REAL ESTATE AND OTHER AFFILIATES

Investments in real estate and other affiliates that are reported in accordance with the equity and cost methods are as follows:



	Economic/Legal Ownership				Carrying Value				Share of Earnings/Dividends
	March 31,		December 31,		March 31,		December 31,		Three Months Ended March 31,
($ in thousands)	2019		2018		2019		2018		2019			2018
Equity Method Investments
Operating Assets:
The Metropolitan Downtown Columbia (a)	50	%	50	%	$	—	$	—	$	183		$	80
Stewart Title of Montgomery County, TX	50	%	50	%	3,822		3,920		102			82
Woodlands Sarofim #1	20	%	20	%	2,780		2,760		20			20
m.flats/TEN.M	50	%	50	%	3,486		4,701		(1,221		)	(937		)
Master Planned Communities:
The Summit (b)	—	%	—	%	78,573		72,171		7,837			11,128
Seaport District:
Mr. C Seaport	35	%	35	%	8,088		8,721		(632		)	—
Strategic Developments:
Circle T Ranch and Power Center	50	%	50	%	6,024		5,989		35			—
HHMK Development	50	%	50	%	10		10		—			—
KR Holdings	50	%	50	%	161		159		2			672
					102,944		98,431		6,326			11,045
Cost method investments					3,856		3,856		3,625			3,341
Investment in real estate and other affiliates					$	106,800	$	102,287	$	9,951		$	14,386


(a)	The Metropolitan Downtown Columbia was in a deficit position of $4.0 million and $3.8 million at March 31, 2019 and December 31, 2018, respectively, due to distributions from operating cash flows in excess of basis. These deficit balances are presented in Accounts payable and accrued expenses at March 31, 2019 and December 31, 2018.


(b)	Please refer to the discussion below for a description of the joint venture ownership structure.

As of March 31, 2019, the Company is not the primary beneficiary of any of the joint ventures listed above because it does not have the power to direct activities that significantly impact the economic performance of the joint ventures; therefore, the Company reports its interests in accordance with the equity method. As of March 31, 2019 and at December 31, 2018, the Mr. C Seaport variable interest entity ("VIE") does not have sufficient equity at risk to finance its operations without additional financial support. The aggregate carrying value of Mr. C Seaport is $8.1 million and is classified as Investment in real estate and other affiliates in the Condensed Consolidated Balance Sheets. The Company's maximum exposure to loss as a result of this investment is limited to the aggregate carrying value of the investment as the Company has not provided any guarantees or otherwise made firm commitments to fund amounts on behalf of this VIE. As of March 31, 2019, approximately $202.0 million of indebtedness was secured by the properties owned by the Company's real estate and other affiliates of which the Company's share was approximately $96.4 million based upon economic ownership. All of this indebtedness is without recourse to the Company.

As of March 31, 2019 and December 31, 2018, the Company is the primary beneficiary of six VIEs, Bridges at Mint Hill, 110 North Wacker and Ward Village's four homeowners' associations, which are consolidated in its financial statements. The creditors of the consolidated VIEs do not have recourse to the Company, except for 18%, or $9.0 million, of the 110 North Wacker outstanding loan balance. As of March 31, 2019, the carrying values of the assets and liabilities associated with the operations of the consolidated VIEs were $241.7 million and $111.5 million, respectively. As of December 31, 2018, the carrying values of the assets and liabilities associated with the operations of the consolidated VIEs were $190.6 million and $99.8 million, respectively. The assets of the VIEs are restricted for use only by the particular VIEs and are not available for the Company's general operations.

110 North Wacker

During the second quarter of 2018, the Company's partnership with the local developer executed a joint venture agreement with USAA related to 110 North Wacker. At execution, the Company contributed land with a carrying value of $33.6 million and an agreed upon fair value of $85.0 million, and USAA contributed $64.0 million in cash. The Company has subsequent capital obligations of $42.7 million, and USAA is required to fund up to $105.6 million in addition to its initial contribution. The Company and its joint venture partners have also entered into a construction loan agreement further described in Note 6 -Mortgages, Notes and Loans Payable, Net. The Company has concluded that it is the primary beneficiary of the VIE because it has the power to direct activities that most significantly impact the joint venture’s economic performance during the development phase of the project.

Given the nature of the venture’s capital structure and the provisions for the liquidation of assets, the Company's share of the venture’s income-producing activities is recognized based on the Hypothetical Liquidation Book Value ("HLBV") method, which represents an economic interest of approximately 33% for the Company. Under this method, the Company recognizes income or loss in Equity in earnings from real estate and other affiliates based on the change in its underlying share of the venture's net assets on a hypothetical liquidation basis as of the reporting date. After USAA receives a 9.0% preferred return on its capital contribution, the Company is entitled to cash distributions from the venture until it receives a 9.0% return. Subsequently, USAA is entitled to cash distributions equal to 11.11% of the amount distributed to the Company that resulted in a 9.0% return. Thereafter, the Company and USAA are entitled to distributions pari passu to their profit ownership interests of 90% and 10%, respectively.

Significant activity for real estate and other affiliates and the related accounting considerations are described below.

The Summit

During the first quarter of 2015, the Company formed DLV/HHPI Summerlin, LLC (“The Summit”), a joint venture with Discovery Land Company (“Discovery”). The Company contributed land with a carrying value of $13.4 million and transferred Special Improvement District ("SID") bonds related to such land with a carrying value of $1.3 million to the joint venture at the agreed upon capital contribution value of $125.4 million, or $226,000 per acre. Discovery is required to fund up to a maximum of $30.0 million of cash as its capital contribution, and the Company has no further capital obligations. The gains on the contributed land are recognized in Equity in earnings from real estate and other affiliates as the joint venture sells lots.

After the Company receives its capital contribution of $125.4 million and a 5.0% preferred return on such capital contribution, Discovery is entitled to cash distributions by the joint venture until it has received two times its equity contribution. Any further cash distributions are shared equally. Given the nature of the venture’s capital structure and the provisions for the liquidation of assets, the Company's share of the venture’s income-producing activities is recognized based on the HLBV method. Under this method, the Company recognizes income or loss based on the change in its underlying share of the venture's net assets on a hypothetical liquidation basis as of the reporting date.

Relevant financial statement information for The Summit is summarized as follows:



	March 31,		December 31,
(In millions)	2019		2018
Total Assets	$	217.8	$	218.9
Total Liabilities	137.1		144.6
Total Equity	80.7		74.3



	Three Months Ended March 31,
(In millions)	2019		2018
Revenues (a)	$	30.5	$	23.4
Net income	7.4		11.1
Gross Margin	8.3		13.3


(a)	Revenues related to land sales at the joint venture are recognized on a percentage of completion basis as The Summit follows the private company timeline for implementation of ASU 2014-09, Revenues from Contracts with Customers (Topic 606) and will adopt by the end of 2019.