Derivative and Hedging Instruments (Notes)

12 Months Ended

Dec. 31, 2016

Derivatives and Hedging Activities [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

7. Derivative Instruments and Hedging Activities

On February 19, 2015, Boston Properties Limited Partnership commenced a planned interest rate hedging program. During the year ended December 31, 2015, Boston Properties Limited Partnership entered into 17 forward-starting interest rate swap contracts that fix the 10-year swap rate at a weighted-average rate of approximately 2.423% per annum on notional amounts aggregating $550.0 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. On August 17, 2016, in conjunction with Boston Properties Limited Partnership’s offering of its 2.750% senior unsecured notes due 2026 (See Note 8), the Company terminated the forward-starting interest rate swap contracts and cash-settled the contracts by making cash payments to the counterparties aggregating approximately $49.3 million. The Company recognized approximately $0.1 million of losses on interest rate contracts during the year ended December 31, 2016 related to the partial ineffectiveness of the interest rate contracts. The Company will reclassify into earnings, as an increase to interest expense, approximately $49.2 million (or approximately $4.9 million per year over the 10-year term of the 2.750% senior unsecured notes due 2026) of the amounts recorded in the consolidated balance sheets within accumulated other comprehensive loss, which represents the effective portion of the applicable interest rate contracts.

767 Fifth Partners LLC, which is a subsidiary of 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 16 forward-starting interest rate swap contracts (including two contracts entered into during the year ended December 31, 2016 with notional amounts aggregating $50.0 million), that fix the 10-year swap rate at a weighted-average rate of approximately 2.619% per annum on notional amounts aggregating $450.0 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.

767 Fifth Avenue Partners LLC’s interest rate swap contracts consisted of the following at December 31, 2016 (dollars in thousands):

Derivative Instrument	Aggregate Notional Amount		Effective Date	Maturity Date	Strike Rate Range					Balance Sheet Location	Fair Value
					Low			High
767 Fifth Partners LLC:
Interest Rate Swaps	$	350,000	June 7, 2017	June 7, 2027	2.418	%	-	2.950	%	Other Liabilities	$	(8,773	)
Interest Rate Swaps	100,000		June 7, 2017	June 7, 2027	2.336	%	-	2.388	%	Prepaid Expenses and Other Assets	509
	$	450,000									$	(8,264	)

Boston Properties Limited Partnership’s and 767 Fifth Avenue Partners LLC’s interest rate swap contracts consisted of the following at December 31, 2015 (dollars in thousands):

Derivative Instrument	Aggregate Notional Amount		Effective Date	Maturity Date	Strike Rate Range					Balance Sheet Location	Fair Value
					Low			High
Boston Properties Limited Partnership:
Interest Rate Swaps	$	400,000	September 1, 2016	September 1, 2026	2.348	%	-	2.571	%	Other Liabilities	$	(5,419	)
Interest Rate Swaps	150,000		September 1, 2016	September 1, 2026	2.129	%	-	2.325	%	Prepaid Expenses and Other Assets	1,188
	$	550,000									$	(4,231	)
767 Fifth Partners LLC:
Interest Rate Swaps	$	250,000	June 7, 2017	June 7, 2027	2.677	%	-	2.950	%	Other Liabilities	$	(7,247	)
Interest Rate Swaps	150,000		June 7, 2017	June 7, 2027	2.336	%	-	2.430	%	Prepaid Expenses and Other Assets	1,176
	$	400,000									$	(6,071	)
	$	950,000									$	(10,302	)

Boston Properties Limited Partnership 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. Boston Properties Limited Partnership 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. Boston Properties Limited Partnership 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. 767 Fifth Partners LLC has agreements with each of its derivative counterparties that contain a provision where it could be declared in default on its derivative obligations if repayment of its indebtedness is accelerated by the lender due to its default on the indebtedness. As of December 31, 2016, the fair value of 767 Fifth Partners LLC’s derivatives is in a net liability position, excluding any adjustment for nonperformance risk and excluding accrued interest, related to these agreements of approximately $8.7 million. As of December 31, 2016, 767 Fifth Partners LLC has not posted any collateral related to these agreements. If 767 Fifth Partners LLC had breached any of these provisions at December 31, 2016, it could have been required to settle its obligations under the agreements at their termination value of approximately $8.7 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. The Company classifies cash flows related to derivative instruments within its Consolidated Statements of Cash Flows consistent with the nature of the hedged item. 767 Fifth Partners LLC has recorded the changes in fair value of the swap contracts related to the effective portion of the interest rate contracts aggregating approximately $8.8 million in Other Liabilities and approximately $0.5 million in Prepaid Expenses and Other Assets and Accumulated Other Comprehensive Loss within the Company’s Consolidated Balance Sheets. During the year ended December 31, 2016, 767 Fifth Partners LLC did not record any hedge ineffectiveness. 767 Fifth Partners LLC expects that within the next twelve months it will reclassify into earnings as an increase to interest expense approximately $0.5 million of the amounts recorded within Accumulated Other Comprehensive Loss relating to the forward-starting interest rate swap contracts in effect and as of December 31, 2016.

The following table presents the location in the financial statements of the losses recognized related to the Company’s cash flow hedges for the years ended December 31, 2016, 2015 and 2014:

	Year ended December 31,
	2016				2015			2014
	(in thousands)
Amount of loss related to the effective portion recognized in other comprehensive loss	$	(47,144	)		$	(10,302	)	$	—
Amount of loss related to the portion subsequently reclassified to earnings	$	(3,751	)	(1)	$	(2,510	)	$	(2,508	)
Amount of loss related to the ineffective portion and amount excluded from effectiveness testing	$	(140	)		$	—		$	—

___________

(1) During the year ended December 31, 2016, the Company accelerated the reclassification of amounts in other comprehensive loss to earnings as a result of the hedged forecasted transactions becoming probable not to occur.  The accelerated amounts were a loss of approximately $0.2 million and are included in the table above.

Boston Properties, Inc.

The following table reflects the changes in accumulated other comprehensive loss for the years ended December 31, 2016, 2015 and 2014 (in thousands):

Balance at December 31, 2013	$	(11,556	)
Amortization of interest rate contracts	2,508
Other comprehensive income attributable to noncontrolling interests	(256		)
Balance at December 31, 2014	(9,304		)
Effective portion of interest rate contracts	(10,302		)
Amortization of interest rate contracts	2,510
Other comprehensive loss attributable to noncontrolling interests	2,982
Balance at December 31, 2015	(14,114		)
Effective portion of interest rate contracts	(47,144		)
Amortization of interest rate contracts	3,751
Other comprehensive loss attributable to noncontrolling interests	5,256
Balance at December 31, 2016	$	(52,251	)

Boston Properties Limited Partnership

The following table reflects the changes in accumulated other comprehensive loss for the years ended December 31, 2016, 2015 and 2014 (in thousands):

Balance at December 31, 2013	$	(15,481	)
Amortization of interest rate contracts	2,508
Balance at December 31, 2014	(12,973		)
Effective portion of interest rate contracts	(10,302		)
Amortization of interest rate contracts	2,510
Other comprehensive loss attributable to noncontrolling interests in property partnership	2,428
Balance at December 31, 2015	(18,337		)
Effective portion of interest rate contracts	(47,144		)
Amortization of interest rate contracts	3,751
Other comprehensive loss attributable to noncontrolling interests in property partnership	877
Balance at December 31, 2016	$	(60,853	)