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Derivative and Other Fair Value Instruments | 9 Months Ended
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Sep. 30, 2015
Fair Value Disclosures [Abstract] |
Derivatives and Fair Value [Text Block] |
9. | Derivative and Other Fair Value Instruments
The valuation of financial instruments requires the Company to make estimates and judgments that affect the fair value of the instruments. The Company, where possible, bases the fair values of its financial instruments, including its derivative instruments, on listed market prices and third party quotes. Where these are not available, the Company bases its estimates on current instruments with similar terms and maturities or on other factors relevant to the financial instruments. In the normal course of business, the Company is exposed to the effect of interest rate changes. The Company seeks to manage these risks by following established risk management policies and procedures including the use of derivatives to hedge interest rate risk on debt instruments. The Company may also use derivatives to manage its exposure to foreign exchange rates or manage commodity prices in the daily operations of the business. A three-level valuation hierarchy exists for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:
• | Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
• | Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
• | Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The Company’s derivative positions are valued using models developed by the respective counterparty as well as models developed internally by the Company that use as their basis readily observable market parameters (such as forward yield curves and credit default swap data). Employee holdings other than Common Shares within the supplemental executive retirement plan (the “SERP”) are valued using quoted market prices for identical assets and are included in other assets and other liabilities on the consolidated balance sheets. Redeemable Noncontrolling Interests – Operating Partnership/Redeemable Limited Partners are valued using the quoted market price of Common Shares. The fair values disclosed for mortgage notes payable and unsecured debt (including its line of credit and commercial paper) were calculated using indicative rates provided by lenders of similar loans in the case of mortgage notes payable and the private unsecured debt (including its line of credit and commercial paper) and quoted market prices for each underlying issuance in the case of the public unsecured notes. The carrying values of the Company’s mortgage notes payable and unsecured debt (including its commercial paper) were approximately $4.9 billion and $5.9 billion, respectively, at September 30, 2015. The fair values of the Company’s mortgage notes payable and unsecured debt (including its commercial paper) were approximately $4.9 billion (Level 2) and $6.2 billion (Level 2), respectively, at September 30, 2015. The carrying values of the Company's mortgage notes payable and unsecured debt (including its line of credit) were approximately $5.1 billion and $5.8 billion, respectively, at December 31, 2014. The fair values of the Company’s mortgage notes payable and unsecured debt (including its line of credit) were approximately $5.1 billion (Level 2) and $6.1 billion (Level 2), respectively, at December 31, 2014. The fair values of the Company’s financial instruments (other than mortgage notes payable, unsecured notes, line of credit, commercial paper and derivative instruments), including cash and cash equivalents and other financial instruments, approximate their carrying or contract values. The following table summarizes the Company’s consolidated derivative instruments at September 30, 2015 (dollar amounts are in thousands):
|  | Fair Value Hedges (1) |  | Forward Starting Swaps (2)
Current Notional Balance |  | $ | 450,000 |  |  | $ | 50,000 |
Lowest Possible Notional |  | $ | 450,000 |  |  | $ | 50,000 |
Highest Possible Notional |  | $ | 450,000 |  |  | $ | 50,000 |
Lowest Interest Rate |  | 2.375 | % |  | 2.500 | %
Highest Interest Rate |  | 2.375 | % |  | 2.500 | %
Earliest Maturity Date |  | 2019 |  |  | 2026 |
Latest Maturity Date |  | 2019 |  |  | 2026 |
(1) | Fair Value Hedges – Converts outstanding fixed rate unsecured notes ($450.0 million 2.375% notes due July 1, 2019) to a floating interest rate of 90-Day LIBOR plus 0.61%.
(2) | Forward Starting Swaps – Designed to partially fix interest rates in advance of a planned future debt issuance. This swap has a mandatory counterparty termination in 2017, and is targeted to a 2016 issuance.
The following tables provide a summary of the fair value measurements for each major category of assets and liabilities measured at fair value on a recurring basis and the location within the accompanying consolidated balance sheets at September 30, 2015 and December 31, 2014, respectively (amounts in thousands):
|  |  |  |  |  | Fair Value Measurements at Reporting Date Using
Description |  | Balance Sheet Location |  | 9/30/2015 |  | Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Assets |  |  |  |  |  |  |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |
Interest Rate Contracts: |  |  |  |  |  |  |  |  |  |
Fair Value Hedges |  | Other Assets |  | $ | 9,759 |  |  | $ | — |  |  | $ | 9,759 |  |  | $ | — |
Supplemental Executive Retirement Plan |  | Other Assets |  | 96,823 |  |  | 96,823 |  |  | — |  |  | — |
Total |  |  |  | $ | 106,582 |  |  | $ | 96,823 |  |  | $ | 9,759 |  |  | $ | — |
Liabilities |  |  |  |  |  |  |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |
Interest Rate Contracts: |  |  |  |  |  |  |  |  |  |
Forward Starting Swaps |  | Other Liabilities |  | $ | 1,095 |  |  | $ | — |  |  | $ | 1,095 |  |  | $ | — |
Supplemental Executive Retirement Plan |  | Other Liabilities |  | 96,823 |  |  | 96,823 |  |  | — |  |  | — |
Total |  |  |  | $ | 97,918 |  |  | $ | 96,823 |  |  | $ | 1,095 |  |  | $ | — |
Redeemable Noncontrolling Interests – |  |  |  |  |  |  |  |  |  |
Operating Partnership/Redeemable |  |  |  |  |  |  |  |  |  |
Limited Partners |  | Mezzanine |  | $ | 522,585 |  |  | $ | — |  |  | $ | 522,585 |  |  | $ | — |
|  |  |  |  |  | Fair Value Measurements at Reporting Date Using
Description |  | Balance Sheet Location |  | 12/31/2014 |  | Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Assets |  |  |  |  |  |  |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |
Interest Rate Contracts: |  |  |  |  |  |  |  |  |  |
Fair Value Hedges |  | Other Assets |  | $ | 1,597 |  |  | $ | — |  |  | $ | 1,597 |  |  | $ | — |
Forward Starting Swaps |  | Other Assets |  | 332 |  |  | — |  |  | 332 |  |  | — |
Supplemental Executive Retirement Plan |  | Other Assets |  | 104,463 |  |  | 104,463 |  |  | — |  |  | — |
Total |  |  |  | $ | 106,392 |  |  | $ | 104,463 |  |  | $ | 1,929 |  |  | $ | — |
Liabilities |  |  |  |  |  |  |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |
Interest Rate Contracts: |  |  |  |  |  |  |  |  |  |
Forward Starting Swaps |  | Other Liabilities |  | $ | 14,104 |  |  | $ | — |  |  | $ | 14,104 |  |  | $ | — |
Supplemental Executive Retirement Plan |  | Other Liabilities |  | 104,463 |  |  | 104,463 |  |  | — |  |  | — |
Total |  |  |  | $ | 118,567 |  |  | $ | 104,463 |  |  | $ | 14,104 |  |  | $ | — |
Redeemable Noncontrolling Interests – |  |  |  |  |  |  |  |  |  |
Operating Partnership/Redeemable |  |  |  |  |  |  |  |  |  |
Limited Partners |  | Mezzanine |  | $ | 500,733 |  |  | $ | — |  |  | $ | 500,733 |  |  | $ | — |
The following tables provide a summary of the effect of fair value hedges on the Company’s accompanying consolidated statements of operations and comprehensive income for the nine months ended September 30, 2015 and 2014, respectively (amounts in thousands):
September 30, 2015 Type of Fair Value Hedge |  | Location of Gain/(Loss) Recognized in Income on Derivative |  | Amount of Gain/(Loss) Recognized in Income on Derivative |  | Hedged Item |  | Income Statement Location of Hedged Item Gain/(Loss) |  | Amount of Gain/(Loss) Recognized in Income on Hedged Item
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |
Interest Rate Contracts: |  |  |  |  |  |  |  |  |  |
Interest Rate Swaps |  | Interest expense |  | $ | 8,162 |  |  | Fixed rate debt |  | Interest expense |  | $ | (8,162 | )
Total |  |  |  | $ | 8,162 |  |  |  |  |  |  | $ | (8,162 | )
September 30, 2014 Type of Fair Value Hedge |  | Location of Gain/(Loss) Recognized in Income on Derivative |  | Amount of Gain/(Loss) Recognized in Income on Derivative |  | Hedged Item |  | Income Statement Location of Hedged Item Gain/(Loss) |  | Amount of Gain/(Loss) Recognized in Income on Hedged Item
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |
Interest Rate Contracts: |  |  |  |  |  |  |  |  |  |
Interest Rate Swaps |  | Interest expense |  | $ | (2,485 | ) |  | Fixed rate debt |  | Interest expense |  | $ | 2,485 |
Total |  |  |  | $ | (2,485 | ) |  |  |  |  |  | $ | 2,485 |
The following tables provide a summary of the effect of cash flow hedges on the Company’s accompanying consolidated statements of operations and comprehensive income for the nine months ended September 30, 2015 and 2014, respectively (amounts in thousands):
|  | Effective Portion |  | Ineffective Portion
September 30, 2015 Type of Cash Flow Hedge |  | Amount of Gain/(Loss) Recognized in OCI on Derivative |  | Location of Gain/ (Loss) Reclassified from Accumulated OCI into Income |  | Amount of Gain/ (Loss) Reclassified from Accumulated OCI into Income |  | Location of Gain/(Loss) Recognized in Income on Derivative |  | Amount of Gain/ (Loss) Reclassified from Accumulated OCI into Income
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |
Interest Rate Contracts: |  |  |  |  |  |  |  |  |  |
Forward Starting Swaps | $ | (1,237 | ) |  | Interest expense |  | $ | (13,647 | ) |  | Interest expense |  | $ | (3,033 | )
Total |  | $ | (1,237 | ) |  |  |  | $ | (13,647 | ) |  |  |  | $ | (3,033 | )
|  | Effective Portion |  | Ineffective Portion
September 30, 2014 Type of Cash Flow Hedge |  | Amount of Gain/(Loss) Recognized in OCI on Derivative |  | Location of Gain/ (Loss) Reclassified from Accumulated OCI into Income |  | Amount of Gain/ (Loss) Reclassified from Accumulated OCI into Income |  | Location of Gain/(Loss) Recognized in Income on Derivative |  | Amount of Gain/ (Loss) Reclassified from Accumulated OCI into Income
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |
Interest Rate Contracts: |  |  |  |  |  |  |  |  |  |
Forward Starting Swaps |  | $ | (21,693 | ) |  | Interest expense |  | $ | (12,606 | ) |  | Interest expense |  | $ | 91 |
Total |  | $ | (21,693 | ) |  |  |  | $ | (12,606 | ) |  |  |  | $ | 91 |
As of September 30, 2015 and December 31, 2014, there were approximately $156.8 million and $172.2 million in deferred losses, net, included in accumulated other comprehensive (loss), respectively, related to derivative instruments. Based on the estimated fair values of the net derivative instruments at September 30, 2015, the Company may recognize an estimated $24.2 million of accumulated other comprehensive (loss) as additional interest expense during the twelve months ending September 30, 2016. In May 2015, the Company paid a net $15.1 million to settle nine forward starting ten-year swaps in conjunction with the issuance of $450.0 million of ten-year fixed rate public notes. The ineffective portion of approximately $30,000 and accrued interest of approximately $1.2 million were recorded as increases to interest expense. The remaining amount of approximately $13.9 million will be deferred as a component of accumulated other comprehensive (loss) and recognized as an increase to interest expense over the first 9 years and 10.5 months of the notes. During the quarter ended September 30, 2015, the Company recorded approximately $3.0 million of deferred accumulated other comprehensive (loss) as additional interest expense due to the ineffectiveness of certain forward starting swaps.

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