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Investments in and Advances to Unconsolidated Affiliates | 6 Months Ended
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Jun. 30, 2020
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):
|  |  |  | Ownership Interest |  |  | June 30, |  |  | December 31, |
Portfolio |  | Property |  | June 30, 2020 |  |  | 2020 |  |  | 2019 |
Core: |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | 840 N. Michigan (a) |  | 88.43% |  |  | $ | 57,531 |  |  | $ | 61,260 |
|  | Renaissance Portfolio |  | 20% |  |  |  | 30,619 |  |  |  | 31,815 |
|  | Gotham Plaza |  | 49% |  |  |  | 29,030 |  |  |  | 29,466 |
|  | Town Center (a, b) |  | 100% |  |  |  | — |  |  |  | 97,674 |
|  | Georgetown Portfolio |  | 50% |  |  |  | 4,463 |  |  |  | 4,498 |
|  | 1238 Wisconsin Avenue |  | 80% |  |  |  | 2,105 |  |  |  | 1,194 |
|  |  |  |  |  |  |  |  | 123,748 |  |  |  | 225,907 |
Mervyns I & II: |  | KLA/ABS (c) |  | 36.7% |  |  |  | 65,082 |  |  |  | 402 |
Fund III: |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Fund III Other Portfolio |  | 94.23% |  |  |  | 17 |  |  |  | 17 |
|  | Self Storage Management (d) |  | 95% |  |  |  | 207 |  |  |  | 207 |
|  |  |  |  |  |  |  |  | 224 |  |  |  | 224 |
Fund IV: |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Broughton Street Portfolio (e) |  | 100% |  |  |  | — |  |  |  | 12,702 |
|  | Fund IV Other Portfolio |  | 98.57% |  |  |  | 13,686 |  |  |  | 14,733 |
|  | 650 Bald Hill Road |  | 90% |  |  |  | 13,608 |  |  |  | 12,450 |
|  |  |  |  |  |  |  |  | 27,294 |  |  |  | 39,885 |
Fund V: |  | Family Center at Riverdale (a) |  | 89.42% |  |  |  | 11,571 |  |  |  | 13,329 |
|  | Tri-City Plaza |  | 90% |  |  |  | 8,102 |  |  |  | 10,250 |
|  | Frederick County Acquisitions |  | 90% |  |  |  | 12,249 |  |  |  | 15,070 |
|  |  |  |  |  |  |  |  | 31,922 |  |  |  | 38,649 |
Various: |  | Due from (to) Related Parties |  |  |  |  |  |  | 536 |  |  |  | (1,902 | )
|  | Other (f) |  |  |  |  |  |  | 2,019 |  |  |  | 1,932 |
|  | Investments in and advances to unconsolidated affiliates |  |  |  |  |  | $ | 250,825 |  |  | $ | 305,097 |
Core: |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Crossroads (g) |  | 49% |  |  | $ | 15,520 |  |  | $ | 15,362 |
|  | Distributions in excess of income from, and investments in, unconsolidated affiliates |  |  |  |  |  | $ | 15,520 |  |  | $ | 15,362 |
| (a) | Represents a tenancy-in-common interest.
| (b) | During November 2017, March 2018 and April 2020, as discussed below, the Company increased its ownership in and consolidated Town Center.
| (c) | Includes an interest in Albertsons (at fair value at June 30, 2020 and at cost at December 31, 2019, as described below) (Note 8).
| (d) | Represents a variable interest entity for which the Company was determined not to be the primary beneficiary.
| (e) | During May 2020, as discussed below, the Company increased its ownership in Broughton Street Portfolio.
| (f) | Includes cost-method method investments in Storage Post, Fifth Wall and other investments.
| (g) | 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 Investments On January 24, 2019, the Renaissance Portfolio, in which the Company owns a 20% noncontrolling interest, acquired a 7,300 square-foot property, 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. On August 8, 2019, the Company invested $1.8 million in Fifth Wall Ventures Retail Fund, L.P. During the six months ended June 30, 2020, the Company invested another $0.2 million. The Company’s total commitment is $5.0 million. The Company accounts for its interest at cost less impairment given its ownership is less than five percent, the investment has no readily determinable fair value, and the Company has virtually no influence over the partnership’s operating and financial policies. At June 30, 2020, the Company’s investment was $2.0 million. On May 2, 2019, the Company acquired a ground lease interest at 1238 Wisconsin Avenue in Washington, D.C. (“1238 Wisconsin”). Prior to the fourth quarter of 2019, the Company had a controlling interest, and therefore consolidated the property within the Company’s financial statements. During December 2019, the Company entered into an operating agreement in order to admit a co-investor and property manager, who was also appointed the development manager under a separate agreement. As a result of these transactions and the significant participation rights of the co-investor, the Company de-consolidated 1238 Wisconsin and accounted for its interest under the equity method of accounting effective October 1, 2019 as it does not control but exercises significant influence over the investment. No gain or loss was recognized as the Company’s investment approximated fair value at the time of de-consolidation. 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 Acadia Brandywine Holdings, LLC (“Brandywine Holdings”), an entity in which the Company has a 22.22% interest and which is 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 continued to apply the equity method of accounting for its aggregate 75.22% noncontrolling interest in Town Center after the March 2018 transaction. On April 1, 2020, the Company exchanged the remaining $38.7 million of Brandywine Notes Receivable (Note 3) plus accrued interest of $2.0 million for the remaining 24.78% interest in Town Center, thereby obtaining a 100% controlling interest in the property. The property was then consolidated (Note 2) and the Company recorded the remaining interest in the property investment at cost. Fund Investments Acquisitions of Unconsolidated Investments On March 19, 2019, Fund V obtained an 99.35% interest in a joint venture which in turn obtained a 90% undivided interest in the property and invested in a 428,000 square-foot property located in Riverdale, Utah referred to as “Family Center at Riverdale” for $48.5 million. The property is held by the venture as a tenancy in common. 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. On April 30, 2019, Fund V acquired a 90% interest in a venture which invested in a 300,000 square-foot property located in Vernon, Connecticut referred to as “Tri-City Plaza” for $36.7 million. The Company accounts for its interest in Tri-City Plaza under the equity method of accounting as it does not control but exercises significant influence over the investment. On August 21, 2019, Fund V acquired a 90% interest in a venture which invested in a 225,000 square foot property and a 300,000 square foot property, both located in Frederick County, Maryland collectively referred to as the “Frederick County Acquisitions” for $21.8 million and $33.1 million, respectively. The Company accounts for its interest in the Frederick County Acquisitions 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. On May 26, 2020, pursuant to the buy-sell provisions of the operating agreement of the Broughton Street Portfolio, Fund IV acquired all of the third-party equity of BSP II, which underlies two properties within the Broughton Street Portfolio, for $1.2 million plus closing costs of $0.1 million. These two BSP II properties were consolidated during the second quarter of 2020. Storage Post On June 29, 2019, Fund III’s Storage Post venture, which is a cost-method investment with no carrying value, distributed $1.6 million of which the Operating Partnership’s share was $0.4 million. Albertsons During 2006, as part of a series of investments with a consortium of other investors known as the “RCP Venture”, Mervyns II acquired an indirect interest in Albertsons Companies, Inc. a private chain of grocery stores (“Albertsons”) through two 36.67% owned entities (KLA A Investments, LLC and ABS Opportunities, LLC, “KLA/ABS”). Its investment (the “Investment in Albertsons”) has been accounted for under the cost method as Mervyns II has no influence over operating and financial policies of KLA/ABS. Subsequent to the initial investment in 2006, Mervyns II received distributions from its Investment in Albertsons in excess of its initial contribution, which has been recognized in earnings. During the second quarter of 2020, Mervyns II realized a gain of approximately $23.2 million from its Investment in Albertsons. The realized gains resulted from the issuance and distribution of proceeds from a preferred equity investment and a sale of a portion of its investment in an initial public offering of Albertsons, both of which occurred in June 2020. Following these transactions, Mervyns II has retained an effective indirect ownership of approximately 4.1 million shares (approximately 1% interest) through its Investment in Albertsons, which it has accounted for at fair value following the initial public offering given the readily determinable fair value, resulting in an unrealized gain of approximately $64.9 million. The Company has reflected both the realized and unrealized gain as Realized and unrealized holding gains on investments and other within its consolidated statements of operations for the three and six months ended June 30, 2020. From inception through June 30, 2020, Mervyns II has earned approximately $110.0 million in distributions related to its Investment in Albertsons. The Company has an effective ownership interest of 28.3% in Mervyns II. Fees from Unconsolidated Affiliates The Company earned property management, construction, development, legal and leasing fees from its investments in unconsolidated partnerships totaling $0.1 million each for the three months ended June 30, 2020 and 2019, respectively, and $0.2 million each for the six months ended June 30, 2020 and 2019, which is included in other revenues in the consolidated financial statements. In addition, the Company paid to certain unaffiliated partners of its joint ventures, $0.4 million and $0.3 million for the three months ended June 30, 2020 and 2019, respectively, and $1.4 million and $0.6 million for six months ended June 30, 2020 and 2019, 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 operations, in each period, summarize the financial information of the Company’s investments in unconsolidated affiliates (in thousands):
|  | June 30, 2020 |  |  | December 31, 2019 |
Combined and Condensed Balance Sheets |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |
Rental property, net |  | $ | 572,901 |  |  | $ | 656,265 |
Real estate under development |  |  | 10,006 |  |  |  | 1,341 |
Other assets |  |  | 71,321 |  |  |  | 85,540 |
Total assets |  | $ | 654,228 |  |  | $ | 743,146 |
Liabilities and partners’ equity: |  |  |  |  |  |  |  |
Mortgage notes payable |  | $ | 510,043 |  |  | $ | 502,036 |
Other liabilities |  |  | 82,036 |  |  |  | 77,785 |
Partners’ equity |  |  | 62,149 |  |  |  | 163,325 |
Total liabilities and partners’ equity |  | $ | 654,228 |  |  | $ | 743,146 |
Company's share of accumulated equity |  | $ | 107,759 |  |  | $ | 186,864 |
Basis differential |  |  | 56,203 |  |  |  | 100,962 |
Deferred fees, net of portion related to the Company's interest |  |  | 3,499 |  |  |  | 1,270 |
Amounts receivable/payable by the Company |  |  | 536 |  |  |  | (1,902 | )
Investments in and advances to unconsolidated affiliates, net of Company's share of distributions in excess of income from and investments in unconsolidated affiliates |  |  | 167,997 |  |  |  | 287,194 |
Cost method investments |  |  | 67,308 |  |  |  | 2,541 |
Company's share of distributions in excess of income from and investments in unconsolidated affiliates |  |  | 15,520 |  |  |  | 15,362 |
Investments in and advances to unconsolidated affiliates |  | $ | 250,825 |  |  | $ | 305,097 |
|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
Combined and Condensed Statements of Income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total revenues |  | $ | 19,057 |  |  | $ | 22,740 |  |  | $ | 43,169 |  |  | $ | 42,713 |
Operating and other expenses |  |  | (8,736 | ) |  |  | (5,236 | ) |  |  | (16,871 | ) |  |  | (10,342 | )
Interest expense |  |  | (5,014 | ) |  |  | (5,639 | ) |  |  | (10,503 | ) |  |  | (10,415 | )
Depreciation and amortization |  |  | (6,610 | ) |  |  | (5,795 | ) |  |  | (13,706 | ) |  |  | (10,587 | )
Net (loss) income attributable to unconsolidated affiliates |  | $ | (1,303 | ) |  | $ | 6,070 |  |  | $ | 2,089 |  |  | $ | 11,369 |
Company’s share of equity in net (loss) income of unconsolidated affiliates |  | $ | (464 | ) |  | $ | 4,282 |  |  | $ | 1,486 |  |  | $ | 7,277 |
Basis differential amortization |  |  | (322 | ) |  |  | (723 | ) |  |  | (1,017 | ) |  |  | (1,447 | )
Company’s equity in (loss) earnings of unconsolidated affiliates |  | $ | (786 | ) |  | $ | 3,559 |  |  | $ | 469 |  |  | $ | 5,830 |

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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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