Real Estate Entities and Investments in Affiliates

The operations of our Real Estate segment are conducted through our wholly-owned subsidiary, Granite Land Company (“GLC”). Generally, GLC participates with third-party partners in entities that are formed to accomplish specific real estate development projects.

We have determined that certain of these joint ventures are consolidated because they are VIEs and we are the primary beneficiary. We continually evaluate whether there are changes in the status of the VIEs or changes to the primary beneficiary designation of the VIE. Based on our assessments during the three months ended March 31, 2014 and 2013, we determined no change was required for existing real estate ventures.

Our real estate affiliates include limited partnerships or limited liability companies of which we are a limited partner or member. The agreements with GLC’s partners in these real estate entities define each partner’s management role and financial responsibility in the project. The amount of GLC’s exposure is limited to GLC’s equity investment in the real estate joint venture. However, if one of GLC’s partners is unable to fulfill its management role or make its required financial contribution, GLC may assume, at its option, full management and/or financial responsibility for the project.

Substantially all the assets of these real estate entities in which we are a participant through our GLC subsidiary are classified as real estate held for development and sale and are pledged as collateral for the associated debt. All outstanding debt of these entities is non-recourse to Granite. However, there is recourse to our real estate affiliates that incurred the debt (i.e., the limited partnership or limited liability company of which we are a limited partner or member).

GLC receives authorization to provide additional financial support for certain of its real estate entities in increments to address changes in business plans. During the three months ended March 31, 2014, GLC did not increase its authorized financial support, and during the three months ended March 31, 2013 was authorized to increase its financial support to one consolidated real estate entity by $5.9 million to meet existing debt obligations. As of March 31, 2014, $2.2 million of the total authorized investment had yet to be contributed to the consolidated entity.

To determine if impairment charges should be recognized, the carrying amount of each real estate development project is reviewed on a quarterly basis. Based on our quarterly evaluations of each project’s business plan, we recorded no material impairment charges to our real estate development projects or investments during the three months ended March 31, 2014 and 2013.

During 2013, we concluded the majority of our 2010 Enterprise Improvement Plan (“EIP”) which included the impairment and the planned orderly divestiture of our real estate investment business consistent with our strategy to focus on our core business. Consequently, during 2013 we recorded impairment charges on certain real estate assets in accordance with our EIP. When real estate assets which we continue to have a financial interest are sold, we may recognize additional restructuring charges or gains; however, we do not expect these charges or gains to be material to our consolidated financial statements. No restructuring charges were recorded during the three months ended March 31, 2014 and 2013, and an immaterial restructuring gain was recorded during the three months ended March 31, 2013.

Consolidated Real Estate Entities

As of March 31, 2014, December 31, 2013 and March 31, 2013, real estate held for development and sale associated with consolidated real estate entities included in our condensed consolidated balance sheets was $11.7 million, $12.5 million and $50.3 million, respectively. Non-recourse debt, including current maturities, associated with these entities was $7.7 million, $8.0 million and $11.8 million as of March 31, 2014, December 31, 2013 and March 31, 2013, respectively. All other amounts associated with these entities were insignificant as of the dates presented. Residential real estate held for development and sale in Washington State was $11.6 million as of both March 31, 2014 and December 31, 2013, and was $40.4 million as of March 31, 2013. The remaining balances were in various commercial projects in California and Texas.

Investments in Affiliates

Our investments in affiliates balance consists of the following:



(in thousands)	March 31, 2014		December 31, 2013		March 31, 2013
Equity method investments in real estate affiliates	$	22,353	$	21,392	$	19,979
Equity method investments in other affiliates	10,983		11,088		10,763
Total investments in affiliates	$	33,336	$	32,480	$	30,742

We have determined that certain real estate joint ventures are not consolidated because they are VIEs and we are not the primary beneficiary. We have determined that certain non-real estate joint ventures are not consolidated because they are not VIEs and we do not hold the majority voting interest. As such, these entities are accounted for using the equity method. We account for our share of the operating results of these equity method investments in other income in the condensed consolidated statements of operations and as a single line item on our condensed consolidated balance sheets as investments in affiliates.

The following table provides summarized balance sheet information for our affiliates accounted for under the equity method on a combined basis:



(in thousands)	March 31, 2014		December 31, 2013		March 31, 2013
Total assets	$	172,763	$	173,988	$	160,133
Net assets	95,561		99,444		90,605
Granite’s share of net assets	33,336		32,480		30,742

The equity method investments in real estate included $15.9 million, $14.9 million and $14.2 million in residential real estate in Texas as of March 31, 2014, December 31, 2013 and March 31, 2013, respectively. The remaining balances were in commercial real estate in Texas. Of the $172.8 million in total assets as of March 31, 2014, real estate entities had total assets ranging from $2.7 million to $54.0 million and non-real estate entities had total assets ranging from $0.3 million to $24.8 million. As of each of the periods presented, the most significant non-real estate equity method investment was a 50% interest in a limited liability company which owns and operates an asphalt terminal and operates an emulsion plant in Nevada.