2. Investments in and Advances to Joint Ventures

The Company’s equity method joint ventures at December 31, 2012, which are included in Investments in and Advances to Joint Ventures in the Company’s consolidated balance sheets, are as follows:


Unconsolidated Real Estate Ventures	Effective Ownership Percentage^(A)	Assets Owned
Sonae Sierra Brasil BV Sarl	33.3	Eight shopping centers, a management company and two development projects in Brazil
DDR Domestic Retail Fund I	20.0	59 grocery-anchored retail centers in several states
DDR Markaz II LLC	20.0	13 neighborhood grocery-anchored retail centers in several states
DDR — SAU Retail Fund LLC	20.0	27 grocery-anchored retail centers in several states
DDRTC Core Retail Fund LLC	15.0	39 shopping centers in several states
Coventry II Joint Ventures	10.0 – 20.0	Four shopping centers in several states
BRE DDR Retail Holdings, LLC	5.0	46 shopping centers in several states
Other Joint Venture Interests	25.25 – 79.45	14 shopping centers in several states and a management company

The Company has a zero basis in the following equity method joint ventures at December 31, 2012, and has no intent or obligation to fund any further capital:


Unconsolidated Real Estate Ventures	Effective Ownership Percentage^(A)	Assets Owned
Coventry II Joint Ventures	0.0 – 20.0%	40 retail sites/centers in several states

(A)	Ownership may be held through different investment structures. Percentage ownerships are subject to change, as certain investments contain promoted structures.

Condensed combined financial information of the Company’s unconsolidated joint venture investments is summarized as follows (in thousands):


	December 31,
	2012^(A)			2011
Condensed combined balance sheets
Land	$	1,569,548		$	1,400,469
Buildings		4,681,462			4,334,097
Fixtures and tenant improvements		244,293			189,940

		6,495,303			5,924,506
Less: Accumulated depreciation		(833,816	)		(808,352	)

		5,661,487			5,116,154
Land held for development and construction in progress		348,822			239,036

Real estate, net		6,010,309			5,355,190
Cash and restricted cash^(B)		467,200			308,008
Receivables, net		99,098			108,038
Other assets		427,014			177,251

	$	7,003,621		$	5,948,487

Mortgage debt	$	4,246,407		$	3,742,241
Notes and accrued interest payable to DDR^(C)		143,338			100,470
Other liabilities		342,614			214,370

		4,732,359			4,057,081
Redeemable preferred equity		154,556			—
Accumulated equity		2,116,706			1,891,406

	$	7,003,621		$	5,948,487

Company’s share of Accumulated Equity	$	432,500		$	402,242

(A)	Increase in the balance sheet at December 31, 2012, is primarily attributable to the investment in BRE DDR Retail Holdings, LLC, described later in this footnote, partially offset by asset sales.

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

(C)

The Company has amounts receivable from several joint ventures aggregating $34.3 million and $3.0 million at December 31, 2012 and 2011, respectively, which are included Investments in and Advances to Joint Ventures on the consolidated balance sheets. The remaining amounts were fully reserved by the Company in prior years.


	For the Year Ended December 31,
	2012			2011			2010
Condensed combined statements of operations
Revenues from operations	$	705,810		$	659,978		$	614,775

Operating expenses^(A)		249,540			217,673			230,528
Impairment charges^(B)		10,402			208,843			—
Depreciation and amortization		203,412			171,634			172,926
Interest expense		237,138			217,676			215,482

		700,492			815,826			618,936

Income (loss) before other items		5,318			(155,848	)		(4,161	)
Income tax expense (primarily Sonae Sierra Brasil), net		(25,444	)		(38,598	)		(20,247	)
Other income^(C)		—			—			10,592

Loss from continuing operations		(20,126	)		(194,446	)		(13,816	)
Discontinued operations:
Loss from discontinued operations^(D)		(52,619	)		(64,056	)		(23,508	)
Gain on debt forgiveness		—			2,976			—
Gain (loss) on disposition of real estate, net of tax		11,739			18,705			(26,674	)

Loss before gain on disposition of real estate, net		(61,006	)		(236,821	)		(63,998	)
Gain on disposition of real estate, net		54,582			1,733			17

Net loss	$	(6,424	)	$	(235,088	)	$	(63,981	)

Non-controlling interests		(42,995	)		(16,132	)		(458	)

Net loss attributable to unconsolidated joint ventures	$	(49,419	)	$	(251,220	)	$	(64,439	)

Company’s share of equity in net income (loss) of joint ventures^(E)	$	33,512		$	(12,979	)	$	6,319

(A)	Operating expenses for the year ended December 31, 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 years ended December 31, 2012 and 2011, the Company’s proportionate share was $0.6 million and $6.7 million, respectively.

(C)	The 2010 activity related to debt forgiveness on one property owned by a joint venture with the Coventry II Fund (hereinafter defined), in which the Company has a zero basis.

(D)

For the years ended December 31, 2012, 2011 and 2010, impairment charges included in discontinued operations related to asset sales were $46.8 million, $63.6 million and $21.0 million, respectively, of which the Company’s proportionate share was $0.5 million, $6.3 million and $0.7 million, respectively. The Company’s share of the impairment charges was reduced by the impact of the other than temporary impairment charges recorded on these investments as discussed below.

(E)

The difference between the Company’s share of net income (loss), as reported above, and the amounts included in the 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):


	For the Year Ended December 31,
	2012		2011		2010
Income (loss), net	$	1.7	$	26.7	$	(0.7)

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):


	For the Year Ended December 31,
	2012			2011
Company’s share of accumulated equity	$	432.5		$	402.2
Redeemable preferred equity and notes receivable from investments^(A)		155.0			0.4
Basis differentials^(B)		(5.9	)		(48.1	)
Deferred development fees, net of portion related to the Company’s interest		(2.9	)		(3.6	)
Notes and accrued interest payable to DDR		34.3			3.0

Investments in and Advances to Joint Ventures	$	613.0		$	353.9

(A)	Primarily relates to a $154.6 million preferred equity investment in BRE DDR Retail Holdings, LLC. See discussion regarding this newly formed 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.

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):


	For the Year Ended December 31,
	2012		2011		2010
Management and other fees	$	28.6	$	29.8	$	34.0
Financing and other fees		—		0.1		0.3
Development fees and leasing commissions		8.7		7.0		7.2
Interest income		9.7		0.1		0.4

The Company’s joint venture agreements generally include provisions whereby each partner has the right to trigger a purchase or sale of its interest in the joint venture (Reciprocal Purchase Rights) or to initiate a purchase or sale of the properties (Property Purchase Rights) after a certain number of years or if either party is in default of the joint venture agreements. The Company is not obligated to purchase the interests of its outside joint venture partners under these provisions.

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 or 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 $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 an investment in $150.0 million in preferred equity of the venture. The preferred equity has a fixed distribution rate of 10% per annum, which is recognized as interest income within the Company’s consolidated statements of operations and is classified as a note receivable in Investments in and Advances to Joint Ventures on the Company’s consolidated balance sheets. 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).

Sonae Sierra Brasil

In 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. In addition, in 2012, Sonae Sierra Brasil sold its 10% ownership interest in Patio Brasil, its remaining 51% interest in Shopping Penha and its 30% interest in Tivoli Shopping, for approximately $103 million ($34 million at DDR’s share). As the joint venture will continue to manage two of the assets pursuant to management contracts, only one of these assets is classified as discontinued operations in the condensed combined statements of operations. The weighted-average exchange rate used for recording the equity in net income was 1.94, 1.67 and 1.77 for the years ended December 31, 2012, 2011 and 2010, respectively.

Coventry II Fund

The Company and Coventry Real Estate Advisors L.L.C. (“CREA”) formed Coventry Real Estate Fund II L.L.C. and Coventry Fund II Parallel Fund, L.L.C. (collectively, the “Coventry II Fund”) to invest in a variety of retail properties that presented opportunities for value creation, such as re-tenanting, market repositioning, resale, redevelopment or expansion. The Coventry II Fund was formed with several institutional investors and CREA as the investment manager.

In the third quarter of 2012, the Company recorded a $26.1 million impairment charge on its investment in the Coventry II Montgomery Farm LLC joint venture that owned a mixed-use project located in Allen, TX, and satisfied its remaining guaranty of the construction loan. The Company determined that its investment had suffered an other than temporary impairment due to the deteriorating relations between the lender and the Company’s partner and the resulting impact on the asset’s value. In the fourth quarter of 2012, the Company subsequently sold its interest in this joint venture to the lender and recorded a $7.5 million Gain on Change in Control and Sale of Interests. At December 31, 2012, the aggregate carrying amount of the Company’s net investment in the Coventry II Fund joint ventures was $3.6 million. See discussion of legal matters surrounding the Coventry II Fund (Note 9).

Other Joint Venture Interests

In 2012, the Company purchased its unconsolidated joint venture partners’ ownership interests, held through three different joint ventures, in five assets, for an aggregate purchase price of $339.4 million. The Company recorded an aggregate Gain on Change in Control and Sale of Interests of $80.0 million related to the difference between the Company’s carrying value and fair value of the previously held equity interest for the year ended December 31, 2012. At closing, $246.2 million of aggregate mortgage debt was repaid. Upon acquisition, these shopping centers were consolidated into the results from operations.

In December 2012, the Company reduced its interest in a previously consolidated joint venture that owned land held for development in Richmond Hill, Canada. The Company sold a portion of its interest to a third party reducing its ownership from 50% to 10%. Due to the change in control that occurred, the Company deconsolidated the joint venture and accounts for its retained interest on the equity method of accounting. The Company recorded a $9.3 million Loss on Change in Control and Sale of Interests related to the transaction.

In 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. Also in 2012, the joint venture exercised an accordion feature resulting in a mortgage balance outstanding at December 31, 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.

Discontinued Operations

Included in discontinued operations in the combined statements of operations for the unconsolidated joint ventures are seven properties sold in 2012, eight properties sold in 2011 and 37 properties sold in 2010.