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Fair Value Measurements
 12 Months Ended
Jan. 31, 2013
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Fair Value Measurements
The Company’s financial assets and liabilities subject to fair value measurements are interest rate caps, interest rate swap agreements, TRS and borrowings subject to TRS (see Note I - Derivative Instruments and Hedging Activities). The Company’s impairment of real estate and unconsolidated entities are also subject to fair value measurements (see Note L – Land Held for Divestiture, Note T – Impairment of Real Estate, Impairment of Unconsolidated Entities and Write-off of Abandoned Development Projects and Note V - Discontinued Operations and Gain (Loss) on Disposition of Rental Properties).
Fair Value Hierarchy
The accounting guidance related to estimating fair value specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions that other market participants would use based upon market data obtained from independent sources (also referred to as observable inputs). The following summarizes the fair value hierarchy:
•
Level 1 – Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;
•
Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant observable inputs are available, either directly or indirectly, such as interest rates and yield curves that are observable at commonly quoted intervals; and
•
Level 3 – Prices or valuations that require inputs that are unobservable.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
Measurement of Fair Value
The Company estimates the fair value of its hedging instruments based on interest rate market and bond pricing models. Although the Company has determined that the significant inputs used to value its hedging instruments fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with the Company’s counterparties and its own credit risk utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. As of January 31, 2013, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its hedging instruments’ positions and has determined that the credit valuation adjustments are significant to the overall valuation of one interest rate swap and are not significant to the overall valuation of all of its other hedging instruments. As a result, the Company has determined that one interest rate swap is classified in Level 3 of the fair value hierarchy and all of its other hedging instruments valuations are classified in Level 2 of the fair value hierarchy.
The Company’s TRS have termination values equal to the difference between the fair value of the underlying bonds and the bonds base (acquired) price times the stated par amount of the bonds. Upon termination of the contract with the counterparty, the Company is entitled to receive the termination value if the underlying fair value of the bonds is greater than the base price and is obligated to pay the termination value if the underlying fair value of the bonds is less than the base price. The underlying borrowings generally have call features at par and without prepayment penalties. The call features of the underlying borrowings would result in a significant discount factor to any value attributed to the exchange of cash flows in these contracts by another market participant willing to purchase the Company’s positions. Therefore, the Company believes the termination value of the TRS approximates the fair value another market participant would assign to these contracts. The Company compares estimates of fair value to those provided by the respective counterparties on a quarterly basis. The Company has determined its fair value estimate of TRS is classified in Level 3 of the fair value hierarchy.
To determine the fair value of the underlying borrowings subject to TRS, the base price is initially used as the estimate of fair value. The Company adjusts the fair value based upon observable and unobservable measures such as the financial performance of the underlying collateral, interest rate risk spreads for similar transactions and loan to value ratios. In the absence of such evidence, management’s best estimate is used. At January 31, 2013, the notional amount of TRS borrowings subject to fair value adjustments is approximately $266,395,000.
Items Measured at Fair Value on a Recurring Basis
The Company’s financial assets consist of interest rate caps, interest rate swap agreements and TRS with positive fair values that are included in other assets. The Company’s financial liabilities consist of interest rate swap agreements and TRS with negative fair values that are included in accounts payable, accrued expenses and other liabilities and borrowings subject to TRS included in mortgage debt and notes payable, nonrecourse. The Company records the redeemable noncontrolling interest related to Brooklyn Arena, LLC at redemption value, which approximates fair value.
The following table presents information about the Company’s financial assets and liabilities and redeemable noncontrolling interest that were measured at fair value on a recurring basis, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.
 
Fair Value Measurements
 
January 31, 2013
  
Level 1
Level 2
Level 3
Total
 
(in thousands)
Interest rate caps
$
—

$
7

$
—

$
7

Interest rate swap agreements (positive fair value)
—

241

—

241

Interest rate swap agreements (negative fair value)
—

(3,016
)
(126,506
)
(129,522
)
TRS (positive fair value)
—

—

21,066

21,066

TRS (negative fair value)
—

—

(26,202
)
(26,202
)
Fair value adjustment to the borrowings subject to TRS
—

—

9,950

9,950

Redeemable noncontrolling interest
—

—

(239,136
)
(239,136
)
Total
$
—

$
(2,768
)
$
(360,828
)
$
(363,596
)
 
 
 
 
 
 
January 31, 2012
  
Level 1
Level 2
Level 3
Total
 
(in thousands)
Interest rate caps
$
—

$
13

$
—

$
13

Interest rate swap agreements (positive fair value)
—

1,083

—

1,083

Interest rate swap agreements (negative fair value)
—

(5,396
)
(143,303
)
(148,699
)
TRS (positive fair value)
—

—

10,308

10,308

TRS (negative fair value)
—

—

(25,321
)
(25,321
)
Fair value adjustment to the borrowings subject to TRS
—

—

9,180

9,180

Redeemable noncontrolling interest
—

—

(229,149
)
(229,149
)
Total
$
—

$
(4,300
)
$
(378,285
)
$
(382,585
)

The following table below presents a reconciliation of financial assets and liabilities and redeemable noncontrolling interest measured at fair value on a recurring basis using significant unobservable inputs (Level 3).
 
Fair Value Measurements
  
Redeemable
Noncontrolling
Interest
 
Interest Rate
Swaps
 
Net
TRS
Fair value
adjustment
to the borrowings
subject to TRS
Total
TRS
Related
 
Total
 
(in thousands)
Balance, February 1, 2011
$
(226,829
)
 
$
(102,387
)
 
$
(30,034
)
$
21,938

$
(8,096
)
 
$
(337,312
)
Loss attributable to redeemable noncontrolling interest
4,567

 
—

 
—

—

—

 
4,567

Total realized and unrealized gains (losses):
 
 
 
 
 
 
 
 
 
Included in earnings
—

 
—

 
14,118

(11,855
)
2,263

 
2,263

Included in other comprehensive income
—

 
(40,916
)
 
—

—

—

 
(40,916
)
Included in additional paid-in capital
(6,887
)
 
—

 
—

—

—

 
(6,887
)
Settlement
—

 
—

 
903

(903
)
—

 
—

Balance, January 31, 2012
$
(229,149
)
 
$
(143,303
)
 
$
(15,013
)
$
9,180

$
(5,833
)
 
$
(378,285
)
Transfers in
—

 
—

 
(2,125
)
—

(2,125
)
 
(2,125
)
Contribution from redeemable noncontrolling interest
(11,348
)
 
—

 
—

—

—

 
(11,348
)
Loss attributable to redeemable noncontrolling interest
9,785

 
—

 
—

—

—

 
9,785

Total realized and unrealized gains (losses):
 
 
 
 
 
 
 
 
 
Included in earnings
—

 
—

 
11,798

770

12,568

 
12,568

Included in noncontrolling interest
—

 
—

 
204

—

204

 
204

Included in other comprehensive income
—

 
16,797

 
—

—

—

 
16,797

Included in additional paid-in capital
(8,424
)
 
—

 
—

—

—

 
(8,424
)
Balance, January 31, 2013
$
(239,136
)
 
$
(126,506
)
 
$
(5,136
)
$
9,950

$
4,814

 
$
(360,828
)

The following table presents quantitative information about the significant unobservable inputs used to estimate the fair value of financial instruments measured on a recurring basis as of January 31, 2013.
 
Quantitative Information about Level 3 Fair Value Measurements
 
Fair Value January 31, 2013
Valuation
Technique
Unobservable
Input
Range of
Input Values
 
(in thousands)
 
 
 
Credit valuation adjustment of interest rate swap
$
11,925

Potential future exposure
Credit spreads
1.60(1) - 4.25%
TRS
$
(5,136
)
Third party bond pricing
Bond quote
84.41 - 108.24(1)
Fair value adjustment to the borrowings subject to TRS
$
9,950

Third party bond pricing
Bond quote
84.41 - 100.23(1)
Redeemable noncontrolling interest
$
(239,136
)
Discounted cash flows
Discount rate
9.3%
(1)
This fair value measurement was developed by third party service providers, subject to the Company’s corroboration for reasonableness.
Third party service providers involved in fair value measurements are evaluated for competency and qualifications on an ongoing basis. Fair value measurements, including unobservable inputs, are evaluated for reasonableness based on current transactions and experience in the real estate and capital markets.
The Company does not deem the impact of changes in unobservable inputs used to determine the fair market value of the credit valuation adjustment, TRS and fair value adjustment to the borrowings subject to TRS to be significant; however, changes in the discount rate used to determine the fair market value of the redeemable noncontrolling interest could have a significant impact on its fair market value.
Fair Value of Other Financial Instruments
The carrying amount of notes and accounts receivable and accounts payable, accrued expenses and other liabilities approximates fair value based upon the short-term nature of the instruments. The Company estimates the fair value of its debt instruments by discounting future cash payments at interest rates that the Company believes approximate the current market. Estimated fair value is based upon market prices of public debt, available industry financing data, current treasury rates and recent financing transactions. The fair value of the Company’s debt instruments is classified as Level 2 in the fair value hierarchy.
The following table summarizes the fair value of nonrecourse mortgage debt and notes payable, bank revolving facility, senior and subordinated debt and nonrecourse mortgage debt and notes payable of land held for divestiture:
 
January 31, 2013
 
January 31, 2012
 
Carrying Value
Fair Value
 
Carrying Value
Fair Value
 
(in thousands)
Fixed Rate Debt
$
4,791,113

$
5,147,849

 
$
4,458,214

$
4,719,636

Variable Rate Debt
1,982,516

2,047,369

 
2,239,838

2,341,862

Total
$
6,773,629

$
7,195,218

 
$
6,698,052

$
7,061,498