REAL ESTATE AND OTHER AFFILIATES

9 Months Ended

Sep. 30, 2019

Equity Method Investments and Joint Ventures [Abstract]

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						Share of Earnings/Dividends
	September 30,		December 31,		September 30,		December 31,		Three Months Ended September 30,						Nine Months Ended September 30,
($ in thousands)	2019		2018		2019		2018		2019			2018			2019			2018
Equity Method Investments
Operating Assets:
The Metropolitan Downtown Columbia (a)	50	%	50	%	$	—	$	—	$	172		$	87		$	478		$	371
Stewart Title of Montgomery County, TX	50	%	50	%	3,899		3,920		306			165			579			393
Woodlands Sarofim #1	20	%	20	%	2,849		2,760		38			30			89			66
m.flats/TEN.M	50	%	50	%	3,132		4,701		(75		)	(357		)	(1,576		)	(2,661		)
Master Planned Communities:
The Summit (b)	—	%	—	%	86,969		72,171		4,523			9,454			18,859			34,682
Seaport District:
Mr. C Seaport (c)	35	%	35	%	8,002		8,721		(545		)	(452		)	(1,628		)	(452		)
Bar Wayō (Momofuku) (b)	—	%	—	%	6,070		—		(160		)	—			(160		)	—
Strategic Developments:
Circle T Ranch and Power Center	50	%	50	%	6,680		5,989		400			(318		)	691			3,118
HHMK Development	50	%	50	%	10		10		—			—			—			—
KR Holdings	50	%	50	%	48		159		(117		)	3			(110		)	679
Mr. C Seaport (c)	35	%	35	%	—		—		—			—			—			(240		)
					117,659		98,431		4,542			8,612			17,222			35,956
Cost method investments					3,952		3,856		—			—			3,625			3,341
Investment in real estate and other affiliates					$	121,611	$	102,287	$	4,542		$	8,612		$	20,847		$	39,297


(a)	The Metropolitan Downtown Columbia was in a deficit position of $4.0 million and $3.8 million at September 30, 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 September 30, 2019 and December 31, 2018.


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


(c)	Property was transferred from Strategic Developments to Operating Assets during the three months ended September 30, 2018. The share of earnings/dividends for Mr. C in the Operating Assets and Strategic Developments sections represents the Company’s share recognized when the investment was in the respective segment.

As of September 30, 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 most significantly impact the economic performance of the joint ventures; therefore, the Company reports its interests in accordance with the equity method. As of September 30, 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. As of September 30, 2019 and at December 31, 2018, Bar Wayō is also classified as a VIE because the equity holders, as a group, lack the characteristics of a controlling financial interest. The carrying values of Mr. C Seaport and Bar Wayō as of September 30, 2019 are $8.0 million and $6.1 million, respectively, and are 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 these investments is limited to the aggregate carrying value of the investments as the Company has not provided any guarantees or otherwise made firm commitments to fund amounts on behalf of these VIEs. As of September 30, 2019, $210.4 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 $100.8 million based upon economic ownership. All of this indebtedness is without recourse to the Company.

As of September 30, 2019, the Company is the primary beneficiary of two VIEs, Bridges at Mint Hill and 110 North Wacker, which are consolidated in its financial statements. In addition to these two entities, as of December 31, 2018, the Company was also the primary beneficiary of the Ke Kilohana, Anaha, Waiea and Ae‘o Associations of Unit Owners ("AOUO"), none of which were related parties, and consolidated these entities in its financial statements. The Company deconsolidated Ke Kilohana's AOUO during the three months ended September 30, 2019, and deconsolidated Anaha, Waiea, and Ae‘o AOUOs during the nine months ended September 30, 2019, as the Company no longer controls these entities. The creditors of the consolidated VIEs do not have recourse to the Company, except for 18%, or $20.6 million, of the 110 North Wacker outstanding loan balance. As of September 30,

2019, the carrying values of the assets and liabilities associated with the operations of the consolidated VIEs were $356.5 million and $128.1 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.

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

110 North Wacker

During the second quarter of 2018, the Company's partnership with the local developer (the "Partnership") 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 had subsequent capital obligations of $42.7 million, and USAA was 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 7 - Mortgages, Notes and Loans Payable, Net. On May 23, 2019, the Company and its joint venture partners increased the construction loan. Concurrently with the increase in the construction loan, the Company and its joint venture partners agreed to eliminate the Company's subsequent capital obligations. USAA agreed to fund an additional $8.8 million, for a total commitment of $178.4 million. No changes were made to the rights of either the Company or the joint venture partners under the joint venture agreement. 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. Upon the building's completion, the Company expects to recognize the joint venture under the equity method.

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 23% 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 Partnership 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 Partnership that resulted in a 9.0% return. Thereafter, the Partnership and USAA are entitled to distributions pari passu to their profit ownership interests of 90% and 10%, respectively.

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 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.

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



	September 30,		December 31,
(In millions)	2019		2018
Total Assets	$	225.7	$	218.9
Total Liabilities	136.6		144.6
Total Equity	89.1		74.3



	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2019		2018		2019		2018
Revenues (a)	$	25.9	$	27.7	$	84.1	$	88.6
Net income	4.6		9.5		18.9		34.7
Gross Margin	5.6		10.8		22.3		38.3


(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.

Bar Wayō

During the first quarter of 2016, the Company formed Pier 17 Restaurant C101, LLC (“Bar Wayō”), a joint venture with MomoPier, LLC (“Momofuku”), an affiliate of the Momofuku restaurant group, to construct and operate a restaurant and bar at Pier 17 in the Seaport District. Under the terms of the joint venture agreement, the Company will fund 89.75% of the costs to construct the restaurant, and Momofuku will contribute the remaining 10.25%.

After each member receives a 10.0% preferred return on its capital contributions, available cash will be allocated 75.0% to the Company and 25.0% to Momofuku, until each member’s unreturned capital account has been reduced to zero. Any remaining cash will be distributed to the members in proportion to their respective percentage interests, or 50% each to the Company and Momofuku. 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.