Investments in Unconsolidated Entities

6 Months Ended

Jun. 30, 2022

Equity Method Investments and Joint Ventures [Abstract]

Note 4 – Investments in Unconsolidated Entities

The Company conducts a portion of its property rental activities through investments in unconsolidated entities. The Company’s partners in these unconsolidated entities are unrelated real estate entities or commercial enterprises. The Company and its partners in these unconsolidated entities make initial and/or ongoing capital contributions to these unconsolidated entities. The obligations to make capital contributions are governed by each unconsolidated entity’s respective operating agreement and related governing documents.

As of June 30, 2022, the Company had investments in 11 unconsolidated entities as follows:


		Seritage %	# of	Total
Unconsolidated Entities	Entity Partner(s)	Ownership	Properties	GLA
GS Portfolio Holdings II LLC ("GGP I JV")	Brookfield Properties Retail (formerly GGP Inc.)	50.0%	3		402,900
GS Portfolio Holdings (2017) LLC ("GGP II JV")	Brookfield Properties Retail (formerly GGP Inc.)	50.0%	3		474,100
MS Portfolio LLC ("Macerich JV")	The Macerich Company	50.0%	7		1,266,600
SPS Portfolio Holdings II LLC ("Simon JV")	Simon Property Group, Inc.	50.0%	5		872,200
Mark 302 JV LLC ("Mark 302 JV")	An investment fund managed by Invesco Real Estate	50.0%	1		103,000
SI UTC LLC ("UTC JV")	A separate account advised by Invesco Real Estate	50.0%	1		226,200
SF WH Joint Venture LLC ("West Hartford JV")	An affiliate of First Washington Realty	50.0%	1		163,700
GGCAL SRG HV LLC ("Cockeysville JV")	An affiliate of Greenberg Gibbons	50.0%	1		160,200
Tech Ridge JV Holding LLC ("Tech Ridge JV")	An affiliate of RD Management	50.0%	1		—
J&J Baldwin Park LLC ("Carson Investment")	An affiliate of NewMark Merrilll Companies and other entities	20.0%	1		182,200
Landmark Land Holdings, LLC ("Landmark JV")	Landmark Holdings, LLC	31.3%	1		—
			25		3,851,100

The Company has contributed certain properties to unconsolidated entities in exchange for equity interests in those unconsolidated entities. The contribution of property to unconsolidated entities is accounted for as a sale of real estate and the Company recognizes the gain or loss on the sale (the “Gain (Loss)”) based upon the transaction price attributed to the property at the closing of the unconsolidated entities transaction (the “Contribution Value”). The Gain or (Loss) is included in gain on sale of real estate on the condensed consolidated statements of operations.

In certain circumstances, the Contribution Value is subject to revaluation as defined in the respective unconsolidated entity agreements, which may result in an adjustment to the gain or loss recognized. If the Contribution Value is subject to revaluation, the Company initially recognizes the gain or loss at the value that is the expected amount within the range of possible outcomes and will re-evaluate the expected amount on a quarterly basis through the final determination date.

Upon revaluation, the primary inputs in determining the Contribution Value will be updated for actual results and may result in a cash settlement or capital account adjustment between the unconsolidated entity partners, as well as an adjustment to the initial gain or loss.

Each reporting period, the Company re-analyzes the primary inputs that determine the Contribution Value and the gain or loss for those unconsolidated entities subject to a revaluation. The following table summarizes the properties contributed to the Company’s unconsolidated entities (in millions):


		June 30, 2022
Unconsolidated Entities	Contribution Date	Contribution Value		Gain (Loss)
2018
Mark 302 JV (1)	March 20, 2018	$	60.0	$	8.8
2019
Cockeysville JV (2)	March 29, 2019	$	14.6	$	5.9
Tech Ridge JV (3)	September 27, 2019	$	3.0	$	0.1

(1)

The Mark 302 JV was subject to a revaluation which resulted in the Company adjusting the Contribution Value down to $60.0 million and reduced the Gain (Loss) by $30.0 million. As of September 30, 2021, the amended determination date, there has been no change to the adjusted Contribution Value and the final Contribution Value is $60.0 million.

(2)

The Cockeysville JV is subject to revaluation upon our partner contributing an adjacent parcel of land (the “Additional Land Parcel”) to the joint venture which was conditioned on certain milestones being met with respect to entitling the Additional Land Parcel for residential use. As of December 31, 2021, the parcel has been entitled and, with our consent, the partner entered a sales contract with a third party for the land. As a result, the Company received its share of the proceeds from the sale in lieu of the parcel being contributed to the venture and recorded an additional gain of $2.1 million during the year ended December 31, 2021. The Company has determined that the final contribution value is $14.6 million.

(3)

The Tech Ridge JV is subject to a revaluation primarily based upon the number of residential units constructed by the Tech Ridge JV. The Contribution Value cannot be less than $2.75 million.

The following tables present combined condensed financial data for the Company’s unconsolidated entities (in thousands):


	June 30, 2022			December 31, 2021
ASSETS
Investment in real estate
Land	$	396,463		$	410,323
Buildings and improvements		564,455			528,854
Accumulated depreciation		(109,708	)		(96,856	)
		851,210			842,321
Construction in progress		162,236			206,109
Net investment in real estate		1,013,446			1,048,430
Cash and cash equivalents		52,764			50,279
Investment in unconsolidated entities		54,760			53,215
Tenant and other receivables, net		4,939			7,914
Other assets, net		28,492			33,812
Total assets	$	1,154,401		$	1,193,650

LIABILITIES AND MEMBERS' INTERESTS
Liabilities
Mortgage loans payable, net	$	56,075		$	56,075
Accounts payable, accrued expenses and other liabilities		58,807			56,398
Total liabilities		114,882			112,473

Members' Interest
Additional paid in capital		1,108,127			1,097,842
Retained earnings (accumulated deficit)		(68,608	)		(16,665	)
Total members' interest		1,039,519			1,081,177
Total liabilities and members' interest	$	1,154,401		$	1,193,650


	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Total revenue	$	7,919		$	6,526		$	15,759		$	14,255
Property operating expenses		(3,110	)		(2,834	)		(7,036	)		(5,413	)
Depreciation and amortization		(6,503	)		(6,563	)		(14,011	)		(13,044	)
Operating income / (loss)		(1,694	)		(2,871	)		(5,288	)		(4,202	)
Other expenses		(826	)		(1,676	)		(2,260	)		(2,719	)
Gains, losses and impairments		(32,474	)		—			(93,614	)		—
Net loss	$	(34,994	)	$	(4,547	)	$	(101,162	)	$	(6,921	)
Equity in loss of unconsolidated entities (1)	$	(33,720	)	$	(2,327	)	$	(66,796	)	$	(3,489	)

(1)

Equity in loss of unconsolidated entities on the condensed consolidated statements of operations includes basis difference adjustments.

The Company shares in the profits and losses of these unconsolidated entities generally in accordance with the Company’s respective equity interests. In some instances, the Company may recognize profits and losses related to investment in an unconsolidated entity that differ from the Company’s equity interest in the unconsolidated entity. This may arise from impairments that the Company recognizes related to its investment that differ from the impairments the unconsolidated entity recognizes with respect to its assets, differences between the Company’s basis in assets it has transferred to the unconsolidated entity and the unconsolidated entity’s basis in those assets or other items. During the quarter ended June 30, 2022, in conjunction with the Plan of Sale, the Company recognized a change in plan to reduce the holding periods of all its investments in unconsolidated entities, which triggered the need for an impairment analysis pursuant to ASC 323, Equity Method and Joint Ventures. The Company utilized appraisals and third-party prepared fair value estimates as well as negotiated offers to sell the investments for the impairment analysis. As a result of the Company’s analysis, other-than-temporary impairment of $32.5 million was recorded against equity method investments in three unconsolidated entities for the three and six months ended June 30, 2022. No such impairment was recorded for the three and six months ended June 30, 2021. This impairment is included in the equity in loss of unconsolidated entities line in the condensed consolidated statements of operations.

During the three and six months ended June 30, 2022, the Company exercised the put rights that is has on two and four Unconsolidated Properties, respectively. One of the Company’s partners considered this to be a triggering event to assess impairment on its underlying assets pursuant to ASC 360, Property, Plant and Equipment, and recorded impairment on two Unconsolidated Properties of $0 million and $61.1 million for the three and six months ended June 30, 2022, respectively. There was no impairment recorded on Unconsolidated Properties for the three and six months ended June 30, 2021. Subsequent to June 30, 2022, the Company exercised put rights on an additional two Unconsolidated Properties, closed on the sale of two of the previously exercised put rights, and sold its interest in one Unconsolidated Entity.

Unconsolidated Entity Management and Related Fees

The Company acts as the operating partner and day-to-day manager for the Mark 302 JV, the West Hartford JV, the UTC JV, and Tech Ridge JV. The Company is entitled to receive certain fees for providing management, leasing, and construction supervision services to certain of its unconsolidated entities. Refer to Note 2 for the Company’s accounting policies.