Investment in Affiliates

6 Months Ended

Jun. 30, 2017

Equity Method Investments and Joint Ventures [Abstract]

We own an interest in two unconsolidated joint ventures that own properties. In addition, we own an interest in three unconsolidated joint ventures that sold the properties they owned (Aviation Business Park and Rivers Park I and II) in March 2017. We do not control the activities that are most significant to the joint ventures. As a result, the assets, the liabilities and the operating results of these non-controlled joint ventures are not consolidated within our unaudited condensed consolidated financial statements. Our investments in these joint ventures are recorded as “Investment in affiliates” on our consolidated balance sheets. On March 7, 2017, three of our unconsolidated joint ventures collectively sold Aviation Business Park, a 120,284 square-foot office building, and Rivers Park I and II, a 307,984 square-foot business park, which were all located in our Maryland reporting segment. Based on our percentage ownership of the joint ventures, our share of gross proceeds from the sale totaled $19.0 million, which generated $18.4 million of net proceeds. We used the net proceeds from the sale to repay $7.0 million (our proportionate share) of mortgage debt encumbering Rivers Park I and II, and the remainder was used to repay a portion of the outstanding balance under our unsecured revolving credit facility. We have had, and will have, no continuing involvement in the ownership decisions of any of the unconsolidated joint ventures’ disposed properties subsequent to their disposal.

Our investment in affiliates consisted of the following (dollars in thousands):



	Reporting Segment	Ownership Interest	Investment at June 30, 2017		Investment at December 31, 2016
Prosperity Metro Plaza	Northern Virginia	51%	$	27,165	$	26,414
1750 H Street, NW	Washington, D.C.	50%	14,198		14,624
Aviation Business Park⁽¹⁾	Maryland	50%	—		5,941
Rivers Park I and II⁽¹⁾⁽²⁾	Maryland	25%	—		2,413
			$	41,363	$	49,392

⁽¹⁾ The unconsolidated joint ventures that owned Aviation Business Park and Rivers Park I and II sold these properties on March 7, 2017. During the three months ended June 30, 2017, we recognized a nominal loss from these properties, which was primarily due to a true-up of accrued liabilities subsequent to the sale of the properties. We anticipate a final true-up of all existing liabilities and a final distribution of any remaining cash to occur in the third quarter of 2017.


⁽²⁾	Rivers Park I and Rivers Park II were owned through two separate unconsolidated joint ventures.

The following table provides a summary of the mortgage debt held by our unconsolidated joint ventures (dollars in thousands):



	FPO Ownership	Effective Interest Rate	Maturity Date	Principal Balance at June 30, 2017⁽¹⁾		Principal Balance at December 31, 2016⁽¹⁾
Rivers Park I and II ⁽²⁾	25%	LIBOR + 1.90%⁽³⁾	September 2017	$	—	$	28,000
1750 H Street, NW⁽⁴⁾	50%	3.92%	August 2024	32,000		32,000
Prosperity Metro Plaza⁽⁵⁾	51%	3.91%	December 2029	50,000		50,000
Weighted Average / Total		3.91%		$	82,000	$	110,000


⁽¹⁾	Reflects the entire balance of the debt secured by the properties, not our portion of the debt.


⁽²⁾	The unconsolidated joint ventures that owned Rivers Park I and II sold these properties on March 7, 2017. The unconsolidated joint venture partners used net proceeds from the sale to repay the mortgage debt encumbering the properties. At December 31, 2016, $2.8 million of the outstanding mortgage balance was recourse to us.


⁽³⁾	At June 30, 2017, LIBOR was 1.22%. All references to LIBOR in the condensed consolidated financial statements refer to one-month LIBOR.


⁽⁴⁾	The loan requires interest-only payments with a constant interest rate over the life of the loan. The loan is repayable in full, without penalty, on or after August 1, 2021.


⁽⁵⁾	The loan requires interest-only payments through December 2024, at which time the loan requires principal and interest payments through its maturity date. The loan is repayable in full, without penalty, on or after June 1, 2029.

The net assets of our unconsolidated joint ventures consisted of the following (dollars in thousands):



	June 30, 2017		December 31, 2016
Assets:
Rental property, net	$	143,184	$	189,245
Cash and cash equivalents	9,786		9,887
Other assets	16,509		20,726
Total assets	169,479		219,858
Liabilities:
Mortgage loans, net⁽¹⁾⁽²⁾	81,431		109,372
Other liabilities	7,608		8,674
Total liabilities	89,040		118,046
Net assets	$	80,439	$	101,812


⁽¹⁾	Of the total mortgage debt that encumbers our unconsolidated properties, none was recourse to us at June 30, 2017 and $2.8 million was recourse to us at December 31, 2016.


⁽²⁾	Mortgage loans, net at both June 30, 2017 and December 31, 2016 included $0.6 million of unamortized deferred financing costs

Our share of earnings or losses related to our unconsolidated joint ventures is recorded in our consolidated statements of operations as “Equity in earnings of affiliates.” The following table summarizes the results of operations of our unconsolidated joint ventures for the periods presented, of which, our proportionate share is reflected in “Equity in earnings of affiliates” in our consolidated statements of operations based on our varying ownership interests in the unconsolidated joint ventures (dollars in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Total revenues	$	4,679		$	6,240		$	10,357		$	12,529
Total operating expenses	(1,562		)	(1,814		)	(3,499		)	(3,980		)
Net operating income	3,117			4,426			6,858			8,549
Depreciation and amortization	(1,382		)	(2,006		)	(3,245		)	(3,972		)
Interest expense, net	(817		)	(997		)	(1,778		)	(1,989		)
Gain on sale of rental property	—			—			10,324			—
Net income	$	918		$	1,423		$	12,159		$	2,588

The following table summarizes the results of operations of Aviation Business Park and Rivers Park I and II, which were sold in March 2017, of which, our proportionate share is reflected in “Equity in earnings of affiliates” in our consolidated statements of operations based on our varying ownership interests in the unconsolidated joint ventures that owned the respective properties (dollars in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Total revenues	$	—		$	1,579		$	1,113		$	3,210
Total operating expenses	(70		)	(412		)	(342		)	(1,054		)
Net operating (loss) income	(70		)	1,167			771			2,156
Depreciation and amortization	—			(666		)	(420		)	(1,309		)
Interest expense, net	1			(180		)	(146		)	(354		)
(Loss) income from operations of disposed properties	(69		)	321			205			493
Gain on sale of rental property	—			—			10,324			—
Net (loss) income	$	(69	)	$	321		$	10,529		$	493

We earn various fees from several of our joint ventures, which include management fees, leasing commissions and construction management fees. We recognize fees only to the extent of the third party ownership interest in our unconsolidated joint ventures. We recognized fees from our unconsolidated joint ventures of $0.2 million and $0.3 million for the three and six months ended June 30, 2017, respectively, and $0.2 million and $0.4 million for the three and six months ended June 30, 2016, respectively, which are reflected within “Tenant reimbursements and other revenues” on our consolidated statements of operations.

FIRST POTOMAC REALTY TRUST 10-Q