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Investments in and Advances to Unconsolidated Affiliates | 3 Months Ended
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Mar. 31, 2019
Equity Method Investments And Joint Ventures [Abstract] |
Investments in and Advances to Unconsolidated Affiliates | 4. Investments in and Advances to Unconsolidated Affiliates The Company accounts for its investments in and advances to unconsolidated affiliates primarily under the equity method of accounting as it has the ability to exercise significant influence, but does not have financial or operating control over the investment, which is maintained by each of the unaffiliated partners who co-invest with the Company. The Company’s investments in and advances to unconsolidated affiliates consist of the following (dollars in thousands):
|  |  |  | Nominal Ownership Interest |  |  | March 31, |  |  | December 31, |
Portfolio |  | Property |  | March 31, 2019 |  |  | 2019 |  |  | 2018 |
Core: |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | 840 N. Michigan (a) |  | 88.43% |  |  | $ | 64,561 |  |  | $ | 65,013 |
|  | Renaissance Portfolio |  | 20% |  |  |  | 33,059 |  |  |  | 32,458 |
|  | Gotham Plaza |  | 49% |  |  |  | 29,399 |  |  |  | 29,550 |
|  | Town Center (a, b) |  | 75.22% |  |  |  | 99,106 |  |  |  | 99,758 |
|  | Georgetown Portfolio |  | 50% |  |  |  | 4,761 |  |  |  | 4,653 |
|  |  |  |  |  |  |  |  | 230,886 |  |  |  | 231,432 |
Mervyns I & II: |  | KLA/Mervyn's, LLC (c) |  | 10.5% |  |  |  | — |  |  |  | — |
Fund III: |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Fund III Other Portfolio |  | 90% |  |  |  | 17 |  |  |  | 21 |
|  | Self Storage Management (d) |  | 95% |  |  |  | 206 |  |  |  | 206 |
|  |  |  |  |  |  |  |  | 223 |  |  |  | 227 |
Fund IV: |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Broughton Street Portfolio (e) |  | 50% |  |  |  | 3,149 |  |  |  | 3,236 |
|  | Fund IV Other Portfolio |  | 90% |  |  |  | 13,922 |  |  |  | 14,540 |
|  | 650 Bald Hill Road |  | 90% |  |  |  | 12,704 |  |  |  | 12,880 |
|  |  |  |  |  |  |  |  | 29,775 |  |  |  | 30,656 |
Fund V: |  | Family Center at Riverdale |  | 90% |  |  |  | 48,610 |  |  |  | — |
Various Funds: |  | Due (to) from Related Parties (f) |  |  |  |  |  |  | (701 | ) |  |  | (461 | )
|  | Other (g) |  |  |  |  |  |  | 556 |  |  |  | 556 |
|  | Investments in and advances to unconsolidated affiliates |  |  |  |  |  | $ | 309,349 |  |  | $ | 262,410 |
Core: |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Crossroads (h) |  | 49% |  |  | $ | 15,415 |  |  | $ | 15,623 |
|  | Distributions in excess of income from, and investments in, unconsolidated affiliates |  |  |  |  |  | $ | 15,415 |  |  | $ | 15,623 |
| (a) | Represents a tenancy-in-common interest.
| (b) | During November 2017 and March 2018, as discussed below, the Company increased its ownership in Town Center.
| (c) | Distributions, discussed below, have exceeded the Company’s non-recourse investment, therefore the carrying value is zero.
| (d) | Represents a variable interest entity for which the Company was determined not to be the primary beneficiary.
| (e) | The Company is entitled to a 15% return on its cumulative capital contribution which was $3.0 million at both March 31, 2019 and December 31, 2018. In addition, the Company is entitled to a 9% preferred return on a portion of its equity, which was $2.8 million at both March 31, 2019 and December 31, 2018.
| (f) | Represents deferred fees.
| (g) | Includes a cost-method investment in Albertson’s (Note 8), Storage Post and other investments.
| (h) | Distributions have exceeded the Company’s investment; however, the Company recognizes a liability balance as it may be required to return distributions to fund future obligations of the entity.
Core Portfolio Acquisition of Unconsolidated Investment On January 24, 2019, the Renaissance Portfolio, in which the Company owns a 20% noncontrolling interest, acquired a 7,300 square foot property in Fund III’s 3104 M Street property located in Washington, D.C. for $10.7 million (Note 2) less the assumption of the outstanding mortgage of $4.7 million. Brandywine Portfolio, Market Square and Town Center The Company owns an interest in an approximately one million square foot retail portfolio (the “Brandywine Portfolio” joint venture) located in Wilmington, Delaware, which includes two properties referred to as “Market Square” and “Town Center.” Prior to the second quarter of 2016, the Company had a controlling interest in the Brandywine Portfolio, and it was therefore consolidated within the Company’s financial statements. During April 2016, the arrangement with the partners of the Brandywine Portfolio was modified to change the legal ownership from a partnership to a tenancy-in-common interest, as well as to provide certain participating rights to the outside partners. As a result of these modifications, the Company de-consolidated the Brandywine Portfolio and accounted for its interest under the equity method of accounting effective May 1, 2016. Furthermore, as the owners of the Brandywine Portfolio had consistent ownership interests before and after the modification and the underlying net assets were unchanged, the Company reflected the change from consolidation to equity method based upon its historical cost. The Brandywine Portfolio and Market Square ventures do not include the property held by Brandywine Holdings, an entity consolidated by the Company. Additionally, in April 2016, the Company repaid the outstanding balance of $140.0 million of non-recourse debt collateralized by the Brandywine Portfolio and provided a note receivable collateralized by the partners’ tenancy-in-common interest in the Brandywine Portfolio for their proportionate share of the repayment. On May 1, 2017, the Company exchanged $16.0 million of the $153.4 million notes receivable (the “Brandywine Notes Receivable”) (Note 3) plus accrued interest of $0.3 million for one of the partner’s 38.89% tenancy-in-common interests in Market Square. The Company already had a 22.22% interest in Market Square and continued to apply the equity method of accounting for its aggregate 61.11% noncontrolling interest in Market Square and its 22.22% interest in Town Center through November 16, 2017. The incremental investment in Market Square was recorded at $16.3 million and the excess of this amount over the venture’s book value associated with this interest, or $9.8 million, was being amortized over the remaining depreciable lives of the venture’s assets through November 16, 2017. On November 16, 2017, the Company exchanged an additional $16.0 million of Brandywine Notes Receivable plus accrued interest of $0.6 million for the remaining 38.89% interest in Market Square, thereby obtaining a 100% controlling interest in the property. The exchange was deemed to be a business combination and as a result, the property was consolidated and a gain on change of control of $5.6 million was recorded (Note 2). On November 16, 2017, the Company exchanged $60.7 million of the Brandywine Notes Receivable plus accrued interest of $0.9 million for one of the partner’s 38.89% tenancy-in-common interests in Town Center. The incremental investment in Town Center was recorded at $61.6 million and the excess of this amount over the venture’s book value associated with this interest, or $34.5 million, is being amortized over the remaining depreciable lives of the venture’s assets. The Company previously had a 22.22% interest in Town Center which then became 61.11% following the November 2017 transaction. On March 28, 2018, the Company exchanged $22.0 million of its Brandywine Notes Receivable plus accrued interest of $0.3 million for one of the partner’s 14.11% tenancy-in-common interests in Town Center. The incremental investment in Town Center was recorded at $ 22.3 million and the excess of this amount over the venture’s book value associated with this interest, or $12.7 million, is being amortized over the remaining depreciable lives of the venture’s assets. The Company continues to apply the equity method of accounting for its aggregate 75.22% noncontrolling interest in Town Center after the March 2018 transaction. At March 31, 2019, $38.7 million of the Brandywine Note Receivable remains outstanding (Note 3), which is collateralized by the remaining 24.78% undivided interest in Town Center. Fund Investments Acquisition of Unconsolidated Investment in Fund V On March 19, 2019, Fund V acquired an interest in a venture which invested in a 428,000 square foot property located in Riverdale, Utah referred to as (“Family Center at Riverdale”) for $48.5 million. The Company accounts for its interest in the Family Center at Riverdale under the equity method of accounting as it does not control but exercises significant influence over the investment. Broughton Street Portfolio During 2014, Fund IV acquired 50% interests in two joint ventures referred to as “BSP I” and “BSP II” with the same venture partner to acquire and operate a total of 23 properties in Savannah, Georgia referred to as the “Broughton Street Portfolio.” Since that time, as described below, the ventures have sold eight of the properties and terminated the master leases on two of the properties. In October 2018, the venture partner relinquished its interest in BSP I resulting in Fund IV becoming the 100% owner of the BSP I venture, which holds 11 consolidated properties (Note 2). Fund IV accounted for this transaction as an asset purchase at fair value whereby its existing preferred and common interests were deemed consideration for the properties and no gain or loss was recognized. At March 31, 2019, the Broughton Street portfolio had 13 remaining properties, two of which are unconsolidated and are held within the BSP II venture. Storage Post On May 15, 2018, Fund III’s Storage Post venture, which is a cost-method investment with no carrying value, distributed $3.2 million of which the Operating Partnership’s share was $0.8 million. 2018 Dispositions of Unconsolidated Investments On January 18, 2018, Fund IV’s Broughton Street Portfolio venture sold two properties for aggregate proceeds of $8.0 million, resulting in a net loss of $0.4 million at the property level of which the Fund’s share and the Operating Partnership’s proportionate share of the loss was zero, due to Fund IV’s preferred return. On June 29, 2018, Fund IV’s Broughton Street Portfolio venture terminated its master leases on two of its properties resulting in a net loss of $1.0 million at the property level for which the Operating Partnership’s share was less than $0.1 million. On August 29, 2018, Fund IV’s Broughton Street Portfolio venture sold a property for proceeds of $2.1 million, resulting in a net loss of $0.3 million at the property level, of which the Operating Partnership’s share was less than $0.1 million. Fees from Unconsolidated Affiliates The Company earned property management, construction, development, legal and leasing fees from its investments in unconsolidated partnerships totaling $0.2 million and $0.3 million for the three months ended March 31, 2019 and 2018, respectively, which is included in other revenues in the consolidated financial statements. In addition, the Company paid to certain unaffiliated partners of its joint ventures, $0.3 million and $0.5 million for the three months ended March 31, 2019 and 2018, respectively, for leasing commissions, development, management, construction and overhead fees. Summarized Financial Information of Unconsolidated Affiliates The following combined and condensed Balance Sheets and Statements of Income, in each period, summarize the financial information of the Company’s investments in unconsolidated affiliates (in thousands):
|  | March 31, 2019 |  |  | December 31, 2018 |
Combined and Condensed Balance Sheets |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |
Rental property, net |  | $ | 571,205 |  |  | $ | 488,000 |
Investment in unconsolidated affiliates |  |  | 6,853 |  |  |  | 6,853 |
Other assets |  |  | 68,921 |  |  |  | 91,497 |
Total assets |  | $ | 646,979 |  |  | $ | 586,350 |
Liabilities and partners’ equity: |  |  |  |  |  |  |  |
Mortgage notes payable |  | $ | 444,642 |  |  | $ | 408,967 |
Other liabilities |  |  | 59,303 |  |  |  | 54,675 |
Partners’ equity |  |  | 143,034 |  |  |  | 122,708 |
Total liabilities and partners’ equity |  | $ | 646,979 |  |  | $ | 586,350 |
Company's share of accumulated equity |  | $ | 189,463 |  |  | $ | 141,384 |
Basis differential |  |  | 103,360 |  |  |  | 104,084 |
Deferred fees, net of portion related to the Company's interest |  |  | 1,812 |  |  |  | 1,780 |
Amounts payable by the Company |  |  | (701 | ) |  |  | (461 | )
Investments in and advances to unconsolidated affiliates, net of Company's share of distributions in excess of income from and investments in unconsolidated affiliates |  |  | 293,934 |  |  |  | 246,787 |
Company's share of distributions in excess of income from and investments in unconsolidated affiliates |  |  | 15,415 |  |  |  | 15,623 |
Investments in and advances to unconsolidated affiliates |  | $ | 309,349 |  |  | $ | 262,410 |
|  | Three Months Ended March 31, |
|  | 2019 |  |  | 2018 |
Combined and Condensed Statements of Income |  |  |  |  |  |  |  |
Total revenues |  | $ | 19,973 |  |  | $ | 20,156 |
Operating and other expenses |  |  | (5,106 | ) |  |  | (5,921 | )
Interest expense |  |  | (4,776 | ) |  |  | (4,874 | )
Depreciation and amortization |  |  | (4,792 | ) |  |  | (6,055 | )
Loss on disposition of properties |  |  | — |  |  |  | (418 | )
Net income attributable to unconsolidated affiliates |  | $ | 5,299 |  |  | $ | 2,888 |
Company’s share of equity in net income of unconsolidated affiliates |  | $ | 2,995 |  |  | $ | 2,267 |
Basis differential amortization |  |  | (724 | ) |  |  | (583 | )
Company’s equity in earnings of unconsolidated affiliates |  | $ | 2,271 |  |  | $ | 1,684 |

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- Definition The entire disclosure for the information summarizing investments in and advances to majority-owned subsidiaries, other controlled companies, and other affiliates. It reflects specified information about ownership, financial results from, and financial position in such entities. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 946 -SubTopic 320 -URI http://asc.fasb.org/subtopic&trid=2324412 + Details
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