Investments in and Advances to Joint Ventures

9 Months Ended

Sep. 30, 2019

Equity Method Investments And Joint Ventures [Abstract]

Investments in and Advances to Joint Ventures

3.	Investments in and Advances to Joint Ventures

At September 30, 2019 and December 31, 2018, the Company had ownership interests in various unconsolidated joint ventures that had an investment in 102 and 106 shopping center properties, respectively. Condensed combined financial information of the Company’s unconsolidated joint venture investments is as follows (in thousands):

	September 30, 2019			December 31, 2018
Condensed Combined Balance Sheets
Land	$	957,434		$	1,004,289
Buildings		2,710,289			2,804,027
Fixtures and tenant improvements		230,656			221,412
		3,898,379			4,029,728
Less: Accumulated depreciation		(968,414	)		(935,921	)
		2,929,965			3,093,807
Construction in progress and land		54,198			56,498
Real estate, net		2,984,163			3,150,305
Cash and restricted cash		88,934			94,111
Receivables, net		39,820			44,702
Other assets, net		164,641			186,693
	$	3,277,558		$	3,475,811

Mortgage debt	$	1,844,940		$	2,212,503
Notes and accrued interest payable to the Company		6,105			5,182
Other liabilities		153,788			161,372
		2,004,833			2,379,057
Redeemable preferred equity – SITECenters^(A)		263,316			274,493
Accumulated equity		1,009,409			822,261
	$	3,277,558		$	3,475,811

Company's share of accumulated equity	$	172,567		$	145,786
Redeemable preferred equity, net ^(B)		162,730			189,891
Basis differentials		(8,114	)		(8,536	)
Deferred development fees, net of portion related to the Company's interest		(2,409	)		(2,700	)
Amounts payable to the Company		6,105			5,182
Investments in and Advances to Joint Ventures, net	$	330,879		$	329,623

(A)	Includes PIK that the Company has accrued since March 2017 of $16.1 million and $12.2 million at September 30, 2019 and December 31, 2018, respectively, which, in each case, was fully reserved.

(B)	Amount is net of the valuation allowance of $84.5 million and $72.4 million and the fully reserved PIK of $16.1 million and $12.2 million at September 30, 2019 and December 31, 2018, respectively.

	Three Months						Nine Months
	Ended September 30,						Ended September 30,
	2019			2018			2019			2018
Condensed Combined Statements of Operations
Revenues from operations^(A)	$	105,223		$	103,217		$	319,906		$	325,501
Expenses from operations:
Operating expenses		28,798			29,577			89,341			96,272
Impairment charges		—			87,880			12,267			104,790
Depreciation and amortization		36,867			34,332			113,340			111,308
Interest expense		22,530			23,126			73,472			72,315
Preferred share expense		5,544			6,249			16,487			19,074
Other expense, net		5,017			5,460			16,358			19,497
		98,756			186,624			321,265			423,256
Income (loss) before gain on disposition of real estate		6,467			(83,407	)		(1,359	)		(97,755	)
(Loss) gain on disposition of real estate, net		(440	)		32,548			15,205			82,924
Net income (loss) attributable to unconsolidated joint ventures	$	6,027		$	(50,859	)	$	13,846		$	(14,831	)
Company's share of equity in net income (loss) of joint ventures	$	2,404		$	(7,669	)	$	4,851		$	4,310
Basis differential adjustments^(B)		208			4,749			595			5,377
Equity in net income (loss) of joint ventures	$	2,612		$	(2,920	)	$	5,446		$	9,687

(A)	Revenue from operations is subject to leasing or other standards.

(B)

The difference between the Company’s share of net income, 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.

Revenues earned by the Company related to all of the Company’s unconsolidated joint ventures and interest income on its preferred interests in the BRE DDR Joint Ventures (as defined below) are as follows (in millions):

	Three Months				Nine Months
	Ended September 30,				Ended September 30,
	2019		2018		2019		2018
Revenue from contracts:
Asset and property management fees	$	4.7	$	4.0	$	14.8	$	14.5
Development fees, leasing commissions and other		1.2		1.5		3.7		5.1
Total revenue from contracts with customers		5.9		5.5		18.5		19.6
Other:
Interest income		4.2		4.8		12.6		14.6
Other		0.8		0.7		2.3		1.9
Total fee and other income	$	10.9	$	11.0	$	33.4	$	36.1

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.

BRE DDR 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.

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 SITE Centers 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. The preferred investments have an annual distribution rate of 8.5% including any deferred and unpaid preferred distributions. Blackstone has the right to defer up to 2.0% of the 8.5% preferred fixed distributions as a payment in kind (“PIK”) distribution. 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. As a result of the valuation allowances recorded, the Company no longer recognizes as interest income the 2.0% PIK. Although Blackstone has the right to change its payment election, the Company expects future preferred distributions to continue to include the PIK component. The recognition of the PIK interest income will be reevaluated based upon any future adjustments to the aggregate valuation allowance, as appropriate.

The Preferred investments are summarized as follows (in millions, except properties owned):

		Preferred Investment (Principal)									Properties Owned
	Formation	Initial		September 30, 2019		Valuation Allowance			Net of Reserve		Inception		September 30, 2019
BRE DDR III	2014	$	300.0	$	178.9	$	(73.2	)	$	105.7		70		14
BRE DDR IV	2015		82.6		64.1		(11.3	)		52.8		6		5
		$	382.6	$	243.0	$	(84.5	)	$	158.5

The Company reassessed the aggregate valuation allowance at September 30, 2019, with respect to its preferred investments in the BRE DDR Joint Ventures. Based upon actual timing and values of recent property sales, as well as current market assumptions, the Company adjusted the aggregate valuation allowance by an increase of $6.4 million and $12.1 million for the three and nine months ended September 30, 2019, respectively, resulting in a net valuation allowance of $84.5 million. 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.

Disposition of Shopping Centers

From January 1, 2019 to September 30, 2019, the Company’s joint ventures sold four shopping centers for $129.5 million, of which the Company’s share of the gain on sale was $1.5 million.