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Investments in and Advances to Joint Ventures | 12 Months Ended
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Dec. 31, 2019
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, 2019, are as follows:
Unconsolidated Real Estate Ventures |  | Partner |  | Effective Ownership Percentage |  | Operating Properties
DDRTC Core Retail Fund, LLC(A) |  | TIAA – CREF |  | 15.0% |  | 21
DDRM Properties |  | Madison International Realty |  | 20.0 |  | 35
BRE DDR Retail Holdings III |  | Blackstone Real Estate Partners |  | 5.0 |  | 13
BRE DDR Retail Holdings IV |  | Blackstone Real Estate Partners |  | 5.0 |  | 5
Dividend Trust Portfolio JV LP |  | Chinese Institutional Investors |  | 20.0 |  | 10
DDR – SAU Retail Fund, LLC |  | State of Utah |  | 20.0 |  | 12
Other Joint Venture Interests |  | Various |  | 20.0–79.45 |  | 4
(A) | In February 2020, the Company sold its interest to its joint venture partner (Note 19).
Condensed combined financial information of the Company’s unconsolidated joint venture investments is as follows (in thousands):
| December 31, |
| 2019 |  |  | 2018 |
Condensed Combined Balance Sheets |  |  |  |  |  |  |
Land | $ | 895,427 |  |  | $ | 1,004,289 |
Buildings |  | 2,583,053 |  |  |  | 2,804,027 |
Fixtures and tenant improvements |  | 233,303 |  |  |  | 221,412 |
|  | 3,711,783 |  |  |  | 4,029,728 |
Less: Accumulated depreciation |  | (949,879 | ) |  |  | (935,921 | )
|  | 2,761,904 |  |  |  | 3,093,807 |
Construction in progress and land |  | 58,855 |  |  |  | 56,498 |
Real estate, net |  | 2,820,759 |  |  |  | 3,150,305 |
Cash and restricted cash |  | 109,260 |  |  |  | 94,111 |
Receivables, net |  | 37,191 |  |  |  | 44,702 |
Other assets, net |  | 147,129 |  |  |  | 186,693 |
| $ | 3,114,339 |  |  | $ | 3,475,811 |
Mortgage debt | $ | 1,640,146 |  |  | $ | 2,212,503 |
Notes and accrued interest payable to the Company |  | 4,975 |  |  |  | 5,182 |
Other liabilities |  | 142,754 |  |  |  | 161,372 |
|  | 1,787,875 |  |  |  | 2,379,057 |
Redeemable preferred equity – SITE Centers(A) |  | 217,871 |  |  |  | 274,493 |
Accumulated equity |  | 1,108,593 |  |  |  | 822,261 |
| $ | 3,114,339 |  |  | $ | 3,475,811 |
Company's share of accumulated equity | $ | 186,247 |  |  | $ | 145,786 |
Redeemable preferred equity, net(B) |  | 112,589 |  |  |  | 189,891 |
Basis differentials |  | (6,864 | ) |  |  | (8,536 | )
Deferred development fees, net of portion related to the Company's interest |  | (2,452 | ) |  |  | (2,700 | )
Amounts payable to the Company |  | 4,975 |  |  |  | 5,182 |
Investments in and Advances to Joint Ventures, net | $ | 294,495 |  |  | $ | 329,623 |
(A) | Includes PIK that the Company has accrued since March 2017 of $17.3 million and $12.2 million at December 31, 2019 and 2018, respectively, which, in each case, was fully reserved.
(B) | Amount is net of the valuation allowance of $87.9 million and $72.4 million at December 31, 2019 and 2018, respectively, and the fully reserved PIK.
| For the Year Ended December 31 |
| 2019 |  |  | 2018 |  |  | 2017 |
Condensed Combined Statements of Operations |  |  |  |  |  |  |  |  |  |  |
Revenues from operations(A) | $ | 428,281 |  |  | $ | 427,467 |  |  | $ | 502,506 |
Expenses from operations: |  |  |  |  |  |  |  |  |  |  |
Operating expenses |  | 118,412 |  |  |  | 125,353 |  |  |  | 145,855 |
Impairment charges(B) |  | 13,807 |  |  |  | 177,522 |  |  |  | 90,597 |
Depreciation and amortization |  | 149,749 |  |  |  | 145,849 |  |  |  | 180,337 |
Interest expense |  | 93,887 |  |  |  | 96,312 |  |  |  | 107,330 |
Preferred share expense |  | 21,832 |  |  |  | 24,875 |  |  |  | 32,251 |
Other expense, net |  | 20,563 |  |  |  | 24,891 |  |  |  | 25,986 |
|  | 418,250 |  |  |  | 594,802 |  |  |  | 582,356 |
Income (loss) before gain on disposition of real estate |  | 10,031 |  |  |  | (167,335 | ) |  |  | (79,850 | )
Gain on disposition of real estate, net |  | 67,011 |  |  |  | 93,753 |  |  |  | 101,806 |
Net income (loss) attributable to unconsolidated joint ventures | $ | 77,042 |  |  | $ | (73,582 | ) |  | $ | 21,956 |
Company's share of equity in net income (loss) of joint ventures | $ | 10,743 |  |  | $ | (2,419 | ) |  | $ | 3,516 |
Basis differential adjustments(C) |  | 776 |  |  |  | 11,784 |  |  |  | 5,321 |
Equity in net income of joint ventures | $ | 11,519 |  |  | $ | 9,365 |  |  | $ | 8,837 |
(A) | Revenue from operations is subject to leasing or other standards.
(B) | For the years ended December 31, 2019, 2018 and 2017, the Company’s proportionate share was $2.5 million, $13.1 million and $5.0 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, 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):
| For the Year Ended December 31, |
| 2019 |  |  | 2018 |  |  | 2017 |
Revenue from contracts: |  |  |  |  |  |  |  |  |  |  |
Asset and property management fees | $ | 19.7 |  |  | $ | 18.8 |  |  | $ | 21.4 |
Development fees, leasing commissions and other |  | 5.2 |  |  |  | 6.9 |  |  |  | 9.1 |
|  | 24.9 |  |  |  | 25.7 |  |  |  | 30.5 |
Other: |  |  |  |  |  |  |  |  |  |  |
Interest income |  | 16.7 |  |  |  | 19.0 |  |  |  | 25.9 |
Other |  | 3.2 |  |  |  | 2.6 |  |  |  | 2.8 |
|  | 19.9 |  |  |  | 21.6 |  |  |  | 28.7 |
| $ | 44.8 |  |  | $ | 47.3 |  |  | $ | 59.2 |
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. Disposition of Shopping Centers The Company’s joint ventures sold six, 40 and 15 shopping centers and land for an aggregate sales price of $356.3 million, $786.5 million and $545.6 million, respectively, of which the Company’s share of the gain on sale was $4.2 million, $13.7 million and $5.7 million for the years ended December 31, 2019, 2018 and 2017, 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 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 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 (determined according to the joint venture’s debt service coverage ratio) with the common members, 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, 2019, and the joint venture’s debt service coverage ratio at December 31, 2019, future net asset sale proceeds are expected to be allocated 52.9% to the preferred member and 47.1% to the common equity. For BRE DDR IV, based on the joint venture’s debt service coverage ratio as of December 31, 2019, 100% of the future asset sale proceeds generated are expected to be available to repay the preferred member. As of December 31, 2019, the Company has a valuation allowance recorded on each of the BRE DDR III and BRE DDR IV preferred investment interests on a net basis, as described below. An aggregate valuation allowance adjustment was recorded of $15.5 million, $11.4 million and $61.0 million, for the years ended December 31, 2019, 2018 and 2017, respectively. Adjustments to the valuation allowance are recorded as Reserve of Preferred Equity Interests on the Company’s consolidated statements of operations. The Company reassesses the aggregate valuation allowance quarterly based upon actual timing and values of recent property sales as well as current market assumptions. The valuation techniques used to value the collateral include discounted cash flow analysis on the expected cash flows of each asset, as well as the income capitalization approach considering prevailing market capitalization rates, analysis of recent comparable sales transactions, actual sales negotiations and bona fide purchase offers received from third parties. Additionally, the managing member of the two joint ventures exercises significant influence over the timing of asset sales. 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 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, the Company no longer recognizes as interest income the 2.0% PIK. (The accrued PIK aggregated $17.3 million and $12.2 million at December 31, 2019 and 2018, respectively). 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) |  |  |  |  |
| Redemption Date |  | Initial |  |  | December 31, 2019 |  |  | Valuation Allowance |  |  | Net of Reserve |  |  | Properties Owned at December 31, 2019 |
BRE DDR III | 2021 |  | $ | 300.0 |  |  | $ | 132.4 |  |  | $ | (78.2 | ) |  | $ | 54.2 |  |  |  | 13 |
BRE DDR IV | 2022 |  |  | 82.6 |  |  |  | 64.0 |  |  |  | (9.7 | ) |  |  | 54.3 |  |  |  | 5 |
|  |  | $ | 382.6 |  |  | $ | 196.4 |  |  | $ | (87.9 | ) |  | $ | 108.5 |  |  |  |  |
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://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 810 -SubTopic 10 -Section S99 -Paragraph 4 -Subparagraph (SX 210.3A-04) -URI http://asc.fasb.org/extlink&oid=116822174&loc=d3e355119-122828 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -URI http://asc.fasb.org/topic&trid=2196965 + Details
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