Investment in Unconsolidated Entities

6 Months Ended

Jun. 30, 2011

Investment in Unconsolidated Entities

Investment in Unconsolidated Entities

5.         Investment in Unconsolidated Entities

• Real Estate Joint Ventures

            Joint ventures are common in the real estate industry. We use joint ventures to finance properties, develop new properties, and diversify our risk in a particular property or portfolio of properties. We held joint venture ownership interests in 100 properties in the United States as of June 30, 2011 and 101 properties as of December 31, 2010. We also held an interest in a joint venture which owned 45 shopping centers in Italy as of June 30, 2011 and December 31, 2010. At June 30, 2011, we also held interests in eight joint venture properties in Japan, two joint venture properties in South Korea, and one joint venture property in Mexico. We account for these joint venture properties using the equity method of accounting.

            Substantially all of our joint venture properties are subject to rights of first refusal, buy-sell provisions, or other sale or marketing rights for partners which are customary in real estate joint venture agreements and the industry. We and our partners in these joint ventures may initiate these provisions at any time (subject to any applicable lock up or similar restrictions), which could result in either the sale of our interest or the use of available cash or borrowings to acquire a joint venture interest from our partner.

            In May 2010, Opry Mills, a property in which we have a 50% interest through our SPG-FCM joint venture, sustained significant flood damage and remains closed. Insurance proceeds of $50 million have been funded by the insurers and remediation work has been completed. The excess insurance carriers (those providing coverage above $50 million) have denied the joint venture's claim for additional proceeds (of up to $150 million) to pay further amounts for restoration costs and business interruption losses. We have obtained additional financing of $120 million from the existing mortgage lenders, and in April 2011 commenced rebuilding the center with an expected opening in the spring of 2012. We and our lenders are continuing our efforts through pending litigation to recover our losses under the insurance policies for Opry Mills and we believe recovery is probable, but no assurances can be made in that regard.

• Loans to SPG-FCM

            The Operating Partnership has a loan to SPG-FCM with an outstanding balance of $651.0 million as of June 30, 2011 and December 31, 2010. During the six month periods ended June 30, 2011 and 2010, we recorded approximately $4.9 million and $4.8 million in interest income (net of inter-entity eliminations), related to this loan, respectively. The loan bears interest at a rate of LIBOR plus 275 basis points and matures on June 7, 2012.

• International Joint Venture Investments

            We conduct our international operations through joint venture arrangements and account for all of our international joint venture investments using the equity method of accounting.

            Italian Joint Venture.    We have a 49% ownership interest in Gallerie Commerciali Italia, or GCI, a joint venture with Auchan S.A. The carrying amount of our investment in GCI was $346.6 million and $330.1 million as of June 30, 2011 and December 31, 2010, respectively, including all related components of accumulated other comprehensive income (loss).

            Asian Joint Ventures.    We conduct our international Premium Outlet operations in Japan through a joint venture with Mitsubishi Estate Co., Ltd. We have a 40% ownership interest in this joint venture. The carrying amount of our investment in this joint venture was $331.1 million and $340.8 million as of June 30, 2011 and December 31, 2010, respectively, including all related components of accumulated other comprehensive income (loss). We conduct our international Premium Outlet operations in Korea through a joint venture with Shinsegae International Co. We have a 50% ownership interest in this joint venuture. The carrying amount of our investment in this joint venture was $39.7 million and $35.7 million as of June 30, 2011 and December 31, 2010, respectively, including all related components of accumulated other comprehensive income (loss).

Summary Financial Information

            A summary of our investments in joint ventures and share of income from such joint ventures follows. Balance sheet information for the joint ventures is as follows:

		June 30, 2011			December 31, 2010
BALANCE SHEETS
Assets:
Investment properties, at cost		$	21,599,545		$	21,236,594
Less — accumulated depreciation			5,465,111			5,126,116
			16,134,434			16,110,478
Cash and cash equivalents			770,698			802,025
Tenant receivables and accrued revenue, net			350,440			353,719
Investment in unconsolidated entities, at equity			142,406			158,116
Deferred costs and other assets			526,054			525,024
	Total assets	$	17,924,032		$	17,949,362
Liabilities and Partners' (Deficit) Equity:
Mortgages and other indebtedness		$	16,223,218		$	15,937,404
Accounts payable, accrued expenses, intangibles, and deferred revenue			759,565			748,245
Other liabilities			943,137			961,284
	Total liabilities		17,925,920			17,646,933
Preferred units			67,450			67,450
Partners' (deficit) equity			(69,338	)		234,979
	Total liabilities and partners' (deficit) equity	$	17,924,032		$	17,949,362
Our Share of:
Partners' (deficit) equity		$	(13,882	)	$	146,578
Add: Excess Investment			753,268			757,672
Our net Investment in Joint Ventures		$	739,386		$	904,250

            "Excess Investment" represents the unamortized difference of our investment over our share of the equity in the underlying net assets of the joint ventures acquired. We amortize excess investment over the life of the related properties, typically no greater than 40 years, and the amortization is included in the reported amount of income from unconsolidated entities.

			For the Three Months Ended June 30,						For the Six Months Ended June 30,
			2011			2010			2011			2010
STATEMENTS OF OPERATIONS
Revenue:
	Minimum rent		$	493,100		$	485,304		$	972,350		$	979,118
	Overage rent			30,007			25,159			62,010			56,337
	Tenant reimbursements			231,059			230,039			459,606			464,615
	Other income			49,808			52,687			91,449			98,727
		Total revenue		803,974			793,189			1,585,415			1,598,797
Operating Expenses:
	Property operating			154,328			155,272			306,304			309,733
	Depreciation and amortization			191,471			197,047			381,198			396,084
	Real estate taxes			63,986			60,586			126,710			130,699
	Repairs and maintenance			20,375			26,065			42,953			53,774
	Advertising and promotion			13,970			13,613			29,694			30,223
	Provision for credit losses			3,063			565			4,676			1,439
	Other			63,765			60,092			109,348			105,181
		Total operating expenses		510,958			513,240			1,000,883			1,027,133
Operating Income				293,016			279,949			584,532			571,664
Interest expense				(215,585	)		(218,018	)		(426,472	)		(435,181	)
Loss from unconsolidated entities				(2,205	)		(602	)		(2,122	)		(1,041	)
Gain on sale or disposal of assets (net) and interests in unconsolidated entities				15,506			39,761			15,506			39,761
Net Income			$	90,732		$	101,090		$	171,444		$	175,203
Third-Party Investors' Share of Net Income			$	56,455		$	58,653		$	106,470		$	103,689
Our Share of Net Income				34,277			42,437			64,974			71,514
Amortization of Excess Investment				(12,703	)		(11,486	)		(24,780	)		(22,981	)
Our Share of Gain on Sale or Disposal of Assets (net)				(7,753	)		(20,337	)		(7,753	)		(20,337	)
Income from Unconsolidated Entities			$	13,821		$	10,614		$	32,441		$	28,196