Investment in Partially Owned Entities

6 Months Ended

Jun. 30, 2012

Investment in Partially Owned Entities [Abstract]

Investment in Partially Owned Entities

(5) Investment in Partially Owned Entities

Consolidated Entities

The Company has ownership interests of 67% in various limited liability companies which own nine shopping centers. These entities are considered variable interest entities (“VIEs”) as defined in ASC 810, and the Company is considered the primary beneficiary of each of these entities. Therefore, these entities are consolidated by the Company. The entities’ agreements contain put/call provisions which grant the right to the outside owners and the Company to require these entities to redeem the ownership interests of the outside owners during future periods. Because the outside ownership interests are subject to a put/call arrangement requiring settlement for a fixed amount, these entities are treated as 100% owned subsidiaries by the Company with the amount of $47,762 as of June 30, 2012 reflected as a financing and included within other liabilities in the accompanying consolidated financial statements. Interest expense is recorded on these liabilities in an amount generally equal to the preferred return due to the outside owners as provided in the entities agreements.

For the VIEs where the Company is the primary beneficiary, the following are the liabilities of the consolidated VIE, which are not recourse to the Company, and the assets that can be used only to settle those obligations.

		As of June 30, 2012				As of December 31, 2011
Net investment properties	$		115,355		$		117,235
Other assets			8,847				9,167
Total assets			124,202				126,402
Mortgages, notes and margins payable			(84,555	)			(84,823	)
Other liabilities			(49,691	)			(49,073	)
Total liabilities			(134,246	)			(133,896	)
Net assets	$		(10,044	)	$		(7,494	)

Unconsolidated Entities

The entities listed below are owned by the Company and other unaffiliated parties in joint ventures. Net income, distributions and capital transactions for these properties are allocated to the Company and its joint venture partners in accordance with the respective partnership agreements. Refer to the Company’s Form 10-K for the year ended December 31, 2011 for details of each unconsolidated entity.

These entities are not consolidated by the Company and the equity method of accounting is used to account for these investments. Under the equity method of accounting, the net equity investment of the Company and the Company’s share of net income or loss from the unconsolidated entity are reflected in the consolidated balance sheets and the consolidated statements of operations and other comprehensive income.

Entity	Description	Ownership %		Investment at June 30, 2012			Investment at December 31, 2011
Net Lease Strategic Asset Fund L.P.	Diversified portfolio of net lease assets	85%(a)	$		16,914	$		26,508
Cobalt Industrial REIT II	Industrial portfolio	36%			112,696			113,623
D.R. Stephens Institutional Fund, LLC	Industrial and R&D assets	90%			35,970			36,218
Brixmor/IA JV, LLC	Retail Shopping Centers	(b)			96,674			103,567
Other Unconsolidated Entities	Various real estate investments	Various			37,115			36,795
			$		299,369	$		316,711

(a) On August 10, 2007, the Company entered a joint venture with The Lexington Master Limited Partnership (“LMLP”) and LMLP GP LLC (“LMLP GP”), for the purpose of directly or indirectly acquiring, financing, holding for investment, operating, and leasing real estate assets as acquired by the joint venture. The Company’s capital contribution was approximately $220,500 and LMLP’s contribution was approximately $39,000. LMLP GP is the general partner who manages investments and day-to-day affairs of the venture, and the Company and LMLP are limited partners.

The Net Lease Strategic Assets Fund, L.P. agreement provides that (1) either limited partner can exercise the buy/sell right of the right of first offer after February 20, 2012 and (2) upon one limited partner’s exercise of either right, the responding partner may not again trigger the buy/sell right or the right of first offer until the termination of all procedures and time frames pursuant to the exercising partner’s chosen right. If the right of first offer is not accepted, the partnership agreement allows a third party buyer to be sought.

On February 21, 2012, the Company delivered to LMLP its right of first offer under the partnership agreement with Net Lease Strategic Asset Fund, LP. Pursuant to the notice, the Company requested the venture sell the assets for a purchase price of $548,706. On February 20 and 21, 2012, LMLP delivered notice to the Company to exercise the buy sell option under the partnership agreement and provided the price of $213,014 at which they would be willing to purchase the assets. For the year ended December 31, 2011, the Company valued the equity interest in part based on the fair value of the underlying assets of the investment using a discounted cash flow model, including discount rates and capitalization rates on the expected future cash flows of the properties. These factors resulted in an impairment charge on Company’s investment in the entity for the year ended December 31, 2011 of $113,621.

On April 27, 2012, the Company and LMLP entered into an Agreement Regarding Disposition of Property and Other Matters (“Disposition Agreement”). Pursuant to the Disposition Agreement, the right of first offer and buy/sell right option previously delivered by the Company and LMLP, respectively, are deemed to have no force or effect. Under the Disposition Agreement, the Company shall provide written notice by September 17, 2012 to LMLP to either (1) buy LMLP’s interest in Net Lease Strategic Asset Fund L.P. for $219,838 less any distributions to LMLP from April 27, 2012 to October 1, 2012 or (2) sell the Company’s interest in the venture for $14,374 less any distributions to the Company from April 27, 2012 to October 1, 2012. For the three months ended March 31, 2012, the Company valued the equity interest in part based on the expected future cash distributions and on the fair value of the underlying assets of the investment using a discounted cash flow model, including discount rates and capitalization rates on the expected future cash flows of the properties. These factors resulted in an additional impairment charge on the Company’s investment in the entity for the three months ended March 31, 2012 of $4,200. No additional impairment was recognized for the three months ended June 30, 2012.

(b) The company has a preferred membership interest and is entitled to a 11% preferred dividend in Brixmor/IA JV, LLC.

For the six months ended June 30, 2012 and 2011, the Company recorded impairment of its unconsolidated entities of $4,200 and $0, respectively.

Combined Financial Information

The following table presents the combined financial information for the Company’s investment in unconsolidated entities.

		June 30, 2012			December 31, 2011
		(dollars in thousands)			(dollars in thousands)
Balance Sheets:
Assets:
Real estate assets, net of accumulated depreciation	$		2,024,894	$		1,949,035
Other assets			402,865			485,887
Total Assets			2,427,759			2,434,922
Liabilities and Equity:
Mortgage debt	$		1,405,951	$		1,402,462
Other liabilities			111,029			94,361
Equity			910,779			938,094
Total Liabilities and Equity	$		2,427,759	$		2,434,917
Company’s share of equity	$		290,306	$		307,684
Net excess of cost of investments over the net book value of underlying net assets (net of accumulated depreciation of $1,201 and $1,372, respectively)			9,063			9,027
Carrying value of investments in unconsolidated entities	$		299,369	$		316,711
		Six months ended June 30, 2012			Six months ended June 30, 2011
		(dollars in thousands)			(dollars in thousands)
Statements of Operations:
Revenues	$		121,072	$		140,425
Expenses:
Interest expense and loan cost amortization	$		34,644	$		48,950
Depreciation and amortization			47,061			52,888
Operating expenses, ground rent and general and administrative expenses			42,111			40,845
Impairment	$		553	$		0
Total expenses	$		124,369	$		142,683
Net loss before gain on sale of real estate	$		(3,297)	$		(2,258)
Gain on sale of real estate			6,663			12,147
Net income	$		3,366	$		9,889
Company’s share of:
Net income, net of excess basis depreciation of $171 and $104	$		2,517	$		5,435
Depreciation and amortization (real estate related)	$		21,436	$		25,108

The unconsolidated entities had total third party debt of $1,405,951 at June 30, 2012 that matures as follows:

2012	$	227,091
2013		173,025
2014		139,152
2015		119,513
2016		33,291
Thereafter		713,879
	$	1,405,951

The debt maturities of the unconsolidated entities are not recourse to the Company and the Company has no obligation to fund such debt maturities. It is anticipated that the ventures will be able to repay or refinance all of their debt on a timely basis.