Financial Instruments and Fair Value Measurements

6 Months Ended

Jun. 30, 2023

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:

	June 30, 2023
							Total Fair
	Level 1		Level 2		Level 3		Value
Cash equivalents:
Money market funds	$	1,703	$	—	$	—	$	1,703
U.S. Treasury Bills		29,942		—		—		29,942
		31,645		—		—		31,645
Investments - debt securities:
U.S. Treasury Bills		27,931		—		—		27,931
	$	59,576	$	—	$	—	$	59,576

	December 31, 2022
							Total Fair
	Level 1		Level 2		Level 3		Value
Cash equivalents:
Money market funds	$	19,233	$	—	$	—	$	19,233
Investments - debt securities:
U.S. Treasury Bills		40,576		—		—		40,576
	$	59,809	$	—	$	—	$	59,809

Money market funds and U.S. Treasury Bills 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.

Assets and liabilities measured at fair value on a recurring basis related to interest rate swap agreements designated as cash flow hedges are as follows:

			Fixed	Notional						Fair	Location in
	Effective	Maturity	Interest	Amount as of		Derivative Asset Fair Value				Value	Consolidated
Description	Date	Date	Rate	June 30, 2023		June 30, 2023		December 31, 2022		Level	Balance Sheets
					In Millions	In Thousands
Pier Park Resort Hotel JV Loan (a)	December 2022	April 2027	3.3%	$	41.9	$	4,274	$	4,609	2	Other assets
Pier Park TPS JV Loan (b)	January 2021	January 2026	5.2%	$	13.7	$	317	$	273	2	Investment in unconsolidated joint ventures

(a) See Note 9. Debt, Net for additional information.

(b) Interest rate swap was entered into by the Pier Park TPS JV, which is unconsolidated and accounted for using the equity method. The derivative asset has been recorded at the Company’s proportionate share of its estimated fair value. The Company’s proportionate share of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into equity in income from unconsolidated joint ventures in the period during which the hedged transaction affects earnings. See Note 4. Joint Ventures and Note 18. Commitments and Contingencies for additional information.

The following is a summary of the effect of derivative instruments on the Company’s condensed consolidated statements of income and condensed consolidated statements of comprehensive income:

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Amount of net gain recognized in other comprehensive income on derivatives	$	1,136	$	800	$	518	$	3,421
Amount of net (gain) loss reclassified into interest expense	$	(409)	$	(49)	$	(738)	$	52
Amount of net (gain) loss reclassified into equity in income from unconsolidated joint ventures	$	(39)	$	38	$	(70)	$	84

As of June 30, 2023, based on current value, the Company expects to reclassify $1.9 million of derivative instruments from accumulated other comprehensive income (loss) to earnings during the next twelve months. See Note 13. Accumulated Other Comprehensive Income 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 or cash flows of the respective JV. The fair value of investment in unconsolidated JVs required to be assessed for impairment is determined using Level 3 inputs in the fair value hierarchy. No impairment for unconsolidated JVs was recorded during the three and six months ended June 30, 2023 and 2022. 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:

	June 30, 2023					December 31, 2022
	Carrying		Estimated			Carrying		Estimated
	value		Fair value		Level	value		Fair value		Level
Investments held by SPEs:
Time deposit	$	200,000	$	200,000	3	$	200,000	$	200,000	3
U.S. Treasury Bills	$	4,136	$	4,005	1	$	4,486	$	4,361	1
Senior Notes held by SPE	$	178,008	$	178,210	3	$	177,857	$	179,564	3
Debt
Fixed-rate debt	$	260,968	$	216,800	2	$	194,525	$	172,241	2
Variable-rate debt		191,589		191,589	2		196,886		196,886	2
Total debt	$	452,557	$	408,389		$	391,411	$	369,127

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 June 30, 2023, 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 $4.1 million and cash of $0.4 million. The Senior Notes held by Northwest Florida Timber Finance, LLC as of June 30, 2023 consist of $178.0 million, net of the $2.0 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.