Note 4 – Properties Held For Sale and Related Transactions

In connection with management’s review of the Company’s real estate investments, the Company determined in 2011 (1) to completely exit the Ohio market, principally the Discount Drug Mart portfolio of drugstore/convenience centers, and concentrate on the region that straddles the Washington DC to Boston corridor, (2) to concentrate on grocery-anchored strip centers, by disposing of its mall and single-tenant/triple-net-lease properties, (3) to focus on improving operations and performance at the Company’s remaining properties, and (4) to reduce development activities, by disposing of certain development projects, land acquired for development, and other non-core assets.

The carrying values of the assets and liabilities of these properties, principally the net book values of the real estate and the related mortgage loans payable to be assumed by the buyers (or conveyed to the mortgagees), have been reclassified as “held for sale/conveyance” on the Company’s consolidated balance sheets at December 31, 2012 and December 31, 2011. In addition, the properties’ results of operations have been classified as “discontinued operations” for all years presented. The Company anticipates that sales of all such properties remaining classified as “held for sale” will be concluded during 2013.

The following is a summary of the components of income (loss) from discontinued operations:


	Years ended December 31,
	2012	2011	2010
Revenues:
Rents	$ 16,535,000	$ 27,432,000	$ 30,734,000
Expense recoveries	4,358,000	6,668,000	7,221,000
Other	119,000	531,000	81,000
Total revenues	21,012,000	34,631,000	38,036,000
Expenses:
Operating, maintenance and management	6,780,000	9,196,000	10,241,000
Real estate and other property-related taxes	3,714,000	5,427,000	5,462,000
Depreciation and amortization	134,000	5,501,000	11,709,000
Interest	6,421,000	9,379,000	8,778,000
Total expenses	17,049,000	29,503,000	36,190,000
Income from discontinued operations before
impairments	3,963,000	5,128,000	1,846,000
Impairment charges, net	(4,000)	(88,458,000)	(39,822,000)
Income (loss) from discontinued operations	$ 3,959,000	$ (83,330,000)	$ (37,976,000)

Gain on sales of discontinued operations	$ 4,679,000	$ 884,000	$ 170,000

Impairment charges and other write-offs are summarized as follows:


	Years ended December 31,
	2012	2011	2010
Impairment charges - Ohio property loan and land
parcels (2012), land parcels (2011) and properties
transferred to Cedar/RioCan joint venture (2010) (a)	$ 5,779,000	$ 7,148,000	$ 2,493,000
Loss on exit from unconsolidated joint venture (b)	$ -	$ 7,961,000	$ -
Impairment charges, net - properties held
for sale/conveyance (c)	$ 4,000	$ 88,458,000	$ 39,822,000

(a) Included in operating income in the accompanying statements of operations.
(b) Represents the write-off of an investment in an unconsolidated joint venture, and is included in non-operating income and expense in the accompanying statements of operations.
(c) Included in discontinued operations in the accompanying statements of operations.

In April 2011, the Company made a two-year $4.1 million loan to the developers of a site located in Reynoldsburg, Ohio (the developers are members of the group from which the Company acquired substantially all of its drug store/convenience centers). The loan bears interest at 6.25% per annum and is collateralized by a first mortgage on the development parcel and personal guarantees from certain of the borrowers. During the fourth quarter of 2012, the borrowers failed to make a scheduled payment. The Company has concluded that the loan is unlikely to be paid given (1) the current inability of the developers to find an anchor tenant for the development site, (2) certain use restrictions on the land, and (3) numerous legal judgments against individuals that provided the personal guarantees. Further, the Company does not desire to own the land as it has ceased ground-up development activities. Finally, it is unlikely the Company would foreclose and subsequently sell the property as the tax arrearages associated with the property, legal fees, transfer taxes, brokerage and other costs to sell the land along with the uncertain timing of such a sale makes this not a cost beneficial alternative. Accordingly, in the fourth quarter of 2012, the Company ceased recording any related interest income and wrote off the loan and accrued interest, resulting in an impairment charge of $4.4 million.

Impairment charges, net, included in discontinued operations for 2012 included (1) impairment reversals of $2.4 million related to the Homburg joint venture properties, off-set by (2) net impairment charges of $2.4 million related to other properties. Impairment charges included in discontinued operations for 2011 included $11.1 million related to the Discount Drug Mart portfolio, $33.1 million related to malls, $5.3 million related to single-tenant/triple-net-lease properties, $36.6 million related to development projects and other non-core properties, and $2.4 million related to the Homburg joint venture properties. Impairment charges included in discontinued operations for 2010 included $26.8 million related to the Discount Drug Mart portfolio, $12.6 million related to malls, $0.1 million related to a single-tenant/triple-net-lease property, and $0.3 million related to a development project.

Impairment charges were based on a comparison of the carrying values of the properties with either (1) actual sales prices less costs to sell for properties sold, or contract amounts for properties in the process of being sold, (2) estimated sales prices based on discounted cash flow analyses, if no contract amounts were as yet being negotiated, as discussed in more detail in Note 6 — “Fair Value Measurements”, (3) an “as is” appraisal with respect to the Philadelphia Redevelopment Property (see below), or (4) with respect to land parcels, estimated sales prices, less cost to sell, based on comparable sales completed in the selected market areas. Prior to the Company’s plan to dispose of properties reclassified to “held for sale/conveyance”, the Company performed recoverability analyses based on the estimated undiscounted cash flows that were expected to result from the real estate investments’ use and eventual disposal. The projected undiscounted cash flows of each property reflected that the carrying value of each real estate investment would be recovered. However, as a result of the properties’ meeting the “held for sale” criteria, such properties were written down to the lower of their carrying value and estimated fair values less costs to sell.

2012 Transactions

During 2012, the Company completed the following transactions related to properties “held for sale/conveyance”:


	Percent		Date	Sales	Gain on
Property	Sold	Location	Sold	Price	Sale
Discontinued operations:
Hilliard Discount Drug Mart Plaza	100%	Hilliard, OH	2/7/2012	$ 1,434,000	$ -
First Merit Bank at Akron	100%	Akron, OH	2/23/2012	633,000	-
Grove City Discount Drug Mart Plaza	100%	Grove City, OH	3/12/2012	1,925,000	-
CVS at Naugatuck	50%	Naugatuck, CT	3/20/2012	3,350,000	457,000
CVS at Bradford	100%	Bradford, PA	3/30/2012	967,000	-
CVS at Celina	100%	Celina, OH	3/30/2012	1,449,000	-
CVS at Erie	100%	Erie, PA	3/30/2012	1,278,000	-
CVS at Portage Trail	100%	Akron, OH	3/30/2012	1,061,000	-
Rite Aid at Massillon	100%	Massillon, OH	3/30/2012	1,492,000	-
Kingston Plaza	100%	Kingston, NY	4/12/2012	1,182,000	293,000
Stadium Plaza	100%	East Lansing, MI	5/3/2012	5,400,000	-
Homburg Joint Venture (seven properties)	20%	Various	10/12/2012	23,642,000	3,929,000
The Point at Carlisle	100%	Carlisle, PA	10/15/2012	7,350,000	-
				$ 51,163,000	$ 4,679,000
Continuing operations:
Blue Mountain Commons (land parcel)	100%	Harrisburg. PA	6/19/2012	$ 102,000	$ 79,000
Oregon Pike (land parcel)	100%	Lancaster, PA	6/28/2012	1,100,000	-
Trindle Springs (land parcel)	100%	Mechanicsburg, PA	7/20/2012	800,000	-
Aston (land parcel)	100%	Aston, PA	7/27/2012	1,365,000	402,000
Wyoming (land parcel)	100%	Wyoming, MI	11/16/2012	1,000,000	516,000
				$ 4,367,000	$ 997,000

On October 12, 2012, the Company concluded definitive agreements with Homburg Invest Inc. (“HII”) relating to the application of the buy/sell provisions of the joint venture agreements for each of the nine properties owned by the joint venture. In February 2011, HII had exercised its buy/sell option pursuant to the terms of the joint venture agreements for each of the nine properties owned by the venture. Richard Homburg, a director of the Company until October 2011, was the Chairman and Chief Executive Officer of HII at the time the joint venture was formed and the buy/sell option was exercised. The Company made elections to purchase HII’s 80% interest in two of the nine properties, Meadows Marketplace, located in Hershey, Pennsylvania, and Fieldstone Marketplace, located in New Bedford, Massachusetts. The Company also determined not to meet HII’s buy/sell offers for each of the remaining seven properties, which were thereupon treated as “held for sale/conveyance”. Pursuant to the agreements, the Company acquired HII’s 80% ownership in Meadows Marketplace, located in Hershey, Pennsylvania, and Fieldstone Marketplace, located in New Bedford, Massachusetts, for approximately $27.3 million, including the assumption of related in-place mortgage financing of $21.8 million, giving the Company a 100% ownership interest in these two properties. As the two properties were previously controlled and consolidated by the Company, the acquisitions of the 80% noncontrolling interests were recorded as a capital transaction. As such, the excess ($7.6 million) of the carrying amount of the noncontrolling interests over amounts paid by the Company was recognized as an increase in the Company’s shareholders’ equity and a corresponding decrease in noncontrolling interests. In addition, the Company sold to HII its 20% ownership interest in the remaining seven joint venture properties for approximately $23.6 million, including the assumption of related in-place mortgage financing of $14.5 million. In connection with the transactions, the Company has recorded a gain of $3.9 million relating to the sale of the seven properties. The Company’s property management agreements for the sold properties terminated upon the closing of the sale.

In March 2012, the Company determined to sell Kingston Plaza, located in Kingston, New York, and subsequently sold the property in April 2012. In December 2012, the Company determined to sell East Chestnut, located in Lancaster, Pennsylvania, and subsequently sold the property in January 2013 for a sales price of approximately $3.1 million, which approximated the property’s carrying value. As such, the properties have been treated as “discontinued operations” for all periods presented. At December 31, 2012, the Company had 10 shopping-center properties that were held for sale/conveyance.

At December 31, 2012, the Company was in the process of negotiating with the respective lenders to four of its properties (Roosevelt II, Gahanna Discount Drug Mart Plaza, Westlake Discount Drug Mart Plaza and McCormick Place) to convey the properties either through short sale, foreclosure, or deed-in-lieu of foreclosure processes (mortgage loans payable and accrued interest aggregated $23.7 million at that date). In connection with these conveyances, each applicable subsidiary borrower has stopped paying monthly mortgage payments and is currently in default on these non-recourse mortgages. At the time of such conveyances, the Company would recognize gains (an aggregate of approximately $11.4 million as of December 31, 2012) based on the excess of the carrying amounts of the liabilities (mortgage principal and any accrued property-related expenses) over the carrying amounts of the properties.

2011 Transactions

During 2011, the Company completed the following transactions related to properties “held for sale/conveyance”:



	Percent		Date	Sales	Gain on
Property	Sold	Location	Sold	Price	Sale
Discontinued operations:
Bergstrasse	100%	Ephrata, PA	2/14/2011	$ 1,900,000	$ 33,000
Ohio Properties (two)	100%	OH	3/30/2011	4,032,000	-
Fairfield Plaza	100%	Fairfield. CT	4/15/2011	10,840,000	470,000
CVS at Kingston	100%	Kingston, NY	11/14/2011	5,250,000	185,000
CVS at Kinderhook	100%	Kinderhook, NY	12/8/2011	4,000,000	196,000
Shoppes at Salem Run	100%	Fredericksburg, VA	12/12/2011	1,675,000	-
Virginia Center Commons	100%	Glen Allen, VA	12/21/2011	3,550,000	-
Ohio Properties (nine)	100%	OH	12/28/2011	25,257,000	-
				$ 56,504,000	$ 884,000

Philadelphia Redevelopment Property. The tenant at two properties, one owned in an unconsolidated joint venture and the other owned 100% by the Company (acquired in October 2010), vacated both premises in April 2011, at which time both the joint venture and the Company’s wholly-owned subsidiary had CMBS non-recourse first mortgage loans secured by the properties in the amounts of $14.7 million due for payment in May 2011 and $12.9 million due for payment in March 2012, respectively ($250,000 of the $12.9 million loan was guaranteed by the Company and paid in 2012). The Company reviewed its investment alternatives and determined that it would not be prudent to proceed with the development, sale or lease of the properties, or to advance the funds necessary to pay off the mortgages. Such determination was based on the uncertainty in obtaining favorable revisions to zoning, difficult existing deed restrictions, the uncertainty in achieving required economic returns given the extensive additional capital investments required, and uncertain current market conditions for sale or lease. Accordingly, during 2011, the Company wrote off its investment in the joint venture ($8.0 million) and recorded an impairment charge related to the value of the 100%-owned property ($9.1 million). No payments have been made on the 100%-owned property mortgage since May 2011, although the Company has been accruing interest expense and will pay certain property-related maintenance/security expenses as they become due. The Company is negotiating a conveyance of the property to the mortgagee by a deed-in-lieu of foreclosure process, whereby the Company’s subsidiary would be released from all obligations, including any unpaid principal and interest. At the time of such conveyance, the Company would recognize a gain (approximately $8.1 million as of December 31, 2012) based on the excess of the carrying amount of the liabilities (mortgage principal and any accrued property-related expenses) over the carrying amount of the property.

Ohio Properties. Impairment charges recorded in 2011 included additional charges of approximately $10.5 million, principally representing adjustments to the net realizable values of certain of the properties treated as “held for sale/conveyance” as of December 31, 2010. The additional charges were based principally on changes in the structure of previously-negotiated transactions, whereby (1) the Company terminated a contract to swap three properties for certain land parcels in Ohio and instead entered into a new agreement to sell the properties for cash and assumption of existing debt, and (2) as a result of amending its contract for the sale of the 12 properties, the Company revalued the properties on an individual basis, and not a portfolio basis (the buyers in both cases being members of the group from which the Company originally acquired substantially all of its drug store/convenience centers).