Fair Value Measurements

6 Months Ended

Jun. 30, 2012

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

(a) Fair Value of Financial Instruments

The following provides information about the methods and assumptions used to estimate the fair value of the Company's financial instruments, including their estimated fair values.

Notes Receivable

The fair value of the Company's notes receivable is estimated as the present value of future contractual cash flows discounted at an interest rate available for notes of the same terms and remaining maturities adjusted for customer specific credit risk, which, based on the Company's estimates, range from 7.11% to 8.09% at June 30, 2012. The fair value of notes receivable was determined primarily using Level 3 inputs of the fair value hierarchy. Based on the estimates made by the Company, the fair value of notes receivable was $23.7 million and $35.3 million at June 30, 2012 and December 31, 2011, respectively.

Trading Securities Held in Trust

The Company has investments in marketable securities that are classified as trading securities held in trust on the accompanying Consolidated Balance Sheets. The fair value of the trading securities held in trust was determined using quoted prices in active markets, considered Level 1 inputs of the fair value hierarchy. The fair value of the trading securities held in trust was $22.5 million and $21.7 million at June 30, 2012 and December 31, 2011, respectively. Changes in the value of trading securities are recorded within net investment income from deferred compensation plan in the accompanying Consolidated Statements of Operations.

Notes Payable

The fair value of the Company's notes payable is estimated by discounting future cash flows of each instrument at rates that reflect the current market rates available to the Company for debt of the same terms and remaining maturities, which, based on the Company's estimates, range from 2.8% to 4.0% at June 30, 2012. Fixed rate loans assumed in connection with real estate acquisitions are recorded in the accompanying consolidated financial statements at fair value at the time the property is acquired including those loans assumed in distribution-in-kind liquidations. The fair value of the notes payable was determined using Level 2 inputs of the fair value hierarchy. Based on the estimates used by the Company, the fair value of notes payable was $1.95 billion and $2.09 billion at June 30, 2012 and December 31, 2011, respectively.

Unsecured Credit Facilities

The fair value of the Company's credit facilities is estimated based on the interest rates currently offered to the Company by the Company's bankers, which is estimated to be 1.7% at June 30, 2012. The fair value of the credit facilities was determined using Level 2 inputs of the fair value hierarchy. Based on the estimates used by the Company, the fair value of the credit facilities approximates carrying value at June 30, 2012 and December 31, 2011.

Derivative Financial Instruments

The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty's nonperformance risk in the fair value measurements.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and its counterparties. Changes in these credit valuation adjustments are not expected to result in a significant change in the valuation of the Company's derivatives.

(b) Fair Value Measurements

The Company's valuation policies and procedures are determined by its Finance Group, which reports to the Chief Financial Officer, and the results of significant fair value measurements are discussed with the Audit Committee of the Board of Directors on a quarterly basis. Service providers involved in fair value measurements are evaluated for competency and qualifications on an ongoing basis. Internally developed fair value measurements, including the unobservable inputs, are evaluated for reasonableness based on current transactions and experience in the real estate and capital markets.

The following are fair value measurements recorded on a recurring basis as of June 30, 2012 and December 31, 2011, respectively (in thousands):

		Fair Value Measurements as of June 30, 2012
				Quoted Prices in Active Markets for Identical Assets	Significant Other Observable Inputs		Significant Unobservable Inputs
Assets		Balance		(Level 1)	(Level 2)		(Level 3)
Trading securities held in trust	$	22,455		22,455	—		—
Total	$	22,455		22,455	—		—
Liabilities:
Interest rate derivatives	$	(73	)	—	(75	)	2

		Fair Value Measurements as of December 31, 2011
				Quoted Prices in Active Markets for Identical Assets	Significant Other Observable Inputs		Significant Unobservable Inputs
Assets		Balance		(Level 1)	(Level 2)		(Level 3)
Trading securities held in trust		21,713		21,713	—		—
Total	$	21,713		21,713	—		—
Liabilities:
Interest rate derivatives	$	(37	)	—	(38	)	1

The following are fair value measurements recorded on a nonrecurring basis as of June 30, 2012 and December 31, 2011, respectively (in thousands):

		Fair Value Measurements as of June 30, 2012
			Quoted Prices in Active Markets for Identical Assets	Significant Other Observable Inputs	Significant Unobservable Inputs	Total Gains (Losses)(1)
Assets		Balance	(Level 1)	(Level 2)	(Level 3)
Long-lived assets held and used
Operating and development properties	$	325,693	—	320,682	5,011	(23,000	)
Total	$	325,693	—	320,682	5,011	(23,000	)

(1) Excludes impairments for properties sold during the six months ended June 30, 2012.

		Fair Value Measurements as of December 31, 2011
			Quoted Prices in Active Markets for Identical Assets	Significant Other Observable Inputs	Significant Unobservable Inputs	Total Gains (Losses)(1)
Assets		Balance	(Level 1)	(Level 2)	(Level 3)
Long-lived assets held and used					—
Operating and development properties	$	5,520	—	—	5,520	(11,843	)
Investment in real estate partnerships		1,893	—	—	1,893	(4,580	)
Total	$	7,413	—	—	7,413	(16,423	)

(1) Excludes impairments for properties sold during the year ended December 31, 2011.

Long-lived assets held and used are comprised primarily of real estate. The majority of the provision for impairment recognized during the six months ended June 30, 2012 related to a 15-property portfolio, which the Company sold to an affiliate of Blackstone Real Estate Partners VII for total consideration of $321.0 million. Closing of the transaction occurred on July 25, 2012. As a result of entering into this agreement, the Company recognized an impairment loss of $18.0 million at June 30, 2012. As of June 30, 2012, this asset group did not meet the definition of discontinued operations, in accordance with FASB ASC Topic 205-20, Presentation of Financial Statements - Discontinued Operations, based on its continuing cash flows, as discussed in note 11. Fair value for these assets was determined using the expected sale price of an executed agreement, which was considered a Level 2 input.

The Company recognized an additional $5.0 million impairment loss related to an operating property and a land parcel during the second quarter of 2012 and a $16.4 million impairment loss related to one operating property and the Company's investment in a real estate partnership during the year ended December 31, 2011. These operating properties exhibited weak operating fundamentals, including low economic occupancy for an extended period of time, which led to the impairments. As a result, the Company estimated the fair value of the properties and recorded impairment losses.

Fair value for those assets measured using Level 3 inputs was determined through the use of an income approach. The income approach estimates an income stream for a property (typically 10 years) and discounts this income plus a reversion (presumed sale) into a present value at a risk adjusted rate. Yield rates and growth assumptions utilized in this approach are derived from market transactions as well as other financial and industry data. The terminal cap rate and discount rate are significant inputs to this valuation. The following are ranges of key inputs used in determining the fair value of real estate measured using Level 3 inputs as of June 30, 2012 and December 31, 2011, respectively:

	2012				2011
	Low		High		Low		High
Yield rates	8.5	%	8.5	%	7.5	%	9.0	%
Rental growth rates	—	%	—	%	2.0	%	3.0	%
Discount rates	—	%	—	%	8.5	%	10.0	%
Terminal cap rates	—	%	—	%	8.0	%	9.5	%

Changes in these inputs could result in a significant change in the valuation of the real estate and a change in the impairment loss recognized during the period.