Fair Value Measurements

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

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 GAAP fair value hierarchy, is presented below (in thousands):

	AFS Investments			Interest Rate Swaps			Total
Fair value at December 31, 2012	$	59,145		$	(7,968	)	$	51,177
Investment accretion included in interest income	2,556			—			2,556
Unrealized losses included in interest expense	—			(36		)	(36		)
Losses on interest rate swaps reclassified into interest expense from accumulated other comprehensive loss	—			1,258			1,258
Unrealized (losses) gains included in equity and partners’ capital	(4,440		)	1,423			(3,017		)
Fair value at September 30, 2013	$	57,261		$	(5,323	)	$	51,938
Fair value at December 31, 2013	$	58,408		$	(4,604	)	$	53,804
Investment accretion included in interest income	2,833			—			2,833
Unrealized losses included in interest expense	—			(36		)	(36		)
Losses on interest rate swaps reclassified into interest expense from accumulated other comprehensive loss	—			1,265			1,265
Unrealized losses included in equity and partners’ capital	(618		)	(1,488		)	(2,106		)
Fair value at September 30, 2014	$	60,623		$	(4,863	)	$	55,760

Our investments classified as AFS are presented within other assets in the accompanying consolidated balance sheets. We hold the most subordinate position in the securitization, along with several mezzanine positions. 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 September 30, 2014, was approximately 6.7 years. Our amortized cost basis for these investments, which represents the original cost adjusted for interest accretion less interest payments received, was $62.6 million and $59.8 million at September 30, 2014 and December 31, 2013, respectively. The amortized cost exceeded the fair value of the most subordinate position at September 30, 2014, 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 each of 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 the most subordinate position 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 September 30, 2014 and December 31, 2013, we had interest rate swaps with aggregate notional amounts of $50.4 million and $50.7 million, respectively. As of September 30, 2014, these swaps had a weighted average remaining term of 6.3 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 condensed 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 September 30, 2014, 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.

Fair Value Disclosures

We believe that the aggregate fair value of our cash and cash equivalents, receivables and payables approximates their aggregate carrying amounts at September 30, 2014 and December 31, 2013, due to their relatively short-term nature and high probability of realization. The estimated aggregate fair value of our consolidated total indebtedness was approximately $4.2 billion and $4.5 billion at September 30, 2014 and December 31, 2013, respectively, as compared to aggregate carrying amounts of $4.0 billion and $4.4 billion, respectively. Substantially all of the difference between the fair value and the carrying value relates to apartment communities we wholly own. We estimate the fair value of our consolidated debt using an income and market approach, including comparison of the contractual terms to observable and unobservable inputs such as market interest rate risk spreads, contractual interest rates, remaining periods to maturity, collateral quality and loan to value ratios on similarly encumbered assets within our portfolio. We classify the fair value of our consolidated debt within Level 3 of the GAAP valuation hierarchy based on the significance of certain of the unobservable inputs used to estimate their fair values.