5. Investments in Unconsolidated Affiliated Real Estate Entities

The entities discussed below are or were partially owned by the Company. The Company accounts or accounted for these investments under the equity method of accounting as the Company exercises or exercised significant influence, but does not or did not control these entities. A summary of the Company’s investments in unconsolidated affiliated real estate entities is as follows:


						As of
Real Estate Entity	Date(s) Acquired		Ownership %			December 31, 2011		December 31, 2010
GPH		March 30, 2009 & August 25, 2009		40.0	%	$	5,297	$	7,482
LVH		March 30, 2009 & August 25, 2009		40.0	%		9,483		7,102
1407 Broadway Mezz II, LLC (“1407 Broadway”)		January 4, 2007		49.0	%		.		306
Total Investments in unconsolidated affiliated real estate entities						$	14,780	$	14,890

POAC

On August 30, 2010, the Company disposed of its aggregate 40.0% ownership interest in POAC, except for its interests in GPH and LVH (see below). Prior to disposition, our Operating Partnership and PRO owned 25.0% and 15.0% membership interests in POAC (collectively, the “POAC Interest”), which were acquired on March 30, 2009 and August 25, 2009, respectively. The POAC Interest was a non-managing interest, with certain consent rights with respect to major decisions. An affiliate of the Company’s Sponsor, was the majority owner and manager of POAC. Profit and cash distributions were allocated in accordance with each investor’s ownership percentage. Through the date of disposition, the Company accounted for this investment in accordance with the equity method of accounting, and its portion of POAC’s total indebtedness was not included in the Company’s investment.

POAC Financial Information

The Company’s carrying value of its POAC Interest differed from its share of members’ equity of POAC due to the Company’s cost of its investments in excess of the historical net book values of POAC. The Company’s additional basis allocated to depreciable assets was recognized on a straight-line basis over the lives of the appropriate assets through the date of disposition.

The following table represents the unaudited condensed income statement for POAC for the periods indicated:


	For the Period January 1, 2010 to August 30, 2010			For the period March 30, 2009 through December 31, 2009
Revenue	$	122,858		$	141,545
Property operating expenses		73,291			73,745
Depreciation and amortization		2,076			29,668
Operating income		47,491			38,132
Interest expense and other, net		39,123			44,196
Net loss	$	8,368		$	(6,064	)
Company’s share of net loss	$	(5,853	)	$	(2,721	)
Additional depreciation and amortization expense⁽¹⁾		(8,655	)		(9,604	)
Company’s loss from investment	$	(14,508	)	$	(12,325	)

(1)

Additional depreciation and amortization expense related to the amortization of the difference between the cost of the POAC Interest and the amount of the underlying equity in net assets of the POAC.

Mill Run

On August 30, 2010, the Company disposed of its aggregate 36.8% ownership interest in Mill Run. Prior to disposition, our Operating Partnership and PRO owned 24.54% and 14.26% membership interests in Mill Run (collectively, the “Mill Run Interest”), which were acquired on June 26, 2008 and August 25, 2009, respectively. The Mill Run Interest included Class A and B membership shares and was a non-managing interest, with consent rights with respect to certain major decisions. The Company’s Sponsor was the managing member and owned 55.0% of Mill Run. Profit and cash distributions were to be allocated in accordance with each investor’s ownership percentage after consideration of Class B members adjusted capital balance. Through the date of disposition, the Company accounted for this investment in accordance with the equity method of accounting, and its portion of Mill Run’s total indebtedness was not included in the Company’s investment.

Mill Run Financial Information

The Company’s carrying value of its Mill Run Interest differed from its share of member’s equity of Mill Run due to the Company’s cost of its investments in excess of the historical net book values of Mill Run. The Company’s additional basis allocated to depreciable assets was recognized on a straight-line basis over the lives of the appropriate assets through the date of disposition.

The following table represents the unaudited condensed income statement for Mill Run for the periods indicated:


	For the Period from January 1, 2010 to August 30, 2010			For the Year Ended December 31, 2009
Revenue	$	33,280		$	44,970
Property operating expenses		8,561			13,389
Depreciation and amortization		6,665			11,160
Operating income		18,054			20,421
Interest expense and other, net		4,068			6,071
Net income	$	13,986		$	14,350
Company’s share of net income	$	5,147		$	4,064
Additional depreciation and amortization expense⁽¹⁾		(1,166	)		(1,824	)
Company’s income/(loss) from investment	$	3,981		$	2,240

(1)

Additional depreciation and amortization expense relates to the amortization of the difference between the cost of the Mill Run Interest and the amount of the underlying equity in net assets of the Mill Run.

GPH

GPH was wholly owned by POAC through August 30, 2010. In connection with the closing of the POAC/Mill Run Transaction (see Note 4), the Company retained its aggregate 40.0% ownership interest in GPH. The Operating Partnership and PRO own a 25.0% and 15.0% membership interest in GPH, respectively. The Company’s ownership interest is a non-managing interest, with certain consent rights with respect to major decisions. An affiliate of the Company’s Sponsor is the majority owner and manager of GPH. Contributions, profits and cash distributions are allocated in accordance with each investor’s ownership percentage. The Company accounts for its ownership interest in GPH in accordance with the equity method of accounting.

GPH, through subsidiaries, had an ownership interest of 50.0% and 100.0% in the Grand Prairie Outlet Center (see Note 4 for additional information) as of December 31, 2011 and 2010, respectively. GPH, through subsidiaries, also had an ownership interest of 100.0% in certain rights related to the land on which the Grand Prairie Outlet Center is being constructed as December 31, 2011 and 2010.

GPH Financial Information

GPH had no operating results through December 31, 2010. The following table represents the unaudited condensed income statement for GPH for the year ended December 31, 2011:


	For the Year Ended December 31, 2011
Total revenue	$	286
Operating income		286
Interest expense and other, net		16
Gain on disposition of unconsolidated affiliated entity		20,703
Net income	$	21,005
Company’s share of net income (40%)	$	8,402

The following table represents the unaudited condensed balance sheet for GPH:


	As of December 31, 2011		As of December 31, 2010
Construction in progress	$	—	$	18,697
Investments in unconsolidated affiliated real estate entities		10,114		—
Marketable securities, available for sale		3,350		—
Other assets		127		3
Total assets	$	13,591	$	18,700
Other liabilities	$	142	$	303
Members’ capital		13,449		18,397
Total liabilities and members’ capital	$	13,591	$	18,700

LVH

LVH was wholly owned by POAC through August 30, 2010. In connection with the closing of the POAC/Mill Run Transaction, the Company retained its aggregate 40.0% ownership interest in LVH. The Operating Partnership and PRO own 25.0% and 15.0% membership interests in LVH, respectively. The Company’s ownership interest is a non-managing interest, with certain consent rights with respect to major decisions. An affiliate of the Company’s Sponsor, is the majority owner and manager of LVH. Contributions, profit and cash distributions are allocated in accordance with each investor’s ownership percentage. The Company accounts for its ownership interest in LVH in accordance with the equity method of accounting.

LVH, through subsidiaries, had an ownership interest of 50.0% and 100.0% in the Livermore Outlet Center (see Note 4 for additional information) as of December 31, 2011 and 2010, respectively. LVH, through subsidiaries, had an ownership interest of 100% in a parcel of land adjacent to the Livermore Outlet Center as of December 31, 2011 and 2010. The parcel of land was acquired in December 2010 for a potential expansion to the Livermore Outlet Center.

LVH Financial Information

LVH had no operating results through December 31, 2010. The following table represents the unaudited condensed income statement for LVH for the year ended December 31, 2011:


	For the Year Ended December 31, 2011
Interest expense and other, net		2
Gain on disposition of unconsolidated affiliated entity		42,589
Net income	$	42,591
Company’s share of net income (40%)	$	17,036

The following table represents the unaudited condensed balance sheet for LVH as of the dates indicated:


	As of December 31, 2011		As of December 31, 2010
Construction in progress	$	3,776	$	18,217
Investments in unconsolidated affiliated real estate entities		14,176		—
Marketable securities, available for sale		6,117		—
Other assets		127		—
Total assets	$	24,196	$	18,217
Other liabilities	$	226	$	1,249
Members’ capital		23,970		16,968
Total liabilities and members’ capital	$	24,196	$	18,217

1407 Broadway Mezz II, LLC

As of December 31, 2011, the Company has a 49.0% ownership in 1407 Broadway Mezz II, LLC (“1407 Broadway”), which has a sub-leasehold interest in a ground lease to an office building located at 1407 Broadway Street in New York, New York. During the second quarter of 2011, the Company’s share of cumulative losses resulting from its ownership interest in 1407 Broadway brought the carrying value of its investment in 1407 Broadway to zero. Since the Company is not obligated to fund 1407 Broadway’s deficits and the balance of the Company’s investment in 1407 Broadway is zero, the Company has suspended the recording of its portion of equity losses or earnings from 1407 Broadway until such time as the Company’s investment in 1407 Broadway is greater than zero.

During March 2010, the Company entered a demand grid note to borrow up to $20.0 million from 1407 Broadway. During 2010 the Company received aggregate loan proceeds from 1407 Broadway associated with this demand grid note in the amount of $1.5 million. During 2011, the Company made principal payments of approximately $1.0 million to 1407 Broadway. The loan bears interest at LIBOR plus 2.5%. The principal and interest on this loan is due the earlier of February 28, 2020 or on demand. As of December 31, 2011 and 2010, the outstanding principal and interest of approximately $0.5 million and $1.5 million, respectively, is recorded in loans due to affiliates in the consolidated balance sheets.

1407 Broadway Financial

The following table represents the unaudited condensed income statement for 1407 Broadway:


	For the Year Ended December 31, 2011			For the Year Ended December 31, 2010			For the Year Ended December 31, 2009
Total revenue	$	34,423		$	35,360		$	39,350
Property operating expenses		28,440			27,557			27,392
Depreciation and amortization		5,957			6,296			8,582
Operating income		26			1,507			3,376
Interest expense and other, net		3,738			4,703			3,837
Net loss	$	(3,712	)	$	(3,196	)	$	(461	)
Company’s share of net loss (49%)	$	(306	)	$	(1,566	)	$	(226	)

The following table represents the unaudited condensed balance sheet for 1407 Broadway:


	As of December 31, 2011			As of December 31, 2010
Real estate, at cost (net)	$	109,275		$	112,389
Intangible assets		663			1,068
Cash and restricted cash		10,010			9,788
Other assets		16,653			17,371
Total assets	$	136,601		$	140,616
Mortgage payable	$	127,250		$	126,575
Other liabilities		12,581			13,427
Member (deficit) capital		(3,230	)		614
Total liabilities and members’ capital	$	136,601		$	140,616