Financial Instruments: Derivatives and Hedging

6 Months Ended

Jun. 30, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Financial Instruments: Derivatives and Hedging

Financial Instruments: Derivatives and Hedging

In the normal course of business, we use a variety of commonly used derivative instruments, such as interest rate swaps, caps, collar and floors, to manage, or hedge interest rate risk. We hedge our exposure to variability in future cash flows for forecasted transactions in addition to anticipated future interest payments on existing debt. We recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges are adjusted to fair value through earnings. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value will be immediately recognized in earnings. Reported net income and equity may increase or decrease prospectively, depending on future levels of interest rates and other variables affecting the fair values of derivative instruments and hedged items, but will have no effect on cash flows. Currently, all of our designated derivative instruments are effective hedging instruments.

The following table summarizes the notional and fair value of our consolidated derivative financial instruments at June 30, 2014 based on Level 2 information pursuant to ASC 810-10. The notional value is an indication of the extent of our involvement in these instruments at that time, but does not represent exposure to credit, interest rate or market risks.

	Notional Value (in thousands)		Strike Rate		Effective Date	Expiration Date	Balance Sheet Location	Fair Value (in thousands)
Interest Rate Cap	$	263,426	6.000	%	November 2013	November 2015	Other Assets	$	4
Interest Rate Cap	137,500		4.000	%	October 2013	September 2015	Other Assets	3
Interest Rate Cap	946,000		4.750	%	May 2014	May 2016	Other Assets	36
Interest Rate Swap(1)	144,000		2.236	%	December 2012	December 2017	Other Liabilities	(5,859		)
Interest Rate Swap(1)	72,000		2.310	%	December 2012	December 2017	Other Liabilities	(3,109		)
Interest Rate Swap(1)	72,000		2.310	%	December 2012	December 2017	Other Liabilities	(3,109		)
Interest Rate Swap(1)	57,600		1.990	%	December 2012	December 2017	Other Liabilities	(1,859		)
Interest Rate Swap(1)	86,400		1.948	%	December 2012	December 2017	Other Liabilities	(2,664		)
Interest Rate Swap(1)	72,000		1.345	%	December 2012	December 2017	Other Liabilities	(747		)
Interest Rate Swap	30,000		2.295	%	July 2010	June 2016	Other Liabilities	(1,078		)
Interest Rate Swap	8,500		0.740	%	February 2012	February 2015	Other Liabilities	(29		)
								$	(18,411	)

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(1) As a result of the acquisition and consolidation of 388-390 Greenwich Street, we have assumed these derivative instruments and have designated them as hedges.

Gains and losses on terminated hedges are included in the accumulated other comprehensive loss, and are recognized into earnings over the term of the related mortgage obligation. Over time, the realized and unrealized gains and losses held in accumulated other comprehensive loss will be reclassified into earnings as an adjustment to interest expense in the same periods in which the hedged interest payments affect earnings.  We estimate that approximately $7.1 million of the current balance held in accumulated other comprehensive loss will be reclassified into interest expense and $0.8 million of the portion related to our share of joint venture accumulated other comprehensive loss will be reclassified into equity in net income from unconsolidated joint ventures within the next 12 months.

The following table presents the effect of our derivative financial instruments and our share of our joint ventures' derivative financial instruments that are designated and qualify as hedging instruments on the consolidated statements of income for the three months ended June 30, 2014 and 2013, respectively (in thousands):

	Amount of Gain or (Loss) Recognized in Other Comprehensive Loss (Effective Portion)					Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income	Amount of Loss  Reclassified from Accumulated Other Comprehensive Loss  into Income (Effective Portion)				Location of Gain (Loss) Recognized in Income on Derivative	Amount of Gain  Recognized into Income (Ineffective Portion)
	Three Months Ended June 30,						Three Months Ended June 30,					Three Months Ended June 30,
Derivative	2014			2013			2014		2013			2014		2013
Interest Rate Swaps/Caps	$	(465	)	$	181	Interest expense	$	1,272	$	470	Interest expense	$	1	$	—
Share of unconsolidated joint ventures' derivative instruments	5,930			7,888		Equity in net income from unconsolidated joint ventures	556		1,260		Equity in net income from unconsolidated joint ventures	—		5
	$	5,465		$	8,069		$	1,828	$	1,730		$	1	$	5

The following table presents the effect of our derivative financial instruments and our share of our joint ventures' derivative financial instruments that are designated and qualify as hedging instruments on the consolidated statements of income for the six months ended June 30, 2014 and 2013, respectively (in thousands):

	Amount of Gain or (Loss) Recognized in Other Comprehensive Loss (Effective Portion)					Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income	Amount of Loss  Reclassified from Accumulated Other Comprehensive Loss  into Income (Effective Portion)				Location of Gain (Loss) Recognized in Income on Derivative	Amount of Gain Recognized into Income (Ineffective Portion)
	Six Months Ended June 30,						Six Months Ended June 30,					Six Months Ended June 30,
Derivative	2014			2013			2014		2013			2014		2013
Interest Rate Swaps/Caps	$	(516	)	$	140	Interest expense	$	1,964	$	938	Interest expense	$	2	$	—
Share of unconsolidated joint ventures' derivative instruments	4,184			8,109		Equity in net income from unconsolidated joint ventures	1,829		2,500		Equity in net income from unconsolidated joint ventures	—		5
	$	3,668		$	8,249		$	3,793	$	3,438		$	2	$	5