Investments In and Advances to Unconsolidated Affiliates

The Company accounts for its investments in and advances to unconsolidated affiliates primarily under the equity method of accounting as it has the ability to exercise significant influence, but does not have financial or operating control over the investment, which is maintained by each of the unaffiliated partners who co-invest with the Company. The Company’s investments in and advances to unconsolidated affiliates consist of the following (dollars in thousands):



		Nominal Ownership Interest	June 30,		December 31,
Fund	Property	at June 30, 2017	2017		2016
Core:
	840 N. Michigan ^(a)	88.43%	$	72,471	$	74,131
	Renaissance Portfolio	20%	35,783		36,437
	Gotham Plaza	49%	29,321		29,421
	Brandywine Market Square ^{(a, b)}	61.11%	21,984		5,469
	Brandywine Portfolio ^{(a, b)}	22.22%	14,791		15,286
	Georgetown Portfolio	50%	3,724		4,287
			178,074		165,031

Mervyns I & II:	KLA/Mervyn's, LLC^(c)	10.5%	—		—

Fund III:
	Fund III Other Portfolio	90%	166		8,108
	Self Storage Management ^(d)	95%	241		241
			407		8,349
Fund IV:
	Broughton Street Portfolio ^(e)	50%	57,043		54,839
	Fund IV Other Portfolio	90%	20,240		21,817
	650 Bald Hill Road	90%	13,735		18,842
			91,018		95,498
	Due from Related Parties ^(f)		2,280		2,193
	Other^(g)		957		957
	Investments in and advances to unconsolidated affiliates		$	272,736	$	272,028

Core:
	Crossroads ^(h)	49%	$	15,358	$	13,691
	Distributions in excess of income from, and investments in, unconsolidated affiliates		$	15,358	$	13,691

__________


(a)	Represents a tenancy-in-common interest.


(b)	During May 2017, as discussed below, the Company increased its ownership in Brandywine Market Square, which was formerly included within the Brandywine Portfolio.


(c)	Distributions have exceeded the Company’s non-recourse investment, therefore the carrying value is zero.


(d)	Represents a variable interest entity.


(e)	The Company is entitled to a 15% return on its cumulative capital contribution which was $15.1 million and $14.5 million at June 30, 2017 and December 31, 2016, respectively. In addition the Company is entitled to a 9% preferred return on a portion of its equity, which was $46.8 million and $45.4 million at June 30, 2017 and December 31, 2016, respectively.


(f)	Represents deferred fees.


(g)	Includes a cost-method investment in Albertson’s (Note 8, Note 15) and other investments.


(h)	Distributions have exceeded the Company’s investment; however, the Company recognizes a liability balance as it may be required to fund future obligations of the entity.

Core Portfolio

The Company owns a 49% interest in a 311,000 square foot shopping center located in White Plains, New York (“Crossroads”), a 50% interest in a 28,000 square foot retail portfolio located in Georgetown, Washington D.C. (the “Georgetown Portfolio”), an 88.43% tenancy-in-common interest in an 87,000 square foot retail property located in Chicago, Illinois (“840 N. Michigan”), and a 49% noncontrolling interest in an approximately 123,000 square foot retail property located in Manhattan, New York (“Gotham Plaza”).

On January 4, 2017, an entity in which the Company owns a 20% noncontrolling interest (the “Renaissance Portfolio”), acquired a 6,200 square foot property in Alexandria, Virginia referred to as (“907 King Street”) for $3.0 million. The Renaissance Portfolio is now a 213,000 square-foot portfolio of 18 mixed-use properties, 16 of which are located in Georgetown, Washington D.C. and two of which are located in Alexandria, Virginia.

Brandywine Portfolio and Brandywine Market Square

The Company owns an interest in an approximately one million square foot retail portfolio (the “Brandywine Portfolio” joint venture) located in Wilmington, Delaware, which includes a property referred to as “Brandywine Market Square.” Prior to the second quarter of 2016, the Company had a controlling interest in the Brandywine Portfolio, and it was therefore consolidated within the Company’s financial statements. During April 2016, the arrangement with the partners of the Brandywine Portfolio was modified to change the legal ownership from a partnership to a tenancy-in-common interest, as well as to provide certain participating rights to the outside partners. As a result of these modifications, the Company de-consolidated the Brandywine Portfolio and accounts for its interest under the equity method of accounting effective May 1, 2016. Furthermore, as the owners of the Brandywine Portfolio had consistent ownership interests before and after the modification and the underlying net assets are unchanged, the Company has reflected the change from consolidation to equity method based upon its historical cost. The Brandywine Portfolio and Brandywine Market Square ventures do not include the property held by Brandywine Holdings, Inc., an entity consolidated by the Company.

Additionally, in April 2016, the Company repaid the outstanding balance of $140.0 million of non-recourse debt collateralized by the Brandywine Portfolio and provided a note receivable collateralized by the partners’ tenancy-in-common interest in the Brandywine Portfolio for their proportionate share of the repayment. On May 1, 2017, the Company exchanged $16.0 million of the $153.4 million note receivable (Note 3) plus accrued interest of $0.3 million for one of the partner’s 38.89% tenancy-in-common interests in Brandywine Market Square. The Company already had a 22.22% interest in Brandywine Market Square and continues to apply the equity method of accounting for its aggregate 61.11% noncontrolling interest in Brandywine Market Square and its 22.22% interest in the rest of the Brandywine Portfolio. The incremental investment in Brandywine Market Square was recorded at $16.6 million and the excess of this amount over the venture’s book value associated with this interest, or $9.8 million, will be amortized over the remaining depreciable lives of the venture’s assets.

Fund Investments

Fund III Other Portfolio includes the Company’s investment in Arundel Plaza through its date of sale in February 2017. Fund IV Other Portfolio includes the Company’s investment in Promenade at Manassas and Eden Square as well as 2819 Kennedy Boulevard and 1701 Belmont Avenue through their dates of sale.

Self-Storage Management, a Fund III investment, was determined to be a variable interest entity. Management has evaluated the applicability of ASC Topic 810 to this joint venture and determined that the Company is not the primary beneficiary and, therefore, consolidation of this venture is not required.

On January 31, 2017, Fund IV completed the disposition of 2819 Kennedy Boulevard, for $19.0 million less $8.4 million debt repayment for net proceeds of $10.6 million, resulting in a gain on disposition of $6.3 million at the property level, of which the Fund’s share was $6.2 million, which is included in equity earnings and gains from unconsolidated affiliates in the consolidated financial statements. The Operating Partnership’s proportionate share of the gain was $1.4 million, net of noncontrolling interests.

On February 15, 2017, Fund III completed the disposition of Arundel Plaza, for $28.8 million less $10.0 million debt repayments for net proceeds of $18.8 million, resulting in a gain on disposition of $8.2 million at the property level, of which the Fund’s share was $5.3 million, which is included in equity earnings and gains from unconsolidated affiliates in the consolidated financial statements. The Operating Partnership’s proportionate share of the gain was $1.3 million, net of noncontrolling interests.

On June 30, 2017, Fund IV completed the disposition of 1701 Belmont Avenue, for $5.6 million less $2.9 million debt repayments for net proceeds of $2.7 million, resulting in a gain on disposition of $3.3 million at the property level, of which the Fund’s share was $3.3 million, which is included in equity earnings and gains from unconsolidated affiliates in the consolidated financial statements. The Operating Partnership’s proportionate share of the gain was $0.8 million, net of noncontrolling interests.

On January 28, 2016, Fund III completed the disposition of a 65% interest in Cortlandt Town Center for $107.3 million resulting in a gain of $65.4 million and the deconsolidation of its remaining interest (Note 2). On December 21, 2016, Fund III completed the disposition of its remaining 35% interest in Cortlandt Town Center for $57.8 million less $32.6 million debt repayment for a net sales price of $25.2 million resulting in a gain on sale of $36.0 million, of which the Operating Partnership’s share was $8.8 million.

Fees from Unconsolidated Affiliates

The Company earned property management, construction, development, legal and leasing fees from its investments in unconsolidated partnerships totaling $0.3 million and $0.4 million for each of the three months ended June 30, 2017 and 2016, respectively, and $0.6 million and $0.6 million for the six months ended June 30, 2017 and 2016, respectively, which is included in other revenues in the consolidated financial statements.

In addition, the Company paid to certain unaffiliated partners of its joint ventures, $0.4 million and $0.6 million during the three months ended June 30, 2017 and 2016, respectively, and $0.9 million and $1.2 million during the six months ended June 30, 2017 and 2016, respectively for leasing commissions, development, management, construction and overhead fees.

Summarized Financial Information of Unconsolidated Affiliates

The following combined and condensed Balance Sheets and Statements of Income, in each period, summarize the financial information of the Company’s investments in unconsolidated affiliates (in thousands):



	June 30,		December 31,
	2017		2016
Combined and Condensed Balance Sheets
Assets:
Rental property, net	$	544,210	$	576,505
Real estate under development	19,381		18,884
Investment in unconsolidated affiliates	6,854		6,853
Other assets	106,407		75,254
Total assets	$	676,852	$	677,496
Liabilities and partners’ equity:
Mortgage notes payable	$	399,574	$	407,344
Other liabilities	58,308		30,117
Partners’ equity	218,970		240,035
Total liabilities and partners’ equity	$	676,852	$	677,496

Company's share of accumulated equity	$	179,729	$	191,049
Basis differential	70,199		61,827
Deferred fees, net of portion related to the Company's interest	5,170		3,268
Amounts receivable by the Company	2,280		2,193
Investments in and advances to unconsolidated affiliates, net of Company's share of distributions in excess of income from and investments in unconsolidated affiliates	$	257,378	$	258,337



	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Combined and Condensed Statements of Income
Total revenues	$	20,974		$	19,022		$	42,577		$	32,394
Operating and other expenses	(6,272		)	(7,286		)	(12,138		)	(11,016		)
Interest expense	(4,641		)	(3,377		)	(9,179		)	(6,113		)
Depreciation and amortization	(6,063		)	(4,984		)	(12,512		)	(8,864		)
Loss on debt extinguishment	(3		)	—			(154		)	—
Gain on disposition of properties	3,332			—			17,778			—
Net income attributable to unconsolidated affiliates	$	7,327		$	3,375		$	26,372		$	6,401

Company’s share of equity in net income of unconsolidated affiliates	$	5,044		$	1,838		$	18,612		$	3,890
Basis differential amortization	(704		)	(98		)	(1,569		)	(196		)
Company’s equity in earnings of unconsolidated affiliates	$	4,340		$	1,740		$	17,043		$	3,694