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Investments in and Advances to Joint Ventures | 6 Months Ended
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Jun. 30, 2018
Equity Method Investments And Joint Ventures [Abstract] |
Investments in and Advances to Joint Ventures |
3. | Investments in and Advances to Joint Ventures
At June 30, 2018 and December 31, 2017, the Company had ownership interests in various unconsolidated joint ventures that had an investment in 114 and 136 shopping center properties, respectively. Condensed combined financial information of the Company’s unconsolidated joint venture investments is as follows (in thousands):
| June 30, 2018 |  |  | December 31, 2017 |
Condensed Combined Balance Sheets |  |  |  |  |  |  |
Land | $ | 1,008,195 |  |  | $ | 1,126,703 |
Buildings |  | 2,748,883 |  |  |  | 3,057,072 |
Fixtures and tenant improvements |  | 208,000 |  |  |  | 213,989 |
|  | 3,965,078 |  |  |  | 4,397,764 |
Less: Accumulated depreciation |  | (947,136 | ) |  |  | (962,038 | )
|  | 3,017,942 |  |  |  | 3,435,726 |
Construction in progress and land |  | 54,151 |  |  |  | 53,928 |
Real estate, net |  | 3,072,093 |  |  |  | 3,489,654 |
Cash and restricted cash |  | 96,207 |  |  |  | 155,894 |
Receivables, net |  | 47,081 |  |  |  | 51,396 |
Other assets, net |  | 138,678 |  |  |  | 174,832 |
| $ | 3,354,059 |  |  | $ | 3,871,776 |
Mortgage debt | $ | 2,189,888 |  |  | $ | 2,501,163 |
Notes and accrued interest payable to the Company |  | 2,156 |  |  |  | 1,365 |
Other liabilities |  | 136,926 |  |  |  | 156,076 |
|  | 2,328,970 |  |  |  | 2,658,604 |
Redeemable preferred equity – DDR |  | 300,757 |  |  |  | 345,149 |
Accumulated equity |  | 724,332 |  |  |  | 868,023 |
| $ | 3,354,059 |  |  | $ | 3,871,776 |
Company's share of accumulated equity | $ | 115,644 |  |  | $ | 132,710 |
Redeemable preferred equity, net(A) |  | 228,077 |  |  |  | 277,776 |
Basis differentials |  | (21,882 | ) |  |  | (24,973 | )
Deferred development fees, net of portion related to the Company's interest |  | (2,891 | ) |  |  | (3,065 | )
Amounts payable to the Company |  | 2,156 |  |  |  | 1,365 |
Investments in and Advances to Joint Ventures, net | $ | 321,104 |  |  | $ | 383,813 |
(A) | Includes PIK that has accrued since March 2017 of $9.3 million and $6.3 million, which was fully reserved at June 30, 2018 and December 31, 2017, respectively.
| Three Months |  |  | Six Months |
| Ended June 30, |  |  | Ended June 30, |
| 2018 |  |  | 2017 |  |  | 2018 |  |  | 2017 |
Condensed Combined Statements of Operations |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenues from operations(A) | $ | 107,759 |  |  | $ | 126,528 |  |  | $ | 222,284 |  |  | $ | 253,576 |
Expenses from operations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operating expenses |  | 32,314 |  |  |  | 37,691 |  |  |  | 66,695 |  |  |  | 74,359 |
Impairment charges |  | — |  |  |  | 27,850 |  |  |  | 16,910 |  |  |  | 80,507 |
Depreciation and amortization |  | 37,299 |  |  |  | 47,589 |  |  |  | 76,976 |  |  |  | 92,685 |
Interest expense |  | 24,946 |  |  |  | 29,004 |  |  |  | 49,189 |  |  |  | 59,134 |
Preferred share expense |  | 6,317 |  |  |  | 8,239 |  |  |  | 12,825 |  |  |  | 16,367 |
Other (income) expense, net |  | 6,616 |  |  |  | 9,054 |  |  |  | 14,037 |  |  |  | 15,627 |
|  | 107,492 |  |  |  | 159,427 |  |  |  | 236,632 |  |  |  | 338,679 |
Income (loss) from continuing operations |  | 267 |  |  |  | (32,899 | ) |  |  | (14,348 | ) |  |  | (85,103 | )
Gain (loss) on disposition of real estate, net |  | 12,356 |  |  |  | (803 | ) |  |  | 50,376 |  |  |  | (976 | )
Net income (loss) attributable to unconsolidated joint ventures | $ | 12,623 |  |  | $ | (33,702 | ) |  | $ | 36,028 |  |  | $ | (86,079 | )
Company's share of equity in net income (loss) of joint ventures | $ | 3,506 |  |  | $ | (1,090 | ) |  | $ | 11,979 |  |  | $ | (6,383 | )
Basis differential adjustments(B) |  | 315 |  |  |  | 373 |  |  |  | 628 |  |  |  | 4,001 |
Equity in net income (loss) of joint ventures | $ | 3,821 |  |  | $ | (717 | ) |  | $ | 12,607 |  |  | $ | (2,382 | )
(A) | Revenue from operations is subject to leasing or other standards.
(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, leasing and development activities performed related to all of the Company’s unconsolidated joint ventures and interest income on its preferred interests in the BRE DDR Retail Holdings joint ventures are as follows (in millions):
| Three Months |  |  | Six Months |
| Ended June 30, |  |  | Ended June 30, |
| 2018 |  |  | 2017 |  |  | 2018 |  |  | 2017 |
Revenue from contracts with customers: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Asset and property management fees | $ | 4.9 |  |  | $ | 6.0 |  |  | $ | 10.5 |  |  | $ | 12.2 |
Development fees and leasing commissions |  | 1.6 |  |  |  | 1.9 |  |  |  | 3.5 |  |  |  | 4.4 |
Total revenue from contracts with customers |  | 6.5 |  |  |  | 7.9 |  |  |  | 14.0 |  |  |  | 16.6 |
Other: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest income |  | 4.8 |  |  |  | 6.3 |  |  |  | 9.8 |  |  |  | 13.8 |
Other |  | 0.7 |  |  |  | 0.7 |  |  |  | 1.2 |  |  |  | 1.4 |
Total fee and other income | $ | 12.0 |  |  | $ | 14.9 |  |  | $ | 25.0 |  |  | $ | 31.8 |
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. 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 |  |  | June 30, 2018 |  |  | Net of Reserve |  |  | Inception |  |  | June 30, 2018 |
BRE DDR III | Oct 2014 |  | $ | 19.6 |  |  | $ | 300.0 |  |  | $ | 219.9 |  |  | $ | 171.2 |  |  |  | 70 |  |  |  | 28 |
BRE DDR IV | Dec 2015 |  |  | 12.9 |  |  |  | 82.6 |  |  |  | 66.7 |  |  |  | 52.0 |  |  |  | 6 |  |  |  | 5 |
|  |  |  |  |  |  | $ | 382.6 |  |  | $ | 286.6 |  |  | $ | 223.2 |  |  |  |  |  |  |  |  |
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 reassessed the aggregate valuation allowance at June 30, 2018, with respect to its preferred investments in BRE DDR III and BRE DDR IV. Based upon actual timing and values of recent property sales, as well as current market assumptions, the Company adjusted the aggregate valuation allowance by a reduction of $1.6 million and an increase of $2.3 million for the three- and six-month periods ending June 30, 2018, respectively, resulting in a net valuation allowance of $63.4 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. 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 distribution or “PIK.” 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. Disposition of Shopping Centers From January 1, 2018 to June 30, 2018, the DDRM Properties joint venture sold 12 assets for $191.8 million, the BRE DDR III joint venture sold nine assets for $193.9 million and the BRE DDR IV joint venture sold one asset for $40.0 million. The Company’s pro rata share of the aggregate gain from these sales was $9.3 million.

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- Definition The entire disclosure for equity method investments and joint ventures. Equity method investments are investments that give the investor the ability to exercise significant influence over the operating and financial policies of an investee. Joint ventures are entities owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -URI http://asc.fasb.org/topic&trid=2196965 + Details
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