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Disclosure About Fair Value of Financial Instruments | 9 Months Ended
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Sep. 30, 2012
Disclosure About Fair Value of Financial Instruments [Line Items] |
Disclosure About Fair Value of Financial Instruments | Disclosure About Fair Value of Financial Instruments The following summarizes the three levels of inputs that we use to measure fair value, as well as the assets, noncontrolling interests in the Operating Partnership and liabilities that we recognize at fair value using those levels of inputs. Level 1. Quoted prices in active markets for identical assets or liabilities. Our Level 1 assets are investments in marketable securities that we use to pay benefits under our non-qualified deferred compensation plan. Our Level 1 noncontrolling interests in the Operating Partnership relate to the ownership of Common Units by various individuals and entities other than the Company. Our Level 1 liability is our non-qualified deferred compensation obligation. Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. Our Level 2 asset is the fair value of our mortgages and notes receivable, which was estimated by the income approach utilizing contractual cash flows and market-based interest rates to approximate the price that would be paid in an orderly transaction between market participants. Our Level 2 liabilities include (1) the fair value of our mortgages and notes payable, which was estimated by the income approach utilizing contractual cash flows and market-based interest rates to approximate the price that would be paid in an orderly transaction between market participants and (2) interest rate swaps whose fair value is determined using the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The variable cash payments of our interest rate swaps are based on the expectation of future LIBOR interest rates (forward curves) derived from observed market LIBOR interest rate curves. In addition, credit valuation adjustments are incorporated in the fair values to account for potential nonperformance risk, but were concluded to not be significant inputs to the calculation for the periods presented. Level 3. Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Our Level 3 assets include our tax increment financing bond, which is not routinely traded but whose fair value is determined by the income approach utilizing contractual cash flows and market-based interest rates to estimate the projected redemption value based on quoted bid/ask prices for similar unrated municipal bonds and, if any, real estate assets and for-sale residential condominiums recorded at fair value on a non-recurring basis as a result of our quarterly impairment analysis, which were valued using broker opinion of value and substantiated by internal cash flow projections. Our Level 3 liabilities include the fair value of our contingent consideration to acquire real estate assets and financing obligations, which were estimated by the income approach to approximate the price that would be paid in an orderly transaction between market participants, utilizing: (1) contractual cash flows; (2) market-based interest rates; and (3) a number of other assumptions including demand for space, competition for customers, changes in market rental rates, costs of operation and expected ownership periods.
9. | Disclosure About Fair Value of Financial Instruments - Continued
The following tables set forth the assets, noncontrolling interests in the Operating Partnership and liabilities that we measure at fair value by level within the fair value hierarchy. We determine the level based on the lowest level of substantive input used to determine fair value.
|  |  | Level 1 |  | Level 2 |  | Level 3
| September 30, 2012 |  | Quoted Prices in Active Markets for Identical Assets or Liabilities |  | Significant Observable Inputs |  | Significant Unobservable Inputs
Assets: |  |  |  |  |  |  |
Mortgages and notes receivable, at fair value (1) | $ | 17,382 |  |  | $ | — |  |  | $ | 17,382 |  |  | $ | — |
Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets) | 3,264 |  |  | 3,264 |  |  | — |  |  | — |
Tax increment financing bond (in prepaid expenses and other assets) | 15,270 |  |  | — |  |  | — |  |  | 15,270 |
Total Assets | $ | 35,916 |  |  | $ | 3,264 |  |  | $ | 17,382 |  |  | $ | 15,270 |
Noncontrolling Interests in the Operating Partnership | $ | 123,141 |  |  | $ | 123,141 |  |  | $ | — |  |  | $ | — |
Liabilities: |  |  |  |  |  |  |
Mortgages and notes payable, at fair value (1) | $ | 1,889,775 |  |  | $ | — |  |  | $ | 1,889,775 |  |  | $ | — |
Interest rate swaps (in accounts payable, accrued expenses and other liabilities) | 10,274 |  |  | — |  |  | 10,274 |  |  | — |
Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities) | 3,264 |  |  | 3,264 |  |  | — |  |  | — |
Contingent consideration to acquire real estate assets (in accounts payable, accrued expenses and other liabilities) | 563 |  |  | — |  |  | — |  |  | 563 |
Financing obligations, at fair value (1) | 18,930 |  |  | — |  |  | — |  |  | 18,930 |
Total Liabilities | $ | 1,922,806 |  |  | $ | 3,264 |  |  | $ | 1,900,049 |  |  | $ | 19,493 |
|  |  | Level 1 |  | Level 2 |  | Level 3
| December 31, 2011 |  | Quoted Prices in Active Markets for Identical Assets or Liabilities |  | Significant Observable Inputs |  | Significant Unobservable Inputs
Assets: |  |  |  |  |  |  |
Mortgages and notes receivable, at fair value (1) | $ | 18,990 |  |  | $ | — |  |  | $ | 18,990 |  |  | $ | — |
Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets) | 3,149 |  |  | 3,149 |  |  | — |  |  | — |
Tax increment financing bond (in prepaid expenses and other assets) | 14,788 |  |  | — |  |  | — |  |  | 14,788 |
Impaired real estate assets and for-sale residential condominiums | 12,767 |  |  | — |  |  | — |  |  | 12,767 |
Total Assets | $ | 49,694 |  |  | $ | 3,149 |  |  | $ | 18,990 |  |  | $ | 27,555 |
Noncontrolling Interests in the Operating Partnership | $ | 110,655 |  |  | $ | 110,655 |  |  | $ | — |  |  | $ | — |
Liabilities: |  |  |  |  |  |  |
Mortgages and notes payable, at fair value (1) | $ | 1,959,438 |  |  | $ | — |  |  | $ | 1,959,438 |  |  | $ | — |
Interest rate swaps (in accounts payable, accrued expenses and other liabilities) | 2,202 |  |  | — |  |  | 2,202 |  |  | — |
Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities) | 3,149 |  |  | 3,149 |  |  | — |  |  | — |
Financing obligations, at fair value (1) | 18,866 |  |  | — |  |  | — |  |  | 18,866 |
Total Liabilities | $ | 1,983,655 |  |  | $ | 3,149 |  |  | $ | 1,961,640 |  |  | $ | 18,866 |
__________
9. | Disclosure About Fair Value of Financial Instruments - Continued
(1) Amounts carried at historical cost on our Consolidated Balance Sheets at September 30, 2012 and December 31, 2011, respectively. The following table sets forth the changes in our Level 3 asset and liability, which are recorded at fair value on our Consolidated Balance Sheets on a recurring basis:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2012 |  | 2011 |  | 2012 |  | 2011
Asset: |  |  |  |  |  |  |
Tax Increment Financing Bond: |  |  |  |  |  |  |
Beginning balance | $ | 15,371 |  |  | $ | 15,228 |  |  | $ | 14,788 |  |  | $ | 15,699 |
Unrealized gains/(losses) (in AOCL) | (101 | ) |  | 600 |  |  | 482 |  |  | 129 |
Ending balance | $ | 15,270 |  |  | $ | 15,828 |  |  | $ | 15,270 |  |  | $ | 15,828 |
Liability: |  |  |  |  |  |  |
Contingent Consideration to Acquire Real Estate Assets: |  |  |  |  |  |  |
Beginning balance | $ | 677 |  |  | $ | — |  |  | $ | 677 |  |  | $ | — |
Unrealized gains (in general and administrative) | (114 | ) |  | — |  |  | (114 | ) |  | — |
Ending balance | $ | 563 |  |  | $ | — |  |  | $ | 563 |  |  | $ | — |
During 2007, we acquired a tax increment financing bond associated with a parking garage developed by us. This bond amortizes to maturity in 2020. The estimated fair value at September 30, 2012 was $1.8 million below the outstanding principal due on the bond. If the discount rate used to fair value this bond was 100 basis points higher or lower, the fair value of the bond would have been $0.5 million lower or $0.6 million higher, respectively, as of September 30, 2012. We intend to hold this bond and have concluded that we will not be required to sell this bond before recovery of the bond principal. Payment of the principal and interest for the bond is guaranteed by us. We have recorded no credit losses related to the bond during the three and nine months ended September 30, 2012 and 2011. There is no legal right of offset with the liability, which we report as a financing obligation, related to this tax increment financing bond. The following table sets forth quantitative information about the unobservable inputs of our Level 3 asset and liability, which are recorded at fair value on our Consolidated Balance Sheets on a recurring basis:
| Fair Value at September 30, 2012 |  | Valuation Technique |  | Unobservable Input |  | Rate/ Percentage
Tax increment financing bond | $ | 15,270 |  |  | Income approach |  | Discount rate |  | 10.73 | %
Contingent consideration to acquire real estate assets | $ | 563 |  |  | Income approach |  | Payout percentage |  | 75.00 | %
Highwoods Realty Limited Partnership [Member] |
Disclosure About Fair Value of Financial Instruments [Line Items] |
Disclosure About Fair Value of Financial Instruments | Disclosure About Fair Value of Financial Instruments The following summarizes the three levels of inputs that we use to measure fair value, as well as the assets and liabilities that we recognize at fair value using those levels of inputs. Level 1. Quoted prices in active markets for identical assets or liabilities. Our Level 1 assets are investments in marketable securities that we use to pay benefits under our non-qualified deferred compensation plan. Our Level 1 liability is our non-qualified deferred compensation obligation. Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. Our Level 2 asset is the fair value of our mortgages and notes receivable, which was estimated by the income approach utilizing contractual cash flows and market-based interest rates to approximate the price that would be paid in an orderly transaction between market participants. Our Level 2 liabilities include (1) the fair value of our mortgages and notes payable, which was estimated by the income approach utilizing contractual cash flows and market-based interest rates to approximate the price that would be paid in an orderly transaction between market participants and (2) interest rate swaps whose fair value is determined using the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The variable cash payments of our interest rate swaps are based on the expectation of future LIBOR interest rates (forward curves) derived from observed market LIBOR interest rate curves. In addition, credit valuation adjustments are incorporated in the fair values to account for potential nonperformance risk, but were concluded to not be significant inputs to the calculation for the periods presented. Level 3. Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
9. | Disclosure About Fair Value of Financial Instruments - Continued
Our Level 3 assets include our tax increment financing bond, which is not routinely traded but whose fair value is determined by the income approach utilizing contractual cash flows and market-based interest rates to estimate the projected redemption value based on quoted bid/ask prices for similar unrated municipal bonds and, if any, real estate assets and for-sale residential condominiums recorded at fair value on a non-recurring basis as a result of our quarterly impairment analysis, which were valued using broker opinion of value and substantiated by internal cash flow projections. Our Level 3 liabilities include the fair value of our contingent consideration to acquire real estate assets and financing obligations, which were estimated by the income approach to approximate the price that would be paid in an orderly transaction between market participants, utilizing: (1) contractual cash flows; (2) market-based interest rates; and (3) a number of other assumptions including demand for space, competition for customers, changes in market rental rates, costs of operation and expected ownership periods. The following tables set forth the assets and liabilities that we measure at fair value by level within the fair value hierarchy. We determine the level based on the lowest level of substantive input used to determine fair value.
|  |  | Level 1 |  | Level 2 |  | Level 3
| September 30, 2012 |  | Quoted Prices in Active Markets for Identical Assets or Liabilities |  | Significant Observable Inputs |  | Significant Unobservable Inputs
Assets: |  |  |  |  |  |  |
Mortgages and notes receivable, at fair value (1) | $ | 17,382 |  |  | $ | — |  |  | $ | 17,382 |  |  | $ | — |
Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets) | 3,264 |  |  | 3,264 |  |  | — |  |  | — |
Tax increment financing bond (in prepaid expenses and other assets) | 15,270 |  |  | — |  |  | — |  |  | 15,270 |
Total Assets | $ | 35,916 |  |  | $ | 3,264 |  |  | $ | 17,382 |  |  | $ | 15,270 |
Liabilities: |  |  |  |  |  |  |
Mortgages and notes payable, at fair value (1) | $ | 1,889,775 |  |  | $ | — |  |  | $ | 1,889,775 |  |  | $ | — |
Interest rate swaps (in accounts payable, accrued expenses and other liabilities) | 10,274 |  |  | — |  |  | 10,274 |  |  | — |
Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities) | 3,264 |  |  | 3,264 |  |  | — |  |  | — |
Contingent consideration to acquire real estate assets (in accounts payable, accrued expenses and other liabilities) | 563 |  |  | — |  |  | — |  |  | 563 |
Financing obligations, at fair value (1) | 18,930 |  |  | — |  |  | — |  |  | 18,930 |
Total Liabilities | $ | 1,922,806 |  |  | $ | 3,264 |  |  | $ | 1,900,049 |  |  | $ | 19,493 |
9. | Disclosure About Fair Value of Financial Instruments - Continued
|  |  | Level 1 |  | Level 2 |  | Level 3
| December 31, 2011 |  | Quoted Prices in Active Markets for Identical Assets or Liabilities |  | Significant Observable Inputs |  | Significant Unobservable Inputs
Assets: |  |  |  |  |  |  |
Mortgages and notes receivable, at fair value (1) | $ | 18,990 |  |  | $ | — |  |  | $ | 18,990 |  |  | $ | — |
Marketable securities of non-qualified deferred compensation plan (in prepaid expenses and other assets) | 3,149 |  |  | 3,149 |  |  | — |  |  | — |
Tax increment financing bond (in prepaid expenses and other assets) | 14,788 |  |  | — |  |  | — |  |  | 14,788 |
Impaired real estate assets and for-sale residential condominiums | 12,767 |  |  | — |  |  | — |  |  | 12,767 |
Total Assets | $ | 49,694 |  |  | $ | 3,149 |  |  | $ | 18,990 |  |  | $ | 27,555 |
Liabilities: |  |  |  |  |  |  |
Mortgages and notes payable, at fair value (1) | $ | 1,959,438 |  |  | $ | — |  |  | $ | 1,959,438 |  |  | $ | — |
Interest rate swaps (in accounts payable, accrued expenses and other liabilities) | 2,202 |  |  | — |  |  | 2,202 |  |  | — |
Non-qualified deferred compensation obligation (in accounts payable, accrued expenses and other liabilities) | 3,149 |  |  | 3,149 |  |  | — |  |  | — |
Financing obligations, at fair value (1) | 18,866 |  |  | — |  |  | — |  |  | 18,866 |
Total Liabilities | $ | 1,983,655 |  |  | $ | 3,149 |  |  | $ | 1,961,640 |  |  | $ | 18,866 |
__________ (1) Amounts carried at historical cost on our Consolidated Balance Sheets at September 30, 2012 and December 31, 2011, respectively. The following table sets forth the changes in our Level 3 asset and liability, which are recorded at fair value on our Consolidated Balance Sheets on a recurring basis:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2012 |  | 2011 |  | 2012 |  | 2011
Asset: |  |  |  |  |  |  |
Tax Increment Financing Bond: |  |  |  |  |  |  |
Beginning balance | $ | 15,371 |  |  | $ | 15,228 |  |  | $ | 14,788 |  |  | $ | 15,699 |
Unrealized gains/(losses) (in AOCL) | (101 | ) |  | 600 |  |  | 482 |  |  | 129 |
Ending balance | $ | 15,270 |  |  | $ | 15,828 |  |  | $ | 15,270 |  |  | $ | 15,828 |
Liability: |  |  |  |  |  |  |
Contingent Consideration to Acquire Real Estate Assets: |  |  |  |  |  |  |
Beginning balance | $ | 677 |  |  | $ | — |  |  | $ | 677 |  |  | $ | — |
Unrealized gains (in general and administrative) | (114 | ) |  | — |  |  | (114 | ) |  | — |
Ending balance | $ | 563 |  |  | $ | — |  |  | $ | 563 |  |  | $ | — |
During 2007, we acquired a tax increment financing bond associated with a parking garage developed by us. This bond amortizes to maturity in 2020. The estimated fair value at September 30, 2012 was $1.8 million below the outstanding principal due on the bond. If the discount rate used to fair value this bond was 100 basis points higher or lower, the fair value of the bond would have been $0.5 million lower or $0.6 million higher, respectively, as of September 30, 2012. We intend to hold this bond and have concluded that we will not be required to sell this bond before recovery of the bond principal. Payment of the principal and interest for the bond is guaranteed by us. We have recorded no credit losses related to the bond during the three and nine months ended September 30, 2012 and 2011. There is no legal right of offset with the liability, which we report as a financing obligation, related to this tax increment financing bond.
9. | Disclosure About Fair Value of Financial Instruments - Continued
The following table sets forth quantitative information about the unobservable inputs of our Level 3 asset and liability, which are recorded at fair value on our Consolidated Balance Sheets on a recurring basis:
| Fair Value at September 30, 2012 |  | Valuation Technique |  | Unobservable Input |  | Rate/ Percentage
Tax increment financing bond | $ | 15,270 |  |  | Income approach |  | Discount rate |  | 10.73 | %
Contingent consideration to acquire real estate assets | $ | 563 |  |  | Income approach |  | Payout percentage |  | 75.00 | %

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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 16 -URI http://asc.fasb.org/extlink&oid=7491637&loc=d3e13504-108611 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15C, 15D -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44A, 44B -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15A -Subparagraph a-d -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 3, 10, 14, 15 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: 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=7491637&loc=d3e13433-108611 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 159 -Paragraph 17-22, 27, 28 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 8: 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=7491637&loc=d3e13537-108611 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15B -Subparagraph a, b -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32, 33, 34 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 11: 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=7578670&loc=d3e19207-110258 Reference 12: 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 13: 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 + Details
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