Investments and Advances to Equity Method Investments

9 Months Ended

Sep. 30, 2024

Investments and Advances to Equity Method Investments [Abstract]

Investments and advances to equity method investments

4. Investments and advances to equity method investments

The Company accounts for its investments in unconsolidated joint ventures using the equity method of accounting. The Company’s joint ventures are as follows:

i) Falcon’s Creative Group

As of July 27, 2023, FCG was deconsolidated and accounted for as an equity method investment in the Company’s unaudited condensed consolidated financial statements. As of July 27, 2023, the Company recorded the investment in FCG at fair value, which was determined to be $39.1 million.

As described in Note 1, the LLCA contains contractual provisions regarding the distribution of FCG’s income or loss. Pursuant to these provisions, QIC is entitled to a redemption amount of the initial $30.0 million investment plus a 9% annual compounding preferred return. Refer to the footnote to the “Company’s Share of gain or (loss) from equity method” table below for further discussion on how the income and loss are shared between the Company and QIC.

ii) PDP

PDP is an unconsolidated joint venture with Meliá Hotels International, S.A. (“Meliá Group”) for the development and operation of hotel resorts and theme parks. The Company has 50% voting rights and shares 50% of profits and losses in this joint venture. PDP operates a hotel resort and theme park located in Mallorca, Spain and a hotel located at Tenerife in the Canary Islands.

iii) Sierra Parima

Sierra Parima is an equity method investment with Meliá Group focused on the development and operation of hotel resorts and theme parks. The Company has 50% voting rights and shares 50% of profits and losses in this joint venture. Sierra Parima had one theme park in Punta Cana in the Dominican Republic, the Katmandu Park DR. The Company has concluded that Sierra Parima is a variable interest entity (“VIE”), that the Company does not have the power to direct the activities that most significantly impact the economic performance of Sierra Parima, as such decisions are taken by the unanimous consent of the representatives of the joint venture partners. The Company, therefore, does not consolidate Sierra Parima and accounts for the investment as an equity method investment.

Full Impairment of Investment in Sierra Parima

Katmandu Park DR completed construction and opened to visitors in early 2023. Although various operational challenges encountered upon opening were resolved, Katmandu Park DR visitor levels were below management’s expectations. Melia and the Company jointly decided to wind down operations and are evaluating avenues for potential liquidation or sale of the property. On March 7, 2024, Katmandu Park DR was closed to visitors.

As of December 31, 2023, the Company’s equity investment in Sierra Parima was deemed to be other-than-temporarily impaired. The Company estimated the fair value of its investment in Sierra Parima utilizing a discounted cash flow analysis and supported by a market multiples approach. The impairment is the result of management’s estimates and assumptions regarding the likelihood of certain outcomes related to various liquidation and sale scenarios and pending legal matters, the timing of which remains uncertain. These estimates were determined primarily using significant unobservable inputs (Level 3). The estimates that the Company makes with respect to its equity method investment are based upon assumptions that management believes are reasonable, and the impact of variations in these estimates or the underlying assumptions could be material.

Based on the estimated sale or liquidation proceeds from Sierra Parima, and Sierra Parima’s outstanding debts remaining to be settled, the fair value of the Company’s investment in Sierra Parima was determined to be zero. There are no other liquidity arrangements, guarantees or other financial commitments between the Company and Sierra Parima. The Company is not committed to provide any additional funding as of September 30, 2024. Any future capital fundings will be discretionary.

iv) Karnival

On November 2, 2021, the Company entered into a joint venture agreement to acquire a 50% interest in Karnival, a joint venture established with Raging Power Limited, a subsidiary of New World Development Company Limited (“Raging Power”). The purpose of the joint venture is to hold ownership interests in entities developing and operating amusement centers located in the People’s Republic of China. The first location is currently under development in Hong Kong. The Company has concluded that Karnival is a VIE, that the Company does not have the power to direct the activities that most significantly impact the economic performance of Karnival, as such decisions are taken by the unanimous consent of the representatives of the joint venture partners. The Company, therefore, does not consolidate Karnival and accounts for the investment as an equity method investment. The Company and its joint venture partners are committed to funding non-interest-bearing advances of $9 million (HKD 69.7 million) each, over a three-year period. As of September 30, 2024, the Company had funded $6.6 million (HKD 51 million). These advances are repayable to the joint venture partners based on a percentage of gross revenues from operations commencing from the first year of operations. The advances provided to Karnival are accounted for as investments and classified within Investments and advances to unconsolidated joint ventures equity method investments. There are no other liquidity arrangements, guarantees or other financial commitments between the Company and Karnival. Therefore, the Company’s maximum risk of financial loss is the investment balance and remaining unfunded capital commitment of $2.4 million (HKD 18.7 million) as of September 30, 2024.

Investments and advances to equity method investments as of September 30, 2024, and December 31, 2023, consisted of the following:

	As of
	September 30, 2024		December 31, 2023
FCG	$	30,793	$	30,930
PDP		26,040		22,870
Karnival		7,082		6,843
	$	63,915	$	60,643

The Company’s Share of gain or (loss) from equity method investments for the three and nine months ended September 30, 2024, and 2023 comprised of:

	For the three months ended September 30						For the nine months ended September 30
	2024			2023			2024			2023
FCG(1)	$	(1,658	)	$	(1,598	)	$	(137	)	$	(1,598	)
PDP		1,619			1,527			2,810			1,902
Sierra Parima		—			(1,616	)		—			(4,254	)
Karnival		77			132			239			260
	$	38		$	(1,555	)	$	2,912		$	(3,690	)

(1) The share of loss from the Company’s equity method investment in FCG is subsequent to FCG’s deconsolidation on July 27, 2023. The Company recognized 100% of net income (loss), less 9% preferred return to QIC and amortization of the basis difference of deconsolidation of FCG. For the three months ended September 30, 2024, the Company recognized $(1.7) million of net loss from FCG, which equals the $(0.1) million total net loss from FCG less adjustments of $(1.6) million comprised of $(0.7) million in accretion of preference dividend, less than $(0.1) million in accretion of fees, and $(0.8) million in amortization of basis difference. For the nine months ended September 30, 2024, the Company recognized less than $(0.1) million net loss from FCG, which equals the $4.2 million total net income from FCG less adjustments of $(4.3) million comprised of $(1.8) million in accretion of preference dividend and fees, and $(2.5) million in amortization of basis difference. The Company will continue to recognize 100% of the gains or (losses) from its equity method investment in FCG based on the terms of the LLCA until the split in equity accounts becomes 25% related to QIC and 75% to the Company.

The following tables provide summarized balance sheet information for the Company’s equity method investments:

	As of September 30, 2024
	FCG		PDP		Karnival
Current assets	$	28,446	$	17,414	$	16,598
Non-current assets		28,993		85,937		2,424
Current liabilities		11,924		19,151		17,956
Non-current liabilities		6,213		32,121		-

	As of December 31, 2023
	FCG		PDP		Sierra Parima		Karnival
Current assets	$	12,575	$	8,283	$	2,697	$	16,030
Non-current assets		19,730		87,280		18,714		1,805
Current liabilities		7,375		14,048		62,070		(17,250	)
Non-current liabilities		1,801		35,777		9,973		—

The following tables provide summarized related party balances of FCG, Sierra Parima and PDP:

	As of September 30, 2024
	FCG		PDP
Assets	$	5,297	$	2,568
Liabilities		51		2,560

	As of December 31, 2023
	PDP		FCG		Sierra Parima
Assets	$	2,288	$	7,503	$	2,230
Liabilities		1,685		3,384		57,438

Assets comprise primarily of accounts receivable and other current assets.  Liabilities comprise primarily of accounts payable and accrued expenses and other current liabilities.

The following tables provide summarized statements of operations for the Company’s equity method investments:

	For the three months ended September 30
	2024					2023
	FCG			PDP		FCG(1)			PDP		Sierra Parima
Total revenues	$	13,155		$	17,837	$	3,270		$	15,830	$	792
Income (loss) from operations		89			5,710		(1,045	)		4,648		(2,808	)
Net income (loss)		(111	)		3,240		(1,044	)		3,055		(2,825	)

	For the nine months ended September 30
	2024				2023
	FCG		PDP		FCG(1)			PDP		Sierra Parima
Total revenues	$	43,801	$	36,588	$	3,270		$	32,600	$	2,017
Income (loss) from operations		3,933		8,635		(1,045	)		5,986		(8,031	)
Net income (loss)		4,173		5,508		(1,044	)		3,805		(8,098	)

⁽¹⁾ The summarized results of FCG disclosed above are subsequent to FCG’s deconsolidation on July 27, 2023.

The results of operations for Karnival for the three and nine months ended September 30, 2024, and 2023 were not material for the periods presented and, as such, not included in the tables above. As of December 31, 2023, the equity investment in Sierra Parima was deemed to be other-than-temporarily impaired, and therefore, not included in the table above.

The following table provides FCG, PDP and Sierra Parima’s summarized related party activity for the three months ended September 30, 2024, and 2023:

	For the three months ended September 30
	2024				2023
	FCG		PDP		FCG		PDP		Sierra Parima
Total revenues	$	13,001	$	52	$	2,675	$	247	$	461
Total expenses		3,237		2,082		1,602		1,656		877

The following table provides FCG, PDP and Sierra Parima’s summarized related party activity for the nine months ended September 30, 2024, and 2023:

	For the nine months ended September 30
	2024				2023
	FCG		PDP		FCG		PDP		Sierra Parima
Total revenues	$	43,300	$	85	$	2,675	$	260	$	1,551
Total expenses	$	5,068		4,107		1,602		3,438		4,733

(1) The summarized results of FCG disclosed above are subsequent to FCG’s deconsolidation on July 27, 2023.