2. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES

At September 30, 2012 and December 31, 2011, the Company had ownership interests in various unconsolidated joint ventures that had an investment in 210 and 177 shopping center properties, respectively. Condensed combined financial information of the Company’s unconsolidated joint venture investments is as follows (in thousands):


	September 30, 2012 ^(A)		December 31, 2011
Condensed Combined Balance Sheets
Real estate, net	$	6,221,498	$	5,355,190
Cash and restricted cash ⁽^B⁾		414,619		308,008
Receivables, net		108,298		108,038
Other assets		447,490		177,251

	$	7,191,905	$	5,948,487

Mortgage debt ⁽^B⁾	$	4,376,380	$	3,742,241
Notes and accrued interest payable to DDR		143,660		100,470
Other liabilities		311,040		214,370

		4,831,080		4,057,081
Redeemable preferred equity		150,000		—
Accumulated equity		2,210,825		1,891,406

	$	7,191,905	$	5,948,487

Company’s share of accumulated equity	$	461,872	$	402,242

^(A)	Increase in the balance sheet at September 30, 2012, is primarily attributable to the investment in BRE DDR Retail Holdings, LLC as described below.

^(B)	Increase is primarily due to the issuance of public debt by Sonae Sierra Brasil in 2012. The proceeds are being used to fund development activities.


	Three-Month Periods Ended September 30,						Nine-Month Periods Ended September 30,
	2012			2011			2012			2011
Condensed Combined Statements of Operations
Revenues from operations	$	193,897		$	170,291		$	530,056		$	506,029

Operating expenses ⁽^A⁾		68,916			57,517			192,445			171,617
Impairment charges ⁽^B⁾		840			—			5,745			—
Depreciation and amortization		67,927			42,894			153,324			133,482
Interest expense		63,498			55,408			181,877			166,983

		201,181			155,819			533,391			472,082

(Loss) income before tax expense and discontinued operations		(7,284	)		14,472			(3,335	)		33,947
Income tax expense (primarily Sonae Sierra Brasil), net		(6,628	)		(9,434	)		(18,897	)		(26,963	)

(Loss) income from continuing operations		(13,912	)		5,038			(22,232	)		6,984
Discontinued operations:
Loss from discontinued operations		(38,026	)		(62,323	)		(41,385	)		(62,703	)
Gain on debt forgiveness ⁽^C⁾		—			—			—			2,976
Gain (loss) on disposition of real estate, net ⁽^D⁾		1,183			(593	)		1,290			21,300

Loss before gain on disposition of real estate, net		(50,755	)		(57,878	)		(62,327	)		(31,443	)
Gain on disposition of real estate, net		1,128			—			14,230			—

Net loss	$	(49,627	)	$	(57,878	)	$	(48,097	)	$	(31,443	)

Non-controlling interests		(6,155	)		(6,570	)		(19,689	)		(11,564	)

Net loss attributable to unconsolidated joint ventures	$	(55,782	)	$	(64,448	)	$	(67,786	)	$	(43,007	)

Company’s share of equity in net (loss) income of joint ventures ⁽^E⁾	$	(1,613	)	$	(6,199	)	$	11,739		$	14,240

^(A)	Operating expenses for the nine-month periods ended September 30, 2012, include transaction costs associated with the formation of the unconsolidated joint venture, BRE DDR Retail Holdings, LLC described later in this footnote.

^(B)

For the three- and nine-month periods ended September 30, 2012, impairment charges were recorded primarily on assets that are in the process of being marketed for sale of which the Company’s proportionate share of the charges was not material due to impairment charges previously taken at the investment level.

^(C)

Gain on debt forgiveness is related to one property owned by an unconsolidated joint venture that was transferred to the lender pursuant to a consensual foreclosure proceeding. The operations of the asset have been reclassified as discontinued operations in the combined condensed statements of operations presented.

^(D)

For the three- and nine-month period ended September 30, 2012, gain on disposition of discontinued operations includes the sale of three properties. The Company’s proportionate share of the aggregate gain for the assets sold for the three- and nine-month periods ended September 30, 2012, was not material.

For the nine-month period ended September 30, 2011, gain on disposition of discontinued operations includes the sale of three properties. The Company’s proportionate share of the aggregate gain for the assets sold for the nine-month period ended September 30, 2011, was $10.5 million.

^(E)

The difference between the Company’s share of net (loss) income, as reported above, and the amounts included in the condensed consolidated statements of operations is attributable to the amortization of basis differentials, deferred gains and differences in gain (loss) on sale of certain assets due to the basis differentials and other than temporary impairment charges. The Company is not recording income or loss from those investments in which its investment basis is zero as the Company does not have the obligation or intent to fund any additional capital. Adjustments to the Company’s share of joint venture net income (loss) for these items are reflected as follows (in millions):


	Three-Month Periods Ended September 30,				Nine-Month Periods Ended September 30,
	2012		2011		2012		2011
Net income	$	7.1	$	3.6	$	5.2	$	1.7

Investments in and Advances to Joint Ventures include the following items, which represent the difference between the Company’s investment and its share of all of the unconsolidated joint ventures’ underlying net assets (in millions):


	September 30, 2012			December 31, 2011
Company’s share of accumulated equity	$	461.9		$	402.2
Notes receivable from investments ^(A)		150.4			0.4
Basis differentials ⁽^B⁾		(167.0	)		(145.6	)
Deferred development fees, net of portion related to the Company’s interest		(3.0	)		(3.6	)
Notes and accrued interest payable to DDR ⁽^C⁾		143.7			100.5

Investments in and Advances to Joint Ventures	$	586.0		$	353.9

^(A)	Primarily relates to a $150.0 million preferred equity investment in BRE DDR Retail Holdings, LLC. See discussion regarding this unconsolidated joint venture later in this footnote.

^(B)

This amount represents the aggregate difference between the Company’s historical cost basis and the equity basis reflected at the joint venture level. Basis differentials recorded upon transfer of assets are primarily associated with assets previously owned by the Company that have been transferred into an unconsolidated joint venture at fair value. Other basis differentials occur primarily when the Company has purchased interests in existing unconsolidated joint ventures at fair market values, which differ from its proportionate share of the historical net assets of the unconsolidated joint ventures. In addition, certain transaction and other costs, including capitalized interest, reserves on notes receivable as discussed below and impairments of the Company’s investments that were other than temporary may not be reflected in the net assets at the joint venture level. Certain basis differentials indicated above are amortized over the life of the related assets.

^(C)	The Company has amounts receivable from several joint ventures aggregating $38.4 million at September 30, 2012. The remaining amounts were fully reserved by the Company at September 30, 2012.

Service fees and income earned by the Company through management, financing, leasing and development activities performed related to all of the Company’s unconsolidated joint ventures are as follows (in millions):


	Three-Month Periods Ended September 30,				Nine-Month Periods Ended September 30,
	2012		2011		2012		2011
Management and other fees	$	7.6	$	7.0	$	20.9	$	21.7
Financing and other fees		—		0.3		—		—
Development fees and leasing commissions		2.3		1.6		6.2		5.3
Interest income		4.7		—		5.1		0.1

Sonae Sierra Brasil

During the first quarter of 2012, the Company’s one-third-owned joint venture, Sonae Sierra Brasil, completed a strategic asset swap and partial sale that resulted in a majority ownership interest in Shopping Plaza Sul, an enclosed mall in Sao Paulo. Sonae Sierra Brasil acquired an additional 30% interest in Shopping Plaza Sul in exchange for transferring a 22% stake in Shopping Penha and $29 million in cash. As a result of these transactions, Sonae Sierra Brasil increased its ownership interest in Shopping Plaza Sul to 60% and decreased its interest in Shopping Penha to 51%. The Company’s proportionate share of the net gain on the partial sale of its interest in Shopping Penha was $2.8 million. The weighted-average exchange rate used for recording the equity in net income was 1.90 and 1.63 for the nine-month periods ended September 30, 2012 and 2011, respectively.

BRE DDR Retail Holdings, LLC

In June 2012, a joint venture between consolidated affiliates of the Company and The Blackstone Group L.P. (“Blackstone”) acquired a portfolio of 46 shopping centers aggregating 10.6 million square feet of gross leasable area (“GLA”) (all references to GLA and square feet are unaudited). These assets were previously owned by EPN Group and managed by the Company. An affiliate of Blackstone owns 95% of the common equity of the joint venture, and the remaining 5% common equity interest is owned by a consolidated affiliate of the Company. The transaction was valued at approximately $1.4 billion. The joint venture assumed $635.6 million of senior non-recourse debt at face value and entered into an additional $320.0 million of non-recourse debt with a three-year term and two one-year extension options. The Company contributed $17.0 million to the joint venture for its common equity interest and also funded the joint venture with $150.0 million in preferred equity. The preferred equity has a fixed distribution rate of 10% per annum, which is recognized as interest income within the condensed consolidated statements of operations and is classified as a note receivable in Investments in and Advances to Joint Ventures on the Company’s condensed consolidated balance sheet. The preferred equity entitles the Company to certain preferential cumulative distributions payable out of operating and capital proceeds pursuant to the terms and conditions of the preferred equity. Blackstone has the right to defer up to 20% of the preferred equity fixed distribution. Any deferred and unpaid preferred equity distributions will continue to accrue at a fixed distribution rate of 10% per annum. The preferred equity is redeemable (1) at Blackstone’s option, in part, after 18 months following acquisition of the properties, and in full, after two years following acquisition of the properties; (2) at DDR’s option after seven years; (3) at varying levels based upon specified financial covenants upon a sale of properties over a certain threshold and (4) upon the incurrence of additional indebtedness by the joint venture. The Company provides leasing and property management services to all of the joint venture properties and will have the right of first offer to acquire 10 of the assets under specified conditions. The Company cannot be removed as the property and leasing manager until the preferred equity is redeemed in full (except for certain specified events).

Other Joint Venture Interests

In the second quarter of 2012, the DDRTC Core Retail Fund, LLC joint venture, in which the Company has a 15% ownership interest, refinanced $698.7 million of maturing mortgage debt. The mortgage note payable of $540.0 million was modified through the same lender and required a cash payment of $76.0 million, of which the Company’s proportionate share was $11.4 million. The modified mortgage note payable has a three-year term with two one-year options and an interest rate of 4.63%. The joint venture also entered into a term loan of $190.0 million to repay a $158.7 million revolving credit facility. In July 2012, the joint venture exercised an accordion feature resulting in a mortgage balance outstanding at September 30, 2012 of $214.5 million. The term loan has a three-year term with two one-year options and an interest rate of LIBOR plus 275 basis points.

During the nine months ended September 30, 2012, the Company purchased its unconsolidated joint venture partners’ ownership interests, held through three different joint ventures, in five assets, three of which were purchased in the three months ended September 30, 2012. The aggregate purchase price of these assets was $339.5 million, of which $201.7 million was purchased in the three months ended September 30, 2012. The Company recorded an aggregate Gain on Change in Control of Interests of $40.6 million and $80.0 million related to the difference between the Company’s carrying value and fair value of the previously held equity interest for the three- and nine-month periods ended September 30, 2012, respectively. At closing, $246.2 million of aggregate mortgage debt was repaid, of which $142.4 million was repaid in the three months ended September 30, 2012. Upon acquisition, these shopping centers were consolidated into the Company’s results from operations.