Quarterly report pursuant to Section 13 or 15(d)

Acquisition of Rental Property (Notes)

v3.5.0.2
Acquisition of Rental Property (Notes)
 6 Months Ended
Jun. 30, 2016
Business Combinations [Abstract]  
Acquisition of Rental Property
Acquisition of Rental Property
On June 30, 2016, we completed the purchase of our partners' interest in the Westgate joint venture, which owned the outlet center in Glendale, Arizona, for a total cash price of approximately $40.9 million. Prior to the transaction, we owned a 58% interest in the Westgate joint venture since its formation in 2012 and accounted for it under the equity method of accounting. The joint venture is now wholly-owned and is consolidated in our financial results as of June 30, 2016.

The total cash price included $39.0 million to acquire the 40% ownership interest held by the equity partner in the joint venture. We also purchased the remaining 2% noncontrolling ownership interests in the Westgate outlet center held in a consolidated partnership for a purchase price of $1.9 million. The acquisition of the noncontrolling ownership interest was recorded as an equity transaction and, as a result, the carrying balances of the noncontrolling interest were eliminated and the remaining difference between the purchase price and carrying balance was recorded as a reduction in additional-paid-in-capital. We funded the total purchase price with borrowings under our unsecured lines of credit. The property is subject to an existing $62.0 million mortgage loan, with an interest rate of LIBOR + 1.75% and matures in June 2017.

The following table illustrates the fair value of the total consideration transferred to acquire the equity interest at the acquisition date (in thousands):
Cash transferred for equity interest
$
39,000

Fair value of our previously held interest
58,500

Fair value of net assets
$
97,500



The following table illustrates the fair value of the amounts of the identifiable assets acquired and liabilities assumed recognized at the acquisition date:

 
 
Fair Value
 (in thousands)
 
Weighted-Average Amortization Period (in years)
Cash
 
$
4,813

 
 
Land
 
19,187

 
 
Buildings, improvements and fixtures
 
145,900

 
 
Deferred lease costs and other intangibles
 
 
 
 
Above market lease value
 
2,689

 
6.8
Lease in place value
 
7,878

 
5.3
Lease and legal costs
 
2,839

 
5.1
Total deferred lease costs and other intangibles
 
13,406

 
 
Prepaids and other assets
 
227

 
 
Debt
 
(62,000
)
 
 
Accounts payable and accrued expenses
 
(5,040
)
 
 
Other liabilities (Below market lease value)
 
(18,993
)
 
11.4
Total fair value of net assets
 
$
97,500

 
 


There was no contingent consideration associated with this acquisition. We incurred approximately $75,000 in third-party acquisition related costs for the acquisition of our partners' interest in the Westgate joint venture that were expensed as incurred. As a result of acquiring the remaining interest in the Westgate joint venture, we recorded a gain of $49.3 million which represented the difference between the carrying book value and the fair value of our previously held equity method investment in the Westgate joint venture.

Non-cash investing activities related to the purchase of our partners' interest in the Westgate joint venture, include the assumption of debt totaling $62.0 million. In addition, rental property and lease related above and below market intangible assets and liabilities increased $49.3 million related to the fair value of our previously held interest in excess of our carrying amount; prepaids and other assets increased $227,000 and accounts payable and accrued expense increased $5.0 million from the assumption of current assets and liabilities.

The fair value was determined based on an income approach, using a rental growth rate of 3.0%, a discount rate of 8.75%, and a terminal cap rate of 7.25%. The estimate of fair value was determined to have primarily relied upon Level 3 inputs, as defined in Note 11. The fair value is based upon our best available information at the time of the preparation of our financial statements. However, the business acquisition accounting for this property is not complete and accordingly, such estimates of the value of acquired assets and liabilities are provisional until the valuation is finalized. Therefore, the provisional measurements of fair value reflected are subject to change and such changes could be significant. The Company expects to finalize the valuation and complete the purchase price allocation as soon as practical, but no later than one year from the acquisition date.