Derivatives

6 Months Ended

Jun. 30, 2011

Derivatives [Abstract]

Derivatives

10. Derivatives

     Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our cash flow volatility and exposure to interest rate movements. To accomplish this objective, we primarily use interest rate swaps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

     Our Series F Preferred Stock is subject to a coupon rate reset. The coupon rate resets every quarter at 2.375% plus the greater of i) the 30 year U.S. Treasury rate, ii) the 10 year U.S. Treasury rate or iii) 3-month LIBOR. For the second quarter of 2011 the new coupon rate was 6.885%. In October 2008, we entered into an interest rate swap agreement with a notional value of $50,000 to mitigate our exposure to floating interest rates related to the forecasted reset rate of the coupon rate of our Series F Preferred Stock (the “Series F Agreement”). The Series F Agreement fixes the 30-year U.S. Treasury rate at 5.2175%. Accounting guidance for derivatives does not permit hedge accounting treatment related to equity instruments and therefore the mark to market gains or losses related to this agreement are recorded in the statement of operations. For the three and six months ended June 30, 2011, $232 and $188, respectively, in unrealized loss, is recognized as Mark-to-Market Loss on Interest Rate Protection Agreements. Quarterly payments or receipts are treated as a component of the mark to market gains or losses and for the three and six months ended June 30, 2011, totaled $89 and $188, respectively. For the three and six months ended June 30, 2010, $1,324 and $1,458, respectively, in unrealized loss, is recognized as Mark-to-Market Loss on Interest Rate Protection Agreements. Quarterly payments or receipts are treated as a component of the mark to market gains or losses and for the three and six months ended June 30, 2010, totaled $59 and $135, respectively.

     The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Other Comprehensive Income (“OCI”) and is subsequently reclassified to earnings through interest expense over the life of the derivative or over the life of the debt. In the next 12 months, we will amortize approximately $2,224 into net income by increasing interest expense for interest rate protection agreements we settled in previous periods.

     The following is a summary of the terms of our derivatives and their fair values, which are included in Accounts Payable, Accrued Expenses and Other Liabilities, Net on the accompanying consolidated balance sheets:

								Fair Value As of			Fair Value As of
	Notional					Trade	Maturity	June 30,			December 31,
Hedge Product	Amount		Strike			Date	Date	2011			2010
Derivatives not designated as hedging instruments:
Series F Agreement*.	$	50,000		5.2175	%	October 2008	October 1, 2013	$	(523	)	$	(523	)

* Fair value excludes quarterly settlement payment due on Series F Agreement. As of June 30, 2011 and December 31, 2010, the outstanding payable was $89 and $194, respectively.

     The following is a summary of the impact of the derivatives in cash flow hedging relationships on the statement of operations and the statement of OCI for the three and six months ended June 30, 2011 and June 30, 2010:

		Three Months Ended						Six Months Ended
		June 30,			June 30,			June 30,			June 30,
Interest Rate Products	Location on Statement	2011			2010			2011			2010
Loss Recognized in OCI (Effective Portion)	Mark-to-Market on Interest Rate Protection Agreements (OCI)	$	—		$	(20	)	$	—		$	(587	)
Amortization Reclassified from OCI into Income	Interest Expense	$	(546	)	$	(523	)	$	(1,102	)	$	(1,028	)

     Our agreements with our derivative counterparties contain provisions where if we default on any of our indebtedness, then we could also be declared in default on our derivative obligations subject to certain thresholds.

     The guidance for fair value measurement of financial instruments includes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

     The following table sets forth our financial liabilities that are accounted for at fair value on a recurring basis as of June 30, 2011 and December 31, 2010:

				Fair Value Measurements at
				June 30, 2011 Using:
				Quoted Prices in
				Active Markets for		Significant Other		Unobservable
	June 30,			Identical Assets		Observable Inputs		Inputs
Description	2011			(Level 1)		(Level 2)		(Level 3)
Liabilities:
Series F Agreement	$	(523	)		—		—	$	(523	)

				Fair Value Measurements at
				December 31, 2010 Using:
				Quoted Prices in
				Active Markets for		Significant Other		Unobservable
	December 31,			Identical Assets		Observable Inputs		Inputs
Description	2010			(Level 1)		(Level 2)		(Level 3)
Liabilities:
Series F Agreement	$	(523	)		—		—	$	(523	)

     The valuation of the Series F Agreement is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the instrument. This analysis reflects the contractual terms of the agreements including the period to maturity. In adjusting the fair value of the interest rate protection agreements for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements. To comply with the provisions of fair value measurement, we incorporated a credit valuation adjustment (“CVA”) to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. However, assessing significance of inputs is a matter of judgment that should consider a variety of factors. One factor we consider is the CVA and its materiality to the overall valuation of the derivatives on the balance sheet and to their related changes in fair value. We consider the Series F Agreement to be classified as Level 3 in the fair value hierarchy due to a significant number of unobservable inputs. The Series F Agreement swaps a fixed rate 5.2175% for floating rate payments based on 30-year Treasury. No market observable prices exist for long-dated Treasuries past 30 years. Therefore, we have classified the Series F Agreement in its entirety as a Level 3.

     The following table presents a reconciliation of our liabilities classified as Level 3 at June 30, 2011:

	Fair Value Measurements
	Using Significant
	Unobservable Inputs
	(Level 3)
	Derivatives
Beginning liability balance at December 31, 2010	$	(523	)
Total unrealized gains:
Mark-to-Market of the Series F Agreement		—
Ending liability balance at June 30, 2011	$	(523	)