Derivative Instruments and Hedging Activities

9 Months Ended

Sep. 30, 2012

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

9.Derivative Instruments and Hedging Activities

We may be exposed to the risk associated with variability of interest rates that might impact our cash flows and the results of operations.  Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements.  To accomplish this objective, we have used interest rate caps and swaps as part of our interest rate risk management strategy.  Our interest rate caps and swaps involve the receipt of variable rate amounts from counterparties in exchange for us making capped rate or fixed rate payments over the life of the agreements without exchange of the underlying notional amount.  Our hedging strategy of entering into interest rate caps and swaps, therefore, is to eliminate or reduce to the extent possible the volatility of cash flows.

As of September 30, 2012, we have interest rate cap and swap agreements.  The following table summarizes the notional values of these derivative financial instruments (in thousands) as of September 30, 2012.  The notional values provide an indication of the extent of our involvement in these instruments at September 30, 2012, but do not represent exposure to credit, interest rate, or market risks:

Type/Description	Notional Value		Index	Strike Rate	Maturity
Interest rate cap - cash flow hedge	$	90,000	one-month LIBOR	1.75% - 2.00%	August 15, 2013
Interest rate cap - cash flow hedge	$	70,000	one-month LIBOR	1.75% - 2.00%	August 15, 2013
Interest rate swap - cash flow hedge	$	150,000	one-month LIBOR	0.79%	October 25, 2014

The table below presents the fair value of our derivative financial instruments, included in “prepaid expenses and other assets” and “other liabilities” on our condensed consolidated balance sheets, as of September 30, 2012 and December 31, 2011 (in thousands):

	Derivative Assets				Derivative Liabilities
Derivatives designated as hedging instruments:	September 30, 2012		December 31, 2011		September 30, 2012			December 31, 2011
Interest rate caps	$	—	$	31	$	—		$	—
Interest rate swaps	—		—		(1,604		)	(621		)
Total derivatives	$	—	$	31	$	(1,604	)	$	(621	)

The tables below present the effect of the change in fair value of our derivative financial instruments in our condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2012 and 2011 (in thousands):

Derivatives in Cash Flow Hedging Relationship

	Gain (loss) recognized in OCI on derivative
	(effective portion)
	For the Three Months Ended						For the Nine Months Ended
	September 30, 2012			September 30, 2011			September 30, 2012			September 30, 2011
Interest rate caps	$	17		$	(277	)	$	(3	)	$	(277	)
Interest rate swap	(242		)	—			(983		)	—
Total	$	(225	)	$	(277	)	$	(986	)	$	(277	)
	Amount reclassified from OCI into income
	(effective portion)
	For the Three Months Ended						For the Nine Months Ended
Location	September 30, 2012			September 30, 2011			September 30, 2012			September 30, 2011
Interest expense (1)	$	228		$	—		$	645		$	—
Total	$	228		$	—		$	645		$	—

(1)Increases in fair value as a result of accrued interest associated with our swap and cap transactions are recorded in accumulated OCI and subsequently reclassified into income.  Such amounts are shown net in the condensed consolidated statements of changes in equity and offset dollar for dollar.

Approximately $1.2 million of the unrealized loss held in accumulated OCI at September 30, 2012 will be reclassified to earnings over the next twelve months.