Derivative and Other Fair Value Instruments

12 Months Ended

Dec. 31, 2010

Derivative and Other Fair Value Instruments [Abstract]

Derivative and Other Fair Value Instruments

11. 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 $4.8 billion and $5.2 billion, respectively, at December 31, 2010. The fair values of the Company’s mortgage notes payable and unsecured notes were approximately $4.7 billion and $5.5 billion, respectively, at December 31, 2010. The carrying values of the Company’s mortgage notes payable and unsecured notes were approximately $4.8 billion and $4.6 billion, respectively, at December 31, 2009. The fair values of the Company’s mortgage notes payable and unsecured notes were approximately $4.6 billion and $4.7 billion, respectively, at December 31, 2009. 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 December 31, 2010 (dollar amounts are in thousands):

	Fair Value Hedges (1)			Forward Starting Swaps (2)			Development Cash Flow Hedges (3)
Current Notional Balance	$	315,693		$	950,000		$	87,422
Lowest Possible Notional	$	315,693		$	950,000		$	3,020
Highest Possible Notional	$	317,694		$	950,000		$	91,343
Lowest Interest Rate		2.009	%		3.478	%		4.059	%
Highest Interest Rate		4.800	%		4.695	%		4.059	%
Earliest Maturity Date		2012			2021			2011
Latest Maturity Date		2013			2023			2011

(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 from 2012 through 2014, and $350.0 million, $400.0 million and $200.0 million are designated for 2011, 2012 and 2013 maturities, respectively.

(3) Development Cash Flow Hedges – Converts outstanding floating rate debt to a fixed interest rate.

The following tables provide the location of the Company’s derivative instruments within the accompanying Consolidated Balance Sheets and their fair market values as of December 31, 2010 and 2009, respectively (amounts in thousands):

	Asset Derivatives				Liability Derivatives
December 31, 2010	Balance Sheet Location		Fair Value		Balance Sheet Location		Fair Value
Derivatives designated as hedging instruments:
Interest Rate Contracts:
Fair Value Hedges		Other assets	$	12,521		Other liabilities	$	—
Forward Starting Swaps		Other assets		3,276		Other liabilities		(37,756	)
Development Cash Flow Hedges		Other assets		—		Other liabilities		(1,322	)
Total			$	15,797			$	(39,078	)

	Asset Derivatives				Liability Derivatives
December 31, 2009	Balance Sheet Location		Fair Value		Balance Sheet Location		Fair Value
Derivatives designated as hedging instruments:
Interest Rate Contracts:
Fair Value Hedges		Other assets	$	5,186		Other liabilities	$	—
Forward Starting Swaps		Other assets		23,630		Other liabilities		—
Development Cash Flow Hedges		Other assets		—		Other liabilities		(3,577	)
Total			$	28,816			$	(3,577	)

The following tables provide a summary of the effect of fair value hedges on the Company’s accompanying Consolidated Statements of Operations for the years ended December 31, 2010 and 2009, respectively (amounts in thousands):

December 31, 2010 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	$	7,335		Fixed rate debt		Interest expense	$	(7,335	)
Total			$	7,335					$	(7,335	)

December 31, 2009 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	$	(1,167	)		Fixed rate debt		Interest expense	$	1,167
Total			$	(1,167	)					$	1,167

The following tables provide a summary of the effect of cash flow hedges on the Company’s accompanying Consolidated Statements of Operations for the years ended December 31, 2010 and 2009, respectively (amounts in thousands):

	Effective Portion								Ineffective Portion
December 31, 2010 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	$	(68,149	)		Interest expense	$	(3,338	)		N/A	$	—
Development Interest Rate Swaps/Caps		2,255			Interest expense		—			N/A		—
Total	$	(65,894	)			$	(3,338	)			$	—

	Effective Portion							Ineffective Portion
December 31, 2009 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	$	34,432		Interest expense	$	(3,724	)		N/A	$	—
Development Interest Rate Swaps/Caps		3,244		Interest expense		—			N/A		—
Total	$	37,676			$	(3,724	)			$	—

As of December 31, 2010 and 2009, there were approximately $58.3 million in deferred losses, net, included in accumulated other comprehensive (loss) and $4.2 million in deferred gains, net, included in accumulated other comprehensive income, respectively, related to derivative instruments. Based on the estimated fair values of the net derivative instruments at December 31, 2010, the Company may recognize an estimated $5.6 million of accumulated other comprehensive (loss) as additional interest expense during the year ending December 31, 2011.

In July 2010, the Company paid approximately $10.0 million to settle a forward starting swap in conjunction with the issuance of $600.0 million of ten-year fixed rate public notes. The entire amount was deferred as a component of accumulated other comprehensive loss and is being recognized as an increase to interest expense over the term of the notes.

In January 2009, the Company received approximately $0.4 million to terminate a fair value hedge of interest rates in conjunction with the public tender of the Company’s 4.75% fixed rate public notes due June 15, 2009. Approximately $0.2 million of the settlement received was deferred and recognized as a reduction of interest expense through the maturity on June 15, 2009.

In April and May 2009, the Company received approximately $10.8 million to terminate six treasury locks in conjunction with the issuance of a $500.0 million 11-year mortgage loan. The entire amount was deferred as a component of accumulated other comprehensive income and is recognized as a reduction of interest expense over the first ten years of the mortgage loan.

During the year ended December 31, 2009, the Company sold a majority of its investment securities, receiving proceeds of approximately $215.8 million, and recorded a $4.9 million realized gain on sale (specific identification) which is included in interest and other income. The following tables set 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 December 31, 2010 and 2009, respectively (amounts in thousands):

		Other Assets
December 31, 2010 Security	Maturity	Amortized Cost		Unrealized Gains		Unrealized Losses		Book/ Fair Value		Interest and Other Income
Available-for-Sale
FDIC-insured certificates of deposit	Less than one year	$	—	$	—	$	—	$	—	$	61
Other	N/A		675		519		—		1,194		—
Total Available-for-Sale and Grand Total		$	675	$	519	$	—	$	1,194	$	61

		Other Assets
December 31, 2009 Security	Maturity	Amortized Cost		Unrealized Gains		Unrealized Losses		Book/ Fair Value		Interest and Other Income
Held-to-Maturity
FDIC-insured promissory notes	Less than one year	$	—	$	—	$	—	$	—	$	458
Total Held-to-Maturity			—		—		—		—		458
Available-for-Sale
FDIC-insured certificates of deposit	Less than one year		25,000		93		—		25,093		491
Other	Between one and five years or N/A		675		370		—		1,045		7 ,754
Total Available-for-Sale			25,675		463		—		26,138		8,245
Grand Total		$	25,675	$	463	$	—	$	26,138	$	8,703

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 following tables provide a summary of the fair value measurements at December 31, 2010 and 2009 for each major category of assets and liabilities measured at fair value on a recurring basis:

			Fair Value Measurements at Reporting Date Using
Description	12/31/2010		Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Derivatives	$	15,797	$	—	$	15,797	$	—
Supplemental Executive Retirement Plan		58,132		58,132		—		—
Available-for-Sale Investment Securities		1,194		1,194		—		—
Total	$	75,123	$	59,326	$	15,797	$	—
Liabilities
Derivatives	$	39,078	$	—	$	39,078	$	—
Supplemental Executive Retirement Plan		58,132		58,132		—		—
Total	$	97,210	$	58,132	$	39,078	$	—
Redeemable Noncontrolling Interests – Operating Partnership	$	383,540	$	—	$	383,540	$	—

			Fair Value Measurements at Reporting Date Using
Description	12/31/2009		Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Derivatives	$	28,816	$	—	$	28,816	$	—
Supplemental Executive Retirement Plan		61,090		61,090		—		—
Available-for-Sale Investment Securities		26,138		1,045		25,093		—
Total	$	116,044	$	62,135	$	53,909	$	—
Liabilities
Derivatives	$	3,577	$	—	$	3,577	$	—
Supplemental Executive Retirement Plan		61,090		61,090		—		—
Total	$	64,667	$	61,090	$	3,577	$	—
Redeemable Noncontrolling Interests – Operating Partnership	$	258,280	$	—	$	258,280	$	—

The following tables provide a summary of the fair value measurements at December 31, 2010 and 2009 for each major category of assets and liabilities measured at fair value on a nonrecurring basis:

			Fair Value Measurements at Reporting Date Using
Description	12/31/2010		Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)
Assets
Long-lived assets	$	56,000	$	—	$	—	$	56,000	$	(45,380	)
Total	$	56,000	$	—	$	—	$	56,000	$	(45,380	)

			Fair Value Measurements at Reporting Date Using
Description	12/31/2009		Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)
Assets
Long-lived assets	$	18,876	$	—	$	—	$	18,876	$	(11,124	)
Total	$	18,876	$	—	$	—	$	18,876	$	(11,124	)

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 are valued using the quoted market price of Common Shares.

The Company’s real estate asset impairment charges were the result of an analysis of the parcels’ estimated fair value (determined using internally developed models that were based on market assumptions and comparable sales data) compared to their current capitalized carrying value. The market assumptions used as inputs to the Company’s fair value model include construction costs, leasing assumptions, growth rates, discount rates, terminal capitalization rates and development yields, along with the Company’s current plans for each individual asset. The Company uses data on its existing portfolio of properties and its recent acquisition and development properties, as well as similar market data from third party sources, when available, in determining these inputs. The valuation techniques used to measure fair value is consistent with how similar assets were measured in prior periods. See Note 20 for further discussion.