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Derivatives and Hedging Activity
 3 Months Ended
Mar. 31, 2013
Derivatives and Hedging Activity [Abstract]  
Derivative Instruments and Hedging Activities Disclosure [Text Block]
DERIVATIVES AND HEDGING ACTIVITY
Risk Management Objective of Using Derivatives
The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and through the use of derivative financial instruments. Specifically, the Company may enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and caps as part of its 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 the Company 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-rate 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 loss, net” and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the three months ended March 31, 2013 and 2012, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the three months ended March 31, 2013 and 2012, the Company recorded less than a  $1,000 loss from ineffectiveness in earnings attributable to reset date and index mismatches between the derivative and the hedged item, and the fair value of interest rate swaps that were not zero at inception of the hedging relationship.
Amounts reported in “Accumulated other comprehensive loss, net” related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. Through March 31, 2014, the Company estimates that an additional $6.2 million will be reclassified as an increase to interest expense.
As of March 31, 2013, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (dollar amounts in thousands):
Interest Rate Derivative
 
Number of Instruments
 
Notional
Interest rate swaps
 
13

 
$
509,787

Interest rate caps
 
5

 
274,291

Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements of FASB ASC 815, Derivatives and Hedging. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings and resulted in a (loss)/gain of $(2,000) and $298,000 for the three months ended March 31, 2013 and 2012, respectively.
As of March 31, 2013, the Company had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships (dollar amounts in thousands):
Product
 
Number of Instruments
 
Notional
Interest rate caps
 
2

 
$
155,197


Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012 (amounts in thousands):
 
Asset Derivatives
 
Liability Derivatives
 
 
 
Fair Value at:
 
 
 
Fair Value at:
 
Balance
Sheet Location
 
March 31,
2013
 
December 31,
2012
 
Balance
Sheet Location
 
March 31,
2013
 
December 31,
2012
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
Interest rate products
Other assets
 
$
—

 
$
2

 
Other liabilities
 
$
9,224

 
$
11,022

Total
 
 
$
—

 
$
2

 
 
 
$
9,224

 
$
11,022

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
Interest rate products
Other assets
 
$
—

 
$
—

 
Other liabilities
 
$
—

 
$
—

Total
 
 
$
—

 
$
—

 
 
 
$
—

 
$
—


Tabular Disclosure of the Effect of Derivative Instruments on the Consolidated Statements of Operations
The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of Operations for the three months ended March 31, 2013 and 2012 (dollar amounts in thousands):
 
 
Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)
 
Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
 
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
 
Location of Gain or (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)
Derivatives in Cash Flow Hedging Relationships
 
2013
 
2012
 
 
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended March 31,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate products
 
$
(92
)
 
$
(1,959
)
 
 
 
$
(1,937
)
 
$
(1,855
)
 
 
 
$
—

 
$
—

Total
 
$
(92
)
 
$
(1,959
)
 
Interest expense
 
$
(1,937
)
 
$
(1,855
)
 
Interest expense
 
$
—

 
$
—



Derivatives Not Designated as Hedging Instruments
 
Location of Gain or (Loss) Recognized in Income on Derivative
 
Amount of Gain or (Loss) Recognized in Income on Derivative
2013
 
2012
 
 
 
 
 
 
 
For the Three Months Ended March 31,
 
 
 
 
 
 
Interest rate products
 
Interest and other income, net
 
$
(2
)
 
$
298

Total
 
 
 
$
(2
)
 
$
298



Credit-risk-related Contingent Features
The Company has agreements with some of its derivative counterparties that contain a provision where (1) if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations; or (2) the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on the indebtedness.
Certain of the Company’s agreements with its derivative counterparties contain provisions where if there is a change in the Company’s financial condition that materially changes the Company’s creditworthiness in an adverse manner, the Company may be required to fully collateralize its obligations under the derivative instrument. At March 31, 2013 and December 31, 2012, no cash collateral was posted or required to be posted by the Company or by a counterparty.
The Company also has an agreement with a derivative counterparty that incorporates the loan and financial covenant provisions of the Company’s indebtedness with a lender affiliate of the derivative counterparty. Failure to comply with these covenant provisions would result in the Company being in default on any derivative instrument obligations covered by the agreement.
The Company has certain agreements with some of it's derivative counterparties that contain a provision where in the event of default by the Company or the counterparty, the right of setoff may be exercised. Any amount payable to one party by the other party may be reduced by its setoff against any amounts payable by the other party. Events that give rise to default by either party may include, but are not limited to, the failure to pay or deliver payment under the derivative contract, the failure to comply with or perform under the derivative agreement, bankruptcy, a merger without assumption of the derivative agreement, or in a merger, a surviving entity's creditworthiness is materially weaker than the original party to the derivative agreement.
As of March 31, 2013, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $9.9 million. As of March 31, 2013, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions at March 31, 2013, it would have been required to settle its obligations under the agreements at their termination value of $9.9 million.
The Company has elected not to offset derivative positions in the consolidated financial statements. The tables below present the effect on its financial position had the Company made the election to offset its derivative positions as of March 31, 2013 and December 31, 2012:
Offsetting of Derivative Assets
 
 
 
 
 
 
 
 
 
 
 
 
Gross Amounts Not Offset in the Consolidated Balance Sheets
 
 
 
 
Gross Amounts of Recognized Assets
 
Gross Amounts Offset in the Consolidated Balance Sheets
 
Net Amounts of Assets Presented in the Consolidated Balance Sheets (a)
 
Financial Instruments
 
Cash Collateral Received
 
Net Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2013
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
$
2

 
$
—

 
$
2

 
$
—

 
$
—

 
$
2

 
 
 
 
 
 
 
 
 
 
 
 
 
(a) Amounts reconcile to the aggregate fair value of derivative assets in the "Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet" located in this footnote.
Offsetting of Derivative Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Gross Amounts Not Offset in the Consolidated Balance Sheets
 
 
 
 
Gross Amounts of Recognized Liabilities
 
Gross Amounts Offset in the Consolidated Balance Sheets
 
Net Amounts of Liabilities Presented in the Consolidated Balance Sheets (b)
 
Financial Instruments
 
Cash Collateral Posted
 
Net Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2013
 
$
9,224

 
$
—

 
$
9,224

 
$
—

 
$
—

 
$
9,224

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
$
11,022

 
$
—

 
$
11,022

 
$
—

 
$
—

 
$
11,022

 
 
 
 
 
 
 
 
 
 
 
 
 
(b) Amounts reconcile to the aggregate fair value of derivative liabilities in the "Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet" located in this footnote.