Fair Value Measurements

In accordance with ASC 820, Fair Value Measurement and Disclosures, the Company defines fair value based on the price that would be received upon sale of an asset or the exit price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value. The fair value hierarchy consists of the three broad levels described below:


•	Level 1 - Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.


•	Level 2 - Observable inputs, other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.


•	Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The Company has estimated the fair value of its financial and non-financial instruments using available market information and valuation methodologies the Company believes to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of amounts that would be realized upon disposition.

Recurring Measurements

For assets and liabilities measured at fair value on a recurring basis, quantitative disclosure of the fair value for each major category of assets and liabilities is presented below:



	Fair Value Measurements at December 31, 2018
	Level 1		Level 2		Level 3
Derivative interest rate swaps	$	—	$	1,637	$	—
Total assets	$	—	$	1,637	$	—



	Fair Value Measurements at December 31, 2017
	Level 1		Level 2		Level 3
Available-for-sale marketable securities	$	4,431	$	—	$	—
Real estate related bonds	—		327		—
Derivative interest rate swaps	—		1,670		—
Total assets	$	4,431	$	1,997	$	—

Level 1

At December 31, 2018, the Company had no level one recurring fair value measurements. At December 31, 2017 the fair value of the marketable equity securities has been determined based upon quoted market prices.

Level 2

To calculate the fair value of the real estate related bonds and the derivative interest rate instruments, the Company primarily uses quoted prices for similar securities and contracts. For the real estate related bonds, the Company reviews price histories for similar market transactions. For the derivative interest rate instruments, the Company uses inputs based on data that is observed in the forward yield curve that is widely observable in the marketplace. 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 which utilizes Level 3 inputs, such as estimates of current credit spreads.

As of December 31, 2018 and 2017, the Company determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company's derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Level 3

At December 31, 2018 and 2017, the Company had no level three recurring fair value measurements.

Non-Recurring measurements

Investment properties, continuing operations

During the year ended December 31, 2018, the Company identified three retail properties that had reductions in the expected holding periods. The Company's estimated fair value was based on executed purchase contracts. The Company recorded a provision for asset impairment of $3,510 on three retail properties on the consolidated statement of operations and comprehensive income for the year ended December 31, 2018.

During the year ended December 31, 2017, the Company identified certain retail properties that had reductions in the expected holding periods and reviewed the probability of these properties' disposition. The Company's estimated fair value relating to the investment retail properties' impairment analyses were based on, as applicable to the particular retail property, purchase contracts, broker opinions of value, letters of intent and 10-year discounted cash flow models, which include estimated inflows and outflows over a specific holding period and estimated net disposition proceeds at the end of the 10-year period. The discounted cash flow models consist of observable inputs such as contractual revenues and unobservable inputs such as forecasted revenues and expenses and estimated net disposition proceeds at the end of the 10-year period. These unobservable inputs are based on market conditions and the Company’s expected growth rates. Capitalization rates ranging from 7.00% to 8.00% and discount rates ranging from 8.00% to 9.00% were utilized in the 10-year discounted cash flow model and were based upon observable rates that the Company believed to be within a reasonable range of current market rates. As a result of these analyses, the Company recorded a provision for asset impairment of $27,754 on six retail properties on the consolidated statement of operations and comprehensive income for the year ended December 31, 2017.

During the year ended December 31, 2016, the Company identified certain retail properties that had reductions in the expected holding period and reviewed the probability of these properties' disposition. The Company's estimated fair value relating to the investment properties' impairment analyses were based on, as applicable to the particular retail property, purchase contracts and a 10-year discounted cash flow model. Capitalization rates ranging from 6.00% to 7.00% and discount rates ranging from 7.00% to 8.00% were utilized in the 10-year discounted cash flow model and were based upon observable rates that the Company believed to be within a reasonable range of current market rates. As a result of these analyses, the Company recorded a provision for asset impairment of $11,208 on three retail properties on the consolidated statement of operations and comprehensive income for the year ended December 31, 2016.

Investment properties, discontinued operations

In connection with the Highlands spin-off in 2016, the Company evaluated Highlands as a disposal group for impairment. The Company's estimated fair value relating to the disposal group's impairment analysis was based on 10-year discounted cash flow models, which included contractual inflows and outflows over a specific holding period. The cash flows consisted of observable inputs such as contractual revenues and unobservable inputs forecasted revenues and expenses. These unobservable inputs were based on market conditions and the Company's expected growth rates. As of the spin-off date, capitalization rates ranging from 6.75% to 10.00% and discount rates ranging from 7.75% to 15.25% were utilized in the model and were based upon observable rates that the Company believed to be within a reasonable range of current market rates. As a result of this analysis, the Company recorded a provision for asset impairment related to Highlands of $76,583 in discontinued operations on the consolidated statement of operations and comprehensive income for the year ended December 31, 2016 as the net book value of the disposal group exceeded its estimated fair value.

During the year ended December 31, 2016, the Company identified one non-core office property with a reduced expected holding period based on a review of the probability of the property's disposition. The Company's estimated fair value relating to this property's impairment analysis was based on a ten-year undiscounted cash flow model. Capitalization rates ranging from 6.75% to 7.00% and discount rates ranging from 7.00% to 8.00% were utilized in the model and were based upon observable market rates that the Company believed to be within a reasonable range. As a result of this analysis, the Company recorded a provision for asset impairment on this non-core office property of $29,931 in discontinued operations on the consolidated statement of operations and comprehensive income for the year ended December 31, 2016, resulting in a total provision for asset impairment of $106,514 in discontinued operations on the consolidated statement of operations and comprehensive income for the year ended December 31, 2016.

Investment in unconsolidated entities

During the year ended December 31, 2018, the Company evaluated its investment in DRV for potential other-than-temporary impairment due to a reduction in expected holding period. The Company obtained a third-party independent appraisal to assist in establishing a range of estimated fair values of the underlying assets as of December 31, 2018. The Company's estimated fair value relating to its investment in DRV reflects the expected future cash distributions stemming from the value of the underlying assets at a point within that established range that management believes is most probable of realization, which, if liquidated, would result in an amount due to the Company based on the joint venture partners' respective waterfall distributions, pursuant to the terms of the Second Amended and Restated Limited Liability Company Agreement of DRV, dated as of September 30, 2015. The appraisal utilized a discounted cash flow model, which included inflows and outflows over a specific holding period. The cash flows consist of unobservable inputs such as forecasted revenues and expenses. These unobservable inputs are based on market conditions and expected growth rates. Capitalization rates ranging from 5.00% to 8.00% and discount rates ranging from 10.00% to 35.00% were utilized in the model and are based upon observable rates that the Company believes to be within a reasonable range of current market rates based on the nature of the underlying investment and associated risks. The Company selected the point within the range of estimated fair values established by the third-party independent appraisal that most appropriately reflects the underlying facts and circumstances of the investment, and as a result the Company recorded an other-than-temporary impairment of $29,933 related to DRV on the consolidated statement of operations and comprehensive income for the year ended December 31, 2018.

The following table summarizes activity for the Company’s assets measured at fair value on a non-recurring basis and the related impairment losses for the years ended December 31, 2018, 2017, and 2016:



	As of December 31, 2018				As of December 31, 2017				As of December 31, 2016
	Level 3		Impairment Loss		Level 3		Impairment Loss		Level 3		Impairment Loss
Investment properties, continuing operations	$	64,075	$	3,510	$	105,900	$	27,754	$	66,323	$	11,208
Investment properties, discontinued operations	—		—		—		—		584,358		106,514
Investment in unconsolidated entities	30,049		29,933		—		—		—		—
Total			$	33,443			$	27,754			$	117,722

Financial Instruments Not Measured at Fair Value

The following table represents the estimated fair value of financial instruments presented at carrying values in the consolidated financial statements as of December 31, 2018 and 2017:



	December 31, 2018				December 31, 2017
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Mortgages payable	$	213,925	$	212,572	$	370,804	$	372,962
Term loans	$	352,000	$	352,006	n/a		n/a
Line of credit and term loans	n/a		n/a		$	300,000	$	299,770

The Company estimated the fair value of its mortgages payable using a weighted average effective market interest rate of 4.38% as of December 31, 2018 compared to 4.20% as of December 31, 2017. The fair value estimate of the line of credit and term loans approximates the carrying value due to limited market volatility in pricing. The assumptions reflect the terms currently available on similar borrowing terms to borrowers with credit profiles similar to the Company's. As a result, the Company used a weighted average interest rate of 3.63% as of December 31, 2018 to estimate the fair value of its term loans, and 3.48% as of December 31, 2017 to estimate the fair value of its line of credit and term loans. The Company has determined that its debt instrument valuations are classified in Level 2 of the fair value hierarchy.