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Investments in and Advances to Joint Ventures | 6 Months Ended
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Jun. 30, 2020
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, 2020 and December 31, 2019, the Company had ownership interests in various unconsolidated joint ventures that had investments in 78 and 100 shopping center properties, respectively. Condensed combined financial information of the Company’s unconsolidated joint venture investments is as follows (in thousands):
| June 30, 2020 |  |  | December 31, 2019 |
Condensed Combined Balance Sheets |  |  |  |  |  |  |
Land | $ | 555,891 |  |  | $ | 895,427 |
Buildings |  | 1,686,833 |  |  |  | 2,583,053 |
Fixtures and tenant improvements |  | 158,526 |  |  |  | 233,303 |
|  | 2,401,250 |  |  |  | 3,711,783 |
Less: Accumulated depreciation |  | (565,623 | ) |  |  | (949,879 | )
|  | 1,835,627 |  |  |  | 2,761,904 |
Construction in progress and land |  | 53,344 |  |  |  | 58,855 |
Real estate, net |  | 1,888,971 |  |  |  | 2,820,759 |
Cash and restricted cash |  | 62,395 |  |  |  | 109,260 |
Receivables, net |  | 31,390 |  |  |  | 37,191 |
Other assets, net |  | 98,627 |  |  |  | 147,129 |
| $ | 2,081,383 |  |  | $ | 3,114,339 |
Mortgage debt | $ | 1,435,666 |  |  | $ | 1,640,146 |
Notes and accrued interest payable to the Company |  | 4,979 |  |  |  | 4,975 |
Other liabilities |  | 99,936 |  |  |  | 142,754 |
|  | 1,540,581 |  |  |  | 1,787,875 |
Redeemable preferred equity – SITE Centers (A) |  | 219,403 |  |  |  | 217,871 |
Accumulated equity |  | 321,399 |  |  |  | 1,108,593 |
| $ | 2,081,383 |  |  | $ | 3,114,339 |
Company's share of accumulated equity | $ | 72,499 |  |  | $ | 186,247 |
Redeemable preferred equity, net (B) |  | 89,049 |  |  |  | 112,589 |
Basis differentials |  | 8,232 |  |  |  | (6,864 | )
Deferred development fees, net of portion related to the Company's interest |  | (1,453 | ) |  |  | (2,452 | )
Amounts payable to the Company |  | 4,979 |  |  |  | 4,975 |
Investments in and Advances to Joint Ventures, net | $ | 173,306 |  |  | $ | 294,495 |
(A) | Includes PIK that the Company has accrued since March 2017 of $19.5 million and $17.3 million at June 30, 2020 and December 31, 2019, respectively, which, in each case, was fully reserved.
(B) | Amount is net of the valuation allowance of $110.9 million and $87.9 million at June 30, 2020 and December 31, 2019, respectively, and the fully reserved PIK.
| Three Months |  |  | Six Months |
| Ended June 30, |  |  | Ended June 30, |
| 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
Condensed Combined Statements of Operations |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenues from operations | $ | 53,266 |  |  | $ | 105,580 |  |  | $ | 138,887 |  |  | $ | 214,683 |
Expenses from operations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operating expenses |  | 18,633 |  |  |  | 30,482 |  |  |  | 43,048 |  |  |  | 60,543 |
Impairment charges |  | 1,520 |  |  |  | — |  |  |  | 33,240 |  |  |  | 12,267 |
Depreciation and amortization |  | 23,575 |  |  |  | 36,969 |  |  |  | 53,679 |  |  |  | 76,473 |
Interest expense |  | 15,100 |  |  |  | 25,286 |  |  |  | 32,855 |  |  |  | 50,942 |
Preferred share expense |  | 4,554 |  |  |  | 5,484 |  |  |  | 9,084 |  |  |  | 10,943 |
Other expense, net |  | 2,941 |  |  |  | 5,885 |  |  |  | 7,598 |  |  |  | 11,341 |
|  | 66,323 |  |  |  | 104,106 |  |  |  | 179,504 |  |  |  | 222,509 |
(Loss) income before gain (loss) on disposition of real estate |  | (13,057 | ) |  |  | 1,474 |  |  |  | (40,617 | ) |  |  | (7,826 | )
Gain (loss) on disposition of real estate, net |  | 4 |  |  |  | (321 | ) |  |  | 8,910 |  |  |  | 15,645 |
Net (loss) income attributable to unconsolidated joint ventures | $ | (13,053 | ) |  | $ | 1,153 |  |  | $ | (31,707 | ) |  | $ | 7,819 |
Company's share of equity in net (loss) income of joint ventures | $ | (1,578 | ) |  | $ | 1,602 |  |  | $ | 437 |  |  | $ | 2,447 |
Basis differential adjustments(A) |  | 65 |  |  |  | 189 |  |  |  | 221 |  |  |  | 387 |
Equity in net (loss) income of joint ventures | $ | (1,513 | ) |  | $ | 1,791 |  |  | $ | 658 |  |  | $ | 2,834 |
(A) | 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.
The impact of the COVID-19 pandemic on revenues and receivables for the Company’s joint ventures is more fully described in Note 2. 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):
| Three Months |  |  | Six Months |
| Ended June 30, |  |  | Ended June 30, |
| 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
Revenue from contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Asset and property management fees | $ | 2.7 |  |  | $ | 4.8 |  |  | $ | 7.2 |  |  | $ | 10.1 |
Development fees, leasing commissions and other |  | 0.4 |  |  |  | 1.1 |  |  |  | 3.0 |  |  |  | 2.5 |
|  | 3.1 |  |  |  | 5.9 |  |  |  | 10.2 |  |  |  | 12.6 |
Other: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest income |  | 3.5 |  |  |  | 4.2 |  |  |  | 6.9 |  |  |  | 8.4 |
Other |  | 0.4 |  |  |  | 0.8 |  |  |  | 1.2 |  |  |  | 1.5 |
|  | 3.9 |  |  |  | 5.0 |  |  |  | 8.1 |  |  |  | 9.9 |
| $ | 7.0 |  |  | $ | 10.9 |  |  | $ | 18.3 |  |  | $ | 22.5 |
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. 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 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 preferred interest 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 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 accrued 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 Company reassesses the aggregate valuation allowance quarterly, based upon actual timing and values of recent property sales, as well as current market assumptions. The Company has a valuation allowance at June 30, 2020 recorded on each of the BRE DDR III and BRE DDR IV preferred investment interests on a net basis, as described below. The valuation assumed all of the estimated transaction consideration discussed below, as appropriate, given the closings of the transactions were considered probable as of June 30, 2020. The Company adjusted the aggregate valuation allowances by an increase of $4.9 million and $22.9 million for the three and six months ended June 30, 2020. Adjustments to the valuation allowances are 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 preferred investments are summarized as follows (in millions, except properties owned):
|  |  | Preferred Investment (Principal) |  |  |  |  |
| Redemption Date |  | Initial |  |  | June 30, 2020 |  |  | Valuation Allowance |  |  | Net of Reserve |  |  | Properties Owned at June 30, 2020 |
BRE DDR III | October 2021 |  | $ | 300.0 |  |  | $ | 132.4 |  |  | $ | (96.2 | ) |  | $ | 36.2 |  |  |  | 13 |
BRE DDR IV | December 2022 |  |  | 82.6 |  |  |  | 64.1 |  |  |  | (14.7 | ) |  |  | 49.4 |  |  |  | 5 |
|  |  | $ | 382.6 |  |  | $ | 196.5 |  |  | $ | (110.9 | ) |  | $ | 85.6 |  |  |  |  |
On July 14, 2020, the Company entered into agreements with affiliates of Blackstone to terminate the BRE DDR III and BRE DDR IV joint ventures. Pursuant to these agreements:
| • | At the closing of the BRE DDR III transaction, the Company will transfer its common and preferred equity interests in BRE DDR III to an affiliate of Blackstone in exchange for (i) BRE DDR III’s interests in the single-purpose subsidiaries which own White Oak Village and Midtowne Park, (ii) 50% of the unrestricted cash then held by BRE DDR III (BRE DDR III’s unrestricted cash balance was $13.6 million as of June 30, 2020), and (iii) $1.9 million in cash. No amounts will be distributed by BRE DDR III to the Company or Blackstone on account of their equity interests in BRE DDR III between July 14, 2020 and closing. At closing, the White Oak Village and Midtowne Park properties will continue to be subject to existing mortgage loans which had an aggregate outstanding principal balance of $50.0 million as of June 30, 2020.
| • | At the closing of the BRE DDR IV transaction, an affiliate of Blackstone will transfer its common equity interest in BRE DDR IV to the Company for consideration of $1.00 and the Company’s preferred investment in the BRE DDR IV joint venture will be redeemed, thereby leaving the Company as the sole owner of (i) the properties currently owned by BRE DDR IV, including Ashbridge Square, The Hub, Southmont Village, Millenia Crossing, Concourse Village and two properties, Echelon Village Plaza and Larkins Corner, in which the Company did not previously have a material economic interest, and (ii) its restricted and unrestricted cash ($11.2 million in the aggregate as of June 30, 2020). No amounts will be distributed by BRE DDR IV to the Company or Blackstone on account of their equity interests in BRE DDR IV between July 14, 2020 and closing. At closing, these seven properties will be subject to existing mortgage loans which had an aggregate outstanding principal balance of $147.0 million as of June 30, 2020 (excluding loans on the Echelon Village Plaza and Larkins Corner properties, the aggregate principal balance of the loans was $125.1 million as of June 30, 2020).
The closings of the two transactions are not conditioned on one another and each transaction is expected to close as soon as all applicable conditions have been satisfied, including receipt of required lender consents. Both closings are expected to occur by early fourth quarter 2020. Disposition of Shopping Centers and Joint Venture Interest In February 2020, the Company sold its 15% interest in the DDRTC joint venture to its partner, an affiliate of TIAA-CREF, which resulted in net proceeds to the Company of $140.4 million in the six months ended June 30, 2020 and prior to any working capital adjustments (which are expected to be finalized in the third quarter of 2020). The Company recorded a gain on sale of joint venture interest of $45.6 million in connection with this sale. From January 1, 2020 to June 30, 2020, an unconsolidated joint venture sold one shopping center for $25.0 million, of which the Company’s share of the gain on sale was $1.7 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://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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