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Fair Value of Derivatives and Financial Instruments | 9 Months Ended
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Sep. 30, 2014
Fair Value Disclosures [Abstract] |
FAIR VALUE OF DERIVATIVES AND FINANCIAL INSTRUMENTS | FAIR VALUE OF DERIVATIVES AND FINANCIAL INSTRUMENTS Fair value is based on the price that would be received to sell an asset or the exit price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level valuation hierarchy prioritizes observable and unobservable inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below:
• | Level 1 — Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
• | Level 2 — Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.
• | Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
The estimated fair values of the Company’s financial instruments either recorded or disclosed on a recurring basis as of September 30, 2014 and December 31, 2013 are summarized as follows (dollars in thousands):
|  |  |  |  | Fair Value at September 30, 2014, Using
| Total Carrying Amount in Statement of Financial Position at September 30, 2014 |  | Fair Value Estimate at September 30, 2014 |  | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Description: |  |  |  |  |  |  |  |  |
Notes receivable (a) | $ | 18,318 |  |  | $ | 18,858 |  |  | $ | — |  |  | $ | — |  |  | $ | 18,858 |
Derivatives- Interest rate contracts (b) | 299 |  |  | 299 |  |  | — |  |  | 299 |  |  | — |
Total assets | $ | 18,617 |  |  | $ | 19,157 |  |  | $ | — |  |  | $ | 299 |  |  | $ | 18,858 |
Derivatives- Interest rate contracts (b) | $ | 2,382 |  |  | $ | 2,382 |  |  | $ | — |  |  | $ | 2,382 |  |  | $ | — |
Secured debt instruments- fixed rate: (c) |  |  |  |  |  |  |  |  |
Mortgage notes payable | 438,172 |  |  | 451,582 |  |  | — |  |  | — |  |  | 451,582 |
Fannie Mae credit facilities | 623,754 |  |  | 655,035 |  |  | — |  |  | — |  |  | 655,035 |
Secured debt instruments- variable rate: (c) |  |  |  |  |  |  |  |  |
Mortgage notes payable | 31,337 |  |  | 31,337 |  |  | — |  |  | — |  |  | 31,337 |
Tax-exempt secured notes payable | 94,700 |  |  | 94,700 |  |  | — |  |  | — |  |  | 94,700 |
Fannie Mae credit facilities | 211,409 |  |  | 211,409 |  |  | — |  |  | — |  |  | 211,409 |
Unsecured debt instruments: (c) |  |  |  |  |  |  |  |  |
Commercial bank | 160,000 |  |  | 160,000 |  |  | — |  |  | — |  |  | 160,000 |
Senior unsecured notes | 2,068,820 |  |  | 2,136,468 |  |  | — |  |  | — |  |  | 2,136,468 |
Total liabilities | $ | 3,630,574 |  |  | $ | 3,742,913 |  |  | $ | — |  |  | $ | 2,382 |  |  | $ | 3,740,531 |
Redeemable noncontrolling interests in the Operating Partnership (d) | $ | 249,814 |  |  | $ | 249,814 |  |  | $ | — |  |  | $ | 249,814 |  |  | $ | — |
|  |  |  |  | Fair Value at December 31, 2013, Using
| Total Carrying Amount in Statement of Financial Position at December 31, 2013 |  | Fair Value Estimate at December 31, 2013 |  | Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Description: |  |  |  |  |  |  |  |  |
Notes receivable (a) | $ | 83,033 |  |  | $ | 83,833 |  |  | $ | — |  |  | $ | — |  |  | $ | 83,833 |
Total assets | $ | 83,033 |  |  | $ | 83,833 |  |  | $ | — |  |  | $ | — |  |  | $ | 83,833 |
Derivatives- Interest rate contracts (b) | $ | 4,965 |  |  | $ | 4,965 |  |  | $ | — |  |  | $ | 4,965 |  |  | $ | — |
Secured debt instruments- fixed rate: (c) |  |  |  |  |  |  |  |  |
Mortgage notes payable | 445,706 |  |  | 466,375 |  |  | — |  |  | — |  |  | 466,375 |
Fannie Mae credit facilities | 626,667 |  |  | 661,094 |  |  | — |  |  | — |  |  | 661,094 |
Secured debt instruments- variable rate: (c) |  |  |  |  |  |  |  |  |  |  |  |
Mortgage notes payable | 63,595 |  |  | 63,595 |  |  | — |  |  | — |  |  | 63,595 |
Tax-exempt secured notes payable | 94,700 |  |  | 94,700 |  |  | — |  |  | — |  |  | 94,700 |
Fannie Mae credit facilities | 211,409 |  |  | 211,409 |  |  | — |  |  | — |  |  | 211,409 |
Unsecured debt instruments: (c) |  |  |  |  |  |  |  |  |
Senior unsecured notes | 2,081,626 |  |  | 2,149,003 |  |  | — |  |  | — |  |  | 2,149,003 |
Total liabilities | $ | 3,528,668 |  |  | $ | 3,651,141 |  |  | $ | — |  |  | $ | 4,965 |  |  | $ | 3,646,176 |
Redeemable noncontrolling interests in the Operating Partnership (d) | $ | 217,597 |  |  | $ | 217,597 |  |  | $ | — |  |  | $ | 217,597 |  |  | $ | — |
(a) | See Note 2, Significant Accounting Policies.
(b) | See Note 10, Derivatives and Hedging Activity.
(c) | See Note 6, Secured and Unsecured Debt.
(d) | See Note 8, Noncontrolling Interests.
There were no transfers into or out of each of the levels of the fair value hierarchy for the periods ending September 30, 2014 and December 31, 2013. Financial Instruments Carried at Fair Value The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The fair values of interest rate options are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. 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 its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of September 30, 2014 and December 31, 2013, 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 has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. In conjunction with the FASB’s fair value measurement guidance, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio. Redeemable noncontrolling interests in the Operating Partnership have a redemption feature and are marked to their redemption value. The redemption value is based on the fair value of the Company’s common stock at the redemption date, and therefore, is calculated based on the fair value of the Company’s common stock at the balance sheet date. Since the valuation is based on observable inputs such as quoted prices for similar instruments in active markets, redeemable noncontrolling interests in the Operating Partnership are classified as Level 2. Financial Instruments Not Carried at Fair Value At September 30, 2014, the fair values of cash and cash equivalents, restricted cash, accounts receivable, prepaids, real estate taxes payable, accrued interest payable, security deposits and prepaid rent, distributions payable and accounts payable approximated their carrying values because of the short term nature of these instruments. The estimated fair values of other financial instruments were determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair values. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company would realize on the disposition of the financial instruments. The use of different market assumptions or estimation methodologies may have a material effect on the estimated fair value amounts. We estimate the fair value of our notes receivable and debt instruments by discounting the remaining cash flows of the debt instrument at a discount rate equal to the replacement market credit spread plus the corresponding treasury yields. Factors considered in determining a replacement market credit spread include general market conditions, borrower specific credit spreads, time remaining to maturity, loan-to-value ratios and collateral quality, where applicable (Level 3). We record impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by the future operation and disposition of those assets are less than the net book value of those assets. Our cash flow estimates are based upon historical results adjusted to reflect our best estimate of future market and operating conditions and our estimated holding periods. The net book value of impaired assets is reduced to fair value. Our estimates of fair value represent our best estimate based upon Level 3 inputs such as industry trends and reference to market rates and transactions. We consider various factors to determine if a decrease in the value of our investment in and advances to unconsolidated joint ventures, net is other-than-temporary. These factors include, but are not limited to, age of the venture, our intent and ability to retain our investment in the entity, the financial condition and long-term prospects of the entity, and the relationships with the other joint venture partners and its lenders. Based on the significance of the unobservable inputs, we classify these fair value measurements within Level 3 of the valuation hierarchy. The Company did not incur any other-than-temporary decrease in the value of its investments in unconsolidated joint ventures during the three and nine months ended September 30, 2014 and 2013. After determining an other-than-temporary decrease in the value of an equity method investment has occurred, we estimate the fair value of our investment by estimating the proceeds we would receive upon a hypothetical liquidation of the investment at the date of measurement. Inputs reflect management’s best estimate of what market participants would use in pricing the investment giving consideration to the terms of the joint venture agreement and the estimated discounted future cash flows to be generated from the underlying joint venture assets. The inputs and assumptions utilized to estimate the future cash flows of the underlying assets are based upon the Company’s evaluation of the economy, market trends, operating results, and other factors, including judgments regarding costs to complete any construction activities, lease up and occupancy rates, rental rates, inflation rates, capitalization rates utilized to estimate the projected cash flows at the disposition, and discount rates.

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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=35750535&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=35750535&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=36462937&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=35750535&loc=d3e13504-108611 + Details
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