| Investments in Partially Owned Entities |
Investments in Partially Owned Entities Fifth Avenue and Times Square JV As of June 30, 2020, we own a 51.5% common interest in a joint venture ("Fifth Avenue and Times Square JV") which owns interests in properties located at 640 Fifth Avenue, 655 Fifth Avenue, 666 Fifth Avenue, 689 Fifth Avenue, 697-703 Fifth Avenue, 1535 Broadway and 1540 Broadway (collectively, the "Properties"). The remaining 48.5% common interest in the joint venture is owned by a group of institutional investors (the "Investors"). Our 51.5% common interest in the joint venture represents an effective 51.0% interest in the Properties. The 48.5% common interest in the joint venture owned by the Investors represents an effective 47.2% interest in the Properties. We also own $1.828 billion of preferred equity interests in certain of the properties. All of the preferred equity has an annual coupon of 4.25% for the first five years, increasing to 4.75% for the next five years and thereafter at a formulaic rate. It can be redeemed under certain conditions on a tax deferred basis. Fifth Avenue and Times Square JV was formed in April 2019, when we contributed our interests in the Properties to the joint venture and transferred a 48.5% common interest in the joint venture to the Investors (the “Transaction”). The Transaction valued the Properties at $5.556 billion, resulting in a $2.571 billion net gain, before noncontrolling interests of $11,945,000, including a gain related to the step up in our basis of the retained portion of the assets to fair value. Subsequent to the Transaction, Manhattan street retail suffered negative market conditions and was further stressed by the COVID-19 pandemic. This has resulted in a decrease in cash flows. As of June 30, 2020, we estimated that the fair value of our investment in Fifth Avenue and Times Square JV was approximately $2,955,957,000 or $306,326,000 less than the carrying amount. In determining the fair value of our investment, we considered, among other inputs, a discounted cash flow analysis based upon market conditions and expectations of growth. As of June 30, 2020, we have concluded that the decline in the value of our investment was “other-than-temporary.” This conclusion was based on, among other factors, the significant challenges facing the retail sector and our inability to forecast a recovery in the near-term. Accordingly, we recognized a non-cash impairment loss of $306,326,000, before noncontrolling interests of $467,000, during the second quarter of 2020. The impairment loss is included in “(loss) income from partially owned entities” on our consolidated statements of income for the three and six months ended June 30, 2020. We provide various services to Fifth Avenue and Times Square JV in accordance with management, development, leasing and other agreements. During the three and six months ended June 30, 2020, we recognized $629,000 and $1,661,000, respectively, of property management fee income which is included in "fee and other income" on our consolidated statements of income. During the three and six months ended June 30, 2019, we recognized $830,000 of property management fee income. BMS, our wholly-owned subsidiary, supervises cleaning, security and engineering services at certain of the Properties. During the three and six months ended June 30, 2020, we recognized $748,000 and $1,773,000, respectively, of income for these services which is included in "fee and other income" on our consolidated statements of income. During the three and six months ended June 30, 2019, we recognized $791,000 of income for these services. Below is a summary of the latest available financial information for Fifth Avenue and Times Square JV. | | | | | | | | | | | | | | | | | (Amounts in thousands) | For the Three Months Ended
June 30, | | | | 2020 | | 2019 | | 2020 | | 2019 | Income statement: | | | | | | | | Revenues | $ | 66,311 |
| | $ | 72,888 |
| | $ | 146,786 |
| | $ | 72,888 |
| Net income | 112 |
| | 21,466 |
| | 10,090 |
| | 21,466 |
| Net (loss) income attributable to Fifth Avenue and Times Square JV (after allocation to our preferred equity interests) | (19,333 | ) | | 4,079 |
| | (28,404 | ) | | 4,079 |
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8. Investments in Partially Owned Entities - continued Alexander’s, Inc. (“Alexander’s”) (NYSE: ALX) As of June 30, 2020, we own 1,654,068 Alexander’s common shares, or approximately 32.4% of Alexander’s common equity. We manage, develop and lease Alexander’s properties pursuant to agreements which expire in March of each year and are automatically renewable. As of June 30, 2020, the market value ("fair value" pursuant to ASC Topic 820, Fair Value Measurements ("ASC 820")) of our investment in Alexander’s, based on Alexander’s June 30, 2020 closing share price of $240.90, was $398,465,000, or $308,966,000 in excess of the carrying amount on our consolidated balance sheet. As of June 30, 2020, the carrying amount of our investment in Alexander’s, excluding amounts owed to us, exceeds our share of the equity in the net assets of Alexander’s by approximately $38,552,000. The majority of this basis difference resulted from the excess of our purchase price for the Alexander’s common stock acquired over the book value of Alexander’s net assets. Substantially all of this basis difference was allocated, based on our estimates of the fair values of Alexander’s assets and liabilities, to real estate (land and buildings). We are amortizing the basis difference related to the buildings into earnings as additional depreciation expense over their estimated useful lives. This depreciation is not material to our share of equity in Alexander’s net income. The basis difference related to the land will be recognized upon disposition of our investment. Below is a schedule summarizing our investments in partially owned entities. | | | | | | | | | | | (Amounts in thousands) | | | Balance as of | | | | | | Investments: | | | | | | Fifth Avenue and Times Square JV | 51.5% | | $ | 2,955,957 |
| | $ | 3,291,231 |
| Partially owned office buildings/land(1) | Various | | 460,767 |
| | 464,109 |
| Alexander’s | 32.4% | | 89,499 |
| | 98,543 |
| Other investments(2) | Various | | 142,428 |
| | 145,282 |
| | | | $ | 3,648,651 |
| | $ | 3,999,165 |
| | | | | | | Investments in partially owned entities included in other liabilities(3): | | | | | | 7 West 34th Street | 53.0% | | $ | (52,549 | ) | | $ | (54,004 | ) | 85 Tenth Avenue | 49.9% | | (9,188 | ) | | (6,186 | ) | | | | $ | (61,737 | ) | | $ | (60,190 | ) |
____________________ | | (1) | Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 512 West 22nd Street, 61 Ninth Avenue and others. |
| | (2) | Includes interests in Independence Plaza, Rosslyn Plaza and others. |
| | (3) | Our negative basis results from distributions in excess of our investment. |
8. Investments in Partially Owned Entities - continued Below is a schedule of (loss) income from partially owned entities. | | | | | | | | | | | | | | | | | | | (Amounts in thousands) | | | For the Three Months Ended
June 30, | | | | | 2020 | | 2019 | | 2020 | | 2019 | Our share of net (loss) income: | | | | | | | | | | Fifth Avenue and Times Square JV (see page 28 for details)(1): | | | | | | | | | | Non-cash impairment loss | | | $ | (306,326 | ) | | $ | — |
| | $ | (306,326 | ) | | $ | — |
| Return on preferred equity, net of our share of the expense | | | 9,330 |
| | 8,586 |
| | 18,496 |
| | 8,586 |
| Equity in net income(2) | 51.5% | | 441 |
| | 11,217 |
| | 5,937 |
| | 11,217 |
| | | | (296,555 | ) | | 19,803 |
| | (281,893 | ) | | 19,803 |
| Alexander's (see page 29 for details): | | | | | | | | | | Equity in net income | 32.4% | | 3,929 |
| | 3,597 |
| | 5,345 |
| | 9,314 |
| Management, leasing and development fees | | | 1,222 |
| | 1,122 |
| | 2,482 |
| | 2,179 |
| | | | 5,151 |
| | 4,719 |
| | 7,827 |
| | 11,493 |
| | | | | | | | | | | Partially owned office buildings(3) | Various | | 810 |
| | (1,451 | ) | | 2,132 |
| | (1,345 | ) | | | | | | | | | | | Other investments(4) | Various | | (1,279 | ) | | (198 | ) | | (836 | ) | | 242 |
| | | | | | | | | | | | | | $ | (291,873 | ) | | $ | 22,873 |
| | $ | (272,770 | ) | | $ | 30,193 |
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____________________ | | (2) | The decrease in our share of net income for the three and six months ended June 30, 2020 compared to June 30, 2019 was primarily due to (i) $4,737 of write-offs of lease receivables deemed uncollectible during the second quarter of 2020 and (ii) a $4,360 reduction in income related to a Forever 21 lease modification at 1540 Broadway. |
| | (3) | Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue, 7 West 34th Street, 330 Madison Avenue (sold on July 11, 2019), 512 West 22nd Street, 61 Ninth Avenue, 85 Tenth Avenue and others. |
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