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Derivatives and Hedging Activities | 12 Months Ended
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Dec. 31, 2016
Notes To Financial Statements [Abstract] |
DERIVATIVES AND HEDGING ACTIVITIES | DERIVATIVES AND HEDGING ACTIVITIES Risk Management Objective of Using Derivatives We are exposed to certain risks arising from both business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of our debt funding and the use of derivative financial instruments. Specifically, we enter into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future contractual and forecasted cash amounts, principally related to the our borrowings, the value of which are determined by changing interest rates, related cash flows and other factors. Cash Flow Hedges of Interest Rate Risk 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 use interest rate swaps and interest rate caps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the years ended December 31, 2016, 2015 and 2014, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt and forecasted issuances of fixed-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the years ended December 31, 2016, 2015 and 2014, we recorded ineffectiveness of $54,000 (increase to interest expense), $100,000 (increase to interest expense) and $157,000 (increase to interest expense), respectively, mainly attributable to a mismatch in the underlying indices of the derivatives and the hedged interest payments made on our variable-rate debt and due to the designation of acquired interest rate swaps with a non-zero fair value at inception. Amounts reported in "Accumulated other comprehensive income/loss" related to derivatives designated as qualifying cash flow hedges will be reclassified to Interest expense as interest payments are made on our variable-rate or fixed-rate debt. During the next twelve months, we estimate that an additional $1.2 million will be reclassified to earnings as an increase to Interest expense, which primarily represents the difference between our fixed interest rate swap payments and the projected variable interest rate swap payments. As of December 31, 2016, we had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:
Interest Rate Derivative | Number of Instruments | Notional
Interest Rate Caps | 2 | $50,000,000
Interest Rate Swaps | 15 | $850,000,000
The fair value of our interest rate derivatives designated as hedging instruments at December 31, 2016 included $2,364,000 of asset derivatives reported in Other assets and $7,562,000 of liability derivatives reported in the Fair market value of interest rate swaps in the Consolidated Balance Sheet. The fair value of our interest rate derivatives designated as hedging instruments at December 31, 2015 included $6,000 of asset derivatives reported in Other Assets and $10,358,000 of liability derivatives reported in Fair market value of interest rate swaps in the Consolidated Balance Sheet. Bifurcated Embedded Derivatives Additionally, as a result of the Merger (see Note 2), on December 1, 2016, we issued 867,846 shares of 8.50% Series I Cumulative Redeemable Preferred shares as consideration. These shares are redeemable, at the Company's option, on October 1, 2026, and the redemption price per share, $50, is the price at which the preferred stock is redeemable (see Note 10). This redemption feature embedded in the preferred stock was evaluated in accordance with ASC 815, Derivatives and Hedging, and the Company determined that it was required to bifurcate the value associated with this feature from its host instrument, the perpetual preferred shares, and account for it as a freestanding derivative on the balance sheet at fair value as a result of the call option. Thus, the redemption feature embedded in the 8.50% Series I Cumulative Redeemable Preferred shares is reported as a derivative asset in Other assets on the accompanying consolidated balance sheet and will be adjusted to its fair value at each reporting date, with a corresponding adjustment to Other non-property expense. The embedded derivative for these preferred shares was initially recorded at a fair value of $10.8 million at the date of the Merger and represents the fair value at December 31, 2016. Tabular Disclosure of the Effect of Derivative Instruments on the Statement of Operations The tables below present the effect of our derivative financial instruments on the Consolidated Statement of Operations for the years ended December 31, 2016, 2015 and 2014, respectively (dollars in thousands):
Derivatives in Cash Flow Hedging Relationships |  | Amount of Loss Recognized in OCI on Derivative (Effective Portion) |  | Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion) |  | Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion) |  | Location of Loss Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) |  | Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Years ended December 31, |  | 2016 |  | 2015 |  | 2014 |  |  |  | 2016 |  | 2015 |  | 2014 |  |  |  | 2016 |  | 2015 |  | 2014
Interest rate contracts |  | $ | (1,500 | ) |  | $ | (8,306 | ) |  | $ | (12,335 | ) |  | Interest expense |  | $ | (4,364 | ) |  | $ | (7,064 | ) |  | $ | (11,785 | ) |  | Interest expense |  | $ | (54 | ) |  | $ | (100 | ) |  | $ | (157 | )
Total derivatives in cash flow hedging relationships |  | $ | (1,500 | ) |  | $ | (8,306 | ) |  | $ | (12,335 | ) |  |  |  | $ | (4,364 | ) |  | $ | (7,064 | ) |  | $ | (11,785 | ) |  |  |  | $ | (54 | ) |  | $ | (100 | ) |  | $ | (157 | )
Derivatives Not Designated as Hedging Instruments |  | Location of Loss Recognized in Income on Derivative |  | Amount of Loss Recognized in Income on Derivative
For the year ended December 31, |  |  |  | 2016 |  | 2015 |  | 2014
Interest rate products |  | Interest expense |  | $ | — |  |  | $ | (3 | ) |  | $ | (146 | )
Total |  |  |  | $ | — |  |  | $ | (3 | ) |  | $ | (146 | )
Credit-risk-related Contingent Features As of December 31, 2016, derivatives that were in a net liability position and subject to credit-risk-related contingent features had a termination value of $7.5 million, which includes accrued interest but excludes any adjustment for nonperformance risk. These derivatives had a fair value, gross of asset positions, of $7.6 million at December 31, 2016. Certain of our derivative contracts contain a provision where we could be declared in default on our derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to our default on the indebtedness. As of December 31, 2016, we had not breached the provisions of these agreements. If we had breached these provisions, we could have been required to settle our obligations under the agreements at the termination value of $7.5 million. Although our derivative contracts are subject to master netting arrangements, which serve as credit mitigants to both us and our counterparties under certain situations, we do not net our derivative fair values or any existing rights or obligations to cash collateral on the Consolidated Balance Sheet. We did not have any asset or liability derivative balances that were offsetting that would have resulted in reported net derivative balances differing from the recorded gross amount of derivative assets of $2,364,000 and $6,000 as of December 31, 2016 and 2015, respectively, in addition to gross recorded derivative liabilities of $7,562,000 and $10,358,000 as of December 31, 2016 and 2015, respectively. Other Comprehensive Income MAA's other comprehensive income consists entirely of gains and losses attributable to the effective portion of our cash flow hedges. The chart below shows the change in the balance for the years ended December 31, 2016, 2015, and 2014:
Changes in Accumulated Other Comprehensive Income (Loss) by Component |  | Affected Line Item in the Consolidated Statements Of Operations |  | Gains and Losses on Cash Flow Hedges
For the year ended December 31, |  |  | 2016 |  | 2015 |  | 2014
Beginning balance |  |  |  | $ | (1,589 | ) |  | $ | (412 | ) |  | $ | 108 |
Other comprehensive loss before reclassifications |  |  |  | (1,500 | ) |  | (8,306 | ) |  | (12,335 | )
Amounts reclassified from accumulated other comprehensive income (interest rate contracts) |  | Interest expense |  | 4,364 |  |  | 7,064 |  |  | 11,785 |
Net current-period other comprehensive (income) loss attributable to noncontrolling interest |  |  |  | (131 | ) |  | 65 |  |  | 30 |
Net current-period other comprehensive income (loss) attributable to MAA |  |  |  | 2,733 |  |  | (1,177 | ) |  | (520 | )
Ending balance |  |  |  | $ | 1,144 |  |  | $ | (1,589 | ) |  | $ | (412 | )
See also discussions in Note 8 (Fair Value Disclosure of Financial Instruments) below.

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