Financial Instruments: Derivatives and Hedging

3 Months Ended

Mar. 31, 2013

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 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.

The following table summarizes the notional and fair value of our derivative financial instruments at March 31, 2013 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 (amounts in thousands).

	Notional Value		Strike Rate		Effective Date	Expiration Date	Fair Value
Interest Rate Cap	$	775,000	3.650	%	04/2012	04/2013	$	—
Interest Rate Cap	$	271,912	6.000	%	11/2012	11/2013	$	—
Interest Rate Swap	$	30,000	2.295	%	07/2010	06/2016	$	(1,761	)
Interest Rate Swap	$	8,500	0.740	%	02/2012	02/2015	$	(70	)

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

On March 31, 2013, the derivative instruments were reported as an obligation at their fair value of approximately $1.8 million.  This is included in other liabilities on the consolidated balance sheet at March 31, 2013.  Included in accumulated other comprehensive loss at March 31, 2013 was approximately $16.4 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 $14.7 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 loss will be amortized over the 10-year term of the related financing.  This loss is included in the $16.4 million balance noted above. The balance in accumulated other comprehensive loss relating to derivatives, including our share of joint venture accumulated other comprehensive loss, was $31.1 million and $32.9 million at March 31, 2013 and December 31, 2012, 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 $2.1 million of the current balance held in accumulated other comprehensive loss will be reclassified into interest expense and $4.9 million of the portion related to our share of joint venture accumulated other comprehensive loss will be reclassified into equity in net income (loss) from unconsolidated joint ventures 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 as of March 31, 2013 and 2012, 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 (Loss) of Unconsolidated Joint Ventures (Ineffective Portion) For the Three Months Ended
Designation\Cash Flow	Derivative	March 31, 2013		March 31, 2012			March 31, 2013			March 31, 2012			March 31, 2013			March 31, 2012
Qualifying	Interest Rate Swaps/Caps	$	180	$	(88	)	$	(1,708	)	$	(3,203	)	$	—		$	—
Non-qualifying	Interest Rate Caps	—		—			—			—			$	(15	)	$	(711	)