Investment in Consolidated and Unconsolidated Entities

Consolidated Entities

During the third quarter of 2017, the Company entered into purchase agreements structured as Reverse 1031 Exchanges in order to acquire River Oaks and Kyle Marketplace. For a Reverse 1031 Exchange in which the Company purchases a new asset that is similar in nature, character, or class prior to selling the asset to be matched in the like-kind exchange (the Company refers to a new asset being acquired in the Reverse 1031 Exchange prior to the sale of the related asset as a "Parked Asset"), legal title to the Parked Asset is held by a wholly owned subsidiary of the EAT engaged to execute the Reverse 1031 Exchange until the sale transaction and the Reverse 1031 Exchange is completed. The Company, through a subsidiary, enters into a master lease agreement with the EAT Subsidiary whereby the EAT Subsidiary leases the Parked Asset and all other rights in connection with the acquisition to the Company. The master lease terminates on the earlier of (i) the date that the Parked Asset is transferred to the Company, or an affiliate, (ii) the date that the EAT transfers to the Company, or an affiliate of the Company, its ownership in the EAT Subsidiary, or (iii) 180 days from the date that legal title to the Parked Asset was transferred to the EAT Subsidiary. The EAT is classified as a variable interest entity ("VIE"), as defined in FASB ASC 810, Consolidation, as it does not have sufficient equity investment at risk to finance its activities without additional subordinated financial support.

River Oaks and Kyle Marketplace were deemed to be VIEs, for which the Company was deemed to be the primary beneficiary as it has the ability to direct the activities of the entities that most significantly impact economic performance and has all of the risks and rewards of ownership. Accordingly, the Company has consolidated River Oaks and Kyle Marketplace.

The following were the assets and liabilities of the consolidated VIEs. The liabilities of the VIEs are not recourse to the Company, and the assets must be used first to settle obligations of the VIEs. As of December 31, 2017, River Oaks and Kyle Marketplace were the Company's only active Reverse 1031 Exchanges.



	December 31, 2017		December 31, 2016
Net investment properties	$	165,875	$	—
Other assets	18,630		—
Total assets	184,505		—
Other liabilities	11,343		—
Total liabilities	11,343		—
Net assets	$	173,162	$	—

During the third quarter of 2017, the Company acquired The Plaza Midtown (see "Note 3. Acquired Properties"), consisting of wholly owned multi-tenant retail space, and an undivided interest in certain common elements as tenants-in-common. An undivided interest is an ownership arrangement in which two or more parties jointly own property, and title is held individually to the extent of each party’s interest. The common elements primarily consist of a parking garage adjacent to the wholly owned multi-tenant retail space. The ownership of The Plaza Midtown's common elements was deemed to not be subject to joint control, as the other tenant-in-common lacked the ability to effectively participate in the decisions that most significantly impact economic performance of The Plaza Midtown's common elements. Accordingly, the Company has applied proportionate consolidation of the common elements. The parking garage had an estimated proportionate fair value of $10,790 at the acquisition date, which has been included in land and building and other improvements of $1,963 and $8,827, respectively, on the consolidated balance sheet as of December 31, 2017.

Unconsolidated Entities

The entities listed below are owned by the Company and other unaffiliated parties in joint ventures. Net income, distributions and capital transactions for these entities are allocated to the Company and its joint venture partners in accordance with the respective partnership agreements.

The Company analyzed the joint venture agreements and determined that the joint ventures were not VIEs. The Company also considered the joint venture partners' participating rights under the joint venture agreements and determined that the joint venture partners have the ability to participate in major decisions, which equates to shared decision making. Accordingly, the Company has significant influence but does not control the joint ventures. Therefore, these joint ventures are not consolidated by the Company and the equity method of accounting is used to account for these investments. Under the equity method of accounting, the net equity investment of the Company and the Company's share of net income or loss from the unconsolidated entity are reflected in the consolidated balance sheets and the consolidated statements of operations and comprehensive income (loss).



			Carrying Value of
			Investment at December 31,
Entity	Description	Ownership %	2017			2016
IAGM Retail Fund I, LLC (a)	Multi-tenant retail shopping centers	55%	$	123,693		$	126,090
Downtown Railyard Venture, LLC (b)	Land development	90%	57,183			52,365
Other unconsolidated entities	Various real estate investments	Various	(112		)	273
			$	180,764		$	178,728

(a)

On April 17, 2013, the Company entered into a joint venture, IAGM Retail Fund I, LLC ("IAGM"), with PGGM Private Real Estate Fund ("PGGM"), for the purpose of acquiring, owning, managing, supervising, and disposing of properties and sharing in the profits and losses from those properties and its activities. The Company initially contributed 13 retail properties totaling 2,109,324 square feet from its portfolio to IAGM for an equity interest of $96,788, and PGGM contributed $79,190. The gross disposition price was $409,280. On July 1, 2013, the Company contributed another retail property for a gross disposition price of $34,350. The Company treated these dispositions as a partial sale. The Company amortizes the basis adjustment over 30 years, consistent with the depreciation of the investee's underlying assets. The Company is the managing member of IAGM, responsible for the day-to-day activities and earns fees for venture management, property management, leasing and other services provided.

(b)

On September 30, 2015, the Company was admitted as a member to Downtown Railyard Venture, LLC ("DRV"), which is a joint venture established in order to develop and sell a land development. Simultaneously, the Company structured and closed the sale of a non-core land development to DRV, which for accounting purposes is treated as a contribution of the land development to DRV in exchange for an equity interest of $46,174 in DRV (the foregoing transaction is referred to as the "Railyards Transaction"). Concurrent with the formation of the joint venture, and included in the basis of the Company's investment in DRV, the Company established an $18,088 loan to DRV at a 4.0% interest rate, compounded annually. The loan matures on June 30, 2023. The Company recorded a loss of $12,919 on the Railyards Transaction in 2015 due to the difference between the carrying value of the land and the estimated fair value of the equity interest. The Company's ownership percentage in DRV is based upon a waterfall calculation outlined in the operating agreement. The joint venture partner is the developer and managing member of DRV, responsible for the day-to-day activities and earns fees for managing the venture. During the year ended December 31, 2015, the Company received return of capital proceeds of $4,092 related to the sale of a land parcel and contributed $3,000 in capital to the joint venture.

During the years ended December 31, 2017, 2016 and 2015, the Company recorded no impairment on its unconsolidated entities. During the year ended December 31, 2017, the Company received a final distribution from one unconsolidated entity of $366, which reduced the Company's investment in the unconsolidated entity to zero as of December 31, 2017. No gain or loss was recognized as part of the transaction.

During the year ended December 31, 2016, a gain on the sale of a joint venture for the development of a student housing community of $1,434 was recorded and is included as part of net income from discontinued operations on the consolidated statements of operations and comprehensive income (loss) as the Company's exit from the student housing market is a strategic shift that has had a major effect on the Company's operations and financial results.

During the year ended December 31, 2015, the Company received the final distribution from one unconsolidated entity. As the distributions received in 2015 exceeded the Company's book value of the asset at the time the final distribution was received, a gain on the closing of the fund of $326 was recorded and is included as part of net income from continuing operations on the consolidated statements of operations and comprehensive income (loss).

Combined Financial Information

The following tables present the combined financial information for the Company’s investments in unconsolidated entities.



	As of
	December 31, 2017			December 31, 2016
	(unaudited)			(unaudited)
Assets:
Real estate assets, net of accumulated depreciation	$	586,671		$	628,667
Other assets	73,423			71,288
Total assets	660,094			699,955
Liabilities and equity:
Debt, net	311,574			311,378
Other liabilities	49,032			65,225
Equity	299,488			323,352
Total liabilities and equity	660,094			699,955
Company’s share of equity	193,572			192,124
Net excess of the net book value of underlying assets over the cost of investments (net of accumulated amortization of $2,647 and $2,229, respectively)	(12,808		)	(13,396		)
Carrying value of investments in unconsolidated entities	$	180,764		$	178,728



	Year ended December 31,
	2017			2016		2015
	(unaudited)			(unaudited)		(unaudited)

Revenues	$	62,367		$	70,385	$	67,033
Expenses:
Interest expense and loan cost amortization	13,419			13,015		15,319
Depreciation and amortization	26,860			27,209		23,252
Operating expenses, ground rent and general and administrative expenses	22,304			21,671		21,200
Impairments	4,745			—		—
Total expenses	67,328			61,895		59,771
Net income before gain on sale of real estate	(4,961		)	8,490		7,262
Gain on sale of real estate	434			—		35,462
Net income	$	(4,527	)	$	8,490	$	42,724

Company's share of net income, net of excess basis depreciation of $520, $520, and $520, respectively	$	(1,930	)	$	4,109	$	17,307
Distributions from unconsolidated entities in excess of the investments' carrying value	1,126			5,190		17,771
Equity in (losses) earnings of unconsolidated entities	$	(804	)	$	9,299	$	35,078

The unconsolidated entities had total third party mortgage debt of $312,233 at December 31, 2017 that matures as follows:



Maturities during the year ended December 31,	Amount
2018	$	204,028
2019	16,250
2020	—
2021	23,150
2022	—
Thereafter	68,805
	$	312,233

Of the total outstanding debt related to assets held by the Company's unconsolidated joint ventures, approximately $23,000 is recourse to the Company and matures in 2018. It is anticipated that the joint ventures will be able to repay, refinance or extend all of their debt on a timely basis.