Investments in and Advances to Joint Ventures

6 Months Ended

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.