Financial Instruments: Derivatives and Hedging

12 Months Ended

Dec. 31, 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 sheets 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 hedge 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 December 31, 2014 based on Level 2 information. 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 (amounts in thousands).

	Notional Value		Strike Rate		Effective Date	Expiration Date	Balance Sheet Location	Fair Value
Interest Rate Cap - Sold	$	504,000	4.750	%	May 2014	May 2016	Other Assets	$	4
Interest Rate Cap	504,000		4.750	%	May 2014	May 2016	Other Liabilities	(4		)
Interest Rate Cap	500,000		4.750	%	October 2014	May 2016	Other Assets	4
Interest Rate Cap - Sold	500,000		4.750	%	November 2014	May 2016	Other Liabilities	(4		)
Interest Rate Cap	446,000		4.750	%	October 2014	May 2016	Other Assets	3
Interest Rate Cap	263,426		6.000	%	November 2013	November 2015	Other Assets	—
Interest Rate Cap	137,500		4.000	%	October 2013	September 2015	Other Assets	—
Interest Rate Swap	200,000		0.938	%	October 2014	December 2017	Other Assets	871
Interest Rate Swap	150,000		0.940	%	October 2014	December 2017	Other Assets	647
Interest Rate Swap	150,000		0.940	%	October 2014	December 2017	Other Assets	645
Interest Rate Swap	144,000		2.236	%	December 2012	December 2017	Other Liabilities	(4,757		)
Interest Rate Swap	86,400		1.948	%	December 2012	December 2017	Other Liabilities	(2,124		)
Interest Rate Swap	72,000		2.310	%	December 2012	December 2017	Other Liabilities	(2,533		)
Interest Rate Swap	72,000		1.345	%	December 2012	December 2017	Other Liabilities	(506		)
Interest Rate Swap	72,000		2.310	%	December 2012	December 2017	Other Liabilities	(2,534		)
Interest Rate Swap	57,600		1.990	%	December 2012	December 2017	Other Liabilities	(1,487		)
Interest Rate Swap	30,000		2.295	%	July 2010	June 2016	Other Liabilities	(774		)
Interest Rate Swap	8,500		0.740	%	February 2012	February 2015	Other Liabilities	(5		)
								$	(12,554	)

During the year ended December 31, 2014, 2013 and 2012, we recorded a loss on the changes in the fair value of $61,000, $16,000 and $770,000, respectively, which is included in interest expense on the consolidated statements of income. Included in 2012 was $0.7 million of change in fair value of a terminated currency hedge which was marked to market.

The Company has agreements with each of its derivative counterparties that contain a provision where if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations. As of December 31, 2014, the fair value of derivatives in a net liability position including accrued interest but excluding any adjustment for nonperformance risk related to these agreements was $13.4 million. As of December 31, 2014, the Company has not posted any collateral related to these agreements and was not in breach of any agreement provisions. If the Company had breached any of these provisions, it could have been required to settle its obligations under the agreements at their aggregate termination value of $13.4 million at December 31, 2014.

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 $9.4 million of the current balance held in accumulated other comprehensive loss will be reclassified into interest expense and $1.2 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 years ended December 31, 2014, 2013 and 2012, respectively (in thousands):

	Amount of (Loss) or Gain Recognized in Other Comprehensive Loss (Effective Portion)									Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income	Amount of Loss  Reclassified from Accumulated Other Comprehensive Loss  into Income (Effective Portion)						Location of Gain Recognized in Income on Derivative	Amount of Gain  Recognized into Income (Ineffective Portion)
	Year Ended December 31,										Year Ended December 31,							Year Ended December 31,
Derivative	2014			2013			2012				2014		2013		2012			2014		2013		2012
Interest Rate Swaps/Caps	$	(703	)	$	(68	)	$	(912	)	Interest expense	$	6,431	$	1,933	$	1,865	Interest expense	$	4	$	3	$	3
Share of unconsolidated joint ventures' derivative instruments	2,916			6,553			(9,637		)	Equity in net income from unconsolidated joint ventures	1,999		5,072		10,811		Equity in net income from unconsolidated joint ventures	—		—		—
	$	2,213		$	6,485		$	(10,549	)		$	8,430	$	7,005	$	12,676		$	4	$	3	$	3