Fair Value Measurements

9 Months Ended

Sep. 30, 2012

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

Fair Value of Financial Instruments

The following table presents the carrying value and estimated fair value of the Company's financial instruments.

	September 30, 2012				December 31, 2011
	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets:
Investment in marketable securities, net	$	9,347	$	9,347	$	30,385	$	30,385
Financial liabilities:
Mortgages and notes payable	$	2,396,899	$	2,628,980	$	2,926,218	$	3,109,577
Credit facility	$	535,000	$	535,000	$	555,000	$	555,000
Other financings	$	—	$	—	$	8,477	$	8,477
Co-venture obligation	$	—	$	—	$	52,431	$	55,000
Derivative liability	$	3,482	$	3,482	$	2,891	$	2,891

The carrying values shown in the table are included in the condensed consolidated balance sheets under the indicated captions, except for derivative liability, which is included in "Other liabilities."

The fair value of the financial instruments shown in the above table as of September 30, 2012 and December 31, 2011 represent the Company's best estimates of the amounts that would be received to sell those assets or that would be paid to transfer those liabilities in a transaction between market participants at those respective dates. Those fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Company's own judgments about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by the Company based on the best information available in those circumstances.

GAAP specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs). The fair value hierarchy is summarized as follows:

• Level 1 Inputs — Unadjusted quoted market prices for identical assets and liabilities in an active market which the Company has the ability to access.

• Level 2 Inputs — Inputs, other than quoted prices in active markets, which are observable either directly or indirectly.

• Level 3 Inputs — Inputs based on prices or valuation techniques that are both unobservable and significant to the overall fair value measurements.

The guidance requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

Recurring Fair Value Measurements

The following table presents the Company's financial instruments, which are measured at fair value on a recurring basis, by the level in the fair value hierarchy within which those measurements fall. Methods and assumptions used to estimate the fair value of these instruments are described after the table.

	Level 1		Level 2	Level 3	Total
September 30, 2012
Investment in marketable securities, net	$	9,347	—	—	$	9,347
Derivative liability	$	—	3,482	—	$	3,482
December 31, 2011
Investment in marketable securities, net	$	30,385	—	—	$	30,385
Derivative liability	$	—	2,891	—	$	2,891

Investment in marketable securities, net:    Marketable securities classified as available-for-sale are measured using quoted market prices at the reporting date multiplied by the quantity held.

Derivative liability:    The fair value of the derivative liability is determined using a discounted cash flow analysis on the expected future cash flows of each derivative. This analysis utilizes observable market data including forward yield curves and implied volatilities to determine the market's expectation of the future cash flows of the variable component. The fixed and variable components of the derivative are then discounted using calculated discount factors developed based on the LIBOR swap rate and are aggregated to arrive at a single valuation for the period. The Company also incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty's nonperformance risk in the fair value measurements. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of September 30, 2012 and December 31, 2011, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation. As a result, the Company has determined that its derivative valuations in their entirety are classified within Level 2 of the fair value hierarchy. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered any applicable credit enhancements. The Company's derivative instruments are further described in Note 10.

Nonrecurring Fair Value Measurements

As discussed in Note 14, the Company recorded impairment charges to write the carrying value down to estimated fair value for certain investment properties after determining that the carrying value exceeded the projected undiscounted cash flows based upon the estimated holding period for such assets. Estimated fair value is determined by the Company utilizing discounted cash flow models, third-party broker valuation estimates, appraisals, bona fide purchase offers or the expected sales price from an executed sales agreement. Capitalization and discount rates utilized within discounted cash flow models are based upon observable rates that the Company believed to be within a reasonable range of current market rates for the property.

Investment properties measured at fair value on a nonrecurring basis at September 30, 2012 and December 31, 2011, respectively, aggregated by the level within the fair value hierarchy in which those measurements fall are as follows:

	Level 1		Level 2	Level 3	Total		Provision for Impairment of Investment Properties (a)
September 30, 2012
Investment properties (b)	$	—	—	22,472	$	22,472	$	10,660
Investment properties - held for sale (c)	$	—	8,617	—	$	8,617	$	4,879
December 31, 2011
Investment properties (d)	$	—	—	21,439	$	21,439	$	38,023

(a) Excludes impairment charges recorded on investment properties sold prior to September 30, 2012 and December 31, 2011.

(b) Includes impairment charges recorded on five investment properties during the nine months ended September 2012 based upon bona fide purchase offers received by the Company that were subject to management's corroboration for reasonableness. The inputs to the Company's estimates of fair value of these investment properties, none of which have been disposed of prior to September 30, 2012, were determined to be Level 3 inputs.

(c) Includes impairment charges recorded on two investment properties classified as held for sale as of September 30, 2012 based upon expected sales prices from executed sales agreements less estimated selling costs, determined to be Level 2 inputs.

(d) Includes impairment charges recorded on one investment property and one outlot during the year ended December 31, 2011 based upon a discounted cash flow model and a bona fide purchase offer, respectively. Neither asset was disposed of prior to December 31, 2011, however, the investment property was transferred to the lender through a deed-in-lieu of foreclosure transaction on April 10, 2012. The inputs to the Company's estimates of fair value were determined to be Level 3 inputs.

Fair Value Disclosures

The following table presents the Company's financial assets and liabilities, which are measured at fair value for disclosure purposes, by the level in the fair value hierarchy within which they fall. Methods and assumptions used to estimate the fair value of these instruments are described after the table.

	Level 1		Level 2	Level 3	Total
September 30, 2012
Mortgages and notes payable	$	—	—	2,628,980	$	2,628,980
Credit facility	$	—	—	535,000	$	535,000
December 31, 2011
Mortgages and notes payable	$	—	—	3,109,577	$	3,109,577
Credit facility	$	—	—	555,000	$	555,000
Other financings	$	—	—	8,477	$	8,477
Co-venture obligation	$	—	—	55,000	$	55,000

Mortgages and notes payable:    The Company estimates the fair value of its mortgages and notes payable by discounting the future cash flows of each instrument at rates currently offered to the Company for similar debt instruments of comparable maturities by the Company's lenders. The rates used are not directly observable in the marketplace and judgment is used in determining the appropriate rate for each of the Company's individual mortgages and notes payable based upon the specific terms of the agreement, including the term to maturity, the quality and nature of the underlying property and its leverage ratio.

Credit facility:    The carrying value of the Company's credit facility approximates fair value due to the periodic variable rate pricing and the loan pricing spreads based on the Company's leverage ratio.

Other financings:    Other financings on the condensed consolidated balance sheets represent the equity interest of the noncontrolling member in certain consolidated entities where the organizational agreement contained put/call arrangements, which granted the right to the outside owners and the Company to require each entity to redeem the ownership interest in future periods for fixed amounts. The Company believed the fair value of other financings as of December 31, 2011 was the amount at which it would settle, which approximated its carrying value. As discussed in Note 1, no amounts are recorded to other financings as of September 30, 2012 following the redemption of the interests held by the Company's partner in a consolidated joint venture on February 15, 2012.

Co-venture obligation:    The Company estimated the fair value of its co-venture obligation based on the amount at which it believed the obligation would settle and the estimated timing of such payment. On April 26, 2012, the Company paid $55,397, representing the agreed upon repurchase price and accrued but unpaid preferred return to Inland Equity to repurchase the remaining interest in IW JV, resulting in the Company owning 100% of IW JV.

There were no transfers of assets or liabilities between the levels of the fair value hierarchy during the nine months ended September 30, 2012.