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Derivative Financial Instruments
 9 Months Ended
Sep. 30, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments
Derivative Financial Instruments
 
The Company may enter into interest rate derivative contracts to manage exposure to interest rate risks. The Company does not use derivative financial instruments for trading or speculative purposes. Derivative financial instruments are recognized at fair value and presented within other assets and liabilities in the condensed consolidated balance sheets. Gains and losses resulting from changes in the fair value of derivatives that are neither designated nor qualify as hedging instruments are recognized within the change in fair value of interest rate derivatives in the condensed consolidated statements of comprehensive income. For derivatives that qualify as cash flow hedges, the effective portion of the gain or loss is reported as a component of other comprehensive loss and reclassified into earnings in the periods during which the hedged forecasted transaction affects earnings.
 
On February 25, 2016, the Operating Partnership entered into a LIBOR interest rate cap agreement on a notional amount of $75.0 million at a strike rate of 1.50% for a premium of less than $0.1 million.  The interest rate cap agreement expires on March 1, 2018.

On June 17, 2016, the Operating Partnership entered into a LIBOR interest rate cap agreement on a notional amount of $70.0 million at a strike rate of 1.00% for a premium of less than $0.1 million. The interest rate cap agreement expires on June 17, 2018.
 
The Company’s derivatives were comprised of the following as of September 30, 2016 and December 31, 2015 (in thousands): 
 
 
September 30, 2016
 
December 31, 2015
 
 
(Unaudited)
 
 
 
 
 
 
 
 
Notional
Amount
 
Fair Value
 
Notional
Amount
 
Fair Value
 
 
 
 
Asset
 
Liability
 
 
 
Asset
 
Liability
Interest rate swaps
 
$
56,950

 
$
—

 
$
(2,007
)
 
$
57,093

 
$
—

 
$
(1,082
)
Interest rate caps
 
270,000

 
111

 
—

 
246,546

 
164

 
—

Total
 
$
326,950

 
$
111

 
$
(2,007
)
 
$
303,639

 
$
164

 
$
(1,082
)

 
The changes in the fair value of the Company’s derivatives during the three and nine months ended September 30, 2016 and 2015 were comprised of the following (in thousands): 
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
(Unaudited)
Interest rate swaps
 
$
481

 
$
(1,026
)
 
$
(2,007
)
 
$
(1,574
)
Interest rate caps
 
17

 
(51
)
 
(257
)
 
(238
)
Total
 
$
498

 
$
(1,077
)
 
$
(2,264
)
 
$
(1,812
)
Comprehensive income statement presentation:
 
 

 
 

 
 
 
 
Change in fair value of interest rate derivatives
 
$
498

 
$
(51
)
 
$
(2,264
)
 
$
(238
)
Unrealized gain (loss) on cash flow hedge
 
—

 
(1,026
)
 
—

 
(1,574
)
Total
 
$
498

 
$
(1,077
)
 
$
(2,264
)
 
$
(1,812
)


Effective March 31, 2016, the Company determined that the short-cut method of hedge accounting was not appropriate for two of its interest-rate swaps and, for accounting purposes, the hedge relationship was terminated. The swaps were entered into in February and July 2015. Accordingly, changes in fair value of the swap should have been recorded in income rather than other comprehensive income. The Company determined that the errors were immaterial to all previously issued financial statements. The Company recognized $0.7 million of accumulated other comprehensive income and $0.4 million, which was previously allocated to noncontrolling interest as of December 31, 2015, in earnings during the first quarter of 2016. Subsequent changes in the value of the interest rate swap for the period from January 1, 2016 to September 30, 2016 were also recognized in earnings during the first, second and third quarters of 2016. Net income for the three and nine months ended September 30, 2015 was overstated by $0.6 million and $1.0 million, respectively. In reaching its conclusions, management considered the nature of the error, the effect of the error on operating results for 2015, and the effects of the error on important financial statement measures, including related trends.