Fair Value

9 Months Ended

Sep. 30, 2012

Fair Value

Fair Value

10.  Fair Value

Financial Instruments Carried at Fair Value

Derivative Financial Instruments

The Company reports its interest rate swap and interest rate cap agreements at fair value in the Company’s financial statements.  In adjusting the fair value of its derivative contracts for the effect of counterparty nonperformance risk, the Company has considered the impact of its net position with a given counterparty, as well as any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. The Company minimizes its credit risk on these transactions by dealing with major, creditworthy financial institutions which have an A or better credit rating by the Standard & Poor’s Ratings Group. As part of its on-going control procedures, the Company monitors the credit ratings of counterparties and the exposure of the Company to any single entity, thus minimizing credit risk concentration. The Company believes the likelihood of realizing losses from counterparty non-performance is remote. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives use Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by itself and its counterparties. As of September 30, 2012, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined it is not significant.  As a result, the Company has determined that its derivative valuations are classified in Level 2 of the fair value hierarchy.

Hedge ineffectiveness did not have a material impact on earnings of the Company for any prior period, and the Company does not anticipate that it will have a material effect in the future.

The following table summarizes the consolidated Hedging Derivatives at September 30, 2012, excluding derivatives executed to hedge debt on communities classified as held for sale (dollars in thousands):

	Non-
	designated		Cash Flow		Cash Flow
	Hedges		Hedges		Hedges
	Interest		Interest		Interest
	Rate Caps		Rate Caps		Rate Swaps
Notional balance	$	39,347	$	180,024	$	215,000
Weighted average interest rate (1)	1.2%		2.4%		4.6%
Weighted average capped interest rate	7.4%		5.3%		N/A
Earliest maturity date	Mar-14		Jul-13		May-13
Latest maturity date	Sep-17		Jun-15		May-13

(1) For interest rate caps, this represents the weighted average interest rate on the debt.

Excluding derivatives executed to hedge debt on communities classified as held for sale, the Company had five derivatives designated as cash flow hedges and three derivatives not designated as hedges at September 30, 2012. In connection with the Company’s September 2012 unsecured note issuance, the Company settled a forward starting interest rate swap agreement designated as a cash flow hedge of the interest rate variability on the unsecured notes, making a payment of $54,930,000, which amount is included in accumulated other comprehensive loss on the Condensed Consolidated Balance Sheets and will be recognized as a component of interest expense, net, over the life of the unsecured notes. Fair value changes for derivatives not in qualifying hedge relationships for the nine months ended September 30, 2012, were not material. To adjust the Hedging Derivatives in qualifying cash flow hedges to their fair value and recognize the impact of hedge accounting, the Company recorded an increase in other comprehensive loss of $23,767,000 and $79,691,000 during the nine months ended September 30, 2012 and 2011, respectively. The amount reclassified from accumulated other comprehensive loss into earnings for the nine months ended September 30, 2012 was not material. The Company anticipates reclassifying approximately $5,493,000 of hedging losses from accumulated other comprehensive loss into earnings within the next twelve months to offset the variability of cash flows of the hedged items during this period. The Company had derivatives designated as fair value hedges as of December 31, 2011 which matured prior to September 30, 2012. The Company recorded a decrease in the fair value of these fair value hedges of $1,324,000 for the nine months ended September 30, 2011.

Redeemable Noncontrolling Interests

The Company provided a redemption option (the “Put”) that allows a joint venture partner of the Company to require the Company to purchase its interest in the investment at a guaranteed minimum amount. The Put is payable in cash. The Company determines the fair value of the Put based on unobservable inputs considering the assumptions that market participants would make in pricing the obligation, applying a guaranteed rate of return to the joint venture partner’s net capital contribution balance as of period end. Given the significance of the unobservable inputs, the valuation is classified in Level 3 of the fair value hierarchy.

The Company issued units of limited partnership interests in DownREITs which provide the DownREIT limited partners the ability to present all or some of their units for redemption for cash as determined by the partnership agreement.  Under the DownREIT agreement, for each limited partnership unit, the limited partner is entitled to receive cash in the amount equal to the fair value of the Company’s common stock on or about the date of redemption.  In lieu of cash redemption, the Company may elect to exchange such units for an equal number of shares of the Company’s common stock. The limited partnership units in the DownREIT are valued using the market price of the Company’s common stock, a Level 1 price under the fair value hierarchy.

Financial Instruments Not Carried at Fair Value

Cash and Cash Equivalents

Cash and cash equivalent balances are held with various financial institutions, with cash balances held in principal protected accounts and any cash equivalents held in the form of short term investments that do not expose the Company to principal loss. The Company monitors credit ratings of these financial institutions and the concentration of cash and cash equivalent balances with any one financial institution and believes the likelihood of realizing material losses related to cash and cash equivalent balances is remote.  Cash and cash equivalents are carried at their face amounts, which reasonably approximate their fair values.

Other Financial Instruments

Rents receivable, accounts and construction payable and accrued expenses and other liabilities are carried at their face amounts, which reasonably approximate their fair values.

The Company values its unsecured notes using quoted market prices, a Level 1 price within the fair value hierarchy. The Company values its notes payable and outstanding amounts under the Credit Facility using a discounted cash flow analysis on the expected cash flows of each instrument. This analysis reflects the contractual terms of the instrument, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The process also considers credit valuation adjustments to appropriately reflect the Company’s nonperformance risk. The Company has concluded that the value of its notes payable and amounts outstanding under its credit facility are Level 2 prices as the majority of the inputs used to value its positions fall within Level 2 of the fair value hierarchy.

Financial Instruments Measured at Fair Value on a Recurring Basis

The following table summarizes the classification between the three levels of the fair value hierarchy of the Company’s financial instruments measured and /or disclosed at fair value on a recurring basis (dollars in thousands):

				Quoted Prices			Significant
				in Active			Other			Significant
				Markets for			Observable			Unobservable
				Identical Assets			Inputs			Inputs
Description	9/30/2012			(Level 1)			(Level 2)			(Level 3)
Interest Rate Caps	$	28		$	—		$	28		$	—
Interest Rate Swaps	(54,812		)	—			(54,812		)	—
Put	(5,748		)	—			—			(5,748		)
DownREIT units	(1,020		)	(1,020		)	—			—
Indebtedness	(4,064,394		)	(2,070,262		)	(1,994,132		)	—
Total	$	(4,125,946	)	$	(2,071,282	)	$	(2,048,916	)	$	(5,748	)