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Investments in Partially Owned Entities
 9 Months Ended
Sep. 30, 2013
Equity Method Investments and Joint Ventures [Abstract]  
Investments in Partially Owned Entities

7. Investments in Partially Owned Entities

 

 

Toys “R” Us (“Toys”)

 

As of September 30, 2013, we own 32.6% of Toys. We account for our investment in Toys under the equity method and record our share of Toys' net income or loss on a one-quarter lag basis because Toys' fiscal year ends on the Saturday nearest January 31, and our fiscal year ends on December 31. The business of Toys is highly seasonal. Historically, Toys' fourth quarter net income accounts for more than 80% of its fiscal year net income.

 

In the fourth quarter of 2012, we recorded a $40,000,000 non-cash impairment loss on our investment in Toys and disclosed, that if current facts don't change, our share of Toys' undistributed income, which in accordance with the equity method of accounting, would increase the carrying amount of our investment above fair value, would require an offsetting impairment loss.

 

In the first quarter of 2013, we recognized our share of Toys' fourth quarter net income of $78,542,000 and a corresponding non-cash impairment loss of the same amount.

 

As of September 30, 2013, the carrying amount of our investment in Toys is less than our share of Toys' equity by approximately $145,809,000. This basis difference resulted primarily from the non-cash impairment losses we recognized in 2012 and 2013 aggregating $118,542,000. We have allocated the basis difference to Toys' intangible assets (primarily trade names and trademarks). The basis difference is not being amortized and will be recognized upon disposition of our investment.

Below is a summary of Toys' latest available financial information on a purchase accounting basis:

 (Amounts in thousands)       Balance as of  
 Balance Sheet:       August 3, 2013 October 27, 2012  
  Assets       $ 11,274,000 $ 12,953,000  
  Liabilities         9,562,000   11,190,000  
  Noncontrolling interests         72,000   44,000  
  Toys “R” Us, Inc. equity         1,640,000   1,719,000  
                  
    For the Three Months Ended For the Nine Months Ended  
 Income Statement:August 3, 2013  July 28, 2012 August 3, 2013  July 28, 2012  
  Total revenues $ 2,377,000  $ 2,552,000 $ 10,555,000 $ 11,089,000  
  Net (loss) income attributable to Toys   (111,000)    (34,000)   11,000   249,000  

7. Investments in Partially Owned Entities – continued

 

 

Alexander's, Inc. (“Alexander's”) (NYSE: ALX)

 

As of September 30, 2013, we own 1,654,068 Alexander's common shares, or approximately 32.4% of Alexander's common equity. We manage, lease and develop Alexander's properties pursuant to agreements which expire in March of each year and are automatically renewable. As of September 30, 2013, we have a $44,032,000 receivable from Alexander's for fees under these agreements.

 

As of September 30, 2013, the market value (“fair value” pursuant to ASC 820) of our investment in Alexander's, based on Alexander's September 30, 2013 closing share price of $286.12, was $473,262,000, or $305,644,000 in excess of the carrying amount on our consolidated balance sheet. As of September 30, 2013, the carrying amount of our investment in Alexander's, excluding amounts owed to us, exceeds our share of the equity in the net assets of Alexander's by approximately $42,224,000. The majority of this basis difference resulted from the excess of our purchase price for the Alexander's common stock acquired over the book value of Alexander's net assets. Substantially all of this basis difference was allocated, based on our estimates of the fair values of Alexander's assets and liabilities, to real estate (land and buildings). We are amortizing the basis difference related to the buildings into earnings as additional depreciation expense over their estimated useful lives. This depreciation is not material to our share of equity in Alexander's net income. The basis difference related to the land will be recognized upon disposition of our investment.

 

Below is a summary of Alexander's latest available financial information:

(Amounts in thousands)      Balance as of 
Balance Sheet:      September 30, 2013 December 31, 2012 
 Assets      $ 1,471,000 $ 1,482,000 
 Liabilities        1,141,000   1,150,000 
 Stockholders' equity        330,000   332,000 
               
 For the Three Months Ended For the Nine Months Ended 
Income Statement:September 30, 2013 September 30, 2012 September 30, 2013 September 30, 2012 
 Total revenues $ 50,000 $ 49,000 $ 146,000 $ 143,000 
 Net income attributable to Alexander’s  14,000   19,000   41,000   57,000 

LNR Property LLC (“LNR”)

In the first quarter of 2013, we recognized our 26.2% share of LNR's fourth quarter net income of $18,731,000, which increased the carrying amount of our investment to approximately $241,000,000. On April 22, 2013, LNR was sold for $1.053 billion, and we received net proceeds of $241,000,000 for our interest. Pursuant to the sale agreement, we ceased receiving income as of January 1, 2013.

 

7. Investments in Partially Owned Entities – continued

 

 

Independence Plaza

 

On December 21, 2012, we acquired a 58.75% economic interest in Independence Plaza, a three-building 1,328 unit residential complex in the Tribeca submarket of Manhattan (the “Property”). We determined, at that time, that we were the primary beneficiary of the variable interest entity (“VIE”) that owned the Property. Accordingly, we consolidated the operations of the Property from the date of acquisition. Upon consolidation, our preliminary purchase price allocation was primarily to land ($309,848,000) and building ($527,578,000). Based on a third party appraisal and additional information about facts and circumstances that existed at the acquisition date, which was obtained subsequent to the acquisition date, we finalized the purchase price allocation in the first quarter of 2013, and retroactively adjusted our December 31, 2012 consolidated balance sheet as follows:

 

 (Amounts in thousands)   
 Land$ 602,662 
 Building and improvements  252,844 
 Acquired above-market leases (included in identified intangible assets)  13,115 
 Acquired in-place leases (included in identified intangible assets)  67,879 
 Other assets  7,374 
 Acquired below-market leases (included in deferred revenue)  (99,074) 
 Purchase price$ 844,800 

On June 7, 2013, the existing $323,000,000 mortgage loan was refinanced with a $550,000,000 five-year, fixed-rate interest only mortgage loan bearing interest at 3.48%. The net proceeds of $219,000,000, after repaying the existing loan and closing costs, were distributed to the partners, of which our share was $137,000,000. Simultaneously with the refinancing, we sold an 8.65% economic interest in the Property to our partner for $41,000,000 in cash, which reduced our economic interest to 50.1%. As a result of this transaction, we determined that we were no longer the primary beneficiary of the VIE. Accordingly, we deconsolidated the operations of the Property on June 7, 2013 and began accounting for our investment under the equity method.

650 Madison Avenue

 

On September 30, 2013, a joint venture, in which we have a 20.1% interest, acquired 650 Madison Avenue, a 27-story, 594,000 square foot Class A office and retail tower located on the full western blockfront of Madison Avenue between 59th and 60th Street, for $1.295 billion. The property contains 523,000 square feet of office space and 71,000 square feet of retail space. The purchase price was funded with cash and a new $800,000,000 seven-year 4.39% interest-only loan. We account for our investment in the joint venture under the equity method.

 

7. Investments in Partially Owned Entities – continued

 

Below is a schedule of our investments in partially owned entities as of September 30, 2013 and December 31, 2012.

     Percentage   
(Amounts in thousands) Ownership at Balance as of  
Investments:  September 30, 2013 September 30, 2013 December 31, 2012 
Toys    32.6% $ 378,615 $ 478,041 
              
Alexander’s   32.4% $ 167,618 $ 171,013 
               
Lexington(1)   n/a   -   75,542 
            
LNR(2)   n/a   -   224,724 
               
India real estate ventures   4.0%-36.5%   90,200   95,516 
               
Partially owned office buildings:           
 280 Park Avenue   49.5%   229,152   197,516 
 650 Madison Avenue (see page 15 for details)   20.1%   121,775   - 
 Rosslyn Plaza   43.7%-50.4%   59,416   62,627 
 West 57th Street properties   50.0%   56,743   57,033 
 One Park Avenue   30.3%   56,064   50,509 
 666 Fifth Avenue Office Condominium   49.5%   40,047   35,527 
 330 Madison Avenue   25.0%   33,991   30,277 
 Warner Building   55.0%   13,387   8,775 
 Fairfax Square   20.0%   5,191   5,368 
 Other partially owned office buildings   Various   9,338   9,315 
               
Other investments:           
 Independence Plaza (includes $26,266 attributable            
  to non-controlling interests)(3)   50.1%   164,488   - 
 Monmouth Mall   50.0%   6,876   7,205 
 Downtown Crossing, Boston(4)   n/a   -   48,122 
 Other investments(5)   Various   115,442   147,187 
         $ 1,169,728 $ 1,226,256 
               
               
               
(1) In the first quarter of 2013, we began accounting for our investment in Lexington as a marketable equity security - available for sale (see page 12 for details).
               
(2) On April 22, 2013, LNR was sold (see page 14 for details).
               
(3) On June 7, 2013, we sold an 8.65% economic interest in the property (see page 15 for details).
               
(4) On April 24, 2013, the joint venture sold the site in Downtown Crossing, Boston (see note 3 on page 17 for details).
               
(5) Includes interests in 85 10th Avenue, Fashion Centre Mall, 50-70 West 93rd Street and others.

7. Investments in Partially Owned Entities - continued

 

Below is a schedule of income recognized from investments in partially owned entities for the three and nine months ended September 30, 2013 and 2012.

 

     Percentage For the Three Months For the Nine Months
(Amounts in thousands) Ownership Ended September 30, Ended September 30,
Our Share of Net Income (Loss): September 30, 2013 2013 2012 2013 2012
Toys:              
 Equity in net (loss) income before income taxes 32.6% $ (58,746) $ (22,074) $ 14,737 $ 99,649
 Income tax benefit (expense)     22,690   11,118   (10,959)   (17,982)
 Equity in net (loss) income     (36,056)   (10,956)   3,778   81,667
 Non-cash impairment loss (see page 13 for details)     -   -   (78,542)   -
 Management fees     1,847   2,371   5,453   7,029
       $ (34,209) $ (8,585) $ (69,311) $ 88,696
                  
Alexander’s:              
 Equity in net income  32.4% $ 4,299 $ 7,137 $ 12,785 $ 19,210
 Management, leasing and development fees     1,676   1,821   5,017   5,617
         5,975   8,958   17,802   24,827
                  
Lexington(1) n/a   -   (323)   (979)   371
                  
LNR(2) n/a   -   16,600   18,731   39,319
                  
India real estate ventures 4.0%-36.5%   (1,449)   82   (2,630)   (4,526)
                  
Partially owned office buildings:              
 Warner Building 55.0%   (2,004)   (2,839)   (6,346)   (7,438)
 280 Park Avenue 49.5%   (1,890)   (1,717)   (6,480)   (9,267)
 666 Fifth Avenue Office Condominium 49.5%   1,858   1,744   5,776   5,244
 330 Madison Avenue 25.0%   1,225   1,224   3,714   2,036
 Rosslyn Plaza 43.7%-50.4%   (707)   (204)   (2,158)   99
 One Park Avenue 30.3%   680   256   1,054   890
 1101 17th Street 55.0%   376   591   996   1,920
 West 57th Street properties 50.0%   47   167   415   732
 Fairfax Square 20.0%   (24)   (33)   (87)   (85)
 Other partially owned office buildings Various   477   505   1,530   1,587
         38   (306)   (1,586)   (4,282)
                  
Other investments:              
 Independence Plaza (see page 15 for details) 50.1%   (2,081)   1,828   (3,199)   5,243
 Monmouth Mall 50.0%   165   347   1,450   1,007
 Downtown Crossing, Boston(3) n/a   -   (38)   (2,358)   (872)
 Other investments(4) Various   (1,195)   (5,880)   (3,540)   (7,596)
         (3,111)   (3,743)   (7,647)   (2,218)
                  
       $ 1,453 $ 21,268 $ 23,691 $ 53,491
                  
                  
(1) In the first quarter of 2013, we began accounting for our investment in Lexington as a marketable equity security - available for sale (see page 12 for details).
                  
(2) On April 22, 2013, LNR was sold (see page 14 for details).
                  
(3) On April 24, 2013, the joint venture sold the site in Downtown Crossing, Boston, and we received approximately $45,000 for our 50% interest. In connection therewith, we recognized a $2,335 impairment loss in the first quarter.
                  
(4) Includes interests in 85 10th Avenue, Fashion Centre Mall, 50-70 West 93rd Street and others.

7. Investments in Partially Owned Entities – continued

Below is a summary of the debt of our partially owned entities as of September 30, 2013 and December 31, 2012, none of which is recourse to us.

   Percentage   Interest 100% of
   Ownership at   Rate at Partially Owned Entities’ Debt at
(Amounts in thousands)September 30,   September 30, September 30, December 31,
 2013 Maturity 2013 2013 2012
Toys:           
 Notes, loans and mortgages payable32.6% 2014-2021 7.69% $ 5,253,323 $ 5,683,733
              
Alexander's:           
 Mortgages payable32.4% 2014-2018 3.84% $ 1,054,046 $ 1,065,916
              
Lexington(1):           
 Mortgages payablen/a n/a n/a $ - $ 1,994,179
              
LNR(2):           
 Mortgages payablen/a n/a n/a $ - $ 309,787
 Liabilities of consolidated CMBS and CDO trusts  n/a n/a   -   97,211,734
         $ - $ 97,521,521
              
Partially owned office buildings:           
 666 Fifth Avenue Office Condominium mortgage            
  payable49.5% 02/19 6.76% $ 1,155,038 $ 1,109,700
 650 Madison Avenue mortgage payable20.1% 10/20 4.39%   800,000   -
 280 Park Avenue mortgage payable 49.5% 06/16 6.64%   738,582   738,228
 Warner Building mortgage payable55.0% 05/16 6.26%   292,700   292,700
 One Park Avenue mortgage payable30.3% 03/16 5.00%   250,000   250,000
 330 Madison Avenue mortgage payable25.0% 06/15 1.68%   150,000   150,000
 Fairfax Square mortgage payable20.0% 12/14 7.00%   69,452   70,127
 1101 17th Street mortgage payable55.0% 01/15 1.43%   31,000   31,000
 Rosslyn Plaza mortgage payable43.7%-50.4% 03/16 2.68%   23,785   -
 West 57th Street properties mortgages payable50.0% 07/23 3.50%   20,000   20,434
 OtherVarious Various 6.36%   69,280   69,704
         $ 3,599,837 $ 2,731,893
              
India Real Estate Ventures:           
 TCG Urban Infrastructure Holdings mortgages           
  payable25.0% 2013-2022 13.63% $ 213,963 $ 236,579
              
Other:           
 Independence Plaza (see page 15 for details)50.1% 06/18 3.48%   550,000   -
 Monmouth Mall mortgage payable50.0% 09/15 5.44%   158,296   159,896
 Other(3)Various Various 5.01%   972,135   990,647
         $ 1,680,431 $ 1,150,543
            
              
(1) In the first quarter of 2013, we began accounting for our investment in Lexington as a marketable equity security - available for sale (see page 12 for details).
   
(2) On April 22, 2013, LNR was sold (see page 14 for details).
   
(3) Includes interests in Fashion Centre Mall, 50-70 West 93rd Street and others.
              

Based on our ownership interest in the partially owned entities above, our pro rata share of the debt of these partially owned entities was $4,032,534,000 and $29,443,128,000 at September 30, 2013 and December 31, 2012, respectively. Excluding our pro rata share of LNR's liabilities related to consolidated CMBS and CDO trusts, which were non-recourse to LNR and its equity holders, including us, our pro rata share of partially owned entities debt was $3,998,929,000 at December 31, 2012.