Financial Instruments: Derivatives and Hedging

6 Months Ended

Jun. 30, 2011

Financial Instruments: Derivatives and Hedging

Financial Instruments: Derivatives and Hedging

15.  Financial Instruments: Derivatives and Hedging

We recognize all derivatives on the balance sheet at fair value.  Derivatives that are not hedges must be 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.

The following table summarizes the notional and fair value of our derivative financial instruments and foreign currency hedges at June 30, 2011 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 (in thousands).

		Notional Value	Strike Rate		Effective Date	Expiration Date		Fair Value
Interest Rate Cap	$	110,180	6.000	%	2/2011	2/2012	$	---
Interest Rate Cap	$	139,672	5.000	%	1/2011	1/2012	$	---
Interest Rate Swap	$	30,000	2.295	%	7/2010	6/2016	$	(551	)
Currency Hedge	$	20,748	1.55185	GBP-USD	9/2010	12/2012	$	(517	)

The currency hedge and certain interest rate caps are not designated as a hedging instrument and changes in the value are marked to market through earnings.

On June 30, 2011, the derivative instruments were reported as an obligation at their fair value of approximately $1.1 million.  This is included in Other Liabilities on the consolidated balance sheet at June 30, 2011.  Included in Accumulated Other Comprehensive Loss at June 30, 2011 was approximately $17.3 million from the settlement of hedges, which are being amortized over the remaining term of the related mortgage obligation, and active hedges and our share of joint venture accumulated other comprehensive loss of approximately $14.9 million.  Currently, all of our designated derivative instruments are effective hedging instruments.

In March 2010, we terminated forward swaps which resulted in a net loss of approximately $19.5 million from the settlement of the hedges.  This payment is included in financing activities in the statement of cash flows.  This loss will be amortized over the 10-year term of the related financing.  This loss is included in the $17.3 million balance noted above. The balance in Accumulated Other Comprehensive Loss relating to derivatives was $32.2 million and $32.3 million at June 30, 2011 and December 31, 2010, respectively.

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 $1.8 million of the current balance held in Accumulated Other Comprehensive Income will be reclassified into earnings within the next 12 months.

We are hedging exposure to variability in future cash flows for forecasted transactions in addition to anticipated future interest payments on existing debt.

The following table presents the effect of our derivative financial instruments and our share of our joint venture’s derivative financial instruments on the Consolidated Statements of Income for the three months ended June 30, 2011 and 2010, respectively (in thousands):

		Amount of (Loss) or Gain Recognized in Other Comprehensive Loss (Effective Portion) For the Three Months Ended		Amount of (Loss) or Gain Reclassified from Accumulated Other Comprehensive Loss into Interest Expense/ Equity in net income of unconsolidated joint ventures (Effective Portion) For the Three Months Ended		Amount of (Loss) or Gain Recognized in Interest Expense/Equity in Net Income of Unconsolidated Joint Ventures (Ineffective Portion) For the Three Months Ended
Designation\Cash Flow	Derivative	June 30, 2011	June 30, 2010	June 30,2011	June 30, 2010	June 30, 2011	June 30, 2010
Qualifying	Interest Rate Swaps/Caps	$(6,186)	$(4,723)	$(3,145)	$(3,185)	$(18)	$---
Non-qualifying	Interest Rate Caps/Currency Hedges	---	---	---	---	(127)	---

The following table presents the effect of our derivative financial instruments and our share of our joint venture’s derivative financial instruments on the Consolidated Statements of Income for the six months ended June 30, 2011 and 2010, respectively (in thousands):

		Amount of (Loss) or Gain Recognized in Other Comprehensive Loss (Effective Portion) For the Six Months Ended		Amount of (Loss) or Gain Reclassified from Accumulated Other Comprehensive Loss into Interest Expense/ Equity in net income of unconsolidated joint ventures (Effective Portion) For the Six Months Ended		Amount of (Loss) or Gain Recognized in Interest Expense/Equity in Net Income of Unconsolidated Joint Ventures (Ineffective Portion) For the Six Months Ended
Designation\Cash Flow	Derivative	June 30, 2011	June 30, 2010	June 30,2011	June 30, 2010	June 30, 2011	June 30, 2010
Qualifying	Interest Rate Swaps/Caps	$(6,304)	$(14,143)	$(6,216)	$(6,242)	$(18)	$(1,331)
Non-qualifying	Interest Rate Caps/Currency Hedges	---	---	---	---	(657)	(25)