UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
For the Quarter Ended
Commission File Number
BBX Capital, Inc.
(Exact name of registrant as specified in its charter)
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Securities Registered pursuant to Section 12(b) of the Act:
None
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | | Non-accelerated filer ☐ | Smaller reporting company |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
The number of shares outstanding of each of the registrant’s classes of common stock as of May 4, 2023 is as follows:
Class A Common Stock of $.01 par value,
Class B Common Stock of $.01 par value,
| TABLE OF CONTENTS |
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| Part I. |
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| Item 1. |
Financial Statements |
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| Notes to Condensed Consolidated Financial Statements - Unaudited |
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| Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3. |
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| Item 4. |
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| Part II. |
OTHER INFORMATION |
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| Item 1. |
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| Item 1A. |
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| Item 6. |
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
BBX Capital, Inc.
Condensed Consolidated Statements of Financial Condition - Unaudited
(In thousands, except share data)
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| Cash and cash equivalents ($ in 2023 in variable interest entities (VIEs)) | $ | |||||||
| Restricted cash ($ in 2023 in variable interest entities (VIEs)) | ||||||||
| Securities available for sale, at fair value | ||||||||
| Trade accounts receivable, net | ||||||||
| Construction contracts receivable, net | ||||||||
| Trade inventory | ||||||||
| Real estate ($ in 2023 and $ in 2022 held for sale and $ in 2023 in VIEs) | ||||||||
| Investments in and advances to unconsolidated real estate joint ventures ($ in 2023 in consolidated VIEs) | ||||||||
| Note receivable from Bluegreen Vacations Holding Corporation | ||||||||
| Property and equipment, net | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Operating lease assets | ||||||||
| Deferred tax asset, net | ||||||||
| Contract assets | ||||||||
| Other assets ($ in 2023 in VIEs) | ||||||||
| Total assets | $ | |||||||
| LIABILITIES AND EQUITY | ||||||||
| Liabilities: | ||||||||
| Accounts payable ($ in 2023 in VIEs) | $ | |||||||
| Accrued expenses | ||||||||
| Contract liabilities | ||||||||
| Other liabilities | ||||||||
| Operating lease liabilities | ||||||||
| Notes payable and other borrowings | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (See Note 14) | ||||||||
| Redeemable noncontrolling interest | ||||||||
| Equity: | ||||||||
| Class A Common Stock of $ par value; authorized shares; issued and outstanding in 2023 and in 2022 | ||||||||
| Class B Common Stock of $ par value; authorized shares; issued and outstanding in 2023 and in 2022 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated earnings | ||||||||
| Accumulated other comprehensive income | ||||||||
| Total shareholders' equity | ||||||||
| Noncontrolling interests | ||||||||
| Total equity | ||||||||
| Total liabilities and equity | $ | |||||||
See Notes to Condensed Consolidated Financial Statements - Unaudited
Condensed Consolidated Statements of Operations and Comprehensive Income – Unaudited
(In thousands, except per share data)
| For the Three Months Ended |
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| March 31, |
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| 2023 |
2022 |
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| Revenues: |
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| Trade sales |
$ | |||||||
| Sales of real estate inventory |
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| Revenue from construction contracts |
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| Real estate development and property management fees |
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| Interest income |
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| Net gain on sales of real estate assets |
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| Other revenue |
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| Total revenues |
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| Costs and expenses: |
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| Cost of trade sales |
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| Cost of real estate inventory sold |
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| Cost of revenue from construction contracts |
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| Interest expense |
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| Recoveries from loan losses, net |
( |
) | ( |
) | ||||
| Impairment losses |
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| Selling, general and administrative expenses |
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| Total costs and expenses |
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| Operating losses |
( |
) | ( |
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| Equity in net earnings of unconsolidated real estate joint ventures |
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| Gain on the consolidation of The Altman Companies |
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| Gain on the consolidation of investment in real estate joint ventures |
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| Other income |
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| Foreign exchange loss |
( |
) | ( |
) | ||||
| Income (loss) before income taxes |
( |
) | ||||||
| (Provision) benefit for income taxes |
( |
) | ||||||
| Net income (loss) |
( |
) | ||||||
| Net loss attributable to noncontrolling interests |
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| Net income (loss) attributable to shareholders |
$ | ( |
) | |||||
| Basic earnings (loss) per share |
$ | ( |
) | |||||
| Diluted earnings (loss) per share |
$ | ( |
) | |||||
| Basic weighted average number of common shares outstanding |
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| Diluted weighted average number of common shares outstanding |
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| Net income (loss) |
$ | ( |
) | |||||
| Other comprehensive income, net of tax: |
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| Unrealized gain (loss) on securities available for sale |
( |
) | ||||||
| Foreign currency translation adjustments |
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| Other comprehensive income, net |
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| Comprehensive income (loss), net of tax |
( |
) | ||||||
| Comprehensive loss attributable to noncontrolling interests |
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| Comprehensive income (loss) attributable to shareholders |
$ | ( |
) | |||||
See Notes to Condensed Consolidated Financial Statements – Unaudited
Condensed Consolidated Statements of Changes in Equity - Unaudited
For the Three Months Ended March 31, 2023 and 2022
(In thousands)
| Shares of | Accumulated | |||||||||||||||||||||||||||||||||||
| Common Stock | Common | Other | ||||||||||||||||||||||||||||||||||
| Outstanding | Stock | Additional | Comprehen- | Non- | ||||||||||||||||||||||||||||||||
| Class | Class | Paid-in | Accumulated | sive | controlling | Total | ||||||||||||||||||||||||||||||
| A | B | A | B | Capital | Earnings | Income | Interests | Equity | ||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | |||||||||||||||||||||||||||||||||||
| Net loss excluding $ of loss attributable to redeemable noncontrolling interest | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Other comprehensive income | — | — | ||||||||||||||||||||||||||||||||||
| Accretion of redeemable noncontrolling interest | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Contributions from noncontrolling interest | — | — | ||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Conversion of common stock from Class B to Class A | ( | ) | ||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | ||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | |||||||||||||||||||||||||||||||||||
| Shares of | ||||||||||||||||||||||||||||||||||||
| Common Stock | Common | Accumulated | ||||||||||||||||||||||||||||||||||
| Outstanding | Stock | Additional | Other | Non- | ||||||||||||||||||||||||||||||||
| Class | Class | Paid-in | Accumulated | Comprehensive | controlling | Total | ||||||||||||||||||||||||||||||
| A | B | A | B | Capital | Earnings | Income | Interests | Equity | ||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | |||||||||||||||||||||||||||||||||||
| Net income excluding $ of loss attributable to redeemable noncontrolling interest | — | — | ( | ) | ||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | ||||||||||||||||||||||||||||||||||
| Accretion of redeemable noncontrolling interest | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Consolidation of real estate joint venture managing members | — | — | ||||||||||||||||||||||||||||||||||
| Contributions from noncontrolling interest | — | — | ||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Share-based compensation | — | — | ||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | |||||||||||||||||||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements - Unaudited
Condensed Consolidated Statements of Cash Flows - Unaudited
(In thousands)
| For the Three Months Ended | ||||||||
| March 31, |
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| 2023 |
2022 |
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| Operating activities: |
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| Net income (loss) |
$ | ( |
) | |||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: |
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| Recoveries from loan losses, net |
( |
) | ( |
) | ||||
| Depreciation, amortization and accretion |
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| Net loss (gain) on sales of real estate and property and equipment |
( |
) | ||||||
| Equity in net earnings of unconsolidated real estate joint ventures |
( |
) | ( |
) | ||||
| Return on investment in unconsolidated real estate joint ventures |
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| Gain on the consolidation of real estate joint ventures |
( |
) | ||||||
| Gain on the consolidation of The Altman Companies |
( |
) | ||||||
| Impairment losses |
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| Share-based compensation expense |
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| Provision (recovery) for excess and obsolete inventory |
( |
) | ||||||
| Changes in operating assets and liabilities: |
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| Deferred income tax asset, net |
( |
) | ||||||
| Trade accounts receivable |
( |
) | ( |
) | ||||
| Construction contracts receivable |
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| Trade inventory |
( |
) | ||||||
| Real estate |
( |
) | ||||||
| Operating lease assets and operating lease liabilities |
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| Contract assets |
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| Other assets |
( |
) | ||||||
| Accounts payable |
( |
) | ||||||
| Accrued expenses |
( |
) | ( |
) | ||||
| Contract liabilities |
( |
) | ||||||
| Other liabilities |
( |
) | ||||||
| Net cash used in operating activities |
( |
) | ( |
) | ||||
| Investing activities: |
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| Return of investment in unconsolidated real estate joint ventures |
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| Investments in unconsolidated real estate joint ventures |
( |
) | ( |
) | ||||
| Purchases of securities available for sale |
( |
) | ||||||
| Redemptions of securities available for sale |
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| Proceeds from repayment of loans receivable |
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| Proceeds from sales of real estate held-for-sale |
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| Proceeds from sales of property and equipment |
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| Additions to real estate held-for-sale and held-for-investment |
( |
) | ( |
) | ||||
| Purchases of property and equipment |
( |
) | ( |
) | ||||
| Cash acquired in the consolidation of real estate joint ventures |
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| Cash paid for The Altman Companies acquisition, net of cash received |
( |
) | ||||||
| Decrease in cash from other investing activities |
( |
) | ( |
) | ||||
| Net cash (used in) provided by investing activities |
( |
) | ||||||
(Continued)
| For the Three Months Ended |
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| March 31, |
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| 2023 |
2022 |
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| Financing activities: |
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| Repayments of notes payable and other borrowings |
( |
) | ( |
) | ||||
| Proceeds from notes payable and other borrowings |
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| Payments for debt issuance costs |
( |
) | ||||||
| Contributions from noncontrolling interests |
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| Distribution to noncontrolling interests |
( |
) | ( |
) | ||||
| Net cash provided by financing activities |
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| Decrease in cash, cash equivalents and restricted cash |
( |
) | ( |
) | ||||
| Cash, cash equivalents and restricted cash at beginning of period |
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| Cash, cash equivalents and restricted cash at end of period |
$ | |||||||
| Supplemental cash flow information: |
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| Interest paid on borrowings, net of amounts capitalized |
$ | |||||||
| Income taxes paid |
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| Supplementary disclosure of non-cash investing and financing activities: |
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| Construction funds receivable transferred to real estate |
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| Assumption of Community Development District Bonds by homebuilders |
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| Operating lease assets obtained in exchange for new operating lease liabilities |
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| Reconciliation of cash, cash equivalents and restricted cash: |
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| Cash and cash equivalents |
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| Restricted cash |
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| Total cash, cash equivalents and restricted cash |
$ | |||||||
See Notes to Condensed Consolidated Financial Statements - Unaudited
Notes to Condensed Consolidated Financial Statements - Unaudited
1. Organization and Basis of Financial Statement Presentation
Organization
BBX Capital, Inc. and its subsidiaries (the “Company” or, unless otherwise indicated or the context otherwise requires, “we,” “us,” or “our”) is a Florida-based diversified holding company. BBX Capital, Inc. as a standalone entity without its subsidiaries is referred to as “BBX Capital.”
Principal Holdings
BBX Capital’s principal holdings are BBX Capital Real Estate, LLC (“BBX Capital Real Estate” or “BBXRE”), BBX Sweet Holdings, LLC (“BBX Sweet Holdings”), and Renin Holdings, LLC (“Renin”).
BBX Capital Real Estate
BBX Capital Real Estate is engaged in the acquisition, development, construction, ownership, financing, and management of real estate and investments in real estate joint ventures, including investments in multifamily rental apartment communities, single-family master-planned for sale housing communities, and commercial properties located primarily in Florida. Since November 2018, BBX Capital Real Estate has owned a
BBX Sweet Holdings
BBX Sweet Holdings is engaged in the ownership and management of operating businesses in the confectionery industry, including (i) IT’SUGAR, a specialty candy retailer whose products include bulk candy, candy in giant packaging, and licensed and novelty items and which operates in retail locations which include a mix of high-traffic resort and entertainment, lifestyle, mall/outlet, and urban locations throughout the United States and Canada, and (ii) Las Olas Confections and Snacks, a manufacturer and wholesaler of chocolate and other confectionery products which also operates several Hoffman’s Chocolates retail locations in South Florida.
Renin
Renin is engaged in the design, manufacture, and distribution of sliding doors, door systems and hardware, and home décor products and operates through its headquarters in Canada and manufacturing and distribution facilities in the United States and Canada. In addition to its own manufacturing activities, Renin also sources various products and raw materials from China, Brazil, and certain other countries.
Other
In addition to its principal holdings, the Company has investments in other operating businesses, including (i) a restaurant located in South Florida that was acquired in 2018 through a loan foreclosure and (ii) an entity which provides risk management advisory services to the Company and its affiliates, including Bluegreen Vacations Holding Corporation ("Bluegreen Vacations"), and previously acted as an insurance agent for the Company, its affiliates, and other third parties. In February 2023, that entity sold substantially all of the assets of its insurance agency business, but it continues to provide risk management advisory services to the Company and its affiliates, including Bluegreen Vacations.
Basis of Financial Statement Presentation
The condensed consolidated financial statements of the Company include the consolidated financial statements of BBX Capital and its wholly-owned subsidiaries, other entities in which BBX Capital or its wholly-owned subsidiaries hold controlling financial interests, and any variable interest entities (“VIEs”) in which BBX Capital or one of its consolidated subsidiaries is deemed the primary beneficiary of the VIE. Inter-company accounts and transactions have been eliminated in consolidation.
The condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, these financial statements do not include all of the information and disclosures required by GAAP for complete financial statements. Also, these unaudited condensed consolidated financial statements and related notes are presented as permitted by Form 10-Q and should be read in conjunction with the Company’s audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report”) filed with the SEC on March 15, 2023.
Use of Estimates
The preparation of financial statements prepared in conformity with GAAP require the Company to make estimates and assumptions, including assumptions about current and future economic and market conditions which affect reported amounts and related disclosures in the Company’s financial statements. Due to, among other things, the impact and potential future impact of the current inflationary and geopolitical environment, rising interest rates, labor shortages, supply chain issues, ongoing economic uncertainty, a possible recession, and the COVID-19 pandemic, actual conditions could materially differ from the Company’s expectations and estimates, which could materially affect the Company’s results of operations and financial condition. The severity, magnitude, and duration, as well as the economic consequences, of the above conditions are uncertain, rapidly changing, and difficult to predict. As a result, the Company’s accounting estimates and assumptions may change over time in response to changes in, and the impact of, such external factors. Such changes could result in, among other adjustments, future impairments of intangible assets, long-lived assets, and investments in unconsolidated subsidiaries and additional future reserves for inventory and receivables.
Significant Accounting Policies
Construction Contracts Receivable
Contracts receivable include billed and unbilled amounts for services provided to customers for which the Company has an unconditional right to payment. Billed and unbilled amounts for which payment is contingent on anything other than the passage of time are included in contract assets and contract liabilities on a contract-by-contract basis. When payment of the retainage is contingent upon the Company fulfilling its obligations under the contract, it does not meet the criteria to be included in contracts receivable. The Company provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information and existing economic conditions. The Company generally requires payment from its construction contract customers within a term of 30 days less an amount withheld for retainage. Retainage is paid in accordance with contract terms, which is generally upon reaching significant milestones or upon completion of the contract.
Contract Assets and Contract Liabilities
The timing of when the Company bills its customers on construction and development contracts is generally dependent upon agreed-upon contractual terms, which may include the completion of certain phases of the work, or when services are provided. When billings occur subsequent to revenue recognition as a result of contingencies, such billings are recorded in unbilled revenue, which is included in contract assets. Additionally, the Company may receive advances or deposits from customers before revenue is recognized, resulting in deferred revenue, which is included in contract liabilities. Retainage for which the Company has an unconditional right to payment that is only subject to the passage of time are classified as contracts receivable. Retainage subject to conditions other than the passage of time do not meet the definition of a receivable and are therefore included in contract assets and contract liabilities. Contractor and development fees received from customers, but not yet billed or recognized as revenue are reflected as contract liabilities and contractor and development fees recognized as revenue and not yet billed are reflected as contract assets. Retainage receivable and retainage payable subject to conditions such as the completion of the project, are contract assets or contract liabilities. Uninstalled materials and deposits for materials are included in contract assets as the Company received funds from the customer to purchase materials or to fund a deposit for the purchases of materials.
Revenue from Construction Contracts
Revenue from construction contracts represents revenue earned from providing general contractor services to affiliated joint venture entities for the construction of multifamily apartment communities.
Revenue from construction contracts with these customers is recognized over time as work is completed due to the continuous transfer of control to the customer. The Company measures contract progress using the input method which recognizes revenue based on costs incurred to date relative to total estimated costs to complete the contract, subject to adjustments to exclude certain costs that do not depict progress toward the completion of the contract. These excluded costs include uninstalled materials, deposits for the purchase of materials, and insurance costs. Material costs are included in the measure of contract progress when installed.
Cost of revenue from construction contracts earned include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, and repairs. Costs related of significant uninstalled materials, re-work, or scrap are generally excluded from the cost-to-cost measure of progress, as they are not proportionate to the Company’s progress in satisfying the performance obligation to its customers.
The Company’s construction contracts generally include retention provisions to provide assurance to customers that the Company will perform in accordance with the terms of the contracts. The amounts billed but not paid by customers pursuant to these retention provisions generally become due upon completion of the project and acceptance by the customers of the completed project. The retention provisions are not considered a significant financing component of the contracts.
The Company’s construction contracts give rise to several types of variable consideration, including contract modifications (unapproved change orders and claims), cost overruns, shared savings, and other terms that can either increase or decrease the transaction price for the contracts. The determination of the transaction price for contracts requires the Company to evaluate and include variable consideration to which the Company has an enforceable right to compensation or an obligation for a reduction in compensation, which can result in increases or decreases to a contract’s transaction price. The Company estimates variable consideration for its construction contracts as the most likely amount to which it expects to be entitled, or to pay in the case of cost overruns. The Company includes variable consideration in the estimated transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The estimates of variable consideration and the determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the anticipated performance and all information that is reasonably available to the Company, including historic, current, and forecasted information. The effect of a change in variable consideration on the transaction price related to a performance obligation is recognized as an adjustment to revenue on a cumulative catch-up basis.
Contract modifications can result from changes in contract specifications or requirements that either creates new or changes existing enforceable rights and obligations of the parties to the contract. The Company considers unapproved change orders to be contract modifications for which customers have agreed to changes in the scope of the contract but have not agreed to the price.
Real Estate Development and Management Fees
Development management fees represent revenue earned from providing oversight and consultation services to affiliated entities related to the development of multifamily apartment communities, while management fees represent revenue earned from the management of multifamily apartment communities for affiliate joint venture entities and third parties.
The Company recognizes development management fees for the performance of oversight and consultation services related to the development and construction of multifamily apartment communities from the inception of the development project to the completion of the construction, including securing construction financing, performing pre-development activities such as sourcing of land for acquisition, permitting and feasibility studies, overseeing construction activities, and managing the costs to complete the construction of the project. The Company’s development contracts are generally each accounted for as a single performance obligation, as the services performed are highly interrelated and not separately identifiable within the context of each contract. Customers simultaneously receive and consume the benefits provided by the Company’s performance as the Company performs under the contracts. Accordingly, the Company recognizes revenue related to development fees over time through the completion of the related development project, and the Company measures contract progress using the input method which results in the recognition of revenue based on the development costs for the project spent to date relative to the total estimated development budget, subject to adjustments to exclude certain development costs that do not depict progress toward the completion of the development project. These excluded costs include marketing costs, property taxes, and unused development contingencies.
The Company recognizes property management fees for the performance of management services related to the day-to-day operations of multifamily apartment communities for affiliated joint venture entities and third parties. The services performed include the leasing of residential units at the communities, collection of rents, arrangement for repairs and maintenance, staffing of on-site personnel, and reporting on the operations of the communities to the customers. The property management agreements pursuant to which such services are provided have terms of one year and are automatically renewed until terminated in writing by either party with thirty days notice. The Company’s property management contracts are generally each accounted for as a single performance obligation, as services provided are highly interrelated and an expected bundled service is to be provided to the Company’s customers. Customers simultaneously receive and consume the benefits provided by the Company’s performance as the Company performs under the contracts. Accordingly, the Company recognized management fees over time, on a daily basis, as services are performed.
Impact of Current Economic Issues and the COVID-19 Pandemic
The Company and the industries in which it operates have been impacted by economic trends in the U.S. and global economies, including (i) decreased consumer demand, (ii) disruptions in global supply chains, (iii) a general labor shortage and increases in wages, (iv) increased economic uncertainty, and (v) inflationary pressures and higher costs to operate the Company’s businesses, including insurance costs. In light of the uncertain duration and impact of current economic trends, the Company has focused on maintaining significant liquidity. As of March 31, 2023, the Company’s consolidated cash and cash equivalent balances were $
Current inflationary and economic trends have and may continue to adversely impact our results of operations. The Federal Reserve has sought to address inflation through monetary policy, including the wind-down of quantitative easing and by increasing the Federal Funds rate. The Russian invasion of Ukraine and the related embargoes against Russia, as well as the impact of the efforts by China to mitigate COVID-19 cases in that country, worsened supply chain issues with the potential of further exacerbating inflationary trends. The recent bank failures and the banking liquidity crisis have increased the possibility that the United States and/or the global economy generally will experience a recession of an uncertain magnitude and duration. These conditions can negatively affect our operating results by resulting in, among other things: (i) higher interest expense on variable rate debt and any new debt, (ii) lower gross margins due to increased costs of manufactured or purchased inventory and shipping, (iii) a decline in the availability of debt and equity capital for new real estate investments and the number of real estate development projects meeting the Company’s investment criteria, (iv) higher overall operating expenses due to increases in labor and service costs, (v) a reduction in customer demand for our products, (vi) a shift in customer behavior as higher prices affect customer retention and higher consumer borrowing costs, including mortgage borrowings, affect customer demand, and (vii) increased risk of impairments as a result of declining valuations.
BBXRE has experienced a significant increase in commodity and labor prices, which has resulted in higher development and construction costs, and disruptions in the supply chain for certain commodities and equipment have resulted in ongoing supply shortages of building materials, equipment, and appliances. These factors have impacted the timing of certain projects currently under construction and the commencement of construction of new projects. Furthermore, homebuilders have seen a general softening of demand, and the increase in mortgage rates have had an adverse impact on residential home sales. In addition, rising interest rates have increased the cost of the Company’s outstanding indebtedness and any financing for new development projects. Increased rates have also had an adverse impact on the availability of financing, and the anticipated profitability of development projects, as a majority of development costs are financed with third party debt and capitalization rates related to multifamily apartment communities are generally impacted by interest rates. BBXRE has also recently observed a decline in the number of potential investors interested in pursuing equity or debt financing for new multifamily apartment developments and the acquisition of stabilized multifamily apartment communities. Although such factors have not yet materially impacted BBXRE’s results of operations, we expect that they may have an adverse impact on BBXRE’s operating results in future periods.
Similarly, as a result of inflationary pressures and ongoing disruptions in global supply chains, IT’SUGAR experienced an increase in the cost of inventory and freight, as well as delays in its supply chain. While IT’SUGAR has generally been able to mitigate the impact of increased costs through increases in the prices of its products, supply chain disruptions have impacted its ability to maintain historical inventory levels at its retail locations. To the extent that costs continue to increase, there is no assurance that IT’SUGAR will be able to continue to increase the prices of its products without significantly impacting consumer demand and its sales volume. Further, following difficulties in maintaining appropriate inventory levels, IT’SUGAR increased the inventory levels at its retail locations in an effort to ensure that it can meet consumer demand; however, in light of current economic conditions, including a possible slowdown in consumer demand, increased inventory levels have increased the risk that IT’SUGAR may be unable to sell the products timely which may among other things result in inventory writedowns. IT’SUGAR has also experienced an increase in payroll costs as a result of shortages in available labor at its retail locations.
Global supply chain disruptions and increases in commodity prices have also contributed to a significant increase in Renin’s costs related to shipping and raw materials, as well as delays in its supply chains, which have: (i) negatively impacted Renin’s product costs and gross margin, (ii) increased the risk that Renin will be unable to fulfill customer orders, and (iii) negatively impacted Renin’s working capital and cash flows due to increased inventory in transit, a prolonged period between when it is required to pay its suppliers and it is paid by its customers, and an overall decline in its gross margin. While Renin has obtained price increases for many of its products, Renin’s gross margin has nonetheless been negatively impacted by these cost pressures. Additionally, the negotiation of increased prices with customers increases the risk that customers will pursue alternative sources for Renin’s products, which may result in Renin losing customers or require it to lower prices in an effort to retain customers. Increases in interest rates will also adversely impact Renin’s results. In addition, following difficulties in maintaining appropriate inventory levels, Renin has increased its inventory levels in an effort to ensure that it can meet consumer demand; however, in light of current economic conditions, including a slowdown in consumer demand, such increased inventory levels have increased the risk of Renin being unable to sell such products and the risk of inventory writedowns. In addition, the impacts of these factors have negatively impacted Renin’s ability to comply with covenants under its credit facility with TD Bank, and based on its operating results through April 2023, Renin is again not expected to be in compliance with its loan covenants. As a result, Renin could lose availability under its revolving line of credit, be required to provide additional collateral, or be required to repay all or a portion of its borrowings, any of which would have a material adverse effect on the Company’s liquidity, financial position, and results of operations.
Recently Adopted and Future Adoption of Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") has issued the following accounting pronouncements and guidance relevant to the Company's operations which were adopted as of January 1, 2023:
ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This standard is an update to Topic 805 requiring an acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination as if the acquirer had originated the contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements. This statement is effective for the Company on January 1, 2023, and interim periods within that fiscal year. The adoption of the standard did not have a material impact on the Company’s consolidated financial statements.
There were no recent Standards Updates issued by the Financial Accounting Standards Board (“FASB”) that are relevant to the Company's operations. The Company has adopted all relevant FASB pronouncements and guidance as of March 31, 2023.
2. Acquisition of The Altman Companies (Provisional)
In November 2018, BBX Capital Real Estate acquired a
On January 31, 2023 (the “Acquisition Date”), BBXRE closed on the acquisition of the additional
In connection with the acquisition of the
| ● | With respect to certain proposed development projects in predevelopment that commence prior to the Final Payment Date, Mr. Altman will be entitled to invest in the managing member of any joint venture formed to invest in such projects as if he still held a |
| ● | With respect to certain proposed development projects that were determined to be unlikely to proceed and for which Mr. Altman did not receive reimbursement for his share of predevelopment expenditures at closing, BBXRE agreed to reimburse Mr. Altman for his share of predevelopment expenditures if such projects ultimately proceed at a later date prior to the Final Payment Date. Further, if the projects commence prior to the Final Payment Date, Mr. Altman will also be entitled to invest in the managing member of any joint venture formed to invest in such projects as if he still held at |
| ● | With respect to all other projects that commence prior to the Final Payment Date, Mr. Altman will be required to invest in the managing member of any joint venture formed to invest in such projects as if he still held a |
As a result of the transaction, BBXRE is now entitled to nominate all members of the executive committee responsible for the management of the Altman Companies (although BBXRE has continued to date to nominate Mr. Altman as a member of the committee) and is deemed to have acquired control and decision-making authority for all significant operating and financing decisions related to the Altman Companies. Further, BBXRE will have decision-making authority for all significant operating and financing decisions for the managing member of any development joint venture that is sponsored and formed by the Altman Companies subsequent to the Acquisition Date. However, as discussed above, Mr. Altman has retained his membership interests, including his decision-making rights, in the managing member of the development joint ventures that were originated prior to the Acquisition Date.
Accounting for the Acquisition of the Altman Companies
Through the Acquisition Date, the Company accounted for its investment in the Altman Companies under the equity method of accounting, as BBXRE and Mr. Altman jointly managed the Altman Companies and shared decision-making authority for all significant operating and financing decisions through such date.
As a result of BBXRE’s acquisition of control and decision-making authority over the Altman Companies, the Company consolidated the Altman Companies in its financial statements as of the Acquisition Date using the acquisition method of accounting, which requires that the assets acquired and liabilities assumed associated with an acquiree be recognized at their fair values at the acquisition date. As a result, the Company remeasured the carrying value of its existing
Accounting for the Altman Companies’ Investment in Altman-Glenewinkel Construction
As of the Acquisition Date, the Altman Companies owned
As a result of BBXRE’s acquisition of control and decision-making authority over the Altman Companies on the Acquisition Date and its right to acquire the remaining
Provisional Purchase Price Allocation for the Altman Companies
The following table summarizes the provisional fair values of the identifiable assets acquired and liabilities assumed of the Altman Companies as of the Acquisition Date (including the assets and liabilities of ADC, AMC and AGC), the consideration transferred, and the fair values of the Company’s existing equity interests and any noncontrolling interests in the Altman Companies at the Acquisition Date (in thousands):
| Cash | $ | |||
| Restricted cash | ||||
| Construction contracts receivable | ||||
| Trade receivables | ||||
| Real estate | ||||
| Due from related parties | ||||
| Property and equipment | ||||
| Contract assets | ||||
| Other assets | ||||
| Total assets acquired | ||||
| Accounts payable | ( | ) | ||
| Accrued expenses | ( | ) | ||
| Due to related parties | ( | ) | ||
| Contract liabilities | ( | ) | ||
| Notes payable and other borrowings | ( | ) | ||
| Total liabilities assumed | ( | ) | ||
| Fair value of identifiable net assets | ( | ) | ||
| Cash consideration paid to seller | ||||
| Consideration payable to seller | ||||
| Writeoff of Altman Companies receivable | ||||
| Fair value of previously held equity interest in the Altman Companies | ||||
| Goodwill | $ | |||
| Gain on the consolidation of the Altman Companies (1) | $ |
| (1) | The provisional gain is comprised of the remeasurement of the Company’s previously held |
The provisional fair values reported in the above table were estimated by the Company using available market information and applicable valuation methods. As considerable judgment is involved in estimates of fair value, the provisional fair values presented above are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methods could have a material effect on the estimated fair value amounts.
As management is still in the process of completing its accounting for the acquisition of the Altman Companies and valuation analysis, the Company’s accounting for the business combination is not complete as of the date of this report. As a result, the amounts reported in the above table, including the estimated fair value of the Company’s previously held interest in the Altman Companies as of the Acquisition Date and the related remeasurement gain recognized by the Company during the three months ended March 31, 2023, are provisional amounts that may be updated in subsequent periods to reflect the completion of the Company’s valuation analyses and any additional information obtained during the measurement period.
The following summarizes the Company’s methodologies for estimating the values of certain assets and liabilities associated with the consolidation of the Altman Companies and the fair value of BBX Capital’s existing investment in the Altman Companies:
Net Working Capital – A substantial portion of the Altman Companies’ identifiable assets and liabilities as of the Acquisition Date were comprised of its net working capital, including construction contracts receivables, trade accounts receivable, predevelopment expenditures incurred that are expected to be reimbursed upon the commencement of development projects, other assets, accounts payable, accrued expenses, and other liabilities. The historical carrying amount of these items were generally estimated to approximate their fair values due to their short-term maturities.
Contract Assets and Liabilities – As of the Acquisition Date, the Altman Companies had recognized contract assets and liabilities based on contracts with its customers, which include contracts for development management and general contractor services for various affiliated development joint ventures sponsored by the Altman Companies. The Company measured and recognized these contract assets and liabilities pursuant to the accounting guidance applicable to the recognition of revenue related to contracts with customers.
Consideration Transferred – The consideration transferred includes $
Noncontrolling Interest – As of the Acquisition Date, the outstanding noncontrolling interest in the Altman Companies was comprised of the noncontrolling interest in AGC. As a result of the Altman Companies rights to acquire the noncontrolling interest in AGC for nominal cash consideration at closing pursuant to the terms of the operating agreement of AGC, the Company did not assign any material value to the noncontrolling interest in AGC.
Remeasurement of Existing Investment in the Altman Companies – Pursuant to the acquisition method of accounting, the Company was required to remeasure the carrying value of its existing equity interests in the Altman Companies at fair value as of the Acquisition Date, with the remeasurement adjustment recognized in the Company’s condensed consolidated statement of operations and comprehensive income. The Company applied an income approach utilizing a discounted cash flow methodology to estimate the preliminary fair value of its previously held investment in the Altman Companies as of the Acquisition Date. The Company’s discounted cash flow methodology established an estimate of the fair value of the Altman Companies by estimating the present value of the projected future cash flows to be generated from the Altman Companies. The discount rate applied to the projected future cash flows to arrive at the present value is intended to reflect all risks of ownership and the associated risks of realizing the stream of projected future cash flows associated with the Altman Companies. The most significant assumptions used in the discounted cash flow methodology to estimate the preliminary fair value of the Company’s existing equity interest in Altman Companies were the terminal value, the discount rate, and the forecast of future cash flows, including the profits expected to be generated from future development projects and the number of development projects expected to be originated by the Altman Companies on an annual basis in future periods. In addition, the estimated preliminary fair value of the Company’s existing equity interest in the Altman Companies assumed that the estimated fair value of AGC was primarily attributable to the Altman Companies due to its ability to acquire the
Goodwill – Goodwill recognized in connection with the consolidation of the Altman Companies reflected the difference between (i) the fair values of the Altman Companies’ identifiable assets and liabilities at the Acquisition Date and (ii) the aggregate of the consideration transferred and the fair values of the Company’s existing equity interest and any noncontrolling interests in the Altman Companies at the Acquisition Date.
Operating Results for the Altman Companies
The results of operations of the Altman Companies are included in the Company’s condensed consolidated statement of operations and comprehensive income for the two months ended March 31, 2023 and are included in the Company’s condensed consolidated statement of operations and comprehensive income as equity in net earnings of unconsolidated real estate joint ventures for the one month ended January 31, 2023 and the three months ended March 31, 2022. The following table shows the Altman Companies total revenues and income before income taxes for the dates indicated (in thousands):
| For the Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Total revenue | $ | |||||||
| Equity in net losses from unconsolidated real estate joint ventures | $ | ( | ) | ( | ) | |||
| Loss before income taxes | $ | ( | ) | ( | ) | |||
Pro Forma Information (unaudited)
The following unaudited pro forma financial data presents the Company’s revenues and earnings for the three months ended March 31, 2023 and 2022 as if the Company consolidated the Altman Companies on January 1, 2022 (in thousands):
| For the Three Months Ended | ||||||||
| Pro Forma | ||||||||
| March 31, | March 31, | |||||||
| 2023 | 2022 | |||||||
| Total revenues | $ | |||||||
| Equity in net losses from unconsolidated real estate joint ventures | $ | |||||||
| Loss before income taxes | $ | ( | ) | ( | ) | |||
| Net loss | $ | ( | ) | ( | ) | |||
The unaudited pro forma financial data reported in the above table does not purport to represent what the actual results of the Company’s operations would have been assuming that the consolidation date was January 1, 2022, nor does it purport to predict the Company’s results of operations for any future periods. The pro forma for the three months ended March 31, 2023 and 2022 excludes the gains on the consolidation of the Altman Companies and the real estate joint ventures.
3. Securities Available-for-Sale
The following table summarizes the amortized cost and fair value of securities available-for-sale at March 31, 2023 and December 31, 2022 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (in thousands):
| As of March 31, 2023 | ||||||||||||||||
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
| Available-for-sale | ||||||||||||||||
| U.S. Treasury and federal agency | $ | |||||||||||||||
| Community Development District bonds | ||||||||||||||||
| Corporate bonds | ( | ) | ||||||||||||||
| Total available-for-sale | ( | ) | ||||||||||||||
| As of December 31, 2022 | ||||||||||||||||
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
| Available-for-sale | ||||||||||||||||
| U.S. Treasury and federal agency | $ | |||||||||||||||
| Community Development District bonds | ( | ) | ||||||||||||||
| Corporate bonds | ( | ) | ||||||||||||||
| Total available-for-sale | ( | ) | ||||||||||||||
All U.S. Treasury and federal agency securities and corporate bonds available-for-sale have maturities of less than one year. The Community Development District bonds mature after ten years.
4. Trade Accounts Receivable and Construction Contracts Receivable
The Company’s trade receivables consisted of the following (in thousands):
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Trade accounts receivable | $ | |||||||
| Allowance for expected credit losses | ( | ) | ( | ) | ||||
| Total trade accounts receivables | $ | |||||||
The Company’s construction contract receivables consisted of the following (in thousands):
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Construction contracts receivable | $ | |||||||
| Allowance for expected credit losses | ||||||||
| Total construction contracts receivable | $ | |||||||
Included in construction contracts receivable is $
As of March 31, 2023, the Company has approximately $
5. Trade Inventory
The Company’s trade inventory consisted of the following (in thousands):
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Raw materials | $ | |||||||
| Paper goods and packaging materials | ||||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| Total trade inventory | ||||||||
| Inventory reserve | ( | ) | ( | ) | ||||
| Total trade inventory, net | $ | $ | ||||||
6. Real Estate
The Company’s real estate consisted of the following (in thousands):
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Real estate held-for-sale | $ | |||||||
| Real estate held-for-investment | ||||||||
| Real estate inventory | ||||||||
| Rental properties under development | ||||||||
| Predevelopment costs | ||||||||
| Total real estate | $ | |||||||
Rental property represents $
7. Investments in and Advances to Consolidated and Unconsolidated Variable Interest Entities
Consolidated Variable Interest Entities
Real Estate Joint Ventures Related to the Altman Companies
As described in Note 2, BBXRE acquired the remaining
As a result of the acquisition of the Altman Companies, the Company reevaluated whether BBXRE was the primary beneficiary of the managing members entities in which it had previously invested prior to the Acquisition Date and continued to hold such investments. In particular, while the governance structures related to these entities were not amended in connection with BBXRE’s acquisition of the Altman Companies and Mr. Altman retained his decision-making rights in these entities, the Company analyzed BBXRE’s ongoing arrangements with Mr. Altman, including his ongoing employment with the Altman Companies, which became a wholly-owned subsidiary on the Acquisition Date, and determined that BBXRE and Mr. Altman constituted a related party group under the accounting guidance for VIEs that collectively was the primary beneficiary of each of these entities. Accordingly, based on the Company’s analysis of the facts and circumstances, including BBXRE’s ownership of the Altman Companies, the Company determined that BBXRE was the primary beneficiary of the managing member entities as of the Acquisition Date as it was the member of the related party group whose activities were most closely associated with the entities. As a result, as of the Acquisition Date, the Company consolidated the managing member of the following real estate joint ventures:
| ● | Altis Ludlam Trail |
| ● | Altis Lake Willis Phase 1 |
| ● | Altis Lake Willis Phase 2 |
| ● | Altis Grand at Suncoast |
| ● | Altis Blue Lake |
| ● | Altis Santa Barbara |
| ● | Altra Kendall |
Further, due to the consolidation of the managing members of the above real estate joint ventures, the Company also evaluated the managing members' investments in each respective real estate joint venture to determine if such joint ventures are VIEs and, to the extent that such entities are VIEs, if the applicable managing member entity is the primary beneficiary of the underlying real estate joint venture. Based on an analysis of the structure of these ventures, including the respective operating agreements governing these entities and any relevant financial agreements, such as financing arrangements, the Company determined that, other than with respect to the Altra Kendall joint venture, the real estate joint ventures in which the managing member entities held investments are VIEs in which the managing member entities are not the primary beneficiary. The Company’s conclusion that the managing member entities are not the primary beneficiary of the applicable underlying real estate joint venture is primarily based on the determination that the managing members do not have the power to direct the activities of the underlying real estate joint ventures that most significantly affect their economic performance. Although the managing member is the operating manager of the underlying joint ventures, in certain joint ventures, the non-managing members have substantive participating rights in relation to all activities that most significantly impact the joint ventures’ economic performance. In other joint ventures, in addition to having substantive participating rights in relation to certain activities, the non-managing members also have control over certain activities that most significantly impact the entities’ economic performance. As a result, with respect to these real estate joint ventures, the Company consolidates the managing member entities, while the managing member entities account for their investments in the underlying real estate joint ventures under the equity method of accounting. However, with respect to the Altra Kendall joint venture, the Company determined that the venture is a VIE in which the managing member is the primary beneficiary, as the managing member of the Altra Kendall joint venture has the power to direct the activities of the joint venture that most significantly affect its economic performance and such power is not constrained by any kick-out or substantive participating rights held by the non-managing members. As a result, the Company consolidates the Altra Kendall joint venture.
In addition to the above real estate joint ventures, BBXRE and Mr. Altman had also previously formed ABBX Guaranty, LLC (“ABBX”), a joint venture established to provide guarantees on the indebtedness and construction cost overruns of development joint ventures sponsored by the Altman Companies. Under the terms of the operating agreement of ABBX, BBXRE and Mr. Altman will retain their respective
As the managing members and ABBX are not businesses, the Company accounted for the consolidation of these VIEs by measuring and recognizing the assets and liabilities associated with the VIEs based upon the principles of the acquisition method of accounting. However, the Company did not recognize any goodwill related to such VIEs and instead recognized a gain based on the difference between (i) the fair values of the VIEs’ identifiable assets and liabilities and (ii) the aggregate of the fair value of any noncontrolling interests in such VIEs and the carrying amount of the Company’s previously held investments in such VIEs.
The following table summarizes the estimated provisional fair values of identifiable assets and liabilities of the consolidated VIEs and any noncontrolling interests in such VIEs as of the Acquisition Date (in thousands):
| January 31, | ||||
| 2023 | ||||
| Cash | $ | |||
| Restricted cash | ||||
| Real estate | ||||
| Investment in and advances to unconsolidated real estate joint ventures | ||||
| Other assets | ||||
| Total consolidated VIE assets | ||||
| Accounts payable | ( | ) | ||
| Contract liabilities | ( | ) | ||
| Fair value of identifiable net assets | ||||
| Fair value of noncontrolling interests | ||||
| Fair value of net assets attributable to the Company | ||||
| Carrying amount of previously held investments | ||||
| Gain on the consolidation of VIEs | $ | |||
The estimated fair values reported in the above table were estimated by the Company using available market information and applicable valuation methods. As considerable judgment is involved in estimates of fair value, the provisional fair values presented above are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methods could have a material effect on the estimated fair value amounts.
Although these VIEs are not businesses, the Company is required to apply the recognition and measurement principles applicable to business combinations in its accounting for the consolidation of these VIEs. As a result, as management is still in the process of completing its valuation analyses related to the consolidation of these VIEs, the Company’s accounting for the consolidation of these VIEs is not complete as of the date of this report. Therefore, the amounts reported in the above table, including the gain recognized by the Company during the three months ended March 31, 2023, are provisional amounts that may be updated in subsequent periods to reflect the completion of the Company’s valuation analyses and any additional information obtained during the measurement period.
The following summarizes the Company’s methodologies for estimating the fair values of certain assets and liabilities and noncontrolling interests associated with the consolidation of the VIEs.
Real Estate
The estimated fair value of the real estate, which consists of land and construction in progress associated with Altra Kendall, was estimated primarily using the cost approach, as the land was recently acquired prior to the Acquisition Date and the construction in progress reflects recent improvements to the land since the acquisition.
Investment in Unconsolidated Real Estate Joint Ventures
The Company applied an income approach to estimate the fair value of the investments in unconsolidated real estate joint ventures owned by the VIEs as of the remeasurement date. As part of its estimates for each joint venture, the Company utilized an income capitalization approach to calculate the expected sales value of the multifamily apartment community under the development based on the expected stabilized net operating income of the community and an estimated market capitalization rate and then deducted, among other things, remaining development and construction costs, as well as downtime and lease-up costs, expected to be incurred between the remeasurement date and the expected sale date of the community, as well as any outstanding indebtedness on the community. To determine the value of the investment owned by the managing member, the Company then allocated the resulting value to the members of the applicable real estate joint venture through the application of an option pricing model to each tier of the profit-sharing arrangement contemplated in the operating agreement of such joint venture. The most significant assumptions used in the methodology to estimate the preliminary fair value of the investments in unconsolidated real estate joint ventures were the forecasted net operating income for the communities and the expected capitalization rates upon the sale of the communities, as well as the estimated volatility and option terms applied in the option pricing models.
Guarantee Liabilities
As of the Acquisition Date, the Company assigned nominal values to the financial guarantees issued by ABBX as the Company believes that the estimated fair values of these guarantees is minimal at the current time based on various factors, including the collateral values securing the loans, the status of the applicable development projects, current expectations regarding the probability of payments being made pursuant to such guarantees, and the prior history of payments made on repayments guarantees issued by ABBX or affiliates of the Altman Companies that previously provided such guarantees.
Noncontrolling Interests
The estimated fair values of the noncontrolling interests in the VIEs, which included the equity interests in the VIEs owned by Mr. Altman, were primarily determined based on the application of the percentage of ownership in the applicable VIE to the estimated fair values of the net assets owned by the applicable VIE, which primarily included the real estate and investments in unconsolidated real estate joint ventures described above.
Altman Management, LLC
Altman Management Company ("AMC"), which provides property management services to the owners of multifamily apartment communities pursuant to property management agreements, including affiliates of the Altman Companies and unrelated third parties, was previously a wholly-owned subsidiary of the Altman Companies. In March 2023, the Altman Companies amended and restated the operating agreement of AMC to admit RAM Partners, LLC ("RAM") as a joint venture partner and renamed the entity Altman Management, LLC. The Altman Companies continues to serve as the managing member of AMC, with any major decisions requiring the approval of both parties. However, once the parties have received all necessary consents related to the formation of the joint venture as required by various stakeholders, including certain lenders, equity investors, and regulatory agencies with jurisdiction, RAM will serve as the managing member of AMC, with any major decisions continuing to require the approval of both parties. Under the terms of the operating agreement, the parties will each be entitled to receive distributions of available cash of the joint venture based on a proscribed formula within the operating agreement, with the parties generally each receiving
Summary of Financial Information Related to Consolidated Variable Interest Entities
The assets and liabilities of the Company's consolidated VIEs as of March 31, 2023 that are included in the Company’s consolidated statement of financial position are as follows (in thousands):
| March 31, | ||||
| 2023 | ||||
| Cash | $ | |||
| Restricted cash | ||||
| Real estate | ||||
| Investment in and advances to unconsolidated real estate joint ventures | ||||
| Other assets | ||||
| Total assets | $ | |||
| Total liabilities | ||||
The assets in the above table can be used only to settle obligations of the respective VIE and have no recourse to the Company. The Company's aggregate maximum loss exposure of consolidated VIE's is its equity investment amount as of March 31, 2023, including the guarantees provided by ABBX to Altman sponsored joint ventures for joint venture indebtedness and cost overruns.
Unconsolidated Variable Interest Entities
As of March 31, 2023, the Company had equity interests in and advances to unconsolidated real estate joint ventures involved in the development of multifamily rental apartment communities and single-family master planned for sale housing communities. As a result of the consolidation of the managing members of various real estate joint ventures sponsored by the Altman Companies, the Company’s unconsolidated real estate joint ventures as of March 31, 2023 reflect the managing members’ investments in the underlying real estate joint ventures for which the Company concluded that the managing members do not consolidate such underlying joint ventures, while the Company’s unconsolidated real estate joint ventures as of December 31, 2022 reflect only BBX Capital Real Estate’s investment in in such entities.
Investments in unconsolidated real estate joint ventures are accounted for as unconsolidated VIEs under the equity method of accounting.
The Company’s investments in and advances to unconsolidated real estate joint ventures consisted of the following (in thousands):
| March 31, | December 31, | |||||||||||||||
| 2023 | Ownership (1) | 2022 | Ownership (1) | |||||||||||||
| Altis Grand Central | $ | % | % | |||||||||||||
| Altis Ludlam Trail (2) | ||||||||||||||||
| Altis Lake Willis Phase 1 | ||||||||||||||||
| Altis Lake Willis Phase 2 | ||||||||||||||||
| Altis Grand at Suncoast | ||||||||||||||||
| Altis Blue Lake | ||||||||||||||||
| Altis Santa Barbara | ||||||||||||||||
| Altra Kendall (3) | ||||||||||||||||
| The Altman Companies(3) | ||||||||||||||||
| ABBX Guaranty (3) | ||||||||||||||||
| Marbella | ||||||||||||||||
| The Main Las Olas | ||||||||||||||||
| Sky Cove | ||||||||||||||||
| Sky Cove South | ||||||||||||||||
| Other | ||||||||||||||||
| Total | $ | |||||||||||||||
| (1) | The Company’s ownership percentage in each real estate joint venture represents the Company’s percentage of the contributed capital in each venture. The operating agreements for many of these ventures provide for a disproportionate allocation of distributions to the extent that certain investors receive specified returns on their investments, and as a result, these percentages do not necessarily reflect the Company’s economic interest in the expected distributions from such ventures. | |
| (2) | The carrying value of BBXRE’s investment at March 31, 2023 and December 31, 2022 includes $ | |
| (3) | The entities are consolidated in the Company's financial statements as of January 31, 2023. |
See Note 7 to the Company’s consolidated financial statements for the year ended December 31, 2022 included in the 2022 Annual Report for the Company’s accounting policies relating to its investments in unconsolidated real estate joint ventures, including the Company’s analysis and determination that such entities are VIEs in which the Company is not the primary beneficiary.
Basis Differences
The aggregate difference between the Company’s investments in unconsolidated real estate joint ventures and its underlying equity in the net assets of such ventures was $
Summarized Financial Information of Certain Unconsolidated Real Estate Joint Ventures
The tables below set forth financial information, including condensed statements of financial condition and operations, related to the Marbella joint venture (in thousands):
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Assets | ||||||||
| Cash | $ | |||||||
| Real estate inventory | ||||||||
| Other assets | ||||||||
| Total assets | $ | |||||||
| Liabilities and Equity | ||||||||
| Other liabilities | $ | |||||||
| Total liabilities | ||||||||
| Total equity | ||||||||
| Total liabilities and equity | $ | |||||||
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | ||||||||