13. Related Party Transactions

Related Party Receivables and Payables

At June 30, 2012 and December 31, 2011, receivables from related parties, net were as follows:


	June 30, 2012			December 31, 2011
	(In thousands)
Note receivable from JFSCI	$	24,017		$	25,381
Notes receivable from unconsolidated joint ventures		319			25,631
Notes receivable from other related parties		20,482			21,013
Reserves for notes receivable from other related parties		(12,734	)		(12,697	)
Receivables from related parties		1,378			895

Total receivables from related parties, net	$	33,462		$	60,223

Until August 2011, we participated in a centralized cash management function operated by JFSCI, whereby net cash flows from operations were transferred daily with JFSCI and resulted in related party transactions and monetary transfers to settle amounts owed. In August 2011, we ceased participation in this function and performed it independently. Through May 2011, the resultant notes receivable and payable were unsecured, due on demand and accrued interest monthly based on Prime less 2.05%. In May 2011, concurrent with issuance of the Secured Notes, through a $75.0 million cash payment and $41.5 million contribution of assets, the receivable from JFSCI was paid down by JFSCI and converted to a $38.9 million unsecured term note receivable from JFSCI, bearing 4% interest, payable in equal quarterly installments and maturing May 15, 2019. In June 2012, June 2011 and August 2011, JFSCI elected to make prepayments, including accrued interest, of $1.9 million, $6.6 million and $7.7 million, respectively, and applied these prepayments to future installments such that JFSCI would not be required to make a payment until May 2014. At June 30, 2012 and December 31, 2011, the note receivable from JFSCI, including accrued interest, was $24.0 million and $25.4 million, respectively. Quarterly, we evaluate collectability of the note receivable from JFSCI, which includes consideration of JFSCI’s payment history, operating performance and future payment requirements under the note. Based on these criteria, and as JFSCI applied prepayments under the note to defer future installments until May 2014, we do not presently anticipate collection risks on the note receivable from JFSCI.

Notes receivable from unconsolidated joint ventures, including accrued interest, at June 30, 2012 and December 31, 2011 were $0.3 million and $25.6 million, respectively. At December 31, 2011, included in the $25.6 million of notes receivable were $25.2 million of notes receivable held by our consolidated joint venture, SCLLC. In March 2012, our interest in SCLLC was redeemed by SCLLC and therefore, effective March 31, 2012, SCLLC’s notes receivable from unconsolidated joint ventures were excluded from these consolidated financial statements. At June 30, 2012, the remaining note receivable from an unconsolidated joint venture bears interest at 8% and matures in 2020. Further, this note earns additional interest to achieve a 17.5% internal rate of return, subject to available cash flows of the joint venture, and can be repaid prior to 2020. Quarterly, we evaluate collectability of this note, which includes consideration of prior payment history, operating performance and future payment requirements under the applicable note. Based on these criteria, we do not presently anticipate collection risks on this note.

Notes receivable from other related parties, including accrued interest, at June 30, 2012 and December 31, 2011 were $7.7 million and $8.3 million, respectively, net of related reserves of $12.7 million and $12.7 million, respectively. These notes are unsecured and mature from November 2012 through April 2021. At June 30, 2012 and December 31, 2011, these notes bore interest ranging from Prime less .75% (2.5%) to 4.2%. Quarterly, we evaluate collectability of these notes. Our evaluation includes consideration of prior payment history, operating performance and future payment requirements under the applicable notes. At December 31, 2009, based on these criteria, notes receivable from Shea Management LLC and Shea Properties Management Company, Inc. (“SPMCI”) were deemed uncollectible and fully reserved. In June 2011, SPMCI paid the accrued interest for 2010 and thereafter. Therefore, unpaid interest in 2012 from SPMCI is not reserved; accrued interest prior to 2010 and the principal balance remain reserved. In addition, based on these criteria, we do not presently anticipate collection risks on the other notes.

The Company, entities under common control and these unconsolidated joint ventures also engage in transactions on behalf of the other, such as payment of invoices and payroll. The amounts resulting from these transactions are recorded in receivables from related parties or payables to related parties, non-interest bearing and due on demand. At June 30, 2012 and December 31, 2011, these receivables were $1.4 million and $0.9 million, respectively, and these payables were $4.3 million and $2.3 million, respectively.

Real Property and Joint Venture Transactions

In May 2012, SHLP purchased the Vistancia, LLC non-controlling interest’s entire 16.7% partnership interest in Vistancia, LLC for a nominal amount. The reduction in non-controlling interests as a result of the purchase was also nominal. The former non-controlling interest continues to receive the distribution payable, which is $0.1 million quarterly. At June 30, 2012, the distribution payable was $3.1 million (see Note 12).

In March 2012, SHLP’s entire 58% interest in SCLLC, a consolidated joint venture with Shea Properties II, LLC, a related party and the non-controlling interest, was redeemed by SCLLC. In valuing its 58% interest in SCLLC, SHLP, to ensure receipt of net assets of equal value to its ownership interest, used third-party real estate appraisals for real property held by SCLLC. The estimated fair value of the assets received by SHLP was $30.8 million. However, as the non-controlling interest is a related party under common control, the assets and liabilities received by SHLP were recorded at net book value and the difference in SHLP’s investment in SCLLC and the net book value of the assets and liabilities received was recorded as a reduction to SHLP’s equity.

As consideration for the redemption, SCLLC distributed assets and liabilities to SHLP having a net book value of $24.0 million, including $2.2 million cash, a $3.0 million secured note receivable, $20.0 million of inventory and $1.2 million of other liabilities. In addition, as a result of this redemption, SCLLC is excluded from these consolidated financial statements effective March 31, 2012, which resulted in a net reduction of $41.8 million in assets and $2.0 million in liabilities, and a corresponding reduction in total equity, of which $11.6 million was attributable to SHLP and $28.2 million was attributable to non-controlling interests.

At June 30, 2012 and 2011, we were the managing member for seven and nine, respectively, unconsolidated joint ventures and received a management fee from these joint ventures as reimbursement for direct and overhead costs incurred on behalf of the joint ventures. Fees from joint ventures representing reimbursement of our costs are recorded as a reduction to general and administrative expense. Fees from joint ventures representing profit are recorded as revenues. For the three and six months ended June 30, 2012, $0.7 million and $1.7 million of management fees, respectively, were offset against general and administrative expenses, and $0.1 million and $0.2 million of management fees, respectively, were included in revenues. For the three and six months ended June 30, 2011, $0.8 million and $1.7 million of management fees, respectively, were offset against general and administrative expenses, and $0.3 million and $0.6 million management fees, respectively, were included in revenues.

General and Administrative Related Party Transactions

JFSCI provides corporate services to us, including management, legal, tax, information technology, risk management, facilities, accounting, treasury and human resources. For the three and six months ended June 30, 2012, general and administrative expenses included $4.5 million and $8.4 million, respectively, for corporate services provided by JFSCI. For the three and six months ended June 30, 2011, general and administrative expenses included $3.3 million and $7.3 million, respectively, for corporate services provided by JFSCI.

We lease office space from related parties under non-cancelable operating leases. Leases are for five to ten year terms and generally provide for five year renewal options. For the three and six months ended June 30, 2012, related-party rental expense was $0.1 million and $0.3 million, respectively. For the three and six months ended June 30, 2011, related-party rental expense was $0.2 million and $0.4 million, respectively.