Derivative and Other Fair Value Instruments

The valuation of financial instruments requires the Company to make estimates and judgments that affect the fair value of the instruments. The Company, where possible, bases the fair values of its financial instruments, including its derivative instruments, on listed market prices and third party quotes. Where these are not available, the Company bases its estimates on current instruments with similar terms and maturities or on other factors relevant to the financial instruments.

The carrying values of the Company’s mortgage notes payable and unsecured notes were approximately $4.1 billion and $5.4 billion, respectively, at March 31, 2012. The fair values of the Company’s mortgage notes payable and unsecured notes were approximately $4.3 billion (Level 2) and $5.8 billion (Level 2), respectively, at March 31, 2012. The carrying values of the Company's mortgage notes payable and unsecured notes were approximately $4.1 billion and $5.6 billion, respectively, at December 31, 2011. The fair values of the Company’s mortgage notes payable and unsecured notes were approximately $4.3 billion (Level 2) and $6.0 billion (Level 2), respectively, at December 31, 2011. The fair values of the Company’s financial instruments (other than mortgage notes payable, unsecured notes, derivative instruments and investment securities), including cash and cash equivalents and other financial instruments, approximate their carrying or contract values.

In the normal course of business, the Company is exposed to the effect of interest rate changes. The Company seeks to manage these risks by following established risk management policies and procedures including the use of derivatives to hedge interest rate risk on debt instruments.

The following table summarizes the Company’s consolidated derivative instruments at March 31, 2012 (dollar amounts are in thousands):



	Fair Value Hedges (1)			Forward Starting Swaps (2)
Current Notional Balance	$	315,693		$	200,000
Lowest Possible Notional	$	315,693		$	200,000
Highest Possible Notional	$	317,694		$	200,000
Lowest Interest Rate	2.009		%	3.478		%
Highest Interest Rate	4.800		%	4.695		%
Earliest Maturity Date	2012			2023
Latest Maturity Date	2013			2023


(1)	Fair Value Hedges – Converts outstanding fixed rate debt to a floating interest rate.


(2)	Forward Starting Swaps – Designed to partially fix the interest rate in advance of a planned future debt issuance. These swaps have mandatory counterparty terminations in 2014, and are targeted to 2013 issuances.

A three-level valuation hierarchy exists for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:


•	Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.


•	Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.


•	Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The Company’s derivative positions are valued using models developed by the respective counterparty as well as models developed internally by the Company that use as their basis readily observable market parameters (such as forward yield curves and credit default swap data). Employee holdings other than Common Shares within the supplemental executive retirement plan (the “SERP”) are valued using quoted market prices for identical assets and are included in other assets and other liabilities on the consolidated balance sheet. The Company’s investment securities are valued using quoted market prices or readily available market interest rate data. Redeemable Noncontrolling Interests – Operating Partnership/Redeemable Limited Partners are valued using the quoted market price of Common Shares. The fair values disclosed for mortgage notes payable and unsecured notes were calculated using indicative rates provided by lenders of similar loans in the case of mortgage notes payable and the private unsecured notes and quoted market prices for each underlying issuance in the case of the public unsecured notes.

The following tables provide a summary of the fair value measurements for each major category of assets and liabilities measured at fair value on a recurring basis and the location within the accompanying Consolidated Balance Sheets at March 31, 2012 and December 31, 2011, respectively (amounts in thousands):



				Fair Value Measurements at Reporting Date Using
Description	Balance Sheet Location	3/31/2012		Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Derivatives designated as hedging instruments:
Interest Rate Contracts:
Fair Value Hedges	Other Assets	$	7,672	$	—	$	7,672	$	—
Supplemental Executive Retirement Plan	Other Assets	55,572		55,572		—		—
Available-for-Sale Investment Securities	Other Assets	1,514		1,514		—		—
Total		$	64,758	$	57,086	$	7,672	$	—

Liabilities
Derivatives designated as hedging instruments:
Interest Rate Contracts:
Forward Starting Swaps	Other Liabilities	$	29,061	$	—	$	29,061	$	—
Supplemental Executive Retirement Plan	Other Liabilities	55,572		55,572		—		—
Total		$	84,633	$	55,572	$	29,061	$	—

Redeemable Noncontrolling Interests –
Operating Partnership/Redeemable
Limited Partners	Mezzanine	$	457,224	$	—	$	457,224	$	—



				Fair Value Measurements at Reporting Date Using
Description	Balance Sheet Location	12/31/2011		Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Derivatives designated as hedging instruments:
Interest Rate Contracts:
Fair Value Hedges	Other Assets	$	8,972	$	—	$	8,972	$	—
Supplemental Executive Retirement Plan	Other Assets	71,426		71,426		—		—
Available-for-Sale Investment Securities	Other Assets	1,550		1,550		—		—
Total		$	81,948	$	72,976	$	8,972	$	—

Liabilities
Derivatives designated as hedging instruments:
Interest Rate Contracts:
Forward Starting Swaps	Other Liabilities	$	32,278	$	—	$	32,278	$	—
Supplemental Executive Retirement Plan	Other Liabilities	71,426		71,426		—		—
Total		$	103,704	$	71,426	$	32,278	$	—

Redeemable Noncontrolling Interests –
Operating Partnership/Redeemable
Limited Partners	Mezzanine	$	416,404	$	—	$	416,404	$	—

The following tables provide a summary of the effect of fair value hedges on the Company’s accompanying Consolidated Statements of Operations for the quarters ended March 31, 2012 and 2011, respectively (amounts in thousands):



March 31, 2012 Type of Fair Value Hedge	Location of Gain/(Loss) Recognized in Income on Derivative	Amount of Gain/(Loss) Recognized in Income on Derivative			Hedged Item	Income Statement Location of Hedged Item Gain/(Loss)	Amount of Gain/(Loss) Recognized in Income on Hedged Item
Derivatives designated as hedging instruments:
Interest Rate Contracts:
Interest Rate Swaps	Interest expense	$	(1,300	)	Fixed rate debt	Interest expense	$	1,300
Total		$	(1,300	)			$	1,300



March 31, 2011 Type of Fair Value Hedge	Location of Gain/(Loss) Recognized in Income on Derivative	Amount of Gain/(Loss) Recognized in Income on Derivative			Hedged Item	Income Statement Location of Hedged Item Gain/(Loss)	Amount of Gain/(Loss) Recognized in Income on Hedged Item
Derivatives designated as hedging instruments:
Interest Rate Contracts:
Interest Rate Swaps	Interest expense	$	(1,492	)	Fixed rate debt	Interest expense	$	1,492
Total		$	(1,492	)			$	1,492

The following tables provide a summary of the effect of cash flow hedges on the Company’s accompanying Consolidated Statements of Operations for the quarters ended March 31, 2012 and 2011, respectively (amounts in thousands):



	Effective Portion						Ineffective Portion
March 31, 2012 Type of Cash Flow Hedge	Amount of Gain/(Loss) Recognized in OCI on Derivative		Location of Gain/ (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain/ (Loss) Reclassified from Accumulated OCI into Income			Location of Gain/(Loss) Recognized in Income on Derivative	Amount of Gain/ (Loss) Reclassified from Accumulated OCI into Income
Derivatives designated as hedging instruments:
Interest Rate Contracts:
Forward Starting Swaps/Treasury Locks	$	3,218	Interest expense	$	(3,563	)	N/A	$	—
Total	$	3,218		$	(3,563	)		$	—



	Effective Portion						Ineffective Portion
March 31, 2011 Type of Cash Flow Hedge	Amount of Gain/(Loss) Recognized in OCI on Derivative		Location of Gain/ (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain/ (Loss) Reclassified from Accumulated OCI into Income			Location of Gain/(Loss) Recognized in Income on Derivative	Amount of Gain/ (Loss) Reclassified from Accumulated OCI into Income
Derivatives designated as hedging instruments:
Interest Rate Contracts:
Forward Starting Swaps/Treasury Locks	$	5,255	Interest expense	$	(956	)	N/A	$	—
Development Interest Rate Swaps/Caps	827		Interest expense	—			N/A	—
Total	$	6,082		$	(956	)		$	—

As of March 31, 2012 and December 31, 2011, there were approximately $190.8 million and $197.6 million in deferred losses, net, included in accumulated other comprehensive (loss), respectively, related to derivative instruments. Based on the estimated fair values of the net derivative instruments at March 31, 2012, the Company may recognize an estimated $19.6 million of accumulated other comprehensive (loss) as additional interest expense during the twelve months ending March 31, 2013.

The following tables sets forth the maturity, amortized cost, gross unrealized gains and losses, book/fair value and interest and other income of the various investment securities held as of March 31, 2012 and December 31, 2011, respectively (amounts in thousands):



		Other Assets
March 31, 2012 Security	Maturity	Amortized Cost		Unrealized Gains		Unrealized Losses		Book/ Fair Value		Interest and Other Income
Available-for-Sale Investment Securities	N/A	$	675	$	839	$	—	$	1,514	$	—
Total		$	675	$	839	$	—	$	1,514	$	—



		Other Assets
December 31, 2011 Security	Maturity	Amortized Cost		Unrealized Gains		Unrealized Losses		Book/ Fair Value		Interest and Other Income
Available-for-Sale Investment Securities	N/A	$	675	$	875	$	—	$	1,550	$	—
Total		$	675	$	875	$	—	$	1,550	$	—