ASC 820, Fair Value Measurement and Disclosures defines fair value and establishes a framework for measuring fair value. The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 – quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2 – observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and Level 3 – unobservable inputs that are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as consider counterparty credit risk in our assessment of fair value. Considerable judgment is necessary to interpret Level 2 and 3 inputs in determining the fair value of our financial and non-financial assets and liabilities. Accordingly, our fair value estimates, which are made at the end of each reporting period, may be different than the amounts that may ultimately be realized upon sale or disposition of these assets.

Financial assets and liabilities that are measured at fair value in our consolidated financial statements consist of (i) marketable securities, (ii) derivative positions in marketable equity securities, (iii) the assets in our deferred compensation plan (for which there is a corresponding liability on our consolidated balance sheet), (iv) Real Estate Fund investments, and (v) mandatorily redeemable instruments (Series G-1 through G-4 convertible preferred units and Series D-13 cumulative redeemable preferred units). The tables below aggregate the fair values of these financial assets and liabilities by their levels in the fair value hierarchy at March 31, 2012 and December 31, 2011, respectively.

			As of March 31, 2012
(Amounts in thousands)			Total		Level 1		Level 2		Level 3
	Marketable securities		$	754,510	$	754,510	$	-	$	-
	Real Estate Fund investments (75% of which is attributable to
		noncontrolling interests)		324,514		-		-		324,514
	Deferred compensation plan assets (included in other assets)			99,810		40,929		-		58,881
	Derivative positions in marketable equity securities
		(included in other assets)		31,645		-		31,645		-
		Total assets	$	1,210,479	$	795,439	$	31,645	$	383,395

	Mandatorily redeemable instruments (included in other liabilities)		$	55,097	$	55,097	$	-	$	-

			As of December 31, 2011
(Amounts in thousands)			Total		Level 1		Level 2		Level 3
	Marketable securities		$	741,321	$	741,321	$	-	$	-
	Real Estate Fund investments (75% of which is attributable to
		noncontrolling interests)		346,650		-		-		346,650
	Deferred compensation plan assets (included in other assets)			95,457		39,236		-		56,221
	Derivative positions in marketable equity securities
		(included in other assets)		30,600		-		30,600		-
		Total assets	$	1,214,028	$	780,557	$	30,600	$	402,871

	Mandatorily redeemable instruments (included in other liabilities)		$	54,865	$	54,865	$	-	$	-

As of March 31, 2012, our real estate fund has five investments with an aggregate fair value of approximately $324,514,000, or $18,839,000 in excess of cost. These investments are classified as Level 3. We use a discounted cash flow valuation technique to estimate the fair value of each of these investments, which is updated quarterly by personnel responsible for the management of each investment and reviewed by senior management at each reporting period. The discounted cash flow valuation technique requires us to estimate cash flows for each investment over the anticipated holding period, which currently ranges from 2.3 to 6.8 years. Cash flows are derived from property rental revenue (base rents plus reimbursements) less operating expenses, real estate taxes and capital and other costs, plus projected sales proceeds in the year of exit. Property rental revenue is based on leases currently in place and our estimates for future leasing activity, which are based on current market rents for similar space plus a projected growth factor. Similarly, estimated operating expenses and real estate taxes are based on amounts incurred in the current period plus a projected growth factor for future periods. Anticipated sales proceeds at the end of an investment's expected holding period are determined based on the net cash flow of the investment in the year of exit, divided by a terminal capitalization rate, less estimated selling costs.

The fair value of each property is calculated by discounting the future cash flows (including the projected sales proceeds), using an appropriate discount rate and then reduced by the property's outstanding debt, if any, to determine the fair value of the equity in each investment. Significant unobservable quantitative inputs used in determining the fair value of each investment include capitalization rates and discount rates. These rates are based on the location, type and nature of each property, and current and anticipated market conditions, which are derived from original underwriting assumptions, industry publications and from the experience of our Acquisitions and Capital Markets departments. Significant unobservable quantitative inputs in the table below were utilized in determining the fair value of these Fund investments for the quarter ended March 31, 2012.

The above inputs are subject to change based on changes in economic and market conditions and/or changes in use or timing of exit. Changes in discount rates and terminal capitalization rates result in increases or decreases in the fair values of these investments. The discount rates encompass, among other things, uncertainties in the valuation models with respect to terminal capitalization rates and the amount and timing of cash flows. Therefore, a change in the fair value of these investments resulting from a change in the terminal capitalization rate, may be partially offset by a change in the discount rate. It is not possible for us to predict the effect of future economic or market conditions on our estimated fair values. The table below summarizes the changes in the fair value of Fund investments for the three months ended March 31, 2012 and 2011.

	For the Three Months Ended March 31,
(Amounts in thousands)	2012		2011
Beginning balance	$	346,650	$	144,423
Purchases		-		100,238
Sales		(31,052)		-
Realized and unrealized gains		6,844		698
Other, net		2,072		(14,702)
Ending balance	$	324,514	$	230,657

Deferred compensation plan assets that are classified as Level 3 consist of investments in limited partnerships and investment funds, which are managed by third parties. We receive quarterly financial reports from a third-party administrator, which are compiled from the quarterly reports provided to them from each limited partnership and investment fund. The quarterly reports provide net asset values on a fair value basis which are audited by independent public accounting firms on an annual basis. The third-party administrator does not adjust these values in determining our share of the net assets and we do not adjust these values when reported in our consolidated financial statements. The table below summarizes the changes in the fair value of Deferred Compensation Plan Assets for the three months ended March 31, 2012 and 2011.

	For the Three Months Ended March 31,
(Amounts in thousands)	2012		2011
Beginning balance	$	56,221	$	47,850
Purchases		3,611		1,286
Sales		(3,395)		-
Realized and unrealized gains		2,392		3,623
Other, net		52		(1,147)
Ending balance	$	58,881	$	51,612

Financial assets and liabilities that are not measured at fair value in our consolidated financial statements include mezzanine loans receivable and our secured and unsecured debt. Estimates of the fair values of these instruments are determined by the standard practice of modeling the contractual cash flows required under the instrument and discounting them back to their present value at the appropriate current risk adjusted interest rate, which is provided by a third-party specialist. For floating rate debt, we use forward rates derived from observable market yield curves to project the expected cash flows we would be required to make under the instrument. The fair value of our mezzanine loans receivable is classified as Level 3 and the fair value of our secured and unsecured debt is classified as Level 2. The table below summarizes the carrying amounts and fair values of these financial instruments as of March 31, 2012 and December 31, 2011.

			As of March 31, 2012				As of December 31, 2011
			Carrying		Fair		Carrying		Fair
(Amounts in thousands)			Amount		Value		Amount		Value
	Mezzanine loans receivable		$	133,143	$	128,000	$	133,948	$	129,000
	Debt:
		Notes and mortgages payable	$	8,434,938	$	8,505,000	$	8,558,275	$	8,686,000
		Senior unsecured notes		1,357,748		1,439,000		1,357,661		1,426,000
		Exchangeable senior debentures		499,680		501,000		497,898		510,000
		Convertible senior debentures		10,233		10,000		10,168		10,000
		Revolving credit facility debt		-		-		138,000		138,000
			$	10,302,599	$	10,455,000	$	10,562,002	$	10,770,000

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References

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