7. Investments 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 interests in 81 properties as of December 31, 2015 and 82 properties as of December 31, 2014. 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, borrowings, or the use of limited partnership interests in the Operating Partnership, to acquire the joint venture interest from our partner.

We may provide financing to joint ventures primarily in the form of interest bearing construction loans. As of December 31, 2015 and 2014, we had construction loans and other advances to related parties totaling $13.9 million and $14.9 million, respectively, which are included in deferred costs and other assets in the accompanying consolidated balance sheets.

Unconsolidated Property Transactions

On July 22, 2015, we closed on our previously announced joint venture with HBC, to which HBC contributed 42 properties in the U.S. and we committed to contribute $100.0 million for improvements to the properties contributed by HBC in exchange for a noncontrolling interest in the newly formed joint venture. As of December 31, 2015, we have funded $1.0 million of this commitment. On September 30, 2015, HBC announced it had closed on the acquisition of Galeria Holding, the parent company of Germany's leading department store, Kaufhof. In conjunction with the closing, the joint venture acquired 41 Kaufhof properties in Germany from HBC. All of the joint venture's properties have been leased to affiliates of HBC. We contributed an additional $178.5 million to the joint venture upon closing of the Galeria Holding transaction. Our noncontrolling interest in the joint venture is approximately 8.9%. Our share of net loss was $0.7 million from the date of our investment through December 31, 2015. The joint venture's total assets and total liabilities as of December 31, 2015 were $4.2 billion and $2.9 billion, respectively, and the joint venture's total revenues, operating income and consolidated net loss were approximately $55.0 million, $10.0 million and $8.0 million, respectively, for the period of our ownership in 2015.

On April 23, 2015, we announced a partnership with Swire Properties Inc. and Whitman Family Development to jointly develop the approximately 500,000 square foot shopping center component of Brickell City Centre, a mixed-use development in downtown Miami. We own a 25% interest in the retail component of this project, which is scheduled to open in September 2016. Our share of the estimated cost of this project including development fees is approximately $110.0 million. As of December 31, 2015, we have contributed substantially all of our share of the cost of this project.

On April 13, 2015, we announced a joint venture with Sears Holdings, or Sears, whereby Sears contributed 10 of its properties located at our malls to the joint venture in exchange for a 50% noncontrolling interest in the joint venture. We contributed $114.0 million in cash in exchange for a 50% noncontrolling interest in the joint venture. Sears or its affiliates are leasing back each of the 10 properties from the joint venture. The joint venture has the right to recapture not less than 50% of the space leased to Sears to be used for purposes of redeveloping and releasing the recaptured space. We will provide development, leasing and management services to the joint venture for any recaptured space. On July 7, 2015, we separately invested approximately $33.0 million in exchange for 1,125,760 common shares of Seritage Growth Properties, or Seritage, a public REIT recently formed by Sears, which we account for as an available-for-sale security. Seritage now holds Sears' interest in the joint venture.

On February 24, 2015, Houston Galleria, in which we own a 50.4% noncontrolling interest, refinanced its $821.0 million mortgage with a $1.2 billion mortgage that matures on March 1, 2025. The fixed interest rate was reduced from 5.44% to 3.55% as a result. Excess proceeds of $377.1 million from the financing were distributed to the venture partners in February 2015.

On January 30, 2014, as discussed in Note 4, we acquired the remaining 50% interest in Arizona Mills from our joint venture partner. The consolidation of this previously unconsolidated property resulted in a remeasurement of our previously held interest to fair value and a corresponding non-cash gain of $2.7 million in the first quarter of 2014. As a result of this acquisition, we now own 100% of this property.

International 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

European Investments. At December 31, 2015, we owned 63,924,148 shares, or approximately 20.3%, of Klépierre, which had a quoted market price of $44.82 per share. On July 29, 2014 Klépierre announced that it had entered into a conditional agreement to acquire Corio pursuant to which Corio shareholders received 1.14 Klépierre ordinary shares for each Corio ordinary share. On January 15, 2015 the tender offer transaction closed and the merger was completed on March 31, 2015, reducing our ownership from 28.9% at December 31, 2014 to 18.3%, resulting in a non-cash gain of $206.9 million that was required to be recognized in the first quarter of 2015 as if we had sold a proportionate share of our investment. On May 11, 2015, we purchased 6,290,000 additional shares of Klépierre for $279.4 million bringing our ownership to 20.3%. All of the excess investment related to this additional purchase has been determined to relate to investment property. Our share of net income, net of amortization of our excess investment, was $6.7 million and $131.5 million for the year ended December 31, 2015 and 2014, respectively. Based on applicable Euro:USD exchange rates and after our conversion of Klépierre's results to GAAP, Klépierre's total assets, total liabilities, and noncontrolling interests were $20.8 billion, $12.4 billion, and $1.4 billion, respectively, as of December 31, 2015 and $12.7 billion, $8.2 billion, and $1.4 billion, respectively, as of December 31, 2014. Klépierre's total revenues, operating income and consolidated net income were approximately $1.5 billion, $414.8 million and $181.2 million, respectively, for the year ended December 31, 2015 and $1.2 billion, $432.1 million and $1.3 billion, respectively, for the year ended December 31, 2014.

On April 16, 2014, Klépierre completed the disposal of a portfolio of 126 retail galleries located in France, Spain and Italy. Total gross consideration for the transaction, including transfer duties, was €1.98 billion (€1.65 billion Klépierre's group share). The net cash proceeds were used by Klépierre to reduce its overall indebtedness. In connection with this transaction, we recorded a gain of $133.9 million, net of the write-off of a portion of our excess investment, which is included in gain upon acquisition of controlling interests and sale or disposal of assets and interest in unconsolidated entities, net in the accompanying consolidated statements of operations and comprehensive income.

Our joint venture in Europe has interests in six outlet properties, as well as a property management and development company. As of December 31, 2015, our legal percentage ownership interests in these entities ranged from 45% to 90%. The carrying amount of our investment in these joint ventures, including all related components of accumulated other comprehensive income (loss) as well as subsequent capital contributions for development, was $577.3 million and $677.1 million as of December 31, 2015 and 2014, respectively. In December 2014, Roermond Designer Outlet phases 2 and 3, in which we own a 90% interest, refinanced its $85.1 million mortgage maturing in 2017 with a $218.9 million mortgage that matures in 2021. The fixed interest rate was reduced from 5.12% to 1.86% as a result. Excess proceeds of approximately $106.0 million from the financing were distributed to the venture partners in January 2015. In the first quarter of 2016, we will consolidate the entity that holds our interests in the six outlet properties as we obtain control of the investee entity. This will result in the consolidation of two of the six operating properties and will be accounted for as a step acquisition, requiring a remeasurement of our previously held equity interest to fair value and the recognition of a non-cash gain in earnings during the first quarter of 2016. Consolidation will require us to recognize the investee's identifiable assets and liabilities at fair value in our consolidated financial statements along with the related noncontrolling interest representing our partners' share. In February 2016, our joint venture acquired a 75% interest in an outlet center in Ochtrup, Germany for cash consideration of approximately $34.9 million.

We also have minority interests in Value Retail PLC and affiliated entities, which own or have interests in and operate nine luxury outlets throughout Europe and a direct minority ownership in three of those outlets. Our investment in these entities is accounted for under the cost method. At both December 31, 2015 and 2014, the carrying value of these non-marketable investments was $115.4 million and is included in deferred costs and other assets.

On March 19, 2015, we disposed of our interest in a joint venture which had held interests in rights to pre-development projects in Europe, for total proceeds of $19.0 million. We recognized a gain on the sale of $8.3 million, which is included in other income in the accompanying consolidated statements of operations and comprehensive income.

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 $224.6 million and $229.8 million as of December 31, 2015 and 2014, 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 $117.0 million and $104.5 million as of December 31, 2015 and 2014, 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 and our joint venture with HBC, is included below. During 2015, we disposed of three retail properties. During 2013, we disposed of three retail properties. As discussed in Note 3, on May 28, 2014, we completed the spin-off of Washington Prime, which included ten unconsolidated properties. The net income of these ten properties is included in income from operations of discontinued joint venture interests in the accompanying summary financial information.

BALANCE SHEETS

	December 31, 2015			December 31, 2014
Assets:
Investment properties, at cost	$	17,186,884		$	16,087,282
Less — accumulated depreciation		5,780,261			5,457,899

		11,406,623			10,629,383
Cash and cash equivalents		818,805			993,178
Tenant receivables and accrued revenue, net		354,133			362,201
Investment in unconsolidated entities, at equity		—			11,386
Deferred costs and other assets		545,850			536,600

Total assets	$	13,125,411		$	12,532,748


Liabilities and Partners' Deficit:
Mortgages	$	13,891,041		$	13,272,557
Accounts payable, accrued expenses, intangibles, and deferred revenue		985,159			1,015,334
Other liabilities		468,005			493,718

Total liabilities		15,344,205			14,781,609
Preferred units		67,450			67,450
Partners' deficit		(2,286,244	)		(2,316,311	)

Total liabilities and partners' deficit	$	13,125,411		$	12,532,748


Our Share of:
Partners' deficit	$	(854,562	)	$	(663,700	)
Add: Excess Investment		1,788,749			1,875,337

Our net Investment in unconsolidated entities, at equity	$	934,187		$	1,211,637

"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 has been determined to relate to the fair value of the 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.

As of December 31, 2015, scheduled principal repayments on joint venture properties' mortgage indebtedness are as follows:

2016	$	1,325,067
2017		810,684
2018		433,362
2019		599,718
2020		3,049,673
Thereafter		7,668,576

Total principal maturities		13,887,080
Net unamortized debt premium		3,961

Total mortgages and unsecured indebtedness	$	13,891,041

This debt becomes due in installments over various terms extending through 2035 with interest rates ranging from 0.37% to 9.35% and a weighted average interest rate of 4.15% at December 31, 2015.

In November 2013, Aventura Mall in which we own a 33% interest refinanced its $430.0 million mortgage maturing on December 11, 2017 with a $1.2 billion mortgage that matures on December 1, 2020. The fixed interest rate was reduced from 5.91% to 3.75% as a result of this transaction and an extinguishment charge of $82.8 million was incurred which is included in interest expense in the accompanying joint venture statements of operations. Excess proceeds from the financing were distributed to the venture partners.

STATEMENTS OF OPERATIONS

	For the Year Ended December 31,
	2015			2014			2013
Revenue:
Minimum rent	$	1,801,023		$	1,746,549		$	1,618,802
Overage rent		191,249			183,478			180,435
Tenant reimbursements		799,420			786,351			747,447
Other income		236,726			293,419			199,197

Total revenue		3,028,418			3,009,797			2,745,881
Operating Expenses:
Property operating		530,798			574,706			487,144
Depreciation and amortization		594,973			604,199			512,702
Real estate taxes		231,154			221,745			204,894
Repairs and maintenance		73,286			71,203			66,612
Advertising and promotion		75,773			72,496			61,664
Provision for credit losses		4,153			6,527			1,388
Other		169,504			187,729			155,421

Total operating expenses		1,679,641			1,738,605			1,489,825

Operating Income		1,348,777			1,271,192			1,256,056
Interest expense		(593,187	)		(598,900	)		(680,321	)

Income from Continuing Operations		755,590			672,292			575,735
Income from operations of discontinued joint venture interests		—			5,079			14,200
Gain on disposal of discontinued operations, net		—			—			51,164
Gain on sale or disposal of assets and interests in unconsolidated entities, net		67,176			—			—

Net Income	$	822,766		$	677,371		$	641,099


Third-Party Investors' Share of Net Income	$	405,456		$	348,127		$	353,708


Our Share of Net Income		417,310			329,244			287,391
Amortization of Excess Investment		(94,828	)		(99,463	)		(102,875	)
Our Share of (Loss) Income from Unconsolidated Discontinued Operations		—			(652	)		1,121
Our Share of Gain on Sale or Disposal of Assets and Interests in Unconsolidated Entities, net		(43,589	)		—			—

Income from Unconsolidated Entities	$	278,893		$	229,129		$	185,637

Our share of income from unconsolidated entities in the above table, aggregated with our share of results of Klépierre and our joint venture with HBC, is presented in income from unconsolidated entities in the accompanying consolidated statements of operations and comprehensive income. Our share of the gain on sale or disposal of assets and interests in unconsolidated entities, net is reflected within gain upon acquisition of controlling interests, sale or disposal of assets and interests in unconsolidated entities, net in the accompanying consolidated statements of operations and comprehensive income.

2015 Dispositions

In 2015, we disposed of our interests in three retail properties. Our share of the net gain on disposition was $43.6 million.

2013 Dispositions

In 2013, we disposed of our interest in three retail properties. We recognized no gain or loss on the disposal of these properties.