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SEC Filings

10-Q
FOREST CITY REALTY TRUST, INC. filed this Form 10-Q on 10/30/2018
Entire Document
 
Forest City Realty Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

DKLB BKLN
On June 27, 2018, the Company’s jointly owned specialty retail joint venture with Madison International acquired a 49% ownership interest in DKLB BKLN, a 365-unit apartment community located in Brooklyn, New York, for a purchase price of approximately $93,500,000, excluding working capital adjustments and closing costs. Prior to this acquisition, the Company owned the remaining 51% ownership interest in the acquired asset and accounted for this investment on the equity method of accounting. Subsequent to the acquisition, the Company continued to own the remaining 51% ownership interest in the acquired asset and accounted for this investment on the equity method of accounting as the Madison International joint venture retained the same rights of which the previous partner was entitled. On September 25, 2018, the Company exchanged its preferred ownership interests in one of the specialty retail assets owned by the joint venture for the acquired asset in a non-cash transaction. Following this exchange, the Company owns 100% of the acquired asset and fully consolidates the property. In accordance with accounting guidance, the Company recorded the asset received at its 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.
The fair value of the University Park at MIT and DKLB BKLN acquisitions was allocated as follows. All amounts are presented in thousands.
 
University Park at MIT
DKLB BKLN
Total
Real Estate, net
$
538,887

$
188,006

$
726,893

Cash and restricted cash
13,646

5,378

19,024

Other assets (1)
84,315

4,396

88,711

 
636,848

197,780

834,628

Mortgage debt and notes payable, nonrecourse
(269,962
)
(104,442
)
(374,404
)
Other liabilities (2)
(15,431
)
(1,952
)
(17,383
)
Noncontrolling interest
(6,674
)

(6,674
)
Net Assets Acquired
$
344,781

$
91,386

$
436,167

Gains on change in control of interests
$
193,674

$
25,992

$
219,666

Carrying value of previously held equity interests
(35,225
)
21,083

(14,142
)
Fair value of previously held equity interests (3)
158,449

47,075

205,524

Fair value of ownership interests exchanged (4)
186,332

44,311

230,643

Total consideration
$
344,781

$
91,386

$
436,167

(1)
Other assets includes $20,200 of in-place leases and $60,188 of below-market ground leases with weighted-average lives of 6.5 years and 65 years, respectively.
(2)
Other liabilities includes $9,840 of below-market tenant leases with weighted-average lives of 6.5 years.
(3)
The significant assumptions used to value the previously held equity interests in the University Park at MIT and DKLB BKLN assets were determined to be Level 3 inputs. The weighted-average terminal capitalization rate and the weighted-average discount rate applied to cash flows for University Park at MIT were 5.6% and 6.8%, respectively. The weighted-average terminal capitalization rate and the weighted-average discount rate applied to cash flows for DKLB BKLN were 4.5% and 5.5%, respectively.
(4)
Includes the Company’s fair value of the preferred equity interests in the properties exchanged, plus cash contributed to the joint venture.
Bayside Village
In January 2018, our 50% noncontrolling partner at Bayside Village, an apartment community in San Francisco, CA, closed on a transaction where they sold the majority of their 50% ownership interest to an unrelated third party. Prior to this transaction, the Company fully consolidated the property, as the outside partner, in accordance with the partnership agreement, lacked any substantive participating rights. Simultaneously with the sale, the Company amended the partnership agreement to grant substantive participating rights to the new outside partner and received a cash payment of $24,000,000 in connection with such amendment. The joint venture is adequately capitalized and does not contain the characteristics of a VIE. Based on the substantive participating rights held by the new outside partner, the Company concluded it appropriate to deconsolidate the entity and account for the Company’s 50% investment in the property using the equity method of accounting. The Company remeasured its equity interest in the property, as required by the accounting guidance, at fair value (based upon the income approach using current rents and market discount rates). As a result of the deconsolidation and the current estimated fair value, the Company removed approximately $415,000,000 of real estate, net, $127,000,000 of nonrecourse mortgage debt, net, $133,090,000 of noncontrolling interest from the Consolidated Balance Sheet, increased investments in and advances to unconsolidated entities by approximately $227,000,000 and recorded $117,711,000 as a gain on change in control of interests in the Consolidated Statement of Operations for the nine months ended September 30, 2018.

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