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Fair Value | 6 Months Ended
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Jun. 30, 2017
Fair Value Disclosures [Abstract] |
Fair Value | Fair Value Financial Instruments Carried at Fair Value Derivative Financial Instruments Currently, the Company uses interest rate swap and interest rate cap agreements to manage its interest rate risk. These instruments are carried at fair value in the Company's financial statements. In adjusting the fair value of its derivative contracts for the effect of counterparty nonperformance risk, the Company has considered the impact of its net position with a given counterparty, as well as any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. The Company minimizes its credit risk on these transactions by dealing with major, creditworthy financial institutions which have an A or better credit rating by the Standard & Poor's Ratings Group. As part of its on-going control procedures, the Company monitors the credit ratings of counterparties and the exposure of the Company to any single entity, thus reducing credit risk concentration. The Company believes the likelihood of realizing losses from counterparty nonperformance is remote. 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, such as interest rate, term to maturity and volatility, the credit valuation adjustments associated with its derivatives use Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by itself and its counterparties. As of June 30, 2017, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined it is not significant. As a result, the Company has determined that its derivative valuations are classified in Level 2 of the fair value hierarchy. The Company recognized a gain of $753,000 for hedge ineffectiveness for the three and six months ended June 30, 2017, included as a component of interest expense, net on the Condensed Consolidated Statements of Comprehensive Income. Hedge ineffectiveness did not have a material impact on earnings of the Company for any prior period. The following table summarizes the consolidated derivative positions at June 30, 2017 (dollars in thousands):
| Non-designated Hedges Interest Rate Caps |  | Cash Flow Hedges Interest Rate Caps |  | Cash Flow Hedges Interest Rate Swaps
Notional balance | $ | 695,642 |  |  | $ | 35,471 |  |  | $ | 250,000 |
Weighted average interest rate (1) | 2.7 | % |  | 3.2 | % |  | N/A |
Weighted average swapped/capped interest rate | 6.1 | % |  | 5.9 | % |  | 2.4 | %
Earliest maturity date | Aug 2017 |  |  | Apr 2019 |  |  | May 2018 |
Latest maturity date | Nov 2021 |  |  | Apr 2019 |  |  | May 2018 |
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(1) | For interest rate caps, represents the weighted average interest rate on the hedged debt.
During the three and six months ended June 30, 2017, the Company entered into $150,000,000 and $250,000,000, respectively, of forward interest rate swap agreements executed to reduce the impact of variability in interest rates on a portion of the Company's expected debt issuance activity in 2018. As of June 30, 2017, the Company has $250,000,000 in aggregate outstanding forward interest rate swap agreements. At maturity of the remaining outstanding swap agreements, the Company expects to cash settle the contracts and either pay or receive cash for the then current fair value. Assuming that the Company issues the debt as expected, the hedging impact from these positions will then be recognized over the life of the issued debt as a yield adjustment. During the three and six months ended June 30, 2017, the Company settled an aggregate of $800,000,000 of forward interest rate swap agreements, receiving net aggregate payments of $391,000. In conjunction with the refinancing of three secured borrowings in May 2017, in April 2017, the Company settled $185,100,000 of forward interest rate swap agreements designated as cash flow hedges of the interest rate variability of the secured notes, making a payment of $2,326,000. In conjunction with the Company's May 2017 unsecured note issuance, the Company settled $400,000,000 of forward interest rate swap agreements designated as cash flow hedges of the interest rate variability on the forecasted issuance of the unsecured notes, making a payment of $1,361,000. In conjunction with the Company's June 2017 unsecured note issuance, the Company settled $214,900,000 of forward interest rate swap agreements designated as cash flow hedges of the interest rate variability on the forecasted issuance of the unsecured notes, receiving $4,078,000. The Company has deferred $376,000, the effective portion of the fair value change of these swaps, in accumulated other comprehensive loss on the accompanying Condensed Consolidated Balance Sheets, and will recognize the impact as a component of interest expense, net, over the 10 year period of interest payments hedged. Excluding derivatives executed to hedge secured debt on communities classified as held for sale, the Company had six derivatives designated as cash flow hedges and 14 derivatives not designated as hedges at June 30, 2017. Fair value changes for derivatives not in qualifying hedge relationships for the three and six months ended June 30, 2017 and 2016 were not material. During the three and six months ended June 30, 2017, the Company deferred $16,158,000 and $16,013,000, respectively, of losses for cash flow hedges reported as a component of other comprehensive loss. The following table summarizes the deferred losses reclassified from accumulated other comprehensive income as a component of interest expense, net (dollars in thousands):
| For the three months ended |  | For the six months ended
| 6/30/2017 |  | 6/30/2016 |  | 6/30/2017 |  | 6/30/2016
Cash flow hedge losses reclassified to earnings | $ | 1,781 |  |  | $ | 1,561 |  |  | $ | 3,534 |  |  | $ | 2,935 |
The Company anticipates reclassifying approximately $7,012,000 of hedging losses from accumulated other comprehensive loss into earnings within the next 12 months to offset the variability of cash flows of the hedged item during this period. The Company did not have any derivatives designated as fair value hedges as of June 30, 2017 and 2016. Redeemable Noncontrolling Interests The Company provided redemption options (the "Puts") that allow joint venture partners of the Company to require the Company to purchase their interests in the investment at a guaranteed minimum amount related to three ventures. The Puts are payable in cash. The Company determines the fair value of the Puts based on unobservable inputs considering the assumptions that market participants would make in pricing the obligations, applying a guaranteed rate of return to the joint venture partners' net capital contribution balances as of period end. Given the significance of the unobservable inputs, the valuations are classified in Level 3 of the fair value hierarchy. The Company issued units of limited partnership interest in DownREITs which provide the DownREIT limited partners the ability to present all or some of their units for redemption for cash as determined by the partnership agreement. Under the DownREIT agreements, for each limited partnership unit, the limited partner is entitled to receive cash in the amount equal to the fair value of the Company's common stock on or about the date of redemption. In lieu of cash redemption, the Company may elect to exchange such units for an equal number of shares of the Company's common stock. The limited partnership units in the DownREITs are valued using the market price of the Company's common stock, a Level 1 price under the fair value hierarchy. Financial Instruments Not Carried at Fair Value Cash and Cash Equivalents Cash and cash equivalent balances are held with various financial institutions within principal protected accounts. The Company monitors credit ratings of these financial institutions and the concentration of cash and cash equivalent balances with any one financial institution and believes the likelihood of realizing material losses related to cash and cash equivalent balances is remote. Cash and cash equivalents are carried at their face amounts, which reasonably approximate their fair values and are Level 1 within the fair value hierarchy. Other Financial Instruments Rents and other receivables and prepaids, accounts and construction payable and accrued expenses and other liabilities are carried at their face amounts, which reasonably approximate their fair values. The Company values its unsecured notes using quoted market prices, a Level 1 price within the fair value hierarchy. The Company values its notes payable and outstanding amounts under the Credit Facility and Term Loan using a discounted cash flow analysis on the expected cash flows of each instrument. This analysis reflects the contractual terms of the instrument, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The process also considers credit valuation adjustments to appropriately reflect the Company's nonperformance risk. The Company has concluded that the value of its notes payable and amounts outstanding under its Credit Facility and Term Loan are Level 2 prices as the majority of the inputs used to value its positions fall within Level 2 of the fair value hierarchy. Financial Instruments Measured/Disclosed at Fair Value on a Recurring Basis The following tables summarize the classification between the three levels of the fair value hierarchy of the Company's financial instruments measured/disclosed at fair value on a recurring basis (dollars in thousands):
Description |  | Total Fair Value |  | Quoted Prices in Active Markets for Identical Asset (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
|  | 6/30/2017
Non-Designated Hedges |  |  |  |  |  |  |  |
Interest Rate Caps |  | $ | 15 |  |  | $ | — |  |  | $ | 15 |  |  | $ | — |
Cash Flow Hedges |  |  |  |  |  |  |  |
Interest Rate Swaps - Assets |  | 674 |  |  | — |  |  | 674 |  |  | — |
Interest Rate Swaps - Liabilities |  | (1,612 | ) |  | — |  |  | (1,612 | ) |  | — |
Puts |  | (5,928 | ) |  | — |  |  | — |  |  | (5,928 | )
DownREIT units |  | (1,441 | ) |  | (1,441 | ) |  | — |  |  | — |
Indebtedness |  |  |  |  |  |  |  |
Unsecured notes |  | (4,972,604 | ) |  | (4,972,604 | ) |  | — |  |  | — |
Secured notes payable and unsecured term loan |  | (1,984,423 | ) |  | — |  |  | (1,984,423 | ) |  | — |
Total |  | $ | (6,965,319 | ) |  | $ | (4,974,045 | ) |  | $ | (1,985,346 | ) |  | $ | (5,928 | )
Description |  | Total Fair Value |  | Quoted Prices in Active Markets for Identical Asset (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
|  | 12/31/2016
Non-Designated Hedges |  |  |  |  |  |  |  |
Interest Rate Caps |  | $ | 79 |  |  | $ | — |  |  | $ | 79 |  |  | $ | — |
Cash Flow Hedges |  |  |  |  |  |  |  |
Interest Rate Caps |  | 2 |  |  | — |  |  | 2 |  |  | — |
Interest Rate Swaps - Assets |  | 14,775 |  |  | — |  |  | 14,775 |  |  | — |
Puts |  | (6,002 | ) |  | — |  |  | — |  |  | (6,002 | )
DownREIT units |  | (1,329 | ) |  | (1,329 | ) |  | — |  |  | — |
Indebtedness |  |  |  |  |  |  |  |
Unsecured notes |  | (4,218,627 | ) |  | (4,218,627 | ) |  | — |  |  | — |
Secured notes payable and unsecured term loan |  | (2,744,462 | ) |  | — |  |  | (2,744,462 | ) |  | — |
Total |  | $ | (6,955,564 | ) |  | $ | (4,219,956 | ) |  | $ | (2,729,606 | ) |  | $ | (6,002 | )

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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 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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