Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements

v3.22.2.2
Fair Value Measurements
 12 Months Ended
Dec. 31, 2021
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value Measurements
Fair value guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers are defined as follows:
Tier Description
Level 1 Observable inputs such as quoted prices in active markets
Level 2 Inputs other than quoted prices in active markets that are either directly or indirectly observable
Level 3 Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions

Fair Value Measurements on a Recurring Basis

The following table sets forth our assets and liabilities that are measured at fair value within the fair value hierarchy (in thousands):
Level 1 Level 2 Level 3
Quoted Prices in Active Markets for Identical Assets or Liabilities Significant Observable Inputs Significant Unobservable Inputs
Total
Fair value as of December 31, 2021:
Asset:
Short-term government securities (cash and cash equivalents) $ 158,197  $ 158,197  $ —  $ — 
Interest rate swaps (prepaids and other assets) 2,485  —  2,485  — 
Total assets $ 160,682  $ 158,197  $ 2,485  $ — 
Liabilities:
Interest rate swaps (other liabilities) $ 459  $ —  $ 459  $ — 
Total liabilities $ 459  $ —  $ 459  $ — 


Level 1 Level 2 Level 3
Quoted Prices in Active Markets for Identical Assets or Liabilities Significant Observable Inputs Significant Unobservable Inputs
Total
Fair value as of December 31, 2020:
Assets:
Short-term government securities (cash and cash equivalents) $ 87,081  $ 87,081  $ —  $ — 
Total assets $ 87,081  $ 87,081  $ —  $ — 
Liabilities:
Interest rate swaps (other liabilities) $ 3,358  $ —  $ 3,358  $ — 
Total liabilities $ 3,358  $ —  $ 3,358  $ — 
Fair values of interest rate swaps are approximated using Level 2 inputs based on current market data received from financial sources that trade such instruments and are based on prevailing market data and derived from third party proprietary models based on well recognized financial principles including counterparty risks, credit spreads and interest rate projections, as well as reasonable estimates about relevant future market conditions.

Fair Value Measurements on a Nonrecurring Basis

The following table sets forth our assets that are measured at fair value on a nonrecurring basis within the fair value hierarchy (in thousands):
Level 1 Level 2 Level 3
Quoted Prices in Active Markets for Identical Assets or Liabilities Significant Observable Inputs Significant Unobservable Inputs
Total
Fair value as of December 31, 2021:
Asset:
Long-lived assets $ 29,460  $ —  $ —  $ 29,460 
Fair value as of December 31, 2020:
Asset:
Long-lived assets $ 46,950  $ —  $ —  $ 46,950 
Fair value as of March 31, 2020:
Asset:
Long-lived assets $ 60,000  $ —  $ —  $ 60,000 
Fair value as of December 31, 2019:
Asset:
Long-lived assets $ 10,000  $ —  $ —  $ 10,000 

Foxwoods Impairments

During the first quarter 2020, we recorded a $45.7 million impairment charge in our consolidated statement of operations which equaled the excess of the carrying value of our Foxwoods outlet center over its estimated fair value. The estimated fair value was based on the income approach. The income approach involves discounting the estimated income stream and reversion (presumed sale) value of a property over an estimated holding period to a present value at a risk-adjusted rate.

During the fourth quarter of 2020, in anticipation of further store closings and declining operating results, we recorded an additional impairment charge of $19.2 million in our consolidated statement of operations which equaled the excess of the carrying value of our Foxwoods outlet center over its estimated fair value. The estimated fair value was based on the income approach. During the fourth quarter of 2021, due to a decrease in the estimated hold period and declining operating results, we recorded an additional impairment charge of $7.0 million in our consolidated statement of operations which equaled the excess of the carrying value of our Foxwoods outlet center over its estimated fair value. The estimated fair value was based on the income approach.

Discount rates and terminal capitalization rates utilized in the approach above were derived from property-specific information, market transactions and other financial and industry data. The terminal capitalization rate and discount rate are significant unobservable inputs in determining the fair value. These inputs are classified under Level 3 in the fair value hierarchy above. Should the significant assumptions utilized above to determine fair value continue to deteriorate, additional impairments in the future could be possible. 
The table below summarizes the terminal capitalization rate and discount rate used:
December 31, 2021 December 31, 2020 March 31, 2020
Terminal capitalization rate 8.3  % 7.8  % 7.8  %
Discount rate 9.3  % 8.5  % 8.5  %

Jeffersonville Impairments

During the fourth quarter of 2019, in anticipation of store closings and declining operating results, we recorded an impairment charge of $37.6 million in our consolidated statement of operations which equaled the excess of the carrying value of our Jeffersonville outlet center over its estimated fair value. The estimated fair value was based on the income approach.

During the fourth quarter of 2020, due to the pending sale in January 2021 of the outlet center we recorded an additional impairment charge of $2.4 million in our consolidated statement of operations which equaled the excess of the carrying value of our Jeffersonville outlet center over its estimated fair value. The estimated fair value was based on the market approach.

Discount rates and terminal capitalization rates utilized in the approach above were derived from property-specific information, market transactions and other financial and industry data. The terminal capitalization rate and discount rate are significant unobservable inputs in determining the fair value. These inputs are classified under Level 3 in the fair value hierarchy above.

The table below summarizes the terminal capitalization rate and discount rate used:
December 31, 2019
Terminal capitalization rate 12.0  %
Discount rate 13.0  %

Other Fair Value Disclosures

The estimated fair value and recorded value of our debt as of December 31, 2021 and 2020 were as follows (in thousands):
2021 2020
Level 1 Quoted Prices in Active Markets for Identical Assets or Liabilities $ —  $ — 
Level 2 Significant Observable Inputs 1,079,234  1,207,531 
Level 3 Significant Unobservable Inputs 366,103  432,272 
Total fair value of debt $ 1,445,337  $ 1,639,803 
Recorded value of debt $ 1,397,076  $ 1,567,886 

Our senior unsecured notes are publicly-traded which provides quoted market rates. However, due to the limited trading volume of these notes, we have classified these instruments as Level 2 in the hierarchy. Our other debt is classified as Level 3 given the unobservable inputs utilized in the valuation. Our unsecured term loan, unsecured lines of credit and variable interest rate mortgages are all LIBOR based instruments. When selecting the discount rates for purposes of estimating the fair value of these instruments, we evaluated the original credit spreads and do not believe that the use of them differs materially from current credit spreads for similar instruments and therefore the recorded values of these debt instruments is considered their fair value.

The carrying values of cash and cash equivalents, receivables, accounts payable, accrued expenses and other assets and liabilities are reasonable estimates of their fair values because of the short maturities of these instruments.