Investments in Unconsolidated Joint Ventures

3 Months Ended

Mar. 31, 2023

Equity Method Investments and Joint Ventures [Abstract]

Investments in Unconsolidated Joint Ventures

As of March 31, 2023, the Company held 20% ownership interests in three unconsolidated joint ventures. In evaluating the Company’s 20% ownership interests in these joint ventures, we concluded that the joint ventures are not VIEs after applying the variable interest model and, therefore, we account for our interests in the joint ventures as investments in unconsolidated subsidiaries after applying the voting interest model using the equity method of accounting. Equity in net income (losses) of unconsolidated joint ventures is included in other income and expense, net within the condensed consolidated statements of operations.

The Company entered into a joint venture with (i) the Alaska Permanent Fund Corporation (the “Alaska JV”) during the second quarter of 2014 to invest in homes acquired through traditional acquisition channels, (ii) another leading institutional investor (the “Institutional Investor JV”) during the third quarter of 2018 to invest in newly constructed single-family rental homes, and (iii) institutional investors advised by J.P. Morgan Asset Management (the “J.P. Morgan JV”) during the first quarter of 2020 focused on constructing and operating newly built rental homes. During the three months ended March 31, 2023, the parties of the J.P. Morgan JV agreed to reinvest proceeds from debt financing obtained in the first quarter of 2022 (see below) to increase the size of the partnership up to approximately $900.0 million. The changes do not impact the accounting treatment of the joint venture.

The following table summarizes our investments in unconsolidated joint ventures (amounts in thousands, except percentages and property data):


Joint Venture Description	% Ownership at March 31, 2023		Completed Homes at March 31, 2023	Balances at March 31, 2023		Balances at December 31, 2022
Alaska JV	20	%	240	$	19,970	$	18,890
Institutional Investor JV	20	%	999	16,526		16,567
J.P. Morgan JV	20	%	1,449	72,171		71,890
			2,688	$	108,667	$	107,347

The Company provides various services to these joint ventures, which are considered to be related parties, including property management and development services and has opportunities to earn promoted interests. Management fee and development fee income from unconsolidated joint ventures was $3.3 million and $2.8 million for the three months ended March 31, 2023 and 2022, respectively, and is included in other income and expense, net within the condensed consolidated statements of operations. As a result of the Company’s management of these joint ventures, certain related party receivables and payables arise in the ordinary course of business and are included in escrow deposits, prepaid expenses and other assets or amounts payable to affiliates in the condensed consolidated balance sheets.

During the first quarter of 2022, the Company acquired 200 properties in a bulk transaction from the Institutional Investor JV for total consideration of $74.6 million, of which (i) $66.2 million was paid in cash and included in cash paid for single-family properties in the condensed consolidated statements of cash flows and (ii) $8.4 million was recorded as a noncash distribution resulting in a reduction to our equity method investment. The transaction was accounted for as an asset acquisition and resulted in a gain on sale at the Institutional Investor JV. Recognition of our pro rata portion of the gain on sale has been deferred by reducing the carrying value of the acquired properties in our condensed consolidated balance sheets.

During the first quarter of 2022, the J.P. Morgan JV entered into a loan agreement to borrow up to a $375.0 million aggregate commitment. During the initial three-year term, the loan bears interest at the Secured Overnight Financing Rate (“SOFR”) plus a 1.5% margin and matures on January 28, 2025. The loan agreement provides for one one-year extension option that includes additional fees and interest. As of March 31, 2023, the joint venture’s loan had a $260.3 million outstanding principal balance.

During the third quarter of 2022, the Institutional Investor JV amended its existing loan agreement to increase borrowing capacity to $250.0 million. During the initial two-year term, the loan bears interest at SOFR plus a 2.4% margin and matures on July 1, 2024. The loan agreement provides for two one-year extension options that include additional fees and interest. As of March 31, 2023, the joint venture’s loan had a $232.7 million outstanding principal balance.

The Company has provided customary non-recourse guarantees for the J.P. Morgan JV and Institutional Investor JV loans that may become a liability for us upon a voluntary bankruptcy filing by the joint venture or the occurrence of other actions such as fraud or a material misrepresentation by us or the joint venture. To date, the guarantees have not been invoked, and we believe that the actions that would trigger a guarantee would generally be disadvantageous to the joint ventures and us and therefore are unlikely to occur. However, there can be no assurances that actions that could trigger the guarantee will not occur.