rate of LIBOR plus 130 basis points for the Company's unsecured revolving credit facility and 25 basis points for the facility fee and LIBOR plus 155 basis points for both unsecured term loans at the Company's then total leverage ratio. In addition, the downgrade in its ratings to sub-investment grade could 41
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result in higher interest rates on senior unsecured debt that the Company may issue in the future as compared to issuing such debt with investment grade ratings.
The remaining portion of this Management's Discussion and Analysis of Financial Condition and Results of Operations should help the reader understand our:
?recent transactions;
?critical accounting policies and estimates;
?results of operations for the year ended
?results of operations for the year ended
?liquidity and capital resources.
Recent TransactionsProperties Commencing Initial Operations
The following property commenced initial operations during the year ended
Total
In Service Property # of
Development
Date Property Location Type Apartment Units
Costs Incurred
$ 103,993 Totals 326$ 103,993 Consolidations OnMarch 12, 2020 , the Company, acquired its equity partner's 80 percent interest inPort Imperial North Retail L.L.C. a ground floor retail space totaling 30,745 square feet located at Port Imperial,West New York, New Jersey for$13.3 million in cash (funded through borrowing under the Company's unsecured credit facility.) The results of the transaction increased the Company's interest to 100 percent. Upon the acquisition, the Company consolidated the joint venture, a voting interest entity. As an acquisition of the remaining interests in the venture which owns thePort Imperial North Retail L.L.C. , the Company accounted for the transaction as an asset acquisition under a cost accumulation model, and as such no gain on change of control of interest was recognized in consolidation, resulting in total consolidated net assets of$15.0 million , which are allocated as follows: Port Imperial North Retail L.L.C. Land and leasehold interests$ 4,305 Buildings and improvements and other assets, net
8,912
In-place lease values (a)
1,503
Above/Below market lease value, net (a)
313
Net assets recorded upon consolidation $
15,033
(a) In-place and below market lease values are being amortized over a weighted-average term of 7.5 years.
Real Estate Held for Sale/Discontinued Operations/Dispositions
The Company identified 16 office properties (comprised of six disposal groups) totaling 3.0 million square feet (See Note 7: Discontinued Operations - to the Financial Statements), a retail pad leased to others and several developable land parcels as held for sale as ofDecember 31, 2020 . The total estimated sales proceeds, net of expected selling costs, from the sales of all the remaining assets held for sale are expected to be approximately$743.5 million , however there can be no assurance of the amount and timing of any such sales proceeds. As a result of recent sales contract amendments and after considering the current market conditions as a result of the challenging economic climate with the current worldwide COVID-19 pandemic the Company determined that the carrying value of six of the remaining held for sale properties (comprised of three disposal groups), and several land parcels held for sale was not expected to be recovered from estimated net sales proceeds, and accordingly, during the year endedDecember 31, 2020 , recognized an unrealized held-for-sale loss allowance of$15.7 million for the properties ($14 million of which are from discontinued operations) and also recorded 42
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land and other impairments of$9.5 million . As ofDecember 31, 2020 , the Company determined that two developable land parcels located inParsippany, New Jersey were no longer being held for sale. The properties had originally been classified as held for sale as ofDecember 31, 2019 . The reclassified properties had an aggregate book value of$11.3 million .
The Company disposed of the following rental properties during the year ended
Discontinued
Operations:
Realized Realized
Gains Gains
Rentable Net Net (losses)/ (losses)/
Disposition # of Square Property Sales Carrying Unrealized Unrealized
Date Property/Address Location Bldgs. Feet/Units Type Proceeds Value Losses, net Losses, net
03/17/20 One Bridge Plaza Fort Lee, New Jersey 1 200,000 Office $ 35,065 $ 17,743 $ - $ 17,322
07/22/20 3 Giralda Farms (a) Madison, New Jersey 1 141,000 Office 7,510 9,534 - (2,024)
Parsippany and
09/15/20 Morris portfolio (b) Madison, New Jersey 10 1,448,420 Office 155,116 175,772 - (20,656)
Florham Park, New
09/18/20 325 Columbia Turnpike Jersey 1 168,144 Office 24,276 8,020 - 16,256
09/24/20 9 Campus Drive (c) Parsippany, New Jersey 1 156,945 Office 20,678 22,162 - (1,484)
10/21/20 3&5 Vaughn Drive Princeton, New Jersey 1 98,500 Office 7,282 5,754 - 1,528
11/18/20 7 Campus Drive (d) Parsippany, New Jersey 1 154,395 Office 12,278 11,804 - 474
12/03/20 581 Main Street Woodbridge, New Jersey 1 200,000 Office 58,400 43,113 - 15,287
12/22/20 500 College Road (e) Princeton, New Jersey 1 158,235 Office 4,582 6,044 - (1,462)
12/23/20 5/10 Dennis St and
New Brunswick, New
and 100 Hiram Sq Jersey 2 200 units Multi-Family 45,567 38,404 7,163 -
Sub-total 20 2,725,639 370,754 338,350 7,163 25,241
Unrealized losses on real estate held for sale (1,682) (14,040) Totals 20 2,725,639$ 370,754 $ 338,350 $ 5,481 $ 11,201
(a) The Company recorded valuation allowances of
property during the year ended
the year ended
sale properties during the year ended
during the year ended
during the year ended
property during the year ended
property during the year ended December 31, 2020 .
The Company disposed of the following developable land holdings during the year
ended
Realized
Gains
Net Net (losses)/
Disposition Sales Carrying Unrealized
Property
Date Address Location Proceeds Value Losses, net
230 & 250 Half
Capital Office
03/27/20 Park land Greenbelt, Maryland 8,974 8,210 764
14 & 16
12/18/20 Skyline Drive Mount Pleasant, New York 2,925 1,951 974
Totals $ 18,917 $ 13,130 $ 5,787 Impairments on Properties Held and Used
The Company determined that, due to the shortening of its expected period of ownership and as a result of the adverse effect the COVID-19 pandemic has had, and continues to have, on its hotel operations, the Company evaluated the recoverability of the carrying values of its two adjacent hotel properties and determined that it was necessary to reduce the carrying values of its two hotel assets located inWeehawken, New Jersey to their estimated fair values. One of these hotels has closed its rooms sinceMarch 2020 . Accordingly, the Company recorded an impairment charge of$36.6 million on these hotels atSeptember 30, 2020 which is included in property impairments on the consolidated statement of operations for the year endedDecember 31, 2020 . The Company also evaluated the recoverability of the carrying values of its land parcels and determined that it was necessary to reduce the carrying values of three held-and-used land parcels to their estimated fair values and recorded land and other impairment charges of$7.3 million for the year endedDecember 31, 2020 . 43
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Unconsolidated Joint Venture Activity
OnDecember 31, 2020 , theCrystal House Apartment Investors LLC , an unconsolidated joint venture property located inArlington, Virginia sold its sole apartment property for an aggregate sales price of$376.6 million . The Company received$62.7 million for its share of net sale proceeds from the joint venture and realized its share of the gain on the property sale from the unconsolidated joint venture of$35.1 million . OnDecember 17, 2020 , the Company sold its interest in theHillsborough 206 Holdings joint venture which owns a developable land located inHillsborough, New Jersey for a sale price of$2.1 million , and realized a gain on sale from unconsolidated joint ventures of$0.1 million . Critical Accounting Policies and Estimates The accompanying consolidated financial statements include all accounts of the Company, its majority-owned and/or controlled subsidiaries, which consist principally of theOperating 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 - to the Financial Statements, for the Company's treatment of unconsolidated joint venture interests. Intercompany accounts and transactions have been eliminated. Accounting Standards Codification ("ASC") 810, Consolidation, provides guidance on the identification of entities for which control is achieved through means other than voting rights ("variable interest entities" or "VIEs") and the determination of which business enterprise, if any, should consolidate the VIEs. Generally, the consideration of whether an entity is a VIE applies when either: (1) the equity investors (if any) lack (i) the ability to make decisions about the entity's activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; (2) the equity investment at risk is insufficient to finance that entity's activities without additional subordinated financial support; or (3) the equity investors have voting rights that are not proportionate to their economic interests and substantially all of the activities of the entity involve or are conducted on behalf of an investor with a disproportionately small voting interest. The Company consolidates VIEs in which it is considered to be the primary beneficiary. The primary beneficiary is defined by the entity having both of the following characteristics: (1) the power to direct the activities that, when taken together, most significantly impact the variable interest entity's performance: and (2) the obligation to absorb losses and right to receive the returns from the VIE that would be significant to the VIE. OnJanuary 1, 2016 , the Company adopted accounting guidance under ASC 810, Consolidation, modifying the analysis it must perform to determine whether it should consolidate certain types of legal entities. The guidance does not amend the existing disclosure requirements for variable interest entities or voting interest model entities. The guidance, however, modified the requirements to qualify under the voting interest model. Under the revised guidance, theOperating Partnership will be a variable interest entity of the parent company,Mack-Cali Realty Corporation . As theOperating Partnership is already consolidated in the balance sheets ofMack-Cali Realty Corporation , the identification of this entity as a variable interest entity has no impact on the consolidated financial statements ofMack-Cali Realty Corporation . There were no other legal entities qualifying under the scope of the revised guidance that were consolidated as a result of the adoption. The financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are based on management's historical experience that are believed to be reasonable at the time. However, because future events and their effects cannot be determined with certainty, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates. Certain reclassifications have been made to prior period amounts in order to conform with current period presentation, primarily related to classification of certain properties as discontinued operations. The Company's critical accounting policies are those which require assumptions to be made about matters that are highly uncertain. Different estimates could have a material effect on the Company's financial results. Judgments and uncertainties affecting the application of these policies and estimates may result in materially different amounts being reported under different conditions and circumstances.
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. The Company adoptedFinancial Accounting Standards Board ("FASB") guidance Accounting Standards Update ("ASU") 2017-01 onJanuary 1, 2017 , which revises the definition of a business and is expected to result in more transactions to be accounted for as asset acquisitions and significantly limit transactions that would be accounted for as business 44
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combinations. Where an acquisition has been determined to be an asset acquisition, acquisition-related costs are capitalized. Capitalized development and construction costs include pre-construction costs essential to the development of the property, development and construction costs, interest, property taxes, insurance, salaries and other project costs incurred during the period of development. Interest capitalized by the Company for the years endedDecember 31, 2020 , 2019 and 2018 was$26.4 million ,$19.3 million and$27.0 million , 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 improvements, but no later than one year from cessation of major construction activity (as distinguished from activities such as routine maintenance and cleanup). If portions of a rental project are substantially completed and occupied by tenants or residents, or held available for occupancy, and other portions have not yet reached that stage, the substantially completed portions are accounted for as a separate project. The Company allocates costs incurred between the portions under construction and the portions substantially completed and held available for occupancy, primarily based on a percentage of the relative commercial square footage or multi-family units of each portion, and capitalizes only those costs associated with the portion under construction.
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. For asset acquisitions, the Company allocates the
purchase price to the assets acquired and liabilities assumed based on their
relative fair values. The Company records goodwill or a gain on bargain purchase
(if any) if the net assets acquired/liabilities assumed differ from the purchase
consideration of a business combination transaction. In estimating the fair
value of the tangible and intangible assets acquired, the Company considers
information obtained about each property as a result of its due diligence and
marketing and leasing activities, and utilizes various valuation methods, such
as estimated cash flow projections utilizing appropriate discount and
capitalization rates, estimates of replacement costs net of depreciation, and
available market information. The fair value of the tangible assets of an
acquired property considers the value of the property as if it were vacant.
Above-market and below-market lease values for acquired properties are initially
recorded based on the present value (using a discount rate which reflects the
risks associated with the leases acquired) of the difference between (i) the
contractual amounts to be paid pursuant to each in-place lease and (ii)
management's estimate of fair market lease rates for each corresponding in-place
lease, measured over a period equal to the remaining term of the lease for
above-market leases and the remaining initial term plus the term of any
below-market fixed rate renewal options for below-market leases. The capitalized
above-market lease values are amortized as a reduction of base rental revenue
over the remaining terms of the respective leases, and the capitalized
below-market lease values are amortized as an increase to base rental revenue
over the remaining initial terms plus the terms of any below-market fixed rate
renewal options of the respective leases.
Other intangible assets acquired include amounts for in-place lease values and
tenant relationship values, which are based on management's evaluation of the
specific characteristics of each tenant's lease and the Company's overall
relationship with the respective tenant. Factors to be considered by management
in its analysis of in-place lease values include an estimate of carrying costs
during hypothetical expected lease-up periods considering current market
conditions, and costs to execute similar leases. In estimating carrying costs,
management includes real estate taxes, insurance and other operating expenses
and estimates of lost rentals at market rates during the expected lease-up
periods, depending on local market conditions. In estimating costs to execute
similar leases, management considers leasing commissions, legal and other
related expenses. Characteristics considered by management in valuing tenant
relationships include the nature and extent of the Company's existing business
relationships with the tenant, growth prospects for developing new business with
the tenant, the tenant's credit quality and expectations of lease renewals. The
values of in-place leases are amortized to expense over the remaining initial
terms of the respective leases. The values of tenant relationship intangibles
are amortized to expense over the anticipated life of the relationships or
leases.
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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, depending on the type of property, may include reviewing low leased percentages, significant near-term lease expirations, current and historical operating and/or cash flow losses, construction cost overruns and/or other factors, including those that might impact the Company's intent and ability to hold the property. A property's value is impaired only if management's estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property over its estimated holding period is less than the carrying value of the property. If there are different possible scenarios for a property, the Company will take a probability-weighted approach to estimating future cash flow scenarios. To the extent impairment has occurred, the impairment loss is measured as the excess of the carrying value of the property over the fair value of the property. The Company's estimates of aggregate future cash flows expected to be generated and estimated fair values for each property are based on a number of assumptions, including but not limited to estimated holding periods, market capitalization rates and discount rates, if applicable. For developable land holdings, an estimated per-unit market value assumption is also considered based on development rights for the land. 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.
Real Estate Held for Sale and Discontinued Operations
When assets are identified by management as held for sale, the Company discontinues depreciating the assets and estimates the sales price, net of expected selling costs, of such assets. The Company generally considers assets (as identified by their disposal groups) to be held for sale when the transaction has received appropriate corporate authority, it is probable to be sold within the following 12 months, and there are no significant contingencies relating to a sale. If, in management's opinion, the estimated net sales price, net of expected selling costs, of the disposal groups which have been identified as held for sale is less than the carrying value of the assets, a valuation allowance (which is recorded as unrealized losses on disposition of rental property) is established. In the absence of an executed sales agreement with a set sales price, management's estimate of the net sales price may be based on a number of assumptions, including but not limited to the Company's estimates of future cash flows, market capitalization rates and discount rates, if applicable. For developable land holdings, an estimated per-unit market value assumption is also considered based on development rights for the land. In addition, the Company classifies assets held for sale or sold as discontinued operations if the disposal groups represent a strategic shift that will have a major effect on the Company's operations and financial results. For any disposals qualifying as discontinued operations, the assets and their results are presented in discontinued operations in the financial statements for all periods presented. See Note 7: Discontinued Operations - to the Financial Statements. If circumstances arise that previously were considered unlikely and, as a result, the Company has determined that an asset previously classified as held for sale no longer meets the held for sale criteria, the asset is reclassified as held and used. An asset that is reclassified is measured and recorded individually at the lower of (a) its carrying value before the asset was classified as held for sale, adjusted for any depreciation (amortization) expense that would have been recognized had the asset been continuously classified as held and used, or (b) the fair value at the date the asset, qualified as held for sale.
Investments in
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 inUnconsolidated Joint Ventures , subsequently adjusted for equity in earnings and cash contributions and distributions. The outside basis portion of the Company's joint ventures is amortized over the anticipated useful lives of the underlying ventures' tangible and intangible assets acquired and liabilities assumed. Generally, the Company would discontinue applying the equity method when the investment (and any advances) is reduced to zero and would not provide for additional losses unless the Company has guaranteed obligations of the venture or is otherwise committed to providing further financial support for the investee. If the venture subsequently generates income, the Company only recognizes its share of such income to the extent it exceeds its share of previously unrecognized losses.
If the venture subsequently makes distributions and the Company does not have an implied or actual commitment to support the operations of the venture, the Company will not record a basis less than zero, rather such amounts will be recorded as equity in earnings of unconsolidated joint ventures.
On a periodic basis, management assesses whether there are any indicators that
the value of the Company's investments in unconsolidated joint ventures may be
impaired. An investment is impaired only if management's estimate of the value
of the investment
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is less than the carrying value of the investment, and such decline in value is deemed to be other than temporary. To the extent impairment has occurred, the loss shall be measured as the excess of the carrying value of the investment over the value of the investment. The Company's estimates of value for each investment (particularly in real estate joint ventures) are based on a number of assumptions including but not limited to estimates of future and stabilized cash flows, market capitalization rates and discount rates, if applicable. These assumptions are 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 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 inUnconsolidated Joint Ventures - to the Financial Statements.
Revenue Recognition
Revenue from leases includes fixed base rents under leases, which are recognized on a straight-line basis over the terms of the respective leases. Unbilled rents receivable represents the cumulative amount by which straight-line rental revenue exceeds rents currently billed in accordance with the lease agreements. Above-market and below-market lease values for acquired properties are initially recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management's estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the remaining initial term plus the term of any below-market fixed-rate renewal options for below-market leases. The capitalized above-market lease values for acquired properties are amortized as a reduction of revenue from leases over the remaining terms of the respective leases, and the capitalized below-market lease values are amortized as an increase to revenue from leases over the remaining initial terms plus the terms of any below-market fixed-rate renewal options of the respective leases. The Company elected a practical expedient for its rental properties (as lessor) to avoid separating non-lease components that otherwise would need to be accounted for under the recently-adopted revenue accounting guidance (such as tenant reimbursements of property operating expenses) from the associated lease component since (1) the non-lease components have the same timing and pattern of transfer as the associated lease component and (2) the lease component, if accounted for separately, would be classified as an operating lease; this enables the Company to account for the combination of the lease component and non-lease components as an operating lease since the lease component is the predominant component of the combined components. Due to the Company's adoption of the practical expedient discussed above to not separate non-lease component revenue from the associated lease component, the Company is aggregating revenue from its lease components and non-lease components (comprised predominantly of tenant operating expense reimbursements) into the line entitled "Revenue from leases." Revenue from leases also includes reimbursements and recoveries from tenants received from tenants for certain costs as provided in the lease agreements. These costs generally include real estate taxes, utilities, insurance, common area maintenance and other recoverable costs. See Note 14: Tenant Leases - to the Financial Statements. 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 is comprised of income from parking spaces leased to tenants and others.
Hotel income includes all revenue generated from hotel properties.
Other income includes income from tenants for additional services arranged for by the Company and income from tenants for early lease terminations.
All bad debt expense is being recorded as a reduction of the corresponding revenue account starting onJanuary 1, 2019 . Management performs a detailed review of amounts due from tenants for collectability based on factors affecting the billings and status of individual tenants. The factors considered by management in determining which individual tenant's revenues are affected 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 bad debt write-off's requires management to exercise judgment about the timing, frequency and severity of collection losses, which affects the revenue recorded. 47
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Redeemable Noncontrolling Interests
The Company evaluates the terms of the partnership units issued in accordance
with the FASB's Distinguishing Liabilities from Equity guidance. Units which
embody an unconditional obligation requiring the Company to redeem the units for
cash after a specified or determinable date (or dates) or upon the occurrence of
an event that is not solely within the control of the issuer are determined to
be contingently redeemable under this guidance and are included as Redeemable
noncontrolling interests and classified within the mezzanine section between
Total liabilities and Stockholders' equity on the Company's Consolidated Balance
Sheets. The carrying amount of the redeemable noncontrolling interests will be
changed by periodic accretions, so that the carrying amount will equal the
estimated future redemption value at the redemption date.
Results From Operations
The following comparisons for the year ended December 31, 2020 ("2020"), as
compared to the year ended December 31, 2019 ("2019"), and for 2019 as compared
to the year ended December 31, 2018 ("2018") make reference to the following:
(i) the effect of the "Same-Store Properties ," which represent all in-service
properties owned by the Company at December 31, 2018 , (for the 2020 versus 2019
comparisons), and which represent all in-service properties owned by the Company
at December 31, 2017 (for the 2019 versus 2018 comparisons), excluding
properties sold, disposed of, removed from service, or being redeveloped or
repositioned from January 1, 2018 through December 31, 2020 ; (ii) the effect of
the "Acquired Properties ," which represent all properties acquired by the
Company or commencing initial operation from January 1, 2019 through December
31, 2020 (for the 2020 versus 2019 comparisons), and which represents all
properties acquired by the Company or commencing initial operations from January
1, 2018 through December 31, 2019 (for the 2019 versus 2018 comparisons), and
(iii) the effect of "Properties Sold" which represent properties sold, disposed
of, or removed from service (including properties being redeveloped or
repositioned) by the Company from January 1, 2018 through December 31, 2020 .
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Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Years Ended
December 31, Dollar Percent
(dollars in thousands) 2020 2019 Change Change
Revenue from rental operations and other: Revenue from leases$ 272,970 $ 302,409 $ (29,439) (9.7) % Parking income 15,604 21,857 (6,253) (28.6) Hotel income 4,287 9,841 (5,554) (56.4) Other income 9,311 9,222 89 1.0 Total revenues from rental operations 302,172 343,329 (41,157) (12.0) Property expenses: Real estate taxes 45,825 44,817 1,008 2.2 Utilities 13,717 17,881 (4,164) (23.3) Operating services 68,313 70,409 (2,096) (3.0) Total property expenses 127,855 133,107 (5,252) (3.9) Non-property revenues: Real estate services 11,390 13,873 (2,483) (17.9) Total non-property revenues 11,390 13,873 (2,483) (17.9) Non-property expenses: Real estate services expenses 13,555 15,918 (2,363) (14.8) General and administrative 73,641 59,805 13,836 23.1 Depreciation and amortization 122,035 133,597 (11,562) (8.7) Property impairments 36,582 - 36,582 - Land and other impairments 16,817 32,444 (15,627) (48.2) Total non-property expenses 262,630 241,764 20,866 8.6 Operating income (loss) (76,923) (17,669) (59,254) (335.4) Other (expense) income: Interest expense (80,991) (90,569) 9,578 10.6 Interest and other investment income (loss) 43 2,412 (2,369) (98.2) Equity in earnings (loss) of unconsolidated joint ventures (3,832) (1,319) (2,513) (190.5) Gain on change of control of interests - 13,790 (13,790) (100.0) Realized gains (losses) and unrealized losses on disposition of rental property, net 5,481 343,102 (337,621) (98.4) Gain on disposition of developable land 5,787 522 5,265 1,008.6 Gain on sale from unconsolidated joint ventures 35,184 903 34,281 3,796.3 Gain (loss) from extinguishment of debt, net (272) 1,648 (1,920) (116.5) Total other (expense) income (38,600) 270,489 (309,089) (114.3) Income (loss) from continuing operations (115,523) 252,820 (368,343) (145.7) Discontinued operations: Income from discontinued operations 70,724 24,366 46,358 190.3 Realized gains (losses) and unrealized losses on disposition of rental property and impairments, net 11,201 (133,350) 144,551 108.4 Total discontinued operations 81,925 (108,984) 190,909 175.2 Net income (loss)$ (33,598) $ 143,836 $ (177,434) (123.4) % 49
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The following is a summary of the changes in revenue from rental operations and other, and property expenses, in 2020 as compared to 2019 divided intoSame-Store Properties ,Acquired Properties and Properties Sold in 2019 and 2020 (excluding properties classified as discontinued operations): Total Same-Store Acquired Properties Company Properties Properties Sold in 2019 and 2020 Dollar Percent Dollar Percent Dollar Percent Dollar Percent (dollars in thousands) Change Change Change Change Change Change Change Change Revenue from rental operations and other: Revenue from leases$ (29,439) (9.7) %$ (8,595) (2.8) % $
28,928 9.6 %
(1,033) (4.7)
Hotel income (5,554) (56.4) (3,138) (31.8) (2,416) (24.6)
- -
Other income 89 1.0 1,963 21.3 694 7.5 (2,568) (27.8)
Total $ (41,157) (12.0) % $ (16,436) (4.8) % $ 28,652 8.3 % $ (53,373) (15.5) %
Property
expenses:
Real estate
taxes $ 1,008 2.2 % $ 1,401 3.1 % $ 7,354 16.4 % $ (7,747) (17.3) %
Utilities (4,164) (23.3) (1,236) (6.9) 1,289 7.2 (4,217) (23.6)
Operating
services (2,096) (3.0) (4,794) (6.8) 11,429 16.2 (8,731) (12.4)
Total $ (5,252) (3.9) % $ (4,629) (3.5) % $ 20,072 15.1 % $ (20,695) (15.5) %
OTHER DATA: Number of Consolidated Properties 26 20 6 104 Commercial Square feet (in thousands) 4,916 4,885 31 10,916 Multi-family portfolio (number of units) 4,039 2,377 1,662 1,745 Revenue from leases. Revenue from leases for theSame-Store Properties decreased$8.6 million , or 2.8 percent, for 2020 as compared to 2019, due primarily to a decrease in average same store percent leased from 93.9 to 89.4 percent at the multifamily residential portfolio in 2020, as compared to 2019, primarily as a result of the impacts from the COVID-19 pandemic in 2020.
Parking income. Parking income for the
Hotel income. Hotel income for the Same-Store properties decreased$3.1 million , or 31.8 percent, for 2020 as compared to 2019 due to the partial shutdown of hotel operations due to the COVID-19 pandemic in 2020. Other income. Other income for theSame-Store Properties increased$2.0 million , or 21.3 percent for 2020 as compared to 2019 due primarily to an increase in lease breakage fees for both, multi-family and commercial properties recognized in 2020, as compared to 2019.
Real estate taxes. Real estate taxes on the
Utilities. Utilities for theSame-Store Properties decreased$1.2 million , or 6.9 percent, for 2020 as compared to 2019, due primarily to decreased usage in 2020 as compared to 2019 as a result of decreased occupancy. Operating services. Operating services for the Same-Store properties decreased$4.8 million , or 6.8 percent, for 2020 as compared to 2019, due primarily to a decrease in property maintenance and other services expense in 2020 as compared to 2019. Real estate services revenue. Real estate services revenue (primarily reimbursement of property personnel costs) decreased$2.5 million , or 17.9 percent, for 2020 as compared to 2019, due primarily to decreased third party development and property management activity in multi-family services in 2020 as compared to 2019.
Real estate services expenses. Real estate services expenses decreased
General and administrative. General and administrative expenses increased$13.8 million , or 23.1 percent in 2020 as compared to 2019. This increase is due primarily to an increase in management restructuring costs, including severance, separation and related costs of 50
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$8.8 million ($10.1 million in 2020 versus$1.3 million in 2019), an increase in costs incurred in connection with contested elections of the Board of Directors of$8.7 million ($12.8 million in 2020 versus$4.1 million in 2019) and an increase in dead deal costs incurred of$2.3 million ($2.6 million in 2020 versus$0.3 million in 2019). These were partially offset by a decrease in salaries and related expenses and leasing personnel costs of$2.8 million for 2020 as compared to 2019 and a decrease in travel, office and public relations events costs of$2.7 million for 2020 as compared to 2019 due to the COVID-19 pandemic. Depreciation and amortization. Depreciation and amortization decreased$11.6 million , or 8.7 percent, for 2020 over 2019. This decrease was due primarily to lower depreciation of approximately$14.1 million for properties sold or removed from service during 2019 and 2020, partially offset by an increase in depreciation of$2.5 million for 2020 as compared to 2019 from theAcquired Properties .
Property impairments. In 2020, the Company recorded impairment charges of
Land and other impairments. In 2020, the Company recorded$16.8 million of impairments on developable land parcels. See Note 3: Recent Transactions - Real Estate Held For Sale - to the Financial Statements. In 2019, the Company recorded valuation impairment charges of$32.4 million on developable land parcels. See Note 12: Disclosure of Fair Value of Assets and Liabilities - to the Financial Statements.
Interest expense. Interest expense decreased
Interest and other investment income. Interest and other investment income decreased$2.4 million , or 98.2 percent, for 2020 as compared to 2019 primarily due to lower average notes receivable balances outstanding in 2020 as compared to 2019. Equity in earnings (loss) of unconsolidated joint ventures. Equity in earnings of unconsolidated joint ventures decreased$2.5 million , or 190.6 percent, for 2020 as compared to 2019. The decrease is primarily due to a decrease of$2.8 million for 2020 as compared to 2019 from theHyatt Regency Hotel Jersey City venture, due to the hotel being shut down sinceMarch 2020 on account of the COVID-19 pandemic, and a decrease of$0.5 million for 2020 as compared to 2019 from the Urby at Harborside venture. These were partially offset by an increase of$1.1 million for 2020 as compared to 2019 from the12 Vreeland Road venture, due to impairment charges recorded of$2.6 million in 2020 and$3.7 million in 2019. Gain on change of control of interests. The Company recorded a gain on change of control of interests of$13.8 million in 2019 as a result of its acquisition of the controlling interest of its equity partners in a joint venture owns a multi-family property located inJersey City, New Jersey . Realized gains (losses) and unrealized losses on disposition of rental property, net. The Company had realized gains (unrealized losses) on disposition of rental property of$5.5 million in 2020 and$343.1 million in 2019. See Note 3: Recent Transactions - Dispositions - to the Financial Statements. Gain on disposition of developable land. In 2020, the Company recorded a gain of$5.8 million on the sale of land holdings located inMount Pleasant, New York ;Middletown, New Jersey ; andGreenbelt, Maryland . The Company recorded a gain of$0.5 million in 2019 on the sale of land holdings located inMalden andRevere, Massachusetts . See Note 3: Recent Transactions - Dispositions to the Financial Statements. Gain on sale from unconsolidated joint ventures. In 2020, the Company recorded a$35.2 million gain on the sale of its interests in joint ventures which owned property inArlington, Virginia and land inHillsborough, New Jersey . In 2019, the Company recorded a$0.9 million gain on the sale of its interests in a joint venture, which owned a property inRed Bank, New Jersey . See Note 4: Investments inUnconsolidated Joint Ventures - to the Financial Statements. Gain/(loss) from extinguishment of debt, net. In 2020, the Company recorded a loss on early retirement of debt of$0.3 million in connection with the repayment of a construction loan on a multifamily property located inMalden, Massachusetts . In 2019, the Company recognized a gain from early retirement of debt of$1.6 million in connection with the early termination of part of interest rate swap agreements, which resulted from the prepayment of unsecured term loan balances in 2019. Discontinued operations. In 2019, the Company classified 37 office properties totaling 6.6 million square feet as discontinued operations, some of which were sold during 2019 and 2020. In 2020, the Company reclassified one of the discontinued properties as held for use. The income from these properties increased$46.4 million for 2020 as compared to 2019, due primarily to a decrease in depreciation and amortization costs. Upon classifying these properties as held for sale inDecember 2019 , the Company ceased recording 51
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depreciation and amortization on the long lived assets, thereby resulting in a decrease of depreciation and amortization in 2020 compared to 2019. The Company recognized realized gains (losses) and unrealized losses on disposition of rental property and impairments, net, of a gain of$11.2 million in 2020 and a loss of$133.4 million in 2019. Net income (loss). Net income (loss) decreased to a loss of$33.6 million in 2020 from net income of$143.8 million in 2019. The decrease of$177.4 million was due to the factors discussed above. Year EndedDecember 31, 2019 Compared to Year EndedDecember 31, 2018
2018
Years Ended
December 31, Dollar Percent
(dollars in thousands) 2019 2018 Change Change
Revenue from rental operations and
other:
Revenues from leases $ 302,409 $ 323,793 $ (21,384) (6.6) %
Parking income 21,857 21,907 (50) (0.2)
Hotel income 9,841 0 9,841 -
Other income 9,222 8,930 292 3.3Total revenues from rental operations 343,329 354,630 (11,301)
(3.2) Property expenses: Real estate taxes 44,817 45,178 (361) (0.8) Utilities 17,881 23,799 (5,918) (24.9) Operating services 70,409 70,849 (440) (0.6) Total property expenses 133,107 139,826 (6,719) (4.8) Non-property revenues: Real estate services 13,873 17,094 (3,221) (18.8) Total non-property revenues 13,873 17,094 (3,221) (18.8) Non-property expenses: Real estate services expenses 15,918 17,919 (2,001)
(11.2)
General and administrative 59,805 53,869 5,936
11.0
Depreciation and amortization 133,597 113,817 19,780 17.4 Land and other impairments 32,444 24,566 7,878 32.1 Total non-property expenses 241,764 210,171 31,593 15.0 Operating income (17,669) 21,727 (39,396) (181.3) Other (expense) income: Interest expense (90,569) (77,594) (12,975) (16.7)
Interest and other investment income 2,412 3,220 (808)
(25.1)
Equity in earnings (loss) of unconsolidated joint ventures (1,319) (127) (1,192)
(938.6)
Gain on change of control of interests 13,790 14,217 (427)
(3.0)
Realized gains (losses) and unrealized losses on disposition of rental property, net 343,102 99,436 243,666
245.0
Gain on disposition of developable land 522 30,939 (30,417)
(98.3)
Gain on sale from unconsolidated joint ventures 903 - 903
-
Gain (loss) from extinguishment of debt, net 1,648 (8,994) 10,642 118.3 Total other (expense) income 270,489 61,097 209,392 342.7 Income (loss) from continuing operations 252,820 82,824 169,996 205.2 Discontinued operations: Income from discontinued operations 24,366 23,577 789
3.3
Realized gains (losses) and unrealized losses on disposition of rental property and impairments, net (133,350) - (133,350)
-
Total discontinued operations, net (108,984) 23,577 (132,561)
(562.2) Net income (loss)$ 143,836 $ 106,401 $ 37,435 35.2 % 52
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The following is a summary of the changes in revenue from rental operations and other, and property expenses, in 2019 as compared to 2018 divided intoSame-Store Properties ,Acquired Properties and Properties Sold in 2018 and 2019: Total Same-Store Acquired Properties Company Properties Properties Sold in 2018 and 2019 Dollar Percent Dollar Percent Dollar Percent Dollar Percent (dollars in thousands) Change Change Change Change Change Change Change Change Revenue from rental operations and other: Revenue from leases$ (21,384) (6.6) %$ (5,999) (1.8) %$ 59,958 18.9 %$ (75,343) (23.7) % Parking income (50) (0.2) (1,686) (7.6) 2,305 10.5 (669) (3.1) Hotel Income 9,841 - - - 9,841 - - - Other income 292 3.3 (528) (5.9) 1,257 14.1 (437) (4.9) Total$ (11,301) (3.2) %$ (8,213) (2.3) %$ 73,361 21.0 %$ (76,449) (21.9) % Property expenses: Real estate taxes$ (361) (0.8) %$ (169) (0.3) %$ 10,409 23.4 %$ (10,601) (23.9) % Utilities (5,918) (24.9) (1,107) (4.7) 1,876 7.9 (6,687) (28.1) Operating services (440) (0.6) (3) - 13,197 18.9 (13,634) (19.5) Total$ (6,719) (4.8) %$ (1,279) (0.8) %$ 25,482 18.4 %$ (30,922) (22.4) % OTHER DATA: Number of Consolidated Properties 25 16 9 131 Commercial Square feet (in thousands) 4,889 4,889 - 13,190 Multi-family portfolio (number of units) 3,907 1,006 2,901 1,545 Revenue from leases. Revenue from leases for theSame-Store Properties decreased$6.0 million , or 1.8 percent, for 2019 as compared to 2018, due primarily to a 610 basis point decrease in the average same store percent leased of the office portfolio from 82.2 percent in 2018 to 76.1 percent in 2019.
Parking income. Parking income for the
Hotel income. The Company recognized hotel income of
Other income. Other income for theSame-Store Properties decreased$0.5 million , or 5.9 percent for 2019 as compared to 2018 due primarily to a decrease in lease breakage fees recognized in 2019, as compared to 2018. Real estate taxes. Real estate taxes on theSame-Store Properties decreased$0.2 million , or 0.3 percent, for 2019 as compared to 2018 due primarily to lower tax assessment values for the Company's office properties in 2019 as compared to 2018. Utilities. Utilities for theSame-Store Properties decreased$1.1 million , or 4.7 percent, for 2019 as compared to 2018, due primarily to lower electricity rates in 2019 as compared to 2018. Operating services. Operating services for theSame-Store Properties were relatively unchanged for 2019 as compared to 2018. Increases in operations and maintenance costs were offset by a decrease in salaries and related expenses for 2019 as compared to 2018. Real estate services revenue. Real estate services revenue (primarily reimbursement of property personnel costs) decreased$3.2 million , or 18.8 percent, for 2019 as compared to 2018, due primarily to decreased third party development and property management activity in multi-family services in 2019 as compared to 2018.
Real estate services expenses. Real estate services expenses decreased
General and administrative. General and administrative expenses increased$5.9 million , or 11.0 percent, in 2019 as compared to 2018 due primarily to$4.6 million in costs incurred in 2019 due to consulting and related fees and costs from strategic planning activities of the Company,$4.1 million in costs incurred in 2019 in connection with the contested election of the Board of Directors at the General 53
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Partners' 2019 annual meeting of stockholders and leasing personnel costs of$2.3 million were expensed in 2019 while none of these costs were expensed in 2018. These costs were partially offset by a decrease in severance, separation and related costs from management restructurings which amounted to$1.3 million in 2019, as compared to$6.6 million in 2018 (resulting from the departure of certain of the Company's executive officers and other management restructuring). Depreciation and amortization. Depreciation and amortization increased$19.8 million , or 17.4 percent, for 2019 over 2018. This decrease was due primarily to an increase in depreciation of$40.7 million for 2019 as compared to 2018 from theAcquired Properties and an increase of$1.8 million for 2019 as compared to 2018 on theSame-Store Properties . These were partially offset by lower depreciation of approximately$22.7 million for properties sold or removed from service during 2018 and 2019. Land and other impairments. In 2019, the Company recorded valuation impairment charges of$32.4 million on developable land parcels. The Company recorded land impairment charges of$24.6 million in 2018 on two developable land parcels inPennsylvania . See Note 3: Impairments - to the Financial Statements.
Interest expense. Interest expense increased
Interest and other investment income. Interest and other investment income decreased$0.8 million , or 25.1 percent, for 2019 as compared to 2018 primarily due to lower average notes receivable balances outstanding in 2019 as compared to 2018. Equity in earnings (loss) of unconsolidated joint ventures. Equity in earnings of unconsolidated joint ventures decreased$1.2 million , or 938.6 percent, for 2019 as compared to 2018. The decrease was due primarily to the recording in 2019 of a$3.7 million writedown of an investment in a joint venture that owns a property inFlorham Park, New Jersey . This was partially offset by an increase of$2.6 million for 2019 as compared to 2018 from the Urby at Harborside venture, due to increased residential rents in 2019 as compared to 2018, a reduction in leasing expense in 2019 due to the amortization of initial broker commissions in 2018, and lower real estate taxes in 2019 as a result of a true-up credit from the town. Gain on change of control of interests. The Company recorded a gain on change of control of interests of$13.8 million in 2019 as a result of its acquisition of the controlling interest of its equity partners in a joint venture owns a multi-family property located inJersey City, New Jersey . The Company recorded a gain on change of control of interests of$14.2 million in 2018 as a result of its acquisition of its equity partners' interest in a multi-family property located inJersey City, New Jersey . See Note 3: Recent Transactions - Consolidations - to the Financial Statements. Realized gains (losses) and unrealized losses on disposition of rental property, net. The Company had realized gains (unrealized losses) on disposition of rental property of$343.1 million in 2019 and$99.4 million in 2018. See Note 3: Recent Transactions - Dispositions - to the Financial Statements. Gain on disposition of developable land. The Company recorded a gain of$0.5 million in 2019 on the sale of land holdings located inMalden andRevere, Massachusetts and a gain of$30.9 million 2018 on the disposal of land inUpper Saddle River, New Jersey . See Note 3: Recent Transactions - Dispositions - to the Financial Statements. Gain on sale from unconsolidated joint ventures. In 2019, the Company recorded a$0.9 million gain on the sale of its interests in a joint venture, which owned a property inRed Bank, New Jersey . See Note 4: Investments inUnconsolidated Joint Ventures - to the Financial Statements. Gain/(loss) from extinguishment of debt, net. In 2019, the Company recognized a gain from extinguishment of debt of$1.6 million in connection with the early termination of part of interest rate swap agreements, which resulted from the prepayment of unsecured term loan balances in 2019. In 2018, the Company recognized a loss from extinguishment of debt of$10.8 million in connection with the early prepayment of certain mortgage payables. See Note 9: Unsecured Revolving Credit Facility and Term Loans - to the Financial Statements and Note 10: Mortgages, Loans Payable and Other Obligations - to the Financial Statements. Discontinued operations. In 2019, the Company classified 37 office properties totaling 6.6 million square feet as discontinued operations. The income from these properties increased$0.8 million for 2019 as compared to 2018. The Company recognized realized gains (losses) and unrealized losses on disposition of rental property and impairments, net, of a loss of$133.4 million on these properties in 2019.
Net income. Net income increased to
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Liquidity and Capital Resources
LiquidityOverview
Historically, rental revenue has been the Company's principal source of funds to pay operating expenses, debt service, capital expenditures and dividends, excluding non-recurring capital expenditures. To the extent that the Company's cash flow from operating activities is insufficient to finance its non-recurring capital expenditures such as property acquisitions, development and construction costs and other capital expenditures, the Company has and expects to continue to finance such activities through borrowings under its unsecured revolving credit facility, other debt and equity financings, proceeds from the sale of properties and joint venture capital. The Company expects to meet its short-term liquidity requirements generally through its working capital, which may include proceeds from the sales of office properties, (primarily from the disposition of the Suburban Office Portfolio, of which$652.4 million of properties are under contract for sale) net cash provided by operating activities and draw from its unsecured revolving credit facility. The Company frequently examines potential property acquisitions and development projects and, at any given time, one or more of such acquisitions or development projects may be under consideration. Accordingly, the ability to fund property acquisitions and development projects is a major part of the Company's financing requirements. The Company expects to meet its financing requirements through funds generated from operating activities, to the extent available, proceeds from property sales, joint venture capital, long-term and short-term borrowings (including draws on the Company's unsecured revolving credit facility) and the issuance of additional debt and/or equity securities. The recent outbreak of COVID-19 across many countries around the globe, including theU.S. , has significantly slowed global economic activity, caused significant volatility in financial markets, and resulted in unprecedented job losses causing many to fear an imminent global recession. The global impact of the outbreak has been rapidly evolving the responses of many countries, including theU.S. , have included quarantines, restrictions on business activities, including construction activities, restrictions on group gatherings, and restrictions on travel. These actions are creating disruption in the global economy and supply chains and adversely impacting many industries, including owners and developers of office and mixed-use buildings. Moreover, there is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on theU.S. economy and consumer confidence. Demand for space at the Company's properties is dependent on a variety of macroeconomic factors, such as employment levels, interest rates, changes in stock market valuations, rent levels and availability of competing space. These factors can be significantly adversely affected by a variety of factors beyond the Company's control. The extent to which COVID-19 impacts the Company's results will depend on future developments, many of which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions taken to contain it or treat its impact. If the outbreak continues, there will likely be continued negative economic impacts, market volatility, and business disruption which could negatively impact the Company's tenants' ability to pay rent, the Company's ability to lease vacant space, the Company's ability to complete development and redevelopment projects and the Company's ability to dispose of the assets held for sale and these consequences, in turn, could materially impact the Company's results of operations. Construction Projects The Company is developing a 313-unit multi-family project known as Port Imperial South 9 at Port Imperial inWeehawken, New Jersey , which began construction in third quarter 2018. The construction project, which is estimated to cost$143.8 million , of which construction costs of$98.1 million have been incurred throughDecember 31, 2020 , is expected to be ready for occupancy early 2021. The Company has funded$51.8 million as ofDecember 31, 2020 , and the remaining construction costs are expected to be funded from a$92 million construction loan (of which$46.3 million was drawn as ofDecember 31, 2020 ). The Company is developing a 198-unit multi-family project known as TheUpton atShort Hills located inShort Hills, New Jersey , which began construction in fourth quarter 2018. The construction project, which is estimated to cost$99.4 million , of which$77.9 million have been incurred throughDecember 31, 2020 , is expected to be ready for occupancy in first quarter 2021. The Company has funded$35.4 million of the construction costs, and the remaining construction costs are expected to be funded from a$64 million construction loan (of which$42.5 million was drawn as ofDecember 31, 2020 ). The Company is developing a 750-unit multi-family project at 25 ChristopherColumbus inJersey City, New Jersey , which began construction in first quarter 2019. 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incurred throughDecember 31, 2020 , is expected to be ready for occupancy in first quarter 2022. The Company has funded$169.5 million of the construction costs and the remaining construction costs are expected to be funded from a$300 million construction loan (of which$161.5 million was drawn as ofDecember 31, 2020 ).
REIT Restrictions
To maintain its qualification as a REIT under theIRS Code , the General Partner must make annual distributions to its stockholders of at least 90 percent of its REIT taxable income, determined without regard to the dividends paid deduction and by excluding net capital gains. However, any such distributions, whether for federal income tax purposes or otherwise, would be paid out of available cash, including borrowings and other sources, after meeting operating requirements, preferred stock dividends and distributions, and scheduled debt service on the Company's debt. If and to the extent the Company retains and does not distribute any net capital gains, the General Partner 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 dividends paid to date for 2020 are expected to fully satisfy the above minimum distribution requirement. OnSeptember 30, 2020 , the Company announced that its Board of Directors was suspending its common dividends and distributions attributable to the third and fourth quarters 2020. As the Company's management estimated that as ofSeptember 2020 it had satisfied its dividends obligations as a REIT on taxable income expected for 2020, the Board made the strategic decision to suspend its common dividends and distributions for the remainder of 2020 in an effort to provide greater financial flexibility during the pandemic and to retain incremental capital to support leasing initiatives at its Harborside commercial office properties on theJersey City waterfront.
Property Lock-Ups
ThroughFebruary 2016 , the Company could not dispose of or distribute certain of its properties which were originally contributed by certain unrelated common unitholders of theOperating Partnership , without the express written consent of such common unitholders, as applicable, except in a manner which did not result in recognition of any built-in-gain (which may result in an income tax liability) or which reimbursed the appropriate specific common unitholders for the tax consequences of the recognition of such built-in-gains (collectively, the "Property Lock-Ups"). Upon the expiration inFebruary 2016 of the Property Lock-Ups, the Company is generally required to use commercially reasonable efforts to prevent any sale, transfer or other disposition of the subject properties from resulting in the recognition of built-in gain to the specific common unitholders, which include members of theMack Group (which includesWilliam L. Mack , a former director;David S. Mack , a former director; andEarle I. Mack , a former director), theRobert Martin Group , and theCali Group (which includesJohn R. Cali , a former director). As ofDecember 31, 2020 , after the effects of tax-free exchanges on certain of the originally contributed properties, either wholly or partially, over time, 16 of the Company's properties, as well as certain land and development projects, including properties classified as held for sale as ofDecember 31, 2020 , with an aggregate carrying value of approximately$1.5 billion , are subject to these conditions.Unencumbered Properties
As of
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Cash Flows
Cash, cash equivalents and restricted cash increased by $11.1 million to $52.3
million at December 31, 2020 , compared to $41.2 million at December 31, 2019 .
This increase is comprised of the following net cash flow items:
$85.4 million provided by operating
(1) activities.
$338.8 million net cash from investing activities - (a) discontinued operations; plus$64.9 million from proceeds from the sales of (b) rental property; plus$0.5 million received from repayments of notes (c) receivables; plus$13.8 million received from distributions in excess of
cumulative earnings
(d) from unconsolidated joint ventures; plus
$64.8 million received from proceeds from the sale of investments in
(e) unconsolidated joint ventures; minus
$3 million used for investments in
(f) unconsolidated joint ventures; minus
$16.8 million used for rental property acquisitions and
(g) related intangibles; minus
$138.7 million used for additions to rental property and
(h) improvements; minus
$295.9 million used for the development of rental property,
(i) other related costs and deposits.
$102.7 million used in financing activities, consisting
(3) primarily of the following:
$516 million used for repayments of unsecured
(a) revolving credit facility; plus
$86.6 million used for repayments of mortgages, loans payable
(b) and other obligations; plus
$60.5 million used for payments of common
(c) dividends and distributions; plus
$1.7 million used for payment of finance
(d) cost; plus
$2.7 million used for common unit redemptions;
(e) plus
$3.2 million used for redemption of redeemable
(f) noncontrolling interests; plus
$25.9 million used for distribution to redeemable
(g) noncontrolling interests; minus
$212 million from borrowings under the unsecured revolving
(h) credit facility; minus
$381.6 million from proceeds received from mortgages and
(i) loans payable; minus
$0.2 million from distribution to noncontrolling
(j) interests.
Debt Financing
Summary of Debt
The following is a breakdown of the Company's debt between fixed and
variable-rate financing as of
Balance Weighted Average Weighted Average
($000 's) % of Total Interest Rate (a) Maturity in Years
Fixed Rate Unsecured Debt
and
Other Obligations $ 575,000 20.40 % 4.09 % 1.81
Fixed Rate Secured Debt (b) 1,811,502 64.26 % 3.75 % 6.23
Variable Rate Secured Debt 407,360 14.45 % 3.50 % 3.23
Variable Rate Unsecured
Debt (c) 25,000 0.89 % 1.50 % 0.57
Totals/Weighted Average: $ 2,818,862 100.00 % 3.76 % (b) 4.85
Adjustment for unamortized
debt discount (1,504)
Unamortized deferred
financing costs (15,561)
Total Debt, Net $ 2,801,797 (a)The actual weighted average LIBOR rate for the Company's outstanding variable
rate debt was 0.16 percent as of
(b)Balance includes two ten-year mortgage loans obtained by the Company which have fixed rates for the first five years only.
(c)Excludes amortized deferred financing costs primarily pertaining to the Company's unsecured revolving credit facility which amounted to$3.9 million for the year endedDecember 31, 2020 . Weighted average maturity includes extension of maturity of unsecured revolving credit facility toJuly 2021 based on Company's payment of extension fee inJanuary 2021 57
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Debt Maturities
Scheduled principal payments and related weighted average annual effective interest rates for the Company's debt as ofDecember 31, 2020 are as follows: Scheduled Principal Weighted Avg. Effective Interest Amortization Maturities Total Rate of Future Repayments Period ($000 's) ($000 's) ($000 's) (a) 2021 (b) $ 590$ 28,800 $ 29,390 1.96 % 2022 550 440,357 440,907 4.15 % 2023 2,047 376,457 378,504 3.39 % 2024 3,403 469,545 472,948 3.86 % 2025 3,300 - 3,300 3.98 % 2026 12,822 658,000 670,822 3.68 % Thereafter - 822,991 822,991 3.79 % Sub-total 22,712 2,796,150 2,818,862 3.76 % Adjustment for unamortized debt discount/premium, net as of December 31, 2020 (1,504) -
(1,504)
Unamortized deferred financing costs (15,561) - (15,561) Totals/Weighted Average$ 5,647 $ 2,796,150 $ 2,801,797 3.76 % (c)
(a)The actual weighted average LIBOR rate for the Company's outstanding variable
rate debt was 0.16 percent as of
(b)Includes outstanding borrowings of the Company's unsecured revolving credit
facility of
(c)Excludes amortized deferred financing costs primarily pertaining to the
Company's unsecured revolving credit facility which amounted to
Senior Unsecured Notes
The terms of the Company's senior unsecured notes (which totaled approximately$575 million as ofDecember 31, 2020 ) include certain restrictions and covenants which require compliance with financial ratios relating to the maximum amount of debt leverage, the maximum amount of secured indebtedness, the minimum amount of debt service coverage and the maximum amount of unsecured debt as a percent of unsecured assets.
Unsecured Revolving Credit Facility and Term Loans
OnJanuary 25, 2017 , the Company entered into an amended revolving credit facility and new term loan agreement ("2017 Credit Agreement") with a group of 13 lenders. Pursuant to the 2017 Credit Agreement, the Company refinanced its existing$600 million unsecured revolving credit facility ("2017 Credit Facility") and entered into a new$325 million unsecured term loan facility ("2017 Term Loan"). EffectiveMarch 6, 2018 , the Company elected to determine its interest rate under the 2017 Credit Agreement and under the 2017 Term Loan using the defined leverage ratio option, resulting in an interest rate of LIBOR plus 130 basis points and LIBOR plus 155 basis points, respectively. The terms of the 2017 Credit Facility include: (1) a four-year term ending inJanuary 2021 , with two six-month extension options, subject to the Company not being in default on the facility and with the payment of a fee of 7.5 basis points for each extension; (2) revolving credit loans may be made to the Company in an aggregate principal amount of up to$600 million (subject to increase as discussed below), with a sublimit under the 2017 Credit Facility for the issuance of letters of credit in an amount not to exceed$60 million (subject to increase as discussed below), of which$10.6 million of letters of credit had been issued as ofDecember 31, 2020 ; (3) an interest rate based on theOperating Partnership's unsecured debt ratings from Moody's or S&P, or, at theOperating Partnership's option, if it no longer maintains a debt rating from Moody's or S&P or such debt ratings fall below Baa3 and BBB-, based on a defined leverage ratio; and (4) a facility fee, currently 25 basis points, payable quarterly based on theOperating Partnership's unsecured debt ratings from Moody's or S&P, or, at theOperating Partnership's option, if it no longer maintains a debt rating from Moody's or S&P or such debt ratings fall below Baa3 and BBB-, based on a defined leverage ratio. The Company's unsecured debt is currently rated B1 by Moody's and B+ by S&P. InJanuary 2021 , the Company elected to exercise the first option to extend the 2017 Credit Facility maturity date for a period of six months. Accordingly, the term of the 2017 Credit Facility was extended toJuly 2021 , with the Company's payment of the 7.5 basis point extension fee. 58
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After electing to use the defined leverage ratio to determine the interest rate, the interest rate under the 2017 Credit Facility is currently based on the following total leverage ratio grid:
Interest Rate -
Applicable
Interest Rate - Basis Points
Applicable Above LIBOR for
Basis Points Alternate Base Facility Fee
Total Leverage Ratio Above LIBOR Rate Loans Basis Points
<45% 125.0 25.0 20.0
?45% and <50% 130.0 30.0 25.0
?50% and <55% (current ratio) 135.0 35.0 30.0
?55% 160.0 60.0 35.0
Prior to the election to use the defined leverage ratio option, the interest
rates on outstanding borrowings, alternate base rate loans and the facility fee
on the current borrowing capacity, payable quarterly in arrears, on the 2017
Credit Facility were based upon the Operating Partnership's unsecured debt
ratings, as follows:
Interest Rate -
Applicable
Interest Rate - Basis Points
Operating Partnership's Applicable Above LIBOR for
Unsecured Debt Ratings: Basis Points Alternate Base Facility Fee
Higher of S&P or Moody's Above LIBOR Rate Loans Basis Points
No ratings or less than BBB-/Baa3 155.0 55.0 30.0
BBB- or Baa3 (interest rate based on
Company's election through March 5, 2018) 120.0 20.0 25.0
BBB or Baa2 100.0 0.0 20.0
BBB+ or Baa1 90.0 0.0 15.0
A- or A3 or higher 87.5 0.0 12.5
The terms of the 2017 Term Loan included: (1) a three-year term ending in
January 2020 , with two one-year extension options; (2) multiple draws of the
term loan commitments may be made within 12 months of the effective date of the
2017 Credit Agreement up to an aggregate principal amount of $325 million
(subject to increase as discussed below), with no requirement to be drawn in
full; provided, that, if the Company does not borrow at least 50 percent of the
initial term commitment from the term lenders (i.e. 50 percent of $325 million )
on or before July 25, 2017 , the amount of unused term loan commitments shall be
reduced on such date so that, after giving effect to such reduction, the amount
of unused term loan commitments is not greater than the outstanding term loans
on such date; (3) an interest rate, based on the Operating Partnership's
unsecured debt ratings from Moody's or S&P or, at the Operating Partnership's
option if it no longer maintains a debt rating from Moody's or S&P or such debt
ratings fall below Baa3 and BBB-, based on a defined leverage ratio; and (4) a
term commitment fee on any unused term loan commitment during the first 12
months after the effective date of the 2017 Credit Agreement at a rate of 0.25
percent per annum on the sum of the average daily unused portion of the
aggregate term loan commitments.
On
During the year endedDecember 31, 2019 , the Company prepaid the 2017 Term Loan (using a portion of the proceeds from a new mortgage loan collateralized by an office building located at111 River Street and using borrowings under the Company's unsecured revolving credit facility) and recorded a net loss of$173,000 from extinguishment of debt, as a result of a gain of$80,000 due to the early termination of part of the interest rate swap arrangements and the write off of unamortized deferred financing costs and fees of$253,000 due to the early debt prepayment. 59
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After electing to use the defined leverage ratio to determine the interest rate,
the interest rate under the 2017 Term Loan was based on the following total
leverage ratio grid:
Interest Rate -
Applicable
Interest Rate - Basis Points
Applicable Above LIBOR for
Basis Points Alternate Base Rate
Total Leverage Ratio above LIBOR Loans
<45% 145.0 45.0
?45% and <50% 155.0 55.0
?50% and <55% (current ratio) 165.0 65.0
?55% 195.0 95.0
Prior to the election to use the defined leverage ratio option, the interest
rate on the 2017 Term Loan was based upon the
Interest Rate -
Applicable
Interest Rate - Basis Points
Operating Partnership's Applicable Above LIBOR for
Unsecured Debt Ratings: Basis Points Alternate Base Rate
Higher of S&P or Moody's Above LIBOR Loans
No ratings or less than BBB-/Baa3 185.0 85.0
BBB- or Baa3 (interest rate based on Company's election through March 5, 2018) 140.0 40.0 BBB or Baa2 115.0 15.0 BBB+ or Baa1 100.0 0.0 A- or A3 or higher 90.0 0.0 On up to four occasions at any time after the effective date of the 2017 Credit Agreement, the Company may elect to request (1) an increase to the existing revolving credit commitments (any such increase, the "New Revolving Credit Commitments") and/or (2) the establishment of one or more new term loan commitments (the "New Term Commitments", together with the 2017 Credit Commitments, the "Incremental Commitments"), by up to an aggregate amount not to exceed$350 million for all Incremental Commitments. The Company may also request that the sublimit for letters of credit available under the 2017 Credit Facility be increased to$100 million (without arranging any New Revolving Credit Commitments). No lender or letter of credit issued has any obligation to accept any Incremental Commitment or any increase to the letter of credit subfacility. There is no premium or penalty associated with full or partial prepayment of borrowings under the 2017 Credit Agreement. The 2017 Credit Agreement, which applies to both the 2017 Credit Facility and 2017 Term Loan, includes certain restrictions and covenants which limit, among other things the incurrence of additional indebtedness, the incurrence of liens and the disposition of real estate properties (to the extent that: (i) such property dispositions cause the Company to default on any of the financial ratios of the 2017 Credit Agreement (described below), or (ii) the property dispositions are completed while the Company is under an event of default under the 2017 Credit Agreement, unless, under certain circumstances, such disposition is being carried out to cure such default), and which require compliance with financial ratios relating to the maximum leverage ratio (60 percent), the maximum amount of secured indebtedness (40 percent), the minimum amount of fixed charge coverage (1.5 times), the maximum amount of unsecured indebtedness (60 percent), the minimum amount of unencumbered property interest coverage (2.0 times) and certain investment limitations (generally 15 percent of total capitalization). The 2017 Credit Agreement contains "change of control" provisions that permit the lenders to declare a default and require the immediate repayment of all outstanding borrowings under the 2017 Credit Facility. These change of control provisions, which have been included as an event of default under the agreements governing the Company's revolving credit facilities sinceJune 2000 , are triggered if, among other things, a majority of the seats on the Board of Directors (other than vacant seats) become occupied by directors who were neither nominated by the Board Directors nor appointed by a majority of directors nominated by the Board of Directors. Furthermore, the agreements governing the Company's Senior Unsecured Notes include cross-acceleration provisions that would constitute an event of default requiring immediate repayment of the Notes if the change of control provisions under the 2017 Credit Facility are triggered and the lenders declare a default and exercise their rights under the 2017 Credit Facility and accelerate repayment of the outstanding borrowings thereunder. In addition, construction loans secured by two multi-family residential property development projects contain cross-acceleration provisions similar to those in the agreements governing the Notes for defaults by the Company. If these change of control provisions were triggered, the Company could seek a forbearance, waiver or amendment of the change of control provisions from the lenders, however there can be no assurance that the Company would be able to obtain such 60
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forbearance, waiver or amendment on acceptable terms or at all. If an event of default has occurred and is continuing, the entire outstanding balance under the 2017 Credit Agreement may (or, in the case of any bankruptcy event of default, shall) become immediately due and payable, and the Company will not make any excess distributions except to enable the General Partner to continue to qualify as a REIT under theIRS Code . Before it amended and restated its unsecured revolving credit facility inJanuary 2017 , the Company had a$600 million unsecured revolving credit facility with a group of 17 lenders that was scheduled to mature inJuly 2017 . The interest rate on outstanding borrowings (not electing the Company's competitive bid feature) and the facility fee on the current borrowing capacity, payable quarterly in arrears was based upon theOperating Partnership's unsecured debt ratings at the time, as follows: Operating Partnership's Interest Rate - Unsecured Debt Ratings: Applicable Basis Points Facility Fee Higher of S&P or Moody's Above LIBOR Basis Points No ratings or less than BBB-/Baa3 170.0
35.0
BBB- or Baa3 (since January 2017 amendment) 130.0 30.0 BBB or Baa2 110.0 20.0 BBB+ or Baa1 100.0 15.0 A- or A3 or higher 92.5 12.5 InJanuary 2016 , the Company obtained a$350 million unsecured term loan ("2016 Term Loan"), which had been scheduled to mature inJanuary 2019 with two one-year extension options. OnJanuary 7, 2019 , the Company exercised the first one-year extension option with the payment of an extension fee of$0.5 million , which extended the maturity of the 2016 Term Loan toJanuary 2020 . The interest rate for the term loan is based on theOperating Partnership's unsecured debt ratings, or, at the Company's option, a defined leverage ratio. EffectiveMarch 6, 2018 , the Company elected to determine its interest rate under the 2016 Term Loan using the defined leverage ratio option, resulting in an interest rate of LIBOR plus 155 basis points. The Company entered into interest rate swap arrangements to fix LIBOR for the duration of the term loan. Including costs, the current all-in fixed rate is 3.13 percent. The proceeds from the loan were used primarily to repay outstanding borrowings on the Company's then existing unsecured revolving credit facility and to repay$200 million senior unsecured notes that matured onJanuary 15, 2016 . During the year endedDecember 31, 2019 , the Company prepaid the 2016 Term Loan (using a portion of the cash sales proceeds from the Flex portfolio sale, using the proceeds from a mortgage loan financing obtained onSoho Lofts Apartments and using a portion of the proceeds from a new mortgage loan collateralized by an office building located at111 River Street ), and recorded a gain of$2.1 million due to the early termination of part of the interest rate swap arrangements and the write off of unamortized deferred financing costs and fees of$242,000 due to the early debt prepayments.
In summary, the Company recorded a net gain(loss) from extinguishment of debt of
After electing to use the defined leverage ratio to determine interest rate, the
interest rate under the 2016 Term Loan was based on the following total leverage
ratio grid:
Interest Rate -
Applicable Basis
Total Leverage Ratio Points above LIBOR
<45% 145.0
?45% and <50% 155.0
?50% and <55% (current ratio) 165.0
?55% 195.0
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Prior to the election to use the defined leverage ratio option, the interest rate on the 2016 Term Loan was based upon theOperating Partnership's unsecured debt ratings, as follows: Operating Partnership's Interest Rate - Unsecured Debt Ratings: Applicable Basis Points Higher of S&P or Moody's Above LIBOR No ratings or less than BBB-/Baa3
185.0
BBB- or Baa3 (interest rate based on Company's election throughMarch 5, 2018 ) 140.0 BBB or Baa2 115.0 BBB+ or Baa1 100.0 A- or A3 or higher 90.0 The terms of the 2016 Term Loan include certain restrictions and covenants which limit, among other things the incurrence of additional indebtedness, the incurrence of liens and the disposition of real estate properties (to the extent that: (i) such property dispositions cause the Company to default on any of the financial ratios of the term loan described below, or (ii) the property dispositions are completed while the Company is under an event of default under the term loan, unless, under certain circumstances, such disposition is being carried out to cure such default), and which require compliance with financial ratios relating to the maximum leverage ratio (60 percent), the maximum amount of secured indebtedness (40 percent), the minimum amount of fixed charge coverage (1.5 times), the maximum amount of unsecured indebtedness (60 percent), the minimum amount of unencumbered property interest coverage (2.0 times) and certain investment limitations (generally 15 percent of total capitalization). If an event of default has occurred and is continuing, the Company will not make any excess distributions except to enable the General Partner to continue to qualify as a REIT under theIRS Code . OnAugust 30, 2018 , the Company entered into an amendment to the 2017 Credit Agreement (the "2017 Credit Agreement Amendment") and an amendment to the 2016 Term Loan (the "2016 Term Loan Agreement Amendment"). Each of the 2017 Credit Agreement Amendment and the 2016 Term Loan Amendment was effective as ofJune 30, 2018 and provided for the following material amendments to the terms of both the 2017 Credit Agreement and 2016 Term Loan): 1.The unsecured debt ratio covenant has been modified with respect to the measurement of the unencumbered collateral pool of assets in the calculation of such ratio for the period commencingJuly 1, 2018 and continuing untilDecember 31, 2019 to allow theOperating Partnership to utilize the "as-is" appraised value of the properties known as 'Harborside Plaza I' and 'Harborside Plaza V' properties located inJersey City, NJ in such calculation; and 2.A new covenant has been added that prohibits the Company from making any optional or voluntary payment, repayment, repurchase or redemption of any unsecured indebtedness of the Company (or any subsidiaries) that matures afterJanuary 25, 2022 , at any time when any of the Total Leverage Ratio or the unsecured debt ratio covenants exceeds 60 percent (all as defined in the 2017 Credit Agreement and the 2016 Term Loan) or an appraisal is being used to determine the value of Harborside Plaza I and Harborside Plaza V for the unsecured debt ratio covenant.
All other terms and conditions of the 2017 Credit Agreement remained unchanged.
Mortgages, Loans Payable and Other Obligations
The Company has other mortgages, loans payable and other obligations which consist of various loans collateralized by certain of the Company's rental properties. Payments on mortgages, loans payable and other obligations are generally due in monthly installments of principal and interest, or interest only.
Debt Strategy The Company does not intend to reserve funds to retire the Company's senior unsecured notes, outstanding borrowings under its unsecured revolving credit facility, or its mortgages, loans payable and other obligations upon maturity. Instead, the Company will seek to retire such debt primarily with available proceeds to be received from the Company's planned sales of its Suburban Office Portfolio assets over time, as well as obtaining additional mortgage financings on or before the applicable maturity dates. If it cannot raise sufficient proceeds to retire the maturing debt, the Company may draw on its revolving credit facility to retire the maturing indebtedness, which would reduce the future availability of funds under such facility. As ofFebruary 23, 2021 , the Company had outstanding borrowings of$8 million under its unsecured revolving credit facility. The Company is reviewing various financing and refinancing options, including the redemption or purchase of the senior unsecured notes in public tender offers or privately-negotiated transactions, 62
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the issuance of additional, or exchange of current, unsecured debt of theOperating Partnership or common and preferred stock of the General Partner, and/or obtaining additional mortgage debt of theOperating Partnership , some or all of which may be completed in 2020. The Company currently anticipates that its available cash and cash equivalents, cash flows from operating activities and proceeds from the sale of real estate assets and joint ventures investments, together with cash available from borrowings and other sources, will be adequate to meet the Company's capital and liquidity needs in the short term. However, if these sources of funds are insufficient or unavailable, due to current economic conditions or otherwise, or if capital needs to fund acquisition and development opportunities in the multi-family rental sector arise, the Company's ability to make the expected distributions discussed in "REIT Restrictions" above may be adversely affected. Equity Financing and Registration Statements
Common Equity
The following table presents the changes in the General Partner's issued and outstanding shares of common stock and theOperating Partnership's common units for the years endedDecember 31, 2020 and 2019, respectively. Common Common Units/Vested Stock LTIP Units
Total
Outstanding at January 1, 2020 90,595,176 9,612,064
100,207,240
Restricted stock issued 52,974 -
52,974
Conversion of deferred stock units for common stock 61,277 -
61,277
Common units redeemed for common stock - -
-
Conversion of LTIP units for common units - 38,626 38,626
Vested LTIP units - 136,957 136,957
Cancellation of common unit - (1) (1)
Shares issued under Dividend Reinvestment and
Stock Purchase Plan 2,990 - 2,990
Redemption of common units - (138,615) (138,615)
Outstanding at December 31, 2020 90,712,417 9,649,031 100,361,448
Common
Common Units/Vested
Stock LTIP Units Total
Outstanding at January 1, 2019 90,320,306 10,229,349 100,549,655
Common units redeemed for common stock 38,011 (38,011)
-
Conversion of LTIP units for common units - 18,438
18,438
Conversion of deferred stock units for common stock 193,949 -
193,949
Vested LTIP Units - 68,206
68,206
Cancellation of restricted stock (1,936) -
(1,936)
Restricted stock issued 42,690 -
42,690
Shares issued under Dividend Reinvestment and Stock Purchase Plan 2,156 - 2,156 Redemption of common units - (665,918) (665,918) Outstanding at December 31, 2019 90,595,176 9,612,064 100,207,240 Share/Unit Repurchase Program The General Partner has a share repurchase program which was renewed and authorized by its Board of Directors inSeptember 2012 to purchase up to$150 million of the General Partner's outstanding common stock ("Repurchase Program"), which it may repurchase from time to time in open market transactions at prevailing prices or through privately negotiated transactions. As ofDecember 31, 2020 , the General Partner has a remaining authorization under the Repurchase Program of$139 million . There were no common stock repurchases in the years endedDecember 31, 2019 and 2020, and throughFebruary 23, 2021 . 63
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Dividend Reinvestment and Stock Purchase Plan
The Company has a Dividend Reinvestment and Stock Purchase Plan (the "DRIP") which commenced inMarch 1999 under which approximately 5.5 million shares of the General Partner's common stock have been reserved for future issuance. The DRIP provides for automatic reinvestment of all or a portion of a participant's dividends from the General Partner's shares of common stock. The DRIP also permits participants to make optional cash investments up to$5,000 a month without restriction and, if the Company waives this limit, for additional amounts subject to certain restrictions and other conditions set forth in the DRIP prospectus filed as part of the Company's effective registration statement on Form S-3 filed with theSecurities and Exchange Commission ("SEC") for the approximately 5.5 million shares of the General Partner's common stock reserved for issuance under the DRIP. Shelf Registration Statements
The General Partner has an effective shelf registration statement on Form S-3
filed with the
The General Partner and theOperating Partnership also have an effective shelf registration statement on Form S-3 filed with theSEC for an aggregate amount of$2.5 billion in common stock, preferred stock, depositary shares and guarantees of the General Partner and debt securities of theOperating Partnership , under which no securities have been sold as ofFebruary 23, 2021 . Off-Balance Sheet Arrangements
Unconsolidated Joint Venture Debt
The debt of the Company's unconsolidated joint ventures generally provides for recourse to the Company for customary matters such 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. Such guaranteed debt has a total facility amount of$304.0 million of which the Company has agreed to guarantee up to$33.2 million . As ofDecember 31, 2020 , the outstanding balance of such guaranteed debt totaled$267.6 million of which$29.6 million was guaranteed by the Company.
The Company's off-balance sheet arrangements are further discussed in Note 4:
Investments in
Contractual Obligations
The following table outlines the timing of payment requirements related to the
Company's debt (principal and interest), PILOT agreements, ground lease
agreements and other obligations, as of
Payments Due by Period
Less than 1 2 - 3 4 - 5 6 - 10 After 10
(dollars in
thousands) Total Year Years Years Years Years
Senior unsecured
notes $ 616,907 $ 22,163 $ 594,744 $ - $ - $ -
Unsecured
revolving credit
facility and term
loans 25,219 25,219 (a) - - - -
Mortgages, loans
payable
and other
obligations (b) 2,675,613 73,162 390,317 (c) 625,939 (d) 1,521,524 64,671
Payments in lieu
of taxes
(PILOT) 9,267 6,711 2,556 - - -
Ground lease
payments 161,754 1,750 3,506 3,518 8,757 144,223
Total $ 3,488,760 $ 129,005 $ 991,123 $ 629,457 $ 1,530,281 $ 208,894
(a)Interest payments assume LIBOR rate of 0.16 percent, which is the weighted
average rate on this outstanding variable rate debt at December 31, 2020 , plus
the applicable spread.
(b)Interest payments assume LIBOR rate of 0.17 percent, which is the weighted
average rate on its outstanding variable rate mortgage debt at
(c)Includes $183 million pertaining to various mortgages with one-year extension options.
(d)Includes
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Funds from Operations
Funds from operations ("FFO") (available to common stock and unit holders) is
defined as net income (loss) before noncontrolling interests in Operating
Partnership , computed in accordance with GAAP, excluding gains or losses from
depreciable rental property transactions (including both acquisitions and
dispositions), and impairments related to depreciable rental property, plus real
estate-related depreciation and amortization. The Company believes that FFO is
helpful to investors as one of several measures of the performance of an equity
REIT. The Company further believes that as FFO excludes the effect of
depreciation, gains (or losses) from property transactions and impairments
related to depreciable rental property (all of which are based on historical
costs which may be of limited relevance in evaluating current performance), FFO
can facilitate comparison of operating performance between equity REITs.
FFO should not be considered as an alternative to net income available to common
shareholders as an indication of the Company's performance or to cash flows as a
measure of liquidity. FFO presented herein is not necessarily comparable to FFO
presented by other real estate companies due to the fact that not all real
estate companies use the same definition. However, the Company's FFO is
comparable to the FFO of real estate companies that use the current definition
of the National Association of Real Estate Investment Trusts ("NAREIT").
As the Company considers its primary earnings measure, net income available to
common shareholders, as defined by GAAP, to be the most comparable earnings
measure to FFO, the following table presents a reconciliation of net income
available to common shareholders to FFO, as calculated in accordance with
NAREIT's current definition, for the years ended December 31, 2020 , 2019 and
2018 (in thousands):
Year Ended December 31,
2020 2019 2018
Net income (loss) available to common
shareholders $ (51,387) $ 111,861 $ 84,111
Add (deduct): Noncontrolling interests in
Operating Partnership (13,279) 23,720 7,127
Noncontrolling interests in discontinued operations 7,880 (10,456)
2,400
Real estate-related depreciation and amortization on continuing operations (a) 132,816 144,932
129,908
Real estate-related depreciation and amortization on discontinued operations 4,806 70,614
60,486
Property impairments on continuing operations 36,582 -
-
Property impairments on discontinued operations - 11,696
-
Impairment of unconsolidated joint venture investment (included in Equity in earnings) 2,562 3,661 Gain on change of control of interests - (13,790)
(14,217)
Gain on sale from unconsolidated joint ventures (35,184) (903)
-
Continuing operations: Realized (gains) losses and unrealized losses on disposition of rental property, net (5,481) (343,102)
(99,436)
Discontinued operations: Realized (gains) losses and unrealized losses on disposition of rental property, net (11,201) 117,898
-
Funds from operations available to common stock
and
(a)Includes the Company's share from unconsolidated joint ventures, and adjustments for noncontrolling interests, of$12.4 million ,$13.0 million and$17.7 million for the years endedDecember 31, 2020 , 2019 and 2018, respectively. Excludes non-real estate-related depreciation and amortization of$1,610 ,$2,092 and$2,139 for the years endedDecember 31, 2020 , 2019 and 2018, respectively. (b)Net income available to common shareholders in 2020, 2019 and 2018 included$16.8 million ,$36.2 million and$24.6 million , respectively, of land impairment charges and$5.8 million ,$0.5 million and$30.9 million , respectively, from a gain (loss) on sale of developable land, which are included in the calculation to arrive at funds from operations as such gains and charges relate to non-depreciable assets. Inflation The Company's leases with the majority of its commercial tenants provide for recoveries and escalation charges based upon the tenant's proportionate share of, and/or increases in, real estate taxes and certain operating costs, which reduce the Company's exposure to increases in operating costs resulting from inflation. The Company believes that inflation did not materially impact the Company's results of operations and financial condition for the periods presented.
Disclosure Regarding Forward-Looking Statements
We consider portions of this information, including the documents incorporated
by reference, to be forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended. We intend such
forward-looking statements to be covered
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by the safe harbor provisions for forward-looking statements contained in Section 21E of such act. Such forward-looking statements relate to, without limitation, our future economic performance, plans and objectives for future operations and projections of revenue and other financial items. Forward-looking statements can be identified by the use of words such as "may," "will," "plan," "potential," "projected," "should," "expect," "anticipate," "estimate," "target," "continue" or comparable terminology. Forward-looking statements are inherently subject to certain risks, trends and uncertainties, many of which we cannot predict with accuracy and some of which we might not even anticipate. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions at the time made, we can give no assurance that such expectations will be achieved. Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements. In addition, the extent to which the ongoing COVID-19 pandemic impacts us and our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Moreover, investors are cautioned to interpret many of the risks identified in the risk factors discussed in this Annual Report on Form 10-K for the year endedDecember 31, 2020 , as well as the risks set forth below, as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19.
Among the factors about which we have made assumptions are:
?risks and uncertainties affecting the general economic climate and conditions, which in turn may have a negative effect on the fundamentals of our business and the financial condition of our tenants and residents; ?the value of our real estate assets, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing collateralized by our properties or on an unsecured basis;
?the extent of any tenant bankruptcies or of any early lease terminations;
?our ability to lease or re-lease space at current or anticipated rents;
?changes in the supply of and demand for our properties;
?changes in interest rate levels and volatility in the securities markets;
?our ability to complete construction and development activities on time and within budget, including without limitation obtaining regulatory permits and the availability and cost of materials, labor and equipment; ?forward-looking financial and operational information, including information relating to future development projects, potential acquisitions or dispositions, leasing activities, capitalization rates, and projected revenue and income;
?changes in operating costs;
?our ability to obtain adequate insurance, including coverage for terrorist acts;
?our credit worthiness and the availability of financing on attractive terms or at all, which may adversely impact our ability to pursue acquisition and development opportunities and refinance existing debt and our future interest expense;
?changes in governmental regulation, tax rates and similar matters; and
?other risks associated with the development and acquisition of properties, including risks that the development may not be completed on schedule, that the tenants or residents will not take occupancy or pay rent, or that development or operating costs may be greater than anticipated.
For further information on factors which could impact us and the statements contained herein, see Item 1A: Risk Factors. We assume no obligation to update and supplement forward-looking statements that become untrue because of subsequent events, new information or otherwise.
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