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Investments in and Advances to Joint Ventures | 3 Months Ended
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Mar. 31, 2019
Equity Method Investments And Joint Ventures [Abstract] |
Investments in and Advances to Joint Ventures |
3. | Investments in and Advances to Joint Ventures
At March 31, 2019 and December 31, 2018, the Company had ownership interests in various unconsolidated joint ventures that had an investment in 103 and 106 shopping center properties, respectively. Condensed combined financial information of the Company’s unconsolidated joint venture investments is as follows (in thousands):
| March 31, 2019 |  |  | December 31, 2018 |
Condensed Combined Balance Sheets |  |  |  |  |  |  |
Land | $ | 973,154 |  |  | $ | 1,004,289 |
Buildings |  | 2,740,483 |  |  |  | 2,804,027 |
Fixtures and tenant improvements |  | 216,739 |  |  |  | 221,412 |
|  | 3,930,376 |  |  |  | 4,029,728 |
Less: Accumulated depreciation |  | (943,573 | ) |  |  | (935,921 | )
|  | 2,986,803 |  |  |  | 3,093,807 |
Construction in progress and land |  | 59,302 |  |  |  | 56,498 |
Real estate, net |  | 3,046,105 |  |  |  | 3,150,305 |
Cash and restricted cash |  | 81,230 |  |  |  | 94,111 |
Receivables, net |  | 36,871 |  |  |  | 44,702 |
Other assets, net |  | 187,499 |  |  |  | 186,693 |
| $ | 3,351,705 |  |  | $ | 3,475,811 |
Mortgage debt | $ | 2,183,450 |  |  | $ | 2,212,503 |
Notes and accrued interest payable to the Company |  | 6,501 |  |  |  | 5,182 |
Other liabilities |  | 150,364 |  |  |  | 161,372 |
|  | 2,340,315 |  |  |  | 2,379,057 |
Redeemable preferred equity – SITE Centers (A) |  | 263,105 |  |  |  | 274,493 |
Accumulated equity |  | 748,285 |  |  |  | 822,261 |
| $ | 3,351,705 |  |  | $ | 3,475,811 |
Company's share of accumulated equity | $ | 132,270 |  |  | $ | 145,786 |
Redeemable preferred equity, net (B) |  | 176,120 |  |  |  | 189,891 |
Basis differentials |  | (9,638 | ) |  |  | (8,536 | )
Deferred development fees, net of portion related to the Company's interest |  | (2,531 | ) |  |  | (2,700 | )
Amounts payable to the Company |  | 6,501 |  |  |  | 5,182 |
Investments in and Advances to Joint Ventures, net | $ | 302,722 |  |  | $ | 329,623 |
(A) | Includes PIK that has accrued since March 2017 of $13.5 million and $12.2 million, which was fully reserved by the Company at March 31, 2019 and December 31, 2018, respectively.
(B) | Amount is net of the valuation allowance of $73.5 million and $72.4 million and the fully reserved PIK of $13.5 million and $12.2 million at March 31, 2019 and December 31, 2018, respectively.
| Three Months |
| Ended March 31, |
| 2019 |  |  | 2018 |
Condensed Combined Statements of Operations |  |  |  |  |  |  |
Revenues from operations(A) | $ | 109,103 |  |  | $ | 114,525 |
Expenses from operations: |  |  |  |  |  |  |
Operating expenses |  | 30,061 |  |  |  | 34,381 |
Impairment charges |  | 12,267 |  |  |  | 16,910 |
Depreciation and amortization |  | 39,504 |  |  |  | 39,677 |
Interest expense |  | 25,656 |  |  |  | 24,243 |
Preferred share expense |  | 5,459 |  |  |  | 6,508 |
Other (income) expense, net |  | 5,456 |  |  |  | 7,421 |
|  | 118,403 |  |  |  | 129,140 |
Loss before gain on disposition of real estate |  | (9,300 | ) |  |  | (14,615 | )
Gain on disposition of real estate, net |  | 15,966 |  |  |  | 38,020 |
Net income attributable to unconsolidated joint ventures | $ | 6,666 |  |  | $ | 23,405 |
Company's share of equity in net income of joint ventures | $ | 845 |  |  | $ | 8,473 |
Basis differential adjustments(B) |  | 198 |  |  |  | 313 |
Equity in net income of joint ventures | $ | 1,043 |  |  | $ | 8,786 |
(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.
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 (as defined below) are as follows (in millions):
| Three Months |
| Ended March 31, |
| 2019 |  |  | 2018 |
Revenue from contracts: |  |  |  |  |  |  |
Asset and property management fees | $ | 5.2 |  |  | $ | 5.6 |
Development fees, leasing commissions and other |  | 1.4 |  |  |  | 1.9 |
Total revenue from contracts with customers |  | 6.6 |  |  |  | 7.5 |
Other: |  |  |  |  |  |  |
Interest income |  | 4.2 |  |  |  | 5.0 |
Other |  | 0.8 |  |  |  | 0.5 |
Total fee and other income | $ | 11.6 |  |  | $ | 13.0 |
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. 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 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. The Preferred investments are summarized as follows (in millions, except properties owned):
|  |  | Preferred Investment (Principal) |  |  | Properties Owned |
| Formation |  | Initial |  |  | March 31, 2019 |  |  | Valuation Allowance |  |  | Net of Reserve |  |  | Inception |  |  | March 31, 2019 |
BRE DDR III | 2014 |  | $ | 300.0 |  |  | $ | 181.4 |  |  |  | (65.6 | ) |  | $ | 115.8 |  |  |  | 70 |  |  |  | 14 |
BRE DDR IV | 2015 |  |  | 82.6 |  |  |  | 64.1 |  |  |  | (7.9 | ) |  |  | 56.2 |  |  |  | 6 |  |  |  | 5 |
|  |  | $ | 382.6 |  |  | $ | 245.5 |  |  | $ | (73.5 | ) |  | $ | 172.0 |  |  |  |  |  |  |  |  |
The Company reassessed the aggregate valuation allowance at March 31, 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 $1.1 million, resulting in a net valuation allowance of $73.5 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 March 31, 2019, the Company’s joint ventures sold three shopping centers for $92.3 million, of which the Company’s share of the gain on sale was $1.6 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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