Fair Value Measurements

6 Months Ended

Jun. 30, 2014

Fair Value Measurements on a Recurring Basis

The Company’s financial assets consist of interest rate caps, interest rate swap agreements and TRS with positive fair values included in other assets. The Company’s financial liabilities consist of interest rate swap agreements and TRS with negative fair values included in accounts payable, accrued expenses and other liabilities and borrowings subject to TRS included in mortgage debt and notes payable, nonrecourse (see Note E – Derivative Instruments and Hedging Activities).

The Company records the redeemable noncontrolling interest related to Brooklyn Arena, LLC at redemption value, which approximates fair value. In the event the book value of the redeemable noncontrolling interest, which represents initial cost, adjusted for contributions, distributions and the allocation of profits or losses, is in excess of estimated fair value, the Company records the redeemable noncontrolling interest at book value.

As of December 31, 2013, the fair value of the redeemable noncontrolling interest was incorrectly recorded and presented at less than the book value. Management evaluated the impact of the error and determined that the previously issued financial statements were not materially misstated. Additionally, management determined the impact of correcting the presentation of the redeemable noncontrolling interest is not material to the current period financial statements. Accordingly, at March 31, 2014, the Company corrected the carrying value of the redeemable noncontrolling interest by recording an adjustment of $28,390,000 to increase the redeemable noncontrolling interest. Such amount should have been reflected at December 31, 2013.

The following table presents information about 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
	June 30, 2014
	Level 1		Level 2			Level 3			Total
	(in thousands)
Interest rate caps	$	—	$	214		$	—		$	214
Interest rate swap agreements (liabilities)	—		(503		)	(88,143		)	(88,646		)
TRS (assets)	—		—			5,433			5,433
TRS (liabilities)	—		—			(26,893		)	(26,893		)
Fair value adjustment to the borrowings subject to TRS	—		—			6,658			6,658
Redeemable noncontrolling interest ⁽¹⁾	—		—			(192,942		)	(192,942		)
Total	$	—	$	(289	)	$	(295,887	)	$	(296,176	)

	December 31, 2013
	(in thousands)
Interest rate caps	$	—	$	155		$	—		$	155
Interest rate swap agreements (liabilities)	—		(498		)	(97,360		)	(97,858		)
TRS (assets)	—		—			903			903
TRS (liabilities)	—		—			(25,249		)	(25,249		)
Fair value adjustment to the borrowings subject to TRS	—		—			8,869			8,869
Redeemable noncontrolling interest	—		—			(171,743		)	(171,743		)
Total	$	—	$	(343	)	$	(284,580	)	$	(284,923	)


(1)	As of June 30, 2014, the redeemable noncontrolling interest is recorded at book value.

The following table presents a reconciliation of all 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)
Six Months Ended June 30, 2014
Balance, January 1, 2014	$	(171,743	)	$	(97,360	)	$	(24,346	)	$	8,869		$	(15,477	)	$	(284,580	)
Loss attributable to redeemable noncontrolling interest	7,191			—			—			—			—			7,191
Total realized and unrealized gains (losses):
Included in earnings	—			—			2,886			(2,211		)	675			675
Included in other comprehensive income	—			9,217			—			—			—			9,217
Included in additional paid-in capital	(28,390		)	—			—			—			—			(28,390		)
Balance, June 30, 2014	$	(192,942	)	$	(88,143	)	$	(21,460	)	$	6,658		$	(14,802	)	$	(295,887	)
Six Months Ended June 30, 2013
Balance, January 1, 2013	$	(240,790	)	$	(131,634	)	$	(6,108	)	$	9,890		$	3,782		$	(368,642	)
Loss attributable to redeemable noncontrolling interest	11,373			—			—			—			—			11,373
Total realized and unrealized gains (losses):
Included in earnings	—			—			(1,621		)	(104		)	(1,725		)	(1,725		)
Included in other comprehensive income	—			23,589			—			—			—			23,589
Included in additional paid-in capital	(2,237		)	—			—			—			—			(2,237		)
Balance, June 30, 2013	$	(231,654	)	$	(108,045	)	$	(7,729	)	$	9,786		$	2,057		$	(337,642	)

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 June 30, 2014:



	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value June 30, 2014			Valuation Technique	Unobservable Input	Input Values
	(in thousands)
Credit valuation adjustment of interest rate swap	$	5,283		Potential future exposure	Credit spread	4.00%
TRS	$	(21,460	)	Bond quote	Discount rate	N/A⁽¹⁾
					Capitalization rate	N/A⁽¹⁾
Fair value adjustment to the borrowings subject to TRS	$	6,658		Bond quote	Discount rate	N/A⁽¹⁾
					Capitalization rate	N/A⁽¹⁾


(1)	The Company does not have access to certain significant unobservable inputs used by these third parties to determine these fair values.

Third party service providers involved in fair value measurements are evaluated for competency and qualifications. Fair value measurements, including unobservable inputs, are evaluated based on current transactions and experience in the real estate and capital markets.

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 are not deemed to be significant.

Fair Value of Other Financial Instruments

The carrying amount of notes and accounts receivable, excluding the Stapleton advances, and accounts payable, accrued expenses and other liabilities approximates fair value based upon the short-term nature of the instruments. The carrying amount of the Stapleton advances approximates fair value since the interest rates on these advances approximates current market rates. 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, recent financing transactions and loan to value ratios. The fair value of the Company’s debt instruments is classified as Level 3 in the fair value hierarchy.

The following table summarizes the fair value of nonrecourse mortgage debt and notes payable (exclusive of the fair value of derivatives), revolving credit facility, convertible senior debt and nonrecourse mortgage debt of development property held for sale:



	June 30, 2014				December 31, 2013
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Fixed Rate Debt	$	2,925,164	$	3,257,591	$	3,281,337	$	3,488,406
Variable Rate Debt	2,118,939		2,108,459		1,998,169		1,954,136
Total	$	5,044,103	$	5,366,050	$	5,279,506	$	5,442,542

Impairment of real estate and unconsolidated entities is also subject to fair value measurements (see Note J – Impairment of Real Estate and Impairment of Unconsolidated Entities).

- 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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