Other Real Estate Investments:

Preferred Equity Capital –

The Company previously provided capital to owners and developers of real estate properties through its Preferred Equity program. The Company’s maximum exposure to losses associated with its preferred equity investments is primarily limited to its net investment. As of

December

31,

2016,

the Company’s net investment under the Preferred Equity program was

$193.7

million relating to

365

properties, including

346

net leased properties which are accounted for as direct financing leases. For the year ended

December

31,

2016,

the Company earned

$27.5

million from its preferred equity investments, including

$10.5

million in profit participation earned from

five

capital transactions. As of

December

31,

2015,

the Company’s net investment under the Preferred Equity program was

$199.9

million relating to

421

properties, including

385

net leased properties. For the year ended

December

31,

2015,

the Company earned

$27.0

million from its preferred equity investments, including

$9.3

million in profit participation earned from

nine

capital transactions.

As of

December

31,

2016,

these preferred equity investment properties had non-recourse mortgage loans aggregating

$427.4

million. These loans have scheduled maturities ranging from

one

month to

eight

years and bear interest at rates ranging from

4.19%

10.47%.

Due to the Company’s preferred position in these investments, the Company’s share of each investment is subject to fluctuation and is dependent upon property cash flows. The Company’s maximum exposure to losses associated with its preferred equity investments is limited to its invested capital.

Summarized financial information relating to the Company’s preferred equity investments is as follows (in millions):

	December 31,
	201 6		2015
Assets:
Real estate, net	$	187.0	$	258.0
Other assets		587.1		628.3
	$	774.1	$	886.3
Liabilities and Partners’/Members’ Capital:
Notes and mortgages payable	$	454.7	$	563.7
Other liabilities		8.3		12.9
Partners’/Members’ capital		311.1		309.7
	$	774.1	$	886.3

	Year Ended December 31,
	201 6			2015			2014
Revenues from rental properties	$	102.6		$	122.1		$	146.0
Operating expenses		(27.4	)		(35.6	)		(47.0	)
Interest expense		(26.7	)		(35.7	)		(47.1	)
Depreciation and amortization		(6.7	)		(11.4	)		(19.2	)
Other expense, net		(11.5	)		(9.2	)		(7.2	)
Income from continuing operations		30.3			30.2			25.5
Discontinued Operations:
Gain on disposition of properties		-			-			31.5
		-			-			31.5
Gain on sale of operating properties		5.3			6.0			-
Net income	$	35.6		$	36.2		$	57.0

Kimsouth

–

Kimsouth Realty Inc. (“Kimsouth”) is a wholly-owned subsidiary of the Company. KRS AB Acquisition, LLC (the “ABS Venture”) is a subsidiary of Kimsouth that has a noncontrolling interest in AB Acquisition, LLC (“AB Acquisition”), a joint venture which owns Albertsons Inc. (“Albertsons”) and NAI Group Holdings Inc. (“NAI”). The Company holds a controlling interest in the ABS Venture and consolidates this entity.

During

January

2015,

two

new noncontrolling members were admitted into the ABS Venture, including Colony Capital, Inc. and affiliates (“Colony”), after which the Company contributed

$85.3

million and the

two

noncontrolling members contributed an aggregate

$105.0

million, of which Colony contributed

$100.0

million, to the ABS Venture, which was subsequently contributed to AB Acquisition to facilitate the acquisition of all of the outstanding shares of Safeway Inc. (“Safeway”). In

January

2017,

Colony Capital, Inc. merged with NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. to form Colony NorthStar, Inc. (“Colony NorthStar”). As a result, the ABS Venture now holds a combined

14.35%

interest in AB Acquisition, of which the Company holds a combined

9.8%

ownership interest and Colony NorthStar holds a

4.3%

ownership interest. Richard B. Saltzman, a member of the Board of Directors of the Company, is the chief executive officer and president of Colony NorthStar. The combined company of Albertsons, NAI and Safeway operates over

2,200

grocery stores across

states. The Company continues to consolidate the ABS Venture as there was no change in control following the admission of the members described above. As such, the Company recorded (i) the gross investment in Safeway of

$190.3

million in Other assets on the Company’s Consolidated Balance Sheets and accounts for this investment under the cost method of accounting (ii) a noncontrolling interest of

$65.0

million and (iii) an increase in Paid-in capital of

$24.0

million, net of a deferred tax effect of

$16.0

million, representing the amount contributed by the newly admitted members in excess of their proportionate share of the historic book value of the net assets of ABS Venture.