Investment in and Advances to Non-Consolidated Entities

6 Months Ended

Jun. 30, 2012

Investment in and Advances to Non Consolidated Entities [Abstract]

Investment in and Advances to Non-Consolidated Entities

Investment in and Advances to Non-Consolidated Entities

Pemlex LLC. In April 2011, the Company made a $14,180 noncontrolling, preferred equity investment in a joint venture, Pemlex LLC, formed to acquire an office property in Aurora, Illinois. The property was purchased by a consolidated subsidiary of the joint venture for a gross purchase price of $15,900. The property is net-leased to a single tenant through September 2017. The Company is entitled to a 15.0% internal rate of return, including a 9.6% current annual preferred return, on its investment, subject to available cash proceeds. At acquisition, the Company determined that Pemlex LLC was not a VIE. The Company recorded its investment under the equity method of accounting as it was not the controlling managing member of the entity. In October 2011, the Company became the managing member of Pemlex LLC and accordingly commenced consolidation. Subsequent to June 30, 2012, the Company sold its interest in Pemlex LLC (see note 16).

Net Lease Strategic Assets Fund L.P. (“NLS”). NLS is a co-investment program with a subsidiary of Inland American Real Estate Trust, Inc. (“Inland”). NLS was established to acquire single-tenant net-lease specialty real estate in the United States. Inland and the Company own 85% and 15%, respectively, of NLS's common equity, and the Company owns 100% of NLS's preferred equity. Inland and the Company are generally entitled to a return on/of their respective investments based upon a priority as outlined in the partnership agreement.

The following is summary historical cost basis selected balance sheet data as of June 30, 2012 and December 31, 2011 and income statement data for the three and six months ended June 30, 2012 and 2011 for NLS:

	June 30, 2012		December 31, 2011
Real estate, including intangibles, net	$	559,245	$	577,280
Cash, including restricted cash	11,478		12,319
Mortgages and notes payable	259,033		266,136
Noncontrolling preferred interest	194,032		193,522
Partners’ capital	123,414		135,565

	Three months ended June 30,						Six months ended June 30,
	2012			2011			2012			2011
Total gross revenues	$	13,786		$	15,327		$	27,742		$	30,954
Depreciation and amortization	(7,872		)	(8,079		)	(14,653		)	(16,299		)
Interest expense	(3,514		)	(4,137		)	(7,185		)	(8,323		)
Other expenses, net	(1,401		)	(839		)	(2,569		)	(1,824		)
Net income from continuing operations	999			2,272			3,335			4,508
Total discontinued operations	(542		)	803			(517		)	241
Net income	$	457		$	3,075		$	2,818		$	4,749

During the six months ended June 30, 2012 and 2011, the Company recognized $9,306 and $10,016, respectively, of equity in income relating to NLS based upon the hypothetical liquidation of book value method. The initial difference between the assets contributed to NLS and the fair value of the Company's initial equity investment in NLS is $94,723 and is accreted into income over the estimated useful lives of NLS's assets. During the six months ended June 30, 2012 and 2011, the Company recorded earnings of $1,786 and $1,813, respectively, related to this difference, which is included in equity in earnings of non-consolidated entities on the accompanying unaudited condensed consolidated statements of operations.

The NLS partnership agreement provides each partner with a right of first offer and a buy/sell right beginning in February 2012.  Any notice exercising these rights must specify a price to sell the properties (or in the case of the buy/sell, to also buy the properties).  The other partner must elect to buy the properties (or in the case of the buy/sell, to sell the properties) at that specified price. In February 2012, the Company exercised the buy/sell right and Inland exercised the right of first offer.

During the second quarter of 2012, the Company entered into an agreement with Inland to, on October 1, 2012, either (1) sell its interest in NLS to Inland for a $219,838, 7.07% non-recourse promissory note which matures on December 21, 2012 or (2) purchase Inland's interest in NLS for $14,374 in cash. The sale and/or purchase price amounts will be reduced by distributions received by each respective partner between April 27, 2012 and October 1, 2012. Inland must deliver a written response by September 17, 2012 of its intention to either buy the Company's interest in NLS or sell its interest in NLS to the Company. If no notice is delivered by September 17, 2012, Inland will have been deemed to have irrevocably agreed to sell its interest in NLS to the Company.

Concord Debt Holdings LLC (“Concord”) and CDH CDO LLC ("CDH CDO"). The Company's investment in Concord and CDH CDO were valued at zero and the Company recognized income on the cash basis. During the six months ended June 30, 2012 and 2011, the Company received aggregate distributions of $885 and $621, respectively, which were recorded as equity in earnings of non-consolidated entities.

During the second quarter of 2012, the Company sold all of its interest in Concord and CDH CDO for $7,000 in cash, resulting in a $7,000 gain on sale, which is included in equity in earnings of non-consolidated entities.

Other. During the second quarter of 2012, the Company formed a joint venture, in which the Company has a 15% interest, which acquired the 100% economic interest in an inpatient rehabilitation hospital in Humble, Texas for $27,750. The acquisition was partially funded by a non-recourse mortgage with an original principal amount of $15,260, which bears interest at a fixed rate of 4.7% and matures in May 2017.

During the first quarter of 2011, the Company recognized an other-than-temporary impairment charge on a non-consolidated joint venture acquired in the merger with Newkirk Realty Trust, Inc. due to a change in the Company's estimate of net proceeds to be received upon liquidation of the joint venture. Accordingly, the Company recognized a $1,559 impairment charge in equity in earnings of non-consolidated entities and reduced the carrying value of the investment to $719.