Deconsolidation of a Real Estate Development Company

The Partnership, indirectly through certain Carlyle real estate investment funds, had an investment in Urbplan Desenvolvimento Urbano S.A. (“Urbplan”), a Brazilian residential subdivision and land development company. During the three months ended September 30, 2017, the Partnership disposed of its interests in Urbplan in a transaction with a third party. The third party acquired operational control and all of the economic interests in Urbplan in the transaction. Since the Partnership is no longer the primary beneficiary of Urbplan, Urbplan was deconsolidated from the Partnership's financial results. The Partnership recorded a pre-tax loss upon deconsolidation of $65 million during the three months ended September 30, 2017, which includes the impact of deconsolidation, the terms of the transaction with the third party and related reserves. The loss is recorded in interest and other expenses of a real estate VIE and loss on deconsolidation in the unaudited condensed consolidated statements of operations. Excluding the effect of this transaction, Urbplan's income before provision for income taxes prior to the transaction in the three months ended September 30, 2017 was not material to the Partnership's consolidated financial statements.

The Partnership concluded that Urbplan was a VIE as of September 30, 2013 because Urbplan’s equity investment at risk was not sufficient to permit it to finance its activities without additional financial support. The Partnership also concluded that it was the primary beneficiary of Urbplan. As such, the Partnership began consolidating Urbplan into its consolidated financial statements as of September 30, 2013. Due to the timing and availability of financial information from Urbplan, the Partnership consolidated the financial position and results of operations of Urbplan on a financial reporting lag of 90 days. The assets and liabilities of Urbplan were held in legal entities separate from the Partnership; the Partnership did not guarantee or assume any obligation for repayment of Urbplan’s liabilities nor were the assets of Urbplan available to meet the liquidity requirements of the Partnership.

Urbplan is party to various claims, litigation, government investigations and proceedings, including disputes with creditors and customers. The Partnership does not believe it is probable that the outcome of any Urbplan litigation, disputes or other potential claims will materially affect the Partnership or these consolidated financial statements.

The assets and liabilities recognized in the Partnership’s condensed consolidated balance sheets as of December 31, 2016 related to Urbplan were as follows:



	As of
	December 31, 2016
	(Dollars in millions)
Receivables and inventory of a real estate VIE:
Customer and other receivables	$	99.4
Inventory costs in excess of billings and advances	46.0
	$	145.4
Other assets of a real estate VIE:
Restricted investments	$	12.7
Fixed assets, net	0.2
Deferred tax assets	9.1
Other assets	9.5
	$	31.5
Loans payable of a real estate VIE at fair value (principal amount of $144.4 million as of December 31, 2016)	$	79.4
Other liabilities of a real estate VIE:
Accounts payable	$	14.6
Other liabilities	109.9
	$	124.5

The revenues and expenses recognized in the Partnership’s unaudited condensed consolidated statements of operations for the nine months ended September 30, 2017 and 2016 related to Urbplan were as follows:



	Nine Months Ended September 30, 2017
	(Dollars in millions)
Revenue of a real estate VIE:
Land development services	$	104.6
Investment income	4.4
	$	109.0
Interest and other expenses of a real estate VIE:
Costs of products sold and services rendered	$	64.4
Interest expense	18.5
Change in fair value of loans payable	(6.6		)
Compensation and benefits	2.8
G&A and other expenses	58.9
Loss on deconsolidation	64.5
	$	202.5



	Nine Months Ended September 30, 2016
	(Dollars in millions)
Revenue of a real estate VIE:
Land development services	$	35.5
Investment income	26.0
	$	61.5
Interest and other expenses of a real estate VIE:
Costs of products sold and services rendered	$	18.9
Interest expense	36.2
Change in fair value of loans payable	(2.6		)
Compensation and benefits	5.5
G&A and other expenses	99.9
	$	157.9

The following is a summary of the significant classifications of revenues and expenses of Urbplan:

Revenue of a real estate VIE – This balance consisted primarily of amounts earned for land development services using the completed contract method and investment income earned on Urbplan’s investments. Under the completed contract method of accounting, revenue was not recorded until the period in which the land development services contract is completed.

Interest and other expenses of a real estate VIE and loss on deconsolidation – This balance consisted primarily of interest expense on Urbplan’s borrowings, general and administrative expenses, compensation and benefits, costs associated with land development services, and the loss incurred upon the deconsolidation of Urbplan during the three months ended September 30, 2017. Also included in this caption was the change in the Partnership’s estimate of the fair value of Urbplan’s loans payable during the period. Interest expense is recorded on Urbplan’s borrowings at variable rates as defined. Costs related to Urbplan’s land development services activities were capitalized until the services are complete. Costs associated with advertising, marketing and other selling activities were expensed when incurred.