Financial Instruments and Fair Value Measurements

3 Months Ended

Mar. 31, 2021

Financial Instruments and Fair Value Measurements

Financial Instruments and Fair Value Measurements

6. Financial Instruments and Fair Value Measurements

Fair Value Measurements

The financial instruments measured at fair value on a recurring basis are as follows:

	March 31, 2021
							Total Fair
	Level 1		Level 2		Level 3		Value
Cash equivalents:
Money market funds	$	17,049	$	—	$	—	$	17,049
U.S. Treasury Bills		16,000		—		—		16,000
		33,049		—		—		33,049
Investments - debt securities:
U.S. Treasury Bills		93,974		—		—		93,974
		93,974		—		—		93,974
Investments - equity securities:
Preferred stock		—		1,589		—		1,589
		—		1,589		—		1,589
	$	127,023	$	1,589	$	—	$	128,612

	December 31, 2020
							Total Fair
	Level 1		Level 2		Level 3		Value
Cash equivalents:
Money market funds	$	10,973	$	—	$	—	$	10,973
U.S. Treasury Bills		78,991		—		—		78,991
		89,964		—		—		89,964
Investments - debt securities:
U.S. Treasury Bills		47,991		—		—		47,991
Corporate debt securities		—		60		—		60
		47,991		60		—		48,051
Investments - equity securities:
Preferred stock		—		2,623		—		2,623
		—		2,623		—		2,623
Restricted investments:
Short-term bond		1,171		—		—		1,171
		1,171		—		—		1,171
	$	139,126	$	2,683	$	—	$	141,809

Money market funds, U.S. Treasury Bills and short-term bonds are measured based on quoted market prices in an active market and categorized within Level 1 of the fair value hierarchy. Money market funds and short term U.S. Treasury Bills with a maturity date of 90 days or less from the date of purchase are classified as cash equivalents in the Company’s condensed consolidated balance sheets.

The Company’s corporate debt securities and preferred stock investments are not traded on a nationally recognized exchange, but are traded in the U.S. over-the-counter market where there is less trading activity and the investments are measured primarily using pricing data from external pricing services that report prices observed for recently executed market transactions. For these reasons, the Company has determined that corporate debt securities and preferred stock investments are categorized as Level 2 financial instruments since their fair values were determined from market inputs in an inactive market.

As of December 31, 2020, restricted investments were included within other assets on the condensed consolidated balance sheets and included certain of the surplus assets that were transferred from the Company’s Pension Plan to a suspense account in the Company’s 401(k) plan in December 2014. The Company retained the risks and rewards of ownership of these assets; therefore, the assets held in the suspense account were included in the Company’s condensed consolidated financial statements until they were allocated to participants. The final allocation of the assets occurred in March 2021. As of December 31, 2020, the assets held in the suspense account were invested in a Vanguard Short-Term Bond Fund, which invests in money market instruments and short-term high quality bonds, including asset-backed, government, and investment grade corporate securities with an expected maturity of 0-3 years. The Vanguard Short-Term Bond Fund is measured based on quoted market prices in an active market and categorized within Level 1 of the fair value hierarchy. The Company’s Retirement Plan Investment Committee was responsible for investing decisions and allocation decisions of the suspense account. Refer to Note 9. Other Assets.

Liabilities measured at fair value on a recurring basis are as follows:

		March 31, 2021
	Location in							Total Fair
	Balance Sheet	Level 1		Level 2		Level 3		Value
Derivative Liabilities:
Interest rate swap	Other liabilities	$	—	$	1,015	$	—	$	1,015
Interest rate swap - unconsolidated affiliate	Investment in unconsolidated joint ventures		—		610		—		610
		$	—	$	1,625	$	—	$	1,625

		December 31, 2020
	Location in							Total Fair
	Balance Sheet	Level 1		Level 2		Level 3		Value
Derivative Liabilities:
Interest rate swap	Other liabilities	$	—	$	1,172	$	—	$	1,172
Interest rate swap - unconsolidated affiliate	Investment in unconsolidated joint ventures		—		821		—		821
		$	—	$	1,993	$	—	$	1,993

In June 2019 the Watercrest JV entered into an interest rate swap agreement designated as a cash flow hedge to manage the interest rate risk associated with variable rate debt. The interest rate swap is effective June 1, 2021 and matures on June 1, 2024 and fixed the variable rate on the notional amount of related debt of $20.0 million. As of March 31, 2021 and December 31, 2020, the interest rate swap was recorded at its estimated fair value, based on Level 2 measurements, of $1.0 million and $1.2 million, respectively, and is included within other liabilities on the condensed consolidated balance sheets. The gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the period during which the hedged transaction affects earnings. The Company did not reclassify any amounts out of other comprehensive income (loss) into interest expense during the three months ended March 31, 2021 and 2020. See Note 10. Debt for additional information.

In January 2019 the Pier Park TPS JV, which is unconsolidated and accounted for using the equity method, entered into an interest rate swap agreement designated as a cash flow hedge to manage the interest rate risk associated with variable rate debt. The interest rate swap was effective January 14, 2021 and matures on January 14, 2026 and fixed the variable rate on the related debt of $14.4 million. As of March 31, 2021 and December 31, 2020, the interest rate swap was recorded at the Company’s proportionate share of its estimated fair value, based on Level 2 measurements, of $0.6 million and $0.8 million, respectively, and is included within investment in unconsolidated joint ventures on the condensed consolidated balance sheets. The gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the period during which the hedged transaction affects earnings. The Company did not reclassify any amounts out of other comprehensive income (loss) into equity in loss from unconsolidated affiliates during the three months ended March 31, 2021 and 2020. See Note 4. Joint Ventures and Note 18. Commitments and Contingencies for additional information.

Investment in Unconsolidated Joint Ventures

The Company evaluates its investment in unconsolidated JVs for impairment during each reporting period. A series of operating losses of an investee or other factors may indicate that a decrease in the value of the Company’s investment in the unconsolidated JV has occurred. The amount of impairment recognized is the excess of the investment’s carrying value over its estimated fair value. The fair value of the Company’s investment in unconsolidated JVs is determined primarily using a discounted cash flow model to value the underlying net assets of the respective JV. The fair value of investment in unconsolidated JVs required to be assessed for impairment is determined on a nonrecurring basis using Level 3 inputs in the fair value hierarchy. No impairment for unconsolidated JVs was recorded during the three months ended March 31, 2021 and 2020. See Note 4. Joint Ventures for additional information.

Fair Value of Financial Instruments

The Company uses the following methods and assumptions in estimating fair value for financial instruments:

● The fair value of the investments held by SPEs - time deposit is based on the present value of future cash flows at the current market rate.

● The fair value of the investments held by SPEs - U.S. Treasury Bills are measured based on quoted market prices in an active market.

● The fair value of debt is based on discounted future expected cash flows based on current market rates for financial instruments with similar risks, terms and maturities.

● The fair value of the senior notes held by SPE is based on the present value of future cash flows at the current market rate.

The carrying amount and estimated fair value, measured on a nonrecurring basis, of the Company’s financial instruments were as follows:

	March 31, 2021					December 31, 2020
	Carrying		Estimated			Carrying		Estimated
	value		Fair value		Level	value		Fair value		Level
Assets
Investments held by SPEs:
Time deposit	$	200,000	$	200,000	3	$	200,000	$	200,000	3
U.S. Treasury Bills	$	5,389	$	5,832	1	$	5,759	$	6,363	1
Liabilities
Debt
Fixed-rate debt	$	117,668	$	118,219	2	$	114,125	$	116,509	2
Variable-rate debt		54,641		54,641	2		47,293		47,293	2
Total debt	$	172,309	$	172,860		$	161,418	$	163,802
Senior Notes held by SPE	$	177,357	$	205,171	3	$	177,289	$	216,363	3

Investments and Senior Notes Held by Special Purpose Entities

In connection with a real estate sale in 2014, the Company received consideration including a $200.0 million fifteen-year installment note (the “Timber Note”) issued by Panama City Timber Finance Company, LLC. The Company contributed the Timber Note and assigned its rights as a beneficiary under a letter of credit to Northwest Florida Timber Finance, LLC. Northwest Florida Timber Finance, LLC monetized the Timber Note by issuing $180.0 million aggregate principal amount of its 4.8% Senior Secured Notes due in 2029 (the “Senior Notes”) at an issue price of 98.5% of face value to third party investors. The investments held by Panama City Timber Finance Company, LLC as of March 31, 2021, consist of a $200.0 million time deposit that, subsequent to April 2, 2014, pays interest at 4.0% and matures in March 2029, U.S. Treasuries of $5.4 million and cash of $0.4 million. The Senior Notes held by Northwest Florida Timber Finance, LLC as of March 31, 2021 consist of $177.4 million, net of the $2.6 million discount and debt issuance costs. Panama City Timber Finance Company, LLC and Northwest Florida Timber Finance, LLC are VIEs, which the Company consolidates as the primary beneficiary of each entity.