Net Gain on Disposition of Partial Interests in Rental Properties

The net gain on disposition of partial interests in rental properties is comprised of the following:



	11 Months Ended		Years Ended
	December 31, 2013		January 31, 2013		January 31, 2012
	(in thousands)
QIC Joint Venture	$	381,627	$	—	$	—
New York Retail Joint Venture	114,465		—		9,561
Stonecrest Mall Joint Venture	—		—		5,849
Annex building adjacent to the Dallas Wilson Building	—		—		2,255
	$	496,092	$	—	$	17,665

QIC Joint Venture

During the 11 months ended December 31, 2013, the Company entered into joint venture agreements with outside partners, affiliated entities of QIC, one of the largest institutional investment managers in Australia. The outside partners invested in and received 49% of the Company's equity interests in eight regional retail malls (seven fully consolidated assets in September 2013 and one equity method investment in December 2013).

For its 49% equity interests, the outside partner invested cash and assumed debt of $477,100,000, representing 49% of the nonrecourse mortgage debt on the eight properties. As of December 31, 2013, the Company received approximately $421,700,000 of proceeds, net of transaction costs, of which approximately $187,700,000 represented cash, with the remainder being in the form of a loan. Based on the amount of cash received, the outside partner's minimum initial investment requirement was met and the transaction qualified for full gain recognition. As such, the Company recognized a net gain on disposition of partial interests in rental properties of $381,627,000 related to the seven fully consolidated assets and a gain on disposition of partial interests in equity method investments of $27,080,000, which is included in equity in earnings during the 11 months ended December 31, 2013. The seven fully consolidated properties are adequately capitalized and do not contain the characteristics of a VIE. Based on this and the substantive participating rights held by the outside partner with regards to the properties, the Company concluded it appropriate to deconsolidate the seven fully consolidated entities and account for them under the equity method of accounting. During the 11 months ended December 31, 2013 and prior to admitting the outside party into the joint ventures, the Company acquired noncontrolling interests in two of the regional retail malls for approximately $92,400,000, which has been reflected in the Consolidated Statement of Equity.

The QIC Joint Venture transaction, which resulted in the deconsolidation of the seven fully consolidated regional retail malls, resulted in the following increases (decreases) to the Consolidated Balance Sheet financial statement line items, inclusive of the Company's acquisition of noncontrolling interests (in thousands):



Assets
Real estate, net	$	(920,602	)
Cash and equivalents	324,549
Restricted cash and escrowed funds	(4,326		)
Notes and accounts receivable, net	(23,201		)
Investments in and advances to unconsolidated entities	40,249
Other assets	(90,098		)
Total Assets	$	(673,429	)
Liabilities
Mortgage debt and notes payable, nonrecourse	$	(979,448	)
Accounts payable, accrued expenses and other liabilities	(17,446		)
Total Liabilities	$	(996,894	)
Equity
Additional paid-in capital	$	(89,644	)
Retained earnings	408,707
Noncontrolling interest	4,402
Total Equity	323,465
Total Liabilities and Equity	$	(673,429	)

New York Retail Joint Venture

In March 2011, the Company entered into joint venture agreements with an outside partner, an affiliated entity of Madison International Realty LLC. The outside partner invested in and received a 49% equity interest in 15 mature retail properties located in the Greater New York City metropolitan area. For its 49% equity interests, the outside partner invested cash and assumed debt of $244,952,000, representing 49% of the nonrecourse mortgage debt on the 15 properties. As of January 31, 2012, the Company received proceeds of $178,286,000, primarily in the form of a loan. Based on the net amount of cash received, the outside partner’s minimum initial investment requirement of 20% was not met. Since the transaction did not qualify for full gain recognition, the installment method of gain recognition was applied and a net gain on disposition of partial interests in rental properties of $9,561,000 was recorded during the year ended January 31, 2012. Transaction costs totaling $11,776,000, of which, $5,779,000 relating to participation payments made to the ground lessors of two of the properties in accordance with the respective ground lease agreements did not qualify for deferral and were included in the calculation of the net gain on disposition of partial interests in rental properties recorded during the year ended January 31, 2012. The 15 retail properties are adequately capitalized and do not contain the characteristics of a VIE. Based on this and the substantive participating rights held by the outside partner with regards to the properties, the Company concluded that it would be appropriate to deconsolidate the entities and account for them under the equity method of accounting. As of January 31, 2013, the remaining gain of $114,465,000 continued to be deferred and was included in accounts payable, accrued expenses and other liabilities.

During the 11 months ended December 31, 2013, the Company paid down a portion of the loan, which increased the net cash received for purposes of measuring whether full gain recognition is appropriate. As a result, the outside partner's investment requirement was met and the Company recognized the remaining deferred gain of $114,465,000 as net gain on disposition of partial interests in rental properties.

Stonecrest Mall Joint Venture

In October 2011, the Company entered into a joint venture agreement with an outside partner whereby the outside partner invested in the Mall at Stonecrest, a regional mall in Atlanta, Georgia (“Stonecrest”). The outside partner received a 49% equity interest in Stonecrest.

For its 49% equity interest, the outside partner assumed debt of $49,464,000, representing 49% of the nonrecourse mortgage debt on the property. In addition, the Company is entitled to receive up to $3,750,000 of contingent consideration, based on Stonecrest’s financial results as defined in the partnership agreement, none of which has been recognized through December 31, 2013. The transaction resulted in a gain on disposition of partial interests in rental property of $5,849,000 during the year ended January 31, 2012. The property is adequately capitalized and does not contain the characteristics of a VIE. Based on this and the substantive participating rights held by the outside partner with regards to the property, the Company concluded that it would be appropriate to deconsolidate the entity and account for it under the equity method of accounting.

Annex building adjacent to the Dallas Wilson Building

In December 2011, the Company sold an annex building containing eight units adjacent to the Dallas Wilson Building, an apartment building in Dallas, Texas, for $2,800,000. The transaction resulted in a gain of $2,255,000 during the year ended January 31, 2012. The remaining 135 units of the Dallas Wilson Building are wholly-owned by the Company and will continue to be fully consolidated.