Derivative Instruments and Hedging Activities (Notes)

9 Months Ended

Sep. 30, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities [Text Block]

6. Derivative Instruments and Hedging Activities

On February 19, 2015, the Company commenced a planned interest rate hedging program. The Company entered into sixteen forward-starting interest rate swap contracts during the nine months ended September 30, 2015, which fix the 10-year swap rate at a weighted-average rate of approximately 2.437% per annum on notional amounts aggregating $525.0 million. These interest rate swap contracts were entered into in advance of a financing with a target commencement date in September 2016 and maturity in September 2026 (See Note 13). In addition, during the nine months ended September 30, 2015, 767 Fifth Partners LLC, which is the consolidated entity (in which the Company has a 60% interest and owns 767 Fifth Avenue (the General Motors Building) in New York City), entered into nine forward-starting interest rate swap contracts, which fix the 10-year swap rate at a weighted-average rate of approximately 2.801% per annum on notional amounts aggregating $250.0 million. These interest rate swap contracts were entered into in advance of a financing with a target commencement date in June 2017 and maturity in June 2027 (See Note 13). The Company's interest rate swap contracts consisted of the following at September 30, 2015:

Derivative Instrument	Aggregate Notional Amount		Effective Date	Maturity Date	Strike Rate Range					Balance Sheet Location	Fair Value
					Low			High
	(in thousands)										(in thousands)
Boston Properties Limited Partnership:
Interest Rate Swaps	$	475,000	September 1, 2016	September 1, 2026	2.249	%	-	2.571	%	Other Liabilities	$	(9,231	)
Interest Rate Swaps	50,000		September 1, 2016	September 1, 2026	2.238	%	-	2.242	%	Prepaid Expenses and Other Assets	32
	$	525,000									$	(9,199	)
767 Fifth Partners LLC:
Interest Rate Swaps	$	250,000	June 7, 2017	June 7, 2027	2.677	%	-	2.950	%	Other Liabilities	$	(8,851	)
	$	775,000									$	(18,050	)

The Company entered into the interest rate swap contracts designated and qualifying as cash flow hedges to reduce its exposure to the variability in future cash flows attributable to changes in the 10-year swap rate in contemplation of obtaining 10-year fixed-rate financing in September 2016. The Company’s 767 Fifth Partners LLC consolidated entity entered into the interest rate swap contracts designated and qualifying as cash flow hedges to reduce its exposure to the variability in future cash flows attributable to changes in the 10-year swap rate in contemplation of obtaining 10-year fixed-rate financing in June 2017. The Company has formally documented all of its relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. The Company also assesses and documents, both at the hedging instrument’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows associated with the hedged items. All components of the forward-starting interest rate swap contracts were included in the assessment of hedge effectiveness. The Company has agreements with each of its derivative counterparties that contain a provision where the Company could be declared in default on its derivative obligations if repayment of the Company's indebtedness is accelerated by the lender due to the Company's default on the indebtedness. As of September 30, 2015, the fair value of derivatives in a net liability position, which excludes any adjustment for nonperformance risk and excludes accrued interest, related to these agreements was approximately $18.1 million. As of September 30, 2015, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions at September 30, 2015, it could have been required to settle its obligations under the agreements at their termination value of approximately $18.1 million. The Company accounts for the effective portion of changes in the fair value of a derivative in accumulated other comprehensive loss and subsequently reclassifies the effective portion to earnings over the term that the hedged transaction affects earnings. The Company accounts for the ineffective portion of changes in the fair value of a derivative directly in earnings. During the nine months ended September 30, 2015, the Company has recorded the changes in fair value of the swap contracts related to the effective portion of the interest rate contracts aggregating approximately $18.1 million in Other Liabilities and approximately $32,000 in Prepaid Expenses and Other Assets and Accumulated Other Comprehensive Loss within the Company’s Consolidated Balance Sheets. During the nine months ended September 30, 2015, the Company did not record any hedge ineffectiveness. The Company expects that within the next twelve months it will reclassify into earnings as an increase to interest expense approximately $77,000 of the amounts recorded within Accumulated Other Comprehensive Loss relating to the forward-starting interest rate swap contracts in effect and as of September 30, 2015.

The following table presents the location in the financial statements of the losses recognized related to the Company's cash flow hedges for the three and nine months ended September 30, 2015 and 2014:

	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
	(in thousands)
Amount of loss related to the effective portion recognized in other comprehensive loss	$	(30,156	)	$	—		$	(18,050	)	$	—
Amount of loss related to the effective portion subsequently reclassified to earnings (1)	$	(627	)	$	(628	)	$	(1,882	)	$	(1,881	)
Amount of gain (loss) related to the ineffective portion and amount excluded from effectiveness testing	$	—		$	—		$	—		$	—

___________

(1) Consists of amounts from previous interest rate hedging programs.

The following table reflects the changes in accumulated other comprehensive loss for the nine months ended September 30, 2015 and 2014 (in thousands):

Balance at December 31, 2014	$	(9,304	)
Effective portion of interest rate contracts	(18,050		)
Amortization of interest rate contracts (1)	1,882
Other comprehensive loss attributable to noncontrolling interests	4,847
Balance at September 30, 2015	$	(20,625	)
Balance at December 31, 2013	$	(11,556	)
Amortization of interest rate contracts (1)	1,881
Other comprehensive income attributable to noncontrolling interests	(191		)
Balance at September 30, 2014	$	(9,866	)

___________

(1) Consists of amounts from previous interest rate hedging programs.