Equity Method Investments

6 Months Ended

Jun. 30, 2021

Equity Method Investments and Joint Ventures [Abstract]

We own interests in (i) the Managed Programs, (ii) certain unconsolidated real estate investments with CPA:18 – Global and third parties, and (iii) WLT. We account for our interests in these investments under the equity method of accounting (i.e., at cost, increased or decreased by our share of earnings or losses, less distributions, plus contributions and other adjustments required by equity method accounting, such as basis differences) or at fair value by electing the equity method fair value option available under GAAP.

We classify distributions received from equity method investments using the cumulative earnings approach. Distributions received are considered returns on the investment and classified as cash inflows from operating activities. If, however, the investor’s cumulative distributions received, less distributions received in prior periods determined to be returns of investment, exceeds cumulative equity in earnings recognized, the excess is considered a return of investment and is classified as cash inflows from investing activities.

The following table presents (Losses) earnings from equity method investments, which represents our proportionate share of the income or losses of these investments, as well as certain adjustments related to other-than-temporary impairment charges and amortization of basis differences related to purchase accounting adjustments (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Distributions of Available Cash from CPA:18 – Global (Note 3)	$	1,787	$	2,029	$	3,326	$	3,945
Amortization of basis differences on equity method investments in the Managed Programs	(190)		(124)		(368)		(568)
Proportionate share of earnings (losses) from equity method investments in the Managed Programs	101		(1,142)		126		(2,857)
Gain on redemption of special general partner interests in CWI 1 and CWI 2, net (Note 3)	—		33,009		—		33,009
Other-than-temporary impairment charges on our equity method investments in CWI 1 and CWI 2 (Note 8)	—		—		—		(47,112)
Total earnings (losses) from equity method investments in the Managed Programs	1,698		33,772		3,084		(13,583)
(Losses) earnings from equity method investments in real estate (a)	(1,670)		448		(5,745)		2,252
Amortization of basis differences on equity method investments in real estate	(184)		(237)		(398)		(476)
Other-than-temporary impairment charge on an equity method investment in real estate (Note 8)	—		—		(6,830)		—
Total (losses) earnings from equity method investments in real estate	(1,854)		211		(12,973)		1,776
(Losses) earnings from equity method investments	$	(156)	$	33,983	$	(9,889)	$	(11,807)

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(a)Amounts for the three and six months ended June 30, 2021 include losses of $4.0 million and $8.5 million, respectively, from our equity method investment in WLT (due to the adverse impact of the COVID-19 pandemic on its operations).

Managed Programs

We own interests in the Managed Programs and account for these interests under the equity method because, as their advisor, we do not exert control over, but we do have the ability to exercise significant influence over, the Managed Programs. Operating results of the Managed Programs are included in the Investment Management segment.

The following table sets forth certain information about our investments in the Managed Programs (dollars in thousands):


	% of Outstanding Interests Owned at				Carrying Amount of Investment at
Fund	June 30, 2021		December 31, 2020		June 30, 2021		December 31, 2020
CPA:18 – Global (a)	5.023	%	4.569	%	$	56,590	$	51,949
CPA:18 – Global operating partnership	0.034	%	0.034	%	209		209
CESH (b)	2.430	%	2.430	%	5,127		4,399
					$	61,926	$	56,557

__________

(a)During the six months ended June 30, 2021, we received asset management revenue from CPA:18 – Global in shares of its common stock, which increased our ownership percentage in CPA:18 – Global (Note 3).

(b)Investment is accounted for at fair value.

CPA:18 – Global — The carrying value of our investment in CPA:18 – Global at June 30, 2021 includes asset management fees receivable, for which 118,863 shares of CPA:18 – Global Class A common stock were issued during the third quarter of 2021. We received distributions from this investment during the six months ended June 30, 2021 and 2020 of $0.9 million and $1.8 million, respectively. We received distributions from our investment in the CPA:18 – Global operating partnership during the six months ended June 30, 2021 and 2020 of $3.3 million and $1.9 million, respectively (Note 3).

CWI 1 — We received distributions from this investment during the six months ended June 30, 2020 of $0.8 million.

CWI 2 — We received distributions from this investment during the six months ended June 30, 2020 of $0.5 million.

CESH — We have elected to account for our investment in CESH at fair value by selecting the equity method fair value option available under GAAP. We record our investment in CESH on a one quarter lag; therefore, the balance of our equity method investment in CESH recorded as of June 30, 2021 is based on the estimated fair value of our investment as of March 31, 2021. We received a distribution from this investment during the six months ended June 30, 2021 of $0.1 million. We did not receive a distribution from this investment during the six months ended June 30, 2020.

At June 30, 2021 and December 31, 2020, the aggregate unamortized basis differences on our equity method investments in the Managed Programs were $21.1 million and $18.8 million, respectively.

Interests in Other Unconsolidated Real Estate Investments and WLT

We own equity interests in properties that are generally leased to companies through noncontrolling interests in partnerships and limited liability companies that we do not control but over which we exercise significant influence. The underlying investments are jointly owned with affiliates or third parties. In addition, we own shares of WLT common stock, as described in Note 3. We account for these investments under the equity method of accounting. Operating results of our unconsolidated real estate investments are included in the Real Estate segment.

The following table sets forth our ownership interests in our equity method investments in real estate, excluding the Managed Programs, and their respective carrying values (dollars in thousands):


			Carrying Value at
Lessee/Fund/Description	Co-owner	Ownership Interest	June 30, 2021		December 31, 2020
Las Vegas Retail Complex (a)	Third Party	N/A	$	85,147	$	—
Johnson Self Storage	Third Party	90%	68,158		68,979
Kesko Senukai (b)	Third Party	70%	41,913		46,443
WLT (c)	WLT	5%	35,694		44,182
Harmon Retail Corner (d)	Third Party	15%	24,225		23,815
Bank Pekao (b)	CPA:18 – Global	50%	17,700		17,850
State Farm Mutual Automobile Insurance Co. (e)	CPA:18 – Global	50%	7,832		15,475
Apply Sørco AS (f)	CPA:18 – Global	49%	6,258		7,156
Fortenova Grupa d.d. (b)	CPA:18 – Global	20%	3,012		2,989
			$	289,939	$	226,889

__________

(a)See “Las Vegas Retail Complex” below for discussion of this equity method investment in real estate.

(b)The carrying value of this investment is affected by fluctuations in the exchange rate of the euro.

(c)Following the closing of the CWI 1 and CWI 2 Merger, we own 12,208,243 shares of common stock of WLT, which we account for as an equity method investment in real estate. We follow the hypothetical liquidation at book value (“HLBV”) model for this investment. We record any earnings from our investment in shares of common stock of WLT on a one quarter lag (Note 3).

(d)This investment is reported using the HLBV model, which may be different than pro rata ownership percentages, primarily due to the capital structure of the partnership agreement.

(e)We recognized an other-than-temporary impairment charge of $6.8 million on this investment during the six months ended June 30, 2021, as described in Note 8.

(f)The carrying value of this investment is affected by fluctuations in the exchange rate of the Norwegian krone.

We received aggregate distributions of $11.1 million and $8.5 million from our other unconsolidated real estate investments for the six months ended June 30, 2021 and 2020, respectively. At June 30, 2021 and December 31, 2020, the aggregate unamortized basis differences on our unconsolidated real estate investments were $8.9 million and $16.1 million, respectively. This decrease was primarily due to the other-than-temporary impairment charge that we recognized on an equity method investment in real estate during the six months ended June 30, 2021, as described above and in Note 8.

Las Vegas Retail Complex

On June 10, 2021, we entered into an agreement to fund a construction loan of approximately $224.3 million for a retail complex in Las Vegas, Nevada, at an interest rate of 6.0% and term of 36 months. At closing (and through June 30, 2021), we funded $84.9 million, with the remaining amount expected to be funded over the following 15 to 22 months. We hold a purchase option for two net-leased units at the complex upon its completion, as well as an equity purchase option to acquire a 47.5% equity interest in the partnership that owns the borrower. As of the agreement date, we did not deem the exercise of the purchase options to be reasonably certain.

In accordance with ASC 810, Consolidation, we determined that this loan will not be consolidated, but due to the characteristics of the arrangement (including our participation in expected residual profits), the risks and rewards of the agreement are similar to those associated with an investment in real estate rather than a loan. Therefore, the loan will be treated as an implied investment in real estate (as an equity method investment in real estate) for accounting purposes in accordance with the acquisition, development and construction arrangement sub-section of ASC 310, Receivables. Interest income from this investment was $0.3 million for both the three and six months ended June 30, 2021, which was recognized within (Losses) earnings from equity method investments in our consolidated statements of income.