Fair Value Measurements

3 Months Ended

Mar. 31, 2019

ASC 820 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 Measured at Fair Value on a Recurring Basis

Financial assets and liabilities that are measured at fair value on our consolidated balance sheets consist of (i) marketable securities, (ii) real estate fund investments, (iii) the assets in our deferred compensation plan (for which there is a corresponding liability on our consolidated balance sheets), (iv) interest rate swaps 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 as of March 31, 2019 and December 31, 2018, respectively.



(Amounts in thousands)	As of March 31, 2019
	Total		Level 1		Level 2		Level 3
Marketable securities	$	39,866	$	39,866	$	—	$	—
Real estate fund investments	322,858		—		—		322,858
Deferred compensation plan assets ($8,747 included in restricted cash and $93,176 in other assets)	101,923		64,361		—		37,562
Interest rate swaps (included in other assets)	19,613		—		19,613		—
Total assets	$	484,260	$	104,227	$	19,613	$	360,420

Mandatorily redeemable instruments (included in other liabilities)	$	50,561	$	50,561	$	—	$	—
Interest rate swaps (included in other liabilities)	24,851		—		24,851		—
Total liabilities	$	75,412	$	50,561	$	24,851	$	—

(Amounts in thousands)	As of December 31, 2018
	Total		Level 1		Level 2		Level 3
Marketable securities	$	152,198	$	152,198	$	—	$	—
Real estate fund investments	318,758		—		—		318,758
Deferred compensation plan assets ($8,402 included in restricted cash and $88,122 in other assets)	96,524		58,716		—		37,808
Interest rate swaps (included in other assets)	27,033		—		27,033		—
Total assets	$	594,513	$	210,914	$	27,033	$	356,566

Mandatorily redeemable instruments (included in other liabilities)	$	50,561	$	50,561	$	—	$	—
Interest rate swaps (included in other liabilities)	15,236		—		15,236		—
Total liabilities	$	65,797	$	50,561	$	15,236	$	—


15.	Fair Value Measurements - continued

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis - continued

Real Estate Fund Investments

As of March 31, 2019, we had four real estate fund investments with an aggregate fair value of $322,858,000, or $6,706,000 below our cost. These investments are classified as Level 3.

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, current and anticipated market conditions, 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 real estate fund investments as of March 31, 2019 and December 31, 2018.



	Range		Weighted Average (based on fair value of investments)
Unobservable Quantitative Input	March 31, 2019	December 31, 2018	March 31, 2019	December 31, 2018
Discount rates	10.0% to 15.0%	10.0% to 15.0%	13.4%	13.4%
Terminal capitalization rates	5.5% to 7.7%	5.4% to 7.7%	5.8%	5.7%

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 real estate fund investments that are classified as Level 3, for the three months ended March 31, 2019 and 2018.



(Amounts in thousands)	For the Three Months Ended March 31,
	2019		2018
Beginning balance	$	318,758	$	354,804
Purchases/additional fundings	4,000		2,950
Net unrealized gain on held investments	100		—
Dispositions	—		(20,291		)
Net realized loss on exited investments	—		(911		)
Ending balance	$	322,858	$	336,552


15.	Fair Value Measurements - continued

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis - continued

Deferred Compensation Plan Assets

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 period of time over which these underlying assets are expected to be liquidated is unknown. 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 that are classified as Level 3, for the three months ended March 31, 2019 and 2018.



(Amounts in thousands)	For the Three Months Ended March 31,
	2019			2018
Beginning balance	$	37,808		$	40,128
Sales	(2,114		)	(1,635		)
Purchases	908			14
Realized and unrealized gains	523			678
Other, net	437			300
Ending balance	$	37,562		$	39,485

Fair Value Measurements on a Nonrecurring Basis

Assets measured at fair value on a nonrecurring basis on our consolidated balance sheets consist primarily of real estate assets required to be measured for impairment at December 31, 2018. The fair values of real estate assets required to be measured for impairment were determined using comparable sales activity. There were no assets measured at fair value on a nonrecurring basis on our consolidated balance sheet as of March 31, 2019.



(Amounts in thousands)	As of December 31, 2018
	Total		Level 1		Level 2		Level 3
Real estate asset	$	14,971	$	—	$	—	$	14,971


15.	Fair Value Measurements - continued

Financial Assets and Liabilities not Measured at Fair Value

Financial assets and liabilities that are not measured at fair value on our consolidated balance sheets include cash equivalents (primarily money market funds, which invest in obligations of the United States government), and our secured and unsecured debt. Estimates of the fair value 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 values of cash equivalents and borrowings under our unsecured revolving credit facilities and unsecured term loan are classified as Level 1. The fair values of our secured and unsecured debt are classified as Level 2. The table below summarizes the carrying amounts and fair value of these financial instruments as of March 31, 2019 and December 31, 2018.



(Amounts in thousands)		As of March 31, 2019					As of December 31, 2018
		Carrying Amount			Fair Value		Carrying Amount			Fair Value
Cash equivalents		$	207,481		$	207,000	$	261,981		$	262,000
Debt:
	Mortgages payable	$	6,556,034		$	6,565,000	$	8,215,847		$	8,179,000
	Senior unsecured notes	850,000			868,000		850,000			847,000
	Unsecured term loan	750,000			750,000		750,000			750,000
	Unsecured revolving credit facilities	530,000			530,000		80,000			80,000
	Total	$	8,686,034	⁽¹⁾	$	8,713,000	$	9,895,847	⁽¹⁾	$	9,856,000

____________________

(1)

Excludes $46,508 and $59,226 of deferred financing costs, net and other as of March 31, 2019 and December 31, 2018, respectively.

- 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 + Details