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Financial Instruments | 9 Months Ended
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Sep. 30, 2013
Fair Value Disclosures [Abstract] |
Financial Instruments | 8. FINANCIAL INSTRUMENTS Measurement of Fair Value At September 30, 2013, the Company used pay-fixed interest rate swaps to manage its exposure to changes in benchmark interest rates (the “Swaps”). The estimated fair values were determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and volatility. The fair values of interest rate swaps are estimated using the market standard methodology of netting the discounted fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of interest rates (forward curves) derived from observable market interest rate curves. In addition, credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, are incorporated in the fair values to account for potential nonperformance risk, including the Company’s own nonperformance risk and the respective counterparty’s nonperformance risk. The Company determined that the significant inputs used to value its derivatives fell within Level 2 of the fair value hierarchy. Items Measured at Fair Value on a Recurring Basis The following table presents information about the Company’s financial assets and liabilities, which consist of interest rate swap agreements (included in Other Liabilities) and marketable securities (included in Other Assets), which include investments in the Company’s elective deferred compensation plan and investments in securities at September 30, 2013 and December 31, 2012, measured at fair value on a recurring basis, and indicates the fair value hierarchy of the valuation techniques used by the Company to determine such fair value (in millions):
|  | Fair Value Measurements |
Assets (liabilities): |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
September 30, 2013 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative financial instruments |  | $ | — |  |  | $ | (6.0 | ) |  | $ | — |  |  | $ | (6.0 | )
Marketable securities |  | $ | 7.5 |  |  | $ | — |  |  | $ | — |  |  | $ | 7.5 |
December 31, 2012 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative financial instruments |  | $ | — |  |  | $ | (17.1 | ) |  | $ | — |  |  | $ | (17.1 | )
Marketable securities |  | $ | 2.9 |  |  | $ | — |  |  | $ | — |  |  | $ | 2.9 |
The unrealized gain of $11.1 million included in other comprehensive income (loss) (“OCI”) is attributable to the net change in fair value during the nine-month period ended September 30, 2013, related to derivative financial instruments, none of which were reported in the Company’s condensed consolidated statements of operations because the swaps are documented and qualify as hedging instruments. Other Fair Value Instruments Investments in unconsolidated joint ventures are considered financial assets. See discussion of related fair value considerations in Note 13. Cash and Cash Equivalents, Restricted Cash, Accounts Receivable, Marketable Securities, Accounts Payable, Accrued Expenses and Other Liabilities The carrying amounts reported in the condensed consolidated balance sheets for these financial instruments approximated fair value because of their short-term maturities. The Company’s marketable equity securities have been classified as available-for-sale and are recorded at fair value, with any realized gains and losses recorded using the specific identification method and any unrealized gains or losses recorded in OCI. The fair value of cash and cash equivalents, restricted cash and available-for-sale securities are classified as Level 1 in the fair value hierarchy. Notes Receivable and Advances to Affiliates The fair value is estimated using a discounted cash flow analysis, in which the Company used unobservable inputs such as market interest rates determined by the loan to value and market capitalization rates related to the underlying collateral at which management believes similar loans would be made and classified as Level 3 in the fair value hierarchy. The fair value of these notes was approximately $305.9 million and $250.7 million at September 30, 2013 and December 31, 2012, respectively, as compared to the carrying amounts of $303.6 million and $250.4 million, respectively. The carrying value of the TIF bonds, which was $5.2 million at both September 30, 2013 and December 31, 2012, approximated their fair value. Debt The fair market value of senior notes, except senior convertible notes, is determined using the trading price of the Company’s public debt. The fair market value for all other debt is estimated using a discounted cash flow technique that incorporates future contractual interest and principal payments and a market interest yield curve with adjustments for duration, optionality and risk profile including the Company’s nonperformance risk and loan to value. The Company’s senior notes, except senior convertible notes, and all other debt including senior convertible notes are classified as Level 2 and Level 3, respectively, in the fair value hierarchy. Considerable judgment is necessary to develop estimated fair values of financial instruments. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments. Debt instruments at September 30, 2013 and December 31, 2012, with carrying values that are different than estimated fair values, are summarized as follows (in thousands):
|  | September 30, 2013 |  |  | December 31, 2012 |
|  | Carrying Amount |  |  | Fair Value |  |  | Carrying Amount |  |  | Fair Value |
Senior notes |  | $ | 2,453,336 |  |  | $ | 2,702,949 |  |  | $ | 2,147,097 |  |  | $ | 2,503,127 |
Revolving Credit Facilities and term loans |  |  | 792,869 |  |  |  | 794,912 |  |  |  | 897,905 |  |  |  | 903,210 |
Mortgage indebtedness |  |  | 1,349,852 |  |  |  | 1,371,949 |  |  |  | 1,274,141 |  |  |  | 1,324,969 |
|  | $ | 4,596,057 |  |  | $ | 4,869,810 |  |  | $ | 4,319,143 |  |  | $ | 4,731,306 |
Risk Management Objective of Using Derivatives The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its debt funding and, from time to time, through the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the values of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings. The Company has interests in consolidated joint ventures that own real estate assets in Canada and Russia. The net assets of these subsidiaries are exposed to volatility in currency exchange rates. The Company uses non-derivative financial instruments to economically hedge a portion of this exposure. The Company manages its currency exposure related to the net assets of its Canadian and European subsidiaries through foreign currency-denominated debt agreements. Cash Flow Hedges of Interest Rate Risk The Company’s objectives in using interest rate derivatives are to manage its exposure to interest rate movements. To accomplish this objective, the Company generally uses interest rate swaps as part of its interest rate risk management strategy. Swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. As of September 30, 2013 and December 31, 2012, the notional amount of the Company’s Swaps was $631.8 million and $632.8 million, respectively. The following table discloses certain information regarding the Company’s 10 outstanding interest rate swaps (not including the specified spreads), as well as their classification on the condensed consolidated balance sheets, as of September 30, 2013 and December 31, 2012 (in millions):
Maturity Date |  | Aggregate Notional Amount |  |  | Counterparty Pays Variable Rate |  | DDR Pays Fixed Rate |  |  | Fair Value |
|  |  |  |  |  |  |  |  |  | September 30, 2013 |  |  | December 31, 2012 |
|  |  |  |  |  |  |  |  |  | Asset |  |  | Liability |  |  | Asset |  |  | Liability |
June 2014 |  | $ | 100.0 |  |  | 1 Month LIBOR |  |  | 1.0 | % |  | $ | — |  |  | $ | (0.6 | ) |  | $ | — |  |  | $ | (1.2 | )
June 2015 |  | $ | 50.0 |  |  | 1 Month LIBOR |  |  | 0.6 | % |  |  | — |  |  |  | (0.2 | ) |  |  | — |  |  |  | (0.3 | )
July 2015 |  | $ | 100.0 |  |  | 1 Month LIBOR |  |  | 0.5 | % |  |  | — |  |  |  | (0.4 | ) |  |  | — |  |  |  | (0.5 | )
September 2017 |  | $ | 81.8 |  |  | 1 Month LIBOR |  |  | 2.8 | % |  |  | — |  |  |  | (5.6 | ) |  |  | — |  |  |  | (7.8 | )
January 2018 |  | $ | 100.0 |  |  | 1 Month LIBOR |  |  | 0.9 | % |  |  | 1.0 |  |  |  | — |  |  |  | — |  |  |  | (0.7 | )
February 2019 |  | $ | 100.0 |  |  | 1 Month LIBOR |  |  | 1.6 | % |  |  | — |  |  |  | (0.3 | ) |  |  | — |  |  |  | (3.5 | )
February 2019 |  | $ | 100.0 |  |  | 1 Month LIBOR |  |  | 1.5 | % |  |  | 0.1 |  |  |  | — |  |  |  | — |  |  |  | (3.1 | )
Other Assets |  |  |  |  |  |  |  |  |  |  |  | $ | 1.1 |  |  |  | N/A |  |  | $ | — |  |  |  | N/A |
Accounts Payable |  |  |  |  |  |  |  |  |  |  |  |  | N/A |  |  | $ | (7.1 | ) |  |  | N/A |  |  | $ | (17.1 | )
All components of the Swaps were included in the assessment of hedge effectiveness. The Company expects that within the next 12 months it will reflect an increase to interest expense (and a corresponding decrease to earnings) of approximately $6.7 million, which includes amortization of previously settled interest rate contracts. The effective portion of changes in the fair value of derivatives designated, and that qualify, as cash flow hedges is recorded in accumulated OCI and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During 2013, such derivatives were used to hedge the forecasted variable cash flows associated with existing or probable future obligations. The ineffective portion of the change in the fair value of derivatives is recognized directly in earnings. During the nine-month periods ended September 30, 2013 and 2012, the amount of hedge ineffectiveness recorded was not material. The Company is exposed to credit risk in the event of non-performance by the counterparties to the Swaps if the derivative position has a positive balance. The Company believes it mitigates its credit risk by entering into swaps with major financial institutions. The Company continually monitors and actively manages interest costs on its variable-rate debt portfolio and may enter into additional interest rate swap positions or other derivative interest rate instruments based on market conditions. The Company has not entered, and does not plan to enter, into any derivative financial instruments for trading or speculative purposes. Credit Risk-Related Contingent Features The Company has agreements with each of its Swap counterparties that contain a provision whereby if the Company defaults on certain of its unsecured indebtedness, the Company could also be declared in default on its Swaps, resulting in an acceleration of payment under the Swaps. Net Investment Hedges The Company is exposed to foreign exchange risk from its consolidated and unconsolidated international investments. The Company has foreign currency-denominated debt agreements that expose the Company to fluctuations in foreign exchange rates. The Company has designated these foreign currency borrowings as a hedge of its net investment in its Canadian and European subsidiaries. Changes in the spot rate value are recorded as adjustments to the debt balance with offsetting unrealized gains and losses recorded in OCI. Because the notional amount of the non-derivative instrument substantially matches the portion of the net investment designated as being hedged, and the non-derivative instrument is denominated in the functional currency of the hedged net investment, the hedge ineffectiveness recognized in earnings is not material. Effect on Net Income (Loss) and OCI The effect of the Company’s cash flow hedges and net investment hedge instruments on net income (loss) and OCI is as follows (in millions):
|  | Amount of Gain (Loss) Recognized in OCI (Effective Portion) |  |  | Location of Gain (Loss) Reclassified from Accumulated OCI (Effective Portion) |  |  | Amount of Gain (Loss) Reclassified from Accumulated OCI (Effective Portion) |
| Three-Month Periods Ended September 30 |  |  | Nine-Month Periods Ended September 30 |  |  |  | Three-Month Periods Ended September 30 |  |  | Nine-Month Periods Ended September 30 |
| 2013 |  |  | 2012 |  |  | 2013 |  |  | 2012 |  |  |  | 2013 |  |  | 2012 |  |  | 2013 |  |  | 2012 |
Cash flow hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  | $ | (1.5 | ) |  | $ | (4.0 | ) |  | $ | 11.1 |  |  | $ | (10.3 | ) |  |  | Interest expense |  |  | $ | (0.1 | ) |  | $ | 0.4 |  |  | $ | (0.3 | ) |  | $ | 0.2 |
Net investment hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Euro-denominated |  | $ | (0.2 | ) |  | $ | (0.2 | ) |  | $ | (0.1 | ) |  | $ | 0.1 |  |  |  |  |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Canadian dollar-denominated |  |  | (0.5 | ) |  |  | (1.3 | ) |  |  | 0.8 |  |  |  | (0.9 | ) |  |  |  |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total: |  | $ | (0.7 | ) |  | $ | (1.5 | ) |  | $ | 0.7 |  |  | $ | (0.8 | ) |  |  |  |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |

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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=28364263&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=28364263&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=25499696&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=28364263&loc=d3e13504-108611 + Details
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