NOTE 16. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Derivative Financial Instruments

The following table presents the fair value and classification of our derivative financial instruments at December 31 (in thousands):

	2017				2016
	Asset		Liability		Asset		Liability
Foreign currency contracts
Net investment hedges
British pound sterling	$	-	$	-	$	7,439	$	-
Canadian dollar		-		7,263		1,245		-

Forwards and options (1)
British pound sterling		2,440		8,103		16,985		-
Euro		2		14,234		10,933		-
Japanese yen		6,474		931		9,246		1,071
Canadian dollar		-		1,698		831		197

Interest rate swaps
Cash flow hedges		10,223		-		435		-

Total fair value of derivatives	$	19,139	$	32,229	$	47,114	$	1,268

(1)	As discussed in Note 2, these foreign currency contracts are not designated as hedges.

Foreign Currency Contracts

The following tables summarize the activity in our foreign currency contracts for the years ended December 31 (in millions, except for weighted average forward rates and number of active contracts):

2017	Foreign Currency Contracts
	Net Investment Hedges						Forwards and Options
Local Currency	CAD			GBP			CAD			EUR			GBP			JPY
Notional amounts at January 1	$	133		£	31		$	50		€	174		£	48		¥	15,500
New contracts		133			100			52			120			117			8,000
Matured, expired or settled contracts		(133	)		(131	)		(30	)		(95	)		(63	)		(7,300	)
Notional amounts at December 31	$	133		£	-		$	72		€	199		£	102		¥	16,200

	Foreign Currency Contracts
U.S. Dollar	Net Investment Hedges						Forwards and Options (1)
Notional amounts at January 1	$	100		$	46		$	38		$	197		$	78		$	144
New contracts		99			127			41			143			151			75
Matured, expired or settled contracts		(100	)		(173	)		(23	)		(107	)		(97	)		(66	)
Notional amounts at December 31	$	99		$	-		$	56		$	233		$	132		$	153

Weighted average forward rate at December 31		1.34			-			1.29			1.17			1.29			106.25
Active contracts at December 31		2			-			24			29			20			34

2016	Foreign Currency Contracts
	Net Investment Hedges								Forwards and Options
Local Currency	CAD		GBP			JPY			EUR			GBP			JPY			Other
Notional amounts at January 1	$	-	£	238		¥	-		€	275		£	97		¥	12,840
New contracts		133		90			11,189			369			-			15,460
Matured, expired or settled contracts		-		(297	)		(11,189	)		(470	)		(49	)		(12,800	)
Notional amounts at December 31	$	133	£	31		¥	-		€	174		£	48		¥	15,500

	Foreign Currency Contracts
U.S. Dollar	Net Investment Hedges								Forwards and Options (1)
Notional amounts at January 1	$	-	$	386		$	-		$	310		$	148		$	109		$	50
New contracts		100		131			99			413			-			146			15
Matured, expired or settled contracts		-		(471	)		(99	)		(526	)		(70	)		(111	)		(27	)
Notional amounts at December 31	$	100	$	46		$	-		$	197		$	78		$	144		$	38

2015	Foreign Currency Contracts
	Net Investment Hedges												Forwards and Options
Local Currency	CAD			EUR			GBP			JPY			EUR			GBP			JPY			Other
Notional amounts at January 1	$	-		€	300		£	238		¥	24,136		€	284		£	-		¥	-
New contracts		394			-			118			43,373			333			199			18,740
Matured, expired or settled contracts		(394	)		(300	)		(118	)		(67,509	)		(342	)		(102	)		(5,900	)
Notional amounts at December 31	$	-		€	-		£	238		¥	-		€	275		£	97		¥	12,840

	Foreign Currency Contracts
U.S. Dollar	Net Investment Hedges												Forwards and Options (1)
Notional amounts at January 1	$	-		$	400		$	400		$	250		$	354		$	-		$	-		$	-
New contracts		298			-			186			353			375			300			159			71
Matured, expired or settled contracts		(298	)		(400	)		(200	)		(603	)		(419	)		(152	)		(50	)		(21	)
Notional amounts at December 31	$	-		$	-		$	386		$	-		$	310		$	148		$	109		$	50

(1)	During 2017, 2016 and 2015, we exercised 44, 49 and 32 option contracts and realized gains of $12.6 million, $3.0 million and $14.6 million, respectively, in Foreign Currency and Derivative Gains (Losses), Net.

We recognized an unrealized loss of $50.7 million and unrealized gains of $19.1 million and $22.1 million in Foreign Currency and Derivative Gains (Losses), Net from the change in value of our outstanding foreign currency option contracts for the years ended December 31, 2017, 2016 and 2015, respectively.

We had no ineffectiveness on our foreign currency derivative contracts during 2017, 2016 or 2015.

Interest Rate Swaps

There was no activity on our interest rate swaps during 2017. We had three contracts with a notional amount of CAD $371.9 million ($271.2 million) outstanding at December 31, 2017.

The following table summarizes the activity in our interest rate swaps designated as cash flow hedges for the years ended December 31 (in millions):

	2016			2015
Notional amounts at January 1	$	1,196		$	398
New contracts		-			1,158
Matured, expired or settled contracts		(925	)		(360	)
Notional amounts at December 31	$	271		$	1,196

In 2016, we entered into the 2016 Yen Term Loan and repaid our 2014, 2015 and 2016 Japanese yen term loans. At that time, we settled the outstanding contracts related to the previously outstanding term loans for $26.3 million. The fair value of the contracts that qualified for hedge accounting at the date of repayment was recorded to AOCI/L and will be amortized to Interest Expense over the life of the original term loans. We had $10.7 million remaining in AOCI/L at December 31, 2017. During the year ended December 31, 2016, we recorded a loss of $9.9 million related to the change in fair value on the unhedged portion of the contracts. See Note 9 for further discussion of the 2016 Yen Term Loan.

During 2015, we entered into two contracts with a notional amount of $526.3 million (¥65.0 billion) to effectively fix the interest rate on the 2015 Japanese Yen term loan (see above for discussion on the settlement of these contracts) and three contracts with a notional amount of CAD $371.9 million ($271.2 million) to effectively fix the interest rate on the Canadian term loan. In the third quarter of 2015, we entered into two contracts with a notional amount of $360.0 million to effectively fix the interest rate at the three-month LIBOR rate of 2.3% on expected future debt issuances. These contracts were settled in the fourth quarter of 2015 when we entered into $750.0 million of senior notes. We recorded a loss of $11.0 million associated with these derivatives that will be amortized to Interest Expense, in accordance with our policy.

See Note 9 for more information on our term loans.

Other Comprehensive Income (Loss)

The change in Other Comprehensive Income (Loss) in the Consolidated Statements of Comprehensive Income during the periods presented is due to the translation into U.S. dollars on consolidation of the financial statements of our consolidated subsidiaries whose functional currency is not the U.S. dollar. We recorded net gains of $554.0 million for the year ended December 31, 2017, and net losses of $304.0 million and $594.0 million for the years ended December 31, 2016 and 2015, respectively. These gains and losses recognized in Other Comprehensive Income (Loss) during the periods were offset by net losses on the translation of our derivative and nonderivative net investment hedges discussed below. This includes the change in fair value for the effective portion of our derivative and nonderivative instruments that have been designated as hedges.

The following table presents the gains and (losses) associated with the change in fair value for the effective portion of our derivative and nonderivative hedging instruments included in Other Comprehensive Income for the years ended December 31 (in thousands):

	2017			2016			2015
Derivative net investment hedges (1)	$	(12,762	)	$	55,460		$	63,934
Interest rate and cash flow hedges (2)		12,726			(551	)		(21,714	)
Our share of derivatives from unconsolidated co-investment ventures		9,865			(798	)		4,257
Total derivative hedging instruments		9,829			54,111			46,477
Nonderivative net investment hedges (3) (4)		(477,755	)		112,591			321,148
Total derivative and nonderivative hedging instruments – gains (losses)	$	(467,926	)	$	166,702		$	367,625

(1)	We received $2.5 million, $79.8 million and $128.2 million for the years ended December 31, 2017, 2016 and 2015, respectively, on the settlement of net investment hedges.

(2)	The amount reclassified to interest expense was $5.4 million for 2017 and $5.5 million for 2016. The amount for 2015 was not considered significant. For the next 12 months from December 31, 2017, we estimate an additional expense of $3.1 million will be reclassified to Interest Expense.

(3)

At December 31, 2017, 2016 and 2015, we had €3.1 billion ($3.6 billion), €3.2 billion ($3.4 billion) and €3.2 billion ($3.5 billion) of debt, net of accrued interest, respectively, designated as nonderivative financial instrument hedges of our net investment in international subsidiaries. We recognized unrealized losses of $17.9 million and unrealized gains of $10.0 million in Foreign Currency and Derivative Gains (Losses), Net on the undesignated portion of our debt for the years ended December 31, 2017 and 2015, respectively. There were no unrealized gains or losses recognized for the year ended December 31, 2016.

(4)

In June 2017, we issued £500.0 million ($645.3 million) of debt, as discussed in Note 9, and £323.7 million ($436.0 million) of the debt was designated as a nonderivative financial instrument hedge of our net investment in international subsidiaries at December 31, 2017. We recognized unrealized losses of $5.4 million in Foreign Currency and Derivative Gains (Losses), Net on the undesignated portion of our debt for the year ended December 31, 2017.

Fair Value Measurements

We have estimated the fair value of our financial instruments using available market information and valuation methodologies we believe 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 we would realize on disposition. See Note 2 for more information on our fair value measurements policy.

Fair Value Measurements on a Recurring Basis

At December 31, 2017 and 2016, other than the derivatives discussed previously, we did not have any significant financial assets or financial liabilities that were measured at fair value on a recurring basis in the Consolidated Financial Statements. All of our derivatives held at December 31, 2017 and 2016, were classified as Level 2 of the fair value hierarchy.

Fair Value Measurements on Nonrecurring Basis

Acquired properties and assets we expect to sell or contribute met the criteria to be measured at fair value on a nonrecurring basis at December 31, 2017 and 2016, as discussed in Notes 3, 4 and 6.

Fair Value of Financial Instruments

At December 31, 2017 and 2016, the carrying amounts of certain financial instruments, including cash and cash equivalents, accounts and notes receivable, accounts payable and accrued expenses were representative of their fair values.

The differences in the fair value of our debt from the carrying value in the table below were the result of differences in interest rates or borrowing spreads that were available to us at December 31, 2017 and 2016, as compared with those in effect when the debt was issued or assumed, including reduced borrowing spreads due to our improved credit ratings. The senior notes and many of the issuances of secured mortgage debt contain pre-payment penalties or yield maintenance provisions that could make the cost of refinancing the debt at lower rates exceed the benefit that would be derived from doing so.

The following table reflects the carrying amounts and estimated fair values of our debt at December 31 (in thousands):

	2017				2016
	Carrying Value		Fair Value		Carrying Value		Fair Value
Credit Facilities	$	317,392	$	317,496	$	35,023	$	35,061
Senior notes		6,067,277		6,537,100		6,417,492		6,935,485
Term loans and unsecured other		2,060,491		2,075,002		1,499,001		1,510,661
Secured mortgages		808,096		867,067		979,585		1,055,020
Secured mortgages of consolidated entities		159,375		159,130		1,677,193		1,683,489
Total debt	$	9,412,631	$	9,955,795	$	10,608,294	$	11,219,716