FAIR VALUE OF FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2013

FAIR VALUE OF FINANCIAL INSTRUMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS

NOTE 7    FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents, for each of the fair value hierarchy levels required under ASC 820 ("ASC 820") Fair Value Measurement, our assets and liabilities that are measured at fair value on a recurring basis.

	December 31, 2013								December 31, 2012
			Fair Value Measurements Using								Fair Value Measurements Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
			(In thousands)								(In thousands)
Liabilities:
Warrants	$	305,560	$	—	$	—	$	305,560	$	123,573	$	—	$	—	$	123,573
Interest rate swaps	$	4,164	$	—	$	4,164	$	—	$	7,183	$	—	$	7,183	$	—

The valuation of warrants is based on an option pricing valuation model. The inputs to the model include the fair value of the stock related to the warrants, exercise price of the warrants, term, expected volatility, risk-free interest rate and dividend yield.

The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of future interest rates derived from observable market interest rate curves.

The following table presents a reconciliation of the beginning and ending balances of the fair value measurements using significant unobservable inputs (Level 3) which are our Sponsors and Management Warrants:

	December 31,
	2013		2012			2011
	(In thousands)
Beginning of year	$	123,573	$	127,764		$	227,348
Warrant liability loss (gain) (a)		181,987		185,017			(101,584	)
Settlements (b)		—		(189,208	)		—
Purchases		—		—			2,000
End of year	$	305,560	$	123,573		$	127,764

(a)

The unrealized losses during 2013 and 2012 related to the Sponsors and Management warrants held as of December 31, 2013 and 2012, of $182.0 million and $73.8 million, respectively. The gain for 2011 was also unrealized.

(b)

Settlements were for $80.5 million in cash and 1,525,272 shares of our common stock. Please refer to Note 3 – Sponsors and Management Warrants.

The fair values were estimated using an option pricing model and Level 3 inputs due to the unavailability of comparable market data. Changes in the fair value of the Sponsors Warrants and the Management Warrants are recognized in earnings as a warrant liability gain or loss.

The significant unobservable input used in the fair value measurement of our warrants designated as Level 3 as of December 31, 2013 is as follows:

	Fair Value		Valuation Technique	Unobservable Input	Volatility
	(In thousands)
Warrants	$	305,560	Option Pricing Valuation Model	Expected Volatility (a)		32.9	%

(a)

Based on the asset volatility of comparable companies.

The expected volatility in the table above is a significant unobservable input used to estimate the fair value of our warrant liabilities. An increase in expected volatility would increase the fair value of the liability, while a decrease in expected volatility would decrease the fair value of the liability.

The following tables summarize our assets and liabilities that were measured at fair value on a non-recurring basis and include Investment in Real Estate Affiliates related to the fair value based on purchases of our previously held equity investments.

Investment in Real Estate Affiliates	Total Fair Value Measurement as of December 31,			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Loss Year Ended December 31,
	(In thousands)
2012	$	22,405	(a)	$	22,405	$	—	$	—	$	—

(a)

We measured our equity interest in Millennium Waterway Apartments based on our purchase of our partner's 23.5% economic interest in Millennium Waterway Apartments. We used Level 1 inputs for the cash payment.

The estimated fair values of our financial instruments that are not measured at fair value on a recurring basis are as follows:

	December 31, 2013					December 31, 2012
	Carrying Amount		Estimated Fair Value			Carrying Amount		Estimated Fair Value
	(In thousands)
Assets:
Notes receivable, net	$	20,554	$	20,554		$	27,953	$	27,953
Tax indemnity receivable, including interest		320,494		(a	)		319,622		(a	)
Liabilities:
Fixed-rate debt	$	971,786	$	1,012,461		$	158,636	$	158,879
Variable-rate debt (b)		509,737		509,737			479,964		479,964
SID bonds		33,100		32,837			49,712		56,475
Total mortgages, notes and loans payable	$	1,514,623	$	1,555,035		$	688,312	$	695,318

(a)

It is not practicable to estimate the fair value of the tax indemnity receivable, including interest, as the timing and ultimate amount received under contract is highly dependent on numerous future events that cannot be reliably predicted.

(b)

As more fully described below, $172.0 million of variable-rate debt has been swapped to a fixed rate for the term of the related debt.

Notes receivable are carried at net realizable value which approximates fair value. The estimated fair values of these notes receivable are categorized as Level 3 due to certain factors, such as current interest rates, terms of the note and credit worthiness of the borrower.

The fair value of debt, not including our Senior Notes, in the table above was estimated based on a discounted future cash payment model using Level 2 inputs, which includes risk premiums for loans of comparable quality and a risk free rate derived from the current London Interbank Offered Rate ("LIBOR") or U.S. Treasury obligation interest rates. The discount rates reflect our judgment as to what the approximate current lending rates for loans or groups of loans with similar maturities and credit quality would be if credit markets were operating efficiently and assuming that the debt is outstanding through maturity.

The fair value of our Senior Notes in the table above was estimated based on quoted market prices for similar issues.

The carrying amounts of cash and cash equivalents and accounts receivable approximate fair value because of the short-term maturity of these instruments.