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Fair Value Measurements
6 Months Ended
Jun. 30, 2019
Fair Value Disclosures [Abstract]  
Fair Value Measurements

Note 4. Fair Value Measurements

The carrying amounts of cash and cash equivalents, restricted cash, rents and other receivables, certain other assets, accounts payable and accrued liabilities, and variable-rate debt approximate their fair value due to their terms and/or short-term nature. The fair value of the Company’s investments and liabilities related to share-based compensation were determined to be Level 1 within the valuation hierarchy, and were based on independent values provided by financial institutions.

The fair value of the Company’s fixed rate mortgage loan was estimated using available market information and discounted cash flow analyses based on borrowing rates the Company believes it could obtain with a similar term and maturity.  As of June 30, 2019 and December 31, 2018, the fair value of the Company’s fixed rate mortgage loan payable, which was determined to be Level 3 within the valuation hierarchy, was $45.7 million and $44.4 million, respectively; the carrying value of such loan was $46.8 million and $47.3 million, respectively. As of June 30, 2019 and December 31, 2018, respectively, the aggregate fair values of the Company’s unsecured revolving credit facility and term loans approximated the carrying values. In addition, the fair value of the Company’s mortgage note receivable and capital lease obligation, which were determined to be Level 3 within the valuation hierarchy, approximated their carrying values as of June 30, 2019 and December 31, 2018, respectively.

The valuations of the assets and liabilities for the Company’s interest rate swaps, which are measured on a recurring basis, were determined to be Level 2 within the valuation hierarchy, and were based on independent values provided by financial institutions. Such valuations were determined using widely accepted valuation techniques, including discounted cash flow analyses, on the expected cash flows of each derivative. The analyses reflect the contractual terms of the swaps, including the period to maturity, and user-observable market-based inputs, including interest rate curves (“significant other observable inputs”). The fair value calculation also includes an amount for risk of non-performance using “significant unobservable inputs” such as estimates of current credit spreads to evaluate the likelihood of default. The Company has concluded that, as of June 30, 2019, the fair value associated with the “significant unobservable inputs” relating to the Company’s risk of non-performance was insignificant to the overall fair value of the interest rate swap agreements and, as a result, that the relevant inputs for purposes of calculating the fair value of the interest rate swap agreements, in their entirety, were based upon “significant other observable inputs”.

Nonfinancial assets and liabilities measured at fair value in the consolidated financial statements consist of real estate held for sale, which, if applicable, are measured on a nonrecurring basis, and have been determined to be (1) Level 2 within the valuation hierarchy, where applicable, based on the respective contracts of sale, adjusted for closing costs and expenses, or (2) Level 3 within the valuation hierarchy, where applicable, based on estimated sales prices, adjusted for closing costs and expenses, determined by discounted cash flow analyses, income capitalization analyses or a sales comparison approach if no contracts had been concluded. The discounted cash flow and income capitalization analyses include all estimated cash inflows and outflows over a specific holding period and, where applicable, any estimated debt premiums. These cash flows were composed of unobservable inputs which included forecasted rental revenues and expenses based upon existing in-place leases, market conditions and expectations for growth. Capitalization rates and discount rates utilized in these analyses were based upon observable rates that the Company believed to be within a reasonable range of current market rates for the respective properties. The sales comparison approach is utilized for certain land values and includes comparable sales that were completed in the selected market areas. The comparable sales utilized in these analyses were based upon observable per acre rates that the Company believes to be within a reasonable range of current market rates for the respective properties.

Valuations were prepared using internally-developed valuation models. These valuations are reviewed and approved, during each reporting period, by a diverse group of management, as deemed necessary, including personnel from the acquisition, accounting, finance, operations, development and leasing departments, and the valuations are updated as appropriate. In addition, the Company may engage third-party valuation experts to assist with the preparation of certain of its valuations.

The following tables show the hierarchy for those assets measured at fair value on a recurring basis as of June 30, 2019 and December 31, 2018, respectively:

 

 

 

June 30, 2019

 

Description

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Investments related to deferred

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

compensation liabilities (a)

 

$

740,000

 

 

$

 

 

$

 

 

$

740,000

 

Deferred compensation liabilities (b)

 

$

738,000

 

 

$

 

 

$

 

 

$

738,000

 

Interest rate swaps asset (a)

 

$

 

 

$

498,000

 

 

$

 

 

$

498,000

 

Interest rate swaps liability (b)

 

$

 

 

$

7,274,000

 

 

$

 

 

$

7,274,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

Description

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Investments related to deferred

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

compensation liabilities (a)

 

$

616,000

 

 

$

 

 

$

 

 

$

616,000

 

Deferred compensation liabilities (b)

 

$

610,000

 

 

$

 

 

$

 

 

$

610,000

 

Interest rate swaps asset (a)

 

$

 

 

$

8,871,000

 

 

$

 

 

$

8,871,000

 

Interest rate swaps liability (b)

 

$

 

 

$

1,576,000

 

 

$

 

 

$

1,576,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) Included in other assets and deferred charges, net in the accompanying consolidated balance sheets.

 

(b) Included in accounts payable and accrued liabilities in the accompanying consolidated balance sheets.

 

 

As of June 30, 2019, one retail property, totaling $1.8 million, was determined to be a Level 3 asset under the hierarchy, and was measured at fair value less cost to sell on a non-recurring basis using an income capitalization approach, consisting of a capitalization rate of 8.5%. In addition, real estate held for sale on the consolidated balance sheet as of June 30, 2019 includes one property for which its fair value exceeds its carrying value.