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FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2020

NOTE 17. FAIR VALUE MEASUREMENTS

The Company has categorized its financial assets and financial liabilities that are recorded at fair value into a hierarchy in accordance with ASC 820, Fair Value Measurements and Disclosure, ("ASC 820") based on whether the inputs to valuation techniques are observable or unobservable. The fair value hierarchy contains three levels of inputs that may be used to measure fair value as follows:

Level 1 -

Inputs represent quoted prices in active markets for identical assets and liabilities as of the measurement date.

Level 2 -

Inputs, other than those included in Level 1, represent observable measurements for similar instruments in active markets, or identical or similar instruments in markets that are not active, and observable measurements or market data for instruments with substantially the full term of the asset or liability.

Level 3 -

Inputs represent unobservable measurements, supported by little, if any, market activity, and require considerable assumptions that are significant to the fair value of the asset or liability. Market valuations must often be determined using discounted cash flow methodologies, pricing models or similar techniques based on the Company’s assumptions and best judgment.

The asset or liability's fair value within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Under ASC 820, fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability in an orderly transaction at the measurement date and under current market conditions. Valuation techniques used maximize the use of observable inputs and minimize the use of unobservable inputs and consider assumptions such as inherent risk, transfer restrictions and risk of nonperformance.

Fair Value Measurements on a Recurring Basis

The carrying values of cash and cash equivalents, receivables, accounts payable and accrued liabilities are reasonable estimates of their fair values because of the short-term nature of these financial instruments. Based on the interest rates for similar financial instruments, the carrying value of mortgage and other notes receivable is a reasonable estimate of fair value. The estimated fair value of mortgage and other indebtedness was $1,091,745 and $2,970,246 at December 31, 2020 and 2019, respectively. The estimated fair value of liabilities subject to compromise was $1,606,959 at December 31, 2020. The fair value was calculated using Level 2 inputs by discounting future cash flows for mortgage and other indebtedness using estimated market rates at which similar loans would be made currently.

During March 2020, the Company purchased U.S. Treasury securities that are scheduled to mature between April 2021 and June 2021. The Company has designated these securities as available-for-sale (“AFS”). The fair value of these securities was calculated based on quoted market prices in active markets and are included in the Level 1 fair value hierarchy. The Company believes the market for U.S. Treasury securities is an actively traded market given the high level of daily trading volume. In December 2020, the Company purchased additional U.S Treasury securities. The U.S. Treasury securities purchased in December 2020 matured between January 2021 and March 2021, and the Company subsequently reinvested in additional U.S. Treasury securities (see Note 20). The Company has also designated these as AFS. The following table sets forth information regarding the Company’s AFS securities that were measured at fair value for the year ended December 31, 2020:

AFS Security

Amortized

Cost

Allowance

for credit

losses ⁽¹⁾

Total unrealized gains/(losses)

Fair Value

U.S. Treasury securities

233,053

—

233,071

(1)

U.S Treasury securities have a long history with no credit losses. Additionally, the Company notes that U.S Treasury securities are explicitly fully guaranteed by a sovereign entity that can print its own currency and that the sovereign entity’s currency is routinely held by central banks and other major financial institutions, is used in international commerce, and commonly viewed as a reserve currency, all of which qualitatively indicate that historical credit loss information should be minimally affected by current conditions and reasonable and supportable forecasts. Therefore, the Company did not record expected credit losses for its U.S Treasury securities for the year ended December 31, 2020.

Fair Value Measurements on a Nonrecurring Basis

The Company measures the fair value of certain long-lived assets on a nonrecurring basis, through quarterly impairment testing or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company’s evaluation of the recoverability of long-lived assets involves the comparison of undiscounted future cash flows expected to be generated by each property over the Company’s expected remaining holding period to the respective carrying amount. The determination of whether the carrying value is recoverable also requires management to make estimates related to probability weighted scenarios impacting undiscounted cash flow models. The Company considers both quantitative and qualitative factors in its impairment analysis of long-lived assets. Significant quantitative factors include historical and forecasted information for each Property such as NOI, occupancy statistics and sales levels. Significant qualitative factors used include market conditions, age and condition of the Property and tenant mix. The quantitative and qualitative factors impact the selection of the terminal capitalization rate which is used in both an undiscounted and discounted cash flow model and the discount rate used in a discounted cash flow model. Due to the significant unobservable estimates and assumptions used in the valuation of long-lived assets that experience impairment, the Company classifies such long-lived assets under Level 3 in the fair value hierarchy. Level 3 inputs primarily consist of sales and market data, independent valuations and discounted cash flow models. See below for a description of the estimates and assumptions the Company used in its impairment analysis. See Note 3 for additional information describing the Company's impairment review process.

The following table sets forth information regarding the Company’s assets that are measured at fair value on a nonrecurring basis and related impairment charges for the years ended December 31, 2020 and 2019:

			Fair Value Measurements at Reporting Date Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Loss on Impairment
2020:
Long-lived assets	$	268,830	$	—	$	—	$	268,830	$	213,358
2019:
Long-lived assets	$	199,740	$	—	$	—	$	199,740	$	239,521

Long-lived Assets Measured at Fair Value in 2020

During the year ended December 31, 2020, the Company recognized impairments of real estate of $213,358 related to six malls and one vacant land parcel. The Properties were classified for segment reporting purposes as listed below (see section below for information on outparcels). See Note 13 for segment information.

Impairment

Date

Property

Location

Segment

Classification

Loss on

Impairment

Fair

Value

March

Burnsville Center ⁽¹⁾

Burnsville, MN

Malls

26,562

47,300

March

Monroeville Mall ⁽²⁾

Pittsburgh, PA

Malls

107,082

67,000

June

Asheville Mall ⁽³⁾

Asheville, NC

Malls

13,274

52,600

July

Vacant land

Pittsburgh, PA

Malls

—

December

EastGate Mall ⁽⁴⁾

Cincinnati, OH

Malls

5,980

16,530

December

Greenbrier Mall ⁽⁵⁾

Chesapeake, VA

Malls

8,923

42,500

December

The Outlet Shoppes at Laredo ⁽⁶⁾

Laredo, TX

Malls

51,491

42,900

213,358

268,830

(1)

In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $47,300. The mall had experienced a decline in cash flows due to store closures and rent reductions. These factors resulted in a reduction of the expected hold period for this asset based on Management’s assessment that there was an increased likelihood that the loan secured by the mall may not be successfully restructured or refinanced. Management determined the fair value of Burnsville Center using a discounted cash flow

methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 14.5% and a discount rate of 15.5%.

(2)

In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $67,000. The mall had experienced a decline in cash flows due to store closures and rent reductions. Management determined the fair value of Monroeville Mall using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 14.0% and a discount rate of 14.5%.

(3)

In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $52,600. The mall had experienced a decline in cash flows due to store closures and rent reductions. These factors resulted in a reduction of the expected hold period for this asset based on Management’s assessment that there was an increased likelihood that the loan secured by the mall may not be successfully restructured or refinanced. Management determined the fair value of Asheville Mall using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 13.25% and a discount rate of 14.0%.

(4)

In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $16,530. The mall had experienced a decline in cash flows due to store closures and rent reductions. The Company expects to convey the property to the lender. Management determined the fair value of EastGate Mall using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 17.0% and a discount rate of 18.0%.

(5)

In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $42,500. The mall had experienced a decline in cash flows due to store closures and rent reductions. These factors resulted in a reduction of the expected hold period for this asset based on Management’s assessment that there was an increased likelihood that the loan secured by the mall may not be successfully restructured or refinanced. Management determined the fair value of Greenbrier Mall using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 12.5% and a discount rate of 13.0%.

(6)

In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $42,900. The mall had experienced a decline in cash flows due to store closures and rent reductions. These factors resulted in a reduction of the expected hold period for this asset based on Management’s assessment that there was an increased likelihood that the loan secured by the mall may not be successfully restructured or refinanced. Management determined the fair value of The Outlet Shoppes at Laredo using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 8.5% and a discount rate of 9.0%.

Long-lived Assets Measured at Fair Value in 2019

During the year ended December 31, 2019, the Company recognized impairments of real estate of $239,521 primarily related to six malls and one community center. The Properties were classified for segment reporting purposes as listed below (see section below for information on outparcels). See Note 13 for segment information.

Impairment

Date

Property

Location

Segment

Classification

Loss on

Impairment

Fair

Value

March

Greenbrier Mall ⁽¹⁾

Chesapeake, VA

Malls

22,770

56,300

March/April

Honey Creek Mall ⁽²⁾

Terre Haute, IN

Malls

2,045

—

June

The Forum at Grandview ⁽³⁾

Madison, MS

All Other

8,582

—

June

EastGate Mall ⁽⁴⁾

Cincinnati, OH

Malls

33,265

25,100

September

Mid Rivers Mall ⁽⁵⁾

St. Peters, MO

Malls

83,621

53,340

September

Laurel Park Place ⁽⁶⁾

Livonia, MI

Malls

52,067

26,000

December

Park Plaza Mall ⁽⁷⁾

Little Rock, AR

Malls

37,400

39,000

January/March

Other adjustments ⁽⁸⁾

Various

Malls

(229

)

—

239,521

199,740

(1)

In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $56,300. The mall has experienced a decline in cash flows due to store closures and rent reductions. Additionally, one anchor was vacant as of the date of impairment. These factors resulted in a reduction of the expected hold period for this asset based on Management’s assessment that there was an increased likelihood that the loan secured by the mall may not be successfully restructured or refinanced. Management determined the fair value of Greenbrier Mall using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 11.5% and a discount rate of 11.5%.

(2)	The Company adjusted the book value of the mall to the net sales price of $14,360 based on a signed contract with a third-party buyer, adjusted to reflect estimated disposition costs. The mall was sold in April 2019. See Note 7 for additional information.

(3)	The Company adjusted the book value to the net sales price of $31,559 based on a signed contract with a third-party buyer, adjusted to reflect estimated disposition costs. The property was sold in July 2019. See Note 7 for additional information.

(4)

In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $25,100. The mall had experienced a decline in cash flows due to store closures and rent reductions. These factors resulted in a reduction of the expected hold period for this asset based on Management’s assessment that there was an increased likelihood that the loan secured by the mall may not be successfully restructured or refinanced. Management determined the fair value of EastGate Mall using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 14.5% and a discount rate of 15.0%.

(5)	In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $53,340. The mall has experienced a decline in cash flows due to store closures and rent reductions. Management determined the fair value of Mid

Rivers Mall using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 12.5% and a discount rate of 13.25%.

(6)

In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $26,000. The mall had experienced a decline in cash flows due to store closures and rent reductions. Management determined the fair value of Laurel Park Place using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 13.5% and a discount rate of 14.0%.

(7)

In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $39,000. The mall had experienced a decline of NOI due to store closures and rent reductions. These factors resulted in a reduction of the expected hold period for this asset based on Management’s assessment that there was an increased likelihood that the loan secured by the mall may not be successfully restructured or refinanced. Management determined the fair value of Park Plaza Mall using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 13.0% and a discount rate of 14.0%.

(8)	Related to true-ups of estimated expenses to actual expenses for properties sold in prior periods.

Long-lived Assets Measured at Fair Value in 2018

During the year ended December 31, 2018, the Company recognized impairments of real estate of $174,529 primarily related to five malls and undeveloped land. The Properties were classified for segment reporting purposes as listed below (see section below for information on outparcels). See Note 13 for segment information.

Impairment

Date

Property

Location

Segment

Classification

Loss on

Impairment

Fair

Value

March

Janesville Mall ⁽¹⁾

Janesville, WI

Malls

18,061

—

⁽²⁾

June/December

Cary Towne Center ⁽³⁾

Cary, NC

Malls

54,678

30,971

September

Vacant land ⁽⁴⁾

D'Iberville, MS

All Other

14,598

8,100

December

Acadiana Mall - Macy's & vacant land ⁽⁵⁾

Lafayette, LA

Malls/All Other

1,593

3,920

December

Eastland Mall ⁽⁶⁾

Bloomington, IL

Malls

36,525

26,450

December

Honey Creek Mall ⁽⁷⁾

Terre Haute, IN

Malls

48,640

16,400

December

Vacant land ⁽⁸⁾

Port Orange, FL

All Other

434

6,000

174,529

91,841

(1)	The Company adjusted the book value of the mall to the net sales price of $17,640 in a signed contract with a third-party buyer, adjusted for disposition costs. The mall was sold in July 2018. See Note 7 for additional information.

(2)	The long-lived asset was not included in the Company's consolidated balance sheets at December 31, 2018 as the Company no longer had an interest in the property.

(3)

In June 2018, the Company was notified by IKEA that, as a result of a shift in its corporate strategy, it was terminating the contract to purchase land at the mall upon which it would develop and open a store. Under the terms of the interest-only non-recourse loan secured by the mall, the loan matured on the date the IKEA contract terminated if that date was prior to the scheduled maturity date of March 5, 2019. The Company engaged in conversations with the lender regarding a potential restructure of the loan. Based on the results of these conversations, the Company concluded that an impairment was required because it was unlikely to recover the asset's net carrying value through future cash flows. Management determined the fair value of Cary Towne Center using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, a capitalization rate of 12.0% and a discount rate of 13%. In December 2018, the Company adjusted the book value of the property to the net sales price of $30,971 based on a signed contract with a third-party buyer. The property sold in January 2019. See Note 9 for additional information.

(4)	In accordance with the Company's quarterly impairment review process, the Company wrote down the book value of land to its estimated value of $8,100. The Company evaluated comparable land parcel transactions and determined that $8,100 was the land's estimated fair value.

(5)	The Company adjusted the book value of the anchor parcel and the vacant land to the net sales price of $3,920 in a signed contract with a third party buyer, adjusted to reflect estimated disposition costs. The property was sold in January 2019.

(6)

In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $26,450. The mall had experienced a deterioration in cash flows as a result of the downturn of the economy in its market area and four vacant anchors with no active prospects to replace these anchor stores. Management determined the fair value of Eastland Mall using a discounted cash flow methodology. The discount cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 15.0% and a discount rate of 17.0%.

(7)

In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $16,400. The mall had experienced a decline in cash flows due to store closures and rent reductions. Additionally, two anchors were vacant as of December 31, 2018, and a third anchor announced during the fourth quarter of 2018 that it would be closing during the first quarter of 2019. Management determined the fair value of Honey Creek Mall using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 18.0% and a discount rate of 20.0%.

(8)	The Company adjusted the book value of the land contributed to a joint venture to its agreed upon fair value based on the joint venture agreement with its partner, Continental 425 Fund LLC. See Note 8 for more information.

- 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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