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Fair Value Measurements | 3 Months Ended
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Mar. 31, 2014
Fair Value Measurements |
Fair Value Measurements | Note 13 - 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, 2014, the $289,624,000 estimated fair value of the Company’s mortgages payable is more than their carrying value by approximately $4,721,000 assuming a blended market interest rate of 4.8% based on the 9.4 year weighted average remaining term of the mortgages. At December 31, 2013, the $283,142,000 estimated fair value of the Company’s mortgages payable is more than their carrying value by approximately $5,097,000 assuming a blended market interest rate of 5% based on the 9.0 year weighted average remaining term of the mortgages. At March 31, 2014 and December 31, 2013, the $12,850,000 and $23,250,000, respectively, 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 are 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 was determined using the following inputs (amounts 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: |  |  |  |  |  |  |  |  |
Equity securities |  | March 31, 2014 |  | $ | 287 |  | $ | 287 |  | $ | — |
|  | December 31, 2013 |  | 282 |  | 282 |  | — |
Derivative financial instruments: |  |  |  |  |  |  |  |  |
Interest rate swaps |  | March 31, 2014 |  | 214 |  | — |  | 214 |
|  | December 31, 2013 |  | 265 |  | — |  | 265 |
Financial liabilities: |  |  |  |  |  |  |  |  |
Derivative financial instruments: |  |  |  |  |  |  |  |  |
Interest rate swaps |  | March 31, 2014 |  | 1,441 |  | — |  | 1,441 |
|  | December 31, 2013 |  | 774 |  | — |  | 774 |
The Company does not own any financial instruments that are classified as Level 3. Available-for-sale securities At March 31, 2014, the Company’s available-for-sale securities were as follows: (i) a $264,000 investment in 37,081 shares of BRT Realty Trust and (ii) a $23,000 investment in other equity securities (included in other assets on the balance sheet). The aggregate cost of these securities was $138,000 and the unrealized gain thereon was $149,000. Such unrealized gains were included in accumulated other comprehensive loss on the balance sheet. Fair values are approximated based 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 and implied volatilities. 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, 2014, 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 determined that its derivative valuation is classified in Level 2 of the fair value hierarchy. As of March 31, 2014, the Company had entered into 14 interest rate derivatives, all of which were interest rate swaps, related to 14 outstanding mortgage loans with an aggregate $76,732,000 notional amount and mature between 2014 and 2024 (weighted average maturity of 6.75 years). Such interest rate swaps, all of which were designated as cash flow hedges, converted Libor based variable rate mortgages to fixed annual rate mortgages with interest rates ranging from 3.55% to 6.50% (weighted average interest rate of 4.98%). The fair value of the Company’s derivatives designated as hedging instruments in asset and liability positions reflected as other assets or other liabilities on the consolidated balance sheets were $214,000 and $1,441,000, respectively, at March 31, 2014 and $265,000 and $774,000, respectively, at December 31, 2013. Two of the Company’s unconsolidated joint ventures, in which a wholly owned subsidiary of the Company is a 50% partner, had an interest rate derivative outstanding at March 31, 2014 with a notional amount of $3,776,000. This interest rate derivative, which was entered into in March 2011, has an interest rate of 5.81% and matures in April 2018. The following table presents the effect of the Company’s derivative financial instruments on the statement of income for the periods presented (amounts in thousands):
|  | Three Months Ended March 31, |
|  | 2014 |  | 2013 |
Consolidated |  |  |  |  |
Amount of (loss) income recognized on derivatives in Other comprehensive (loss) |  | $ | (1,106 | ) | $ | 26 |
Amount of (loss) reclassification from Accumulated other comprehensive (loss) into Interest expense |  | (388 | ) | (152 | )
Joint Ventures (Company’s share) |  |  |  |  |
Amount of (loss) gain recognized on derivative in Other comprehensive (loss) |  | (7 | ) | (4 | )
Amount of (loss) reclassification from Accumulated other comprehensive (loss) into Equity in earnings of unconsolidated joint ventures |  | (14 | ) | (14 | )
No gain or loss was recognized with respect to hedge ineffectiveness or to amounts excluded from effectiveness testing on the Company’s cash flow hedges for the three months ended March 31, 2014 and 2013. During the twelve months ending March 31, 2015, the Company estimates an additional $1,639,000 will be reclassified from other comprehensive income (loss) as an increase to interest expense. The derivative agreements in effect at March 31, 2014 provide that if the wholly owned subsidiary of the Company which is a party to the agreement defaults or is capable of being declared in default on any of its indebtedness, then a default can be declared on such subsidiary’s derivative obligation. In addition, the Company is a party to one of the derivative agreements and if the subsidiary defaults on the loan subject to such agreement and if there are swap breakage losses on account of the derivative being terminated early, the Company could be held liable for interest rate swap breakage losses, if any. As of March 31, 2014, the fair value of the derivatives in a liability position, including accrued interest, and excluding any adjustments for nonperformance risk, was approximately $1,571,000. In the unlikely event that the Company breaches any of the contractual provisions of the derivative contracts, it would be required to settle its obligations thereunder at their termination liability value of $1,571,000. Such amount is included in accrued expenses and other liabilities at March 31, 2014.

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=28364263&loc=d3e13537-108611 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=28364263&loc=d3e13433-108611 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=25499696&loc=d3e19207-110258 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=28364263&loc=d3e13504-108611 + Details
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