Derivative and Hedging Instruments (Notes)

12 Months Ended

Dec. 31, 2017

Derivatives and Hedging Activities [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

7. Derivative Instruments and Hedging Activities

During the year ended December 31, 2015, Boston Properties Limited Partnership commenced a planned interest rate hedging program and entered into 17 forward-starting interest rate swap contracts that fixed the 10-year swap rate at a weighted-average rate of approximately 2.423% per annum on notional amounts aggregating $550.0 million. These interest rate swap contracts were entered into in advance of a financing with a target commencement date in September 2016 and maturity in September 2026. On August 17, 2016, in conjunction with Boston Properties Limited Partnership’s offering of its 2.750% senior unsecured notes due 2026, the Company terminated the forward-starting interest rate swap contracts and cash-settled the contracts by making cash payments to the counterparties aggregating approximately $49.3 million. The Company recognized approximately $0.1 million of losses on interest rate contracts during the year ended December 31, 2016 related to the partial ineffectiveness of the interest rate contracts. The Company is reclassifying into earnings, as an increase to interest expense, approximately $49.2 million (or approximately $4.9 million per year over the 10-year term of the 2.750% senior unsecured notes due 2026) of the amounts recorded in the Consolidated Balance Sheets within Accumulated Other Comprehensive Loss, which represents the effective portion of the applicable interest rate contracts.

In addition, 767 Fifth Partners LLC, which is a subsidiary of the consolidated entity in which the Company has a 60% interest and owns 767 Fifth Avenue (the General Motors Building) in New York City, entered into 16 forward-starting interest rate swap contracts (including two contracts entered into during the year ended December 31, 2016 with notional amounts aggregating $50.0 million) that fix the 10-year swap rate at a weighted-average rate of approximately 2.619% per annum on notional amounts aggregating $450.0 million. These interest rate swap contracts were entered into in advance of a financing with a target commencement date in June 2017 and maturity in June 2027. On April 24, 2017, the consolidated entity that owns 767 Fifth Avenue (the General Motors Building) located in New York City entered into an interest rate lock and commitment agreement with a group of lenders on a ten-year financing totaling $2.3 billion at a fixed interest rate of 3.43% per annum (See Note 6). In conjunction with the interest rate lock and commitment agreement, 767 Fifth Partners LLC terminated the forward-starting interest rate swap contracts and cash-settled the contracts by making cash payments to the counterparties aggregating approximately $14.4 million. 767 Fifth Partners LLC did not record any hedge ineffectiveness. The Company is reclassifying into earnings, as an increase to interest expense, approximately $14.4 million (or approximately $1.4 million per year over the 10-year term of the financing) of the amounts recorded in the Consolidated Balance Sheets within Accumulated Other Comprehensive Loss, which represents the effective portion of the applicable interest rate contracts.

At December 31, 2017, there were no outstanding interest rate swap contracts. 767 Fifth Partners LLC’s interest rate swap contracts consisted of the following at December 31, 2016 (dollars in thousands):

Derivative Instrument	Aggregate Notional Amount		Effective Date	Maturity Date	Strike Rate Range					Balance Sheet Location	Fair Value
					Low			High
Interest Rate Swaps	$	350,000	June 7, 2017	June 7, 2027	2.418	%	-	2.950	%	Other Liabilities	$	(8,773	)
Interest Rate Swaps	100,000		June 7, 2017	June 7, 2027	2.336	%	-	2.388	%	Prepaid Expenses and Other Assets	509
	$	450,000									$	(8,264	)

Boston Properties Limited Partnership entered into the interest rate swap contracts designated and qualifying as cash flow hedges to reduce its exposure to the variability in future cash flows attributable to changes in the 10-year swap rate in contemplation of obtaining 10-year fixed-rate financing in September 2016. The Company’s 767 Fifth Partners LLC consolidated entity entered into the interest rate swap contracts designated and qualifying as cash flow hedges to reduce its exposure to the variability in future cash flows attributable to changes in the 10-year swap rate in contemplation of obtaining 10-year fixed-rate financing in June 2017. Boston Properties Limited Partnership has formally documented all of its relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. Boston Properties Limited Partnership also assesses and documents, both at the hedging instrument’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows associated with the hedged items. All components of the forward-starting interest rate swap contracts were included in the assessment of hedge effectiveness. The Company accounts for the effective portion of changes in the fair value of a derivative in accumulated other comprehensive loss and subsequently reclassifies the effective portion to earnings over the term that the hedged transaction affects earnings. The Company accounts for the ineffective portion of changes in the fair value of a derivative directly in earnings. The Company classifies cash flows related to derivative instruments within its Consolidated Statements of Cash Flows consistent with the nature of the hedged item.

The following table presents the location in the financial statements of the losses recognized related to the Company’s cash flow hedges for the years ended December 31, 2017, 2016 and 2015:

	Year ended December 31,
	2017			2016			2015
	(in thousands)
Amount of loss related to the effective portion recognized in other comprehensive loss	$	(6,133	)	$	(47,144	)	$	(10,302	)
Amount of loss related to the effective portion subsequently reclassified to earnings (1)	$	(6,033	)	$	(3,751	)	$	(2,510	)
Amount of loss related to the ineffective portion and amount excluded from effectiveness testing	$	—		$	(140	)	$	—

___________

(1) During the year ended December 31, 2016, the Company accelerated the reclassification of amounts in other comprehensive loss to earnings as a result of the hedged forecasted transactions becoming probable not to occur.  The accelerated amounts were a loss of approximately $0.2 million and are included in the table above.

Boston Properties, Inc.

The following table reflects the changes in accumulated other comprehensive loss for the years ended December 31, 2017, 2016 and 2015 (in thousands):

Balance at December 31, 2014	$	(9,304	)
Effective portion of interest rate contracts	(10,302		)
Amortization of interest rate contracts	2,510
Other comprehensive loss attributable to noncontrolling interests	2,982
Balance at December 31, 2015	(14,114		)
Effective portion of interest rate contracts	(47,144		)
Amortization of interest rate contracts	3,751
Other comprehensive loss attributable to noncontrolling interests	5,256
Balance at December 31, 2016	(52,251		)
Effective portion of interest rate contracts	(6,133		)
Amortization of interest rate contracts	6,033
Other comprehensive loss attributable to noncontrolling interests	1,922
Balance at December 31, 2017	$	(50,429	)

Boston Properties Limited Partnership

The following table reflects the changes in accumulated other comprehensive loss for the years ended December 31, 2017, 2016 and 2015 (in thousands):

Balance at December 31, 2014	$	(12,973	)
Effective portion of interest rate contracts	(10,302		)
Amortization of interest rate contracts	2,510
Other comprehensive loss attributable to noncontrolling interests in property partnership	2,428
Balance at December 31, 2015	(18,337		)
Effective portion of interest rate contracts	(47,144		)
Amortization of interest rate contracts	3,751
Other comprehensive loss attributable to noncontrolling interests in property partnership	877
Balance at December 31, 2016	(60,853		)
Effective portion of interest rate contracts	(6,133		)
Amortization of interest rate contracts	6,033
Other comprehensive loss attributable to noncontrolling interests in property partnership	2,128
Balance at December 31, 2017	$	(58,825	)