2.	Investments in and Advances to Joint Ventures

The Company’s equity method joint ventures, which are included in Investments in and Advances to Joint Ventures in the Company’s consolidated balance sheet at December 31, 2017, are as follows:

Unconsolidated Real Estate Ventures	Partner	Effective Ownership Percentage		Operating Properties
BRE DDR Retail Holdings III	Blackstone Real Estate Partners		5.0%	37
BRE DDR Retail Holdings IV	Blackstone Real Estate Partners	5.0		6
DDRTC Core Retail Fund, LLC	TIAA – CREF	15.0		23
DDRM Properties	Madison International Realty	20.0		52
DDR – SAU Retail Fund, LLC	State of Utah	20.0		12
Other Joint Venture Interests	Various	20.0–79.45		6

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

	December 31,
	2017			2016
Condensed Combined Balance Sheets
Land	$	1,126,703		$	1,287,675
Buildings		3,057,072			3,376,720
Fixtures and tenant improvements		213,989			203,824
		4,397,764			4,868,219
Less: Accumulated depreciation		(962,038	)		(884,356	)
		3,435,726			3,983,863
Construction in progress and land		53,928			56,983
Real estate, net		3,489,654			4,040,846
Cash and restricted cash		155,894			50,378
Receivables, net		51,396			50,685
Other assets, net		174,832			248,664
	$	3,871,776		$	4,390,573

Mortgage debt	$	2,501,163		$	3,034,399
Notes and accrued interest payable to the Company		1,365			1,584
Other liabilities		156,076			206,949
		2,658,604			3,242,932
Redeemable preferred equity – DDR		345,149			393,338
Accumulated equity		868,023			754,303
	$	3,871,776		$	4,390,573

Company's share of accumulated equity	$	132,710		$	97,977
Redeemable preferred equity, net		277,776			393,338
Basis differentials		(24,973	)		(36,117	)
Deferred development fees, net of portion related to the Company's interest		(3,065	)		(2,651	)
Amounts payable to the Company		1,365			1,584
Investments in and Advances to Joint Ventures, net	$	383,813		$	454,131

	For the Year Ended December 31
	2017			2016			2015
Condensed Combined Statements of Operations
Revenues from operations	$	502,506		$	513,365		$	524,697
Expenses from operations:
Operating expenses		145,855			144,984			146,924
Impairment charges^(A)		90,597			13,598			52,700
Depreciation and amortization		180,337			195,198			207,816
Interest expense		107,330			132,943			140,701
Preferred share expense		32,251			33,418			25,991
Other (income) expense, net		25,986			23,513			30,235
		582,356			543,654			604,367
Loss from continuing operations		(79,850	)		(30,289	)		(79,670	)
Gain on disposition of real estate, net		101,806			57,261			17,188
Net income (loss) attributable to unconsolidated joint ventures	$	21,956		$	26,972		$	(62,482	)
Company's share of equity in net income (loss) of joint ventures^(B)	$	3,516		$	11,650		$	(5,289	)
Basis differential adjustments^(B)		5,321			4,049			2,154
Equity in net income (loss) of joint ventures^(B)	$	8,837		$	15,699		$	(3,135	)

(A)

For the years ended December 31, 2017, 2016 and 2015, the Company’s proportionate share was $5.0 million, $2.7 million and $10.5 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 appropriate, as discussed below.

(B)

The difference between the Company’s share of net income (loss), as reported above, and the amounts included in the Company’s consolidated statements of operations is attributable to the amortization of basis differentials, unrecognized preferred PIK, the recognition of deferred gains, differences in gain (loss) on sale of certain assets recognized due to the basis differentials and other than temporary impairment charges.

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,
	2017		2016		2015
Management and other fees	$	24.2	$	28.6	$	26.0
Interest income		25.9		33.4		26.0
Development fees and leasing commissions		9.1		7.5		6.8

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 or to initiate a purchase or sale of the properties 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.

Disposition of Shopping Centers

The Company’s joint ventures sold 15, 17 and 16 shopping centers and land for an aggregate sales price of $545.6 million, $214.6 million and $289.7 million, of which the Company’s share of the gain on sale was $5.7 million, $13.8 million and $4.0 million, respectively, for the years ended December 31, 2017, 2016 and 2015.

BRE DDR Retail Holdings Joint Ventures

The Company’s two unconsolidated investments with The Blackstone Group L.P. (“Blackstone”), BRE DDR Retail Holdings III (“BRE DDR III”) and BRE DDR Retail Holdings IV (“BRE DDR IV” and, together with BRE DDR III, the “BRE DDR Joint Ventures”), have substantially similar terms and are summarized as follows (in millions, except properties owned):

		Common Equity		Preferred Investment (Principal)						Properties Owned
	Formation	Initial		Initial		December 31, 2017		Net of Reserve		Inception		December 31, 2017
BRE DDR III	Oct 2014	$	19.6	$	300.0	$	265.9	$	216.0		70		37
BRE DDR IV	Dec 2015		12.9		82.6		67.1		56.0		6		6
				$	382.6	$	333.0	$	272.0

An affiliate of Blackstone is the managing member and effectively owns 95% of the common equity of each of the two BRE DDR Joint Ventures, and consolidated affiliates of DDR effectively own the remaining 5%. The Company provides leasing and property management services to all of the joint venture properties. The Company cannot be removed as the property and leasing manager until the preferred equity, as discussed below, is redeemed in full (except for certain specified events).

The Company’s preferred interests are entitled to certain preferential cumulative distributions payable out of operating cash flows and certain capital proceeds pursuant to the terms and conditions of the preferred investments. The preferred distributions are recognized as Interest Income within the Company’s consolidated statements of operations and are classified as a note receivable in Investments in and Advances to Joint Ventures on the Company’s consolidated balance sheets. Blackstone has the right to defer up to 23.5% of the preferred fixed distributions as a payment in kind distribution, or “PIK.” The preferred investments have an annual distribution rate of 8.5% including any deferred and unpaid preferred distributions. Blackstone has made this PIK deferral election since the formation of both joint ventures. The cash portion of the preferred fixed distributions is generally payable first out of operating cash flows and is current for both BRE DDR Joint Ventures. The Company has no expectation that the cash portion of the preferred fixed distribution will become impaired.

The unpaid preferred investment (and any accrued distributions) is payable (1) at Blackstone’s option, in whole or in part, subject to early redemption premiums in certain circumstances during the first three years of the joint ventures; (2) at varying equity sharing levels with the common members under certain circumstances including specified financial covenants, upon a sale of properties over a certain threshold; (3) at DDR’s option after seven years (2021 for BRE DDR III and 2022 for BRE DDR IV) and (4) upon the incurrence of additional indebtedness by the joint ventures in excess of a certain threshold. Specifically, for BRE DDR III as of December 31, 2017, based upon the cumulative asset sales, net asset sale proceeds will be allocated at 52.0% to the preferred member. For BRE DDR IV, the preferred investment is collateralized by assets in which DDR has a 5% common equity interest for 95% of the value and by an additional three assets in which DDR has a nominal interest. The repayment of the BRE DDR IV preferred investment prior to 2022 is first subject to a remaining minimum net asset sales threshold of $4.9 million, of which $1.1 million is allocated to the preferred member. The net asset sale proceeds generated thereafter are expected to be available to repay the preferred member.

For the year ended December 31, 2017, the Company recorded a valuation allowance on each of the BRE DDR III and BRE DDR IV preferred investment interests of $50.0 million and $11.0 million, respectively, or $61.0 million in the aggregate on a net basis. The valuation allowances were triggered by an increase in the estimated market capitalization rates for the underlying real estate collateral of the investments. The values of open air shopping centers anchored by big box national retailers, particularly in secondary markets, have been under increasing pressure and decreased in 2017 due to the continued perceived threat of internet retail competition and tenant bankruptcies. Several large national retailers filed for bankruptcy in the beginning of 2017. A majority of the shopping centers collateralizing the preferred investments are those that have been most impacted by the rising capitalization rates. These factors have also reduced the number of potential investors and well-capitalized buyers for these types of assets. The managing member of the two joint ventures exercises significant influence over the timing of asset sales. Due to the Company’s expectation regarding the likely timing of asset sales, the valuation of the Company’s investments considers how management believes a third-party market participant would value the securities in the current higher capitalization rate environment. As a result, the investments were impaired to reflect the risk that the securities are not repaid in full in advance of the Company’s redemption rights in 2021 and 2022. The Company reassesses the aggregate valuation allowance quarterly based upon actual timing and values of recent property sales as well as current market assumptions. The valuation allowance is recorded as Reserve of Preferred Equity Interests on the Company’s consolidated statements of operations. The Company will continue to monitor the investments and related valuation allowance, which could be increased or decreased in future periods, as appropriate.

As discussed above, the preferred 8.5% distribution rate has two components, a cash interest rate of 6.5% and an accrued PIK of 2.0%. As a result of the valuation allowances recorded, effective March 2017, the Company no longer recognizes as interest income the 2.0% PIK (aggregating $6.3 million at December 31, 2017). Although Blackstone has the right to change its payment election, the Company expects future preferred distributions to continue to include the PIK election. The recognition of the PIK interest income will be re-evaluated based upon any future adjustments to the aggregate valuation allowance, as appropriate.

DDRM Properties (formerly DDR Domestic Retail Fund I)

In 2017, the Company and an affiliate of Madison International Realty (“Madison”) recapitalized a joint venture with 52 shopping centers previously owned by the Company and various partners through the DDR Domestic Retail Fund I, totaling $1.05 billion. Madison International Real Estate Liquidity Fund VI, an investment fund managed by Madison, acquired 80% of the common equity, and an affiliate of the Company retained its 20% interest. This ownership structure is consistent with the structure of the joint venture prior to the recapitalization. In addition, the Company will continue to provide leasing and management services. The recapitalization included the repayment of all outstanding mortgage debt previously held by the joint venture, a majority of which was scheduled to mature in July 2017. The joint venture obtained new mortgage loan financing aggregating $706.7 million (of which the Company’s pro rata share is $141.3 million), collateralized by the 52 assets with a maturity date of July 2022, including extensions. The Company contributed $46.9 million in cash to fund its pro rata share of the recapitalization and related debt refinancing.

The remaining three assets not involved in the recapitalization were distributed to the existing partners of DDR Domestic Retail Fund I at the aggregate book value of $74.0 million (of which the Company’s pro rata share was $14.8 million) and contributed to a new joint venture with the same ownership structure, DDR Manatee Liquidating Holdco I. The Company retained a 20% interest in the joint venture and will continue to provide leasing and management services. The assets in the joint venture are unencumbered.

Investment Interests Sold

In 2016, the Company sold its approximate 25% membership interest in 10 assets to its joint venture partner and recorded a loss on sale of $1.1 million, which is included in Loss on Sale and Change in Control of Interests, net, in the Company’s consolidated statement of operations. In 2015, the Company sold its 50% membership interest in a property management company to its joint venture partner and recorded a loss on sale of $6.5 million, which is included in Gain on Sale and Change in Control of Interests, net in the Company’s consolidated statement of operations. In addition, in 2015, the Company sold two shopping centers to this former joint venture partner for an aggregate sales price of $112.3 million, and the Company recorded a Gain on Sale of $59.8 million.

All transactions with the Company’s equity affiliates are described above.