5. Investment in Unconsolidated Entities

Real Estate Joint Ventures and Investments

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 74 properties in the United States as of June 30, 2013 and 78 properties as of December 31, 2012. We held interests in nine joint venture properties in Japan as of June 30, 2013 and eight joint venture properties as of December 31, 2012. At June 30, 2013 and December 31, 2012, we also held interests in two joint venture properties in South Korea, one joint venture property in Mexico, and one joint venture property in Malaysia. We account for these joint venture properties using the equity method of accounting. As discussed below, on January 9, 2012, we sold our interest in Gallerie Commerciali Italia, S.p.A,, or GCI, which at the time owned 45 properties located in Italy. On March 14, 2012, we purchased a 28.7% equity stake in Klépierre. On May 21, 2012, Klépierre paid a dividend, which we elected to receive in additional shares, resulting in an increase in our ownership to approximately 28.9%.

Certain of our joint venture properties are subject to various rights of first refusal, buy-sell provisions, put and call rights, 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 (subject to any applicable lock up or similar restrictions), which may result in either the sale of our interest or the use of available cash or borrowings, or the use of limited partnership interests in the Operating Partnership, to acquire the joint venture interest from our partner.

Unconsolidated Property Transactions

On December 31, 2012, we formed a joint venture with Institutional Mall Investors, or IMI, to own and operate The Shops at Mission Viejo in the Los Angeles suburb of Mission Viejo, California, and Woodfield Mall in the Chicago suburb of Schaumburg, Illinois. We and IMI each own a noncontrolling 50% interest in Woodfield Mall and we own a noncontrolling 51% interest in The Shops at Mission Viejo and IMI owns the remaining 49%. Prior to the formation of the joint venture, we owned 100% of The Shops at Mission Viejo and IMI owned 100% of Woodfield Mall. No gain was recorded as the transaction was recorded based on the carryover basis of our previous investment. Woodfield Mall is encumbered by a $425 million mortgage loan which matures in March of 2024 and bears interest at 4.5%. In January 2013, the joint venture closed a $295 million mortgage on the Shops at Mission Viejo which bears interest at 3.61% and matures in February of 2023. The proceeds from the financing were distributed to the venture partners and, as a result, we received a distribution of $149.7 million.

On March 22, 2012, we acquired, through an acquisition of substantially all of the assets of The Mills Limited Partnership, or TMLP, additional interests in 26 properties, or the Mills transaction. The transaction resulted in additional interests in 16 of the properties which remain unconsolidated, the consolidation of nine previously unconsolidated properties and the purchase of the remaining noncontrolling interest in a previously consolidated property. The transaction was valued at $1.5 billion, which included repayment of the remaining $562.1 million balance on TMLP's senior loan facility, and retirement of $100.0 million of TMLP's trust preferred securities. In connection with the transaction, our $558.4 million loan to SPG-FCM Ventures, LLC, or SPG-FCM, was extinguished on a non-cash basis. We consolidated $2.6 billion in additional property-level mortgage debt in connection with this transaction. This property-level mortgage debt was previously presented as debt of our unconsolidated entities. We and our joint venture partner had equal ownership in these properties prior to the transaction.

The consolidation of the previously unconsolidated properties resulted in a remeasurement of our previously held interests in these nine newly consolidated properties to fair value and recognition of a corresponding non-cash gain of $488.7 million. In addition, we recorded an other-than-temporary impairment charge of $22.4 million for the excess of carrying value of our remaining investment in SPG-FCM over its estimated fair value. The gain on the transaction and impairment charge are included in gain upon acquisition of controlling interests, sale or disposal of assets and interests in unconsolidated entities, and impairment charge on investment in unconsolidated entities, net in the accompanying consolidated statements of operations and comprehensive income. The assets and liabilities of the newly consolidated properties acquired in the Mills transaction have been reflected at their estimated fair value at the acquisition date.

We recorded our acquisition of the interests in the nine newly consolidated properties using the acquisition method of accounting. Tangible and intangible assets and liabilities were established based on their fair values at the date of acquisition. The results of operations of the newly consolidated properties have been included in our consolidated results from the date of acquisition. The purchase price allocations were finalized during the first quarter of 2013. No significant adjustments were made to the previously reported purchase price allocations.

On January 6, 2012, we paid $50.0 million to acquire an additional interest in Del Amo Fashion Center, increasing our interest in the property to 50%.

European Investments

At June 30, 2013, we owned 57,634,148 shares, or approximately 28.9%, of Klépierre, which had a quoted market price of $39.47 per share. At the date of purchase on March 14, 2012, our excess investment in Klépierre was approximately $1.2 billion which we have allocated to the underlying investment property, other assets and liabilities based on estimated fair value. Our share of net income, net of amortization of our excess investment, was $23.3 million for the six months ended June 30, 2013. Based on applicable Euro:USD exchange rates and after our conversion of Klépierre's results to GAAP, Klépierre's total revenues, operating income and consolidated net income were approximately $725.6 million, $282.9 million and $97.9 million, respectively, for the six months ended June 30, 2013. Our share of the results of Klépierre from the date of acquisition through June 30, 2012 was nominal.

During the second quarter of 2013, we signed a definitive agreement to form joint ventures to invest in certain assets of McArthurGlen, an owner, developer and manager of designer outlets in Europe. Subject to customary closing conditions, we intend to acquire an ownership interest in certain outlet centers located throughout Europe as well as one development project located in Vancouver, Canada, and become a partner in McArthurGlen's property management and development companies. As of June 30, 2013, we have completed the initial phase of the transaction and made an equity investment of $38.7 million, which includes a 50% ownership interest in the property management and development companies and a 45% ownership interest in the development project.

We also have a minority interest in Value Retail PLC, which owns and operates nine luxury outlets throughout Europe and a direct minority ownership in three of those outlets. These investments are accounted for under the cost method. At June 30, 2013 and December 31, 2012, the carrying value of these investments was $115.3 and $95.5 million, respectively, and is included in deferred costs and other assets.

On January 9, 2012, we sold our entire ownership interest in GCI to our venture partner, Auchan S.A. The aggregate cash we received was $375.8 million, and we recognized a gain on the sale of $28.8 million. Our investment carrying value included $39.5 million of accumulated losses related to currency translation and net investment hedge accumulated balances, which had been recorded in 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 $275.0 million and $314.2 million as of June 30, 2013 and December 31, 2012, respectively, including all related components of accumulated other comprehensive income (loss). We conduct our international Premium Outlet operations in South Korea through a joint venture with Shinsegae International Co. We have a 50% ownership interest in this joint venture. The carrying amount of our investment in this joint venture was $67.1 million and $62.9 million as of June 30, 2013 and December 31, 2012, respectively; including all related components of accumulated other comprehensive income (loss).

Summary Financial Information

A summary of our equity method investments and share of income from such investments, excluding Klépierre, follows. We acquired additional controlling interests in nine properties in the Mills transaction on March 22, 2012. These previously unconsolidated properties became consolidated properties as of their acquisition date. During 2012, we disposed of our joint venture interests in one mall and three retail properties. The results of operations of the properties for all of these 2012 transactions are classified as loss from operations of discontinued joint venture interests in the accompanying joint venture statements of operations. In 2013, we disposed of one retail property. The gain on disposal is reported in gain on disposal of discontinued operations, net in the accompanying joint venture statements of operations. Balance sheet information for these investments is as follows:

	June 30, 2013		December 31, 2012

BALANCE SHEETS
Assets:
Investment properties, at cost	$	14,621,714	$	14,607,291
Less — accumulated depreciation		5,027,179		4,926,511

		9,594,535		9,680,780
Cash and cash equivalents		551,059		619,546
Tenant receivables and accrued revenue, net		225,178		252,774
Investment in unconsolidated entities, at equity		38,958		39,589
Deferred costs and other assets		707,343		438,399

Total assets	$	11,117,073	$	11,031,088

Liabilities and Partners' Deficit:
Mortgages	$	11,964,864	$	11,584,863
Accounts payable, accrued expenses, intangibles, and deferred revenue		596,283		672,483
Other liabilities		657,205		447,132

Total liabilities		13,218,352		12,704,478
Preferred units		67,450		67,450
Partners' deficit		(2,168,729)		(1,740,840)

Total liabilities and partners' deficit	$	11,117,073	$	11,031,088

Our Share of:
Partners' deficit	$	(992,395)	$	(799,911)
Add: Excess Investment		2,114,633		2,184,133

Our net Investment in unconsolidated entities, at equity	$	1,122,238	$	1,384,222

"Excess Investment" represents the unamortized difference of our investment over our share of the equity in the underlying net assets of the joint ventures or other investments acquired and is allocated on a fair value basis primarily to investment property, lease related intangibles, and debt premiums and discounts. We amortize excess investment over the life of the related depreciable components of investment property, typically no greater than 40 years, the terms of the applicable leases and the applicable debt maturity, respectively. 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,

	*2013*		*2012*		*2013*		*2012*
STATEMENT OF OPERATIONS
Revenue:
Minimum rent	$	399,391	$	363,541	$	793,544	$	721,517
Overage rent		40,014		36,064		87,781		84,620
Tenant reimbursements		187,151		165,623		371,550		332,153
Other income		39,528		36,597		81,602		86,934

Total revenue		666,084		601,825		1,334,477		1,225,224
Operating Expenses:
Property operating		123,296		111,967		239,165		226,801
Depreciation and amortization		126,701		122,475		254,386		249,453
Real estate taxes		50,072		42,450		104,778		87,550
Repairs and maintenance		16,339		15,427		32,503		29,851
Advertising and promotion		14,103		12,688		30,023		27,895
Provision for (Recovery of) credit losses		336		(793)		1,580		399
Other		36,496		38,549		72,181		92,043

Total operating expenses		367,343		342,763		734,616		713,992

Operating Income		298,741		259,062		599,861		511,232
Interest expense		(154,508)		(148,980)		(301,994)		(302,690)

Income from Continuing Operations		144,233		110,082		297,867		208,542
Loss from operations of discontinued joint venture interests		(26)		(5,280)		(346)		(18,791)
Gain on disposal of discontinued operations, net		18,356		—		18,356		—

Net Income	$	162,563	$	104,802	$	315,877	$	189,751

Third-Party Investors' Share of Net Income	$	94,949	$	56,787	$	178,715	$	96,800

Our Share of Net Income		67,614		48,015		137,162		92,951
Amortization of Excess Investment		(24,853)		(18,749)		(49,682)		(33,333)

Income from Unconsolidated Entities	$	42,761	$	29,266	$	87,480	$	59,618

Our share of income from unconsolidated entities in the above table, aggregated with our share of the results of Klépierre, is presented in Income from unconsolidated entities in the accompanying consolidated statements of operations and comprehensive income.