Fair Value Measurements

9 Months Ended

Sep. 30, 2012

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The Company has categorized its financial assets and financial liabilities that are recorded at fair value into a hierarchy in accordance with ASC 820, Fair Value Measurements and Disclosure, ("ASC 820") based on whether the inputs to valuation techniques are observable or unobservable.  The fair value hierarchy contains three levels of inputs that may be used to measure fair value as follows:

Level 1 – Inputs represent quoted prices in active markets for identical assets and liabilities as of the measurement date.

Level 2 – Inputs, other than those included in Level 1, represent observable measurements for similar instruments in active markets, or identical or similar instruments in markets that are not active, and observable measurements or market data for instruments with substantially the full term of the asset or liability.

Level 3 – Inputs represent unobservable measurements, supported by little, if any, market activity, and require considerable assumptions that are significant to the fair value of the asset or liability.  Market valuations must often be determined using discounted cash flow methodologies, pricing models or similar techniques based on the Company’s assumptions and best judgment.

The asset or liability's fair value within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Under ASC 820, fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability in an orderly transaction at the measurement date. Valuation techniques used maximize the use of observable inputs and minimize the use of unobservable inputs and consider assumptions such as inherent risk, transfer restrictions, and risk of nonperformance.

Fair Value Measurements on a Recurring Basis

The following tables set forth information regarding the Company’s financial instruments that are measured at fair value on a recurring basis in the accompanying condensed consolidated balance sheets as of September 30, 2012 and December 31, 2011:

			Fair Value Measurements at Reporting Date Using
	Fair Value at September 30, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Available-for-sale securities	$	27,614	$	15,785	$	—	$	11,829
Privately held debt and equity securities	2,475		—		—		2,475
Interest rate cap	—		—		—		—
Liabilities:
Interest rate swaps	$	6,313	$	—	$	6,313	$	—

			Fair Value Measurements at Reporting Date Using
	Fair Value at December 31, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Available-for-sale securities	$	30,613	$	18,784	$	—	$	11,829
Privately held debt and equity securities	2,475		—		—		2,475
Liabilities:
Interest rate swaps	$	5,617	$	—	$	5,617	$	—

The Company recognizes transfers in and out of every level at the end of each reporting period. There were no transfers between Levels 1, 2, or 3 for all periods presented.

Intangible lease assets and other assets in the condensed consolidated balance sheets include marketable securities consisting of corporate equity securities, mortgage/asset-backed securities, mutual funds and bonds that are classified as available for sale.  Net unrealized gains and losses on available-for-sale securities that are deemed to be temporary in nature are recorded as a component of accumulated other comprehensive income in redeemable noncontrolling interests, shareholders’ equity and noncontrolling interests.  If a decline in the value of an investment is deemed to be other than temporary, the investment is written down to fair value and an impairment loss is recognized in the current period to the extent of the decline in value. During the three and nine months ended September 30, 2012 and 2011, the Company did not record any write-downs related to other-than-temporary impairments.  During the nine month period ended September 30, 2012, the Company recognized realized gains of $160 related to sales of marketable securities. During the nine months ended September 30, 2011, the Company recognized realized losses of $22 related to sales of marketable securities.  The fair values of the Company’s available-for-sale securities that are based on quoted market prices are classified under Level 1.  Tax increment financing bonds ("TIF bonds") are classified as Level 3. The following is a summary of the available-for-sale securities held by the Company as of September 30, 2012 and December 31, 2011:

			Gross Unrealized
	Adjusted Cost		Gains		Losses			Fair Value
September 30, 2012:
Common stocks	$	4,207	$	11,583	$	(5	)	$	15,785
Government and government sponsored entities	13,371		—		(1,542		)	11,829
	$	17,578	$	11,583	$	(1,547	)	$	27,614

			Gross Unrealized
	Adjusted Cost		Gains		Losses			Fair Value
December 31, 2011:
Common stocks	$	4,207	$	9,480	$	(5	)	$	13,682
Mutual funds	928		23		—			951
Mortgage/asset-backed securities	1,717		10		(4		)	1,723
Government and government sponsored entities	15,058		45		(1,542		)	13,561
Corporate bonds	636		26		—			662
International bonds	33		1		—			34
	$	22,579	$	9,585	$	(1,551	)	$	30,613

The Company uses interest rate swaps and caps to mitigate the effect of interest rate movements on its variable-rate debt.  The Company had four interest rate swaps and one interest rate cap as of September 30, 2012 and December 31, 2011, that qualify as hedging instruments and are designated as cash flow hedges.  The interest rate cap is included in intangible lease assets and other assets and the interest rate swaps are reflected in accounts payable and accrued liabilities in the accompanying condensed consolidated balance sheets.  The swaps and cap have predominantly met the effectiveness test criteria since inception and changes in their fair values are, thus, primarily reported in other comprehensive income (loss) and are reclassified into earnings in the same period or periods during which the hedged items affect earnings.  The fair values of the Company’s interest rate hedges, classified under Level 2, are determined based on prevailing market data for contracts with matching durations, current and anticipated London Interbank Offered Rate (“LIBOR”) information, consideration of the Company’s credit standing, credit risk of the counterparties and reasonable estimates about relevant future market conditions.  See Note 6 for further information regarding the Company’s interest rate hedging instruments.

The carrying values of cash and cash equivalents, receivables, accounts payable and accrued liabilities are reasonable estimates of their fair values because of the short-term nature of these financial instruments.  Based on the interest rates for similar financial instruments, the carrying value of mortgage and other notes receivable is a reasonable estimate of fair value.  The estimated fair value of mortgage and other indebtedness was $5,153,568 and $4,836,028 at September 30, 2012 and December 31, 2011, respectively.  The fair value was calculated by discounting future cash flows for mortgage and other indebtedness using estimated market rates at which similar loans would be made currently.

The Company holds TIF bonds, which mature in 2028, received in a private placement as consideration for infrastructure improvements made by the Company related to the development of a community center. The Company has the intent and ability to hold the TIF bonds through the recovery period. To value the TIF bonds at September 30, 2012, the Company performed a probability-weighted discounted cash flow analysis using various bond redemption scenarios and a net present value based on a discount rate of 7% and a lack of marketability discount of 5%. The valuation assumes a 5% long-term revenue growth rate. Due to the significant unobservable estimates and assumptions used in the valuation of the TIF bonds, the Company has classified the TIF bonds under Level 3 in the fair value hierarchy. There were no changes in the $11,829 classified as available-for-sale securities (Level 3) for the period from December 31, 2011 through September 30, 2012.

The Company holds a secured convertible promissory note from Jinsheng Group (“Jinsheng”), in which the Company also holds a cost-method investment.  The secured convertible note is non-interest bearing and is secured by shares of Jinsheng.  Since the secured convertible note is non-interest bearing and there is no active market for Jinsheng’s debt, the Company performed a probability-weighted discounted cash flow analysis using various sale, redemption and initial public offering ("IPO") exit strategies. The fair value analysis as of September 30, 2012 forecasts a 0% to 10% reduction in estimated cash flows. Sale and IPO scenarios employ capitalization rates ranging from 10% to 12% which are discounted 20% for lack of marketability. Due to the significant unobservable estimates and assumptions used in the valuation of the note, the Company has classified it under Level 3 in the fair value hierarchy.  Based on the valuation as of September 30, 2012, the Company determined that the current balance of the secured convertible note of $2,475 is not impaired.  There were no changes in the $2,475 classified as privately held debt and equity securities (Level 3) for the period from December 31, 2011 through September 30, 2012. See Notes 5 and 15 for further discussion.

The significant unobservable inputs used in the fair value measurement of the TIF bonds are the forecasted growth in sales and marketability discount. The significant unobservable inputs used in the fair value measurement of the Jinsheng note include revenue estimates and marketability discount. Significant increases (decreases) in revenues could result in a significantly higher (lower) fair value measurement whereas significant increases (decreases) in the marketability discount could result in a significantly lower (higher) fair value measurement.

Fair Value Measurements on a Nonrecurring Basis

The Company measures the fair value of certain long-lived assets on a nonrecurring basis, through quarterly impairment testing or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company considers both quantitative and qualitative factors in its impairment analysis of long-lived assets. Significant quantitative factors include historical and forecasted information for each property such as net operating income, occupancy statistics and sales levels. Significant qualitative factors used include market conditions, age and condition of the property and tenant mix. Due to the significant unobservable estimates and assumptions used in the valuation of long-lived assets that experienced impairment, the Company has classified them under Level 3 in the fair value hierarchy. The fair value analysis for long-lived assets as of September 30, 2012 used various probability-weighted scenarios comparing the property's net book value to the sum of its estimated fair value. Assumptions included up to a 10-year holding period with a sale at the end of the holding period, capitalization rates ranging from 10% to 12%, and an estimated sales cost of 1%.

The following table sets forth information regarding the Company's assets that are measured at fair value on a nonrecurring basis:

			Fair Value Measurements at Reporting Date Using
	Fair Value at September 30, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Losses
Assets:
Long-lived assets	$	27,043	$	—	$	—	$	27,043	$	20,743

In accordance with the Company's quarterly impairment review process, the Company recorded a non-cash impairment of real estate of $3,000 in the third quarter of 2012 related to The Courtyard at Hickory Hollow, an associated center located in Antioch, TN, to write-down the depreciated book value as of September 30, 2012 from $5,843 to an estimated fair value of $2,843 as of the same date.

Additionally during the third quarter of 2012, the Company recorded a non-cash impairment of real estate of $17,743 to write-down the depreciated book value of Willowbrook Plaza, a community center located in Houston, TX, from $41,943 as of September 30, 2012 to an estimated fair value of $24,200 as of the same date.

The revenues of The Courtyard at Hickory Hollow and Willowbrook Plaza accounted for approximately 0.5% of total consolidated revenues for the trailing twelve months ended September 30, 2012. A reconciliation of each property's carrying values for the nine months ended September 30, 2012 is as follows:

	The Courtyard at Hickory Hollow			Willowbrook Plaza			Total
Beginning carrying value, January 1, 2012	$	5,754		$	42,666		$	48,420
Capital expenditures	191			98			289
Depreciation expense	(102		)	(821		)	(923		)
Loss on impairment of real estate	(3,000		)	(17,743		)	(20,743		)
Ending carrying value, September 30, 2012	$	2,843		$	24,200		$	27,043

The Company recorded an impairment of real estate of $911 related to the sale of two outparcels in July 2012. One outparcel was sold for net proceeds after selling costs of $276, which was less than its carrying amount of $914. The other outparcel was sold for net proceeds after selling costs of $541, which was less than its carrying amount of $814.

See Note 4 regarding impairments of real estate related to properties included in discontinued operations.