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Investments in and Advances to Joint Ventures | 12 Months Ended
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Dec. 31, 2018
Equity Method Investments And Joint Ventures [Abstract] |
Investments in and Advances to Joint Ventures |
3. | 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, 2018, are as follows:
Unconsolidated Real Estate Ventures |  | Partner |  | Effective Ownership Percentage |  |  | Operating Properties
DDRTC Core Retail Fund, LLC |  | TIAA – CREF |  | 15.0% |  |  | 23
DDRM Properties |  | Madison International Realty |  | 20.0 |  |  | 35
BRE DDR Retail Holdings III |  | Blackstone Real Estate Partners |  |  | 5.0 |  |  | 16
Dividend Trust Portfolio JV LP |  | Chinese Institutional Investors |  | 20.0 |  |  | 10
BRE DDR Retail Holdings IV |  | Blackstone Real Estate Partners |  | 5.0 |  |  | 5
DDR – SAU Retail Fund, LLC |  | State of Utah |  | 20.0 |  |  | 12
Other Joint Venture Interests |  | Various |  | 20.0–79.45 |  |  | 5
Condensed combined financial information of the Company’s unconsolidated joint venture investments is as follows (in thousands):
| December 31, |
| 2018 |  |  | 2017 |
Condensed Combined Balance Sheets |  |  |  |  |  |  |
Land | $ | 1,004,289 |  |  | $ | 1,126,703 |
Buildings |  | 2,804,027 |  |  |  | 3,057,072 |
Fixtures and tenant improvements |  | 221,412 |  |  |  | 213,989 |
|  | 4,029,728 |  |  |  | 4,397,764 |
Less: Accumulated depreciation |  | (935,921 | ) |  |  | (962,038 | )
|  | 3,093,807 |  |  |  | 3,435,726 |
Construction in progress and land |  | 56,498 |  |  |  | 53,928 |
Real estate, net |  | 3,150,305 |  |  |  | 3,489,654 |
Cash and restricted cash |  | 94,111 |  |  |  | 155,894 |
Receivables, net |  | 44,702 |  |  |  | 51,396 |
Other assets, net |  | 186,693 |  |  |  | 174,832 |
| $ | 3,475,811 |  |  | $ | 3,871,776 |
Mortgage debt | $ | 2,212,503 |  |  | $ | 2,501,163 |
Notes and accrued interest payable to the Company |  | 5,182 |  |  |  | 1,365 |
Other liabilities |  | 161,372 |  |  |  | 156,076 |
|  | 2,379,057 |  |  |  | 2,658,604 |
Redeemable preferred equity – SITE Centers(A) |  | 274,493 |  |  |  | 345,149 |
Accumulated equity |  | 822,261 |  |  |  | 868,023 |
| $ | 3,475,811 |  |  | $ | 3,871,776 |
Company's share of accumulated equity | $ | 145,786 |  |  | $ | 132,710 |
Redeemable preferred equity, net(B) |  | 189,891 |  |  |  | 277,776 |
Basis differentials |  | (8,536 | ) |  |  | (24,973 | )
Deferred development fees, net of portion related to the Company's interest |  | (2,700 | ) |  |  | (3,065 | )
Amounts payable to the Company |  | 5,182 |  |  |  | 1,365 |
Investments in and Advances to Joint Ventures, net | $ | 329,623 |  |  | $ | 383,813 |
(A) | Includes PIK that has accrued since March 2017 of $12.2 million and $6.3 million, which was fully reserved by the Company at December 31, 2018 and 2017, respectively.
(B) | Amount is net of the valuation allowance of $72.4 million and $61.0 million and the fully reserved PIK of $12.2 million and $6.3 million at December 31, 2018 and 2017, respectively.
| For the Year Ended December 31 |
| 2018 |  |  | 2017 |  |  | 2016 |
Condensed Combined Statements of Operations |  |  |  |  |  |  |  |  |  |  |
Revenues from operations(A) | $ | 427,467 |  |  | $ | 502,506 |  |  | $ | 513,365 |
Expenses from operations: |  |  |  |  |  |  |  |  |  |  |
Operating expenses |  | 125,353 |  |  |  | 145,855 |  |  |  | 144,984 |
Impairment charges(B) |  | 177,522 |  |  |  | 90,597 |  |  |  | 13,598 |
Depreciation and amortization |  | 145,849 |  |  |  | 180,337 |  |  |  | 195,198 |
Interest expense |  | 96,312 |  |  |  | 107,330 |  |  |  | 132,943 |
Preferred share expense |  | 24,875 |  |  |  | 32,251 |  |  |  | 33,418 |
Other (income) expense, net |  | 24,891 |  |  |  | 25,986 |  |  |  | 23,513 |
|  | 594,802 |  |  |  | 582,356 |  |  |  | 543,654 |
Loss before gain on disposition of real estate |  | (167,335 | ) |  |  | (79,850 | ) |  |  | (30,289 | )
Gain on disposition of real estate, net |  | 93,753 |  |  |  | 101,806 |  |  |  | 57,261 |
Net (loss) income attributable to unconsolidated joint ventures | $ | (73,582 | ) |  | $ | 21,956 |  |  | $ | 26,972 |
Company's share of equity in net (loss) income of joint ventures | $ | (2,419 | ) |  | $ | 3,516 |  |  | $ | 11,650 |
Basis differential adjustments(C) |  | 11,784 |  |  |  | 5,321 |  |  |  | 4,049 |
Equity in net income of joint ventures | $ | 9,365 |  |  | $ | 8,837 |  |  | $ | 15,699 |
(A) | Revenue from operations is subject to leasing or other standards.
(B) | For the years ended December 31, 2018, 2017 and 2016, the Company’s proportionate share was $13.1 million, $5.0 million and $2.7 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 appropriate, as discussed below.
(C) | 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.
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 Retail Holdings joint ventures are as follows (in millions):
| For the Year Ended December 31, |
| 2018 |  |  | 2017 |  |  | 2016 |
Revenue from contracts: |  |  |  |  |  |  |  |  |  |  |
Asset and property management fees | $ | 18.8 |  |  | $ | 21.4 |  |  | $ | 25.7 |
Development fees and leasing commissions |  | 6.9 |  |  |  | 9.1 |  |  |  | 7.5 |
Total revenue from contracts with customers |  | 25.7 |  |  |  | 30.5 |  |  |  | 33.2 |
Other: |  |  |  |  |  |  |  |  |  |  |
Interest income |  | 19.0 |  |  |  | 25.9 |  |  |  | 33.4 |
Other |  | 2.6 |  |  |  | 2.8 |  |  |  | 2.9 |
Total fee and other income | $ | 47.3 |  |  | $ | 59.2 |  |  | $ | 69.5 |
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. Dividend Trust Portfolio JV LP In November 2018, the Company contributed 10 properties, aggregating 3.4 million square feet of Company-owned GLA, into a 20% owned unconsolidated joint venture, Dividend Trust Portfolio JV LP, which was valued at $607.2 million. Concurrent with formation of the partnership, the joint venture entered into a $364.3 million mortgage. As the Company does not have economic or effective control, the Dividend Trust Portfolio JV LP is accounted for using the equity method of accounting. The Company provides leasing and property management services to the joint venture. The Company recorded a gain on sale of $186.4 million in 2018 as a result of this transaction. Disposition of Shopping Centers The Company’s joint ventures sold 40, 15 and 17 shopping centers and land for an aggregate sales price of $786.5 million, $545.6 million and $214.6 million, respectively, of which the Company’s share of the gain on sale was $13.7 million, $5.7 million and $13.8 million for the years ended December 31, 2018, 2017 and 2016, respectively. Included in the 2018 shopping center dispositions were three assets sold by two of the Company’s unconsolidated joint ventures to the Company for $35.1 million (Note 5). 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. 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. 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.” 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 SITE Centers’ 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, based upon the cumulative asset sales through December 31, 2018, net asset sale proceeds will be allocated at 52.5% to the preferred member and 47.5% to the common equity. For BRE DDR IV, the preferred investment is collateralized by assets in which SITE Centers has a 5% common equity interest for 95% of the value and by an additional three assets in which SITE Centers 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; 100% of the net asset sale proceeds generated thereafter are expected to be available to repay the preferred member. As of December 31, 2018, the Company has a valuation allowance recorded on each of the BRE DDR III and BRE DDR IV preferred investment interests of $58.7 million and $13.7 million, respectively, or $72.4 million in the aggregate on a net basis. The valuation allowances initially were triggered in 2017 by an increase in the estimated market capitalization rates for the underlying real estate collateral of the investments since the original formation of the joint ventures. The values of open air shopping centers anchored by big box national retailers, particularly in secondary markets, have been under increasing pressure and decreased starting 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 and have continued in 2018. 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. Adjustments to the valuation allowance are recorded as Reserve of Preferred Equity Interests on the Company’s consolidated statements of operations. The Company recorded an aggregate valuation allowance adjustment of $11.4 million and $61.0 million, for the years ended December 31, 2018 and 2017, respectively. 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 $12.2 million and $6.3 million at December 31, 2018 and December 31, 2017, respectively). 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. The Preferred investments are summarized as follows (in millions, except properties owned):
|  |  | Preferred Investment (Principal) |  |  | Properties Owned |
| Formation |  | Initial |  |  | December 31, 2018 |  |  | Valuation Allowance |  |  | Net of Reserve |  |  | Inception |  |  | December 31, 2018 |
BRE DDR III | 2014 |  | $ | 300.0 |  |  | $ | 191.2 |  |  | $ | (58.7 | ) |  | $ | 132.5 |  |  |  | 70 |  |  |  | 16 |
BRE DDR IV | 2015 |  |  | 82.6 |  |  |  | 66.7 |  |  |  | (13.7 | ) |  |  | 53.0 |  |  |  | 6 |  |  |  | 5 |
|  |  | $ | 382.6 |  |  | $ | 257.9 |  |  | $ | (72.4 | ) |  | $ | 185.5 |  |  |  |  |  |  |  |  |
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. All transactions with the Company’s equity affiliates are described above.

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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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