Variable Interest Entities, Contingent Liabilities and Consolidated Joint Ventures (Tables)

6 Months Ended

Jun. 30, 2018

Schedule of Variable Interest Entities through Ground Leases and Carrying Amount and Maximum Exposure to Loss

The following chart details the VIEs through the Company’s ground leases and the aggregate carrying amount and maximum exposure to loss as of June 30, 2018 (dollars in thousands):

Description of Property(a)	Date Acquired	Land Contract Purchase Price		# Units in Apartment Complex	Owner/ Operator Mortgage from Third Party(b)			Type of Exposure	Carrying Amount and Maximum Exposure to Loss
The Meadows Apartments, Lakemoor, Illinois	March 24, 2015	$	9,300	496	$	51,331	(c)	Land	$	9,592
The Briarbrook Village Apartments, Wheaton, Illinois	August 2, 2016	10,530		342	39,411			Land	10,536
The Vue Apartments, Beachwood, Ohio	August 16, 2016	13,896		348	67,444			Land	13,901

Totals		$	33,726	1,186	$	158,186			$	34,029

(a)

Simultaneously with each purchase, the Company entered into a triple net ground lease with affiliates of Strategic Properties of North America, the owner/operators of these properties.

(b)

Simultaneously with the closing of each acquisition, the owner/operator obtained a mortgage from a third party which, together with the Company’s purchase of the land, provided substantially all of the funds to acquire the complex. The Company provided its land as collateral for the respective owner/operator’s mortgage loans; accordingly, each land position is subordinated to the applicable mortgage. No other financial support has been provided by the Company to the owner/operator.

(c)

In November 2017, the owner/operator closed on a $7,556 supplemental mortgage (the original mortgage was for $43,824). In connection therewith, the Company agreed to subordinate its fee interest to this second mortgage in exchange for a payment by the owner/operator to the Company of $5,906 as a fixed rent payment which was recorded as deferred income and will be included in rental income over the term of the lease. The fixed rent payment balance was $5,762 and $5,870 at June 30, 2018 and December 31, 2017, respectively, and is included in Accrued expenses and other liabilities on the consolidated balance sheets.

Consolidated JV

Summary of our variable interests in identified VIEs

The following is a summary of the consolidated VIEs’ carrying amounts and classification in the Company’s consolidated balance sheets, none of which are restricted (amounts in thousands):

	June 30, 2018	December 31, 2017 (a)
Land	14,722	$	17,844
Buildings and improvements, net of accumulated depreciation of $3,615 and $3,811, respectively	28,145	31,789
Cash	839	1,145
Unbilled rent receivable	1,166	1,011
Unamortized intangible lease assets, net	975	1,241
Escrow, deposits and other assets and receivables	687	948
Mortgages payable, net of unamortized deferred financing costs of $423 and $442, respectively	27,411	32,252
Accrued expenses and other liabilities	538	870
Unamortized intangible lease liabilities, net	1,848	2,015
Accumulated other comprehensive income (loss)	90	(1		)
Non-controlling interests in consolidated joint ventures	1,422	1,742

(a)

Includes a consolidated joint venture, in which the Company held an 85% interest, located in Fort Bend, Texas which was sold in January 2018 (see Note 5).

- Definition

Tabular disclosure of the significant judgments and assumptions made in determining whether a variable interest (as defined) held by the entity requires the variable interest entity (VIE) (as defined) to be consolidated and (or) disclose information about its involvement with the VIE, individually or in aggregate (as applicable); the nature of restrictions, if any, on the consolidated VIE's assets and on the settlement of its liabilities reported by an entity in its statement of financial position, including the carrying amounts of such assets and liabilities; the nature of, and changes in, the risks associated with involvement in the VIE; how involvement with the VIE affects the entity's financial position, financial performance, and cash flows; the lack of recourse if creditors (or beneficial interest holders) of the consolidated VIE have no recourse to the general credit of the primary beneficiary (if applicable); the terms of arrangements, giving consideration to both explicit arrangements and implicit variable interests, if any, that could require the entity to provide financial support to the VIE, including events or circumstances that could expose the entity to a loss; the methodology used by the entity for determining whether or not it is the primary beneficiary of the variable interest entity; the significant factors considered and judgments made in determining that the power to direct the activities of a VIE that most significantly impact the VIE's economic performance are shared (as defined); the carrying amounts and classification of assets and liabilities of the VIE included in the statement of financial position; the entity's maximum exposure to loss, if any, as a result of its involvement with the VIE, including how the maximum exposure is determined and significant sources of the entity's exposure to the VIE; a comparison of the carrying amounts of the assets and liabilities and the entity's maximum exposure to loss; information about any liquidity arrangements, guarantees, and (or) other commitments by third parties that may affect the fair value or risk of the entity's variable interest in the VIE; whether or not the entity has provided financial support or other support (explicitly or implicitly) to the VIE that it was not previously contractually required to provide or whether the entity intends to provide that support, including the type and amount of the support and the primary reasons for providing the support; and supplemental information the entity determines necessary to provide.

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