form10qcorp.htm
 
 
 

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

FORM 10-Q

(Mark One) 

[X]           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
 
 
For the quarterly period ended March 31, 2016

 or 
 
 [  ]           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

   
   
For the transition period from
                                                           to

   
Commission File Number:
1-13274

     
     
 
Mack-Cali Realty Corporation
  
(Exact name of registrant as specified in its charter)
     
Maryland
  
22-3305147
(State or other jurisdiction of incorporation or organization)
  
(I.R.S. Employer Identification No.)
     
     
     
     
343 Thornall Street, Edison, New Jersey
  
08837-2206
(Address of principal executive offices)
  
(Zip Code)
     
     
     
     
 
(732) 590-1000
  
(Registrant’s telephone number, including area code)
 
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety (90) days.                                 YES  X NO _
 
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  X  NO _
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 
 
Large accelerated filer  x                                                                                                           Accelerated filer  ¨
 
Non-accelerated filer  ¨ (Do not check if a smaller reporting company)                           Smaller reporting company  ¨
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES _ NO X
 
As of April 25, 2016, there were 89,638,631 shares of the registrant’s Common Stock, par value $0.01 per share, outstanding.
 
 




 
 
 











       
   
MACK-CALI REALTY CORPORATION
  
       
   
FORM 10-Q
  
       
   
INDEX
  
       
       
Part I
Financial Information
Page
       
 
Item 1.
Financial Statements (unaudited):
3
       
   
Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015
4
       
   
Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015
5
       
   
Consolidated Statements of Comprehensive Income (Loss) for the three months ended
6
   
  March 31, 2016 and 2015
  
       
   
Consolidated Statement of Changes in Equity for the three months ended March 31, 2016
7
       
   
Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015
8
       
   
Notes to Consolidated Financial Statements
9
       
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
39
       
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
56
       
 
Item 4.
Controls and Procedures
56
       
Part II
Other Information
  
       
 
Item 1.
Legal Proceedings
57
       
 
Item 1A.
Risk Factors
57
       
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
57
       
 
Item 3.
Defaults Upon Senior Securities
57
       
 
Item 4.
Mine Safety Disclosures
57
       
 
Item 5.
Other Information
57
       
 
Item 6.
Exhibits
57
       
Signatures
    
58
       
Exhibit Index
    
59
       
       
       


 
2
 

MACK-CALI REALTY CORPORATION
 
Part I – Financial Information



Item 1.        Financial Statements
 
The accompanying unaudited consolidated balance sheets, statements of operations, of comprehensive income, of changes in equity, and of cash flows and related notes thereto, have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission (“SEC”).  Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements.  The financial statements reflect all adjustments consisting only of normal, recurring adjustments, which are, in the opinion of management, necessary for a fair presentation for the interim periods. 
 
The aforementioned financial statements should be read in conjunction with the notes to the aforementioned financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included in Mack-Cali Realty Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
 
The results of operations for the three month period ended March 31, 2016 are not necessarily indicative of the results to be expected for the entire fiscal year or any other period.


 
3
 

MACK-CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) (unaudited)
           
           
   
March 31,
    
December 31,
ASSETS
  
2016
    
2015
Rental property
          
Land and leasehold interests
$
 684,960
  
$
 735,696
Buildings and improvements
  
 3,557,813
    
 3,648,238
Tenant improvements
  
 353,842
    
 408,617
Furniture, fixtures and equipment
  
 16,576
    
 15,167
   
 4,613,191
    
 4,807,718
Less – accumulated depreciation and amortization
  
 (1,382,962)
    
 (1,464,482)
   
 3,230,229
    
 3,343,236
Rental property held for sale, net
  
 200,044
    
 -
Net investment in rental property
  
 3,430,273
    
 3,343,236
Cash and cash equivalents
  
 116,421
    
 37,077
Investments in unconsolidated joint ventures
  
 303,647
    
 303,457
Unbilled rents receivable, net
  
 120,035
    
 120,246
Deferred charges, goodwill and other assets, net
  
 220,997
    
 203,850
Restricted cash
  
 27,566
    
 35,343
Accounts receivable, net of allowance for doubtful accounts
          
of $602 and $1,407
  
 9,511
    
 10,754
           
Total assets
$
 4,228,450
  
$
 4,053,963
           
LIABILITIES AND EQUITY
          
Senior unsecured notes, net
$
 1,064,363
  
$
 1,263,782
Unsecured term loan, net
  
 347,351
    
 -
Revolving credit facility
  
 90,000
    
 155,000
Mortgages, loans payable and other obligations, net
  
 767,573
    
 726,611
Dividends and distributions payable
  
 15,047
    
 15,582
Accounts payable, accrued expenses and other liabilities
  
 137,030
    
 135,057
Rents received in advance and security deposits
  
 50,109
    
 49,739
Accrued interest payable
  
 23,994
    
 24,484
Total liabilities
  
 2,495,467
    
 2,370,255
Commitments and contingencies
          
           
Equity:
          
Mack-Cali Realty Corporation stockholders’ equity:
          
Common stock, $0.01 par value, 190,000,000 shares authorized,
          
89,638,312 and 89,583,950 shares outstanding
  
 896
    
 896
Additional paid-in capital
  
 2,571,509
    
 2,570,392
Dividends in excess of net earnings
  
 (1,066,867)
    
 (1,115,612)
Accumulated other comprehensive loss
  
 (5,675)
    
 -
Total Mack-Cali Realty Corporation stockholders’ equity
  
 1,499,863
    
 1,455,676
           
Noncontrolling interests in subsidiaries:
          
Operating Partnership
  
 175,688
    
 170,891
Consolidated joint ventures
  
 57,432
    
 57,141
Total noncontrolling interests in subsidiaries
  
 233,120
    
 228,032
           
Total equity
  
 1,732,983
    
 1,683,708
           
Total liabilities and equity
$
 4,228,450
  
$
 4,053,963

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

 
4
 

MACK-CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited)
             
             
     
Three Months Ended
     
March 31,
REVENUES
    
2016
    
2015
Base rents
  
$
 126,387 
  
$
 123,793 
Escalations and recoveries from tenants
    
 14,961 
    
 18,399 
Real estate services
    
 6,812 
    
 7,644 
Parking income
    
 3,156 
    
 2,542 
Other income
    
 1,607 
    
 1,337 
Total revenues
    
 152,923 
    
 153,715 
             
EXPENSES
            
Real estate taxes
    
 23,226 
    
 22,452 
Utilities
    
 13,578 
    
 17,575 
Operating services
    
 26,732 
    
 28,228 
Real estate services expenses
    
 6,846 
    
 6,639 
General and administrative
    
 12,249 
    
 11,011 
Depreciation and amortization
    
 43,063 
    
 40,802 
Total expenses
    
 125,694 
    
 126,707 
Operating income
    
 27,229 
    
 27,008 
             
OTHER (EXPENSE) INCOME
            
Interest expense
    
 (24,993)
    
 (27,215)
Interest and other investment income (loss)
    
 (669)
    
 267 
Equity in earnings (loss) of unconsolidated joint ventures
    
 (1,554)
    
 (3,529)
Gain on change of control of interests
    
 10,156 
    
 -
Realized gains (losses) on disposition of rental property, net
    
 58,600 
    
 144 
Total other (expense) income
    
 41,540 
    
 (30,333)
Net income (loss)
    
 68,769 
    
 (3,325)
Noncontrolling interest in consolidated joint ventures
    
 706 
    
 490 
Noncontrolling interest in Operating Partnership
    
 (7,284)
    
 314 
Net income (loss) available to common shareholders
  
$
 62,191 
  
$
 (2,521)
             
Basic earnings per common share:
            
Net income (loss) available to common shareholders
  
$
 0.69 
  
$
 (0.03)
             
Diluted earnings per common share:
            
Net income (loss) available to common shareholders
  
$
 0.69 
  
$
 (0.03)
             
Basic weighted average shares outstanding
    
 89,721 
    
 89,192 
             
Diluted weighted average shares outstanding
    
 100,315 
    
 100,266 

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

 
5
 

MACK-CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) (unaudited)

             
             
     
Three Months Ended
     
March 31,
     
2016
    
2015
             
Net income (loss)
  
$
68,769
  
$
(3,325)
Other comprehensive income (loss):
            
Net unrealized loss on derivative instruments
            
for interest rate swaps
    
(6,340)
    
 -
Comprehensive income (loss)
  
$
62,429
  
$
(3,325)
Comprehensive income (loss) attributable to noncontrolling
            
interest in consolidated joint ventures
    
706
    
490
Comprehensive income (loss) attributable to noncontrolling
            
interest in Operating Partnership
    
(7,284)
    
314
Comprehensive income (loss) attributable to common shareholders
  
$
55,851
  
$
(2,521)

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

 
6
 


MACK-CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (in thousands) (unaudited)
                                         
                                         
                           
Accumulated
            
         
Additional
    
Dividends in
    
Other
    
Noncontrolling
      
   
Common Stock
    
Paid-In
    
Excess of
    
Comprehensive
  
Interests
    
Total
   
Shares
    
Par Value
    
Capital
    
Net Earnings
    
Income (Loss)
    
in Subsidiaries
    
Equity
Balance at January 1, 2016
  
 89,584
  
$
 896
  
$
 2,570,392
  
$
 (1,115,612)
  
$
 -
  
$
 228,032
  
$
 1,683,708
Net income
  
 -
    
 -
    
 -
    
 62,191
    
 -
    
 6,578
    
 68,769
Common stock dividends
  
 -
    
 -
    
 -
    
 (13,446)
    
 -
    
 -
    
 (13,446)
Unit distributions
  
 -
    
 -
    
 -
    
 -
    
 -
    
 (1,601)
    
 (1,601)
Increase in noncontrolling interest
                                        
  in consolidated joint ventures
  
 -
    
 -
    
 -
    
 -
    
 -
    
 997
    
 997
Redemption of common units
                                        
  for common stock
  
 17
    
 -
    
 276
    
 -
    
 -
    
 (276)
    
 -
Shares issued under Dividend
                                        
  Reinvestment and Stock Purchase Plan
  
 -
    
 -
    
 10
    
 -
    
 -
    
 -
    
 10
Directors' deferred compensation plan
  
 -
    
 -
    
 101
    
 -
    
 -
    
 -
    
 101
Stock compensation
  
 37
    
 -
    
 612
    
 -
    
 -
    
 173
    
 785
Other comprehensive income (loss)
  
 -
    
 -
    
 -
    
 -
    
 (5,675)
    
 (665)
    
 (6,340)
Rebalancing of ownership percentage
                                        
  between parent and subsidiaries
  
 -
    
 -
    
 118
    
 -
    
 -
    
 (118)
    
 -
Balance at March 31, 2016
  
 89,638
  
$
 896
  
$
 2,571,509
  
$
 (1,066,867)
  
$
 (5,675)
  
$
 233,120
  
$
 1,732,983

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

 

 
7
 

MACK-CALI REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
             
             
     
Three Months Ended
     
March 31,
CASH FLOWS FROM OPERATING ACTIVITIES
    
2016
    
2015
Net income (loss)
  
$
 68,769 
  
$
 (3,325)
Adjustments to reconcile net income to net cash provided by
            
Operating activities:
            
Depreciation and amortization, including related intangible assets
    
 43,413 
    
 41,185 
Amortization of deferred stock units
    
 101 
    
 98 
Amortization of stock compensation
    
 785 
    
 313 
Amortization of deferred financing costs
    
 1,169 
    
 953 
Amortization of debt discount and mark-to-market
    
 610 
    
 997 
Equity in (earnings) loss of unconsolidated joint ventures
    
 1,554 
    
 3,529 
Distributions of cumulative earnings from unconsolidated joint ventures
    
 574 
    
 815 
Realized (gains) loss on disposition of rental property, net
    
 (58,600)
    
 (144)
Gain on change of control of interests
    
 (10,156)
    
 -
Changes in operating assets and liabilities:
            
(Increase) decrease in unbilled rents receivable, net
    
 (2,169)
    
 347 
Increase in deferred charges, goodwill and other assets
    
 (19,323)
    
 (10,828)
Decrease (increase) in accounts receivable, net
    
 1,243 
    
 (866)
Increase (decrease) in accounts payable, accrued expenses and other liabilities
    
 (2,370)
    
 8,159 
Increase (decrease) in rents received in advance and security deposits
    
 370 
    
 (4,717)
(Decrease) Increase in accrued interest payable
    
 (489)
    
 2,671 
             
Net cash provided by operating activities
  
$
 25,481 
  
$
 39,187 
             
CASH FLOWS FROM INVESTING ACTIVITIES
            
Rental property acquisitions and related intangibles
  
$
 (47,818)
  
$
 -
Rental property additions and improvements
    
 (34,603)
    
 (19,658)
Development of rental property and other related costs
    
 (16,131)
    
 (12,519)
Proceeds from the sales of rental property
    
 94,710 
    
 1,072 
Repayment of notes receivable
    
 125 
    
 -
Investment in unconsolidated joint ventures
    
 (7,225)
    
 (20,880)
Distributions in excess of cumulative earnings from unconsolidated joint ventures
    
 1,771 
    
 1,097 
Decrease (increase) in restricted cash
    
 7,777 
    
 (1,535)
             
Net cash used in investing activities
  
$
 (1,394)
  
$
 (52,423)
             
CASH FLOW FROM FINANCING ACTIVITIES
            
Borrowings from revolving credit facility
  
$
 150,000 
  
$
 56,000 
Repayment of revolving credit facility
    
 (215,000)
    
 (14,000)
Repayment of senior unsecured notes
    
 (200,000)
    
 -
Borrowings from unsecured term loan
    
 350,000 
    
 -
Proceeds from mortgages and loans payable
    
 77,666 
    
 1,150 
Repayment of mortgages, loans payable and other obligations
    
 (89,712)
    
 (25,228)
Payment of financing costs
    
 (3,392)
    
 (30)
Contributions from noncontrolling interests
    
 703 
    
 94 
Payment of dividends and distributions
    
 (15,008)
    
 (14,984)
             
Net cash provided by financing activities
  
$
 55,257 
  
$
 3,002 
             
Net increase (decrease) in cash and cash equivalents
  
$
 79,344 
  
$
 (10,234)
Cash and cash equivalents, beginning of period
    
 37,077 
    
 29,549 
             
Cash and cash equivalents, end of period
  
$
 116,421 
  
$
 19,315 


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


 
8
 

MACK-CALI REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1.    ORGANIZATION AND BASIS OF PRESENTATION

ORGANIZATION
Mack-Cali Realty Corporation, a Maryland corporation, together with its subsidiaries (collectively, the “Company”), is a fully-integrated, self-administered, self-managed real estate investment trust (“REIT”) providing leasing, management, acquisition, development, construction and tenant-related services for its properties and third parties.  As of March 31, 2016, the Company owned or had interests in 273 properties, consisting of 145 office and 109 flex properties, totaling approximately 29.7 million square feet, leased to approximately 1,900  commercial tenants, and 19 multi-family rental properties containing  5,644 residential units, plus developable land (collectively, the “Properties”).  The Properties are comprised of 145 office buildings totaling approximately 24.4 million square feet (which include 36 buildings, aggregating approximately 5.6 million square feet owned by unconsolidated joint ventures in which the Company has investment interests), 94 office/flex buildings totaling approximately 4.8 million square feet, six industrial/warehouse buildings totaling approximately 387,400 square feet, 19 multi-family properties totaling 5,644 apartments (which include 12 properties aggregating 3,972 apartments owned by unconsolidated joint ventures in which the Company has investment interests), five parking/retail properties totaling approximately 121,700 square feet (which include two buildings aggregating 81,700 square feet owned by unconsolidated joint ventures in which the Company has investment interests), one hotel (which is owned by an unconsolidated joint venture in which the Company has an investment interest) and three parcels of land leased to others.  The Properties are located in seven states, primarily in the Northeast, plus the District of Columbia.

BASIS OF PRESENTATION
The accompanying consolidated financial statements include all accounts of the Company, its majority-owned and/or controlled subsidiaries, which consist principally of Mack-Cali Realty, L.P. (the “Operating Partnership”), and variable interest entities for which the Company has determined itself to be the primary beneficiary, if any.  See Note 2: Significant Accounting Policies – Investments in Unconsolidated Joint Ventures, for the Company’s treatment of unconsolidated joint venture interests.  Intercompany accounts and transactions have been eliminated.

Accounting Standards Codification (“ASC”) 810, Consolidation, provides guidance on the identification of entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and the determination of which business enterprise, if any, should consolidate the VIEs. Generally, the consideration of whether an entity is a VIE applies when either: (1) the equity investors (if any) lack (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 the activities of the entity involve or are conducted on behalf of an investor with a disproportionately small voting interest.  The Company consolidates VIEs in which it is considered to be the primary beneficiary.  The primary beneficiary is defined by the entity having both of the following characteristics: (1) the power to direct the activities that, when taken together, most significantly impact the variable interest entity’s performance: and (2) the obligation to absorb losses and right to receive the returns from the VIE that would be significant to the VIE.

On January 1, 2016, the Company adopted accounting guidance under ASC 810, Consolidation, modifying the analysis it must perform to determine whether it should consolidate certain types of legal entities.  The guidance does not amend the existing disclosure requirements for variable interest entities or voting interest model entities.  The guidance, however, modified the requirements to qualify under the voting interest model.  Under the revised guidance, the Operating Partnership will be a variable interest entity of the parent company, Mack-Cali Realty Corporation.  As the Operating Partnership is already consolidated in the balance sheets of Mack-Cali Realty Corporation, the identification of this entity as a variable interest entity has no impact on the consolidated financial statements of Mack-Cali Realty Corporation.  There were no other legal entities qualifying under the scope of the revised guidance that were consolidated as a result of the adoption.

As of March 31, 2016 and December 31, 2015, the Company’s investments in consolidated real estate joint ventures in which the Company is deemed to be the primary beneficiary have total real estate assets of $287.1 million and $273.4 million, respectively, mortgages of $93.8 million and $89.5 million, respectively, and other liabilities of $18.4 million and $17.5 million, respectively. 

The financial statements have been prepared in conformity with GAAP.  The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  These estimates and assumptions are based on management’s historical experience that are believed to be reasonable at the time.  However, because future events and their effects cannot be determined with certainty, the determination of estimates requires the exercise of judgment.
 
 
 
9
 
 

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

2.    SIGNIFICANT ACCOUNTING POLICIES

Rental
Property
Rental properties are stated at cost less accumulated depreciation and amortization.  Costs directly related to the acquisition, development and construction of rental properties are capitalized.  Acquisition–related costs are expensed as incurred.  Capitalized development and construction costs include pre-construction costs essential to the development of the property, development and construction costs, interest, property taxes, insurance, salaries and other project costs incurred during the period of development.  Capitalized development and construction salaries and related costs approximated $0.6 million and $1.3 million for the three months ended March 31, 2016 and 2015, respectively.  Included in total rental property is construction, tenant improvement and development in-progress of $144.9 million and $88.7 million as of March 31, 2016 and December 31, 2015, respectively.  Ordinary repairs and maintenance are expensed as incurred; major replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives.  Fully-depreciated assets are removed from the accounts.

The Company considers a construction project as substantially completed and held available for occupancy upon the substantial completion of tenant improvements, but no later than one year from cessation of major construction activity (as distinguished from activities such as routine maintenance and cleanup).  If portions of a rental project are substantially completed and occupied by tenants, or held available for occupancy, and other portions have not yet reached that stage, the substantially completed portions are accounted for as a separate project.  The Company allocates costs incurred between the portions under construction and the portions substantially completed and held available for occupancy, primarily based on a percentage of the relative square footage of each portion, and capitalizes only those costs associated with the portion under construction.

Properties are depreciated using the straight-line method over the estimated useful lives of the assets.  The estimated useful lives are as follows:

Leasehold interests
Remaining lease term
Buildings and improvements
5 to 40 years
Tenant improvements
The shorter of the term of the
 
related lease or useful life
Furniture, fixtures and equipment
5 to 10 years

Upon acquisition of rental property, the Company estimates the fair value of acquired tangible assets, consisting of land, building and improvements, and identified intangible assets and liabilities assumed, generally consisting of the fair value of (i) above and below market leases, (ii) in-place leases and (iii) tenant relationships.  The Company allocates the purchase price to the assets acquired and liabilities assumed based on their fair values.  The Company records goodwill or a gain on bargain purchase (if any) if the net assets acquired/liabilities assumed exceed the purchase consideration of a transaction.  In estimating the fair value of the tangible and intangible assets acquired, the Company considers information obtained about each property as a result of its due diligence and marketing and leasing activities, and utilizes various valuation methods, such as estimated cash flow projections utilizing appropriate discount and capitalization rates, estimates of replacement costs net of depreciation, and available market information.  The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant.
 
 
 
10
 

 

Above-market and below-market lease values for acquired properties are initially recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the remaining initial term plus the term of any below-market fixed rate renewal options for below-market leases. The capitalized above-market lease values are amortized as a reduction of base rental revenue over the remaining terms of the respective leases, and the capitalized below-market lease values are amortized as an increase to base rental revenue over the remaining initial terms plus the terms of any below-market fixed rate renewal options of the respective leases.

Other intangible assets acquired include amounts for in-place lease values and tenant relationship values, which are based on management’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with the respective tenant.  Factors to be considered by management in its analysis of in-place lease values include an estimate of carrying costs during hypothetical expected lease-up periods considering current market conditions, and costs to execute similar leases.  In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions.  In estimating costs to execute similar leases, management considers leasing commissions, legal and other related expenses.  Characteristics considered by management in valuing tenant relationships include the nature and extent of the Company’s existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals.  The value of in-place leases are amortized to expense over the remaining initial terms of the respective leases.  The value of tenant relationship intangibles are amortized to expense over the anticipated life of the relationships.

On a periodic basis, management assesses whether there are any indicators that the value of the Company’s rental properties held for use may be impaired.  In addition to identifying any specific circumstances which may affect a property or properties, management considers other criteria for determining which properties may require assessment for potential impairment.  The criteria considered by management include reviewing low leased percentages, significant near-term lease expirations, recently acquired properties, current and historical operating and/or cash flow losses, near-term mortgage debt maturities or other factors that might impact the Company’s intent and ability to hold the property.  A property’s value is impaired only if management’s estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property is less than the carrying value of the property.  To the extent impairment has occurred, the loss shall be measured as the excess of the carrying value of the property over the fair value of the property.  The Company’s estimates of aggregate future cash flows expected to be generated by each property are based on a number of assumptions.  These assumptions are generally based on management’s experience in its local real estate markets and the effects of current market conditions.  The assumptions are subject to economic and market uncertainties including, among others, demand for space, competition for tenants, changes in market rental rates, and costs to operate each property.  As these factors are difficult to predict and are subject to future events that may alter management’s assumptions, the future cash flows estimated by management in its impairment analyses may not be achieved, and actual losses or impairments may be realized in the future.

Rental Property
 
Held for Sale
When assets are identified by management as held for sale, the Company discontinues depreciating the assets and estimates the sales price, net of selling costs, of such assets.  The Company generally considers assets to be held for sale when the transaction has received appropriate corporate authority, and there are no significant contingencies relating to the sale.   If, in management’s opinion, the estimated net sales price, net of selling costs, of the assets which have been identified as held for sale is less than the net book value of the assets, a valuation allowance is established.
 
If circumstances arise that previously were considered unlikely and, as a result, the Company decides not to sell a property previously classified as held for sale, the property is reclassified as held and used.  A property that is reclassified is measured and recorded individually at the lower of (a) its carrying value before the property was classified as held for sale, adjusted for any depreciation (amortization) expense that would have been recognized had the property been continuously classified as held and used, or (b) the fair value at the date of the subsequent decision not to sell. 

 
 
11
 
 
 
Investments in
Unconsolidated
Joint Ventures
The Company accounts for its investments in unconsolidated joint ventures under the equity method of accounting.  The Company applies the equity method by initially recording these investments at cost, as Investments in Unconsolidated Joint Ventures, subsequently adjusted for equity in earnings and cash contributions and distributions.  The outside basis portion of the Company’s joint ventures is amortized over the anticipated useful lives of the underlying ventures’ tangible and intangible assets acquired and liabilities assumed.  Generally, the Company would discontinue applying the equity method when the investment (and any advances) is reduced to zero and would not provide for additional losses unless the Company has guaranteed obligations of the venture or is otherwise committed to providing further financial support for the investee.    If the venture subsequently generates income, the Company only recognizes its share of such income to the extent it exceeds its share of previously unrecognized losses.
 
On a periodic basis, management assesses whether there are any indicators that the value of the Company’s investments in unconsolidated joint ventures may be impaired.  An investment is impaired only if management’s estimate of the value of the investment is less than the carrying value of the investment, and such decline in value is deemed to be other than temporary.  To the extent impairment has occurred, the loss shall be measured as the excess of the carrying value of the investment over the value of the investment.  The Company’s estimates of value for each investment (particularly in real estate joint ventures) are based on a number of assumptions that are subject to economic and market uncertainties including, among others, demand for space, competition for tenants, changes in market rental rates, and operating costs.  As these factors are difficult to predict and are subject to future events that may alter management’s assumptions, the values estimated by management in its impairment analyses may not be realized, and actual losses or impairment may be realized in the future.  See Note 4: Investments in Unconsolidated Joint Ventures. 
 
  
Cash and Cash
 
Equivalents
All highly liquid investments with an original maturity of three months or less when purchased are considered to be cash equivalents. 
 
 
Deferred
Financing Costs
Costs incurred in obtaining financing are capitalized and amortized over the term of the related indebtedness. Deferred financing costs are presented in the balance sheet as a direct deduction from the carrying value of the debt liability to which they relate, except deferred financing costs related to the revolving credit facility, which are presented in Deferred charges, goodwill and other assets.  In all cases, amortization of such costs is included in interest expense and was $1,169,000 and $953,000 for the three months ended March 31, 2016 and 2015, respectively.  If a financing obligation is extinguished early, any unamortized deferred financing costs are written off and included in gains (losses) from early extinguishment of debt.  No such unamortized costs were written off for the three months ended March 31, 2016 and 2015.
 
 
Deferred
Leasing Costs
Costs incurred in connection with commercial leases are capitalized and amortized on a straight-line basis over the terms of the related leases and included in depreciation and amortization.  Unamortized deferred leasing costs are charged to amortization expense upon early termination of the lease.  Certain employees of the Company are compensated for providing leasing services to the Properties.  The portion of such compensation related to commercial leases, which is capitalized and amortized, was approximately $780,000 and $970,000 for the three months ended March 31, 2016 and 2015, respectively.
 
 
Goodwill
Goodwill represents the excess of the purchase price over the fair value of net tangible and intangible assets acquired in a business combination. Goodwill is allocated to various reporting units, as applicable.  Each of the Company’s segments consists of a reporting unit. Goodwill is not amortized.  Management performs an annual impairment test for goodwill during the fourth quarter and between annual tests, management evaluates the recoverability of goodwill whenever events or changes in circumstances indicate that the carrying value of goodwill may not be fully recoverable.  In its impairment tests of goodwill, management first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.  If, based on this assessment, management determines that the fair value of the reporting unit is not less than its carrying value, then performing the additional two-step impairment test is unnecessary. If the carrying value of goodwill exceeds its fair value, an impairment charge is recognized.
 
 
 
 
 
12
 

Derivative
Instruments
The Company measures derivative instruments, including certain derivative instruments embedded in other contracts, at fair value and records them as an asset or liability, depending on the Company’s rights or obligations under the applicable derivative contract.  For derivatives designated and qualifying as fair value hedges, the changes in the fair value of both the derivative instrument and the hedged item are recorded in earnings.  For derivatives designated as cash flow hedges, the effective portions of the derivative are reported in other comprehensive income (“OCI”) and are subsequently reclassified into earnings when the hedged item affects earnings. Changes in fair value of derivative instruments not designated as hedging and ineffective portions of hedges are recognized in earnings in the affected period.
 
 
Revenue
Recognition
Base rental revenue is recognized on a straight-line basis over the terms of the respective leases.  Unbilled rents receivable represents the cumulative amount by which straight-line rental revenue exceeds rents currently billed in accordance with the lease agreements.

Above-market and below-market lease values for acquired properties are initially recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the remaining initial term plus the term of any below-market fixed-rate renewal options for below-market leases.  The capitalized above-market lease values for acquired properties are amortized as a reduction of base rental revenue over the remaining terms of the respective leases, and the capitalized below-market lease values are amortized as an increase to base rental revenue over the remaining initial terms plus the terms of any below-market fixed-rate renewal options of the respective leases.

Escalations and recoveries from tenants are received from tenants for certain costs as provided in the lease agreements.  These costs generally include real estate taxes, utilities, insurance, common area maintenance and other recoverable costs.  See Note 14: Tenant Leases.

Real estate services revenue includes property management, development, construction and leasing commission fees and other services, and payroll and related costs reimbursed from clients.  Fee income derived from the Company’s unconsolidated joint ventures (which are capitalized by such ventures) are recognized to the extent attributable to the unaffiliated ownership interests.

Parking income includes income from parking spaces leased to tenants and others.

Other income includes income from tenants for additional services arranged for by the Company and income from tenants for early lease terminations.
 
 
Allowance for
Doubtful Accounts
Management performs a detailed review of amounts due from tenants to determine if an allowance for doubtful accounts is required based on factors affecting the collectability of the accounts receivable balances. The factors considered by management in determining which individual tenant receivable balances, or aggregate receivable balances, require a collectability allowance include the age of the receivable, the tenant’s payment history, the nature of the charges, any communications regarding the charges and other related information. Management’s estimate of the allowance for doubtful accounts requires management to exercise significant judgment about the timing, frequency and severity of collection losses, which affects the allowance and net income. 
 
 
Income and
Other Taxes
The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”).  As a REIT, the Company generally will not be subject to corporate federal income tax (including alternative minimum tax) on net income that it currently distributes to its shareholders, provided that the Company satisfies certain organizational and operational requirements including the requirement to distribute at least 90 percent of its REIT taxable income (determined by excluding any net capital gains) to its shareholders.  If and to the extent the Company retains and does not distribute any net capital gains, the Company will be required to pay federal, state and local taxes on such net capital gains at the rate applicable to capital gains of a corporation.  The Company has elected to treat certain of its corporate subsidiaries as taxable REIT subsidiaries (each a “TRS”).  In general, a TRS of the Company may perform additional services for tenants of the Company and generally may engage in any real estate or non-real estate related business (except for the operation or management of health care facilities or lodging facilities or the providing to any person, under a franchise, license or otherwise, rights to any brand name under which any lodging facility or health care facility is operated).  A TRS is subject to corporate federal income tax.   The Company has conducted business through its TRS entities for certain property management, development, construction and other related services, as well as to hold a joint venture interest in a hotel and other matters.
 
 
 
13
 
 

 
As of March 31, 2016, the Company had a deferred tax asset related to its TRS activity with a balance of approximately $23.4 million which has been fully reserved for through a valuation allowance.  If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate tax rates.  The Company is subject to certain state and local taxes.

Pursuant to the amended provisions related to uncertain tax provisions of ASC 740, Income Taxes, the Company recognized no material adjustments regarding its tax accounting treatment.  The Company expects to recognize interest and penalties related to uncertain tax positions, if any, as income tax expense, which is included in general and administrative expense.

In the normal course of business, the Company or one of its subsidiaries is subject to examination by federal, state and local jurisdictions in which it operates, where applicable.  As of March 31, 2016, the tax years that remain subject to examination by the major tax jurisdictions under the statute of limitations are generally from the year 2011 forward.
 
 
Earnings
 
Per Share
The Company presents both basic and diluted earnings per share (“EPS”).  Basic EPS excludes dilution and is computed by dividing net income available to common shareholders by the weighted average number of shares outstanding for the period.  Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, where such exercise or conversion would result in a lower EPS from continuing operations amount.  Shares whose issuance is contingent upon the satisfaction of certain conditions shall be considered outstanding and included in the computation of diluted EPS as follows (i) if all necessary conditions have been satisfied by the end of the period (the events have occurred), those shares shall be included as of the beginning of the period in which the conditions were satisfied (or as of the date of the grant, if later) or (ii) if all necessary conditions have not been satisfied by the end of the period, the number of contingently issuable shares included in diluted EPS shall be based on the number of shares, if any, that would be issuable if the end of the reporting period were the end of the contingency period (for example, the number of shares that would be issuable based on current period earnings or period-end market price) and if the result would be dilutive. Those contingently issuable shares shall be included in the denominator of diluted EPS as of the beginning of the period (or as of the date of the grant, if later).

Dividends and
 
Distributions
Payable
The dividends and distributions payable at March 31, 2016 represents dividends payable to common shareholders (89,638,337 shares) and distributions payable to noncontrolling interest unitholders of the Operating Partnership (10,499,844 common units and 657,373 LTIP units) for all such holders of record as of April 5, 2016 with respect to the first quarter 2016.  The first quarter 2016 common stock dividends and unit distributions of $0.15 per common share and unit were approved by the Board of Directors on March 8, 2016 and paid on April 15, 2016.

The dividends and distributions payable at December 31, 2015 represents dividends payable to common shareholders (89,584,008 shares) and distributions payable to noncontrolling interest common unitholders of the Operating Partnership (10,516,844 common units) for all such holders of record as of January 6, 2016 with respect to the fourth quarter 2015.  The fourth quarter 2015 common stock dividends and common unit distributions of $0.15 per common share and unit were approved by the Board of Directors on December 8, 2015 and paid on January 15, 2016.

 
 
14
 
 
 
Costs Incurred
For Stock
 
Issuances
Costs incurred in connection with the Company’s stock issuances are reflected as a reduction of additional paid-in capital.

Stock
Compensation
The Company accounts for stock compensation in accordance with the provisions of ASC 718, Compensation-Stock Compensation.  These provisions require that the estimated fair value of restricted stock (“Restricted Stock Awards”), restricted stock units (“RSUs”), performance share units (“PSUs”), long-term incentive plan awards and stock options at the grant date be amortized ratably into expense over the appropriate vesting period.  The Company recorded stock compensation expense of $785,000 and $313,000 for the three months ended March 31, 2016 and 2015, respectively.

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

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

·  
Level 1: Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;
·  
Level 2: Quoted prices for identical assets and liabilities in markets that are inactive, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly, such as interest rates and yield curves that are observable at commonly quoted intervals and
·  
Level 3: Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

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

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

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

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

In February 2016, the FASB issued ASU 2016-02, modifying the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee.  This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively.  A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification.  Leases with a term of 12 months or less will be accounted for in the same manner as operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The guidance is expected to impact the consolidated financial statements as the Company has certain operating and land lease arrangements for which it is the lessee.  The guidance supersedes previously issued guidance under ASC Topic 840 “Leases.” The guidance is effective on January 1, 2019, with early adoption permitted.  The Company is currently in the process of evaluating the impact the adoption of ASU 2016-02 will have on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU 2016-07, which eliminates a requirement for the retroactive adjustment on a step by step basis of the investment, results of operations, and retained earnings as if the equity method had been effective during all previous periods that the investment had been held when an investment qualifies for equity method accounting due to an increase in the level of ownership or degree of influence. The cost of acquiring the additional interest in the investee is to be added to the current basis of the investor’s previously held interest and the equity method of accounting should be adopted as of the date the investment becomes qualified for equity method accounting. This guidance is to be applied on a prospective basis and is effective for interim and annual periods beginning after December 15, 2016. Early adoption is permitted for financial statements that have not been previously issued. The Company is currently in the process of evaluating the impact the adoption of ASU 2016-07 will have on the Company’s consolidated financial statements. 
 
 
 
16
 
 

 
 
In March 2016, the FASB issued ASU 2016-09, intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. The new guidance allows for entities to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. In addition, the guidance allows employers to withhold shares to satisfy minimum statutory tax withholding requirements up to the employees’ maximum individual tax rate without causing the award to be classified as a liability. The guidance also stipulates that cash paid by an employer to a taxing authority when directly withholding shares for tax-withholding purposes should be classified as a financing activity on the statement of cash flows. This guidance is effective for annual reporting periods beginning after December 15, 2016, and interim periods within that reporting period. Early adoption is permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. The Company is currently in the process of evaluating the impact the adoption of ASU 2016-09 will have on the Company’s consolidated financial statements. 
 
 
 
3.    RECENT TRANSACTIONS

Acquisitions
On January 5, 2016, the Company, which held a 50 percent subordinated interest in the unconsolidated joint venture, Overlook Ridge Apartment Investors LLC, a 371-unit multi-family operating property located in Malden, Massachusetts, acquired the remaining interest for $39.8 million in cash plus the assumption of a first mortgage loan secured by the property with a principal balance of $52.7 million.  The cash portion of the acquisition was funded primarily through borrowings under the Company’s unsecured revolving credit facility.  Upon acquisition, the Company consolidated the asset and accordingly, remeasured its equity interests, as required by the FASB’s consolidation guidance, at fair value (based upon the income approach using current rates and market cap rates and discount rates).  As a result, the Company recorded a gain on change of control of interests of $10.2 million in the three months ended March 31, 2016.  On January 19, 2016, the Company repaid the assumed loan and obtained a new loan secured by the property in the amount of $72.5 million, which bears interest at 3.625 percent and matures in February 2023.  See Note 10: Mortgages, Loans Payable and Other Obligations. 

The purchase price was allocated to the net assets acquired upon consolidation, as follows (in thousands):

     
     
   
Overlook
   
Ridge
Land
$
11,072
Buildings and improvements
  
87,793
Furniture, fixtures and equipment
  
1,695
In-place lease values (1)
  
4,389
Below market lease values (1)
  
(489)
Other assets
  
237
Sub Total
  
104,697
     
Less: Debt assumed
  
(52,662)
     
Net assets recorded upon consolidation
$
 52,035

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

On April 1, 2016, the Company, which held a 50 percent interest in the unconsolidated Portside Apts LLC, acquired the equity interests of one of its joint venture partners for $38.1 million in cash plus the assumption of a first mortgage loan secured by the property with a principal balance of $42.5 million and interest at LIBOR plus 250 basis points maturing in December 2017.  The cash portion of the acquisition was funded primarily through borrowings under the Company’s unsecured revolving credit facility.  As a result, the Company increased its ownership to 85 percent of the 175-unit operating multi-family property located in East Boston, Massachusetts.

Also on April 1, 2016, the Company bought out a partner for $11.3 million and increased its subordinated interest in PruRose Riverwalk G, L.L.C. from 25 percent to 50 percent using borrowings on the Company’s unsecured credit facility.  PruRose Riverwalk G, L.L.C., owns a 316-unit operating multi-family property located in Weehawken, New Jersey.
 
 
 
17
 
 

 
On April 22, 2016, the Company entered into an agreement to acquire a 566,000 square-foot office property located in Hoboken, New Jersey, for approximately $235 million, subject to certain conditions.  The acquisition is expected to be completed in the second quarter of 2016.

Dispositions
The Company disposed of the following office properties during the three months ended March 31, 2016 (dollars in thousands):

                             
       
Rentable
    
Net
    
Net
        
Disposition
    
# of
Square
    
Sales
    
Book
    
Realized
  
Date
Property/Address
Location
Bldgs.
 Feet
    
Proceeds
    
Value
    
Gain (loss)
  
03/11/16
2 Independence Way (a)
Princeton, New Jersey
1
67,401
  
$
4,119
  
$
4,283
  
$
 (164)
  
03/24/16
1201 Connecticut Avenue, NW
Washington, D.C.
1
169,549
    
90,591
    
31,827
    
 58,764
  
                             
Totals
    
2
 236,950
  
$
 94,710
  
$
 36,110
  
$
 58,600
  
                             
(a)  The Company recorded an impairment charge of $3.2 million on this property during the year ended December 31, 2015 as it estimated that the carrying value of the property may not be recoverable over its anticipated holding period.
  
                             
Rental Properties Held for Sale
During the three months ended March 31, 2016, the Company signed agreements to dispose of two office properties totaling approximately 683,000 square feet, located at 1400 L Street, NW in Washington, D.C. and 125 Broad Street in New York, New York, subject to certain conditions.  The total estimated sales proceeds expected from the two separate sales are approximately $272 million.  The dispositions are expected to be completed in the second quarter of 2016.  The Company identified these properties as held for sale at March 31, 2016.

The following table summarizes the rental property held for sale, net, as of March 31, 2016: (dollars in thousands)

       
       
     
March 31,
     
2016
Land
  
$
 46,883
Buildings and improvements
    
 210,925
Less: Accumulated depreciation
    
 (57,764)
Rental property held for sale,net
  
$
 200,044

Other assets and liabilities related to the rental properties held for sale, as of March 31, 2016, include $13.2 million in Deferred charges, and other assets, $20.1 million in Unbilled rents receivable, net, $1.3 million in Accounts receivable, net of allowance, $3.4 million in Accounts payable, accrued expenses and other liabilities, and $1.2 million in Rents received in advance and security deposits.  Approximately $31.3 million of these assets and $796,000 of these liabilities are expected to be written off with the completion of the sales.

The following table summarizes income (loss) for the three month periods ended March 31, 2016 and 2015 from the properties disposed of during the three months ended March 31, 2016 and the six properties disposed of during the year ended December 31, 2015: (dollars in thousands)
             
     
Three Months Ended
     
March 31,
     
2016
    
2015
Total revenues
  
$
 1,608
  
$
 7,629
Operating and other expenses
    
 (1,379)
    
 (2,524)
Depreciation and amortization
    
 (2,797)
    
 (1,685)
Interest expense
    
 (626)
    
 (2,710)
             
Income (loss) from properties disposed of
  
$
 (3,194)
  
$
 710
             
Realized gains on dispositions
    
 58,600
    
 144
             
Total income (loss)  from properties disposed of
  
$
 55,406
  
$
 854
 
 
 
 
 
18
 
 

 
4.    INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES

As of March 31, 2016, the Company had an aggregate investment of approximately $303.6 million in its equity method joint ventures.  The Company formed these ventures with unaffiliated third parties, or acquired interests in them, to develop or manage primarily office and multi-family rental properties, or to acquire land in anticipation of possible development of office and multi-family rental properties.  As of March 31, 2016, the unconsolidated joint ventures owned: 36 office and two retail properties aggregating approximately 5.7 million square feet, 12 multi-family properties totaling 3,972 apartments, a 350-room hotel, development projects for up to approximately 1,074 apartments; and interests and/or rights to developable land parcels able to accommodate up to 2,910 apartments and 1.4 million square feet of office space.  The Company’s unconsolidated interests range from 7.5 percent to 85 percent subject to specified priority allocations in certain of the joint ventures.

The amounts reflected in the following tables (except for the Company’s share of equity in earnings) are based on the historical financial information of the individual joint ventures.  The Company does not record losses of the joint ventures in excess of its investment balances unless the Company is liable for the obligations of the joint venture or is otherwise committed to provide financial support to the joint venture.  The outside basis portion of the Company’s investments in joint ventures is amortized over the anticipated useful lives of the underlying ventures’ tangible and intangible assets acquired and liabilities assumed.  Unless otherwise noted below, the debt of the Company’s unconsolidated joint ventures generally is non-recourse to the Company, except for customary exceptions pertaining to such matters as intentional misuse of funds, environmental conditions, and material misrepresentations.

The Company has agreed to guarantee repayment of a portion of the debt of its unconsolidated joint ventures.  As of March 31, 2016, such debt had a total facility amount of $492.1 million of which the Company agreed to guarantee up to $66.3 million.  As of March 31, 2016, the outstanding balance of such debt totaled $286.7 million of which $44.8 million was guaranteed by the Company.  The Company also posted a $3.6 million letter of credit in support of the South Pier at Harborside joint venture, half of which is indemnified by Hyatt Corporation, the Company’s joint venture partner.  The Company performed management, leasing, development and other services for the properties owned by the unconsolidated joint ventures and recognized $1.0 million and $1.6 million for such services in the three months ended March 31, 2016 and 2015, respectively.  The Company had $0.7 million and $0.8 million in accounts receivable due from its unconsolidated joint ventures as of March 31, 2016 and December 31, 2015.

Included in the Company’s investments in unconsolidated joint ventures as of March 31, 2016 are five unconsolidated development joint ventures, which are VIEs for which the Company is not the primary beneficiary.  These joint ventures are primarily established to develop real estate property for long-term investment and were deemed VIEs primarily based on the fact that the equity investment at risk was not sufficient to permit the entities to finance their activities without additional financial support.  The initial equity contributed to these entities was not sufficient to fully finance the real estate construction as development costs are funded by the partners throughout the construction period.  The Company determined that it was not the primary beneficiary of these VIEs based on the fact that the Company has shared control of these entities along with the entity’s partners and therefore does not have controlling financial interests in these VIEs.  The Company’s aggregate investment in these VIEs was approximately $177.1 million as of March 31, 2016.  The Company’s maximum exposure to loss as a result of its involvement with these VIEs is estimated to be approximately $210.8 million, which includes the Company’s current investment and estimated future funding commitments/guarantees of approximately $33.7 million.  The Company has not provided financial support to these VIEs that it was not previously contractually required to provide.  In general, future costs of development not financed through third party will be funded with capital contributions from the Company and its outside partners in accordance with their respective ownership percentages.   

 
19
 



The following is a summary of the Company's unconsolidated joint ventures as of March 31, 2016 and December 31, 2015: (dollars in thousands, including footnotes)

                                   
                         
Property Debt
  
 
Number of
Company's
    
Carrying Value
    
As of March 31, 2016
  
 
Apartment Units
Effective
    
March 31,
    
December 31,
      
Maturity
Interest
  
Entity / Property Name
or Square Feet (sf)
Ownership % (a)
    
2016
    
2015
    
Balance
Date
Rate
  
Multi-family
                                  
Marbella RoseGarden, L.L.C./ Marbella  (b)
 412
units
 24.27
%
  
$
 15,486
  
$
 15,569
  
$
 95,000
05/01/18
 4.99
%
  
RoseGarden Monaco Holdings, L.L.C./ Monaco   (b)
 523
units
 15.00
%
    
 646
    
 937
    
 165,000
02/01/21
 4.19
%
  
PruRose Port Imperial South 15, LLC /RiversEdge at Port Imperial (b)
 236
units
 50.00
%
    
 -
    
 -
    
 57,500
09/01/20
 4.32
%
  
Rosewood Morristown, L.L.C. / Metropolitan at 40 Park  (c) (d)
 130
units
 12.50
%
    
 5,741
    
 5,723
    
 45,756
(e)
(e)
    
PruRose Riverwalk G, L.L.C./ RiverTrace at Port Imperial   (b) (f)
 316
units
 25.00
%
    
 -
    
 -
    
 79,392
07/15/21
 6.00
%
(g)
Elmajo Urban Renewal Associates, LLC / Lincoln Harbor (Bldg A&C)  (b)
 355
units
 7.50
%
    
 -
    
 -
    
 128,100
03/01/30
 4.00
%
  
Crystal House Apartments Investors LLC / Crystal House  (h)
 798
units
 25.00
%
    
 28,855
    
 28,114
    
 165,000
04/01/20
 3.17
%
  
Portside Master Company, L.L.C./ Portside at Pier One - Bldg 7  (b) (f)
 175
units
 38.25
%
    
 -
    
 -
    
 42,500
12/04/17
L+2.50
%
(i)
PruRose Port Imperial South 13, LLC / RiverParc at Port Imperial  (b)
 280
units
 20.00
%
    
 -
    
 -
    
 70,731
06/27/16
L+2.15
%
(j)
Roseland/Port Imperial Partners, L.P./ Riverwalk C  (b) (k)
 363
units
 20.00
%
    
 1,678
    
 1,678
    
 -
-
-
    
RoseGarden Marbella South, L.L.C./ Marbella II
 311
units
 24.27
%
    
 17,155
    
 16,728
    
 69,681
03/30/17
L+2.25
%
(l)
Estuary Urban Renewal Unit B, LLC / Lincoln Harbor (Bldg B)  (b)
 227
units
 7.50
%
    
 -
    
 -
    
 81,900
03/01/30
 4.00
%
  
Riverpark at Harrison I, L.L.C./ Riverpark at Harrison
 141
units
 45.00
%
    
 2,426
    
 2,544
    
 30,000
08/01/25
 3.70
%
  
Capitol Place Mezz LLC / Station Townhouses
 378
units
 50.00
%
    
 45,500
    
 46,267
    
 100,700
07/01/33
 4.82
%
(m)
Harborside Unit A Urban Renewal, L.L.C. / URL Harborside
 763
units
 85.00
%
    
 97,615
    
 96,799
    
 92,937
08/01/29
 5.197
%
(n)
RoseGarden Monaco, L.L.C./ San Remo Land
 250
potential units
 41.67
%
    
 1,356
    
 1,339
    
 -
-
-
    
Grand Jersey Waterfront URA, L.L.C./ Liberty Landing
 850
potential units
 50.00
%
    
 337
    
 337
    
 -
-
-
    
Hillsborough 206 Holdings, L.L.C./ Hillsborough 206
 160,000
sf
 50.00
%
    
 1,962
    
 1,962
    
 -
-
-
    
Plaza VIII & IX Associates, L.L.C./ Vacant land (parking operations)
 1,225,000
sf
 50.00
%
    
 4,132
    
 4,055
    
 -
-
-
    
                                   
                                   
Office
                                  
Red Bank Corporate Plaza, L.L.C./ Red Bank
 92,878
sf
 50.00
%
    
 4,250
    
 4,140
    
 14,950
05/17/16
L+3.00
%
(o)
12 Vreeland Associates, L.L.C./ 12 Vreeland Road
 139,750
sf
 50.00
%
    
 5,974
    
 5,890
    
 12,171
07/01/23
 2.87
%
  
BNES Associates III / Offices at Crystal Lake
 106,345
sf
 31.25
%
    
 2,101
    
 2,295
    
 5,973
11/01/23
 4.76
%
  
KPG-P 100 IMW JV, LLC / 100 Independence Mall West
 339,615
sf
 33.33
%
    
 -
    
 -
    
 61,500
09/09/16
L+7.00
%
(p)
Keystone-Penn
 1,842,820
sf
(q)
      
 -
    
 -
    
 228,600
(r)
(r)
    
Keystone-TriState
 1,266,384
sf
(s)
      
 3,480
    
 3,958
    
 212,536
(t)
(t)
    
KPG-MCG Curtis JV, L.L.C./ Curtis Center  (u)
 885,000
sf
 50.00
%
    
 62,247
    
 59,858
    
(v)
(v)
(v)
    
                                   
Other
                                  
Roseland/North Retail, L.L.C./ Riverwalk at Port Imperial  (b)
 30,745
sf
 20.00
%
    
 1,742
    
 1,758
    
 -
-
-
    
South Pier at Harborside / Hyatt Regency Jersey City on the Hudson
 350
rooms
 50.00
%
    
(w)
    
(w)
    
 63,384
(x)
(x)
    
Other (y)
            
 964
    
 3,506
    
 -
-
-
    
Totals:
          
$
 303,647
  
$
 303,457
  
$
 1,823,311
        



   
   
(a)      
Company's effective ownership % represents the Company's entitlement to residual distributions after payments of priority returns, where applicable.
(b)      
The Company's ownership interests in this venture are subordinate to its partner's preferred capital balance and the Company is not expected to meaningfully participate in the venture's cash flows in the near term.
(c)      
Through the joint venture, the Company also owns a 12.5 percent interest in a 50,973 square feet retail building ("Shops at 40 Park") and a 25 percent interest in a to-be-built 59-unit, five story multi-family rental development property ("Lofts at 40 Park").
(d)      
The Company's ownership interests in this venture are subordinate to its partner's preferred capital balance and the payment of the outstanding balance remaining on a note ($975 as of December 31, 2015), and is not expected to meaningfully participate in the venture's cash flows in the near term.
(e)      
Property debt balance consists of: (i) a loan, collateralized by the Metropolitan at 40 Park, with a balance of $38,218, bears interest at 3.25 percent, matures in September 2020; (ii) an amortizable loan, collateralized by the Shops at 40 Park, with a balance of $6,421, bears interest at 3.63 percent, matures in August 2018; and (iii) a loan, collateralized by the Lofts at 40 Park, with a balance of $1,117, bears interest at LIBOR plus 250 basis points and matures in September 2016.  The Shops at 40 Park mortgage loan also provides for additional borrowing proceeds of $1 million based on certain preferred thresholds being achieved.
(f)      
On April 1, 2016, the Company acquired the equity interests of its joint venture partner in Portside Apartment Holdings, L.L.C and PruRose Riverwalk G, L.L.C. for $38.1 million and $11.3 million, respectively, which increased its ownership to 85 percent in Portside Apartment Holdings, LLC and 50 percent in PruRose Riverwalk G, L.L.C.  (See Note 3: Recent Transactions – Acquisitions).
(g)  
The permanent loan has a maximum borrowing amount of $80,249.
(h)      
The Company also owns a 50 percent interest in a vacant land to accommodate the development of approximately 295 additional units of which 252 are currently approved.
(i)       
The construction loan has a maximum borrowing amount of $42,500 and provides, subject to certain conditions, two two-year extension options with a fee of 12.5 basis points for the first two-year extension and 25 basis points for the second two-year extension.
(j)     
The construction loan has a maximum borrowing amount of $73,350 and provides, subject to certain conditions, one-year extension option followed by a six-month extension option with a fee of 25 basis points each. The joint venture has a swap agreement that fixes the all-in rate to 2.79 percent per annum on an initial notional amount of $1,620, increasing to $69,500 for the period from July 1, 2013 to January 1, 2016.
(k)      
The Company also owns a 20 percent residual interest in undeveloped land parcels: parcels 6, I, and J ("Port Imperial North Land") that can accommodate the development of 836 apartment units.
(l)      
The construction loan has a maximum borrowing amount of $77,400 and provides, subject to certain conditions, two one-year extension options with a fee of 25 basis points for each year.
(m)       
The construction/permanent loan has a maximum borrowing amount of $100,700 with amortization starting in August 2017.
(n)    
The construction/permanent loan has a maximum borrowing amount of $192,000.
(o)      
The joint venture has a swap agreement that fixes the all-in rate to 3.99375 percent per annum on an initial notional amount of $13,650 and then adjusting in accordance with an amortization schedule, which is effective from October 17, 2011 through loan maturity.
(p)       
The mortgage loan has two one-year extension options, subject to certain conditions.
(q)      
The Company’s equity interests in the joint ventures will be subordinated to Keystone Entities receiving a 15 percent internal rate of return (“IRR”) after which the Company will receive a 10 percent IRR on its subordinate equity and then all profit will be split equally.
(r)      
Principal balance of $127,600 bears interest at 5.114 percent and matures on August 27, 2023; principal balance of $45,500 bears interest at 5.01 percent and matures on September 6, 2025; principal balance of $33,825 bears interest at rates ranging from LIBOR+5.0 percent to LIBOR+5.75 percent and matures on August 27, 2016; principal balance of $11,250 bears interest at LIBOR+5.5 percent and matures on January 9, 2019; principal balance of $10,425 bears interest at LIBOR+6.0 percent matures on August 31, 2016.
(s)     
Includes the Company’s pari-passu interests of $3.5 million in five properties and Company’s subordinated equity interests to Keystone Entities receiving a 15 percent internal rate of return (“IRR”) after which the Company will receive a 10 percent IRR on its subordinate equity and then all profit will be split equally.
(t)      
Principal balance of $43,954 bears interest at 5.38 percent and matures on July 1, 2017; principal balance of $75,882 bears interest at rates ranging from 5.65 percent to 6.75 percent and matures on September 9, 2017; principal balance of $14,250 bears interest at 4.88 percent and matures on July 6, 2024; principal balance of $63,400 bears interest at 4.93 percent and matures on July 6, 2044; principal balance of $15,050 bears interest at 4.71 percent and matures on August 6, 2044.
(u)
Includes undivided interests in the same manner as investments in noncontrolling partnership, pursuant to ASC 970-323-25-12.
(v)
See Note 10: Mortgages, Loans Payable and Other Obligations for debt secured by interests in these assets.
(w)
The negative carrying value for this venture of $4,235 and $3,317 as of March 31, 2016 and 2015, respectively, were included in accounts payable, accrued expenses and other liabilities.
(x)      
Balance includes: (i) mortgage loan, collateralized by the hotel property, with a balance of $59,790, bears interest at 6.15 percent and matures in November 2016, and (ii) loan with a balance of $3,594, bears interest at fixed rates ranging from 6.09 percent to 6.62 percent and matures in August 1, 2020.  The Company posted a $3.6 million letter of credit in support of this loan, half of which is indemnified by the partner.
(y)
The Company owns other interests in various unconsolidated joint ventures, including interests in assets previously owned and interest in ventures whose businesses are related to its core operations. These ventures are not expected to significantly impact the Company's operations in the near term. 
 
 
 
20
 

 

The following is a summary of the Company’s equity in earnings (loss) of unconsolidated joint ventures for the three months ended March 31, 2016 and 2015: (dollars in thousands)
           
     
   
Three Months Ended
   
 March 31,
Entity / Property Name
  
2016
    
2015
Multi-family
          
Marbella RoseGarden, L.L.C./ Marbella
$
 84
  
$
 61
RoseGarden Monaco Holdings, L.L.C./ Monaco
  
 (291)
    
 (317)
PruRose Port Imperial South 15, LLC /RiversEdge at Port Imperial
  
 -
    
 -
Rosewood Morristown, L.L.C. / Metropolitan at 40 Park
  
 (81)
    
 (94)
PruRose Riverwalk G, L.L.C./ RiverTrace at Port Imperial
  
 -
    
 (254)
Elmajo Urban Renewal Associates, LLC / Lincoln Harbor (Bldg A&C)
  
 -
    
 -
Crystal House Apartments Investors LLC / Crystal House
  
 (112)
    
 (10)
Portside Master Company, L.L.C./ Portside at Pier One - Bldg 7
  
 -
    
 (719)
PruRose Port Imperial South 13, LLC / RiverParc at Port Imperial
  
 -
    
 (225)
Roseland/Port Imperial Partners, L.P./ Riverwalk C
  
 -
    
 (184)
RoseGarden Marbella South, L.L.C./ Marbella II
  
 -
    
 -
Estuary Urban Renewal Unit B, LLC / Lincoln Harbor (Bldg B)
  
 -
    
 -
Riverpark at Harrison I, L.L.C./ Riverpark at Harrison
  
 (28)
    
 (173)
Capitol Place Mezz LLC / Station Townhouses
  
 (767)
    
 75
Harborside Unit A Urban Renewal, L.L.C. / URL Harborside
  
 (17)
    
 -
RoseGarden Monaco, L.L.C./ San Remo Land
  
 -
    
 -
Grand Jersey Waterfront URA, L.L.C./ Liberty Landing
  
 (60)
    
 (19)
Hillsborough 206 Holdings, L.L.C./ Hillsborough 206
  
 (19)
    
 -
Plaza VIII & IX Associates, L.L.C./ Vacant land (parking operations)
  
 77
    
 86
Office
          
Red Bank Corporate Plaza, L.L.C./ Red Bank
  
 101
    
 110
12 Vreeland Associates, L.L.C./ 12 Vreeland Road
  
 84
    
 (14)
BNES Associates III / Offices at Crystal Lake
  
 (194)
    
 68
KPG-P 100 IMW JV, LLC / 100 Independence Mall West
  
 -
    
 (384)
Keystone-Penn
  
 -
    
 -
Keystone-TriState
  
 (477)
    
 (1,348)
KPG-MCG Curtis JV, L.L.C./ Curtis Center
  
 179
    
 196
Other
          
Roseland/North Retail, L.L.C./ Riverwalk at Port Imperial
  
 (16)
    
 (18)
South Pier at Harborside / Hyatt Regency Jersey City on the Hudson
  
 (167)
    
 (84)
Other
  
 150
    
 (282)
Company's equity in earnings (loss) of unconsolidated joint ventures
$
 (1,554)
  
$
 (3,529)


 
21
 

The following is a summary of the financial position of the unconsolidated joint ventures in which the Company had investment interests as of March 31, 2016 and December 31, 2015: (dollars in thousands)
             
             
     
March 31,
    
December 31,
     
2016
    
2015
Assets:
            
   Rental property, net
  
$
 1,736,842 
  
$
 1,781,621 
   Other assets
    
 294,444 
    
 307,000 
   Total assets
  
$
 2,031,286 
  
$
 2,088,621 
Liabilities and partners'/
            
members' capital:
            
   Mortgages and loans payable
  
$
 1,279,688 
  
$
 1,298,293 
   Other liabilities
    
 215,552 
    
 215,951 
   Partners'/members' capital
    
 536,046 
    
 574,377 
   Total liabilities and
            
   partners'/members' capital
  
$
 2,031,286 
  
$
 2,088,621 
 
 
The following is a summary of the results from operations of the unconsolidated joint ventures for the period in which the Company had investment interests during the three months ended March 31, 2016 and 2015: (dollars in thousands)
           
           
   
Three Months Ended
   
March 31,
   
2016
    
2015
Total revenues
$
 70,122 
  
$
 74,477 
Operating and other expenses
  
 (45,561)
    
 (57,356)
Depreciation and amortization
  
 (18,842)
    
 (16,993)
Interest expense
  
 (14,049)
    
 (11,334)
Net loss
$
 (8,330)
  
$
 (11,206)


5.    DEFERRED CHARGES, GOODWILL AND OTHER ASSETS, NET
           
           
   
March 31,
    
December 31,
(dollars in thousands)
  
2016
    
2015
Deferred leasing costs
$
 237,209
  
$
 239,690
Deferred financing costs - revolving credit facility (1)
  
 5,359
    
 5,394
   
 242,568
    
 245,084
Accumulated amortization
  
 (103,316)
    
 (118,014)
Deferred charges, net
  
 139,252
    
 127,070
Notes receivable (2)
  
 13,435
    
 13,496
In-place lease values, related intangibles and other assets, net
  
 12,736
    
 10,931
Goodwill
  
 2,945
    
 2,945
Prepaid expenses and other assets, net (3)
  
 52,629
    
 49,408
           
Total deferred charges, goodwill and other assets, net
$
 220,997
  
$
 203,850

(1)
Pursuant to recently issued accounting standards, deferred financing costs related to all other debt liabilities (other than for the revolving credit facility) are classified to net against those debt liabilities for all periods presented. See Note 2: Significant Accounting Policies – Deferred Financing Costs.
(2)
Includes as of March 31, 2016: a mortgage receivable for $10.4 million which bears interest at LIBOR plus six percent and matures in August 2016; and an interest-free note receivable with a net present value of $3.0 million and matures in April 2023.  The Company believes these balances are fully collectible.
(3)
Includes as of March 31, 2016, deposits of $12.7 million for acquisitions and developments.


 
22
 

DERIVATIVE FINANCIAL INSTRUMENTS

Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy.  As of March 31, 2016, the Company had outstanding interest rate swaps with a combined notional value of $350 million that were designated as cash flow hedges of interest rate risk. During the three months ending March 31, 2016, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.  The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the three months ended March 31, 2016, the Company recorded ineffectiveness of $913,000 in expense, which is included in interest and other investment income (loss) in the consolidated statements of operations, attributable to a floor mismatch in the underlying indices of the derivatives and the hedged interest payments made on its variable-rate debt.  Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next 12 months, the Company estimates that an additional $3.1 million will be reclassified as an increase to interest expense.

Undesignated Cash Flow Hedges of Interest Rate Risk
Interest rate caps not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements but do not meet the strict hedge accounting requirements. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings.  The Company recognized expenses of $1,000 and $63,000 during the three months ended March 31, 2016 and 2015, respectively, which is included in interest and other investment income (loss) in the consolidated statements of operations.

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Balance Sheet as of March 31, 2016 and December 31, 2015.  (dollars in thousands)

                     
     
Fair Value
        
Liability Derivatives designated
    
March 31,
    
December 31,
        
as hedging instruments
    
2016
    
2015
    
Balance sheet location
  
Interest rate swaps
  
$
 7,253 
  
$
 -
    
Accounts payable, accrued expenses and other liabilities
  
                     
Asset Derivatives not designated
                    
as hedging instruments
                    
Interest rate caps
  
$
 -
  
$
 2 
    
Deferred charges, goodwill and other assets
  

The table below presents the effect of the Company’s derivative financial instruments on the Income Statement for the three months ending March 31, 2016 and 2015. (dollars in thousands)

                                           
Derivatives in Cash Flow Hedging Relationships
  
Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)
  
Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
    
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
  
Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
    
Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion, Reclassification for Forecasted Transactions No Longer Probable of Occurring and Amount Excluded from Effectiveness Testing)
   
2016
    
2015
        
2016
    
2015
        
2016
    
2015
Three months ended March 31,
                                      
                                           
Interest rate swaps
$
(7,187)
  
$
 -
  
Interest expense
  
$
(847)
  
$
 -
  
Interest and other investment income (loss)
  
$
(913)
  
$
 -

Credit-risk-related Contingent Features
The Company has agreements with each of its derivative counterparties that contain a provision where the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company's default on the indebtedness. As of March 31, 2016, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $7.7 million. As of March 31, 2016, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions at March 31, 2016, it could have been required to settle its obligations under the agreements at their termination value of $7.7 million. 
 
 
 
23
 

 
 
6.    RESTRICTED CASH

Restricted cash generally includes tenant and resident security deposits for certain of the Company’s properties, and escrow and reserve funds for debt service, real estate taxes, property insurance, capital improvements, tenant improvements, and leasing costs established pursuant to certain mortgage financing arrangements, and is comprised of the following:  (dollars in thousands)
           
   
March 31,
    
December 31,
   
2016
    
2015
Security deposits
$
 8,297
  
$
 7,785
Escrow and other reserve funds
  
 19,269
    
 27,558
           
Total restricted cash
$
 27,566
  
$
 35,343

 
 
7.    SENIOR UNSECURED NOTES

A summary of the Company’s senior unsecured notes as of March 31, 2016 and December 31, 2015 is as follows:  (dollars in thousands)

                   
     
March 31,
    
December 31,
  
Effective
  
     
2016
    
2015
  
Rate (1)
  
5.800% Senior Unsecured Notes, due January 15, 2016 (2)
    
 -
  
$
 200,000
  
 5.806
%
2.500% Senior Unsecured Notes, due  December 15, 2017
  
$
 250,000
    
 250,000
  
 2.803
%
7.750% Senior Unsecured Notes, due August 15, 2019
    
 250,000
    
 250,000
  
 8.017
%
4.500% Senior Unsecured Notes, due April 18, 2022
    
 300,000
    
 300,000
  
 4.612
%
3.150% Senior Unsecured Notes, due May 15, 2023
    
 275,000
    
 275,000
  
 3.517
%
Principal balance outstanding
    
 1,075,000
    
 1,275,000
      
Adjustment for unamortized debt discount
    
 (5,872)
    
 (6,156)
      
Unamortized deferred financing costs
    
 (4,765)
    
 (5,062)
      
                   
Total senior unsecured notes, net
  
$
 1,064,363
  
$
 1,263,782
      

(1)
Includes the cost of terminated treasury lock agreements (if any), offering and other transaction costs and the discount/premium on the notes, as applicable.
(2)
On January 15, 2016, the Company repaid these notes at their maturity using proceeds from a new unsecured term loan and borrowings under the Company’s unsecured revolving credit facility.

The terms of the Company’s senior unsecured notes 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.   The Company was in compliance with its debt covenants under the indenture relating to its senior unsecured notes as of March 31, 2016.
 

8.    UNSECURED TERM LOAN

On January 7, 2016, the Company obtained a new $350 million unsecured term loan, which matures in January 2019 with two one-year extension options.  The interest rate for the new term loan is currently 140 basis points over LIBOR, subject to adjustment on a sliding scale based on the Operating Partnership’s unsecured debt ratings, or at the Company's option, a defined leverage ratio.  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 unsecured revolving credit facility and to repay the Company's $200 million, 5.8 percent senior unsecured notes that matured on January 15, 2016. 
 
 
 
 
24
 

 
The interest rate on the unsecured term loan is based upon the Operating 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 (current interest rate based on Company's election)
  
140.0
BBB or Baa2
  
115.0
BBB+ or Baa1
  
100.0
A- or A3 or higher
  
90.0

If the Company elected to use a defined leverage ratio, the interest rate under the unsecured term loan would be based on the following total leverage ratio grid:

     
   
Interest Rate -
   
Applicable Basis
Total Leverage Ratio
  
Points above LIBOR
<45%
  
145
≥45% and <50% (current ratio)
  
155
≥50% and <55%
  
165
≥55%
  
195

The terms of the unsecured 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 Company to continue to qualify as a REIT under the Code.  The Company was in compliance with its debt covenants under its unsecured term loan as of March 31, 2016. 


9.    UNSECURED REVOLVING CREDIT FACILITY

The Company has a $600 million unsecured revolving credit facility with a group of 17 lenders.  The facility is expandable to $1 billion and matures in July 2017.  It has two six-month extension options each requiring the payment of a 7.5 basis point fee.  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 are based upon the Operating Partnership’s unsecured debt ratings, 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 (current)
  
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

The facility has a competitive bid feature, which allows the Company to solicit bids from lenders under the facility to borrow up to $300 million at interest rates less than those above.
 
 
 
25
 
 

 
The terms of the unsecured facility 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 facility described below, or (ii) the property dispositions are completed while the Company is under an event of default under the facility, 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 Company to continue to qualify as a REIT under the Code.  The Company was in compliance with its debt covenants under its revolving credit facility as of March 31, 2016.
 
As of March 31, 2016 and December 31, 2015, the Company had outstanding borrowings of $90 million and $155 million, respectively, under its unsecured revolving credit facility. 
 

10.   MORTGAGES, LOANS PAYABLE AND OTHER OBLIGATIONS

The Company has mortgages, loans payable and other obligations which primarily consist of various loans collateralized by certain of the Company’s rental properties, land and development projects.  As of March 31, 2016, 24 of the Company’s properties, with a total carrying value of approximately $853 million, and four of the Company’s land and development projects, with a total carrying value of approximately $222 million, are encumbered by the Company’s mortgages and loans payable.  Payments on mortgages, loans payable and other obligations are generally due in monthly installments of principal and interest, or interest only.  Except as noted below, the Company was in compliance with its debt covenants under its mortgages and loans payable as of March 31, 2016.

A summary of the Company’s mortgages, loans payable and other obligations as of March 31, 2016 and December 31, 2015 is as follows: (dollars in thousands)
                           
     
Effective
      
March 31,
    
December 31,
      
Property/Project Name
Lender
  
Rate (a)
      
2016
    
2015
  
Maturity
  
Port Imperial South (b)
Wells Fargo Bank N.A.
LIBOR+1.75
%
    
 -
  
$
 34,962 
  
01/17/16
  
6 Becker, 85 Livingston,
                          
75 Livingston & 20 Waterview
Wells Fargo CMBS
  
 10.260 
%
  
$
 63,279 
    
 63,279 
  
08/11/14
(c)
9200 Edmonston Road
Principal Commercial Funding L.L.C.
  
 9.780 
%
    
 3,793 
    
 3,793 
  
05/01/15
(d)
4 Becker
Wells Fargo CMBS
  
 9.550 
%
    
 40,478 
    
 40,631 
  
05/11/16
  
Curtis Center (e)
CCRE & PREFG
LIBOR+5.912
%
(f)
  
 64,000 
    
 64,000 
  
10/09/16
  
Various (g)
Prudential Insurance
  
 6.332 
%
    
 142,983 
    
 143,513 
  
01/15/17
  
150 Main St. (h)
Webster Bank
LIBOR+2.35
%
    
 16,103 
    
 10,937 
  
03/30/17
  
23 Main Street
JPMorgan CMBS
  
 5.587 
%
    
 28,367 
    
 28,541 
  
09/01/18
  
Harborside Plaza 5
The Northwestern Mutual Life
  
 6.842 
%
    
 216,738 
    
 217,736 
  
11/01/18
  
 
Insurance Co. & New York Life
                        
 
Insurance Co.
                        
100 Walnut Avenue
Guardian Life Insurance Co.
  
 7.311 
%
    
 18,202 
    
 18,273 
  
02/01/19
  
One River Center (i)
Guardian Life Insurance Co.
  
 7.311 
%
    
 41,698 
    
 41,859 
  
02/01/19
  
Park Square
Wells Fargo Bank N.A.
LIBOR+1.872
%
(j)
  
 27,500 
    
 27,500 
  
04/10/19
  
Port Imperial South 4/5 Retail
American General Life & A/G PC
  
 4.559 
%
    
 4,000 
    
 4,000 
  
12/01/21
  
The Chase at Overlook Ridge
New York Community Bank
  
 3.740 
%
    
 72,500 
    
 -
  
02/01/23
  
Port Imperial South 4/5 Garage
American General Life & A/G PC
  
 4.853 
%
    
 32,600 
    
 32,600 
  
12/01/29
  
                           
Principal balance outstanding
          
 772,241 
    
 731,624 
      
Adjustment for unamortized debt discount
          
 (222)
    
 (548)
      
Unamortized deferred financing costs
            
 (4,446)
    
 (4,465)
      
                           
Total mortgages, loans payable and other obligations, net
        
$
 767,573 
  
$
 726,611 
      
 
 
   
(a)
Reflects effective rate of debt, including deferred financing costs, comprised of the cost of terminated treasury lock agreements (if any), debt initiation costs, mark-to-market adjustment of acquired debt and other transaction costs, as applicable.
(b)
The loan was repaid in full at maturity, using borrowings from the Company's revolving credit facility.
(c)
Mortgage is cross collateralized by the four properties.  On April 22, 2016, the loan was repaid for $51.5 million.
(d)
Excess cash flow, as defined, is being held by the lender for re-leasing costs.  The deed for the property was placed in escrow and is available to the lender in the event of default or non-payment at maturity.  The mortgage loan was not repaid at maturity on May 1, 2015.  The Company is in discussions with the lender regarding a further extension of the loan.
(e)
The Company owns a 50 percent tenants-in-common interest in the Curtis Center property.  The Company’s $64.0 million loan consists of its 50 percent interest in a $102 million senior loan with a current rate of 3.7311 percent at March 31, 2016 and its 50 percent interest in a $26 million mezzanine loan (with a maximum borrowing capacity of $48 million) with a current rate of 9.937 percent at March 31, 2016.  The senior loan rate is based on a floating rate of one-month LIBOR plus 329 basis points and the mezzanine loan rate is based on a floating rate of one-month LIBOR plus 950 basis points.  The Company has entered into LIBOR caps for the periods of the loans.  The loans provide for three one-year extension options.
(f)
The effective interest rate includes amortization of deferred financing costs of 1.362 percent.
(g)
Mortgage is cross collateralized by seven properties. The Company has agreed, subject to certain conditions, to guarantee repayment of $61.1 million of the loan. 
(h)
This construction loan has a maximum borrowing capacity of $28.8 million. 
(i)
Mortgage is collateralized by the three properties comprising One River Center. 
(j)
The effective interest rate includes amortization of deferred financing costs of 0.122 percent.
 
 
 
 
26
 
 
 
CASH PAID FOR INTEREST AND INTEREST CAPITALIZED
Cash paid for interest for the three months ended March 31, 2016 and 2015 was $28,090,000 and $25,922,000, respectively.  Interest capitalized by the Company for the three months ended March 31, 2016 and 2015 was $4,561,000 and $3,607,000, respectively (which amounts included $1,458,000 and $1,256,000 for the three months ended March 31, 2016 and 2015, respectively, of interest capitalized on the Company’s investments in unconsolidated joint ventures which were substantially in development).

SUMMARY OF INDEBTEDNESS
As of March 31, 2016, the Company’s total indebtedness of $2,281,147,000 (weighted average interest rate of 4.95 percent) was comprised of $197,603,000 of revolving credit facility borrowings and other variable rate mortgage debt (weighted average rate of 3.40 percent) and fixed rate debt and other obligations of $2,089,638,000 (weighted average rate of 5.10 percent).

As of December 31, 2015, the Company’s total indebtedness of $2,154,920,000 (weighted average interest rate of 5.22 percent) was comprised of $292,399,000 of revolving credit facility borrowings and other variable rate mortgage debt (weighted average rate of 2.81 percent) and fixed rate debt and other obligations of $1,862,521,000 (weighted average rate of 5.60 percent). 

 
11.  EMPLOYEE BENEFIT 401(k) PLANS

Employees of the Company, who meet certain minimum age and service requirements, are eligible to participate in the Mack-Cali Realty Corporation 401(k) Savings/Retirement Plan (the “401(k) Plan”).  Eligible employees may elect to defer from one percent up to 60 percent of their annual compensation on a pre-tax basis to the 401(k) Plan, subject to certain limitations imposed by federal law.  The amounts contributed by employees are immediately vested and non-forfeitable.  The Company may make discretionary matching or profit sharing contributions to the 401(k) Plan on behalf of eligible participants in any plan year.  Participants are always 100 percent vested in their pre-tax contributions and will begin vesting in any matching or profit sharing contributions made on their behalf after two years of service with the Company at a rate of 20 percent per year, becoming 100 percent vested after a total of six years of service with the Company.  All contributions are allocated as a percentage of compensation of the eligible participants for the Plan year.  The assets of the 401(k) Plan are held in trust and a separate account is established for each participant.  A participant may receive a distribution of his or her vested account balance in the 401(k) Plan in a single sum or in installment payments upon his or her termination of service with the Company.  Total expense recognized by the Company for the 401(k) Plan for the three months ended March 31, 2016 and 2015 was $237,000 and zero, respectively.      

 
12.  DISCLOSURE OF FAIR VALUE OF ASSETS AND LIABILITIES

The following disclosure of estimated fair value was determined by management using available market information and appropriate valuation methodologies.  However, considerable judgment is necessary to interpret market data and develop estimated fair value.  Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the assets and liabilities at March 31, 2016 and December 31, 2015.  The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Cash equivalents, receivables, notes receivables, accounts payable, and accrued expenses and other liabilities are carried at amounts which reasonably approximate their fair values as of March 31, 2016 and December 31, 2015.

The fair value of the Company’s long-term debt, consisting of senior unsecured notes, an unsecured term loan, an unsecured revolving credit facility and mortgages, loans payable and other obligations aggregated approximately $2,299,752,000 and $2,150,507,000 as compared to the book value of approximately $2,269,287,000 and $2,145,393,000 as of March 31, 2016 and December 31, 2015, respectively.  The fair value of the Company’s long-term debt was categorized as a level 3 basis (as provided by ASC 820, Fair Value Measurements and Disclosures).  The fair value was estimated using a discounted cash flow analysis valuation based on the borrowing rates currently available to the Company for loans with similar terms and maturities.  The fair value of the mortgage debt and the unsecured notes was determined by discounting the future contractual interest and principal payments by a market rate.  Although the Company has determined that the majority of the inputs used to value its derivative financial instruments fall within level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivative financial instruments utilize level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. The Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivative financial instruments. As a result, the Company has determined that its derivative financial instruments valuations in their entirety are classified in level 2 of the fair value hierarchy.

The fair value measurements used in the evaluation of the Company’s rental properties are considered to be Level 3 valuations within the fair value hierarchy, as there are significant unobservable inputs. Examples of inputs utilized in the fair value calculations include estimated holding periods, discount rates, market capitalization rates, expected lease rental rates, and third party broker information.   For rental properties identified as held for sale, fair value measurements used represent estimated fair value of properties, less selling costs, based on contract prices when available.
 
 
 
27
 
 

 
Disclosure about fair value of assets and liabilities is based on pertinent information available to management as of March 31, 2016 and December 31, 2015.  Although management is not aware of any factors that would significantly affect the fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since March 31, 2016 and current estimates of fair value may differ significantly from the amounts presented herein.  

 
13.  COMMITMENTS AND CONTINGENCIES

TAX ABATEMENT AGREEMENTS
Pursuant to agreements with certain municipalities, the Company is required to make payments in lieu of property taxes (“PILOT”) on certain of its properties and has tax abatement agreements on other properties, as follows:

The Harborside Plaza 4-A agreement with the City of Jersey City, as amended, which commenced in 2002, is for a term of 20 years.  The annual PILOT is equal to two percent of Total Project Costs, as defined.  Total Project Costs are $49.5 million.  The PILOT totaled $247,000 and $247,000 for the three months ended March 31, 2016 and 2015, respectively.

The Harborside Plaza 5 agreement, also with the City of Jersey City, as amended, which commenced in 2002, is for a term of 20 years.  The annual PILOT is equal to two percent of Total Project Costs, as defined.  Total Project Costs are $170.9 million.  The PILOT totaled $854,000 and $854,000 for the three months ended March 31, 2016 and 2015, respectively.

The agreement with the City of Weehawken for its Port Imperial 4/5 garage development project has a term of five years beginning when the project is substantially complete, which occurred in the third quarter of 2013.  The agreement provides that real estate taxes be paid initially on the land value of the project only and allows for a phase in of real estate taxes on the value of the improvements over a five year period.

At the conclusion of the above-referenced agreements, it is expected that the properties will be assessed by the municipality and be subject to real estate taxes at the then prevailing rates.

LITIGATION
The Company is a defendant in litigation arising in the normal course of its business activities.  Management does not believe that the ultimate resolution of these matters will have a materially adverse effect upon the Company’s financial condition taken as whole.


 
28
 

GROUND LEASE AGREEMENTS
Future minimum rental payments under the terms of all non-cancelable ground leases under which the Company is the lessee, as of March 31, 2016, are as follows: (dollars in thousands)
     
Year
  
Amount
April 1 through December 31, 2016
$
 290
2017
  
 267
2018
  
 232
2019
  
 235
2020
  
 235
2021 through 2084
  
 15,348
     
Total
$
 16,607
 
Ground lease expense incurred by the Company during the three months ended March 31, 2016 and 2015 amounted to $102,000 and $102,000, respectively.

CONSTRUCTION PROJECTS
The Company owns a 76.25 percent interest in a consolidated joint venture which is constructing a 108-unit multi-family development rental property located in Eastchester, New York (the “Eastchester Project”).  The project is expected to be ready for occupancy by the second quarter of 2016.  The Eastchester Project is estimated to cost a total of $50.0 million (of which development costs of $35.9 million have been incurred through March 31, 2016).  The venture has a $28.8 million construction loan (with $16.1 million outstanding as of March 31, 2016).  The Company expects to fund costs of approximately $20.9 million for the development of the project (of which, as of March 31, 2016, the Company has incurred $16.1 million of the development costs and estimates it will need to fund an additional $4.8 million for the completion of the project).

On April 1, 2015, the Company acquired vacant land in Worcester, Massachusetts to accommodate a two-phase development of the CitySquare Project for a purchase price of $3.1 million with an additional $1.25 million to be paid (which is accrued as of March 31, 2016), subject to certain conditions, in accordance with the terms of the purchase and sale agreement.  The first phase with 237 units started construction in the third quarter 2015 with anticipated initial deliveries in the second quarter 2017.  The Company has a construction loan with a maximum borrowing amount of $41.5 million (with no outstanding balance as of March 31, 2016).   Total development costs are estimated to be approximately $92.5 million (of which $10.6 million was incurred by the Company through March 31, 2016 and estimates it will need to fund an additional $40.4 million for the completion of the project).

On October 6, 2015, the Company entered into a joint venture partnership with XS Port Imperial Hotel, LLC (“XS”) to form XS Hotel Urban Renewal Associates LLC (“XS Hotel URA”) for the development and ownership of a 364-key dual branded hotel property located in Weehawken, New Jersey (“Port Imperial Hotel”).  Concurrently, the Company and XS entered into a separate joint venture partnership to form XS Hotel Associates, L.L.C. (“XS Hotel”) for the management and operations of the completed hotel development.  The Company holds a 90 percent interest and XS holds the remaining 10 percent interest in the consolidated joint ventures, XS Hotel URA and XS Hotel, with the Company having full and complete authority, power, and discretion to manage and control the ventures’ business, affairs, and property.  The construction of the Port Imperial Hotel is estimated to cost a total of $105.9 million.  The venture has a $94 million construction loan (with no outstanding balance as of March 31, 2016).  As of March 31, 2016, the Company incurred development costs of $4.7 million and estimates it will need to fund an additional $0.5 million for the completion of the project.

The Company owns developable land to accommodate a multi-phase development project of approximately 1,034-unit multi-family rental property located in Malden, Massachusetts.  The initial phase commenced construction of 292 units in the third quarter of 2015 (the “Chase II Project”).  The Chase II project is estimated to cost a total of $74.9 million (of which the Company has incurred $26.4 million through March 31, 2016) and is expected to be ready for occupancy by second quarter of 2017.  The Company has a construction loan with a maximum borrowing amount of $48 million (with no outstanding balance as of March 31, 2016).  The Company estimates it will need to fund additional costs of $0.5 million for the completion of the Chase II Project.

The Company owns an office property that it repurposed for residential use.  The 197-unit multi-family development project, which is located in Morris Plains, New Jersey (“Signature Place Project”), is expected to be ready for occupancy by the fourth quarter of 2017. The Signature Place Project, which is estimated to cost a total of $61.4 million (of which development costs of $5.1 million have been incurred through March 31, 2016) is expected to be funded by a $42 million construction loan.  The Company expects to fund costs of approximately $19.4 million for the development of the project, of which the Company has incurred $4.7 million as of March 31, 2016.
 
 
 
29
 
 

 
The Company owns an 85 percent interest in a consolidated joint venture, which is constructing a 296-unit multi-family development rental property located in East Boston, Massachusetts (“Portside 5/6 Project”).  The project is expected to be ready for occupancy by the first quarter of 2018.  The Portside 5/6 Project, which is estimated to cost a total of $112.4 million (of which development costs of $8.5 million have been incurred through March 31, 2016), is expected to be funded by a $73 million construction loan.  The Company expects to fund costs of approximately $33.5 million for the development of the project, of which the Company has incurred $6.2 million as of March 31, 2016.

OTHER
Through February 2016, the Company could not dispose of or distribute certain of its properties which were originally contributed by certain unrelated common unitholders of the Operating 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 could 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”).  The aforementioned restrictions did not apply in the event that the Company sold all of its properties or in connection with a sale transaction which the Company’s Board of Directors determined was reasonably necessary to satisfy a material monetary default on any unsecured debt, judgment or liability of the Company or to cure any material monetary default on any mortgage secured by a property.  The Property Lock-Ups expired as of February 2016.  Upon the expiration 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 the Mack Group (which includes William L. Mack, Chairman of the Company’s Board of Directors; David S. Mack, director; and Earle I. Mack, a former director); the Robert Martin Group (which includes Robert F. Weinberg, a former director and current member of its Advisory Board), and the Cali Group (which includes John R. Cali, a former director and current member of its Advisory Board).  As of March 31, 2016, 117 of the Company’s properties, with an aggregate net book value of approximately $1.3 billion, have lapsed restrictions and are subject to these conditions.
 

14.  TENANT LEASES

The Properties are leased to tenants under operating leases with various expiration dates through 2035.  Substantially all of the commercial leases provide for annual base rents plus recoveries and escalation charges based upon the tenant’s proportionate share of and/or increases in real estate taxes and certain operating costs, as defined, and the pass-through of charges for electrical usage.

Future minimum rentals to be received under non-cancelable commercial operating leases at March 31, 2016 are as follows (dollars in thousands):

     
Year
  
Amount
April 1 through December 31, 2016
$
 344,351
2017
  
 435,004
2018
  
 361,934
2019
  
 299,626
2020
  
 259,333
2021 and thereafter
  
 1,048,288
     
Total
$
 2,748,536

 
Multi-family rental property residential leases are excluded from the above table as they generally expire within one year.

 
15.  MACK-CALI REALTY CORPORATION STOCKHOLDERS’ EQUITY

To maintain its qualification as a REIT, not more than 50 percent in value of the outstanding shares of the Company may be owned, directly or indirectly, by five or fewer individuals at any time during the last half of any taxable year of the Company, other than its initial taxable year (defined to include certain entities), applying certain constructive ownership rules.  To help ensure that the Company will not fail this test, the Company’s Charter provides, among other things, certain restrictions on the transfer of common stock to prevent further concentration of stock ownership.  Moreover, to evidence compliance with these requirements, the Company must maintain records that disclose the actual ownership of its outstanding common stock and demands written statements each year from the holders of record of designated percentages of its common stock requesting the disclosure of the beneficial owners of such common stock.
 
 
 
30
 
 

 
SHARE REPURCHASE PROGRAM
In September 2012, the Board of Directors renewed and authorized an increase to the Company’s repurchase program (“Repurchase Program”).  The Company has authorization to repurchase up to $150 million of its outstanding common stock under the renewed Repurchase Program, which it may repurchase from time to time in open market transactions at prevailing prices or through privately negotiated transactions.  The Company has purchased and retired 394,625 shares of its outstanding common stock for an aggregate cost of approximately $11 million (all of which occurred in the year ended December 31, 2012), with a remaining authorization under the Repurchase Program of $139 million.
 
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The Company has a Dividend Reinvestment and Stock Purchase Plan (the “DRIP”) which commenced in March 1999 under which approximately 5.5 million shares of the Company’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 Company’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 the SEC for the approximately 5.5 million shares of the Company’s common stock reserved for issuance under the DRIP.

STOCK OPTION PLANS
In May 2013, the Company established the 2013 Incentive Stock Plan (the “2013 Plan”) under which a total of 4,600,000 shares have been reserved for issuance.  In September 2000, the Company established the 2000 Employee Stock Option Plan (“2000 Employee Plan”) and the Amended and Restated 2000 Director Stock Option Plan (“2000 Director Plan” and together with the 2000 Employee Plan, the “2000 Plans”).  In May 2002, shareholders of the Company approved amendments to both of the 2000 Plans to increase the total shares reserved for issuance under both of the 2000 Plans from 2,700,000 to 4,350,000 shares of the Company’s common stock (from 2,500,000 to 4,000,000 shares under the 2000 Employee Plan and from 200,000 to 350,000 shares under the 2000 Director Plan).  As the 2000 Plans expired in 2010, stock options may no longer be issued under those plans.  Stock options granted under the 2000 Employee Plan became exercisable over a five-year period.  All stock options granted under the 2000 Director Plan became exercisable in one year.  All options were granted at the fair market value at the dates of grant and have terms of 10 years.  As of March 31, 2016 and December 31, 2015, the stock options outstanding had a weighted average remaining contractual life of approximately 9.2 and 9.4 years, respectively.

On June 5, 2015, in connection with employment agreements entered into with each of Messrs. Rudin and DeMarco (together, the “Executive Employment Agreements”), the Company granted options to purchase a total of 800,000 shares of the Company’s common stock, exercisable for a period of ten years with an exercise price equal to the closing price of the Company’s common stock on the grant date of $17.31 per share, with 400,000 of such options vesting in three equal annual installments commencing on the first anniversary of the grant date (“Time Vesting Options”), and 400,000 of such options vesting if the Company’s common stock trades at or above $25.00 per share for 30 consecutive trading days while the executive is employed (“Price Vesting Options”), or on or before June 30, 2019, subject to certain conditions.   

Information regarding the Company’s stock option plans is summarized below:
               
               
       
Weighted
    
Aggregate
       
Average
    
Intrinsic
 
Shares
    
Exercise
    
Value
 
Under Options
    
Price
    
$(000’s)
Outstanding at January 1, 2016
 805,000
  
$
 17.33
   $
 4,843
Lapsed or Cancelled
 -
    
 -
      
Outstanding at March 31, 2016 ($17.31 – $21.25)
 805,000
  
$
 17.33
  
$
 4,963
Options exercisable at March 31, 2016
 5,000
            
Available for grant at March 31, 2016
 2,722,338
            
 
 
 
 
31
 

 
There were no stock options exercised under all stock option plans for the three months ended March 31, 2016 and 2015, respectively.  The Company has a policy of issuing new shares to satisfy stock option exercises.

The Company recognized stock options expense of $183,000 and $1,000 for the three months ended March 31, 2016 and 2015, respectively.

RESTRICTED STOCK AWARDS
The Company has issued stock awards (“Restricted Stock Awards”) to officers, certain other employees and non-employee members of the Board of Directors of the Company, which allow the holders to each receive a certain amount of shares of the Company’s common stock generally over a one to seven-year vesting period, of which 90,090 unvested shares were legally outstanding at March 31, 2016.  Vesting of the Restricted Stock Awards issued to executive officers and certain other employees is based on time and service.

On June 5, 2015, in connection with the Executive Employment Agreements, the Company granted a total of 37,550.54 Restricted Stock Awards, which were valued in accordance with ASC 718 – Stock Compensation, at their fair value.  These awards are scheduled to vest equally over a three-year period on each annual anniversary date of the grant date.

All currently outstanding and unvested Restricted Stock Awards provided to the officers, certain other employees, and members of the Board of Directors of the Company were issued under the 2013 Plan.

Information regarding the Restricted Stock Awards grant activity is summarized below:

         
       
Weighted-Average
       
Grant – Date
 
Shares
    
Fair Value
Outstanding at January 1, 2016
 136,220
  
$
 19.36
Granted
 36,870
    
 21.70
Vested
 (45,449)
    
 19.16
Outstanding at March 31, 2016
 127,641
  
$
 20.11
 
As of March 31, 2016, the Company had $1.3 million of total unrecognized compensation cost related to unvested Restricted Stock Awards granted under the Company’s stock compensation plans.  That cost is expected to be recognized over a weighted average period of 0.8 years.

PERFORMANCE SHARE UNITS
On June 5, 2015, in connection with the Executive Employment Agreements, the Company granted a total of 112,651.64 performance share units (“PSUs”) which will vest from 0 to 150 percent of the number of PSUs granted based on the Company’s total shareholder return relative to a peer group of equity office REITs over a three-year performance period starting from the grant date, each PSU evidencing the right to receive a share of the Company’s common stock upon vesting.  The PSUs are also entitled to the payment of dividend equivalents in respect of vested PSUs in the form of additional PSUs.  The PSUs were valued in accordance with ASC 718, Compensation - Stock Compensation, at their fair value on the grant date, utilizing a Monte-Carlo simulation to estimate the probability of the vesting conditions being satisfied.

The Company has reserved shares of common stock under the 2013 Plan for issuance upon vesting of the PSUs in accordance with their terms and conditions.

As of March 31, 2016, the Company had $1.1 million of total unrecognized compensation cost related to unvested PSUs granted under the Company’s stock compensation plans.  That cost is expected to be recognized over a weighted average period of 2.2 years.

LONG-TERM INCENTIVE PLAN AWARDS
On March 8, 2016, the Company granted Long-Term Incentive Plan (“LTIP”) awards to senior management of the Company, including all of the Company’s executive officers (the “2016 LTIP Awards”).  All of the 2016 LTIP Awards were in the form of units in the Operating Partnership (“LTIP Units”) and constitute awards under the 2013 Plan. For Messrs. Rudin, DeMarco and Tycher, approximately 25 percent of the target 2016 LTIP Award was in the form of a time-based award that will vest after three years on March 8, 2019 (the “2016 TBV LTIP Units”), and the remaining approximately 75 percent of the target 2016 LTIP Award was in the form of a performance-based award under a new Outperformance Plan (the “2016 OPP”) adopted by the Company’s Board of Directors consisting of a multi-year, performance-based equity compensation plan and related forms of award agreement (the “2016 PBV LTIP Units”).  For all other executive officers, approximately 40 percent of the target 2016 LTIP Award was in the form of 2016 TBV LTIP Units and the remaining approximately 60 percent of the target 2016 LTIP Award was in the form of 2016 PBV LTIP Units.
 
 
 
32
 
 

 
The 2016 OPP is designed to align the interests of senior management to relative and absolute performance of the Company over a three-year performance period from March 8, 2016 through March 7, 2019. The senior management team that received 2016 LTIP Awards includes the Company’s eight executive officers.  Participants in the 2016 OPP will only earn the full awards if, over the three-year performance period, the Company achieves a 50 percent absolute total stockholder return (“TSR”) and if the Company is in the 75th percentile of performance versus the NAREIT Office Index.

LTIP Units will remain subject to forfeiture depending on the extent that the 2016 LTIP Awards vest. The number of LTIP Units to be issued initially to recipients of the 2016 PBV LTIP Awards is the maximum number of LTIP Units that may be earned under the awards. The number of LTIP Units that actually vest for each award recipient will be determined at the end of the performance measurement period. TSR for the Company and for the Index over the three-year measurement period and other circumstances will determine how many LTIP Units vest for each recipient; if they are fewer than the number issued initially, the balance will be forfeited as of the performance measurement date.

Prior to vesting, recipients of LTIP Units will be entitled to receive per unit distributions equal to one-tenth (10 percent) of the regular quarterly distributions payable on a common unit of limited partnership interest in the Operating Partnership (a “common unit”), but will not be entitled to receive any special distributions. Distributions with respect to the other nine-tenths (90 percent) of regular quarterly distributions payable on a common unit will accrue but shall only become payable upon vesting of the LTIP Unit. After vesting of the 2016 TBV LTIP Units or the end of the measurement period for the 2016 PBV LTIP Units, the number of LTIP Units, both vested and unvested, will be entitled to receive distributions in an amount per unit equal to distributions, both regular and special, payable on a common unit.

The Company granted a total of 499,756 PBV LTIP Units and 157,617 TBV LTIP Units.  The LTIP Units were valued in accordance with ASC 718 – Stock Compensation, at their fair value. The Company has reserved shares of common stock under the 2013 Plan for issuance upon vesting and conversion of the LTIP Units in accordance with their terms and conditions.

As of March 31, 2016, the Company had $8.7 million of total unrecognized compensation cost related to unvested 2016 LTIP Awards granted under the Company’s stock compensation plans.  That cost is expected to be recognized over a weighted average period of 3.4 years.

DEFERRED STOCK COMPENSATION PLAN FOR DIRECTORS
The Amended and Restated Deferred Compensation Plan for Directors, which commenced January 1, 1999, allows non-employee directors of the Company to elect to defer up to 100 percent of their annual retainer fee into deferred stock units.  The deferred stock units are convertible into an equal number of shares of common stock upon the directors’ termination of service from the Board of Directors or a change in control of the Company, as defined in the plan.  Deferred stock units are credited to each director quarterly using the closing price of the Company’s common stock on the applicable dividend record date for the respective quarter.  Each participating director’s account is also credited for an equivalent amount of deferred stock units based on the dividend rate for each quarter.

During the three months ended March 31, 2016 and 2015, 4,373 and 5,002 deferred stock units were earned, respectively.  As of March 31, 2016 and December 31, 2015, there were 182,463 and 178,039 deferred stock units outstanding, respectively.

EARNINGS PER SHARE
Basic EPS excludes dilution and is computed by dividing net income available to common shareholders by the weighted average number of shares outstanding for the period.  Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.


 
33
 

The following information presents the Company’s results for the three months ended March 31, 2016 and 2015 in accordance with ASC 260, Earnings Per Share: (dollars in thousands, except per share amounts)
 

 
           
   
Three Months Ended
   
March 31,
Computation of Basic EPS
  
2016
    
2015
Net income (loss)
$
 68,769 
  
$
 (3,325)
Add: Noncontrolling interest in consolidated joint ventures
  
 706 
    
 490 
Add (deduct):  Noncontrolling interest in Operating Partnership
  
 (7,284)
    
 314 
Net income (loss) available to common shareholders
$
 62,191 
  
$
 (2,521)
           
Weighted average common shares
  
 89,721 
    
 89,192 
           
Basic EPS:
          
Net income (loss) available to common shareholders
$
 0.69 
  
$
 (0.03)
           

           
   
Three Months Ended
   
March 31,
Computation of Diluted EPS
  
2016
    
2015
Net income (loss) available to common shareholders
$
 62,191 
  
$
 (2,521)
Add (deduct): Noncontrolling interest in Operating Partnership
  
 7,284 
    
 (314)
Net income (loss) for diluted earnings per share
$
 69,475 
  
$
 (2,835)
           
Weighted average common shares
  
 100,315 
    
 100,266 
           
Diluted EPS:
          
Net income (loss) available to common shareholders
$
 0.69 
  
$
 (0.03)
           

The following schedule reconciles the shares used in the basic EPS calculation to the shares used in the diluted EPS calculation: (in thousands)
     
 
Three Months Ended
 
March 31,
 
2016
2015
Basic EPS shares
 89,721
 89,192
Add:   Operating Partnership – common units
 10,509
 11,074
          Restricted Stock Awards
 56
 -
           Stock Options
 29
 -
Diluted EPS Shares
 100,315
 100,266
 
Contingently issuable shares under the PSUs and Price Vesting Options were excluded from the denominator in 2016 and 2015 because the criteria had not been met for the period ended March 31, 2016.  Not included in the computations of diluted EPS were 5,000 and 10,000 stock options as such securities were anti-dilutive during the periods ended March 31, 2016 and 2015, respectively.  Also, not included in the computations of diluted EPS were all of the LTIP Units as such securities were anti-dilutive during the periods.  Unvested restricted stock outstanding as of March 31, 2016 and 2015 were 90,090 and 103,337 shares, respectively.

Dividends declared per common share for each of the three month periods ended March 31, 2016 and 2015 was $0.15 per share.  

 
16.   NONCONTROLLING INTERESTS IN SUBSIDIARIES

Noncontrolling interests in subsidiaries in the accompanying consolidated financial statements relate to (i) common units and LTIP units in the Operating Partnership, held by parties other than the Company, and (ii) interests in consolidated joint ventures for the portion of such ventures not owned by the Company.


 
34
 

The following table reflects the activity of noncontrolling interests for the three months ended March 31, 2016 and 2015, respectively (dollars in thousands):

           
   
Three Months Ended
   
March 31,
 
  
2016
    
2015
Balance at January 1
$
 228,032 
  
$
 257,230 
Net income (loss)
  
 6,578 
    
 (804)
Unit distributions
  
 (1,601)
    
 (1,656)
Increase in noncontrolling interests in consolidated joint ventures
  
 997 
    
 94 
Redemption of common units
          
  for common stock
  
 (276)
    
 (857)
Stock compensation
  
 173 
    
 -
Other comprehensive income (loss)
  
 (665)
       -
Rebalancing of ownership percentage
          
  between parent and subsidiaries
  
 (118)
    
 45 
Balance at March 31
$
 233,120 
  
$
 254,052 
 
Pursuant to ASC 810, Consolidation, on the accounting and reporting for noncontrolling interests and changes in ownership interests of a subsidiary, changes in a parent’s ownership interest (and transactions with noncontrolling interest unitholders in the subsidiary) while the parent retains its controlling interest in its subsidiary should be accounted for as equity transactions.  The carrying value of the noncontrolling interest shall be adjusted to reflect the change in its ownership interest in the subsidiary, with the offset to equity attributable to the parent.  Accordingly, as a result of equity transactions which caused changes in ownership percentages between Mack-Cali Realty Corporation stockholders’ equity and noncontrolling interests in the Operating Partnership that occurred during the three months ended March 31, 2016, the Company has decreased noncontrolling interests in the Operating Partnership and increased additional paid-in capital in Mack-Cali Realty Corporation stockholders’ equity by approximately $0.1 million as of March 31, 2016.

OPERATING PARTNERSHIP

Common Units
Certain individuals and entities own common units in the Operating Partnership.  A common unit and a share of Common Stock of the Company have substantially the same economic characteristics in as much as they effectively share equally in the net income or loss of the Operating Partnership.  Common unitholders have the right to redeem their common units, subject to certain restrictions.  The redemption is required to be satisfied in shares of Common Stock, cash, or a combination thereof, calculated as follows:  one share of the Company’s Common Stock, or cash equal to the fair market value of a share of the Company’s Common Stock at the time of redemption, for each common unit.  The Company, in its sole discretion, determines the form of redemption of common units (i.e., whether a common unitholder receives Common Stock, cash, or any combination thereof).  If the Company elects to satisfy the redemption with shares of Common Stock as opposed to cash, it is obligated to issue shares of its Common Stock to the redeeming unitholder.  Regardless of the rights described above, the common unitholders may not put their units for cash to the Company or the Operating Partnership under any circumstances.  When a unitholder redeems a common unit, noncontrolling interest in the Operating Partnership is reduced and Mack-Cali Realty Corporation Stockholders’ equity is increased.

LTIP Units
On March 8, 2016, the Company granted 2016 LTIP awards to senior management of the Company, including all of the Company’s executive officers. All of the 2016 LTIP Awards will be in the form of units in the Operating Partnership. See Note 15: Mack-Cali Realty Corporation Stockholders’ Equity – Long-Term Incentive Plan Awards.

LTIP Units are designed to qualify as “profits interests” in the Operating Partnership for federal income tax purposes. As a general matter, the profits interests characteristics of the LTIP Units mean that initially they will not be economically equivalent in value to a common unit. If and when events specified by applicable tax regulations occur, LTIP Units can over time increase in value up to the point where they are equivalent to common units on a one-for-one basis. After LTIP Units are fully vested, and to the extent the special tax rules applicable to profits interests have allowed them to become equivalent in value to common units, LTIP Units may be converted on a one-for-one basis into common units. Common units in turn have a one-for-one relationship in value with shares of the Company’s common stock, and are redeemable on a one-for-one basis for cash or, at the election of the Company, shares of the Company’s common stock.

Unit Transactions
The following table sets forth the changes in noncontrolling interests in the Operating Partnership which relate to the common units and LTIP units in the Operating Partnership for the three months ended March 31, 2016:
 
 
 
 
35
 

 
     
 
Common
LTIP
 
Units
Units
Balance at January 1, 2016
 10,516,844
 -
  Granted
 -
 657,373
  Redemption of common units for shares of common stock
 (17,000)
 -
Balance at March 31, 2016
10,499,844
657,373
 
Noncontrolling Interest Ownership in Operating Partnership
As of March 31, 2016 and December 31, 2015, the noncontrolling interest common unitholders owned 10.5 percent and 10.5 percent of the Operating Partnership, respectively.

CONSOLIDATED JOINT VENTURES
The Company consolidates certain joint ventures in which it has ownership interests.  Various entities and/or individuals hold noncontrolling interests in these ventures.

PARTICIPATION RIGHTS
The Company’s interests in certain real estate projects (three properties and a future development) each provide for the initial distributions of net cash flow solely to the Company, and thereafter, other parties have participation rights in 50 percent of the excess net cash flow remaining after the distribution to the Company of the aggregate amount equal to the sum of: (a) the Company’s capital contributions, plus (b) an IRR of 10 percent per annum. 

 
17.   SEGMENT REPORTING

The Company operates in three business segments: (i) commercial and other real estate, (ii) multi-family real estate, and (iii) multi-family services.  The Company provides leasing, property management, acquisition, development, construction and tenant-related services for its commercial and other real estate and multi-family real estate portfolio.  The Company’s multi-family services business also provides similar services for third parties.  The Company no longer considers construction services as a reportable segment as it phased out this line of business in 2014.  The Company had no revenues from foreign countries recorded for the three months ended March 31, 2016 and 2015.  The Company had no long lived assets in foreign locations as of March 31, 2016 and December 31, 2015.  The accounting policies of the segments are the same as those described in Note 2: Significant Accounting Policies, excluding depreciation and amortization.

The Company evaluates performance based upon net operating income from the combined properties in each of its real estate segments (commercial and other, and multi-family) and from its multi-family services segment.


 
36
 

Selected results of operations for the three months ended March 31, 2016 and 2015 and selected asset information as of March 31, 2016 and December 31, 2015 regarding the Company’s operating segments are as follows.  Amounts for prior periods have been restated to conform to the current period segment reporting presentation: (dollars in thousands)

                               
   
Real Estate
                    
   
Commercial
          
Multi-family
      
Corporate
    
Total
   
& Other
    
Multi-family
    
Services
      
 & Other (d)
    
Company
Total revenues:
                              
Three months ended:
                              
March 31, 2016
$
 136,952 
  
$
 8,986 
  
$
 8,727 
(e)
  
$
 (1,742)
  
$
 152,923 
March 31, 2015
  
 139,759 
    
 6,584 
    
 8,232 
(f)
    
 (860)
    
 153,715 
                               
Total operating and
                              
   interest expenses (a):
                              
Three months ended:
                              
March 31, 2016
$
 65,955 
  
$
 5,415 
  
$
 10,820 
(g)
  
$
 26,103 
  
$
 108,293 
March 31, 2015
  
 72,198 
    
 3,321 
    
 9,655 
(h)
    
 27,679 
    
 112,853 
                               
Equity in earnings (loss) of
                              
   unconsolidated joint ventures:
                              
Three months ended:
                              
March 31, 2016
$
 (1,926)
  
$
 (1,231)
  
$
 1,603 
    
$
 -
  
$
 (1,554)
March 31, 2015
  
 (1,368)
    
 (2,161)
    
 -
      
 -
    
 (3,529)
                               
Net operating income (loss) (b):
                              
Three months ended:
                              
March 31, 2016
$
 69,071 
  
$
 2,340 
  
$
 (490)
    
$
 (27,845)
  
$
 43,076 
March 31, 2015
  
 66,193 
    
 1,102 
    
 (1,423)
      
 (28,539)
    
 37,333 
                               
Total assets:
                              
March 31, 2016
$
 3,136,311 
  
$
 955,980 
  
$
 11,039 
    
$
 125,120 
  
$
 4,228,450 
December 31, 2015
  
 3,166,577 
    
 836,020 
    
 9,831 
      
 41,535 
    
 4,053,963 
                               
Total long-lived assets (c):
                              
March 31, 2016
$
 2,848,674 
  
$
 703,605 
  
$
 3,623 
    
$
 (2,649)
  
$
 3,553,253 
December 31, 2015
  
 2,886,583 
    
 577,705 
    
 3,670 
      
 (1,531)
    
 3,466,427 
                               
Total investments in
                              
   unconsolidated joint ventures:
                              
March 31, 2016
$
 78,052 
  
$
 224,631 
  
$
 964 
    
$
 -
  
$
 303,647 
December 31, 2015
  
 76,140 
    
 225,850 
    
 1,467 
      
 -
    
 303,457 
                               

(a)
Total operating and interest expenses represent the sum of: real estate taxes; utilities; operating services; direct construction costs; real estate services expenses; general and administrative and interest expense (net of interest income).  All interest expense, net of interest and other investment income, (including for property-level mortgages) is excluded from segment amounts and classified in Corporate & Other for all periods.
(b)
Net operating income represents total revenues less total operating and interest expenses (as defined in Note “a”), plus equity in earnings (loss) of unconsolidated joint ventures, for the period.
(c)
Long-lived assets are comprised of net investment in rental property, unbilled rents receivable and goodwill.
(d)
Corporate & Other represents all corporate-level items (including interest and other investment income, interest expense, non-property general and administrative expense, construction services revenue and direct construction costs) as well as intercompany eliminations necessary to reconcile to consolidated Company totals.
(e)
Includes $2.7 million of fees and salary reimbursements earned for this period from the multi-family real estate segment, which are eliminated in consolidation.
(f)
Includes $1.2 million of fees and salary reimbursements earned for this period from the multi-family real estate segment, which are eliminated in consolidation.
(g)
Includes $1.4 million of management fees and salary reimbursement expenses for this period from the multi-family real estate segment, which are eliminated in consolidation.
(h)
Includes $0.9 million of management fees and salary reimbursement expenses for this period from the multi-family real estate segment, which are eliminated in consolidation.
 
 
 
37
 
 
 
The following schedule reconciles net operating income to net income available to common shareholders: (dollars in thousands)


           
   
Three Months Ended
   
March 31,
   
2016
    
2015
Net operating income
$
 43,076
  
$
 37,333
Add (deduct):
          
Depreciation and amortization
  
 (43,063)
    
 (40,802)
Gain on change of control of interests
  
 10,156
    
 -
Realized gains on disposition of
          
   rental property, net
  
 58,600
    
 144
Net income (loss)
  
 68,769
    
 (3,325)
Noncontrolling interest in consolidated joint ventures
  
 706
    
 490
Noncontrolling interest in Operating Partnership
  
 (7,284)
    
 314
Net income (loss) available to common shareholders
$
 62,191
  
$
 (2,521)
 


 

 
38
 

ITEM 2.         MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Consolidated Financial Statements of Mack-Cali Realty Corporation and the notes thereto (collectively, the “Financial Statements”).  Certain defined terms used herein have the meaning ascribed to them in the Financial Statements.


Executive Overview

Mack-Cali Realty Corporation together with its subsidiaries, (the “Company”) has been involved in all aspects of commercial real estate development, management and ownership for over 60 years and has been a publicly-traded real estate investment trust (REIT) since 1994.  As of March 31, 2016, the Company owns or has interests in 273 properties (collectively, the “Properties”), consisting of 145 office and 109 flex properties, totaling approximately 29.7 million square feet, leased to approximately 1,900 commercial tenants and 19 multi-family rental properties containing 5,644 residential units.  The Properties are located primarily in the Northeast, some with adjacent, Company-controlled developable land sites able to accommodate up to 5.3 million square feet of additional commercial space and 10,800 apartment units. 


The Company’s historical strategy has been to focus its operations, acquisition and development of office 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.  In September 2015, the Company announced a three-year strategic initiative to transform into a more concentrated owner of New Jersey Hudson River waterfront and transit-oriented office properties and a regional owner of luxury multi-family residential properties. In furtherance of this strategy, the Company has commenced a comprehensive review of its portfolio and operations and is developing a business strategy that focuses on reshaping its portfolio over time.  As part of this plan, the Company anticipates that it may dispose of a significant number of its properties that do not meet its long-term goals, and, in September 2015, compiled a list of its properties that it considers as non-core to its ongoing operations.  Specifically, the Company considers a non-core property to have one or more of the following attributes:  (1) assets that do not offer an opportunity to create a competitive advantage; (2) assets that produce a low cash yield; (3) assets which have physical attributes that constrain their market competitiveness; and (4) assets located in low growth markets.  The Company believes that the potential sales of these non-core properties over time would result in total estimated sales proceeds ranging from approximately $600 million to $800 million. 

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;
· 
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 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. 
 
 
 
39
 
 
 
A failure 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. 
 
Of the Company’s 10 core office markets, several have recently shown signs of improvement while others have stabilized.  The percentage leased in the Company’s consolidated portfolio of stabilized operating commercial properties aggregating 24 million, 24 million and 25 million square feet at March 31, 2016, December 31, 2015 and March 31, 2015, respectively, was 87.2 percent leased at March 31, 2016 as compared to 86.2 percent leased at December 31, 2015 and 84.3 percent leased at March 31, 2015.  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 at March 31, 2016, December 31, 2015 and March 31, 2015 aggregate 159,415, 69,522 and 558,288 square feet, respectively, or 0.7, 0.3 and 2.2 percentage of the net rentable square footage, respectively.  Rental rates (including escalations) on the Company’s commercial space that was renewed (based on first rents payable) during the three months ended March 31, 2016 (on 639,464 square feet of renewals) increased an average of 10.1 percent compared to rates that were in effect under the prior leases, as compared to a 6.3 percent decrease during the three months ended March 31, 2015 (on 383,774 square feet of renewals).  Estimated lease costs for the renewed leases during the three months ended March 31, 2016 averaged $5.66 per square foot per year for a weighted average lease term of 6.8 years and estimated lease costs for the renewed leases during the three months ended March 31, 2015 averaged $2.01 per square foot per year for a weighted average lease term of 2.9 years.  The Company has achieved positive leasing results in its core markets recently.  It believes that commercial vacancy rates may decrease and commercial rental rates may increase in some of its markets in 2016 and possibly beyond.  As of March 31, 2016, commercial leases which comprise approximately 5.5 and 16.8 percent of the Company’s annualized base rent are scheduled to expire during the years ended December 31, 2016 and 2017, respectively.  With the positive leasing results the Company has achieved in many of its markets recently, the Company believes that rental rates it is likely to achieve on new leases will generally be, on average, not lower than rates currently being paid.  Although the Company has recently achieved positive leasing activity, primarily in its core markets, if the recent leasing results do not prove to be sustaining during 2016 and beyond, the Company’s rental rates it may achieve on new leases may be lower than the rates currently being paid, resulting in the potential for less revenue from the same space.

As part of its strategic initiative described above, the Company may dispose of properties it considers non-core, and it may actively asset manage other low-growth real estate assets in a different way. The Company will selectively purchase assets in markets that it believes will offer above market returns.  The Company believes that the opportunity to invest in multi-family development properties at higher returns on cost will position the Company to potentially produce higher levels of net operating income than if the Company were to only purchase stabilized multi-family rental properties at market returns.

The Company believes that there is a potential for Moody’s or Standard & Poor’s to lower their current investment grade ratings on the Company’s senior unsecured debt to sub-investment grade.  Amongst other things, any such downgrade by both Moody’s and Standard & Poor’s will increase the current interest rate on outstanding borrowings under the Company’s $600 million unsecured revolving credit facility from LIBOR plus 130 basis points to LIBOR plus 170 basis points and the annual credit facility fee it pays will increase from 30 to 35 basis points.  Additionally, any such downgrade would increase the current interest rate on the Company’s $350 million unsecured term loan from LIBOR plus 140 basis points to LIBOR plus 185 points.  In this case, the Company could elect to utilize the leverage grid pricing available under the unsecured term loan, which would result in an interest rate of LIBOR plus 155 basis points at the Company’s current total leverage ratio.  In addition, a downgrade in its ratings to sub-investment grade would 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 from operations for the three months ended March 31, 2016, as compared to the three months ended March 31, 2015 and
·  
liquidity and capital resources.



 
40
 

Recent Transactions

Acquisitions
On January 5, 2016, the Company, which held a 50 percent subordinated interest in the unconsolidated joint venture, Overlook Ridge Apartment Investors LLC, a 371-unit multi-family operating property located in Malden, Massachusetts, acquired the remaining interest for $39.8 million in cash plus the assumption of a first mortgage loan secured by the property with a principal balance of $52.7 million.  The cash portion of the acquisition was funded primarily through borrowings under the Company’s unsecured revolving credit facility.  Upon acquisition, the Company consolidated the asset and accordingly, remeasured its equity interests, as required by the FASB’s consolidation guidance, at fair value (based upon the income approach using current rates and market cap rates and discount rates).  As a result, the Company recorded a gain on change of control of interests of $10.2 million in the three months ended March 31, 2016.  On January 19, 2016, the Company repaid the assumed loan and obtained a new loan secured by the property in the amount of $72.5 million, which bears interest at 3.625 percent and matures in February 2023.  See Note 10: Mortgages, Loans Payable and Other Obligations. 

On April 1, 2016, the Company, which held a 50 percent interest in the unconsolidated Portside Apts LLC, acquired the equity interests of one of its joint venture partners for $38.1 million in cash plus the assumption of a first mortgage loan secured by the property with a principal balance of $42.5 million and interest at LIBOR plus 250 basis points maturing in December 2017.  The cash portion of the acquisition was funded primarily through borrowings under the Company’s unsecured revolving credit facility.  As a result, the Company increased its ownership to 85 percent of the 175-unit operating multi-family property located in East Boston, Massachusetts.

Also on April 1, 2016, the Company bought out a partner for $11.3 million and increased its subordinated interest in PruRose Riverwalk G, L.L.C. from 25 percent to 50 percent using borrowings on the Company’s unsecured credit facility.  PruRose Riverwalk G, L.L.C., owns a 316-unit operating multi-family property located in Weehawken, New Jersey.

On April 22, 2016, the Company entered into an agreement to acquire a 566,000 square-foot office property located in Hoboken, New Jersey, for approximately $235 million, subject to certain conditions.  The acquisition is expected to be completed in the second quarter of 2016.

Dispositions
The Company disposed of the following office properties during the three months ended March 31, 2016 (dollars in thousands):

                             
       
Rentable
    
Net
    
Net
        
Disposition
    
# of
Square
    
Sales
    
Book
    
Realized
  
Date
Property/Address
Location
Bldgs.
 Feet
    
Proceeds
    
Value
    
Gain (loss)
  
03/11/16
2 Independence Way (a)
Princeton, New Jersey
1
67,401
  
$
4,119
  
$
4,283
  
$
 (164)
  
03/24/16
1201 Connecticut Avenue, NW
Washington, D.C.
1
169,549
    
90,591
    
31,827
    
 58,764
  
                             
Totals
    
2
 236,950
  
$
 94,710
  
$
 36,110
  
$
 58,600
  
                             
(a)  The Company recorded an impairment charge of $3.2 million on this property during the year ended December 31, 2015 as it estimated that the carrying value of the property may not be recoverable over its anticipated holding period.
  
                             

Rental Properties Held for Sale
During the three months ended March 31, 2016, the Company signed agreements to dispose of two office properties totaling approximately 683,000 square feet, located at 1400 L Street, NW in Washington, D.C. and 125 Broad Street in New York, New York, subject to certain conditions.  The total estimated sales proceeds expected from the two separate sales are approximately $272 million.  The dispositions are expected to be completed in the second quarter of 2016.  The Company identified these properties as held for sale at March 31, 2016.


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 Mack-Cali Realty, L.P. (the “Operating Partnership”), and variable interest entities for which the Company has determined itself to be the primary beneficiary, if any.  See Note 2: Significant Accounting Policies – Investments in Unconsolidated Joint Ventures – to the Financial Statements, for the Company’s treatment of unconsolidated joint venture interests.  Intercompany accounts and transactions have been eliminated.
 
 
 
41
 
 

 
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 the activities of the entity involve or are conducted on behalf of an investor with a disproportionately small voting interest.  The Company consolidates VIEs in which it is considered to be the primary beneficiary.  The primary beneficiary is defined by the entity having both of the following characteristics: (1) the power to direct the activities that, when taken together, most significantly impact the variable interest entity’s performance: and (2) the obligation to absorb losses and right to receive the returns from the VIE that would be significant to the VIE.

On January 1, 2016, the Company adopted accounting guidance under ASC 810, Consolidation, modifying the analysis it must perform to determine whether it should consolidate certain types of legal entities.  The guidance does not amend the existing disclosure requirements for variable interest entities or voting interest model entities.  The guidance, however, modified the requirements to qualify under the voting interest model.  Under the revised guidance, the Operating Partnership will be a variable interest entity of the parent company, Mack-Cali Realty Corporation.  As the Operating Partnership is already consolidated in the balance sheets of Mack-Cali Realty Corporation, the identification of this entity as a variable interest entity has no impact on the consolidated financial statements of Mack-Cali Realty Corporation.  There were no other legal entities qualifying under the scope of the revised guidance that were consolidated as a result of the adoption.

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 reported period.  Actual results could differ from these estimates.  Certain reclassifications have been made to prior period amounts in order to conform with current period presentation.  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.  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.  Acquisition-related costs are expensed as incurred.  Capitalized development and construction costs include pre-construction costs essential to the development of the property, development and construction costs, interest, property taxes, insurance, salaries and other project costs incurred during the period of development.  Interest capitalized by the Company for the three months ended March 31, 2016 and 2015 was $4.6 million and $3.6 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 tenant improvements, but no later than one year from cessation of major construction activity (as distinguished from activities such as routine maintenance and cleanup).  If portions of a rental project are substantially completed and occupied by tenants, or held available for occupancy, and other portions have not yet reached that stage, the substantially completed portions are accounted for as a separate project.  The Company allocates costs incurred between the portions under construction and the portions substantially completed and held available for occupancy, primarily based on a percentage of the relative square footage of each portion, and capitalizes only those costs associated with the portion under construction.


 
42
 

Properties are depreciated using the straight-line method over the estimated useful lives of the assets.  The estimated useful lives are as follows:

   
Leasehold interests
Remaining lease term
Buildings and improvements
5 to 40 years
Tenant improvements
The shorter of the term of the
 
related lease or useful life
Furniture, fixtures and equipment
5 to 10 years

Upon acquisition of rental property, the Company estimates the fair value of acquired tangible assets, consisting of land, building and improvements, and identified intangible assets and liabilities assumed, generally consisting of the fair value of (i) above and below market leases, (ii) in-place leases and (iii) tenant relationships.  The Company allocates the purchase price to the assets acquired and liabilities assumed based on their fair values. The Company records goodwill or a gain on bargain purchase (if any) if the net assets acquired/liabilities assumed exceed the purchase consideration of a transaction. In estimating the fair value of the tangible and intangible assets acquired, the Company considers information obtained about each property as a result of its due diligence and marketing and leasing activities, and utilizes various valuation methods, such as estimated cash flow projections utilizing appropriate discount and capitalization rates, estimates of replacement costs net of depreciation, and available market information.  The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant.

Above-market and below-market lease values for acquired properties are initially recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the remaining initial term plus the term of any below-market fixed rate renewal options for below-market leases.  The capitalized above-market lease values are amortized as a reduction of base rental revenue over the remaining terms of the respective leases, and the capitalized below-market lease values are amortized as an increase to base rental revenue over the remaining initial terms plus the terms of any below-market fixed rate renewal options of the respective leases.

Other intangible assets acquired include amounts for in-place lease values and tenant relationship values, which are based on management’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with the respective tenant.  Factors to be considered by management in its analysis of in-place lease values include an estimate of carrying costs during hypothetical expected lease-up periods considering current market conditions, and costs to execute similar leases.  In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions.  In estimating costs to execute similar leases, management considers leasing commissions, legal and other related expenses.  Characteristics considered by management in valuing tenant relationships include the nature and extent of the Company’s existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals.  The value of in-place leases are amortized to expense over the remaining initial terms of the respective leases.  The value of tenant relationship intangibles are amortized to expense over the anticipated life of the relationships.

On a periodic basis, management assesses whether there are any indicators that the value of the Company’s rental properties held for use may be impaired.  In addition to identifying any specific circumstances which may affect a property or properties, management considers other criteria for determining which properties may require assessment for potential impairment.  The criteria considered by management include reviewing low leased percentages, significant near-term lease expirations, recently acquired properties, current and historical operating and/or cash flow losses, near-term mortgage debt maturities or other factors that might impact the Company’s intent and ability to hold the property.  A property’s value is impaired only if management’s estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property is less than the carrying value of the property.  To the extent impairment has occurred, the loss shall be measured as the excess of the carrying value of the property over the fair value of the property.  The Company’s estimates of aggregate future cash flows expected to be generated by each property are based on a number of assumptions.  These assumptions are generally based on management’s experience in its local real estate markets and the effects of 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.


 
43
 

Rental Property Held for Sale:
When assets are identified by management as held for sale, the Company discontinues depreciating the assets and estimates the sales price, net of selling costs, of such assets.  If, in management’s opinion, the estimated net sales price of the assets which have been identified as held for sale is less than the net book value of the assets, a valuation allowance is established.

If circumstances arise that previously were considered unlikely and, as a result, the Company decides not to sell a property previously classified as held for sale, the property is reclassified as held and used.  A property that is reclassified is measured and recorded individually at the lower of (a) its carrying value before the property was classified as held for sale, adjusted for any depreciation (amortization) expense that would have been recognized had the property been continuously classified as held and used, or (b) the fair value at the date of the subsequent decision not to sell.

Investments in Unconsolidated Joint Ventures:
The Company accounts for its investments in unconsolidated joint ventures under the equity method of accounting.  The Company applies the equity method by initially recording these investments at cost, as Investments in Unconsolidated Joint Ventures, subsequently adjusted for equity in earnings and cash contributions and distributions.  The outside basis portion of the Company’s joint ventures is amortized over the anticipated useful lives of the underlying ventures’ tangible and intangible assets acquired and liabilities assumed.  Generally, the Company would discontinue applying the equity method when the investment (and any advances) is reduced to zero and would not provide for additional losses unless the Company has guaranteed obligations of the venture or is otherwise committed to providing further financial support for the investee.    If the venture subsequently generates income, the Company only recognizes its share of such income to the extent it exceeds its share of previously unrecognized losses.

On a periodic basis, management assesses whether there are any indicators that the value of the Company’s investments in unconsolidated joint ventures may be impaired.  An investment is impaired only if management’s estimate of the value of the investment is less than the carrying value of the investment, and such decline in value is deemed to be other than temporary.  To the extent impairment has occurred, the loss shall be measured as the excess of the carrying value of the investment over the value of the investment.  The Company’s estimates of value for each investment (particularly in real estate joint ventures) are based on a number of assumptions that are subject to economic and market uncertainties including, among others, demand for space, competition for tenants, changes in market rental rates, and operating costs.  As these factors are difficult to predict and are subject to future events that may alter management’s assumptions, the values estimated by management in its impairment analyses may not be realized, and actual losses or impairment may be realized in the future.  See Note 4: Investments in Unconsolidated Joint Ventures – to the Financial Statements.

Revenue Recognition:
Base rental revenue is recognized on a straight-line basis over the terms of the respective leases.  Unbilled rents receivable represents the cumulative amount by which straight-line rental revenue exceeds rents currently billed in accordance with the lease agreements.

Above-market and below-market lease values for acquired properties are initially recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the remaining initial term plus the term of any below-market fixed-rate renewal options for below-market leases.  The capitalized above-market lease values for acquired properties are amortized as a reduction of base rental revenue over the remaining terms of the respective leases, and the capitalized below-market lease values are amortized as an increase to base rental revenue over the remaining initial terms plus the terms of any below-market fixed-rate renewal options of the respective leases.

Escalations and recoveries from tenants are received from tenants for certain costs as provided in the lease agreements.  These costs generally include real estate taxes, utilities, insurance, common area maintenance and other recoverable costs.

Real estate services revenue includes property management, development, construction and leasing commission fees and other services, and payroll and related costs reimbursed from clients.  Fee income derived from the Company’s unconsolidated joint ventures (which are capitalized by such ventures) are recognized to the extent attributable to the unaffiliated ownership interests.

Parking income includes income from parking spaces leased to tenants and others.

Other income includes income from tenants for additional services arranged for by the Company and income from tenants for early lease terminations.
 
 
 
44
 
 
 
Allowance for Doubtful Accounts:
Management performs a detailed review of amounts due from tenants to determine if an allowance for doubtful accounts is required based on factors affecting the collectability of the accounts receivable balances. The factors considered by management in determining which individual tenant receivable balances, or aggregate receivable balances, require a collectability allowance include the age of the receivable, the tenant’s payment history, the nature of the charges, any communications regarding the charges and other related information. Management’s estimate of the allowance for doubtful accounts requires management to exercise significant judgment about the timing, frequency and severity of collection losses, which affects the allowance and net income.


Results From Operations

The following comparisons for the three months ended March 31, 2016 (“2016”), as compared to the three months ended March 31, 2015 (“2015”), 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, 2014, excluding properties that were sold, disposed of, removed from service, or being redeveloped or repositioned from January 1, 2015 through March 31, 2016; (ii) the effect of the “Acquired Properties,” which represent all properties acquired by the Company or commencing initial operations from January 1, 2015 through March 31, 2016 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, 2015 through March 31, 2016.  During 2016 and 2015, three office properties, aggregating 582,523 square feet, were removed from service as they were being redeveloped by the Company. 

Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015
                       
   
Three Months Ended
            
   
March 31,
    
Dollar
  
Percent
(dollars in thousands)
  
2016
    
2015
    
Change
  
Change
Revenue from rental operations and other:
                      
Base rents
$
 126,387 
  
$
 123,793 
  
$
 2,594 
  
 2.1 
%
Escalations and recoveries from tenants
  
 14,961 
    
 18,399 
    
 (3,438)
  
 (18.7)
  
Parking income
  
 3,156 
    
 2,542 
    
 614 
  
 24.2 
  
Other income
  
 1,607 
    
 1,337 
    
 270 
  
 20.2 
  
Total revenues from rental operations
  
 146,111 
    
 146,071 
    
 40 
  
 0.0 
  
                       
Property expenses:
                      
Real estate taxes
  
 23,226 
    
 22,452 
    
 774 
  
 3.4 
  
Utilities
  
 13,578 
    
 17,575 
    
 (3,997)
  
 (22.7)
  
Operating services
  
 26,732 
    
 28,228 
    
 (1,496)
  
 (5.3)
  
Total property expenses
  
 63,536 
    
 68,255 
    
 (4,719)
  
 (6.9)
  
                       
Non-property revenues:
                      
Real estate services
  
 6,812 
    
 7,644 
    
 (832)
  
 (10.9)
  
Total non-property revenues
  
 6,812 
    
 7,644 
    
 (832)
  
 (10.9)
  
                       
Non-property expenses:
                      
Real estate services expenses
  
 6,846 
    
 6,639 
    
 207 
  
 3.1 
  
General and administrative
  
 12,249 
    
 11,011 
    
 1,238 
  
 11.2 
  
Depreciation and amortization
  
 43,063 
    
 40,802 
    
 2,261 
  
 5.5 
  
Total non-property expenses
  
 62,158 
    
 58,452 
    
 3,706 
  
 6.3 
  
Operating income (loss)
  
 27,229 
    
 27,008 
    
 221 
  
 0.8 
  
Other (expense) income:
                      
Interest expense
  
 (24,993)
    
 (27,215)
    
 2,222 
  
 8.2 
  
Interest and other investment income (loss)
  
 (669)
    
 267 
    
 (936)
  
 (350.6)
  
Equity in earnings (loss) of unconsolidated joint ventures
  
 (1,554)
    
 (3,529)
    
 1,975 
  
 56.0 
  
Gain on change of control of interests
  
 10,156 
    
 -
    
 10,156 
  
 -
  
Realized gains (losses) on disposition
                      
   of rental property, net
  
 58,600 
    
 144 
    
 58,456 
  
 40,594.4 
  
Total other (expense) income
  
 41,540 
    
 (30,333)
    
 71,873 
  
 236.9 
  
Net income (loss)
  
 68,769 
    
 (3,325)
    
 72,094 
  
 2,168.2 
  
Noncontrolling interest in consolidated joint ventures
  
 706 
    
 490 
    
 216 
  
 44.1 
  
Noncontrolling interest in Operating Partnership
  
 (7,284)
    
 314 
    
 (7,598)
  
 (2,419.7)
  
Net income (loss) available to common shareholders
$
 62,191 
  
$
 (2,521)
  
$
 64,712 
  
 2,566.9 
%
 
 
 
 
45
 
 
 
 
The following is a summary of the changes in revenue from rental operations and property expenses in 2016 as compared to 2015 divided into Same-Store Properties, Acquired Properties and Properties Sold in 2015 and 2016 (dollars in thousands):
                                               
   
      Total
      
          Same-Store
      
          Acquired
      
Properties
  
   
      Company
      
           Properties
      
        Properties
      
Sold in 2015 and 2016
  
   
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:
                                              
Base rents
$
 2,594 
  
 2.1 
%
  
$
 4,544 
  
 3.7 
%
  
$
 3,521 
  
 2.8 
%
  
$
 (5,471)
  
 (4.4)
%
Escalations and recoveries
                                              
  from tenants
  
 (3,438)
  
 (18.7)
      
 (3,070)
  
 (16.7)
      
 172 
  
 0.9 
      
 (540)
  
 (2.9)
  
Parking income
  
 614 
  
 24.2 
      
 324 
  
 12.8 
      
 295 
  
 11.6 
      
 (5)
  
 (0.2)
  
Other income
  
 270 
  
 20.2 
      
 357 
  
 26.7 
      
 (81)
  
 (6.1)
      
 (6)
  
 (0.4)
  
Total
$
 40 
  
 0.0 
%
  
$
 2,155 
  
 1.4 
%
  
$
 3,907 
  
 2.7 
%
  
$
 (6,022)
  
 (4.1)
%
                                               
Property expenses:
                                              
Real estate taxes
$
 774 
  
 3.4 
%
  
$
 362 
  
 1.6 
%
  
$
 925 
  
 4.1 
%
  
$
 (513)
  
 (2.3)
%
Utilities
  
 (3,997)
  
 (22.7)
      
 (4,062)
  
 (23.1)
      
 371 
  
 2.1 
      
 (306)
  
 (1.7)
  
Operating services
  
 (1,496)
  
 (5.3)
      
 (1,766)
  
 (6.2)
      
 540 
  
 1.9 
      
 (270)
  
 (1.0)
  
Total
$
 (4,719)
  
 (6.9)
%
  
$
 (5,466)
  
 (8.0)
%
  
$
 1,836 
  
 2.7 
%
  
$
 (1,089)
  
 (1.6)
%
                                               
OTHER DATA:
                                              
Number of Consolidated Properties
  
 222 
          
 220 
          
 2 
          
 11 
      
Commercial Square feet (in thousands)
  
 23,975 
          
 23,779 
          
 196 
          
 1,510 
      
Multi-family portfolio (number of units)
  
 1,672 
          
 1,301 
          
 371 
          
 -
      

Base rents. Base rents for the Same-Store Properties increased $4.5 million, or 3.7 percent, for 2016 as compared to 2015, due primarily to a 240 basis point increase in the average same store percent leased to 86.8 percent from 84.4 percent, and a $0.21 increase in average annual rents per square foot to $22.36 from $22.15 for 2016 as compared to 2015.

Escalations and recoveries. Escalations and recoveries from tenants for the Same-Store Properties decreased $3.1 million, or 16.7 percent, for 2016 over 2015 due primarily to significantly lower utility and operating expenses to recover in 2016.

Parking income. Parking income for the Same-Store Properties increased $0.3 million, or 12.8 percent, for 2016 as compared to 2015 due primarily to increased usage.

Other income. Other income for the Same-Store Properties increased $0.4 million, or 26.7 percent, for 2016 as compared to 2015, due primarily to various small one-time items in 2016.

Real estate taxes. Real estate taxes on the Same-Store Properties increased $0.4 million, or 1.6 percent, for 2016 as compared to 2015.  The change in real estate taxes principally results from a decrease in tax appeal proceeds received in 2016 as compared to 2015.  Real estate taxes, without the effect of net tax appeal proceeds, were relatively unchanged for 2016 as compared to 2015.

Utilities. Utilities for the Same-Store Properties decreased $4.1 million, or 23.1 percent, for 2016 as compared to 2015, due primarily to decreased electricity rates and usage in 2016 as compared to 2015 on account of a mild winter in 2016.

Operating Services. Operating services for the Same-Store Properties decreased $1.8 million, or 6.2 percent, due primarily to a decrease in snow removal costs in 2016 as compared to 2015 on account of a mild winter in 2016.

Real estate services revenue. Real estate services revenue (primarily reimbursement of property personnel costs) decreased $0.8 million, or 10.9 percent, for 2016 as compared to 2015, due primarily to decreased third party development and management activity in multi-family services in 2016 as compared to 2015.

Real estate services expense. Real estate services expense increased $0.2 million, or 3.1 percent, for 2016 as compared to 2015, due primarily to increased compensation and related costs.


 
46
 

General and administrative. General and administrative expenses increased $1.2 million in 2016 as compared to 2015, due primarily to an increase in stock compensation expense in 2016 as compared to 2015.

Depreciation and amortization. Depreciation and amortization increased $2.3 million, or 5.5 percent, for 2016 over 2015.  This increase was due primarily to depreciation in 2016 on the Acquired Properties, as well as accelerated depreciation in 2016 for properties being removed from service.

Interest expense. Interest expense decreased $2.2 million, or 8.2 percent, for 2016 as compared to 2015.  This decrease was primarily the result of lower average interest rates due to expiring debt in 2015 and early January of 2016.

Interest and other investment income. Interest and other investment income decreased $0.9 million, or 350.6 percent, for 2016 as compared to 2015.  This was primarily the result of a valuation mark-to-market loss for an interest rate swap entered into in 2016.

Equity in earnings (loss) of unconsolidated joint ventures. Equity in earnings of unconsolidated joint ventures increased $2.0 million, or 56.0 percent, for 2016 as compared to 2015.  The increase was due primarily to a decreased loss of $0.9 million from the Keystone TriState venture for 2016 as compared to 2015 and a loss in 2015 of $0.7 million from the Portside at Pier One-Building 7 venture.

Realized gains (losses) on disposition of rental property, net. The Company had realized gains on disposition of rental property of $58.6 million in 2016 and $0.1 million in 2015.  See Note 3: Recent Transactions – to the Financial Statements.

Net income (loss). Net income increased to $68.8 million in 2016 from a loss of $3.3 million in 2015.  The increase of $72.1 million was due to the factors discussed above.

Net income (loss) available to common shareholders. Net income available to common shareholders increased $64.7 million from a loss of $2.5 million in 2015 to income of $62.2 million in 2016.  The increase was primarily due to an increase in net income of $72.1 million for 2016 as compared to 2015 and an increase in noncontrolling interest in consolidated joint ventures of $0.2 million for 2016 as compared to 2015.  These were partially offset by a decrease in noncontrolling interest in Operating Partnership of $7.6 million for 2016 as compared to 2015.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Overview:
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 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, net cash provided by operating activities and from its 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 revolving credit facility) and the issuance of additional debt and/or equity securities.

Repositioning of the Company’s Portfolio:
As described earlier relative to its current strategic initiative, the Company’s management has been reviewing its portfolio and identifying opportunities to divest of non-core office properties that no longer meet its long-term strategy, have reached their potential, are less efficient to operate, or when market conditions are favorable to be sold at attractive prices.  The Company anticipates redeploying the proceeds from non-core rental property sales in the near-term to acquire office properties, enhance amenities and infrastructure at existing office properties, develop, redevelop and acquire multi-family rental properties, as well as reposition certain office properties into multi-family residential and/or mixed use properties, in its core Northeast sub-markets.
 
 
 
47
 
 
 
Construction Projects:
On May 21, 2014, the Company entered into a joint venture agreement with Ironstate Harborside-A LLC (“ISA”) to form Harborside Unit A Urban Renewal, L.L.C. (“URL-Harborside”), a newly-formed joint venture that will develop, own and operate a high-rise tower of approximately 763 multi-family apartment units above a parking pedestal to be located on land contributed by the Company at its Harborside complex in Jersey City, New Jersey (the “URL Project”).  The Company owns an 85 percent interest in URL-Harborside and the remaining interest is owned by ISA, with shared control over major decisions such as approval of budgets, property financings and leasing guidelines.  The construction of the URL Project is estimated to cost a total of approximately $320 million (of which development costs of $238.1 million have been incurred by URL-Harborside through March 31, 2016).  The URL Project is projected to be ready for occupancy by the fourth quarter of 2016.  The venture has a construction/permanent loan with a maximum borrowing amount of $192 million (with $92.9 million outstanding as of March 31, 2016).  The Company does not expect to fund any future development costs of the project, as future development costs will be funded by using the loan financing.

The Company owns a 76.25 percent interest in a consolidated joint venture which is constructing a 108-unit multi-family development rental property located in Eastchester, New York (the “Eastchester Project”).  The project is expected to be ready for occupancy by the second quarter of 2016.  The Eastchester Project is estimated to cost a total of $50.0 million (of which development costs of $35.9 million have been incurred through March 31, 2016).  The venture has a $28.8 million construction loan (with $16.1 million outstanding as of March 31, 2016).  The Company expects to fund approximately $20.9 million for the development of the project (of which, as of March 31, 2016, the Company has incurred $16.1 million of the development costs and estimates it will need to fund an additional $4.8 million for the completion of the project). 

On April 1, 2015, the Company acquired vacant land in Worcester, Massachusetts to accommodate a two-phase development of the CitySquare Project for a purchase price of $3.1 million with an additional $1.25 million to be paid (which is accrued as of March 31, 2016), subject to certain conditions, in accordance with the terms of the purchase and sale agreement.  The first phase with 237 units started construction in the third quarter 2015 with anticipated initial deliveries in the second quarter 2017.  The Company has a construction loan with a maximum borrowing amount of $41.5 million (with no outstanding balance as of March 31, 2016).   Total development costs are estimated to be approximately $92.5 million (of which $10.6 million was incurred by the Company through March 31, 2016 and estimates it will need to fund an additional $40.4 million for the completion of the project).  

On October 6, 2015, the Company entered into a joint venture partnership with XS Port Imperial Hotel, LLC (“XS”) to form XS Hotel Urban Renewal Associates LLC (“XS Hotel URA”) for the development and ownership of a 364-key dual branded hotel property located in Weehawken, New Jersey (“Port Imperial Hotel”).  Concurrently, the Company and XS entered into a separate joint venture partnership to form XS Hotel Associates, L.L.C. (“XS Hotel”) for the management and operations of the completed hotel development.  The Company holds a 90 percent interest and XS holds the remaining 10 percent interest in the consolidated joint ventures, XS Hotel URA and XS Hotel, with the Company having full and complete authority, power, and discretion to manage and control the ventures’ business, affairs, and property.  The construction of the Port Imperial Hotel is estimated to cost a total of $105.9 million.  The venture has a $94 million construction loan (with no outstanding balance as of March 31, 2016).  As of March 31, 2016, the Company incurred development costs of $4.7 million and estimates it will need to fund additional costs of approximately $0.5 million.

The Company owns developable land to accommodate a multi-phase development project of approximately 1,034-unit multi-family rental property located in Malden, Massachusetts.  The initial phase commenced construction of 292 units in the third quarter of 2015 (the “Chase II Project”).  The Chase II project is estimated to cost a total of $74.9 million (of which the Company has incurred $26.4 million through March 31, 2016) and is expected to be ready for occupancy by second quarter of 2017.  The Company estimates it will need to fund additional costs of $0.5 million for the completion of the Chase II Project.  The Company has a construction loan with a maximum borrowing amount of $48 million (with no outstanding balance as of March 31, 2016).    

The Company owns an office property that it repurposed for residential use.  The 197-unit multi-family development project, which is located in Morris Plains, New Jersey (“Signature Place Project”), is expected to be ready for occupancy by the fourth quarter of 2017. The Signature Place Project, which is estimated to cost a total of $61.4 million (of which development costs of $5.1 million have been incurred through March 31, 2016) is expected to be funded by a $42 million construction loan.  The Company expects to fund costs of approximately $19.4 million for the development of the project, of which the Company has incurred $4.7 million as of March 31, 2016.

The Company owns an 85 percent interest in a consolidated joint venture, which is constructing a 296-unit multi-family development rental property located in East Boston, Massachusetts (“Portside 5/6 Project”).  The project is expected to be ready for occupancy by the first quarter of 2018.  The Portside 5/6 Project, which is estimated to cost a total of $112.4 million (of which development costs of $8.5 million have been incurred through March 31, 2016), is expected to be funded by a $73 million construction loan.  The Company expects to fund costs of approximately $33.5 million for the development of the project, of which the Company has incurred $6.2 million as of March 31, 2016.
 
 
 
 
48
 

 
REIT Restrictions:
To maintain its qualification as a REIT under the Code, the Company 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.  Moreover, the Company intends to continue to make regular quarterly distributions to its common stockholders.  Based upon the most recently paid common stock dividend rate of $0.15 per common share, in the aggregate, such distributions would equal approximately $53.8 million ($60.5 million, including units in the Operating Partnership, held by parties other than the Company) on an annualized basis.  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 Company will be required to pay federal, state and local taxes on such net capital gains at the rate applicable to capital gains of a corporation.

Property Lock-Ups:
Through February 2016, the Company could not dispose of or distribute certain of its properties which were originally contributed by certain unrelated common unitholders of the Operating 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 could 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”).  The aforementioned restrictions did not apply in the event that the Company sold all of its properties or in connection with a sale transaction which the Company’s Board of Directors determined was reasonably necessary to satisfy a material monetary default on any unsecured debt, judgment or liability of the Company or to cure any material monetary default on any mortgage secured by a property.  The Property Lock-Ups expired as of February 2016.  Upon the expiration 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 the Mack Group (which includes William L. Mack, Chairman of the Company’s Board of Directors; David S. Mack, director; and Earle I. Mack, a former director), the Robert Martin Group (which includes Robert F. Weinberg, a former director and current member of its Advisory Board), and the Cali Group (which includes John R. Cali, a former director and current member of its Advisory Board).  As of March 31, 2016, 117 of the Company’s properties, with an aggregate net book value of approximately $1.3 billion, have lapsed restrictions and are subject to these conditions.

Unencumbered Properties:
As of March 31, 2016, the Company had 202 unencumbered properties with a carrying value of $2.3 billion representing 91.4 percent of the Company’s total consolidated property count.


Cash Flows

Cash and cash equivalents increased by $79.3 million to $116.4 million at March 31, 2016, compared to $37.1 million at December 31, 2015.  This decrease is comprised of the following net cash flow items:
       
       
(1)
$25.5 million provided by operating activities.
       
(2) 
$1.4 million used in investing activities, consisting primarily of the following:
       
   
(a)
$7.2 million used for investments in unconsolidated joint ventures; plus
   
(b)
$47.8 million used for rental property acquisitions and related intangibles; plus
   
(c)
$34.6 million used for additions to rental property and improvements; plus
   
(d)
$16.1 million used for the development of rental property, other related costs and deposits; plus
   
(e)
$7.8 million used for restricted cash; minus
   
(f)
$94.7 million from proceeds from the sales of rental property; minus
   
(g)
$0.1 million received from payments of notes receivables; minus
   
(i)
$1.8 million received from distributions in excess of cumulative earnings from unconsolidated joint ventures.
       
(3)
$55.3 million provided by financing activities, consisting primarily of the following:
       
   
(a)
$150 million from borrowings under the revolving credit facility; plus
   
(b)
$350 million from borrowings from unsecured term loan; plus
   
(c)  
$77.7 million from proceeds received from mortgages and loans payable; plus
   
(d)
$0.7 million from contributions from noncontrolling interests; minus
   
(e)
$215 million used for repayments of revolving credit facility; minus
   
(f)
$15 million used for payments of dividends and distributions; minus
   
(g)
$89.7 million used for repayments of mortgages, loans payable and other obligations; minus
   
(h)
$3.4 million used for repayment of finance costs.

 
 
 
49
 
 

 
Debt Financing

Summary of Debt:
The following is a breakdown of the Company’s debt between fixed and variable-rate financing as of March 31, 2016:
                 
   
Balance
    
Weighted Average
    
Weighted Average
   
($000’s)
% of Total
  
Interest Rate (a)
    
Maturity in Years
Fixed Rate Unsecured Debt and
                
  Other Obligations
$
 1,425,000 
 62.31 
%
 4.32 
%
  
 4.22 
Fixed Rate Secured Debt
  
 664,638 
 29.06 
%
 6.78 
%
  
 2.83 
Variable Rate Secured Debt
  
 107,603 
 4.70 
%
 4.79 
%
  
 1.24 
Variable Rate Unsecured Debt (b)
  
 90,000 
 3.93 
%
 1.74 
%
  
 1.33 
                 
Totals/Weighted Average:
$
 2,287,241 
 100.00 
%
 4.95 
%
(b)
 3.56 
Adjustment for unamortized debt discount
  
 (6,094)
            
Unamortized deferred financing costs
  
 (11,860)
            
Total Debt, Net
$
 2,269,287 
            

(a)
The actual weighted average LIBOR rate for the Company’s outstanding variable rate debt was 0.44 percent as of March 31, 2016, plus the applicable spread.
(b)
Excludes amortized deferred financing costs pertaining to the Company’s unsecured revolving credit facility which amounted to $0.8 million for the three months ended March 31, 2016.
 
Debt Maturities:
Scheduled principal payments and related weighted average annual effective interest rates for the Company’s debt as of March 31, 2016 are as follows:
                         
   
Scheduled
    
Principal
        
Weighted Avg.
  
   
Amortization
    
Maturities
    
Total
  
Effective Interest Rate of
  
Period
  
($000’s)
    
($000’s)
    
($000’s)
  
Future Repayments (a)
  
April 1 to December 31, 2016
$
 6,037 
  
$
 171,504 
  
$
 177,541 
  
 8.56 
%
  
2017 (b)
  
 7,275 
    
 497,254 
    
 504,529 
  
 3.65 
%
  
2018
  
 7,311 
    
 231,536 
    
 238,847 
  
 6.68 
%
  
2019
  
 1,970 
    
 681,567 
    
 683,537 
  
 5.24 
%
  
2020
  
 1,977 
    
 -
    
 1,977 
  
 4.05 
%
  
Thereafter
  
 8,862 
    
 671,948 
    
 680,810 
  
 4.09 
%
  
Sub-total
  
 33,432 
    
 2,253,809 
    
 2,287,241 
        
Adjustment for unamortized debt
                        
discount/premium, net
                        
as of March 31, 2016
  
 (6,094)
    
 -
    
 (6,094)
        
Unamortized deferred financing costs
  
 (11,860)
    
 -
    
 (11,860)
        
Totals/Weighted Average
$
 15,478 
  
$
 2,253,809 
  
$
 2,269,287 
  
 4.95 
%
(c)
                         
(a)  
The actual weighted average LIBOR rate for the Company’s outstanding variable rate debt was 0.44 percent as of March 31, 2016, plus the applicable spread.
(b)
Includes outstanding borrowings of the Company’s unsecured revolving credit facility of $90 million which matures in 2017 with two six-month extension options with the payment of a fee.
(c)
Excludes amortized deferred financing costs pertaining to the Company’s unsecured revolving credit facility which amounted to $0.8 million for the three months ended March 31, 2016.
 
 
 
50
 
 
 
Senior Unsecured Notes:
The terms of the Company’s senior unsecured notes (which totaled approximately $1.1 billion as of March 31, 2016) 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 Term Loan:
On January 7, 2016, the Company obtained a new $350 million unsecured term loan, which matures in January 2019 with two one-year extension options.  The interest rate for the new term loan is currently 140 basis points over LIBOR, subject to adjustment on a sliding scale based on the Operating Partnership’s unsecured debt ratings, or at the Company's option, a defined leverage ratio.  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 unsecured revolving credit facility and to repay the Company's $200 million, 5.8 percent senior unsecured notes that matured on January 15, 2016.

The interest rate on the unsecured term loan is based upon the Operating 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 (current interest rate based on Company's election)
  
140.0
BBB or Baa2
  
115.0
BBB+ or Baa1
  
100.0
A- or A3 or higher
  
90.0

If the Company elected to use a defined leverage ratio, the interest rate under the unsecured term loan would be based on the following total leverage ratio grid:

     
   
Interest Rate -
   
Applicable Basis
Total Leverage Ratio
  
Points above LIBOR
<45%
  
145
≥45% and <50% (current ratio)
  
155
≥50% and <55%
  
165
≥55%
  
195

The terms of the unsecured 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 Company to continue to qualify as a REIT under the Code.  The Company was in compliance with its debt covenants under its unsecured term loan as of March 31, 2016. 

Unsecured Revolving Credit Facility:
The Company has a $600 million unsecured revolving credit facility with a group of 17 lenders.  The facility is expandable to $1 billion and matures in July 2017.  It has two six month extension options each requiring the payment of a 7.5 basis point fee.  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 are based upon the Operating Partnership’s unsecured debt ratings, as follows:
 
 
 
 
51
 
 
 
 
         
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 (current)
  
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
 
The facility has a competitive bid feature, which allows the Company to solicit bids from lenders under the facility to borrow up to $300 million at interest rates less than those above.

The terms of the unsecured facility 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 facility described below, or (ii) the property dispositions are completed while the Company is under an event of default under the facility, 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 Company to continue to qualify as a REIT under the Code.

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, its unsecured term loan, or its mortgages, loans payable and other obligations upon maturity.  Instead, the Company will seek to refinance such debt at maturity or retire such debt through the issuance of additional equity or debt securities 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 of April 25, 2016, the Company had outstanding borrowings of $210 million under its unsecured revolving credit facility.  The Company is reviewing various financing and refinancing options, including the purchase of its senior unsecured notes in privately-negotiated transactions, the issuance of additional, or exchange of current, unsecured debt, common and preferred stock, and/or obtaining additional mortgage debt, some or all of which may be completed in 2016.  The Company currently anticipates that its available cash and cash equivalents, cash flows from operating activities and proceeds from the sale of office properties, 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. 



 
52
 

Equity Financing and Registration Statements

Common Equity:
The following table presents the changes in the Company’s issued and outstanding shares of common stock and the Operating Partnership’s common units for the three months ended March 31, 2016:
       
 
Common
 Common
  
 
Stock
Units
Total
Outstanding at January 1, 2016
 89,583,950
 10,516,844
 100,100,794
Common units redeemed for common stock
 17,000
 (17,000)
 -
Shares issued under Dividend Reinvestment
      
  and Stock Purchase Plan
 492
 -
 492
Restricted shares issued
 36,870
 -
 36,870
Outstanding at March 31, 2016
 89,638,312
 10,499,844
 100,138,156

Share Repurchase Program:
The Company has a share repurchase program which was renewed and authorized by its Board of Directors in September 2012 to purchase up to $150 million of the Company’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 of March 31, 2016, the Company has a remaining authorization under the Repurchase Program of $139 million.  There were no common stock repurchases in 2015 and through April 25, 2016.  

Dividend Reinvestment and Stock Purchase Plan:
The Company has a Dividend Reinvestment and Stock Purchase Plan (the “DRIP”) which commenced in March 1999 under which approximately 5.5 million shares of the Company’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 Company’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 the Securities and Exchange Commission (“SEC”) for the approximately 5.5 million shares of the Company’s common stock reserved for issuance under the DRIP.

Shelf Registration Statements:
The Company has an effective shelf registration statement on Form S-3 filed with the SEC for an aggregate amount of $2.0 billion in common stock, preferred stock, depositary shares, and/or warrants of the Company, under which no securities have been sold as of April 25, 2016.

The Company and the Operating Partnership also have an effective shelf registration statement on Form S-3 filed with the SEC for an aggregate amount of $2.5 billion in common stock, preferred stock, depositary shares and guarantees of the Company and debt securities of the Operating Partnership, under which no securities have been sold as of April 25, 2016.

 
Off-Balance Sheet Arrangements

Unconsolidated Joint Venture Debt:
The debt of the Company’s unconsolidated joint ventures generally provide 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 debt has a total facility amount of $492.1 million of which the Company has agreed to guarantee up to $66.3 million.  As of March 31, 2016, the outstanding balance of such debt totaled $286.7 million of which $44.8 million was guaranteed by the Company.  The Company has also posted a $3.6 million letter of credit in support of the Harborside South Pier joint venture, half of which is indemnified by Hyatt Corporation, the Company’s joint venture partner.

The Company’s off-balance sheet arrangements are further discussed in Note 4: Investments in Unconsolidated Joint Ventures to the Financial Statements.


 
53
 

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 March 31, 2016:
                                   
                                   
         
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
$
 1,308,032 
  
$
 47,788 
  
$
 339,325 
  
$
 304,013 
  
$
 616,906 
    
 -
Unsecured term loan
  
 381,039 
    
 10,955 
    
 370,084 
    
 -
    
 -
    
 -
Revolving credit facility (a)
  
 92,088 
    
 1,566 
    
 90,522 
    
 -
    
 -
    
 -
Mortgages, loans payable
                                  
  and other obligations (b)
  
 876,537 
    
 371,846 
    
 346,042 
    
 37,007 
    
 87,623 
  
$
 34,019 
Payments in lieu of taxes
                                  
  (PILOT)
  
 27,021 
    
 4,407 
    
 13,222 
    
 9,392 
    
 -
    
 -
Ground lease payments
  
 16,607 
    
 357 
    
 490 
    
 234 
    
 928 
    
 14,598 
Other
  
 1,655 
    
 -
    
 1,655 
    
 -
    
 -
    
 -
Total
$
 2,702,979 
  
$
 436,919 
  
$
 1,161,340 
  
$
 350,646 
  
$
 705,457 
  
$
 48,617 
 
 
(a)  
Interest payments assume LIBOR rate of 0.44 percent, which is the weighted average rate on this outstanding variable rate debt at March 31, 2016, plus the applicable spread.
(b)  
Interest payments assume LIBOR rate of 0.44 percent, which is the weighted average rate on its outstanding variable rate mortgage debt at March 31, 2016, plus the applicable spread. 


Funds from Operations 
 
Funds from operations (“FFO”) is defined as net income (loss) before noncontrolling interests of unitholders, computed in accordance with GAAP, excluding gains or losses from depreciable rental property transactions, 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 sales of properties 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 three months ended March 31, 2016 and 2015 (in thousands): 
           
   
Three Months Ended
   
March 31,
   
2016
    
2015
Net income (loss) available to common shareholders
$
 62,191 
  
$
 (2,521)
Add (deduct):  Noncontrolling interests in Operating Partnership
  
 7,284 
    
 (314)
Real estate-related depreciation and amortization on
          
   continuing operations (a)
  
 47,459 
    
 46,031 
Gain on change of control of interests
  
 (10,156)
    
 -
Realized (gains) losses and unrealized losses
          
  on disposition of rental property, net
  
 (58,600)
    
 (144)
Funds from operations
$
 48,178 
  
$
 43,052 
 
(a)
Includes the Company’s share from unconsolidated joint ventures of $4,621 and $5,471 for the three months ended March 31, 2016 and 2015, respectively.  Excludes non-real estate-related depreciation and amortization of $225 and $243 for the three months ended March 31, 2016 and 2015, respectively, and $151and  $151 of depreciation expense allocable to the Company’s noncontrolling interest in consolidated joint ventures for the three months ended March 31, 2016, and 2015, respectively.
 
 
 
54
 
 

 

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 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,” “continue” or comparable terminology.  Forward-looking statements are inherently subject to risks 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.

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 secured 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, 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 in our Annual Report on Form 10-K for the year ended December 31, 2015.  We assume no obligation to update and supplement forward-looking statements that become untrue because of subsequent events, new information or otherwise.



 
55
 

Item 3.
Quantitative And Qualitative Disclosures About Market Risk

Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices.  In pursuing its business plan, the primary market risk to which the Company is exposed is interest rate risk.  Changes in the general level of interest rates prevailing in the financial markets may affect the spread between the Company’s yield on invested assets and cost of funds and, in turn, its ability to make distributions or payments to its investors.

Approximately $2.1 billion of the Company’s long-term debt as of March 31, 2016 bears interest at fixed rates and therefore the fair value of these instruments is affected by changes in market interest rates.  The following table presents principal cash flows (in thousands) based upon maturity dates of the debt obligations and the related weighted-average interest rates by expected maturity dates for the fixed rate debt.  The interest rates on the Company’s variable rate debt as of March 31, 2016 ranged from LIBOR plus 130 basis points to LIBOR plus 950 basis points.  Assuming interest-rate swaps and caps are not in effect, if market rates of interest on the Company’s variable rate debt increased or decreased by 100 basis points, then the increase or decrease in interest costs on the Company’s variable rate debt would be approximately $2.0 million annually and the increase or decrease in the fair value of the Company’s fixed rate debt as of March 31, 2016 would be approximately $56 million.
                                                                 
March 31, 2016
                                                                
Debt,
including current portion
  
4/1/2016
                                                          
Fair
($s in thousands)
  
12/31/2016
    
2017
    
2018
    
2019
    
2020
    
Thereafter
    
Sub-total
    
Other (a)
    
Other (b)
    
Total
    
Value
                                                                 
Fixed Rate
$
113,541
  
$
397,493
  
$
237,447
  
$
658,370
  
$
1,977
  
$
680,810
  
$
2,089,638
  
$
(6,094)
  
$
(8,839)
  
$
2,074,705
  
$
2,105,170
Average Interest Rate
  
9.80
%
  
4.12
%
  
6.70
%
  
5.35
%
  
4.05
%
  
4.09
%
                    
5.10
%
    
                                                                 
Variable Rate
$
64,000
  
$
 107,036
(c)
$
1,400
  
$
 25,167
    
 -
    
 -
  
$
197,603
    
 -
  
$
 (3,021)
  
$
194,582
  
$
194,582
                                                                 
(a)  Adjustment for unamortized debt discount/premium, net, as of March 31, 2016.
(b)  Adjustment for unamortized deferred financings costs, net, as of March 31, 2016.
(c)  Includes $90 million of outstanding borrowings under the Company’s unsecured revolving credit facility which matures in 2017 with two six-month extension options with the payment of a fee.
 
While the Company has not experienced any significant credit losses, in the event of a significant rising interest rate environment and/or economic downturn, defaults could increase and result in losses to the Company which could adversely affect its operating results and liquidity.


Item 4.                 Controls and Procedures

Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s chief executive officer, president and chief operating officer and chief financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s chief executive officer, president and chief operating officer and chief financial officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.

Changes In Internal Control Over Financial Reporting.  There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 

 
56
 

MACK-CALI REALTY CORPORATION

Part II – Other Information


Item 1.        Legal Proceedings

There are no material pending legal proceedings, other than ordinary routine litigation incidental to its business, to which the Company is a party or to which any of its Properties are subject.

Item 1A.     Risk Factors

There have been no material changes in our assessment of risk factors from those set forth in our Annual Report on Form 10-K for the year ended December 31, 2015.

Item 2.        Unregistered Sales of Equity Securities and Use of Proceeds

(a)               COMMON STOCK
During the three months ended March 31, 2016, the Company issued 17,000 shares of common stock to holders of common units in the Operating Partnership upon the redemption of such common units in private offerings pursuant to Section 4(a)(2) of the Securities Act.  The holders of the common units were limited partners of the Operating Partnership and accredited investors under Rule 501 of the Securities Act.  The common units were redeemed for an equal number of shares of common stock.  The Company has registered the resale of such shares under the Securities Act.

(b)              Not Applicable.

(c)              Not Applicable.

Item 3.      Defaults Upon Senior Securities

(a)              Not Applicable.

(b)              Not Applicable.

Item 4.       Mine Safety Disclosures

Not Applicable.

Item 5.       Other Information

 
(a)
On April 22, 2016, the Company, through its wholly-owned subsidiary  111 River Realty L.L.C., entered into a Real Estate Sale Agreement (the “Purchase Agreement’) with HUB Properties Trust to acquire a 566,000 square-foot office property located in Hoboken, New Jersey, for approximately $235 million.  The acquisition is subject to normal and customary undertakings, covenants, obligations and closing conditions, and is expected to be completed in the second quarter of 2016. A copy of the Purchase Agreement is filed as Exhibit 10.145 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.  Disclosure of the Company’s entry into the Purchase Agreement is being disclosed under this Part II, Item 5 of Form 10-Q in lieu of under Items 1.01 and 9.01 of Form 8-K.

(b)
Not Applicable.

Item 6.        Exhibits

 
The exhibits required by this item are set forth on the Exhibit Index attached hereto.

 
57
 


MACK-CALI REALTY CORPORATION

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


     
   
Mack-Cali Realty Corporation
   
(Registrant)
 
 
     
     
     
Date:           April 27, 2016
By:
/s/ Mitchell E. Rudin
   
Mitchell E. Rudin
   
Chief Executive Officer
   
(principal executive officer)
     
     
     
Date:           April 27, 2016
By:
/s/ Michael J. DeMarco
   
Michael J. DeMarco
   
President and Chief Operating Officer
     
     
     
Date:           April 27, 2016
By:
/s/ Anthony Krug
   
Anthony Krug
   
Chief Financial Officer
   
(principal financial officer and
   
   principal accounting officer)




 
58
 

MACK-CALI REALTY CORPORATION

EXHIBIT INDEX
     
Exhibit 
    
Number
  
                                                                 Exhibit Title
     
3.1
  
Articles of Restatement of Mack-Cali Realty Corporation dated September 18, 2009 (filed as Exhibit 3.2 to the Company’s Form 8-K dated September 17, 2009 and incorporated herein by reference).
     
3.2
  
Articles of Amendment to the Articles of Restatement of Mack-Cali Realty Corporation as filed with the State Department of Assessments and Taxation of Maryland on May 14, 2014 (filed as Exhibit 3.1 to the Company’s Form 8-K dated May 12, 2014 and incorporated herein by reference).
     
3.3
  
Amended and Restated Bylaws of Mack-Cali Realty Corporation dated June 10, 1999 (filed as Exhibit 3.2 to the Company’s Form 8-K dated June 10, 1999 and incorporated herein by reference).
     
3.4
  
Amendment No. 1 to the Amended and Restated Bylaws of Mack-Cali Realty Corporation dated March 4, 2003, (filed as Exhibit 3.3 to the Company’s Form 10-Q dated March 31, 2003 and incorporated herein by reference).
     
3.5
  
Amendment No. 2 to the Mack-Cali Realty Corporation Amended and Restated Bylaws dated May 24, 2006 (filed as Exhibit 3.1 to the Company’s Form 8-K dated May 24, 2006 and incorporated herein by reference).
     
3.6
  
Amendment No. 3 to the Mack-Cali Realty Corporation Amended and Restated Bylaws dated May 14, 2014 (filed as Exhibit 3.2 to the Company’s Form 8-K dated 12, 2014 and incorporated herein by reference).
     
3.7
  
Second Amended and Restated Agreement of Limited Partnership of Mack-Cali Realty, L.P. dated December 11, 1997 (filed as Exhibit 10.110 to the Company’s Form 8-K dated December 11, 1997 and incorporated herein by reference).
     
3.8
  
Amendment No. 1 to the Second Amended and Restated Agreement of Limited Partnership of Mack-Cali Realty, L.P. dated August 21, 1998 (filed as Exhibit 3.1 to the Company’s and the Operating Partnership’s Registration Statement on Form S-3, Registration No. 333-57103, and incorporated herein by reference).
     
3.9
  
Second Amendment to the Second Amended and Restated Agreement of Limited Partnership of Mack-Cali Realty, L.P. dated July 6, 1999 (filed as Exhibit 10.1 to the Company’s Form 8-K dated July 6, 1999 and incorporated herein by reference).
     
3.10
  
Third Amendment to the Second Amended and Restated Agreement of Limited Partnership of Mack-Cali Realty, L.P. dated September 30, 2003 (filed as Exhibit 3.7 to the Company’s Form 10-Q dated September 30, 2003 and incorporated herein by reference).
     
3.11
  
Fourth Amendment dated as of March 8, 2016 to Second Amended and Restated Agreement of Limited Partnership of Mack-Cali Realty, L.P. dated as of December 11, 1997 (Filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated March 8, 2016 and incorporated herein by reference).
     
4.1
  
Indenture dated as of March 16, 1999, by and among Mack-Cali Realty, L.P., as issuer, Mack-Cali Realty Corporation, as guarantor, and Wilmington Trust Company, as trustee (filed as Exhibit 4.1 to the Operating Partnership’s Form 8-K dated March 16, 1999 and incorporated herein by reference).
     
4.2
  
Supplemental Indenture No. 1 dated as of March 16, 1999, by and among Mack-Cali Realty, L.P., as issuer, and Wilmington Trust Company, as trustee (filed as Exhibit 4.2 to the Operating Partnership’s Form 8-K dated March 16, 1999 and incorporated herein by reference).
     
4.3
  
Supplemental Indenture No. 2 dated as of August 2, 1999, by and among Mack-Cali Realty, L.P., as issuer, and Wilmington Trust Company, as trustee (filed as Exhibit 4.4 to the Operating Partnership’s Form 10-Q dated June 30, 1999 and incorporated herein by reference).
     
4.4
  
Supplemental Indenture No. 3 dated as of December 21, 2000, by and among Mack-Cali Realty, L.P., as issuer, and Wilmington Trust Company, as trustee (filed as Exhibit 4.2 to the Operating Partnership’s Form 8-K dated December 21, 2000 and incorporated herein by reference).
     
4.5
  
Supplemental Indenture No. 4 dated as of January 29, 2001, by and among Mack-Cali Realty, L.P., as issuer, and Wilmington Trust Company, as trustee (filed as Exhibit 4.2 to the Operating Partnership’s Form 8-K dated January 29, 2001 and incorporated herein by reference).

 
59
 


     
     
Exhibit 
    
Number
  
                                                                 Exhibit Title
     
4.6
  
Supplemental Indenture No. 5 dated as of December 20, 2002, by and between Mack-Cali Realty, L.P., as issuer, and Wilmington Trust Company, as trustee (filed as Exhibit 4.2 to the Operating Partnership’s Form 8-K dated December 20, 2002 and incorporated herein by reference).
     
4.7
  
Supplemental Indenture No. 6 dated as of March 14, 2003, by and between Mack-Cali Realty, L.P., as issuer, and Wilmington Trust Company, as trustee (filed as Exhibit 4.2 to the Company’s Form 8-K dated March 14, 2003 and incorporated herein by reference).
     
4.8
  
Supplemental Indenture No. 7 dated as of June 12, 2003, by and between Mack-Cali Realty, L.P., as issuer, and Wilmington Trust Company, as trustee (filed as Exhibit 4.2 to the Company’s Form 8-K dated June 12, 2003 and incorporated herein by reference).
     
4.9
  
Supplemental Indenture No. 8 dated as of February 9, 2004, by and between Mack-Cali Realty, L.P., as issuer, and Wilmington Trust Company, as trustee (filed as Exhibit 4.2 to the Company’s Form 8-K dated February 9, 2004 and incorporated herein by reference).
     
4.10
  
Supplemental Indenture No. 9 dated as of March 22, 2004, by and between Mack-Cali Realty, L.P., as issuer, and Wilmington Trust Company, as trustee (filed as Exhibit 4.2 to the Company’s Form 8-K dated March 22, 2004 and incorporated herein by reference).
     
4.11
  
Supplemental Indenture No. 10 dated as of January 25, 2005, by and between Mack-Cali Realty, L.P., as issuer, and Wilmington Trust Company, as trustee (filed as Exhibit 4.2 to the Company’s Form 8-K dated January 25, 2005 and incorporated herein by reference).
     
4.12
  
Supplemental Indenture No. 11 dated as of April 15, 2005, by and between Mack-Cali Realty, L.P., as issuer, and Wilmington Trust Company, as trustee (filed as Exhibit 4.2 to the Company’s Form 8-K dated April 15, 2005 and incorporated herein by reference).
     
4.13
  
Supplemental Indenture No. 12 dated as of November 30, 2005, by and between Mack-Cali Realty, L.P., as issuer, and Wilmington Trust Company, as trustee (filed as Exhibit 4.2 to the Company’s Form 8-K dated November 30, 2005 and incorporated herein by reference).
     
4.14
  
Supplemental Indenture No. 13 dated as of January 24, 2006, by and between Mack-Cali Realty, L.P., as issuer, and Wilmington Trust Company, as trustee (filed as Exhibit 4.2 to the Company’s Form 8-K dated January 18, 2006 and incorporated herein by reference).
     
4.15
  
Supplemental Indenture No. 14 dated as of August 14, 2009, by and between Mack-Cali Realty, L.P., as issuer, and Wilmington Trust Company, as trustee (filed as Exhibit 4.2 to the Company’s Form 8-K dated August 14, 2009 and incorporated herein by reference).
     
4.16
  
Supplemental Indenture No. 15 dated as of April 19, 2012, by and between Mack-Cali Realty, L.P., as issuer, and Wilmington Trust Company, as trustee (filed as Exhibit 4.2 to the Company’s Form 8-K dated April 19, 2012 and incorporated herein by reference).
     
4.17
  
Supplemental Indenture No. 16 dated as of November 20, 2012, by and between Mack-Cali Realty, L.P., as issuer, and Wilmington Trust Company, as trustee. (filed as Exhibit 4.2 to the Company’s Form 8-K dated November 20, 2012  and incorporated herein by reference).
     
4.18
  
Supplemental Indenture No. 17 dates as of May 8, 2013, by and between Mack-Cali Realty, L.P., as issuer, and Wilmington Trust Company, as trustee (filed as Exhibit 4.2 to the Company’s Form 8-K dated May 8, 2013 and incorporated herein by reference).
     
10.1
  
Amended and Restated Employment Agreement dated as of July 1, 1999 between Mitchell E. Hersh and Mack-Cali Realty Corporation (filed as Exhibit 10.2 to the Company’s Form 10-Q dated June 30, 1999 and incorporated herein by reference).
     
10.2 
  
Letter Agreement dated December 9, 2008 by and between Mack-Cali Realty Corporation and Mitchell E. Hersh (filed as Exhibit 10.4 to the Company's Form 8-K dated December 9, 2008 and incorporated herein by reference).
     


 
60
 


     
     
Exhibit 
    
Number
  
                                                                 Exhibit Title
     
10.3
  
Second Amended and Restated Employment Agreement dated as of July 1, 1999 between Barry Lefkowitz and Mack-Cali Realty Corporation (filed as Exhibit 10.6 to the Company’s Form 10-Q dated June 30, 1999 and incorporated herein by reference).
     
10.4
  
Letter Agreement dated December 9, 2008 by and between Mack-Cali Realty Corporation and Barry Lefkowitz (filed as Exhibit 10.5 to the Company's Form 8-K dated December 9, 2008 and incorporated herein by reference).
     
10.5
  
Second Amended and Restated Employment Agreement dated as of July 1, 1999 between Roger W. Thomas and Mack-Cali Realty Corporation (filed as Exhibit 10.7 to the Company’s Form 10-Q dated June 30, 1999 and incorporated herein by reference).
     
10.6
  
Letter Agreement dated December 9, 2008 by and between Mack-Cali Realty Corporation and Roger W. Thomas (filed as Exhibit 10.8 to the Company's Form 8-K dated December 9, 2008 and incorporated herein by reference).
     
10.7
  
Contribution and Exchange Agreement among The MK Contributors, The MK Entities, The Patriot Contributors, The Patriot Entities, Patriot American Management and Leasing Corp., Cali Realty, L.P. and Cali Realty Corporation, dated September 18, 1997 (filed as Exhibit 10.98 to the Company’s Form 8-K dated September 19, 1997 and incorporated herein by reference).
     
10.8
  
First Amendment to Contribution and Exchange Agreement, dated as of December 11, 1997, by and among the Company and the Mack Group (filed as Exhibit 10.99 to the Company’s Form 8-K dated December 11, 1997 and incorporated herein by reference).
     
10.9
  
Employee Stock Option Plan of Mack-Cali Realty Corporation (filed as Exhibit 10.1 to the Company’s Post-Effective Amendment No. 1 to Form S-8, Registration No. 333-44443, and incorporated herein by reference).
     
10.10
  
Director Stock Option Plan of Mack-Cali Realty Corporation (filed as Exhibit 10.2 to the Company’s Post-Effective Amendment No. 1 to Form S-8, Registration No. 333-44443, and incorporated herein by reference).
     
10.11
  
2000 Employee Stock Option Plan (filed as Exhibit 10.1 to the Company’s Registration Statement on Form S-8, Registration No. 333-52478, and incorporated herein by reference), as amended by the First Amendment to the 2000 Employee Stock Option Plan (filed as Exhibit 10.17 to the Company’s Form 10-Q dated June 30, 2002 and incorporated herein by reference).
     
10.12
  
Amended and Restated 2000 Director Stock Option Plan (filed as Exhibit 10.2 to the Company’s Post-Effective Amendment No. 1 to Registration Statement on Form S-8, Registration No. 333-100244, and incorporated herein by reference).
     
10.13
  
Mack-Cali Realty Corporation 2004 Incentive Stock Plan (filed as Exhibit 10.1 to the Company’s Registration Statement on Form S-8, Registration No. 333-116437, and incorporated herein by reference).
     
10.14
  
Amended and Restated Mack-Cali Realty Corporation Deferred Compensation Plan for Directors (filed as Exhibit 10.3 to the Company's Form 8-K dated December 9, 2008 and incorporated herein by reference).
     
10.15
  
Mack-Cali Realty Corporation 2013 Incentive Stock Plan (filed as Exhibit 10.1 to the Company's Registration Statement on Form S-8 Registration No. 333-188729, and incorporated herein by reference).
     
10.16
  
Indemnification Agreement by and between Mack-Cali Realty Corporation and William L. Mack dated October 22, 2002 (filed as Exhibit 10.101 to the Company’s Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.17
  
Indemnification Agreement by and between Mack-Cali Realty Corporation and Mitchell E. Hersh dated October 22, 2002 (filed as Exhibit 10.102 to the Company’s Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.18
  
Indemnification Agreement by and between Mack-Cali Realty Corporation and Alan S. Bernikow dated May 20, 2004 (filed as Exhibit 10.104 to the Company’s Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.19
  
Indemnification Agreement by and between Mack-Cali Realty Corporation and Kenneth M. Duberstein dated September 13, 2005 (filed as Exhibit 10.106 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.20
  
Indemnification Agreement by and between Mack-Cali Realty Corporation and Nathan Gantcher dated October 22, 2002 (filed as Exhibit 10.107 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).


 
61
 


     
     
Exhibit 
    
Number
  
                                                                 Exhibit Title
     
10.21
  
Indemnification Agreement by and between Mack-Cali Realty Corporation and David S. Mack dated December 11, 1997 (filed as Exhibit 10.108 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.22
  
Indemnification Agreement by and between Mack-Cali Realty Corporation and Alan G. Philibosian dated October 22, 2002 (filed as Exhibit 10.109 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.23
  
Indemnification Agreement by and between Mack-Cali Realty Corporation and Irvin D. Reid dated October 22, 2002 (filed as Exhibit 10.110 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.24
  
Indemnification Agreement by and between Mack-Cali Realty Corporation and Vincent Tese dated October 22, 2002 (filed as Exhibit 10.111 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.25
  
Indemnification Agreement by and between Mack-Cali Realty Corporation and Roy J. Zuckerberg dated October 22, 2002 (filed as Exhibit 10.113 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.26
  
Indemnification Agreement by and between Mack-Cali Realty Corporation and Barry Lefkowitz dated October 22, 2002 (filed as Exhibit 10.114 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.27
  
Indemnification Agreement by and between Mack-Cali Realty Corporation and Roger W. Thomas dated October 22, 2002 (filed as Exhibit 10.116 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.28
  
Indemnification Agreement by and between Mack-Cali Realty Corporation and Anthony Krug dated October 22, 2002 (filed as Exhibit 10.32 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 and incorporated herein by reference).
     
10.29
  
Indemnification Agreement by and between Mack-Cali Realty Corporation and Jonathan Litt dated March 3, 2014 (filed as Exhibit 10.33 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 and incorporated herein by reference).
     
10.30
  
Indemnification Agreement by and between Mack-Cali Realty Corporation and Gary T. Wagner dated November 11, 2011 (filed as Exhibit 10.30 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 and incorporated herein by reference).
     
10.31
  
Indemnification Agreement dated October 22, 2002 by and between Mack-Cali Realty Corporation and John Crandall (filed as Exhibit 10.29 to the Company's Form 10-Q dated September 30, 2002 and incorporated herein by reference).
     
10.32
  
Second Amendment to Contribution and Exchange Agreement, dated as of June 27, 2000, between RMC Development Company, LLC f/k/a Robert Martin Company, LLC, Robert Martin Eastview North Company, L.P., the Company and the Operating Partnership (filed as Exhibit 10.44 to the Company's Form 10-K dated December 31, 2002 and incorporated herein by reference).
     
10.33
  
Contribution and Exchange Agreement by and between Mack-Cali Realty, L.P. and Tenth Springhill Lake Associates L.L.L.P., Eleventh Springhill Lake Associates L.L.L.P., Twelfth Springhill Lake Associates L.L.L.P., Fourteenth Springhill Lake Associates L.L.L.P., each a Maryland limited liability limited partnership, Greenbelt Associates, a Maryland general partnership, and Sixteenth Springhill Lake Associates L.L.L.P., a Maryland limited liability limited partnership, and certain other natural persons, dated as of November 21, 2005 (filed as Exhibit 10.69 to the Company's Form 10-K dated December 31, 2005 and incorporated herein by reference).
     
10.34
  
Term Loan Agreement among Mack-Cali Realty, L.P. and JPMorgan Chase Bank, N.A. as Administrative Agent, J.P. Morgan Securities Inc. as Arranger, and other lender which may become parties to this Agreement dated November 29, 2006 (filed as Exhibit 10.120 to the Company's Form 10-K dated December 31, 2006 and incorporated herein by reference).
     
10.35
  
Agreement of Purchase and Sale among SLG Broad Street A LLC and SLG Broad Street C LLC, as Sellers, and M-C Broad 125 A L.L.C. and M-C Broad 125 C L.L.C., as Purchasers, dated as of March 15, 2007 (filed as Exhibit 10.121 to the Company's Form 10-Q dated March 31, 2007 and incorporated herein by reference).


 
62
 


     
     
Exhibit 
    
Number
  
                                                                 Exhibit Title
     
10.36
  
Mortgage and Security Agreement and Financing Statement dated October 28, 2008 between M-C Plaza V L.L.C., Cal-Harbor V Urban Renewal Associates, L.P., Cal-Harbor V Leasing Associates L.L.C., as Mortgagors and The Northwestern Mutual Life Insurance Company and New York Life Insurance Company as Mortgagees (filed as Exhibit 10.131 to the Company's Form 10-Q dated September 30, 2008 and incorporated herein by reference).
     
10.37
  
Promissory Note of M-C Plaza V L.L.C., Cal-Harbor V Urban Renewal Associates, L.P., Cal-Harbor V Leasing Associates L.L.C., as Borrowers, in favor of The Northwestern Mutual Life Insurance Company, as Lender, in the principal amount of $120,000,000, dated October 28, 2008. (filed as Exhibit 10.132 to the Company's Form 10-Q dated September 30, 2008 and incorporated herein by reference).
     
10.38
  
Promissory Note of M-C Plaza V L.L.C., Cal-Harbor V Urban Renewal Associates, L.P., Cal-Harbor V Leasing Associates L.L.C., as Borrowers, in favor of New York Life Insurance Company, as Lender, in the principal amount of $120,000,000, dated October 28, 2008 (filed as Exhibit 10.133 to the Company's Form 10-Q dated September 30, 2008 and incorporated herein by reference).
     
10.39
  
Guarantee of Recourse Obligations of Mack-Cali Realty, L.P. in favor of The Northwestern Mutual Life Insurance Company and New York Life Insurance Company dated October 28, 2008 (filed as Exhibit 10.134 to the Company's Form 10-Q dated September 30, 2008 and incorporated herein by reference).
     
10.40
  
Amended and Restated Loan Agreement by and among One Grande SPE LLC, 1280 Wall SPE LLC, 10 Sylvan SPE LLC, 5 Independence SPE LLC, 1 Independence SPE LLC, and 3 Becker SPE LLC, collectively, as Borrowers and Gramercy Warehouse Funding I LLC, as Lender, dated April 29, 2009 (filed as Exhibit 10.144 to the Company's Form 10-Q dated March 31, 2009 and incorporated herein by reference).
     
10.41
  
Amended and Restated Promissory Note of One Grande SPE LLC, 1280 Wall SPE LLC, 10 Sylvan SPE LLC, 5 Independence SPE LLC, 1 Independence SPE LLC, and 3 Becker SPE LLC, as Borrowers, in favor of Gramercy Warehouse Funding I, LLC, as Lender, dated April 29, 2009 (filed as Exhibit 10.145 to the Company's Form 10-Q dated March 31, 2009 and incorporated herein by reference).
     
10.42
  
Limited Liability Company Membership Interest Purchase and Sale Agreement dated April 29, 2009 by and among Gale SLG NJ LLC, Mack-Cali Ventures L.L.C., SLG Gale 55 Corporation LLC and 55 Corporate Partners L.L.C.  (filed as Exhibit 10.146 to the Company's Form 10-Q dated March 31, 2009 and incorporated herein by reference).
     
10.43
  
Amended and Restated Master Loan Agreement dated as of January 15, 2010 among Mack-Cali Realty, L.P., and Affiliates of Mack-Cali Realty Corporation and Mack-Cali Realty, L.P., as Borrowers, Mack-Cali Realty Corporation and Mack-Cali Realty L.P., as Guarantors and The Prudential Insurance Company of America and VPCM, LLC, as Lenders (filed as Exhibit 10.1 to the Company's Form 8-K dated January 15, 2010 and incorporated herein by reference).
     
10.44
  
Partial Recourse Guaranty of Mack-Cali Realty, L.P. dated as of January 15, 2010 to The Prudential Insurance Company of America and VPCM, LLC (filed as Exhibit 10.2 to the Company's Form 8-K dated January 15, 2010 and incorporated herein by reference).
     
10.45
  
Amended, Restated and Consolidated Mortgage and Security Agreement and Financing Statement dated as of January 15, 2010 by Mack-Cali Realty, L.P., as Borrower, to The Prudential Insurance Company of America and VPCM, LLC, as Mortgagees with respect to Mack-Cali Centre I in Bergen County, New Jersey (filed as Exhibit 10.165 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.46
  
Amended, Restated and Consolidated Mortgage and Security Agreement and Financing Statement dated as of January 15, 2010 by Mack-Cali Realty, L.P., as Borrower, to The Prudential Insurance Company of America and VPCM, LLC, as Mortgagees with respect to Mack-Cali Centre II in Bergen County, New Jersey (filed as Exhibit 10.166 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.47
  
Amended, Restated and Consolidated Mortgage and Security Agreement and Financing Statement dated as of January 15, 2010 by Mack-Cali Realty, L.P., as Borrower, to The Prudential Insurance Company of America and VPCM, LLC, as Mortgagees with respect to Mack-Cali Centre III in Bergen County, New Jersey (filed as Exhibit 10.167 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
 
 
 
 
63
 
 

 
     
Exhibit 
    
Number
  
                                                                 Exhibit Title
     
10.48
  
Amended, Restated and Consolidated Mortgage and Security Agreement and Financing Statement dated as of January 15, 2010 by Mack-Cali Realty, L.P., as Borrower, to The Prudential Insurance Company of America and VPCM, LLC, as Mortgagees with respect to Mack-Cali Centre IV in Bergen County, New Jersey filed as Exhibit 10.168 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.49
  
Amended, Restated and Consolidated Mortgage and Security Agreement and Financing Statement dated as of January 15, 2010 by Mack-Cali F Properties, L.P., as Borrower, to The Prudential Insurance Company of America and VPCM, LLC, as Mortgagees with respect to Mack-Cali Centre VII in Bergen County, New Jersey (filed as Exhibit 10.169 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.50
  
Amended, Restated and Consolidated Mortgage and Security Agreement and Financing Statement dated as of January 15, 2010 by Mack-Cali Chestnut Ridge, L.L.C., as Borrower, to The Prudential Insurance Company of America and VPCM, LLC, as Mortgagees with respect to Mack-Cali Corp. Center in Bergen County, New Jersey (filed as Exhibit 10.170 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.51
  
Amended, Restated and Consolidated Mortgage and Security Agreement and Financing Statement dated as of January 15, 2010 by Mack-Cali Realty, L.P., as Borrower, to The Prudential Insurance Company of America and VPCM, LLC, as Mortgagees with respect to Mack-Cali Saddle River in Bergen County, New Jersey (filed as Exhibit 10.171 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.52
  
Amended, Restated and Consolidated Promissory Note dated January 15, 2010 of Mack-Cali Realty, L.P. in favor of The Prudential Insurance Company of America with respect to Mack-Cali Centre I in Bergen County, New Jersey  (filed as Exhibit 10.172 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.53
  
Amended, Restated and Consolidated Promissory Note dated January 15, 2010 of Mack-Cali Realty, L.P. in favor of VPCM, LLC with respect to Mack-Cali Centre I in Bergen County, New Jersey (filed as Exhibit 10.173 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.54
  
Amended, Restated and Consolidated Promissory Note dated January 15, 2010 of Mack-Cali Realty, L.P. in favor of The Prudential Insurance Company of America with respect to Mack-Cali Centre II in Bergen County, New Jersey (filed as Exhibit 10.174 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
 
  
 
10.55
  
Amended, Restated and Consolidated Promissory Note dated January 15, 2010 of Mack-Cali Realty, L.P. in favor of VPCM, LLC with respect to Mack-Cali Centre II in Bergen County, New Jersey (filed as Exhibit 10.175 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.56
  
Amended, Restated and Consolidated Promissory Note dated January 15, 2010 of Mack-Cali Realty, L.P. in favor of The Prudential Insurance Company of America with respect to Mack-Cali Centre III in Bergen County, New Jersey (filed as Exhibit 10.176 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.57
  
Amended, Restated and Consolidated Promissory Note dated January 15, 2010 of Mack-Cali Realty, L.P. in favor of VPCM, LLC with respect to Mack-Cali Centre III in Bergen County, New Jersey (filed as Exhibit 10.177 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.58
  
Amended, Restated and Consolidated Promissory Note dated January 15, 2010 of Mack-Cali Realty, L.P. in favor of The Prudential Insurance Company of America with respect to Mack-Cali Centre IV in Bergen County, New Jersey (filed as Exhibit 10.178 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.59
  
Amended, Restated and Consolidated Promissory Note dated January 15, 2010 of Mack-Cali Realty, L.P. in favor of VPCM, LLC with respect to Mack-Cali Centre IV in Bergen County, New Jersey (filed as Exhibit 10.179 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.60
  
Amended, Restated and Consolidated Promissory Note dated January 15, 2010 of Mack-Cali F Properties, L.P. in favor of The Prudential Insurance Company of America with respect to Mack-Cali Centre VII in Bergen County, New Jersey  (filed as Exhibit 10.180 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.61
  
Amended, Restated and Consolidated Promissory Note dated January 15, 2010 of Mack-Cali F Properties, L.P. in favor of VPCM, LLC with respect to Mack-Cali Centre VII in Bergen County, New Jersey (filed as Exhibit 10.181 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).

 
64
 


     
     
Exhibit 
    
Number
  
                                                                 Exhibit Title
     
10.62
  
Amended, Restated and Consolidated Promissory Note dated January 15, 2010 of Mack-Cali Chestnut Ridge, L.L.C. in favor of The Prudential Insurance Company of America with respect to Mack-Cali Corp. Center in Bergen County, New Jersey  (filed as Exhibit 10.182 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.63
  
Amended, Restated and Consolidated Promissory Note dated January 15, 2010 of Mack-Cali Chestnut Ridge, L.L.C. in favor of VPCM, LLC with respect to Mack-Cali Corp. Center in Bergen County, New Jersey (filed as Exhibit 10.183 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.64
  
Amended, Restated and Consolidated Promissory Note dated January 15, 2010 of Mack-Cali Realty, L.P. in favor of The Prudential Insurance Company of America with respect to Mack-Cali Saddle River in Bergen County, New Jersey (filed as Exhibit 10.184 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.65
  
Amended, Restated and Consolidated Promissory Note dated January 15, 2010 of Mack-Cali Realty, L.P. in favor of VPCM, LLC with respect to Mack-Cali Saddle River in Bergen County, New Jersey (filed as Exhibit 10.185 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.66
  
Recourse Liabilities Guaranty dated January 15, 2010 of Mack-Cali Realty Corporation and Mack-Cali Realty, L.P. to The Prudential Insurance Company of America and VPCM, LLC with respect to certain liabilities of Mack-Cali Realty, L.P. with respect to Mack-Cali Centre I in Bergen County, New Jersey (filed as Exhibit 10.186 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.67
  
Recourse Liabilities Guaranty dated January 15, 2010 of Mack-Cali Realty Corporation and Mack-Cali Realty, L.P. to The Prudential Insurance Company of America and VPCM, LLC with respect to certain liabilities of Mack-Cali Realty, L.P. with respect to Mack-Cali Centre II in Bergen County, New Jersey (filed as Exhibit 10.187 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.68
  
Recourse Liabilities Guaranty dated January 15, 2010 of Mack-Cali Realty Corporation and Mack-Cali Realty, L.P. to The Prudential Insurance Company of America and VPCM, LLC with respect to certain liabilities of Mack-Cali Realty, L.P. with respect to Mack-Cali Centre III in Bergen County, New Jersey (filed as Exhibit 10.188 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.69
  
Recourse Liabilities Guaranty dated January 15, 2010 of Mack-Cali Realty Corporation and Mack-Cali Realty, L.P. to The Prudential Insurance Company of America and VPCM, LLC with respect to certain liabilities of Mack-Cali Realty, L.P. with respect to Mack-Cali Centre IV in Bergen County, New Jersey (filed as Exhibit 10.189 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.70
  
Recourse Liabilities Guaranty dated January 15, 2010 of Mack-Cali Realty Corporation and Mack-Cali Realty, L.P. to The Prudential Insurance Company of America and VPCM, LLC with respect to certain liabilities of Mack-Cali F Properties, L.P. with respect to Mack-Cali Centre VII in Bergen County, New Jersey (filed as Exhibit 10.190 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.71
  
Recourse Liabilities Guaranty dated January 15, 2010 of Mack-Cali Realty Corporation and Mack-Cali Realty, L.P. to The Prudential Insurance Company of America and VPCM, LLC with respect to certain liabilities of Mack-Cali Chestnut Ridge, L.L.C. with respect to Mack-Cali Corp. Center in Bergen County, New Jersey (filed as Exhibit 10.191 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.72
  
Recourse Liabilities Guaranty dated January 15, 2010 of Mack-Cali Realty Corporation and Mack-Cali Realty, L.P. to The Prudential Insurance Company of America and VPCM, LLC with respect to certain liabilities of Mack-Cali Realty, L.P. with respect to Mack-Cali Saddle River in Bergen County, New Jersey (filed as Exhibit 10.192 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.73
  
Amended and Restated Irrevocable Cross Collateral Guaranty of Payment and Performance dated January 15, 2010 of Mack-Cali Realty, L.P. to The Prudential Insurance Company of America and VPCM, LLC with respect to Mack-Cali Centre I in Bergen County, New Jersey (filed as Exhibit 10.193 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).


 
65
 


     
     
Exhibit 
    
Number
  
                                                                 Exhibit Title
     
10.74
  
Amended and Restated Irrevocable Cross Collateral Guaranty of Payment and Performance dated January 15, 2010 of Mack-Cali Realty, L.P. to The Prudential Insurance Company of America and VPCM, LLC with respect to Mack-Cali Centre II in Bergen County, New Jersey (filed as Exhibit 10.194 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.75
  
Amended and Restated Irrevocable Cross Collateral Guaranty of Payment and Performance dated January 15, 2010 of Mack-Cali Realty, L.P. to The Prudential Insurance Company of America and VPCM, LLC with respect to Mack-Cali Centre III in Bergen County, New Jersey (filed as Exhibit 10.195 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.76
  
Amended and Restated Irrevocable Cross Collateral Guaranty of Payment and Performance dated January 15, 2010 of Mack-Cali Realty, L.P. to The Prudential Insurance Company of America and VPCM, LLC with respect to Mack-Cali Centre IV in Bergen County, New Jersey (filed as Exhibit 10.196 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.77
  
Amended and Restated Irrevocable Cross Collateral Guaranty of Payment and Performance dated January 15, 2010 of Mack-Cali F Properties, L.P. to The Prudential Insurance Company of America and VPCM, LLC with respect to Mack-Cali Centre VII in Bergen County, New Jersey (filed as Exhibit 10.197 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.78
  
Amended and Restated Irrevocable Cross Collateral Guaranty of Payment and Performance dated January 15, 2010 of Mack-Cali Chestnut Ridge, L.L.C. to The Prudential Insurance Company of America and VPCM, LLC with respect to Mack-Cali Corp. Center in Bergen County, New Jersey (filed as Exhibit 10.198 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.79
  
Amended and Restated Irrevocable Cross Collateral Guaranty of Payment and Performance dated January 15, 2010 of Mack-Cali Realty, L.P. to The Prudential Insurance Company of America and VPCM, LLC with respect to Mack-Cali Saddle River in Bergen County, New Jersey (filed as Exhibit 10.199 to the Company's Form 10-Q dated September 30, 2010 and incorporated herein by reference).
     
10.80
  
Development Agreement dated December 5, 2011 by and between M-C Plaza VI & VII L.L.C. and Ironstate Development LLC (filed as Exhibit 10.1 to the Company's Form 8-K dated December 5, 2011 and incorporated herein by reference).
     
10.81
  
Form of Amended and Restated Limited Liability Company Agreement (filed as Exhibit 10.2 to the Company's Form 8-K dated December 5, 2011 and incorporated herein by reference).
     
10.82
  
Third Amended and Restated Revolving Credit Agreement among Mack-Cali Realty, L.P., as borrower, and JPMorgan Chase Bank, N.A., as the administrative agent, the other agents listed therein and the lending institutions party thereto and referred to therein dated as of October 21, 2011 (filed as Exhibit 10.134 to the Company's Form 10-Q dated September 30, 2011 and incorporated herein by reference).
     
10.83
  
Fourth Amended and Restated Revolving Credit Agreement dated as of July 16, 2013 among Mack Cali Realty, L.P., as borrower, Mack-Cali Realty Corporation, as guarantor, and JPMorgan Chase Bank, N.A., as administrative agent and the several Lenders party thereto, as lenders (filed as Exhibit 10.1 to the Company's Form 8-K dated July 16, 2013 and incorporated herein by reference).
     
10.84
  
Multi-Year Restricted Stock Agreement, dated as of September 12, 2012, between Mack-Cali Realty Corporation and Mitchell E. Hersh (filed as Exhibit 10.1 to the Company's Form 8-K dated September 12, 2012 and incorporated herein by reference).
     


 
66
 


     
     
Exhibit 
    
Number
  
                                                                 Exhibit Title
     
10.85
  
Multi-Year Restricted Stock Agreement, dated as of September 12, 2012, between Mack-Cali Realty Corporation and Barry Lefkowitz (filed as Exhibit 10.2 to the Company's Form 8-K dated September 12, 2012 and incorporated herein by reference).
     
10.86
  
Multi-Year Restricted Stock Agreement, dated as of September 12, 2012, between Mack-Cali Realty Corporation and Roger W. Thomas (filed as Exhibit 10.3 to the Company's Form 8-K dated September 12, 2012 and incorporated herein by reference).
     
10.87
  
Amended and Restated TSR-Based Performance Agreement, dated as of September 12, 2012, between Mack-Cali Realty Corporation and Mitchell E. Hersh (filed as Exhibit 10.1 to the Company's Form 8-K dated June 12, 2013 and incorporated herein by reference).
     
10.88
  
Amended and Restated TSR-Based Performance Agreement, dated as of September 12, 2012, between Mack-Cali Realty Corporation and Barry Lefkowitz (filed as Exhibit 10.2 to the Company's Form 8-K dated June 12, 2013 and incorporated herein by reference).
     
10.89
  
Amended and Restated TSR-Based Performance Agreement, dated as of September 12, 2012, between Mack-Cali Realty Corporation and Roger W. Thomas (filed as Exhibit 10.3 to the Company's Form 8-K dated June 12, 2013 and incorporated herein by reference).
     
10.90
  
Deferred Retirement Compensation Agreement, dated as of September 12, 2012, between Mack-Cali Realty Corporation and Mitchell E. Hersh (filed as Exhibit 10.7 to the Company's Form 8-K dated September 12, 2012 and incorporated herein by reference).
     
10.91
  
Deferred Retirement Compensation Agreement, dated as of September 12, 2012, between Mack-Cali Realty Corporation and Barry Lefkowitz (filed as Exhibit 10.8 to the Company's Form 8-K dated September 12, 2012 and incorporated herein by reference).
     
10.92
  
Deferred Retirement Compensation Agreement, dated as of September 12, 2012, between Mack-Cali Realty Corporation and Roger W. Thomas (filed as Exhibit 10.9 to the Company's Form 8-K dated September 12, 2012 and incorporated herein by reference).
     
10.93
  
Form of Restricted share Award Agreement effective December 10, 2013 by and between Mack-Cali Realty Corporation and each of Mitchell E. Hersh, Barry Lefkowitz, Roger W. Thomas and Anthony Krug (filed as Exhibit 10.1 to the Company's Form 8-K dated December 10, 2013 and incorporated herein by reference).
     
10.94
  
Form of Restricted Share Award Agreement effective December 10, 2013 by and between Mack-Cali Realty Corporation and each of William L. Mack, Alan S. Bernikow, Kenneth M. Duberstein, Nathan Gantcher, David S. Mack, Alan G. Philibosian, Dr. Irvin D. Reid, Vincent Tese and Roy J. Zuckerberg (filed as Exhibit 10.2 to the Company's Form 8-K dated December 10, 2013 and incorporated herein by reference).
     
10.95
  
Form of Restricted Share Award Agreement effective December 9, 2014 by and between Mack-Cali Realty Corporation and each of William L. Mack, Alan S. Bernikow, Kenneth M. Duberstein, Nathan Gantcher, Jonathan Litt, David S. Mack, Alan G. Philibosian, Dr. Irvin D. Reid, Vincent Tese and Roy J. Zuckerberg (filed as Exhibit 10.1 to the Company’s Form 8-K dated December 9, 2014 and incorporated herein by reference).
     
10.96
  
Membership Interest and Asset Purchase Agreement, dated as of October 8, 2012 (the "Purchase Agreement"), by and among Mack-Cali Realty, L.P., Mack-Cali Realty Corporation, Mack-Cali Realty Acquisition Corp., Roseland Partners, L.L.C., and, for the limited purposes stated in the Purchase Agreement, each of Marshall B. Tycher, Bradford R. Klatt and Carl Goldberg (filed as Exhibit 10.1 to the Company's Form 8-K dated October 8, 2012 and incorporated herein by reference).
     
10.97
  
Purchase and Sale Agreement, dated as of January 17, 2013 by and between Overlook Ridge Phase I, L.L.C., Overlook Ridge Phase IB, L.L.C. and Mack-Cali Realty Acquisition Corp. (filed as Exhibit 10.1 to the Company's Form 8-K dated January 17, 2012 and incorporated herein by reference)


 
67
 


     
     
Exhibit 
    
Number
  
                                                                 Exhibit Title
     
10.98
  
Agreement of Sale and Purchase dated as of July 15, 2013 by and between Mack-Cali Pennsylvania Realty Associates, L.P., as seller, and Westlakes KPG III, LLC and Westlakes Land KPG III, LLC, as purchasers (filed as Exhibit 10.1 to the Company's Form 8-K dated July 18, 2013 and incorporated herein by reference).
     
10.99
  
Agreement of Sale and Purchase dated as of July 15, 2013 by and between M-C Rosetree Associates, L.P., as seller, and Rosetree KPG III, LLC and Rosetree Land KPG III, LLC, as purchasers (filed as Exhibit 10.2 to the Company's Form 8-K dated July 18, 2013 and incorporated herein by reference).
     
10.100
  
Agreement of Sale and Purchase dated as of July 15, 2013 by and between Mack-Cali-R Company No. 1 L.P., as seller, and Plymouth Meeting KPG III, LLC, as purchaser (filed as Exhibit 10.3 to the Company's Form 8-K dated July 18, 2013 and incorporated herein by reference).
     
10.101
  
Agreement of Sale and Purchase dated as of July 15, 2013 by and between Stevens Airport Realty Associates L.P., as seller, and Airport Land KPG III, LLC, as purchaser (filed as Exhibit 10.4 to the Company's Form 8-K dated July 18, 2013 and incorporated herein by reference).
     
10.102
  
Agreement of Sale and Purchase dated as of July 15, 2013 by and between Mack-Cali Airport Realty Associates L.P., as seller, and 100 Airport KPG III, LLC, 200 Airport KPG III, LLC and 300 Airport KPG III, LLC, as purchasers (filed as Exhibit 10.5 to the Company's Form 8-K dated July 18, 2013 and incorporated herein by reference).
     
10.103
  
Agreement of Sale and Purchase dated as of July 15, 2013 by and between Mack-Cali Property Trust, as seller, and 1000 Madison KPG III, LLC, as purchaser (filed as Exhibit 10.6 to the Company's Form 8-K dated July 18, 2013 and incorporated herein by reference).
     
10.104
  
Agreement of Sale and Purchase dated as of July 15, 2013 by and between Monument 150 Realty L.L.C., as seller, and Monument KPG III, LLC, as purchaser (filed as Exhibit 10.7 to the Company's Form 8-K dated July 18, 2013 and incorporated herein by reference).
     
10.105
  
Agreement of Sale and Purchase dated as of July 15, 2013 by and between 4 Sentry Realty L.L.C. and Five Sentry Realty Associates L.P., as sellers, and Four Sentry KPG, LLC and Five Sentry KPG III, LLC, as purchasers (filed as Exhibit 10.8 to the Company's Form 8-K dated July 18, 2013 and incorporated herein by reference).
     
10.106
  
Agreement of Sale and Purchase dated as of February 24, 2014 by and between Talleyrand Realty Associates, L.L.C., as seller, and H'Y2 Talleyrand, LLC, as purchaser (filed as Exhibit 10.1 to the Company's Form 8-K dated February 24, 2014 and incorporated herein by reference).
     
10.107
  
Agreement of Sale and Purchase dated as of February 24, 2014 by and between 400 Chestnut Realty L.L.C., as seller, and H'Y2 400 Chestnut Ridge, LLC, as purchaser (filed as Exhibit 10.2 to the Company's Form 8-K dated February 24, 2014 and incorporated herein by reference).
     
10.108
  
Agreement of Sale and Purchase dated as of February 24, 2014 by and between 470 Chestnut Realty L.L.C., as seller, and H'Y2 470 Chestnut Ridge, LLC, as purchaser (filed as Exhibit 10.3 to the Company's Form 8-K dated February 24, 2014 and incorporated herein by reference).
     
10.109
  
Agreement of Sale and Purchase dated as of February 24, 2014 by and between 530 Chestnut Realty L.L.C., as seller, and H'Y2 530 Chestnut Ridge, LLC, as purchaser (filed as Exhibit 10.4 to the Company's Form 8-K dated February 24, 2014 and incorporated herein by reference).
     
10.110
  
Agreement of Sale and Purchase dated as of February 24, 2014 by and between Mack-Cali Taxter Associates, L.L.C., as seller, and H'Y2 Taxter, LLC, as purchaser (filed as Exhibit 10.5 to the Company's Form 8-K dated February 24, 2014 and incorporated herein by reference).
     
10.111
  
Agreement of Sale and Purchase dated as of February 24, 2014 by and between Mack-Cali CW Realty Associates, L.L.C., as seller, and H'Y2 570 Taxter, LLC, as purchaser (filed as Exhibit 10.6 to the Company's Form 8-K dated February 24, 2014 and incorporated herein by reference).



 
68
 


     
Exhibit 
    
Number
  
                                                                 Exhibit Title
     
10.112
  
Agreement of Sale and Purchase dated as of February 24, 2014 by and between 1717 Realty Associates L.L.C., as seller, and H'Y2 Ruote 208, LLC, as purchaser (filed as Exhibit 10.7 to the Company's Form 8-K dated February 24, 2014 and incorporated herein by reference).
     
10.113
  
Agreement of Sale and Purchase dated as of February 24, 2014 by and between Knightsbridge Realty L.L.C., as seller, and H'Y2 400 Knightsbridge, LLC, as purchaser (filed as Exhibit 10.8 to the Company's Form 8-K dated February 24, 2014 and incorporated herein by reference).
     
10.114
  
Agreement of Sale and Purchase dated as of February 24, 2014 by and between Kemble Plaza II Realty L.L.C., as seller, and H'Y2 400 Mt Kemble, LLC, as purchaser (filed as Exhibit 10.9 to the Company's Form 8-K dated February 24, 2014 and incorporated herein by reference).
     
10.115
  
Agreement of Sale and Purchase dated as of February 24, 2014 by and between 1266 Soundview Realty L.L.C., as seller, and H'Y2 Stamford, LLC, as purchaser (filed as Exhibit 10.10 to the Company's Form 8-K dated February 24, 2014 and incorporated herein by reference).
     
10.116
  
Agreement dated February 28, 2014 by and among Mack-Cali Realty Corporation, Land & Buildings Capital Growth Fund, L.P., Land & Buildings Investment Management,LLC and Jonathan Litt (filed as Exhibit 10.116 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 and incorporated herein by reference).
     
10.117
  
Settlement and General Release Agreement dated March 1, 2014 by and between Mack-Cali Realty Corporation and Barry Lefkowitz (filed as Exhibit 10.117 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 and incorporated herein by reference).
     
10.118
  
Settlement and General Release Agreement dated March 1, 2014 by and between Mack-Cali Realty Corporation and Roger W. Thomas (filed as Exhibit 10.118 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 and incorporated herein by reference).
     
10.119
  
Restricted share Award Agreement effective March 19, 2014 by and between Mack-Cali Realty Corporation and Anthony Krug (filed as Exhibit 10.1 to the Company's Form 8-K dated March 21, 2014 and incorporated herein by reference).
     
10.120
  
Separation Agreement dated July 18, 2014 by and between Roseland Management Services, L.P. and Bradford R. Klatt (filed as Exhibit 10.122 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 and incorporated herein by reference).
     
10.121
  
Separation Agreement dated July 18, 2014 by and between Roseland Management Services, L.P. and Carl Goldberg (filed as Exhibit 10.123 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 and incorporated herein by reference).
     
10.122
  
Amendment to Membership Interest and Asset Purchase Agreement, dated as of July 18, 2014, by and among Mack-Cali Realty, L.P., Mack-Cali Realty Corporation, Mack-Cali Realty Acquisition Corp., Canoe Brook Investors, L.L.C. (formerly known as Roseland Partners, L.L.C.), Marshall B. Tycher, Bradford R. Klatt and Carl Goldberg (filed as Exhibit 10.124 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 and incorporated herein by reference).
     
10.123
  
Consulting Agreement dated July 18, 2014 by and between Roseland Management Services, L.P. and Carl Goldberg and Devra Goldberg (filed as Exhibit 10.125 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 and incorporated herein by reference).
     
10.124
  
Separation Agreement dated November 4, 2014 by and between Mack-Cali Realty Corporation and Mitchell E. Hersh (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated November 4, 2014 and incorporated herein by reference).
     
10.125
  
Severance Agreement dated March 4, 2015 by and between Anthony Krug and Mack-Cali Realty Corporation (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated March 4, 2015 and incorporated herein by reference).


 
69
 


     
     
Exhibit 
    
Number
  
                                                                 Exhibit Title
     
10.126
  
Severance Agreement dated March 4, 2015 by and between Gary T. Wagner and Mack-Cali Realty Corporation  (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated March 4, 2015 and incorporated herein by reference).
     
10.127
  
Employment Agreement dated June 3, 2015 by and between Mitchell E. Rudin and Mack-Cali Realty Corporation (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated June 3, 2015 and incorporated herein by reference).
     
10.128
  
Employment Agreement dated June 3, 2015 by and between Michael J. DeMarco and Mack-Cali Realty Corporation (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated June 3, 2015 and incorporated herein by reference).
     
10.129
  
Indemnification Agreement dated June 3, 2015 by and between Mitchell E. Rudin and Mack-Cali Realty Corporation (filed as Exhibit 10.129 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 and incorporated herein by reference).
     
10.130
  
Indemnification Agreement dated June 3, 2015 by and between Michael J. DeMarco and Mack-Cali Realty Corporation (filed as Exhibit 10.130 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 and incorporated herein by reference).
     
10.131
  
Indemnification Agreement dated September 22, 2015 by and between Marshall B. Tycher and Mack-Cali Realty Corporation.
     
10.132
  
Employment Agreement dated October 23, 2012 by and between Marshall B. Tycher and Mack-Cali Realty Corporation.
     
10.133
  
Indemnification Agreement dated June 10, 2013 by and between Ricardo Cardoso and Mack-Cali Realty Corporation.
     
10.134
  
Term Loan Agreement dated as of January 7, 2016 among Mack Cali Realty, L.P., as borrower, Mack-Cali Realty Corporation, as guarantor, Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities LLC and Wells Fargo Securities LLC as joint lead arrangers and joint bookrunners, Bank of American, N.A., as administrative agent, JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A. and Capital One, National Association, as syndication agents, U.S. Bank National Association, as documentation agent, and the several Lenders party thereto, as lenders (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 6, 2016 and incorporated herein by reference).
     
10.135
  
International Swaps and Derivatives Association, Inc. 2002 Master Agreement dated as of December 30, 2015 by and between Capital One, National Association and Mack-Cali Realty, L.P. (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated January 6, 2016 and incorporated herein by reference).
     
10.136
  
International Swaps and Derivatives Association, Inc. 2002 Master Agreement dated as of January 4, 2016 by and between Citibank, N.A. and Mack-Cali Realty, L.P. (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K dated January 6, 2016 and incorporated herein by reference).
     
10.137
  
International Swaps and Derivatives Association, Inc. 2002 Master Agreement dated as of January 6, 2016 by and between Comerica Bank and Mack-Cali Realty, L.P. (filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K dated January 6, 2016 and incorporated herein by reference).
     
10.138
  
International Swaps and Derivatives Association, Inc. 2002 Master Agreement dated as of January 5, 2016 by and between PNC Bank, National Association and Mack-Cali Realty, L.P. (filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K dated January 6, 2016 and incorporated herein by reference).
     
10.139
  
International Swaps and Derivatives Association, Inc. 2002 Master Agreement dated as of December 21, 2015 by and between U.S. Bank National Association and Mack-Cali Realty, L.P. (filed as Exhibit 10.6 to the Company’s Current Report on Form 8-K dated January 6, 2016 and incorporated herein by reference).
     
10.140
  
Form of 2016 Time-Based Long-Term Incentive Plan Award Agreement (Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated March 8, 2016 and incorporated herein by reference).
     
10.141
  
Form of 2016 Performance-Based Long-Term Incentive Plan Award Agreement (Filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated March 8, 2016 and incorporated herein by reference).
     

 

 
 
70
 



     
     
Exhibit 
    
Number
  
                                                                 Exhibit Title
     
10.142
  
Form of Restricted Share Award Agreement effective March 8, 2016 by and between Mack-Cali Realty Corporation and each of William L. Mack, Alan S. Bernikow, Kenneth M. Duberstein, Nathan Gantcher, Jonathan Litt, David S. Mack, Alan G. Philibosian, Dr. Irvin D. Reid, Vincent Tese and Roy J. Zuckerberg (Filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K dated March 8, 2016 and incorporated herein by reference).
     
10.143
  
Agreement of Purchase and Sale among M-C Broad A L.L.C. and M-C Broad C L.L.C., collectively, as Seller, and 125 Acquisition LLC, as Purchaser, dated as of March 10, 2016 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated March 10, 2016 and incorporated herein by reference).
     
10.144
  
Employment Agreement dated April 15, 2016 by and between Robert Andrew Marshall and Roseland Residential Trust (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 15, 2016 and incorporated herein by reference).
     
10.145*
  
Real Estate Sale Agreement by and between HUB Properties Trust and 111 River Realty L.L.C. dated April 22, 2016.
     
31.1*
  
Certification of the Company’s Chief Executive Officer, Mitchell E. Rudin, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2*
  
Certification of the Company’s President and Chief Operating Officer, Michael J. DeMarco, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.3*
  
Certification of the Company’s  Chief Financial Officer, Anthony Krug, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1*
  
Certification of the Company’s Chief Executive Officer, Mitchell E. Rudin, the Company’s President and Chief Operating Officer, Michael J. DeMarco and the Company’s Chief Financial Officer, Anthony Krug, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.1*
  
The following financial statements from Mack-Cali Realty Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 formatted in XBRL: (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Operations (unaudited), (iii) Consolidated Statement of Changes in Equity (unaudited), (iv) Consolidated Statements of Cash Flows  (unaudited), and (v) Notes to Consolidated Financial Statements (unaudited). 
     
* filed herewith


 
71