11. Impairment Charges and Impairment of Joint Venture Investments

The Company recorded impairment charges based on the difference between the carrying value of the assets or investments and the estimated fair market value as follows (in millions):


	For the Year Ended December 31,
	2012		2011		2010
Land held for development^(A)	$	10.1	$	54.2	$	54.3
Undeveloped land^(B),(C)		20.1		9.0		30.5
Assets marketed for sale^(C)		75.2		4.7		—

Total continuing operations	$	105.4	$	67.9	$	84.8

Sold assets		21.1		57.9		51.8
Assets formerly occupied by Mervyns^(D)		—		—		35.3

Total discontinued operations	$	21.1	$	57.9	$	87.1

Joint venture investments^(E)		26.7		2.9		0.2

Total impairment charges	$	153.2	$	128.7	$	172.1

(A)

Amounts reported in the year ended December 31, 2012, primarily related to land held for development in Canada that was owned through a consolidated joint venture (Note 13). This asset impairment was triggered primarily by the Company’s decision to dispose of its interest in lieu of development and the related execution of agreements for the sale of its interest in this project to its partner.

Amounts reported in the year ended December 31, 2011, primarily related to the Yaroslavl Project and land held for development in Canada that were owned through consolidated joint ventures. The Company’s proportionate share of the loss was $50.4 million after adjusting for the allocation of loss to the non-controlling interest in certain of the projects. The asset impairments primarily were triggered by the Company’s decision to dispose of its interest in lieu of development for certain of the projects and the related execution of agreements for the sale or partial sale of its interest in these projects. The Company sold its interest in the land held for development in Canada in the fourth quarter of 2011 to its joint venture partner in the project (Note 13). The Yaroslavl Project was sold to a third party in the first quarter of 2012 (Note 13).

Amounts reported in the year ended December 31, 2010, primarily related to land held for development in Russia that included the Yaroslavl Project, which is owned through a consolidated joint venture. The Company’s proportionate share of the loss was $41.9 million after adjusting for the allocation of loss to the non-controlling interest. The asset impairments were triggered in the second quarter of 2010 primarily due to a change in the Company’s investment plans for these projects.

(B)

Amounts reported in 2010 include a $19.3 million impairment charge associated with an abandoned development project. A subsidiary of the Company’s TRS acquired a leasehold interest in a development project in Norwood, Massachusetts, as part of a portfolio acquisition in 2003. The Company no longer expected to fund the ground rent expense in 2010, which triggered the impairment, and the ground lease was subsequently terminated in 2011.

(C)	These charges were triggered primarily due to the Company’s marketing of these assets for sale and management’s assessment of the likelihood and timing of a potential transaction.

(D)

As discussed in Notes 1 and 12, these assets were deconsolidated in 2010, and all operating results have been reclassified as discontinued operations. For the year ended December 31, 2010, the Company’s proportionate share of these impairment charges was $16.5 million after adjusting for the allocation of loss to the non-controlling interest in this previously consolidated joint venture. The 2010 impairment charges were triggered primarily due to a change in the Company’s business plans for these assets and the resulting impact on its holding period assumptions for this substantially vacant portfolio. During 2010, the Company determined it was no longer committed to the long-term management and investment in these assets.

(E)

Represents “other than temporary impairment” charges on unconsolidated joint venture investments. In 2012, the Company recorded a $26.1 million charge related to its interest in the Coventry II DDR Montgomery Farm LLC joint venture that owned a mixed-use project located in Allen, TX. The Company determined that its investment had suffered an other than temporary impairment due to deteriorating relations between the lender and the Company’s partner and the resulting impact on the asset’s value. In September 2012, the Company satisfied its remaining guaranty of the construction loan. In November 2012, the Company sold its interest in the joint venture.

Items Measured at Fair Value on a Non-Recurring Basis

The Company is required to assess the fair value of certain impaired consolidated and unconsolidated joint venture investments. The valuation of impaired real estate assets and investments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each asset as well as the income capitalization approach considering prevailing market capitalization rates, analysis of recent comparable sales transactions, actual sales negotiations and bona fide purchase offers received from third parties and/or consideration of the amount that currently would be required to replace the asset, as adjusted for obsolescence. In general, the Company considers multiple valuation techniques when measuring fair value of an investment. However, in certain circumstances, a single valuation technique may be appropriate.

For operational real estate assets, the significant assumptions included the capitalization rate used in the income capitalization valuation as well as the projected property net operating income. For projects under development, the significant assumptions included the discount rate, the timing and the estimated costs for the construction completion and project stabilization, projected net operating income and the exit capitalization rate. For investments in unconsolidated joint ventures, the Company also considered the valuation of any underlying joint venture debt. These valuation adjustments were calculated based on market conditions and assumptions made by management at the time the valuation adjustments were recorded, which may differ materially from actual results if market conditions or the underlying assumptions change.

Items Measured at Fair Value on a Non-Recurring Basis

The following table presents information about the Company’s impairment charges on both financial and nonfinancial assets that were measured on a fair value basis for the years ended December 31, 2012, 2011 and 2010. The table also indicates the fair value hierarchy of the valuation techniques used by the Company to determine such fair value (in millions).


	Fair Value Measurements
	Level 1		Level 2		Level 3		Total		Total Losses
December 31, 2012
Long-lived assets held and used	$	—	$	—	$	180.7	$	180.7	$	126.5
Unconsolidated joint venture investments		—		—		4.7		4.7		26.7
Deconsolidated joint venture investment		—		—		56.1		56.1		9.3
December 31, 2011
Long-lived assets held and used and held for sale		—		—		212.0		212.0		125.8
Unconsolidated joint venture investments		—		—		5.5		5.5		2.9
December 31, 2010
Long-lived assets held and used		—		—		229.2		229.2		171.9
Unconsolidated joint venture investments		—		—		—		—		0.2

The following table presents quantitative information about the significant unobservable inputs used by the Company to determine the fair value of non-recurring items (in millions):


	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at 12/31/12		Valuation Technique	Unobservable Input	Range
Impairment of consolidated assets	$	136.6	Indicative Bid	Indicative Bid	N/A^(A)
Impairment of consolidated assets		44.1	Income Capitalization Approach^(B)	Market Capitalization Rate	8% - 12%^(B)
				Price Per Square Foot	$15 to $47 per square foot^(B)
Impairment of joint venture investments		4.7	Income Capitalization Approach	Market Capitalization Rate	8%^(C)
Impairment of joint venture investments		—	Discounted Cash Flow	Discount Rate	11%
				Terminal Capitalization Rate	5.5% - 8.5%
Deconsolidated joint venture investment^(D)		56.1	Discounted Cash Flow	Discount Rate	8% - 15%

(A)	These fair value measurements were developed by third-party sources, subject to the Company’s corroboration for reasonableness.

(B)	Vacant space in certain assets was valued on a price per square foot.

(C)	The fair value measurements also include consideration of the fair market value of debt. These inputs are further described in the debt section of Note 8.

(D)	Related to loss reported in Change in Control and Sale of Interests (Note 2).