Fair Value

Financial Instruments Carried at Fair Value

Derivative Financial Instruments

Currently, the Company uses interest rate swap and interest rate cap agreements to manage its interest rate risk. These instruments are carried at fair value in the Company’s financial statements. In adjusting the fair value of its derivative contracts for the effect of counterparty nonperformance risk, the Company has considered the impact of its net position with a given counterparty, as well as any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. The Company minimizes its credit risk on these transactions by dealing with major, creditworthy financial institutions which have an A or better credit rating by the Standard & Poor’s Ratings Group. As part of its on-going control procedures, the Company monitors the credit ratings of counterparties and the exposure of the Company to any single entity, thus reducing credit risk concentration. The Company believes the likelihood of realizing losses from counterparty nonperformance is remote. 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, such as interest rate, term to maturity and volatility, the credit valuation adjustments associated with its derivatives use Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by itself and its counterparties. As of June 30, 2016, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined it is not significant. As a result, the Company has determined that its derivative valuations are classified in Level 2 of the fair value hierarchy.

Hedge ineffectiveness did not have a material impact on earnings of the Company for the three and six months ended June 30, 2016, or any prior period, and the Company does not anticipate that it will have a material effect in the future.

The following table summarizes the consolidated derivative positions at June 30, 2016 (dollars in thousands):



	Non-designated Hedges Interest Rate Caps			Cash Flow Hedges Interest Rate Caps			Cash Flow Hedges Interest Rate Swaps

Notional balance	$	723,831		$	36,317		$	800,000
Weighted average interest rate (1)	2.2		%	2.6		%	N/A
Weighted average swapped/capped interest rate	6.2		%	5.9		%	2.3		%
Earliest maturity date	Nov 2016			Apr 2019			Nov 2017
Latest maturity date	Jul 2021			Apr 2019			Nov 2017

____________________________________


(1)	For interest rate caps, represents the weighted average interest rate on the hedged debt.

During the three and six months ended June 30, 2016, the Company entered into $150,000,000 and $600,000,000 of forward interest rate swap agreements, respectively, to reduce the impact of variability in interest rates on a portion of the Company's expected debt issuance activity in 2016 and 2017. The Company settled $400,000,000 of the aggregate outstanding swaps in May 2016, as discussed below. For the remaining outstanding swaps, at maturity of the agreements, the Company expects to cash settle the contracts and either pay or receive cash for the then current fair value. Assuming that the Company issues the debt as expected, the impact from settling these positions will then be recognized over the life of the issued debt as a yield adjustment.

In conjunction with the Company's May 2016 unsecured note issuance, the Company settled $400,000,000 of forward interest rate swap agreements designated as cash flow hedges of the interest rate variability on the forecasted issuance of the unsecured notes, making a payment of $14,847,000. The Company has deferred the effective portion of the fair value change of these swaps in accumulated other comprehensive loss on the accompanying Condensed Consolidated Balance Sheets, and will recognize the impact as a component of interest expense, net, over the life of the unsecured notes. Excluding derivatives executed to hedge secured debt on communities classified as held for sale, the Company had 11 derivatives designated as cash flow hedges and 15 derivatives not designated as hedges at June 30, 2016. Fair value changes for derivatives not in qualifying hedge relationships for the three and six months ended June 30, 2016 and 2015 were not material. During three and six months ended June 30, 2016, the Company deferred $26,788,000 and $74,545,000 of losses for cash flow hedges, respectively, reported as a component of other comprehensive income (loss).

The following table summarizes the deferred losses reclassified from accumulated other comprehensive income as a component of interest expense, net (dollars in thousands):



	For the three months ended				For the six months ended
	6/30/2016		6/30/2015		6/30/2016		6/30/2015

Cash flow hedge losses reclassified to earnings	$	1,561	$	1,433	$	2,935	$	3,028

The Company anticipates reclassifying approximately $6,978,000 of hedging losses from accumulated other comprehensive loss into earnings within the next 12 months to offset the variability of cash flows of the hedged item during this period.

Redeemable Noncontrolling Interests

The Company provided redemption options (the “Puts”) that allow joint venture partners of the Company to require the Company to purchase their interests in the investment at a guaranteed minimum amount related to three ventures. The Puts are payable in cash. The Company determines the fair value of the Puts based on unobservable inputs considering the assumptions that market participants would make in pricing the obligations, applying a guaranteed rate of return to the joint venture partners’ net capital contribution balances as of period end. Given the significance of the unobservable inputs, the valuations are classified in Level 3 of the fair value hierarchy.

The Company issued units of limited partnership interest in DownREITs which provide the DownREIT limited partners the ability to present all or some of their units for redemption for cash as determined by the partnership agreement. Under the DownREIT agreements, for each limited partnership unit, the limited partner is entitled to receive cash in the amount equal to the fair value of the Company’s common stock on or about the date of redemption. In lieu of cash redemption, the Company may elect to exchange such units for an equal number of shares of the Company’s common stock. The limited partnership units in the DownREITs are valued using the market price of the Company’s common stock, a Level 1 price under the fair value hierarchy.

Financial Instruments Not Carried at Fair Value

Cash and Cash Equivalents

Cash and cash equivalent balances are held with various financial institutions within principal protected accounts. The Company monitors credit ratings of these financial institutions and the concentration of cash and cash equivalent balances with any one financial institution and believes the likelihood of realizing material losses related to cash and cash equivalent balances is remote. Cash and cash equivalents are carried at their face amounts, which reasonably approximate their fair values and are Level 1 within the fair value hierarchy.

Other Financial Instruments

Rents and other receivables, accounts and construction payable and accrued expenses and other liabilities are carried at their face amounts, which reasonably approximate their fair values.

The Company values its unsecured notes using quoted market prices, a Level 1 price within the fair value hierarchy. The Company values its notes payable and outstanding amounts under the Credit Facility and Term Loan using a discounted cash flow analysis on the expected cash flows of each instrument. This analysis reflects the contractual terms of the instrument, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The process also considers credit valuation adjustments to appropriately reflect the Company’s nonperformance risk. The Company has concluded that the value of its notes payable and amounts outstanding under its Credit Facility and Term Loan are Level 2 prices as the majority of the inputs used to value its positions fall within Level 2 of the fair value hierarchy.

Financial Instruments Measured/Disclosed at Fair Value on a Recurring Basis

The following tables summarize the classification between the three levels of the fair value hierarchy of the Company’s financial instruments measured/disclosed at fair value on a recurring basis (dollars in thousands):



Description	Total Fair Value			Quoted Prices in Active Markets for Identical Asset (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Description	Total Fair Value						Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
	6/30/2016
Non-Designated Hedges
Interest Rate Caps	$	40		$	—		$	40		$	—
Cash Flow Hedges
Interest Rate Caps	—			—			—			—
Interest Rate Swaps	(54,311		)	—			(54,311		)	—
Puts	(8,181		)	—			—			(8,181		)
DownREIT units	(1,353		)	(1,353		)	—			—
Indebtedness
Unsecured notes	(4,273,722		)	(4,273,722		)	—			—
Mortgage notes payable and unsecured term loan	(2,732,990		)	—			(2,732,990		)	—
Total	$	(7,070,517	)	$	(4,275,075	)	$	(2,787,261	)	$	(8,181	)



Description	Total Fair Value			Quoted Prices in Active Markets for Identical Asset (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Description	Total Fair Value						Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
	12/31/2015
Non-Designated Hedges
Interest Rate Caps	$	26		$	—		$	26		$	—
Cash Flow Hedges
Interest Rate Caps	5			—			5			—
Interest Rate Swaps	5,422			—			5,422			—
Puts	(8,181		)	—			—			(8,181		)
DownREIT units	(1,381		)	(1,381		)	—			—
Indebtedness
Unsecured notes	(3,668,417		)	(3,668,417		)	—			—
Mortgage notes payable and unsecured term loan	(2,700,341		)	—			(2,700,341		)	—
Total	$	(6,372,867	)	$	(3,669,798	)	$	(2,694,888	)	$	(8,181	)