11.  DISCLOSURE OF FAIR VALUE OF ASSETS AND LIABILITIES



The following disclosure of estimated fair value was determined by management using available market information and appropriate valuation methodologies.  However, considerable judgment is necessary to interpret market data and develop estimated fair value.  Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the assets and liabilities at December 31, 2018 and 2017.  The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.



Cash equivalents, receivables, notes receivables, accounts payable, and accrued expenses and other liabilities are carried at amounts which reasonably approximate their fair values as of December 31, 2018 and 2017.



The fair value of the Company’s long-term debt, consisting of senior unsecured notes, unsecured term loans, an unsecured revolving credit facility and mortgages, loans payable and other obligations aggregated approximately $2,711,712,000 and $2,764,033,000 as compared to the book value of approximately $2,792,651,000 and $2,809,568,000 as of December 31, 2018 and 2017, respectively.  The fair value of the Company’s long-term debt was categorized as a level 3 basis (as provided by ASC 820, Fair Value Measurements and Disclosures).  The fair value was estimated using a discounted cash flow analysis valuation based on the borrowing rates currently available to the Company for loans with similar terms and maturities.  The fair value of the mortgage debt and the unsecured notes was determined by discounting the future contractual interest and principal payments by a market rate.  Although the Company has determined that the majority of the inputs used to value its derivative financial instruments fall within level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivative financial instruments utilize level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties.  The Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivative financial instruments.  As a result, the Company has determined that its derivative financial instruments valuations in their entirety are classified in level 2 of the fair value hierarchy.



The fair value measurements used in the evaluation of the Company’s rental properties are considered to be Level 3 valuations within the fair value hierarchy, as there are significant unobservable inputs.  Examples of inputs that were utilized in the fair value calculations include estimated holding periods, discount rates, market capitalization rates, expected lease rental rates, and third party broker information.  



Valuations of rental property identified as held for sale are based on estimated sale prices, net of estimated selling costs, of such property.



The Company identified as held for sale six office properties and a 159 unit multi-family rental property as of December 31, 2018 with an aggregate carrying value for the rental property of $108.8 million.  The total estimated sales proceeds, net of expected selling costs, from the sales are expected to be approximately $124 million.  The Company determined that the carrying value of four of the properties was not expected to be recovered from estimated net sales proceeds and accordingly recognized an unrealized loss allowance of $20.1 million for the year ended December 31, 2018. 



The Company identified as held for sale 21 office properties as of December 31, 2017 with an aggregate carrying value of $171.6 million.  The total estimated sales proceeds from the sales were expected to be approximately $223 million.  The Company determined that the carrying value of seven of these properties was not expected to be recovered from estimated net sales proceeds and accordingly recognized an unrealized loss allowance of $12.3 million during the year ended December 31, 2017. 



The Company owns two separate developable land parcels in Conshohocken and Bala Cynwyd, Pennsylvania, that were being considered for development into multi-family rental properties.  During the fourth quarter 2018, the Company made the decision to pursue selling the land parcels as opposed to development.  Due to the shortening of the expected periods of ownership, the Company determined that it was necessary to reduce the carrying values of the land parcels to their estimated fair values (ascertained by broker opinions of value obtained during the marketing process) and recorded a land impairments charge of $24.6 million at December 31, 2018.



Disclosure about fair value of assets and liabilities is based on pertinent information available to management as of December 31, 2018 and 2017.  Although management is not aware of any factors that would significantly affect the fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since December 31, 2018 and current estimates of fair value may differ significantly from the amounts presented herein.