Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v2.4.0.6
Fair Value Measurements
 3 Months Ended
Mar. 31, 2013
Fair Value Disclosures [Abstract]  
Fair value measurements
Fair Value Measurements

For a description on how we estimate fair value, see Note 3 to the consolidated financial statements in our 2012 Annual Report on Form 10-K.
 
Recurring Fair Value Measurements
 
The table below sets forth our financial assets and liabilities that are accounted for at fair value on a recurring basis as of March 31, 2013 and the hierarchy level of inputs used in measuring their respective fair values under applicable accounting standards (in thousands):
Description
 
Quoted Prices in
Active Markets for
Identical Assets(Level 1)
 
Significant Other
Observable Inputs(Level 2)
 
Significant
Unobservable Inputs(Level 3)
 
Total
Assets:
 
 

 
 

 
 

 
 

Marketable securities in deferred compensation plan (1)
 
 

 
 

 
 

 
 

Mutual funds
 
$
6,606

 
$
—

 
$
—

 
$
6,606

Common stocks
 
239

 
—

 
—

 
239

Other
 
213

 
—

 
—

 
213

Common stock (1)
 
743

 
—

 
—

 
743

Interest rate derivatives (2)
 
—

 
260

 
—

 
260

Warrants to purchase common stock (2)
 
—

 
420

 
—

 
420

Assets
 
$
7,801

 
$
680

 
$
—

 
$
8,481

Liabilities:
 
 

 
 

 
 

 
 

Deferred compensation plan liability (3)
 
$
7,058

 
$
—

 
$
—

 
$
7,058

Interest rate derivatives
 
—

 
5,340

 
—

 
5,340

Liabilities
 
$
7,058

 
$
5,340

 
$
—

 
$
12,398

Redeemable noncontrolling interest
 
$
—

 
$
—

 
$
10,356

 
$
10,356


(1) Included in the line entitled “restricted cash and marketable securities” on our consolidated balance sheet.
(2) Included in the line entitled “prepaid expenses and other assets” on our consolidated balance sheet.
(3) Included in the line entitled “other liabilities” on our consolidated balance sheet.

As discussed further in Note 5, our partner in a real estate joint venture has the right to require us to acquire its interest at fair value beginning in March 2020; accordingly, we classify the fair value of our partner’s interest as a redeemable noncontrolling interest in the mezzanine section of our consolidated balance sheet. In determining the fair value of our partner’s interest, we used a discount rate of 15.5%, which factored in risk appropriate to the level of future property development expected to be undertaken by the joint venture; a significant increase (decrease) in the discount rate used in determining the fair value would result in a significantly (lower) higher fair value. Given our reliance on the unobservable inputs, the valuations are classified in Level 3 of the fair value hierarchy.

The carrying values of cash and cash equivalents, restricted cash, accounts receivable, other assets (excluding mortgage loans receivable) and accounts payable and accrued expenses are reasonable estimates of their fair values because of the short maturities of these instruments.  We estimated the fair values of our mortgage loans receivable as discussed in Note 6 based on the discounted estimated future cash flows of the loans (categorized within Level 3 of the fair value hierarchy); the discount rates used approximate current market rates for loans with similar maturities and credit quality, and the estimated cash payments include scheduled principal and interest payments.  For our disclosure of debt fair values in Note 7 to the consolidated financial statements, we estimated the fair value of our exchangeable senior notes based on quoted market prices for publicly-traded debt (categorized within Level 2 of the fair value hierarchy) and estimated the fair value of our other debt based on the discounted estimated future cash payments to be made on such debt (categorized within Level 3 of the fair value hierarchy); the discount rates used approximate current market rates for loans, or groups of loans, with similar maturities and credit quality, and the estimated future payments include scheduled principal and interest payments.  Fair value estimates are made at a specific point in time, are subjective in nature and involve uncertainties and matters of significant judgment.  Settlement of such fair value amounts may not be possible and may not be a prudent management decision.
 
For additional fair value information, please refer to Note 6 for mortgage loans receivable, Note 7 for debt and Note 8 for interest rate derivatives. 

Nonrecurring Fair Value Measurements
 
Three Months Ended March 31, 2013

During the three months ended March 31, 2013, we shortened the holding period for a property in the Baltimore/Washington Corridor that we expect to sell. We determined that the carrying amount of this property will not likely be recovered from the cash flows from the operation and sale of the property over the likely remaining holding period. Accordingly, we recognized a non-cash impairment loss of $1.9 million for the amount by which the carrying value of the property exceeded its estimated fair value. The table below sets forth the fair value hierarchy of the valuation technique used by us in determining the fair value of the property (dollars in thousands):
 
 
Quoted Prices in
 
 
 
Significant
 
 
 
 
 
 
Active Markets for
 
Significant Other
 
Unobservable
 
 
 
Impairment
 
 
Identical Assets
 
Observable Inputs
 
Inputs
 
 
 
Losses
Description
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Total
 
Recognized
Assets (1):
 
 

 
 

 
 

 
 

 
 

Properties, net
 
$
—

 
$
—

 
$
7,250

 
$
7,250

 
$
1,857


(1) Reflects balance sheet classifications of assets at time of fair value measurement, excluding the effect of held for sale classifications.

The table below sets forth quantitative information about significant unobservable inputs used for the Level 3 fair value measurements reported above (dollars in thousands):
Description
 
Fair Value on 
Measurement Date
 
Valuation Technique
 
 Unobservable Input
 
Range (Weighted Average)
Property on which impairment loss was recognized
 
$
7,250

 
Bid for property indicative of value
 
Indicative bid (1)
 
(1)

(1) This fair value measurement was developed by a third party source, subject to our corroboration for reasonableness.

Three Months Ended March 31, 2012

During the three months ended March 31, 2012, we recognized non-cash impairment losses of $5.5 million for the amount by which the carrying values of certain properties exceeded their estimated fair values. The table below sets forth the fair value hierarchy of the valuation techniques used by us in determining such fair values for the three months ended March 31, 2012 (dollars in thousands):
 
 
Quoted Prices in
 
 
 
Significant
 
 
 
 
 
 
Active Markets for
 
Significant Other
 
Unobservable
 
 
 
Impairment
 
 
Identical Assets
 
Observable Inputs
 
Inputs
 
 
 
Losses
Description
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Total
 
Recognized (1)
Assets (2):
 
 

 
 

 
 

 
 

 
 

Properties, net
 
$
—

 
$
—

 
$
92,176

 
$
92,176

 
$
5,479


(1) Represents impairment losses, excluding exit costs incurred of $1.1 million.
(2) Reflects balance sheet classifications of assets at time of fair value measurement, excluding the effect of held for sale classifications.

The table below sets forth quantitative information about significant unobservable inputs used for the Level 3 fair value measurements reported above (dollars in thousands):
Description
 
Fair Value on 
Measurement Date
 
Valuation Technique
 
 Unobservable Input
 
Range (Weighted Average)
Properties on which impairment losses were recognized
 
$
92,176

 
Bid for properties indicative of value
 
Indicative bid (1)
 
(1)
 
 
 
 
Contract of sale
 
Contract price (1)
 
(1)
 
 
 
 
Discounted cash flow
 
Discount rate
 
11.0% (2)
 
 
 
 
 
 
Terminal capitalization rate
 
9.0% (2)
 
 
 
 
 
 
Market rent growth rate
 
3.0% (2)
 
 
 
 
 
 
Expense growth rate
 
3.0% (2)
 
 
 
 
Yield Analysis
 
Yield
 
12% (2)
 
 
 
 
 
 
Market rent rate
 
$8.50 per square foot (2)
 
 
 
 
 
 
Leasing costs
 
$20.00 per square foot (2)
(1) These fair value measurements were developed by third party sources, subject to our corroboration for reasonableness.
(2) Only one value applied for this unobservable input.