Other Assets

12 Months Ended

Dec. 31, 2022

Note 7. Other Assets

A Variable Interest Entity ("VIE") is an entity in which the equity investors have not provided enough equity to finance the entity's activities or the equity investors (1) cannot directly or indirectly make decisions about the entity's activities through their voting rights or similar rights; (2) do not have the obligation to absorb the expected losses of the entity; (3) do not have the right to receive the expected residual returns of the entity; or (4) have voting rights that are not proportionate to their economic interests and the entity's activities involve or are conducted on behalf of an investor with a disproportionately small voting interest. We hold equity interests in ventures related to our cruise operations. We account for the majority of these investments as either an equity method investment, or a controlled subsidiary.

We have determined that TUI Cruises GmbH ("TUIC"), our 50%-owned joint venture, which operates the brands TUI Cruises and Hapag-Lloyd Cruises, is a VIE. We have determined that we are not the primary beneficiary of TUIC. We believe that the power to direct the activities that most significantly impact TUIC’s economic performance is shared between ourselves and TUI AG, our joint venture partner. All the significant operating and financial decisions of TUIC require the consent of both parties, which we believe creates shared power over TUIC. Accordingly, we do not consolidate this entity and account for this investment under the equity method of accounting.

On June 30, 2020, TUIC acquired Hapag-Lloyd Cruises, a luxury and expedition brand for German-speaking guests, from TUI AG for approximately €1.2 billion, or approximately $1.3 billion as of the purchase date. Hapag-Lloyd Cruises operates two luxury liners and two smaller expedition ships. We and TUI AG each made an equity contribution of €75.0 million, or approximately $84.2 million to TUIC to fund a portion of the purchase price, the remainder of which was financed by third-party financing.

As of December 31, 2022, the net book value of our investment in TUIC was $466.0 million, primarily consisting of $361.5 million in equity and a loan of €87.2 million, or approximately $93.0 million, based on the exchange rate at December 31, 2022. As of December 31, 2021, the net book value of our investment in TUIC was $444.4 million, primarily consisting of $322.4 million in equity and a loan of €103.0 million, or approximately $117.2 million, based on the exchange rate at December 31, 2021. The loan, which was made in connection with the sale of Splendour of the Seas in April 2016, accrues interest at a rate of 6.25% per annum and is payable over 10 years. This loan is 50% guaranteed by TUI AG and is secured by a first priority mortgage on the ship. The majority of these amounts were included within Other assets in our consolidated balance sheets. During the quarter ended March 31, 2021, we and TUI AG each contributed €59.5 million, or approximately $69.9 million based on the exchange rate at March 31, 2021, of additional equity through a combination of cash contributions and conversion of existing receivables. In June 2021, Hapag-Lloyd Cruises received delivery of the Hanseatic Spirit, a 230 berth luxury expedition cruise vessel.

TUIC has various ship construction and financing agreements which include certain restrictions on each of our and TUI AG’s ability to reduce our current ownership interest in TUIC below 37.55% through May 2033. Our investment amount and outstanding term loan are substantially our maximum exposure to loss in connection with our investment in TUIC.

We have determined that Pullmantur Holdings, in which we have a 49% noncontrolling interest and Springwater Capital LLC has a 51% interest, is a VIE for which we are not the primary beneficiary as we do not have the power to direct the activities that most significantly impact the entity's economic performance. In 2020, Pullmantur Holdings and certain of its subsidiaries filed for reorganization under the terms of the Spanish insolvency laws due to the negative impact of the COVID-19 pandemic on the companies, and on July 15, 2021, Pullmantur Holdings and certain of its subsidiaries filed for liquidation. We suspended the equity method of accounting for Pullmantur Holdings during the second quarter of 2020 as we do not intend to fund the entity's future losses and lost our ability to exert significant influence over the entity's activities as a result of the reorganization and liquidation process.

In connection with the reorganization, we terminated the agreements chartering three of our ships to Pullmantur Holdings and sold the ships to third parties during the quarter ended September 30, 2020 for amounts approximating their carrying values. Refer to Note 6. Property and Equipment for further discussion on the impact of the ships' sale on our consolidated financial statements. In addition, we recognized a loss of $69.0 million within Other expense income in our consolidated statements of comprehensive (loss), during the quarter ended June 30, 2020 representing deferred currency translation adjustment losses, net of hedging, as we no longer had significant involvement in the Pullmantur operation.

During the quarter ended June 30, 2020, we entered into an agreement with Springwater Capital LLC to settle the guarantees previously issued by them and for costs that we incurred as a result of Pullmantur S.A.'s reorganization. As part of this settlement, we agreed to provide Pullmantur guests the option to apply their paid deposits toward a Royal Caribbean International or Celebrity Cruises sailing, or request a cash refund. The estimated total cash refunds expected to be paid to

Pullmantur guests and other expenses incurred as part of the liquidation were approximately $10.2 million and $21.6 million for the years ended December 31, 2021 and 2020, respectively. These amount were recorded in Other operating and in Other (expense) income in our consolidated statements of comprehensive loss for the years ended December 31, 2021 and 2020.

We have determined that Grand Bahama Shipyard Ltd. ("Grand Bahama"), a ship repair and maintenance facility in which we have a 40% noncontrolling interest, is a VIE. This facility serves cruise and cargo ships, oil and gas tankers and offshore units. We utilize this facility, among other ship repair facilities, for our regularly scheduled drydocks and certain emergency repairs as may be required. We have determined that we are not the primary beneficiary of this facility, as we do not have the power to direct the activities that most significantly impact the facility's economic performance. Accordingly, we do not consolidate this entity.

In December 2022, we announced a new partnership with iCON Infrastructure Partners VI, L.P. ("iCON"), a fund, to develop strategic cruise port infrastructure. The proposed partnership will own, develop, and manage cruise terminal facilities and infrastructure in key ports of call, including PortMiami, and several development projects in Italy, Spain, and the U.S. Virgin Islands. We expect to close on the transaction in the first half of 2023. Upon closing, PortMiami is expected to be considered a VIE for which we will be the primary beneficiary and will remain consolidated.

For further information on the measurements used to estimate the fair value of our equity investments, refer to Note 16. Fair Value Measurements and Derivative Instruments.

The following tables set forth information regarding our investments accounted for under the equity method of accounting, including the entities discussed above (in thousands):


	Year ended December 31,
	2022		2021		2020
Share of equity income (loss) from investments	$	56,695	$	(135,469)	$	(213,286)
Dividends received (1)	$	1,493	$	—	$	2,215

(1) Represents dividends received from our investments accounted for under the equity method of accounting for the years ended December 31, 2022, 2021 and 2020, respectively. The amounts included in the table above are net of tax withholdings.


	As of December 31,
	2022		2021
Total notes receivable due from equity investments	$	101,392	$	130,587
Less-current portion (1)	18,406		21,508
Long-term portion (2)	$	82,986	$	109,079

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(1) Included within Trade and other receivables, net in our consolidated balance sheets.

(2) Included within Other assets in our consolidated balance sheets.

Summarized financial information for our affiliates accounted for under the equity method of accounting was as follows (in thousands):


	As of December 31,
	2022		2021
Current assets	$	658,243	$	736,263
Non-current assets	4,838,287		5,241,302
Total assets	$	5,496,530	$	5,977,565

Current liabilities	$	1,144,783	$	1,225,032
Non- current liabilities	3,381,366		3,860,646
Total liabilities	$	4,526,149	$	5,085,678


	Year ended December 31,
	2022		2021		2020
Total revenues	$	1,539,110	$	679,137	$	619,795
Total expenses	(1,416,325)		(897,308)		(939,481)
Net income (loss)	$	122,785	$	(218,171)	$	(319,686)

Credit Losses

We reviewed our receivables for credit losses in connection with the preparation of our financial statements for the year ended December 31, 2022. In evaluating the allowance, management considered factors such as historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, peer group information and prevailing economic conditions. Our credit loss allowance ending balances as of December 31, 2022 and 2021, primarily relate to credit losses recognized on notes receivable for the previous sale of our property and equipment of $81.6 million.

The following table summarizes our credit loss allowance related to receivables (in thousands):


	Credit Loss Allowance
Balance at January 1, 2021	$	85,447
Credit loss (recovery), net	43,822
Write-offs	(29,077)
Balance at December 31, 2021	100,192
Credit loss (recovery), net	(9,658)
Write-offs	(7,307)
Balance at December 31, 2022	$	83,227