|FOREST CITY REALTY TRUST, INC. filed this Form 10-Q on 10/30/2018|
Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Impairment of Unconsolidated Entities
The Company reviews its portfolio of unconsolidated entities for other-than-temporary impairments whenever events or changes indicate its carrying value in the investments may be in excess of fair value. An equity method investment’s value is impaired if management’s estimate of its fair value is less than the carrying value and the difference is deemed to be other-than-temporary. In estimating fair value, assumptions that may be used include comparable sale prices, market discount rates, market capitalization rates and estimated future discounted cash flows specific to the geographic region and property type, all of which are considered Level 3 inputs. For recently opened properties, assumptions also include the timing of initial property lease up. In the event initial property lease up assumptions differ from actual results, estimated future discounted cash flows may vary, resulting in impairment charges in future periods. There were no impairments of unconsolidated entities recorded during the three and nine months ended September 30, 2018.
During the three months ended September 30, 2017, the Company signed a definitive agreement for the sale of Westchester’s Ridge Hill, a regional mall in Yonkers, New York, to its partner. This triggered management to update its impairment analysis, including its estimated selling price. As a result, the estimated fair value no longer exceeded the carrying value, requiring the Company to adjust the carrying value to its estimated fair value during the three months ended September 30, 2017, resulting in an impairment charge of $10,600,000. The Company closed on the sale of Westchester’s Ridge Hill in April 2018.
Impairment - Fair Value Information
The following table presents quantitative information about the significant unobservable inputs used to determine the fair value of the impaired real estate for the nine months ended September 30, 2017:
N. Gain on Change in Control of Interests
The following table summarizes the gain on change in control of interests:
University Park at MIT
On April 25, 2018, the Company’s jointly owned specialty retail joint venture with Madison International acquired a 50% ownership interest in three life science office buildings located in Cambridge, Massachusetts, for a purchase price of approximately $302,000,000, excluding working capital adjustments and closing costs. Prior to this acquisition, the Company owned the remaining 50% ownership interest in the acquired assets and accounted for this investment on the equity method of accounting. Subsequent to the acquisition, the Company continued to own the remaining 50% ownership interests in the acquired assets and continued to account for this investment on the equity method of accounting as the Madison International joint venture retained the same rights as the previous partner was entitled to. On July 24, 2018, the Company exchanged its preferred ownership interests in nine of the specialty retail assets owned by the joint venture for the acquired assets in a non-cash transaction. Following this exchange, the Company owns approximately 100% of the acquired assets and fully consolidates the properties. In accordance with accounting guidance, the Company recorded the assets received at their fair value (based upon the income approach using current rents and market cap rates and discount rates) and recorded a gain on change in control as noted above.