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Fair Value Measurements

9 Months Ended

Sep. 30, 2019

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 and under current market conditions. 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 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 $3,283,919 and $3,740,431 at September 30, 2019 and December 31, 2018, respectively. The fair value was calculated using Level 2 inputs by discounting future cash flows for mortgage and other indebtedness using estimated market rates at which similar loans would be made currently.

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 ("NOI"), 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 experience impairment, the Company classifies such long-lived assets under Level 3 in the fair value hierarchy. Level 3 inputs primarily consist of sales and market data, independent valuations and discounted cash flow models.

Long-lived Assets Measured at Fair Value in 2019

The following table sets forth information regarding the Company's assets that are measured at fair value on a nonrecurring basis and related impairment charges for the nine months ended September 30, 2019:



			Fair Value Measurements at Reporting Date Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Loss on Impairment
Long-lived assets	$	160,740	$	—	$	—	$	160,740	$	202,121

During the nine months ended September 30, 2019, the Company recognized impairments of real estate of $202,121 related to five malls and one community center.

Impairment Date

Property

Location

Segment

Classification

Loss on

Impairment

Fair

Value

March

Greenbrier Mall ⁽¹⁾

Chesapeake, VA

Malls

22,770

56,300

March/April

Honey Creek Mall ⁽²⁾

Terre Haute, IN

Malls

2,045

—

June

The Forum at Grandview ⁽³⁾

Madison, MS

All Other

8,582

—

June

EastGate Mall ⁽⁴⁾

Cincinnati, OH

Malls

33,265

25,100

September

Mid Rivers Mall ⁽⁵⁾

St. Peters, MO

Malls

83,621

53,340

September

Laurel Park Place ⁽⁶⁾

Livonia, MI

Malls

52,067

26,000

January/March

Other adjustments ⁽⁷⁾

Various

Malls

(229

)

—

202,121

160,740

(1)

In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $56,300. The mall has experienced a decline in cash flows due to store closures and rent reductions. Additionally, one anchor was vacant as of the date of impairment. Management determined the fair value of Greenbrier Mall using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 11.0% and a discount rate 11.5%.


(2)	During the quarter ended March 31, 2019, the Company adjusted the book value of the mall to the net sales price of $14,360 based on a signed contract with a third party buyer, adjusted to reflect estimated disposition costs. The mall was sold in April 2019 and $(239) was recorded related to a true-up of closing costs. See Note 6 for additional information.


(3)	The Company adjusted the book value to the net sales price of $31,559 based on a signed contract with a third party buyer, adjusted to reflect estimated disposition costs. The property was classified as held for sale at June 30, 2019 and was sold in July 2019. See Note 6 for additional information.

(4)

In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $25,100. The mall has experienced a decline in cash flows due to store closures and rent reductions. Management determined the fair value of EastGate Mall using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 14.5% and a discount rate 15.0%.

(5)

In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $53,340. The mall has experienced a decline in cash flows due to store closures and rent reductions. Management determined the fair value of Mid Rivers Mall using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 12.5% and a discount rate 13.25%.

(6)

In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $26,000. The mall has experienced a decline in cash flows due to store closures and rent reductions. Management determined the fair value of Laurel Park Place using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 13.5% and a discount rate 14.0%.


(7)	Related to true-ups of estimated expenses to actual expenses for properties sold in prior periods.

Long-lived Assets Measured at Fair Value in 2018

The following table sets forth information regarding the Company's assets that were measured at fair value on a nonrecurring basis and related impairment charges for the nine months ended September 30, 2018:



			Fair Value Measurements at Reporting Date Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Loss on Impairment
Long-lived assets	$	42,100	$	—	$	—	$	42,100	$	84,644

During the nine months ended September 30, 2018, the Company recognized impairments of real estate of $84,644 related to two malls and undeveloped land:

Impairment Date

Property

Location

Segment

Classification

Loss on

Impairment

Fair

Value

March

Janesville Mall ⁽¹⁾

Janesville, WI

Malls

18,061

—

⁽²⁾

June

Cary Towne Center ⁽³⁾

Cary, NC

Malls

51,985

34,000

September

Vacant land ⁽⁴⁾

D'Iberville, MS

All Other

14,598

8,100

84,644

42,100


(1)	The Company adjusted the book value of the mall to the net sales price of $17,640 in a signed contract with a third party buyer, adjusted to reflect estimated disposition costs. The mall was sold in July 2018.


(2)	The long-lived asset was not included in the Company's condensed consolidated balance sheets at December 31, 2018 as the Company no longer had an interest in the property.

(3)

In June 2018, the Company was notified by IKEA that, as a result of a shift in its corporate strategy, it was terminating the contract to purchase land at the mall upon which it would develop and open a store. Under the terms of the interest-only non-recourse loan secured by the mall, the loan matures on the date the IKEA contract terminates if that date is prior to the scheduled maturity date of March 5, 2019. The Company engaged in conversations with the lender regarding a potential restructure of the loan. Based on the results of these conversations, the Company concluded that an impairment was required because it was unlikely to recover the asset's net carrying value through future cash flows. The Company wrote down the book value of the mall to its estimated fair value of $34,000. Management determined the fair value of Cary Towne Center using a discounted cash flow methodology. The discounted cash flow used assumptions including a 10-year holding period, a capitalization rate of 12.0% and a discount rate of 13%. See Note 8 for additional information.

(4)

In accordance with the Company's quarterly impairment review process, the Company wrote down the book value of land to its estimated value of $8,100. The Company evaluated comparable land parcel transactions and determined that $8,100 was the land's estimated fair value.

- 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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