Basis of Presentation

6 Months Ended

Jun. 30, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Our interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not necessarily include all information and footnotes necessary for a fair statement of our consolidated financial position, results of operations, and cash flows in accordance with generally accepted accounting principles in the United States (“GAAP”).

In the opinion of management, the unaudited financial information for the interim periods presented in this Report reflects all normal and recurring adjustments necessary for a fair statement of financial position, results of operations, and cash flows. Our interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes for the year ended December 31, 2020, which are included in the 2020 Annual Report, as certain disclosures that would substantially duplicate those contained in the audited consolidated financial statements have not been included in this Report. Operating results for interim periods are not necessarily indicative of operating results for an entire year.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in our consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.

Basis of Consolidation

Our consolidated financial statements reflect all of our accounts, including those of our controlled subsidiaries. The portions of equity in consolidated subsidiaries that are not attributable, directly or indirectly, to us are presented as noncontrolling interests. All significant intercompany accounts and transactions have been eliminated.

When we obtain an economic interest in an entity, we evaluate the entity to determine if it should be deemed a VIE and, if so, whether we are the primary beneficiary and are therefore required to consolidate the entity. There have been no significant changes in our VIE policies from what was disclosed in the 2020 Annual Report.

At June 30, 2021 and December 31, 2020, we considered 13 and 12 entities, respectively, to be VIEs, of which we consolidated five at both dates, as we are considered the primary beneficiary. The following table presents a summary of selected financial data of the consolidated VIEs included in our consolidated balance sheets (in thousands):


	June 30, 2021		December 31, 2020
Land, buildings and improvements	$	423,333	$	423,333
Net investments in direct financing leases	15,044		15,242
In-place lease intangible assets and other	41,978		41,997
Above-market rent intangible assets	26,720		26,720
Accumulated depreciation and amortization	(146,120)		(137,827)
Total assets	373,709		381,953

Non-recourse mortgages, net	$	1,683	$	3,508
Below-market rent and other intangible liabilities, net	21,426		22,283
Total liabilities	46,770		48,971

At June 30, 2021 and December 31, 2020, our eight and seven unconsolidated VIEs, respectively, included our interests in six and five unconsolidated real estate investments, respectively, which we account for under the equity method of accounting, and two unconsolidated investments in equity securities, which we accounted for as investments in shares of the entities at fair value. We do not consolidate these entities because we are not the primary beneficiary and the nature of our involvement in the activities of these entities allows us to exercise significant influence on, but does not give us power over, decisions that significantly affect the economic performance of these entities. As of June 30, 2021, and December 31, 2020, the net carrying amount of our investments in these entities was $524.3 million and $425.3 million, respectively, and our maximum exposure to loss in these entities was limited to our investments.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.

Asset management revenue and structuring and other advisory revenue are now included within Asset management and other revenue in the consolidated statements of income.

We currently present Non-operating income on its own line item in the consolidated statements of income, which was previously included within Other gains and (losses). Non-operating income primarily consists of realized gains and losses on derivative instruments, dividends from equity securities, and interest income on our cash deposits and loans to affiliates.

Segment Allocation Changes

Beginning with the second quarter of 2020, general and administrative expenses attributed to our Investment Management segment are comprised of the incremental costs of providing services to the Managed Programs, which are fully reimbursed by those funds (resulting in no net expense for us). All other general and administrative expenses are attributed to our Real Estate segment. Previously, general and administrative expenses were allocated based on time incurred by our personnel for the Real Estate and Investment Management segments. In addition, beginning with the second quarter of 2020, stock-based compensation expense and corporate depreciation and amortization expense are fully recognized within our Real Estate segment. In light of the termination of the advisory agreements with CWI 1 and CWI 2 in connection with the WLT management internalization (Note 3), we now view essentially all assets, liabilities, and operational expenses as part of our Real Estate segment, other than incremental activities that are expected to wind down as we manage CPA:18 – Global and CESH through the end of their respective life cycles. These changes between the segments had no impact on our consolidated financial statements.

In addition, our investments in WLT, and income recognized from our investments in WLT, are included within our Real Estate segment, since we are not the advisor to that company. Previously, our investments in CWI 1 and CWI 2, and income recognized from our investments in CWI 1 and CWI 2, were included within our Investment Management segment (Note 3).

Revenue Recognition

There have been no significant changes in our policies for revenue from contracts under Accounting Standards Codification (“ASC”) 606 from what was disclosed in the 2020 Annual Report. ASC 606 does not apply to our lease revenues, which constitute a majority of our revenues, but primarily applies to revenues generated from our hotel operating properties and our Investment Management segment. Revenue from contracts for our Real Estate segment primarily represented operating property revenues of $1.7 million and less than $0.1 million for the three months ended June 30, 2021 and 2020, respectively and $2.5 million and $4.7 million for the six months ended June 30, 2021 and 2020, respectively (Note 15). Revenue from contracts under ASC 606 from our Investment Management segment is discussed in Note 3.

Lease revenue (including straight-line lease revenue) is only recognized when deemed probable of collection. Collectibility is assessed for each tenant receivable using various criteria including credit ratings (Note 5), guarantees, past collection issues, and the current economic and business environment affecting the tenant. If collectibility of the contractual rent stream is not deemed probable, revenue will only be recognized upon receipt of cash from the tenant.

For the three and six months ended June 30, 2021 as compared to the same periods in 2020, lease revenues increased by $4.6 million and $2.0 million, respectively, due to the positive impact on rent collections as businesses recover from the initial effects of the COVID-19 pandemic. In addition, for the three months ended June 30, 2021 as compared to the same period in 2020, for our remaining hotel operating property, revenues and expenses increased by $1.7 million and $0.6 million, respectively, reflecting higher occupancy as the hotel’s business recovers from the ongoing COVID-19 pandemic. For the six months ended June 30, 2021 as compared to the same period in 2020, for our remaining hotel operating property, revenues and expenses decreased by $0.3 million and $0.8 million, respectively, due to the adverse effect of the COVID-19 pandemic on the hotel’s operations.

Restricted Cash

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets to the consolidated statements of cash flows (in thousands):


	June 30, 2021		December 31, 2020
Cash and cash equivalents	$	164,515	$	248,662
Restricted cash (a)	53,688		63,117
Total cash and cash equivalents and restricted cash	$	218,203	$	311,779

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(a)Restricted cash is included within Other assets, net on our consolidated balance sheets.