Variable Interest Entities

9 Months Ended

Sep. 30, 2022

Variable Interest Entities [Abstract]

Other Real Estate Partnerships

The Other Real Estate Partnerships are variable interest entities ("VIEs") of the Operating Partnership and the Operating Partnership is the primary beneficiary, thus causing the Other Real Estate Partnerships to be consolidated by the Operating Partnership. In addition, the Operating Partnership is a VIE of the Company and the Company is the primary beneficiary.

The following table summarizes the assets and liabilities of the Other Real Estate Partnerships included in our consolidated balance sheets, net of intercompany amounts:


	September 30, 2022		December 31, 2021
ASSETS
Assets:
Net Investment in Real Estate	$	306,653	$	277,984


Operating Lease Right-of-Use Assets	13,022		13,087
Cash and Cash Equivalents	3,388		9,126

Deferred Rent Receivable	12,118		10,984
Prepaid Expenses and Other Assets, Net	12,860		9,480
Total Assets	$	348,041	$	320,661
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:

Accounts Payable, Accrued Expenses and Other Liabilities	$	20,543	$	9,496
Operating Lease Liabilities	10,256		10,277
Rents Received in Advance and Security Deposits	7,995		7,470
Partners' Capital	309,247		293,418
Total Liabilities and Partners' Capital	$	348,041	$	320,661

Joint Ventures

Through a wholly-owned TRS of the Operating Partnership, we own a 43% interest in the Joint Venture. Since we own our interest in the Joint Venture through a partnership with a third party and we hold the power to direct the activities that most significantly impact the economic performance of the partnership, we consolidate the partnership and reflect our partner's 6% interest in the Joint Venture within the financial statements. Additionally, we owned a 49% interest in a joint venture that sold its remaining acres of land and ceased operations during the year ended December 31, 2021 (the "Former Joint Venture" together with the Joint Venture, the "Joint Ventures"). The Joint Ventures were formed for the purpose of developing, leasing, operating and selling land located in the Phoenix, Arizona metropolitan area.

Under the operating agreements for the Joint Venture, we act as the managing member and are entitled to receive fees for providing management, leasing, development, construction supervision, disposition and asset management services. In addition, the Joint Venture's operating agreement provides us the ability to earn incentive fees based on the ultimate financial performance of the Joint Venture.

During the nine months ended September 30, 2022 and 2021, we earned fees of $699 and $341, respectively, from the Joint Ventures, related to asset management and development services, of which we deferred recognition of $187 and $51, respectively, due to our economic interest in the Joint Ventures. During the nine months ended September 30, 2022, we incurred fees of $318 related to third-party development management services associated with the Joint Venture. At September 30, 2022, we had an aggregate receivable from the Joint Venture of $649.

We account for our interests in the Joint Ventures using the hypothetical liquidation at book value model. Under this method, we record our Equity in Income (Loss) of Joint Ventures based on our proportionate share of the Joint Venture's earnings based on our ownership interest, after giving effect to incentive fees in which we are entitled to receive.

We classify distributions received from equity method investments using the cumulative earnings approach. In general, distributions received are considered returns on the investment and classified as cash inflows from operating activities. If, however, the investor’s cumulative distributions received, less distributions received in prior periods determined to be returns of investment, exceeds cumulative equity in earnings recognized, the excess is considered a return of investment and is classified as cash inflows from investing activities.

Net income of the Joint Ventures for the nine months ended September 30, 2022 and 2021 was $176,169 and $14,873, respectively. Included in net income during the nine months ended September 30, 2022 is gain on sale of real estate of $176,281 related to the sale of 391 acres of land for which our economic share of the gain on sale was $86,378. Included in net income during the nine months ended September 30, 2021 is gain on sale of real estate of $15,160 related to the sale of 138 net acres of land from the Former Joint Venture for which our economic share of the gain on sale was $7,142. However, since the Company was the purchaser of the 138 net acres, we netted our portion of the gain on sale against the basis of the land acquired.

The Joint Venture has three buildings under development comprising an aggregate 1.8 million square feet (the "Project") at September 30, 2022. During the nine months ended September 30, 2022, in connection with the Project, the Joint Venture entered into a construction loan with a capacity of $149,500 with a third party lender (the "Joint Venture Loan"). As of September 30, 2022, there have been no borrowings from the Joint Venture Loan. With respect to the Joint Venture Loan, we provided a completion guarantee to the lender and our third-party joint venture partner that requires the Company to timely complete construction of the Project. Total estimated investment for the Project is approximately $210,322 and the Joint Venture is using a third-party contractor to develop the buildings pursuant to a guaranteed maximum price contract. We also provided a guarantee to the lender related to typical non-recourse exceptions and an environmental indemnity. It is not possible to estimate the amount of additional costs, if any, that we may incur in connection with our completion guarantees to the third party lender and/or our joint venture partner as well as the non-recourse exception and environmental indemnity guarantees; however, we do not expect that we will be required to make any significant payments in satisfaction of these guarantees.

For the nine months ended September 30, 2022, we earned incentive fees of $32,276 from the Joint Venture, which are reflected in the Equity In Income of Joint Ventures line item in the consolidated statement of operations. For the nine months ended September 30, 2021, we earned incentive fees of $3,024 from the Former Joint Venture, which were netted against the basis of the real estate acquired from the Former Joint Venture.