Financial Instruments: Derivatives and Hedging

9 Months Ended

Sep. 30, 2017

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 value at inception and fair value of our consolidated derivative financial instruments at September 30, 2017 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 Swap	$	200,000	0.938	%	October 2014	December 2017	Other Assets	$	105
Interest Rate Swap	150,000		0.940	%	October 2014	December 2017	Other Assets	78
Interest Rate Swap	150,000		0.940	%	October 2014	December 2017	Other Assets	78
Interest Rate Cap	137,500		4.000	%	September 2017	September 2019	Other Assets	4
Interest Rate Swap	200,000		1.131	%	July 2016	July 2023	Other Assets	8,998
Interest Rate Swap	100,000		1.161	%	July 2016	July 2023	Other Assets	4,335
Interest Rate Swap	100,000		2.287	%	November 2017	November 2027	Other Assets	129
								$	13,727

During both the three and nine months ended September 30, 2017, we recorded a loss on the changes in the fair value of $0.1 million, which is included in interest expense on the consolidated statements of operations. During the three and nine months ended September 30, 2016, we recorded a $0.1 million loss and a $0.5 million gain, respectively, on the changes in the fair value, which is included in interest expense on the consolidated statements of operations.

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 September 30, 2017, 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 zero. As of September 30, 2017, 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 zero at September 30, 2017.

Gains and losses on terminated hedges are included in 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 $0.8 million of the current balance held in accumulated other comprehensive loss will be reclassified into interest expense and $0.3 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 operations for the three months ended September 30, 2017 and 2016, respectively (in thousands):

	Amount of (Loss) Recognized in Other Comprehensive Loss (Effective Portion)						Location of (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income	Amount of Loss  Reclassified from Accumulated Other Comprehensive Loss  into Income (Effective Portion)				Location of (Loss) Recognized in Income on Derivative	Amount of (Loss) Gain Recognized into Income (Ineffective Portion)
	Three Months Ended September 30,							Three Months Ended September 30,					Three Months Ended September 30,
Derivative	2017			2016				2017		2016			2017			2016
Interest Rate Swaps/Caps	$	(304	)	$	(7	)	Interest expense	$	85	$	1,442	Interest expense	$	4		$	—
Share of unconsolidated joint ventures' derivative instruments	(290		)	(222		)	Equity in net income from unconsolidated joint ventures	185		547		Equity in net income from unconsolidated joint ventures	(48		)	830
	$	(594	)	$	(229	)		$	270	$	1,989		$	(44	)	$	830

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 operations for the nine months ended September 30, 2017 and 2016, respectively (in thousands):

	Amount of (Loss) Recognized in Other Comprehensive Loss (Effective Portion)						Location of (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income	Amount of Loss  Reclassified from Accumulated Other Comprehensive Loss  into Income (Effective Portion)				Location of (Loss) Recognized in Income on Derivative	Amount of (Loss) Recognized into Income (Ineffective Portion)
	Nine Months Ended September 30,							Nine Months Ended September 30,					Nine Months Ended September 30,
Derivative	2017			2016				2017		2016			2017			2016
Interest Rate Swaps/Caps	$	(5,477	)	$	(8,112	)	Interest expense	$	1,583	$	8,073	Interest expense	$	(4	)	$	(38	)
Share of unconsolidated joint ventures' derivative instruments	(1,277		)	(5,992		)	Equity in net income from unconsolidated joint ventures	876		1,465		Equity in net income from unconsolidated joint ventures	(109		)	(206		)
	$	(6,754	)	$	(14,104	)		$	2,459	$	9,538		$	(113	)	$	(244	)