INVESTMENT IN VAA

12 Months Ended

Dec. 31, 2018

Equity Method Investments and Joint Ventures [Abstract]

INVESTMENT IN VAA

NOTE 2. INVESTMENT IN VAA

On November 19, 2018, TCI executed an agreement with Macquarie Group (“Macquarie”) to create a joint venture, Victory Abode Apartments, LLC (“VAA”) to address existing and future demand for quality multifamily residential housing through acquisition and development of sustainable Class A multifamily housing in focused secondary and tertiary markets. In connection with the formation of the joint venture, TCI contributed a portfolio of 49 income producing apartment complexes, and 3 development projects in various stages of construction. TCI received cash consideration of $236.8 million and recognized a gain of approximately $154.1 million. At the time of the transfer of the properties, the joint venture assumed all liabilities of those properties, including mortgage debt to the Department of Housing and Urban Development (“HUD”).

VAA is equally owned and controlled by Abode JVP, LLC, a wholly-owned subsidiary of Southern and Summerset Intermediate Holdings 2 LLC (“Summerset”), a wholly-owned indirect subsidiary of Macquarie.  Pursuant to the Agreement, Abode JVP, LLC and Summerset each own voting and profit participation rights of 50% and 49%, respectively (“Class A Members”).  The remaining 2% of the profit participation interest is held by Daniel J. Moos ARL’s President and Chief Executive Officer (“Class B Member”) who serves also as the Manager of the joint venture. In addition, upon the closing of the agreement the Class B Member received a one-time consideration payment of $1.9 million.

The Company accounts for its investment in VAA under the equity method of accounting. Under the equity method of accounting, our net equity in the investment is reflected within the Consolidated Balance Sheets in the caption ‘Investment in VAA’, and our share of the net income or loss from the joint venture is included within the Consolidated Statements of Operations in the caption ‘Earnings from VAA’. The joint venture agreements may designate different percentage allocations among investors for profits and losses; however, our recognition of joint venture income or loss generally follows the joint venture’s distribution priorities, which may change upon the achievement of certain investment return thresholds and other agreed upon adjustments.

The following is a summary of the financial position and results of operations of VAA (dollars in thousands):

VAA	December 31, 2018
Balance Sheet
Net real estate assets	$	1,257,557
Other assets		67,020
Debt, net		(791,225	)
Other liabilities		(280,288	)
Total equity		(253,064	)

	For the period November 19 to December 31, 2018
Results of Operations
Total revenue	$	12,887
Total property, operating, and maintenance expenses		(4,507	)
Total other expense		(18,102	)
Net loss	$	(9,722	)

Below is a reconciliation of our allocation of income or loss from VAA (dollars in thousands):

	For the period November 19 to December 31, 2018
VAA net loss	$	(9,722	)
Adjustments to reconcile to income (loss) from VAA
Interest expense on mezzanine loan		2,815
In-place lease intangible amortization expense		3,983
Depreciation basis differences		3,012
Adjusted net income	$	88
Percentage ownership in VAA		50	%
Earnings from VAA	$	44

The following table shows the location of the income-producing properties held for investment by VAA as of December 31, 2018:

	Apartments
Location	No.		Units
Alabama		1		168
Arkansas		6		1,320
Colorado		2		260
Florida		2		388
Georgia		1		222
Louisiana		3		464
Mississippi		1		196
Nevada		1		308
North Carolina		1		201
Tennessee		4		708
Texas-Greater Dallas-Ft Worth		13		2,323
Texas-Greater Houston		1		176
Texas-Other		13		2,458
Total		49		9,192

At December 31, 2018, VAA apartment projects in development included (dollars in thousands):

Property	Location	No. of Units		Costs to Date (1)		Total Projected Costs (1)
Terra Lago apartments	Rowlett, TX		451	$	66,395	$	—
Lakeside lofts apartments	Farmers Branch, TX		494		50,357		80,622
Sawgrass Creek apartments Phase II	Tampa, FL		143		25,113		26,799
Total			1,088	$	141,865	$	107,421

⁽¹⁾ Costs include construction hard costs, construction soft costs and loan borrowing costs.