Organization and Basis of Presentation (Policies)

9 Months Ended

Sep. 30, 2013

Organization and Basis of Presentation [Abstract]

Marketable Securities

Marketable Securities

The Operating Partnership reports its available for sale securities at fair value, based on quoted market prices (Level 2 for the unsecured bonds and Level 1 for the common stock and investment funds, as defined by the Financial Accounting Standards Board (“FASB”) standard for fair value measurements as discussed later in Note 1), and any unrealized gain or loss is recorded as other comprehensive income (loss).  Realized gains and losses, interest and dividend income, and amortization of purchase discounts are included in interest and other income on the condensed consolidated statement of operations and comprehensive income.

As of September 30, 2013 and December 31, 2012, marketable securities consisted primarily of investment-grade unsecured bonds, common stock, investments in mortgage backed securities and investment funds that invest in U.S. treasury or agency securities.  As of September 30, 2013 and December 31, 2012, the Operating Partnership classified its investments in mortgage backed securities, which mature in November 2019 and September 2020, as held to maturity, and accordingly, these securities are stated at their amortized cost.

As of September 30, 2013 and December 31, 2012 marketable securities consist of the following ($ in thousands):

	September 30, 2013
	Cost/ Amortized  Cost		Gross Unrealized  Gain (Loss)			Carrying Value
Available for sale:
Investment-grade unsecured bonds	$	15,378	$	647		$	16,025
Investment funds - US treasuries		5,020		3			5,023
Common stock		13,104		(975	)		12,129
Held to maturity:
Mortgage backed securities		56,722		-			56,722
Total	$	90,224	$	(325	)	$	89,899

	December 31, 2012
	Cost/ Amortized Cost		Gross Unrealized  Gain		Carrying Value
Available for sale:
Investment-grade unsecured bonds	$	15,475	$	826	$	16,301
Investment funds - US treasuries		3,788		1		3,789
Common stock		18,917		1,704		20,621
Held to maturity:
Mortgage backed securities		52,002		-		52,002
Total	$	90,182	$	2,531	$	92,713

The Operating Partnership uses the specific identification method to determine the cost basis of a security sold and to reclassify amounts from accumulated other comprehensive income for securities sold.  For the three months ended September 30, 2013 and 2012, there were no sales of available for sale securities. For the nine months ended September 30, 2013, and 2012,  the proceeds from sales of available for sale securities totaled $20.3 million and $6.3 million, respectively, which resulted in gains of $1.8 million and $0.5 million, respectively.

Variable Interest Entities

Variable Interest Entities

The Operating Partnership consolidates 19 DownREIT limited partnerships (comprising twelve communities) since the Operating Partnership is the primary beneficiary of these variable interest entities (“VIEs”).  Total DownREIT units outstanding were 1,011,071 and 1,039,431 as of September 30, 2013 and December 31, 2012, respectively, and the redemption value of the units, based on the closing price of the Company’s common stock totaled $149.3 million and $152.4 million, as of September 30, 2013 and December 31, 2012, respectively.  The consolidated total assets and liabilities related to these VIEs, net of intercompany eliminations, were approximately $201.6 million and $185.5 million, respectively, as of September 30, 2013 and $201.1 million and $178.6 million, respectively, as of December 31, 2012.  Interest holders in VIEs consolidated by the Operating Partnership are allocated income equal to the cash payments made to those interest holders.  The remaining results of operations are allocated to the Operating Partnership.  As of September 30, 2013 and December 31, 2012, the Operating Partnership did not have any other VIEs of which it was deemed to be the primary beneficiary.

Equity Based Compensation

Equity Based Compensation

The Operating Partnership accounts for equity based compensation using the fair value method of accounting.  The estimated fair value of stock options granted by the Company is being amortized over the vesting period of the stock options.  The estimated grant date fair values of the long term incentive plan units are being amortized over the expected service periods.

Stock-based compensation expense for options and restricted stock totaled $0.5 million and $0.4 million for the three months ended September 30, 2013 and 2012, respectively, and $1.6 million and $1.2 million for the nine months ended September 30, 2013 and 2012, respectively.  The intrinsic value of the stock options exercised during the three months ended September 30, 2013 and 2012 totaled $0.1 million and $0.5 million, respectively, and $2.9 million and $2.4 million for the nine months ended September 30, 2013 and 2012, respectively.  As of September 30, 2013, the intrinsic value of the stock options outstanding totaled $11.2 million.  As of September 30, 2013, total unrecognized compensation cost related to unvested share-based compensation granted under the stock option and restricted stock plans totaled $4.7 million.  The cost is expected to be recognized over a weighted-average period of 1 to 5 years for the stock option plans and is expected to be recognized straight-line over a period of 1 to 7 years for the restricted stock awards.

The Operating Partnership has adopted an incentive program involving the issuance of Series Z-1 Incentive Units of limited partnership interest in the Operating Partnership.  Stock-based compensation expense for Z-1 Units totaled $0.5 million and $0.5 million for the three months ended September 30, 2013 and 2012, respectively, and $1.5 million and $1.6 million for the nine months ended September 30, 2013 and 2012, respectively.  Stock-based compensation for Z-1 units capitalized totaled $0.1 million for the three months ended September 30, 2013, and 2012 and $0.3 million and $0.4 million for the nine months ended September 30, 2013, and 2012, respectively.  As of September 30, 2013, the intrinsic value of the Z-1 Units subject to future vesting totaled $15.8 million.  As of September 30, 2013, total unrecognized compensation cost related to Z-1 Units subject to future vesting totaled $5.6 million.  The unamortized cost is expected to be recognized up to 14 years subject to the achievement of the stated performance criteria.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

Management believes that the carrying amounts of outstanding lines of credit, notes receivable and notes and other receivables approximate fair value as of September 30, 2013 and December 31, 2012, because interest rates, yields and other terms for these instruments are consistent with yields and other terms currently available for similar instruments.  Management has estimated that the fair value of the Operating Partnership’s $2.37 billion of fixed rate debt, including unsecured bonds, at September 30, 2013 is approximately $2.43 billion and the fair value of the Operating Partnership’s $537.2 million of variable rate debt, excluding borrowings under the lines of credit, at September 30, 2013 is $517.5 million based on the terms of existing mortgage notes payable, unsecured bonds and variable rate demand notes compared to those available in the marketplace.  Management believes that the carrying amounts of cash and cash equivalents, restricted cash, accounts payable and accrued liabilities, construction payables, other liabilities and dividends payable approximate fair value as of September 30, 2013 due to the short-term maturity of these instruments.  Marketable securities, except mortgage backed securities, and derivatives are carried at fair value as of September 30, 2013.

At December 31, 2013, the Operating Partnership’s investments in mortgage backed securities had a carrying value of $56.7 million and the Operating Partnership estimated the fair value to be approximately $83.8 million. At December 31, 2012, the estimated fair values of the mortgage backed securities were approximately equal to the carrying values.  The Operating Partnership determines the fair value of the mortgage backed securities based on unobservable inputs (level 3 of the fair value hierarchy) considering the assumptions that market participants would make in valuing these securities.  Assumptions such as estimated default rates and discount rates are used to determine expected, discounted cash flows to estimate the fair value.

Capitalization of Costs

Capitalization of Costs

The Operating Partnership’s capitalized internal costs related to development and redevelopment projects totaled $1.8 million and $1.5 million during the three months ended September 30, 2013 and 2012, respectively, and  $5.1 million and $4.5 million during the nine months ended September 30, 2013 and 2012, respectively,  most of which relates to development projects.  These totals include capitalized salaries of $0.8 million and $0.5 million for the three months ended September 30, 2013 and 2012, respectively, and $2.0 million and $1.9 million for the nine months ended September 30, 2013 and 2012, respectively.  The Operating Partnership capitalizes leasing commissions associated with the lease-up of a development community and amortizes the costs over the life of the leases.  The amounts capitalized are immaterial for all periods presented.

Co-investments

Co-investments

The Operating Partnership owns investments in joint ventures (“co-investments”) in which it has significant influence, but its ownership interest does not meet the criteria for consolidation in accordance with the accounting standards.  Therefore, the Operating Partnership accounts for these investments using the equity method of accounting.  Under the equity method of accounting, the investment is carried at the cost of assets contributed, plus the Operating Partnership’s equity in earnings less distributions received and the Operating Partnership’s share of losses.  The significant accounting policies of the Operating Partnership’s co-investment entities are consistent with those of the Operating Partnership in all material respects.  For preferred equity investments the Operating Partnership recognizes its preferred interest as equity in earnings.

Upon the acquisition of a controlling interest of a co-investment, the co-investment entity is consolidated and a gain or loss is recognized upon the remeasurement of co-investments in the consolidated statement of operations equal to the amount by which the fair value of the co-investment interest the Operating Partnership previously owned exceeds its carrying value.

A majority of the co-investments, excluding the preferred equity investments, compensate the Operating Partnership for its asset management services and may provide promote distributions if certain financial return benchmarks are achieved.  Asset management fees are recognized when earned, and promote fees are recognized when the earnings events have occurred and the amount is determinable and collectible.

Accounting Estimates

Accounting Estimates

The preparation of condensed consolidated financial statements, in accordance with U.S. generally accepted accounting principles, requires the Operating Partnership to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an on-going basis, the Operating Partnership evaluates its estimates, including those related to acquiring, developing and assessing the carrying values of its real estate portfolio, its investments in and advances to joint ventures and affiliates, and its notes receivables. The Operating Partnership bases its estimates on historical experience, current market conditions, and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may vary from those estimates and those estimates could be different under different assumptions or conditions.