Related Party Transactions

12 Months Ended

Dec. 31, 2021

We sometimes pay to and/or receive fees from Penske Corporation and its affiliates for services rendered in the normal course of business or to reimburse payments made to third parties on each other’s behalf. These transactions are reviewed periodically by our Audit Committee and reflect the provider’s cost or an amount mutually agreed upon by both parties. During 2021, 2020, and 2019, Penske Corporation and its affiliates billed us $6.7 million, $4.1 million, and $5.4 million, respectively, and we billed Penske Corporation and its affiliates $38 thousand, $30 thousand, and $80 thousand, respectively, for such services. As of December 31, 2021, and 2020, we had $27 thousand and $20 thousand of receivables from, and $0.6 million and $0.4 million of payables to, Penske Corporation and its subsidiaries, respectively.

PTS is owned 41.1% by Penske Corporation, 28.9% by us, and 30.0% by Mitsui. The partnership agreement among the partners, among other things, provides us with specified partner distribution and governance rights and restricts our ability to transfer our interests. The partnership has a six-member advisory committee, and we are entitled to one of the six representatives. PTS’ partnership agreement and certain of its debt agreements allow partner distributions only as long as it is not in default under those agreements and the amount it pays does not exceed 50% of its consolidated net income, unless its debt-to-equity ratio is less than 3.0 to 1, in which case its distributions may not exceed 80% of its consolidated net income. We also continue to realize significant tax savings.

We are able to transfer our directly owned interests with the unanimous consent of the other partners or if we provide the remaining partners with a right of first offer to acquire our interests, except that we may transfer up to 9.02% of our interest to Penske Corporation without complying with the right of first offer to the remaining partner. We and Penske Corporation have agreed that (1) in the event of any transfer by Penske Corporation of their partnership interests to a third party, we will be entitled to “tag-along” by transferring a pro rata amount of our partnership interests on similar terms and conditions, and (2) Penske Corporation is entitled to a right of first refusal in the event of any transfer of our partnership interests, subject to the terms of the partnership agreement. Additionally, PTS has agreed to indemnify the general partner for any actions in connection with managing PTS, except those taken in bad faith or in violation of the partnership agreement.

The partnership agreement allows Penske Corporation to give notice to require PTS to begin to effect an initial public offering of equity securities, subject to certain limitations, as soon as practicable after the first anniversary of the initial notice, and beginning in 2025, we and Mitsui continue to have a similar right to require PTS to begin an initial public

offering of equity securities, subject to certain limitations, as soon as reasonably practicable. The term of the partnership agreement is indefinite.

In 2021, 2020, and 2019, we received $165.5 million, $72.2 million, and $71.9 million, respectively, from PTS in pro rata cash dividends. In 2014, we formed a venture with PTS, Penske Commercial Leasing Australia. This venture combines PTS’ fleet operations expertise with our market knowledge of commercial vehicles to rent heavy-duty commercial vehicles in Australia. This venture is accounted for as an equity method investment as discussed in Note 4.

Joint Venture Relationships

From time to time we enter into joint venture relationships in the ordinary course of business, pursuant to which we own and operate automotive dealerships together with other investors. We may also provide these dealerships with working capital and other debt financing at costs that are based on our incremental borrowing rate. As of December 31, 2021, our automotive joint venture relationships were as follows:

Location

Dealerships

Ownership Interest

Fairfield, Connecticut

Audi, Mercedes-Benz, Sprinter, Porsche

80.00%

(A)

Greenwich, Connecticut

Mercedes-Benz

80.00%

(A)

Northern Italy

BMW, MINI, Maserati, Porsche, Audi, Land Rover, Volvo, Mercedes-Benz, smart, Lamborghini

84.10%

(A)

Frankfurt, Germany

Lexus, Toyota, Volkswagen

50.00%

(B)

Barcelona, Spain

BMW, MINI

50.00%

(B)

_______________________

(A)Entity is consolidated in our financial statements.

(B)Entity is accounted for using the equity method of accounting.

In October 2021, we purchased the remaining 51% interest in the Nicole Group, our former retail automotive joint venture in the greater Tokyo area of Japan representing BMW, MINI, Rolls-Royce, Ferrari, and ALPINA, which resulted in ten dealerships being consolidated in our financial statements beginning in the fourth quarter of 2021.

We previously owned a 20% interest in Bentley, Ferrari, and Maserati dealerships located in Edison, New Jersey which we sold in June 2021 to our joint venture partner for $3.0 million.

Additionally, we are party to non-automotive joint ventures representing our investments in PTS (28.9%) and Penske Commercial Leasing Australia (28%) that are accounted for under the equity method, as more fully discussed in Note 4.