Investment in Consolidated and Unconsolidated Entities

Consolidated Entities

At December 31, 2018, Sandy Plains Centre was the Company's only VIE through an active Reverse 1031 Exchange. As of December 31, 2017, River Oaks and Kyle Marketplace were the Company's only VIEs through active Reverse 1031 Exchanges. 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.



	December 31, 2018		December 31, 2017
Net investment properties	$	39,634	$	165,875
Other assets	4,457		18,630
Total assets	44,091		184,505
Other liabilities	385		11,343
Total liabilities	385		11,343
Net assets	$	43,706	$	173,162

During the year ended December 31, 2017, the Company acquired The Plaza Midtown (see "Note 4. Acquired Properties"), consisting of wholly owned multi-tenant retail space, and an undivided interest in certain common elements as tenants-in-common. 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, which has been recognized in land and building and other improvements of $1,963 and $8,827, respectively, as of the acquisition date. All intercompany transactions and balances have been eliminated in consolidation.

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.



			Carrying Value of
			Investment at December 31,
Entity	Description	Ownership %	2018			2017
IAGM Retail Fund I, LLC (a)	Multi-tenant retail shopping centers	55%	$	126,195		$	123,693
Downtown Railyard Venture, LLC (b)	Land development	90%	30,049			57,183
Other unconsolidated entities	Various real estate investments	Various	(112		)	(112		)
			$	156,132		$	180,764

(a)

On April 17, 2013, the Company entered into a joint venture, IAGM, 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 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.

The Company contributed 14 properties to IAGM during the year ended December 31, 2013, and treated the contribution as a partial sale under ASC 360-20, Property, Plant and Equipment - Real Estate Sales, and deferred an aggregate gain of $15,625 as a result of the property sales into the joint venture. Through December 31, 2017, the Company was amortizing the basis adjustment over 30 years, consistent with the depreciation period of the investee's underlying assets. In accordance with the provisions of ASU No. 2017-05, full gain recognition may be required for property sales in which the Company has continuing involvement, where those gains may have been deferred under prior GAAP. As of January 1, 2018, with the adoption of ASU No. 2017-05, the Company's remaining $12,756 of the aforementioned deferred gain has been recognized through beginning distributions in excess of accumulated net income.

(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 in Sacramento, California. 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. 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'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, 2018, the Company recorded an other-than-temporary impairment of $29,933 on DRV, as disclosed in "Note 10. Fair Value Measurements." During the years ended December 31, 2017 and 2016, 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 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, 2018, IAGM recognized a provision for asset impairment of $3,673 on three retail properties and a loss on sale of $4,135 on two retail properties. For the year ended December 31, 2018, the Company's share of IAGM's provision for asset impairment and loss on sale was $2,020 and $2,274, respectively.

Combined Financial Information

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



	As of
	December 31, 2018			December 31, 2017
	(unaudited)			(unaudited)
Assets:
Real estate assets, net of accumulated depreciation	$	494,583		$	586,671
Other assets	103,565			73,423
Total assets	598,148			660,094
Liabilities and equity:
Mortgage debt, net	272,629			311,574
Other liabilities	42,569			49,032
Equity	282,950			299,488
Total liabilities and equity	598,148			660,094
Company’s share of equity	185,814			193,572
Impairment of investment in unconsolidated entity	(29,933		)	—
Cost of investments in excess of the Company's share of underlying net book value, net of accumulated amortization of $0 and $2,647, respectively.	251			(12,808		)
Carrying value of investments in unconsolidated entities	$	156,132		$	180,764



	Year ended December 31,
	2018			2017			2016
	(unaudited)			(unaudited)			(unaudited)

Revenues	$	58,322		$	62,367		$	70,385
Expenses:
Depreciation and amortization	21,001			26,860			27,209
Operating expenses, ground rent and general and administrative expenses	19,732			22,304			21,671
Provision for asset impairment	3,673			4,745			—
Total operating expenses	44,406			53,909			48,880
Operating income	13,916			8,458			21,505
Interest expense and loan cost amortization	(13,205		)	(13,419		)	(13,015		)
(Loss) gain on sale of real estate	(4,123		)	434			—
Loss on debt extinguishment	(20		)	—			—
Net (loss) income	$	(3,432	)	$	(4,527	)	$	8,490

Company's share of net (loss) income, net of excess basis depreciation of $0, $520, and $520, respectively	$	(1,870	)	$	(1,930	)	$	4,109
Distributions from unconsolidated entities in excess of the investments' carrying value	410			1,126			5,190
Impairment of investment in unconsolidated entity	(29,933		)	—			—
Equity in (losses) earnings and (impairment), net, of unconsolidated entities	$	(31,393	)	$	(804	)	$	9,299

The following table shows the scheduled maturities of the Company's unconsolidated entities' total third party mortgage debt of $275,308 as of December 31, 2018, for each of the next five years, and thereafter:



	Maturities during the year ending December 31,
	2019		2020		2021		2022		2023		Thereafter		Total
Mortgages payable	$	31,353	$	—	$	23,150	$	—	$	180,125	$	40,680	$	275,308

On June 30, 2018, IAGM entered into a one year extension on a non-recourse mortgage loan with a balance of $15,103 related to one retail property.

On October 5, 2018, IAGM disposed of Victory Lakes Shopping Center and used proceeds from the sale to extinguish $38,300 of mortgages payable at two retail properties maturing in 2018 and pay down $3,830 of mortgages payable at six retail properties.

On November 2, 2018, IAGM entered into a senior secured term loan facility of $152,000 to refinance its mortgages payable maturing in 2018. The senior secured term loan facility matures in November 2023 and contains two twelve-month extension options that IAGM may exercise upon payment of an extension fee equal to 0.10% of the total commitment amount on the first day of the extension term and subject to certain other conditions. The senior secured term loan facility bears interest at a rate equal to the London Inter-bank Offered Rate ("LIBOR") daily floating rate plus 1.55% and requires the maintenance of certain financial covenants. As a result of the refinance, the outstanding mortgages payable increased $5,205. As a result of this refinance, no IAGM mortgages payable are recourse to the Company.

It is anticipated that the joint ventures will be able to repay, refinance or extend all of their debt on a timely basis.