Investment in Unconsolidated and Consolidated Joint Ventures | INVESTMENT IN UNCONSOLIDATED AND CONSOLIDATED JOINT VENTURES The Company maintains investments in joint ventures. The Company accounts for its investments in unconsolidated joint ventures using the equity method of accounting unless the venture is a variable interest entity, or VIE, and meets the requirements for consolidation. The Company’s investment in its unconsolidated joint ventures as of June 30, 2019 was $37,151,000 . Equity in earnings from unconsolidated joint ventures was $2,847,000 for the six months ended June 30, 2019 . The unconsolidated joint ventures have not been consolidated as of June 30, 2019 , because the Company does not control the investments. The Company’s current joint ventures are as follows: • Petro Travel Plaza Holdings LLC – Petro Travel Plaza Holdings LLC is an unconsolidated joint venture with TravelCenters of America that develops and manages travel plazas, gas stations, convenience stores, and fast food restaurants throughout TRCC. The Company has 50% of the voting rights but participates in 60% of all profits and losses. The Company does not control the investment due to having only 50% of the voting rights. The Company's partner is the managing partner and performs all of the day-to-day operations and has significant decision making authority over key business components such as fuel inventory and pricing at the facilities. The Company's investment in this joint venture was $21,902,000 as of June 30, 2019 . • Majestic Realty Co. – Majestic Realty Co. (Majestic), is a privately-held developer and owner of master planned business parks throughout the United States. The Company has formed three 50/50 joint ventures with Majestic to acquire, develop, manage, and operate industrial real estate at TRCC. The partners have equal voting rights and equally share in the profit and loss of the joint ventures. The Company and Majestic guarantee the performance of all outstanding debt. ◦ In November 2018, TRC-MRC 3, LLC was formed to pursue the development, construction, leasing, and management of a 579,040 square foot industrial building located within TRCC-East. We anticipate construction will be completed in 2019, and plan to deliver the space in the fourth quarter of 2019 to a tenant that will occupy 67% of the building. In March 2019, the joint venture entered into a promissory note with a financial institution to finance the construction of the building. The note matures on May 1, 2030 and had an outstanding principal balance of $14,588,000 as of June 30, 2019 . On April 1, 2019, the Company contributed land with a fair value of $5,854,000 to TRC-MRC 3, LLC in accordance with the limited liability agreement. The land contribution met the criteria of a land sale under ASC Topic 606, "Revenue from Contracts with Customers." As such, the Company recognized profit of $1,533,000 and deferred $1,532,000 of profit in accordance with ASC Topic 323, "Investment - Equity Method and Joint Ventures" on the date the land was contributed. The Company's investment in this joint venture was $5,954,000 as of June 30, 2019 . ◦ TRC-MRC 2, LLC was formed to acquire, lease, and maintain a fully occupied warehouse at TRCC-West. The partnership acquired the 651,909 square foot building for $24,773,000 that was largely financed through a promissory note guaranteed by both partners. The promissory note was refinanced on June 1, 2018 with a $25,240,000 promissory note. The note matures on July 1, 2028 and has an outstanding principal balance of $24,738,000 as of June 30, 2019 . Since its inception, we have received excess distributions resulting in a deficit balance of $2,554,000 . In accordance with the applicable accounting guidance, we reclassified excess distributions to Other Liabilities within our Consolidated Balance Sheets. We will continue to record equity in earnings as a debit to the investment account and if it were to become positive, we would reclassify the liability to an asset. If it becomes obvious that any excess distribution may not be returned (upon joint venture liquidation or otherwise), we will immediately recognize the liability as income. ◦ TRC-MRC 1, LLC was formed to develop and operate a 480,480 square foot industrial building at TRCC-East. The facility is currently leased to Dollar General and L’Oréal USA, the largest subsidiary of L’Oréal. Since its inception, we have received excess distributions resulting in a deficit balance of $261,000 . In accordance with the applicable accounting guidance, we reclassified excess distributions to Other Liabilities within our Consolidated Balance Sheets. We will continue to record equity in earnings as a debit to the investment account and if it were to become positive, we would reclassify the liability to an asset. If it becomes obvious that any excess distribution may not be returned (upon joint venture liquidation or otherwise), we will immediately recognize the liability as income. The joint venture refinanced its construction loan in December 2018 with a mortgage loan. The original balance of the mortgage loan was $25,030,000 , of which $24,811,000 was outstanding as of June 30, 2019 . • Rockefeller Joint Ventures – The Company has three joint ventures with Rockefeller Group Development Corporation, or Rockefeller. At June 30, 2019 , the Company’s combined equity investment balance in these three joint ventures was $9,295,000 . ◦ Two joint ventures are for the development of buildings on approximately 91 acres of our land and are part of an agreement for the potential development of up to 500 acres of land in TRCC that are tied to a Foreign Trade Zone designation. The Company owns a 50% interest in each of the joint ventures. Currently, the Five West Parcel LLC joint venture owns and leases a 606,000 square foot building to Dollar General, which has now been extended to July 2022, and includes an option for an additional three years . The Five West Parcel LLC joint venture currently has an outstanding term loan with a balance of $8,903,000 that matures on May 5, 2022. The Company and Rockefeller guarantee up to 25% of the performance of the debt. The second of these joint ventures, 18-19 West LLC, was formed in August 2009 through the contribution of 63.5 acres of land by the Company, which is being held for future development. Both of these joint ventures are being accounted for under the equity method due to both members having significant participating rights in the management of the ventures. ◦ The third joint venture is the TRCC/Rock Outlet Center LLC joint venture that was formed in of 2013 to develop, own, and manage a net leasable 326,000 square foot outlet center on land at TRCC-East. The Company controls 50% of the voting interests of TRCC/Rock Outlet Center LLC; thus, it does not control the joint venture by voting interest alone. The Company is the named managing member. The managing member's responsibilities relate to the routine day-to-day activities of TRCC/Rock Outlet Center LLC. However, all operating decisions during the development period and ongoing operations, including the setting and monitoring of the budget, leasing, marketing, financing and selection of the contractor for any construction, are jointly made by both members of the joint venture. Therefore, the Company concluded that both members have significant participating rights that are sufficient to overcome the presumption of the Company controlling the joint venture through it being named the managing member. Therefore, the investment in TRCC/Rock Outlet Center LLC is being accounted for under the equity method. The TRCC/Rock Outlet Center LLC joint venture has a credit agreement with a financial institution for $52,000,000 that, as of June 30, 2019 , had an outstanding balance of $45,855,000 . The Company and Rockefeller guarantee the performance of the debt. • Centennial Founders, LLC – Centennial Founders, LLC, (CFL), is a joint venture that was initially formed with TRI Pointe Homes, Lewis Investment Company, (Lewis), and CalAtlantic to pursue the entitlement and development of land that the Company owns in Los Angeles County. Based on the Second Amended and Restated Limited Company Agreement of CFL and the change in control and funding that resulted from the amended agreement, CFL qualified as a VIE beginning in 2009, and the Company was determined to be the primary beneficiary. As a result, CFL is now consolidated into our financial statements. Our partners retained a noncontrolling interest in the joint venture. On November 30, 2016, CFL and Lewis entered a Redemption and Withdrawal Agreement, whereby Lewis irrevocably and unconditionally withdrew as a member of CFL, and CFL redeemed Lewis' entire interest for no consideration. As a result, our noncontrolling interest balance was reduced by $11,039,000 . On December 31, 2018, CFL and CalAtlantic entered a Redemption and Withdrawal Agreement, whereby CalAtlantic irrevocably and unconditionally withdrew as a member of CFL, and CFL redeemed CalAtlantic's entire interest for no consideration. As a result, the noncontrolling interest balance was reduced by $13,172,000 . At June 30, 2019 , the Company owned 92.41% of CFL. The Company’s investment balance in its unconsolidated joint ventures differs from its respective capital accounts in the respective joint ventures. The difference represents the difference between the cost basis of assets contributed by the Company and the agreed upon fair value of the assets contributed. Unaudited condensed statement of operations for the three and six months ended June 30, 2019 and condensed balance sheet information of the Company’s unconsolidated joint ventures as of June 30, 2019 and December 31, 2018 are as follows: Three Months Ended June 30, 2019 2018 2019 2018 2019 2018 Joint Venture TRC ($ in thousands) Revenues Earnings(Loss) Equity in Earnings(Loss) Petro Travel Plaza Holdings, LLC $ 31,394 $ 30,384 $ 3,923 $ 1,957 $ 2,354 $ 1,174 Five West Parcel, LLC 736 698 240 226 120 112 18-19 West, LLC 4 3 (26 ) (26 ) (13 ) (13 ) TRCC/Rock Outlet Center, LLC 1 1,313 2,032 (1,334 ) (1,259 ) (667 ) (629 ) TRC-MRC 1, LLC 766 139 26 (101 ) 13 (50 ) TRC-MRC 2, LLC 996 979 328 115 164 58 Total $ 35,209 $ 34,235 $ 3,157 $ 912 $ 1,971 $ 652 Centennial Founders, LLC $ 114 $ (76 ) $ 28 $ (194 ) Consolidated (1) Revenues for TRCC/Rock Outlet Center are presented net of non-cash tenant allowance amortization of $0.4 million as of June 30, 2019 and 2018. Six Months Ended June 30, 2019 2018 2019 2018 2019 2018 Joint Venture TRC ($ in thousands) Revenues Earnings(Loss) Equity in Earnings(Loss) Petro Travel Plaza Holdings, LLC $ 56,800 $ 55,061 $ 5,793 $ 2,844 $ 3,476 $ 1,706 Five West Parcel, LLC 1,420 1,395 411 417 206 208 18-19 West, LLC 7 6 (54 ) (53 ) (27 ) (26 ) TRCC/Rock Outlet Center, LLC 1 3,211 3,507 (2,119 ) (2,354 ) (1,060 ) (1,177 ) TRC-MRC 1, LLC 1,502 139 21 (102 ) 11 (51 ) TRC-MRC 2, LLC 1,980 1,957 482 317 241 159 Total $ 64,920 $ 62,065 $ 4,534 $ 1,069 $ 2,847 $ 819 Centennial Founders, LLC $ 236 $ 11 $ 92 $ (212 ) Consolidated (1) Revenues for TRCC/Rock Outlet Center are presented net of non-cash tenant allowance amortization of $0.9 million and $0.8 million as of June 30, 2019 and 2018, respectively. June 30, 2019 December 31, 2018 Joint Venture TRC Joint Venture TRC ($ in thousands) Assets Debt Equity Equity Assets Debt Equity Equity Petro Travel Plaza Holdings, LLC $ 74,642 $ (15,285 ) $ 57,170 $ 21,902 $ 69,096 $ (15,283 ) $ 51,377 $ 18,426 Five West Parcel, LLC 15,083 (8,903 ) 6,162 2,896 15,157 (9,173 ) 5,751 2,691 18-19 West, LLC 4,660 — 4,652 1,756 4,654 — 4,654 1,783 TRCC/Rock Outlet Center, LLC 72,146 (45,855 ) 25,412 4,643 75,194 (46,826 ) 27,531 5,702 TRC-MRC 1, LLC 29,322 (24,811 ) 4,024 — 29,692 (25,030 ) 4,018 — TRC-MRC 2, LLC 20,007 (24,738 ) (7,242 ) — 20,362 (25,014 ) (5,763 ) — TRC-MRC 3, LLC 23,607 (14,588 ) 6,054 5,954 — — — — Total $ 239,467 $ (134,180 ) $ 96,232 $ 37,151 $ 214,155 $ (121,326 ) $ 87,568 $ 28,602 Centennial Founders, LLC $ 95,115 $ — $ 94,779 *** $ 93,840 $ — $ 93,188 *** *** Centennial Founders, LLC is consolidated within the Company's financial statements. |