Fair Value Measurements

In accordance with GAAP, we are required to measure certain assets and liabilities in our consolidated financial statements at fair value. We are required to classify fair value measurements into one of three categories, based on the nature of the inputs used in the fair value measurement. Level 1 of the hierarchy includes fair value measurements based on unadjusted quoted prices in active markets for identical assets or liabilities we can access at the measurement date. Level 2 includes fair value measurements based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 includes fair value measurements based on unobservable inputs. The classification of fair value measurements is subjective and GAAP requires disclosure of more detailed information regarding fair value measurements classified within the lower levels of the hierarchy.

Recurring Fair Value Measurements

We measure at fair value on a recurring basis our investment in the securitization trust that holds certain of our property debt, which we classify as available for sale (AFS) securities, and our interest rate swaps. Information regarding these items measured at fair value, both of which are classified within Level 2 of the fair value hierarchy, is presented below (in thousands):



	AFS Investments			Interest Rate Swaps			Total
Fair value at December 31, 2011	$	51,693		$	(7,012	)	$	44,681
Investment accretion	3,111			—			3,111
Unrealized losses included in interest expense	—			(48		)	(48		)
Losses on interest rate swaps reclassified into interest expense from accumulated other comprehensive loss	—			1,673			1,673
Unrealized gains (losses) included in equity and partners’ capital	4,341			(2,581		)	1,760
Fair value at December 31, 2012	$	59,145		$	(7,968	)	$	51,177
Investment accretion	3,451			—			3,451
Unrealized losses included in interest expense	—			(48		)	(48		)
Losses on interest rate swaps reclassified into interest expense from accumulated other comprehensive loss	—			1,678			1,678
Unrealized (losses) gains included in equity and partners’ capital	(4,188		)	1,734			(2,454		)
Fair value at December 31, 2013	$	58,408		$	(4,604	)	$	53,804

Our investments classified as AFS are presented within other assets in the accompanying consolidated balance sheets. We estimate the fair value of these investments using an income and market approach with primarily observable inputs, including yields and other information regarding similar types of investments, and adjusted for certain unobservable inputs specific to these investments. We are accreting the discount to the $100.9 million face value of the investments into interest income using the effective interest method over the remaining expected term of the investments, which, as of December 31, 2013, was approximately 7.4 years. Our amortized cost basis for these investments, which represents the original cost adjusted for interest accretion less interest payments received, was $59.8 million and $56.3 million at December 31, 2013 and 2012, respectively. The amortized cost exceeded the fair value of these investments at December 31, 2013, primarily due to increases in market interest rates and a decrease in demand for similar investments as compared to when we purchased the investments. We currently expect to hold the investments to their maturity dates and we believe we will fully recover our basis in the investments. Accordingly, we believe the current impairment in the fair value, as compared to the amortized cost basis, of these investments is temporary and we have not recognized any of the loss in value in earnings.

For our variable rate debt, we are sometimes required by limited partners in our consolidated real estate partnerships to limit our exposure to interest rate fluctuations by entering into interest rate swap agreements, which moderate our exposure to interest rate risk by effectively converting the interest on variable rate debt to a fixed rate. We estimate the fair value of interest rate swaps using an income approach with primarily observable inputs including information regarding the hedged variable cash flows and forward yield curves relating to the variable interest rates on which the hedged cash flows are based.

As of December 31, 2013 and 2012, we had interest rate swaps with aggregate notional amounts of $50.7 million and $51.0 million, respectively. As of December 31, 2013 these swaps had a weighted average remaining term of 7.0 years. We have designated these interest rate swaps as cash flow hedges. The fair value of these swaps is presented within accrued liabilities and other in our consolidated balance sheets, and we recognize any changes in the fair value as an adjustment of accumulated other comprehensive loss within equity and partners’ capital to the extent of their effectiveness.

If the forward rates at December 31, 2013 remain constant, we estimate that during the next 12 months, we would reclassify into earnings approximately $1.7 million of the unrealized losses in accumulated other comprehensive loss. If market interest rates increase above the 3.43% weighted average fixed rate under these interest rate swaps we will benefit from net cash payments due to us from our counterparty to the interest rate swaps.