Investment in Unconsolidated Entities

3 Months Ended

Mar. 31, 2020

Equity Method Investments and Joint Ventures [Abstract]

On June 9, 2014, the Company acquired a 10.3% interest in the NewINK JV, a joint venture between affiliates of NorthStar Realty Finance Corp. ("NorthStar") and the Operating Partnership. The Company accounts for this investment under the equity method. NorthStar merged with Colony Capital, Inc. ("Colony") on January 10, 2017 to form a new company, CLNY, which owns a 89.7% interest in the NewINK JV. The value of NewINK JV assets and liabilities were adjusted to reflect estimated fair market value at the time Colony merged with NorthStar. As of March 31, 2020 and 2019, the Company’s share of partners’ capital in the NewINK JV was approximately $39.3 million and $46.7 million, respectively, and the total difference between the carrying amount of investment and the Company’s share of partners’ capital was approximately $55.5 million and $56.8 million, respectively, (for which the basis difference related to amortizing assets is being recognized over the life of the related assets as a basis difference adjustment). The Company serves as managing member of the NewINK JV. During the three months ended March 31, 2020 and 2019, the Company received no cash distributions from the NewINK JV.

On November 17, 2014, the Company acquired a 10.0% interest in the Inland JV, a joint venture between affiliates of NorthStar and the Operating Partnership. The Company accounts for this investment under the equity method. NorthStar merged with Colony on January 10, 2017 to form a new company, CLNY, which owns a 90% interest in the Inland JV. The value of Inland JV assets and liabilities were adjusted to reflect estimated fair market value at the time Colony merged with NorthStar. As of March 31, 2020 and 2019, the Company's share of partners' capital in the Inland JV was approximately $25.7 million and $31.5 million, respectively, and the total difference between the carrying amount of the investment and the Company's share of partners' capital was approximately $25.7 million and $10.7 million, respectively (for which the basis difference related to amortizing assets is being recognized over the life of the related assets as a basis difference adjustment). The Company serves as managing member of the Inland JV. During the three months ended March 31, 2020 and 2019, the Company received no cash distributions from the Inland JV.

On May 9, 2017, the NewINK JV refinanced the $840.0 million loan collateralized by the 47 hotels then owned with a new $850.0 million loan with an interest at a rate of LIBOR plus a spread of 2.79%, an initial maturity date of June 7, 2019 and three one-year extension options. The NewINK JV exercised the first extension and the maturity was extended to June 7, 2020. On November 7, 2019, the NewINK JV refinanced the $850.0 million loan with a new $855.0 million non-recourse loan from Morgan Stanley Bank, N.A., JPMorgan Chase Bank, National Association, and Bank of America, N.A. (collectively the "Lender"), collateralized by the then owned 46 hotels. The new loan bears interest at a rate of LIBOR plus a spread of 2.82%, has an initial maturity of November 7, 2021 and five one-year extension options.

On June 9, 2017, the Inland JV refinanced the $817.0 million loan collateralized by the 48 hotels with a new $780.0 million non-recourse loan with Column Financial, Inc. On June 9, 2017, the Company contributed an additional $5.0 million of capital related to its share in the Inland JV to reduce the debt collateralized by the 48 hotels. The new loan bears interest at a rate of LIBOR plus a spread of 3.3%, had an initial maturity date of July 9, 2019 and three one-year extension options. The Inland JV exercised the first extension and the maturity was extended to July 9, 2020.

The Company’s ownership interests in the JVs are subject to change in the event that either the Company or CLNY calls for additional capital contributions to the respective JVs necessary for the conduct of business, including contributions to fund costs and expenses related to capital expenditures. In connection with (i) the non-recourse mortgage loan secured by the NewINK JV properties and the related non-recourse mezzanine loan secured by the membership interests in the owners of the NewINK JV properties and (ii) the non-recourse mortgage loan secured by the Inland JV properties, the Operating Partnership provided the applicable lenders with customary environmental indemnities, as well as guarantees of certain customary non-recourse carve-out provisions such as fraud, material and intentional misrepresentations and misapplication of funds. In some circumstances, such as the bankruptcy of the applicable borrowers, the guarantees are for the full amount of the outstanding debt, but in most circumstances, the guarantees are capped at 15% of the debt outstanding at the time in question (in the case of the NewINK JV loans) or 20% of the debt outstanding at the time in question (in the case of the Inland JV loans). In connection with each of the NewINK JV and Inland JV loans, the Operating Partnership has entered into a contribution agreement with its JV partner whereby the JV partner is, in most cases, responsible to cover such JV partner’s pro rata share of any amounts due by the Operating Partnership under the applicable guarantees and environmental indemnities. The Company manages the JVs and will receive a promote interest in each applicable JV if it meets certain return thresholds for such JV. CLNY may also approve certain actions by the JVs without the Company’s consent, including certain property dispositions conducted at arm’s length, certain actions related to the restructuring of the applicable JV and removal of the Company as managing member in the event the Company fails to fulfill its material obligations under the applicable joint venture agreement.

During the three months ended March 31, 2020, the Company determined that an other than temporary decline in the value of its equity investment in the Inland JV had occurred. The Inland JV’s operating performance has been significantly impacted by the COVID-19 pandemic. The Inland JV has high leverage, limited liquidity and limited ability to fund the current level of operating losses caused by the COVID-19 pandemic for a sustained period of time. Based on these factors, we have assessed that the fair market value of our equity investment in the Inland JV is $0 and the Company did not consider the investment recoverable and therefore recorded an impairment of $15.3 million on the investment.

The Company's recorded investments in the NewINK JV and the Inland JV were $(16.2) million and $0.0 million, respectively, at March 31, 2020. The following table sets forth the combined components of net loss, including the Company’s share, related to all JVs for the three months ended March 31, 2020 and 2019 (in thousands):


	For the three months ended
	March 31,
	2020		2019
Revenue	$	90,870	$	112,120
Total hotel operating expenses	71,965		78,554
Hotel operating income	$	18,905	$	33,566
Impairment loss	13,881		—
Net income (loss) from continuing operations	$	(40,285)	$	(15,019)
Loss on sale of hotels	$	(82)	$	—
Net (loss)	$	(40,367)	$	(15,019)

Income (loss) allocable to the Company	$	(4,072)	$	(1,522)
Basis difference adjustment	399		399
Total income (loss) from unconsolidated real estate entities attributable to the Company	$	(3,673)	$	(1,123)