Derivative Instruments and Hedging Activities

6 Months Ended

Jun. 30, 2011

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

11. Derivative Instruments and Hedging Activities

          We use, and expect to continue to use, significant variable rate debt to finance our construction of student housing properties. These debt obligations expose us to variability in cash flows due to fluctuations in interest rates. Management enters into derivative contracts to limit variability for a portion of our interest payments and to manage exposure to interest rate risk. We use derivative financial instruments, specifically interest rate caps and interest rate swaps, for non-trading purposes.

          As of June 30, 2011 and December 31, 2010, the fair value of derivative contracts is recorded within other assets and other liabilities in the accompanying condensed consolidated balance sheets. The effective portion of changes in fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) and is subsequently reclassified to earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of changes in fair value of derivatives designated and that qualify as cash flow hedges is recorded in earnings. If a derivative is either not designated as a hedge or if hedge accounting is discontinued, all changes in fair value of the derivative are recorded in earnings.

          The fair value of interest rate swaps is determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. We incorporate credit valuation adjustments to appropriately reflect our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of derivative contracts for the effect of nonperformance risk, we consider the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds and guarantees. We consider such nonperformance risk insignificant to the overall determination of fair value.

          The following table is a summary of the terms, estimated fair values and classification on the condensed consolidated balance sheets as of June 30, 2011 and December 31, 2010 of the interest rate derivative contracts we were a party to at June 30, 2011 and December 31, 2010 (dollar amounts in thousands):

Interest Rate									Estimated Fair
Derivative									Value at June 30,			Estimated Fair Value at
Instrument	Hedged Item	Notional Amount			Fixed Interest Rate			Maturity Date	2011			December 31, 2010
Cap (1)	30-day LIBOR	$	44,000			2.50	%	January 2011	$	N/A			—
Swap (2)	30-day LIBOR	$	25,488			3.44	%	May 2011		N/A			(337	)
Cap (1)	30-day LIBOR	$	60,500			2.50	%	July 2011		—			N/A
Cap (1)	30-day LIBOR	$	3,126	(3)		1.25	%	April 2013		29			103
Swap (1)	30-day LIBOR	$	3,126	(3)		1.39	%	April 2013		(261	)		(115	)
									$	(232	)		(349	)

(1)	Designated as a cash flow hedge.
(2)	Not designated as a hedging instrument.
(3)	Notional amount increases to $18,701 over the life of the derivative contract.

          The table below reflects the effect of interest rate derivative instruments on the condensed consolidated and combined statements of operations for the three and six months ended June 30, 2011 and 2010 (amounts in thousands):

	Location of Gain (Loss)	Three Months Ended					Six Months Ended
	Recognized on Statements	June 30,					June 30,
Derivatives not Designated as Hedging Instruments	of Operations	2011		2010			2011		2010
Interest rate swaps (receive float/pay fixed):
Monthly net settlements — cash settled	Change in fair value of
	interest rate
	derivatives	$	—		(1,359	)		—		(2,715	)
Mark to market adjustments — non-cash	Change in fair value of
	interest
	rate derivatives		141		1,514			337		2,893
Total effect of derivative instruments on the combined statements of operations		$	141		155			337		178

          For the three and six months ended June 30, 2011, approximately $0.2 million was recognized in other comprehensive loss related to the effective portion of the change in fair value of interest rate derivatives designated as cash flow hedges.