Note 8 - Other Real Estate Investments

12 Months Ended

Dec. 31, 2015

Other Real Estate Investments [Abstract]

Other Real Estate Investments [Text Block]

8. Other Real Estate Investments:

Preferred Equity Capital –

The Company previously provided capital to owners and developers of real estate properties through its Preferred Equity program. As of December 31, 2015, the Company’s net investment under the Preferred Equity program was $199.9 million relating to 421 properties, including 385 net leased properties. For the year ended December 31, 2015, the Company earned $27.0 million from its preferred equity investments, including $9.3 million in profit participation earned from nine capital transactions. For the year ended December 31, 2014, the Company’s net investment under the Preferred Equity program was $229.1 million relating to 443 properties, including 385 net leased properties. For the year ended December 31, 2014, the Company earned $37.2 million from its preferred equity investments, including $18.6 million in profit participation earned from six capital transactions.

During 2007, the Company invested $81.7 million of preferred equity capital in an entity which was comprised of 403 net leased properties (“Net Leased Portfolio”) which consisted of 30 master leased pools with each pool leased to individual corporate operators. Each master leased pool is accounted for as a direct financing lease. These properties consist of a diverse array of free-standing restaurants, fast food restaurants, convenience and auto parts stores. As of December 31, 2015, the remaining 385 properties (referenced above) were encumbered by third party loans aggregating $299.1 million with interest rates ranging from 5.08% to 10.47% with a weighted-average interest rate of 9.2% and maturities ranging from five months to six years. The Company recognized $15.3 million, $14.5 million and $13.2 million in equity in income from this investment during the years ended December 31, 2015, 2014 and 2013, respectively.

The Company’s maximum exposure to losses associated with its preferred equity investments is primarily limited to its invested capital. As of December 31, 2015 and 2014, the Company’s invested capital in its preferred equity investments approximated $199.9 million and $229.1 million, respectively.

Summarized financial information relating to the Company’s preferred equity investments is as follows (in millions):

	December 31,
	2015		2014
Assets:
Real estate, net	$	258.0	$	456.9
Other assets		628.3		666.6
	$	886.3	$	1,123.5
Liabilities and Partners’/Members’ Capital:
Notes and mortgages payable	$	563.7	$	767.6
Other liabilities		12.9		21.6
Partners’/Members’ capital		309.7		334.3
	$	886.3	$	1,123.5

	Year Ended December 31,
	2015			2014			2013
Revenues from rental property	$	122.1		$	146.0		$	159.5
Operating expenses		(35.6	)		(47.0	)		(34.8	)
Interest expense		(35.7	)		(47.1	)		(55.2	)
Depreciation and amortization		(11.4	)		(19.2	)		(24.0	)
Other expense, net		(9.2	)		(7.2	)		(7.1	)
Income from continuing operations		30.2			25.5			38.4
Discontinued Operations:
Gain on disposition of properties		-			31.5			20.8
		-			31.5			20.8
Gain on sale of operating properties		6.0			-			-
Net income	$	36.2		$	57.0		$	59.2

Kimsouth

Kimsouth Realty Inc. (“Kimsouth”) is a wholly-owned subsidiary of the Company. KRS AB Acquisition, LLC (the “ABS Venture”) is a wholly-owned subsidiary of Kimsouth that has a noncontrolling interest in AB Acquisition, LLC (“AB Acquisition”), a joint venture which owns Albertsons Inc. (“Albertsons”) and NAI Group Holdings Inc. (“NAI”). The Company holds a controlling interest in the ABS Venture and consolidates this entity.

During January 2015, two new noncontrolling members were admitted into the ABS Venture, including Colony Capital, Inc. and affiliates (“Colony”), after which the Company contributed $85.3 million and the two noncontrolling members contributed an aggregate $105.0 million, of which Colony contributed $100.0 million, to the ABS Venture, which was subsequently contributed to AB Acquisition to facilitate the acquisition of all of the outstanding shares of Safeway Inc. (“Safeway”). As a result of this transaction, the ABS Venture now holds a combined 14.35% interest in AB Acquisition, of which the Company holds a combined 9.8% ownership interest and Colony holds a 4.3% ownership interest. Richard B. Saltzman, a member of the Board of Directors of the Company, is the chief executive officer, president and a director of Colony Capital, Inc. The combined company of Albertsons, NAI and Safeway operates over 2,200 grocery stores across 33 states. The Company continues to consolidate the ABS Venture as there was no change in control following the admission of the members described above. As such, the Company recorded (i) the gross investment in Safeway of $190.3 million in Other assets on the Company’s Consolidated Balance Sheets and accounts for this investment under the cost method of accounting (ii) a noncontrolling interest of $65.0 million and (iii) an increase in Paid-in capital of $24.0 million, net of a deferred tax effect of $16.0 million, representing the amount contributed by the newly admitted members in excess of their proportionate share of the historic book value of the net assets of ABS Venture.

Leveraged Lease

The Company held a 90% equity participation interest in a leverage lease of 11 properties which were encumbered by third-party non-recourse debt of $11.2 million. During the year ended December 31, 2015, the Company sold its leveraged lease interest for a gross sales price of $22.0 million and recognized a gain of $2.1 million in connection with the transaction, which is included in Equity in income of other real estate investments, net on the Company’s Consolidated Statements of Income.

At December 31, 2014, the Company’s net investment in the leveraged lease consisted of the following (in millions):

	2014
Remaining net rentals	$	8.3
Estimated unguaranteed residual value		30.3
Non-recourse mortgage debt		(10.1	)
Unearned and deferred income		(12.9	)
Net investment in leveraged lease	$	15.6