FAIR VALUE OF FINANCIAL INSTRUMENTS-K

12 Months Ended

Dec. 31, 2014

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, 2014								December 31, 2013
		Fair Value Measurements Using								Fair Value Measurements Using
			Quoted Prices		Significant						Quoted Prices		Significant
			in Active		Other		Significant				in Active		Other		Significant
			Markets for		Observable		Unobservable				Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs				Identical Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)		Total		(Level 1)		(Level 2)		(Level 3)

				(In thousands)								(In thousands)
Assets:
Cash equivalents	$	75,027	$	75,027	$	-	$	-	$	-	$	-	$	-	$	-
Liabilities:
Warrants		366,080		-		-		366,080		305,560		-		-		305,560
Interest rate swaps		3,144		-		3,144		-		4,164		-		4,164		-

Cash equivalents consist primarily of two registered money market mutual funds which invest in United States treasury securities that are valued at the net asset value of the underlying shares in the funds as of the close of business at the end of each period.

The valuation of warrants is based on an option pricing valuation model. The inputs to the model include the fair value of stock related to the warrants, exercise price and term of the warrants, expected volatility, risk-free interest rate and dividend yield and, with respect to the Management Warrants, a discount for lack of marketability.

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,
	2014		2013		2012
		(In thousands)
Beginning of year	$	305,560	$	123,573	$	127,764
Warrant liability loss (a)		60,520		181,987		185,017
Settlements (b)		-		-		(189,208)
End of year	$	366,080	$	305,560	$	123,573

(a)

All losses during 2014 and 2013, and $73.8 million of the loss during 2012, were 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 inputs used in the fair value measurement of our warrants designated as Level 3 as of December 31, 2014 are as follows:

Unobservable Inputs

Fair Value

Valuation Technique

Expected Volatility (a)

Marketability Discount (b)

(In thousands)

Warrants

366,080

Option Pricing Valuation Model

24.5%

18.0%-20.0%

(a)

Based on our implied equity volatility.

(b)

Represents the discount rate for lack of marketability of the Management Warrants. The discount rates ranged from 29.0%-30.0% at December 31, 2013.

The expected volatility and marketability discount in the table above are significant unobservable inputs 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. As the period of restriction lapses, the marketability discount reduces to zero and increases the fair value of the warrants.

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

		December 31, 2014					December 31, 2013
	Fair Value	Carrying		Estimated Fair			Carrying		Estimated Fair
	Hierarchy	Amount		Value			Amount		Value
		(In thousands)
Assets:
Cash and cash equivalents	Level 1	$	485,424	$	485,424		$	894,948	$	894,948
Notes receivable, net (a)	Level 3		28,630		28,630			20,554		20,554
Tax indemnity receivable, including interest	n.a.		-		-	(b)		320,494		-	(b)

Liabilities:
Fixed-rate debt	Level 2	$	1,030,554	$	1,050,333		$	1,004,886	$	1,045,298
Variable-rate debt (c)	Level 2		962,916		962,916			509,737		509,737
Total mortgages, notes and loans payable	Level 2	$	1,993,470	$	2,013,249		$	1,514,623	$	1,555,035

(a)

Notes receivable is shown net of an allowance of $471 and $426 for the periods ending December 31, 2014 and 2013 respectively.

(b)

The tax indemnity receivable was settled with GGP during 2014. In 2013 it was not practicable to estimate the fair value, as the timing and ultimate amount received under the agreement, was highly dependent on numerous future events that could not have been reliably predicted. See Note 9 – Income Taxes for further detail related to these receivables.

(c)

$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 are based on certain factors, such as current interest rates, terms of the note and credit worthiness of the borrower.

The fair value of fixed-rate debt in the table above, not including our Senior Notes (as defined in Note 8 – Mortgages, Notes and Loans Payable), was estimated based on a discounted future cash payment model, which includes risk premiums 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, included in fixed rate debt in the table above, was estimated based upon its most recent trade price.

The carrying amounts for our variable-rate debt approximate fair value given that the interest rates are variable and adjust with current market rates for instruments with similar risks and maturities.

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

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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