Investment in Unconsolidated Joint Venture

9 Months Ended

Sep. 30, 2021

Equity Method Investments and Joint Ventures [Abstract]

Investment in Unconsolidated Joint Venture

Note 6 — Investment in Unconsolidated Joint Venture

On October 30, 2013, the Predecessor purchased a 48.9% equity interest in Worldwide Plaza for a contract purchase price of $220.1 million, based on the property value at that time for Worldwide Plaza of $1.3 billion less $875.0 million of debt on the property.

On June 1, 2017, the Predecessor acquired an additional 49.9% equity interest on exercise of the Predecessor’s option to purchase pursuant to the Company’s rights under the joint venture agreement of Worldwide Plaza for a contract purchase price of $276.7 million, based on the option price of approximately $1.4 billion less $875.0 million of debt on the property. The Predecessor’s joint venture partner exercised its right to retain 1.2% of the aggregate membership interests in Worldwide Plaza. Following the exercise of the option, the Predecessor owned a total equity interest of 98.8% in Worldwide Plaza.

On October 18, 2017, the Predecessor sold a 48.7% interest in Worldwide Plaza to a joint venture managed by SL Green Realty Corp. and RXR Realty LLC based on an estimated underlying property value of $1.725 billion. In conjunction with the equity sale, there was a concurrent $1.2 billion refinancing of the existing Worldwide Plaza debt. The Predecessor received cash at closing of approximately $446.5 million from the sale and excess proceeds from the financing, net of closing costs which included $108.3 million of defeasance and prepayment costs. The new debt on Worldwide Plaza bears interest at a blended rate of approximately 3.98% per annum, requires monthly payments of interest only and matures in November 2027.

The Company has set aside $90.7 million of the proceeds in a separate account to fund future capital improvements to Worldwide Plaza. Following the sale of its interest, the Company now holds a 50.1% interest in Worldwide Plaza. The Company has determined that this investment is an investment in a variable interest entity (“VIE”). The Company has determined that it is not the primary beneficiary of this VIE since the Company does not have the power to direct the activities that most significantly impact the VIE’s economic performance. The Company accounts for this investment using the equity method of accounting.

The lease with one of the tenants at the Worldwide Plaza property contains a right of first offer in the event that Worldwide Plaza sells 100% of the property. The right requires Worldwide Plaza to offer the tenant the option to purchase 100% of the Worldwide Plaza property, at the price, and on other material terms, proposed by Worldwide Plaza to third parties. If, after a 45-day period, that tenant does not accept the offer, Worldwide Plaza may then sell the property to a third party, provided that Worldwide Plaza will be required to re-offer the property to that tenant if it desires to sell the property for a purchase price (and other economic consideration) less than 92.5% of the initial purchase price contained in the offer to that tenant.

The following table lists the tenants whose annualized cash rent represented greater than 10% of total annualized cash rent for the nine months ended September 30, 2021 and 2020, including annualized cash rent related to the Company’s unconsolidated joint venture:

			September 30,
Property Portfolio	Tenant		2021			2020
Worldwide Plaza		Cravath, Swaine & Moore, LLP		47.2	%		48.5	%
Worldwide Plaza		Nomura Holdings America, Inc.		30.0	%		30.7	%

The termination, delinquency or non-renewal of any of the above tenants may have a material adverse effect on the Company’s operations. The lease with Cravath, Swaine & Moore expires in August 2024 and the tenant has informed Worldwide Plaza that they do not intend to enter into a new lease upon expiration of the existing lease.

The amounts reflected in the following tables are based on the going concern basis financial information of Worldwide Plaza. Under liquidation accounting, equity investments are carried at net realizable value.

The condensed balance sheets as of September 30, 2021 and December 31, 2020 for Worldwide Plaza are as follows:

	September 30,			December 31,
(In thousands)	2021			2020
Real estate assets, at cost	$	840,899		$	839,789
Less accumulated depreciation and amortization		(276,058	)		(256,925	)
Total real estate assets, net		564,841			582,864
Cash and cash equivalents		47,063			36,084
Other assets		125,106			139,084
Total assets	$	737,010		$	758,032
Debt	$	1,266,872		$	1,254,081
Other liabilities		175,518			166,549
Total liabilities		1,442,390			1,420,630
Deficit		(705,380	)		(662,598	)
Total liabilities and deficit	$	737,010		$	758,032

The condensed statements of operations for the three and nine months ended September 30, 2021 and 2020 for Worldwide Plaza are as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In thousands)	2021			2020			2021			2020
Rental income	$	38,587		$	33,703		$	110,857		$	102,806
Operating expenses:
Operating expenses		16,035			15,541			48,688			47,223
Depreciation and amortization		6,880			5,050			23,497			15,148
Total operating expenses		22,915			20,591			72,185			62,371
Operating income		15,672			13,112			38,672			40,435
Interest expense		(19,881	)		(19,422	)		(59,011	)		(57,840	)
Net loss	$	(4,209	)	$	(6,310	)	$	(20,339	)	$	(17,405	)