Accounting Policies | 9 Months Ended |
Sep. 30, 2014 |
Accounting Policies [Abstract] | ' |
Accounting Policies | ' |
Accounting Policies |
Change in Year-End |
The Company changed its year-end to December 31 from January 31, effective December 31, 2013. As a result, the financial results for the three and nine months ended September 30, 2013 are presented to allow for comparison between periods. The Company believes the change was useful to its financial statement users to allow for increased comparability of its performance to its peers. |
Basis of Presentation |
The interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and should be read in conjunction with the consolidated financial statements and related notes included in the Company’s annual report on Form 10-KT for the 11 months ended December 31, 2013, as amended on Form 10-KT/A on March 26, 2014. The results of interim periods are not necessarily indicative of results for the full year or any subsequent period. In management’s opinion, all adjustments (consisting solely of normal recurring matters) necessary for a fair statement of financial position, results of operations and cash flows at the dates and for the periods presented have been included. |
Use of Estimates |
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires the Company to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related notes. Some of the critical estimates include, but are not limited to, determination of the primary beneficiary of variable interest entities (“VIEs”), estimates of useful lives for long-lived assets, reserves for collection on accounts and notes receivable and other investments, the fair value estimate of redeemable noncontrolling interest, impairment of real estate and other-than-temporary impairments on equity method investments. As a result of the nature of estimates, actual results could differ. |
In April 2013, management approved a plan to demolish Ten MetroTech Center, an office building in Brooklyn, New York, to clear the land for redevelopment or sale. Accordingly, the original useful life, estimated to expire in 2042, was adjusted to expire at the demolition date in October 2013, which resulted in $25,421,000 and $44,397,000 of accelerated depreciation expense recognized in the Consolidated Statements of Operations during the three and nine months ended September 30, 2013. |
Reclassifications |
During the nine months ended September 30, 2014, the Company established several new financial statement line items within the Revenue and Expense sections of the Consolidated Statement of Operations to provide the financial statement user additional details of the components of total revenues and total expenses. Accordingly, comparable amounts for the three and nine months ended September 30, 2013 have been reclassified. |
The new financial statement lines discussed above and a brief description of their components not previously disclosed include the following: |
Rental - Tenant rental revenues and overage rents from operating properties, lease termination income and the adjustment to recognize minimum rents using the straight-line method. |
Tenant recoveries - Recoveries from commercial tenants for common area maintenance, real estate taxes, insurance and other commercial property operating expenses. |
Service and management fees - Management, leasing, finance, development and other service fee revenue. |
Parking and other - Revenues derived from monthly and transient tenant parking and other revenue. |
Land sales - Sales of land to residential, commercial and industrial customers, primarily at the Company’s Stapleton project, and sales of commercial and residential outlots adjacent to the Company’s operating property portfolio. |
Property operating and management - Expenses incurred at the operating property level and general business unit expenses including non-capitalizable development costs and management and service company expenses. |
Ground rent - Expenses related to ground leases, including participation payments under the ground lease. Participation payments are triggered by defined events within the respective lease agreements and may include refinancings, sales or other capital transactions. Also includes the adjustment to recognize ground rent expenses using the straight-line method. |
Cost of land sales - Cost of land associated with land sales. |
Corporate general and administrative - Expenses related to the Company’s Corporate segment. |
In addition, The Nets operating segment information as of December 31, 2013 and for the three and nine months ended September 30, 2013 has been reclassified and aggregated with the Corporate Activities operating segment disclosures to conform to the current year presentation. Certain other prior year amounts in the accompanying consolidated financial statements have been reclassified to conform to the current year’s presentation. |
Variable Interest Entities |
As of September 30, 2014, the Company determined it was the primary beneficiary of 23 VIEs representing 19 properties, which are consolidated. The creditors of the consolidated VIEs do not have recourse to the Company’s general credit. As of September 30, 2014, the Company owns variable interests in 62 VIEs for which it is not the primary beneficiary, which are accounted for as equity method investments. The maximum exposure to loss as a result of the ownership of these unconsolidated VIEs is limited to the Company’s applicable investment balances, which approximates $258,000,000 at September 30, 2014. |
During the three months ended June 30, 2014, the Company entered into a joint venture with Greenland Atlantic Yards, LLC, a subsidiary of Shanghai-based Greenland Holding Group Company Limited (“Greenland”), to execute on the remaining development rights of Pacific Park Brooklyn, a 22 acre mixed-use project in Brooklyn, New York. Following the transaction, the Company determined it was no longer the primary beneficiary of the Pacific Park Brooklyn project, which historically was a VIE. The impact of the deconsolidation to the December 31, 2013 Consolidated Balance Sheet and parenthetical disclosures were decreases of $504,171,000 to development project held for sale, $1,141,000 to cash and equivalents, $99,784,000 to restricted cash, $2,571,000 to other assets, $228,000,000 to mortgage debt, nonrecourse of development project held for sale and $20,428,000 to accounts payable, accrued expenses and other liabilities and an increase to investments in and advances to unconsolidated entities of $156,071,000 to the September 30, 2014 Consolidated Balance Sheet. |
During the three months ended September 30, 2014, the Company acquired the remaining noncontrolling interest of Arizona State Retirement System in the under construction B2 BKLYN, an apartment building in Brooklyn, New York. Following the transaction, the Company determined that B2 BKLYN was no longer a VIE. The impact of the removal of the entity from VIE status to the parenthetical disclosures on the December 31, 2013 Consolidated Balance Sheet were decreases of $104,408,000 to real estate, net, $1,306,000 to cash and equivalents, $46,801,000 to restricted cash, $3,110,000 to other assets, $56,605,000 to mortgage debt and notes payable, nonrecourse and $7,656,000 to accounts payable, accrued expenses and other liabilities. |
Noncontrolling Interest |
In connection with the closing of a joint venture with Greenland, the Company became obligated to purchase certain noncontrolling interests of the fully consolidated entity that contributed the development project into the joint venture. See Note M – Net Loss on Disposition of Partial Interest in Development Project for detailed information on the joint venture. In addition, the Company acquired certain other partners’ noncontrolling interest in Shops at Wiregrass, a regional mall in Tampa, Florida, Waterfront Station, a mixed-use development project in Washington, D.C., and B2 BKLYN, during the nine months ended September 30, 2014. The fair value of consideration exchanged or accrued related to all noncontrolling interest acquisitions in excess of the book value was $28,151,000, resulting in a decrease in additional paid-in-capital as reflected in the Consolidated Statements of Equity. |
New Accounting Guidance |
The following accounting pronouncements were adopted during the nine months ended September 30, 2014: |
In July 2013, the Financial Accounting Standards Board (“FASB”) issued an amendment to the accounting guidance on the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or tax credit carryforward exists. This guidance, which clarifies whether the unrecognized tax benefit should be recorded as a liability or reduction of the related deferred tax asset, is effective for fiscal years and interim reporting periods within those years, beginning after December 15, 2013. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The adoption of this guidance on January 1, 2014 did not have a material impact on the Company’s consolidated financial statements. |
In April 2014, the FASB issued an amendment to the accounting guidance for reporting discontinued operations and disclosures of disposals of components of an entity. This guidance changes the requirements for reporting discontinued operations and the criteria for determining which disposals can be presented as discontinued operations. This guidance is effective for annual reporting periods beginning on or after December 15, 2014 and interim reporting periods within that annual period. Early adoption is permitted. This guidance was early adopted effective April 1, 2014. The adoption of this guidance is expected to substantially reduce the number of property disposals that qualify for discontinued operations as compared to historical results. |
The following new accounting pronouncements will be adopted on their respective effective dates: |
In August 2014, the FASB issued an amendment to the accounting guidance on disclosure of uncertainties about an entity’s ability to continue as a going concern. This guidance requires management to assess the Company’s ability to continue as a going concern and to provide disclosures under certain circumstances. This guidance is effective for annual reporting periods ending after December 15, 2016 and interim reporting periods thereafter. Early adoption is permitted. The Company does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial statements. |
In May 2014, the FASB issued an amendment to the accounting guidance for revenue from contracts with customers. The core principle of this guidance is an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance defines steps an entity should apply to achieve the core principle. This guidance is effective for annual reporting periods beginning after December 15, 2016 and interim reporting periods within that annual period and allows for both retrospective and modified retrospective methods of adoption. Early adoption is not permitted. The Company is currently in the process of determining the method of adoption and evaluating the impact of adopting this guidance on the Company’s consolidated financial statements. |
Related Party Transactions |
The Company and certain of its affiliates entered into a Master Contribution and Sale Agreement (the “Master Contribution Agreement”) with Bruce C. Ratner (“Mr. Ratner”), an Executive Vice President and Director of the Company, and certain entities and individuals affiliated with Mr. Ratner (the “BCR Entities”) in August 2006 to purchase their interests in a total of 30 retail, office and residential operating properties and service companies in the Greater New York City metropolitan area. The Company issued Class A Common Units (“Units”) in a jointly-owned, limited liability company in exchange for their interests. The Company accounted for the issuance of the Units in exchange for the noncontrolling interests under the purchase method of accounting. The Units may be exchanged for one of the following forms of consideration at the Company’s sole discretion: (i) an equal number of shares of the Company’s Class A common stock or, (ii) cash based on a formula using the average closing price of the Class A common stock at the time of conversion or, (iii) a combination of cash and shares of the Company’s Class A common stock. The Company has no rights to redeem or repurchase the Units. Pursuant to the Master Contribution Agreement, certain projects under development would remain owned jointly until each individual project was completed and achieved “stabilization.” Upon stabilization, each project would be valued and the Company, in its discretion, would choose among various ownership options for the project. |
In June 2014, one of the BCR Entities exchanged 673,565 of the Units. The Company issued 673,565 shares of its Class A common stock for the exchanged Units. The Company accounted for the exchange as a purchase of noncontrolling interests, resulting in a reduction of noncontrolling interests of $34,358,000, an increase to Class A common stock of $224,000 and a combined increase to additional paid-in capital of $34,134,000, accounting for the fair value of common stock issued and the difference between the fair value of consideration exchanged and the noncontrolling interest balance. At September 30, 2014 and December 31, 2013, 2,973,190 and 3,646,755 Units, respectively, were outstanding. |
Pursuant to the terms of the Master Contribution Agreement, on January 2, 2014, the Company caused certain of its affiliates to acquire the BCR Entities’ interests in 8 Spruce Street, an apartment community in Manhattan, New York, DKLB BKLN, an apartment community in Brooklyn, New York, and East River Plaza, a specialty retail center in Manhattan, New York, for $14,286,000. Prior to the transaction, the Company accounted for the three projects using the equity method of accounting and will continue to account for the projects as equity method investments as the partners continue to have joint control. |
As a result of the March 2014 disposal of Quartermaster Plaza, a specialty retail center in Philadelphia, Pennsylvania, the Company accrued $1,646,000 during the nine months ended September 30, 2014, related to a tax indemnity payment due to the BCR Entities, of which $1,235,000 was paid as of September 30, 2014. |
Accumulated Other Comprehensive Loss |
The following table summarizes the components of accumulated other comprehensive income (loss) (“accumulated OCI”): |
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| September 30, 2014 | December 31, 2013 | | | | | | |
| (in thousands) | | | | | | |
Unrealized losses on foreign currency translation | $ | 111 | | $ | 189 | | | | | | | |
| | | | | |
Unrealized losses on interest rate contracts (1) | 100,140 | | 125,059 | | | | | | | |
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| 100,251 | | 125,248 | | | | | | | |
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Income tax benefit | (38,840 | ) | (48,517 | ) | | | | | | |
Noncontrolling interest | (103 | ) | (149 | ) | | | | | | |
Accumulated Other Comprehensive Loss | $ | 61,308 | | $ | 76,582 | | | | | | | |
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-1 | Included in the amounts as of September 30, 2014 and December 31, 2013 are $78,293 and $97,360, respectively, of unrealized loss on an interest rate swap associated with New York Times office building on its nonrecourse mortgage debt with a notional amount of $640,000. This swap effectively fixes the mortgage at an all-in lender interest rate of 6.40% and expires in September 2017. | | | | | | | | | | | |
The following table summarizes the changes, net of tax and noncontrolling interest, of accumulated OCI by component: |
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| Securities | Foreign Currency Translation | Interest Rate Contracts | Total |
| (in thousands) |
Nine Months Ended September 30, 2014 | | | | |
Balance, January 1, 2014 | $ | — | | $ | (116 | ) | $ | (76,466 | ) | $ | (76,582 | ) |
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OCI before reclassifications | — | | 48 | | 11,773 | | 11,821 | |
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Loss reclassified from accumulated OCI | — | | — | | 3,453 | | 3,453 | |
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Total other comprehensive income | — | | 48 | | 15,226 | | 15,274 | |
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Balance, September 30, 2014 | $ | — | | $ | (68 | ) | $ | (61,240 | ) | $ | (61,308 | ) |
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Nine Months Ended September 30, 2013 | | | | |
Balance, January 1, 2013 | $ | (226 | ) | $ | — | | $ | (107,588 | ) | $ | (107,814 | ) |
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OCI before reclassifications | 678 | | (116 | ) | 21,118 | | 21,680 | |
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Loss reclassified from accumulated OCI | — | | — | | 3,590 | | 3,590 | |
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Total other comprehensive income | 678 | | (116 | ) | 24,708 | | 25,270 | |
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Balance, September 30, 2013 | $ | 452 | | $ | (116 | ) | $ | (82,880 | ) | $ | (82,544 | ) |
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The following table summarizes losses reclassified from accumulated OCI and their location on the Consolidated Statements of Operations: |
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Accumulated OCI Components | Loss Reclassified from Accumulated OCI | | Location on Consolidated Statements of Operations | | | | | | | |
| (in thousands) | | | | | | | | | |
Nine Months Ended September 30, 2014 | | | | | | | | | | |
Interest rate contracts | $ | 1,956 | | | Interest expense | | | | | | | |
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Interest rate contracts | 3,666 | | | Discontinued operations | | | | | | | |
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Interest rate contracts | 44 | | | Equity in earnings | | | | | | | |
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| 5,666 | | | Total before income tax and noncontrolling interest | | | | | | | |
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| (2,187 | ) | | Income tax benefit | | | | | | | |
| (26 | ) | | Noncontrolling interest | | | | | | | |
| $ | 3,453 | | | Loss reclassified from accumulated OCI | | | | | | | |
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Nine Months Ended September 30, 2013 | | | | | | | | | | |
Interest rate contracts | $ | 5,788 | | | Interest expense | | | | | | | |
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Interest rate contracts | 88 | | | Equity in earnings | | | | | | | |
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| 5,876 | | | Total before income tax and noncontrolling interest | | | | | | | |
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| (2,274 | ) | | Income tax benefit | | | | | | | |
| (12 | ) | | Noncontrolling interest | | | | | | | |
| $ | 3,590 | | | Loss reclassified from accumulated OCI | | | | | | | |
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Supplemental Non-Cash Disclosures |
The following table represents a summary of non-cash transactions including, but not limited to, dispositions of operating properties whereby the nonrecourse mortgage debt is assumed by the buyer, exchange of Units or senior debt for Class A common stock, conversion of Series A preferred stock to Class A common stock, changes in consolidation methods due to the occurrence of triggering events including, but not limited to, disposition of a partial interest in rental properties or development projects or acquisition of a partner’s interest, change in construction payables, change in the fair market value of redeemable noncontrolling interest and capitalization of stock-based compensation granted to employees directly involved with the development and construction of real estate. |
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| Nine Months Ended September 30, | | | | | | |
| 2014 | 2013 | | | | | | |
| (in thousands) | | | | | | |
Investing Activities | | | | | | | | |
Decrease in projects under construction and development | $ | 351,905 | | $ | 20,919 | | | | | | | |
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Decrease in completed rental properties | 136,008 | | 853,875 | | | | | | | |
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(Increase) decrease in restricted cash | (20 | ) | 4,326 | | | | | | | |
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Increase in notes and accounts receivable | (2,728 | ) | — | | | | | | | |
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Increase in investments in and advances to affiliates | (122,663 | ) | (34,885 | ) | | | | | | |
Total effect on investing activities | $ | 362,502 | | $ | 844,235 | | | | | | | |
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Financing Activities | | | | | | | | |
Increase in accounts payable, accrued expenses and other liabilities | $ | 10,683 | | $ | — | | | | | | | |
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Decrease in nonrecourse mortgage debt and notes payable | (342,960 | ) | (868,342 | ) | | | | | | |
Decrease in convertible senior debt | — | | (218,675 | ) | | | | | | |
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Decrease in preferred stock | — | | (5,489 | ) | | | | | | |
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Increase in Class A common stock | 225 | | 4,681 | | | | | | | |
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Increase in additional paid-in capital | 34,741 | | 179,617 | | | | | | | |
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Increase in treasury stock | — | | (12,868 | ) | | | | | | |
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Increase in redeemable noncontrolling interest | 28,390 | | 9,939 | | | | | | | |
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(Decrease) increase in noncontrolling interest | (73,535 | ) | 32,059 | | | | | | | |
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Total effect on financing activities | $ | (342,456 | ) | $ | (879,078 | ) | | | | | | |