XML 60 R20.htm IDEA: XBRL DOCUMENT v2.4.0.6
Fair Value Measurements
 3 Months Ended
Mar. 31, 2013
Fair Value Measurements  
Fair Value Measurements

 

Note 11 - Fair Value Measurements

 

The Company measures the fair value of financial instruments based on the assumptions that market participants would use in pricing the asset or liability.  As a basis for considering market participant assumptions in fair value measurements, a fair value hierarchy distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity and the reporting entity’s own assumptions about market participant assumptions.  In accordance with the fair value hierarchy, Level 1 assets/liabilities are valued based on quoted prices for identical instruments in active markets, Level 2 assets/liabilities are valued based on quoted prices in active markets for similar instruments, on quoted prices in less active or inactive markets, or on other “observable” market inputs and Level 3 assets/liabilities are valued based significantly on “unobservable” market inputs.

 

The carrying amounts of cash and cash equivalents, escrow, deposits and other assets and receivables, and accrued expenses and other liabilities are not measured at fair value on a recurring basis, but are considered to be recorded at amounts that approximate fair value.

 

At March 31, 2013, the $237,844,000 estimated fair value of the Company’s mortgages payable is more than their carrying value by approximately $11,442,000 assuming a blended market interest rate of 4.25% based on the 8.9 year weighted average remaining term of the mortgages.  At December 31, 2012, the $233,170,000 estimated fair value of the Company’s mortgages payable is more than their carrying value by approximately $7,199,000 assuming a blended market interest rate of 4.8% based on the 9.2 year weighted average remaining term of the mortgages.

 

At March 31, 2013, the $3,500,000 carrying amount of the Company’s line of credit approximates its fair value.

 

The fair value of the Company’s mortgages payable and line of credit were estimated using unobservable inputs such as available market information and discounted cash flow analysis based on borrowing rates the Company believes it could obtain with similar terms and maturities. These fair value measurements fall within Level 3 of the fair value hierarchy.

 

Considerable judgment is necessary to interpret market data and develop estimated fair value.  The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

 

Financial Instruments Measured at Fair Value

 

The fair value of the Company’s available-for-sale securities and derivative financial instruments were determined using the following inputs (dollars in thousands):

 

 

 

 

 

Carrying and

 

Fair Value Measurements
Using Fair Value Hierarchy
on a Recurring Basis

 

 

 

As of

 

Fair Value

 

Level 1

 

Level 2

 

Financial assets:

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

March 31, 2013

 

$

281

 

$

281

 

$

—

 

Equity securities

 

December 31, 2012

 

278

 

278

 

—

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

March 31, 2013

 

1,292

 

—

 

1,292

 

 

 

December 31, 2012

 

1,470

 

—

 

1,470

 

 

The Company does not currently own any financial instruments that are classified as Level 3.

 

Available-for-sale securities

 

At March 31, 2013, the Company’s available-for-sale securities are as follows:  (i) a $260,000 investment in BRT Realty Trust and (ii) a $21,000 investment in other equity securities (included in other assets on the balance sheet). The aggregate cost of these securities was $138,000 and unrealized gains on such securities were $143,000. Such unrealized gains were included in accumulated other comprehensive loss on the balance sheet.  Fair values are approximated on current market quotes from financial sources that track such securities.

 

Derivative financial instruments

 

Fair values are approximated using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivatives. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, foreign exchange rates, and implied volatilities.  At March 31, 2013 and December 31, 2012, these derivatives are included in other liabilities on the balance sheet.

 

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with it use Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by itself and its counterparty.  As of March 31, 2013, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives.  As a result, the Company has determined that its derivative valuation is classified in Level 2 of the fair value hierarchy.  Additionally, based on the rates in effect as of March 31, 2013, if a counterparty were to default, the Company would receive a net interest benefit.