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Derivatives and Hedging Activity
 6 Months Ended
Jun. 30, 2015
Derivative Instruments and Hedging Activities Disclosure [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 risks 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 income/(loss), net in the Consolidated Balance Sheets and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the three and six months ended June 30, 2015 and 2014, 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 and six months ended June 30, 2015, the Company recorded no ineffectiveness to earnings. During the three and six months ended June 30, 2014, the Company recorded a gain of approximately $3,000 related to the ineffective portion of the derivative, which was caused by a timing difference between the derivative and the hedge item.
Amounts reported in Accumulated other comprehensive income/(loss), net in the Consolidated Balance Sheets related to derivatives that will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. Through June 30, 2016, the Company estimates that an additional $2.6 million will be reclassified as an increase to interest expense.
As of June 30, 2015, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (dollars in thousands):
Interest Rate Derivative
 
Number of Instruments
 
Notional
Interest rate swaps
 
9
 
$
565,000

Interest rate caps
 
2
 
$
219,984

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 GAAP. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings and resulted in no adjustment to earnings for the three and six months ended June 30, 2015 and 2014.
As of June 30, 2015, the Company had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships (dollars in thousands):
Product
 
Number of Instruments
 
Notional
Interest rate caps
 
2
 
$
116,289


Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet
The tables below present the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014 (dollars in thousands):
 
Asset Derivatives
(included in Other assets)
 
Liability Derivatives
(included in Other liabilities)
 
Fair Value at:
 
Fair Value at:
 
June 30,
2015
 
December 31,
2014
 
June 30,
2015
 
December 31,
2014
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Interest rate products
$
9

 
86

 
$
9,109

 
$
10,368

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
Interest rate products
$
3

 
$
2

 
$
—

 
$
—


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 and six months ended June 30, 2015 and 2014 (dollars in thousands):
Derivatives in Cash Flow Hedging Relationships
 
Unrealized holding gain/(loss) Recognized in OCI
(Effective Portion)
 
Gain/(Loss) Reclassified from Accumulated OCI into Interest expense 
(Effective Portion)
 
Gain/(Loss) Recognized in Interest expense (Ineffective Portion and Amount Excluded from Effectiveness Testing)
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Three Months Ended June 30,
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate products
 
$
6,186

 
$
304

 
$
(292
)
 
$
(1,145
)
 
$
—

 
$
3

 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate products
 
$
(1,366
)
 
$
249

 
$
(1,029
)
 
$
(2,677
)
 
$
—

 
$
3



 
 
Gain/(Loss) Recognized in Interest income and other income/(expense), net
Derivatives Not Designated as Hedging Instruments
2015
 
2014
Three Months Ended June 30,
 
 
 
 
Interest rate products
 
$
(22
)
 
$
—

 
 
 
 
 
Six Months Ended June 30,
 
 
 
 
Interest rate products
 
$
(24
)
 
$
—


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.
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.
As of June 30, 2015, 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 $10.7 million. As of June 30, 2015, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions at June 30, 2015, it may have been required to settle its obligations under the agreements at their termination value of $10.7 million.
Tabular Disclosure of Offsetting Derivatives
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 June 30, 2015 and December 31, 2014 (dollars in thousands):
Offsetting of Derivative Assets
 
 
 
 
 
 
 
 
 
Gross Amounts of Recognized Assets
 
Gross Amounts Offset in the Consolidated Balance Sheets
 
Net Amounts of Assets Presented in the Consolidated Balance Sheets (a)
 
Gross Amounts Not Offset in the Consolidated Balance Sheets
 
 
 
 
 
 
Financial Instruments
 
Cash Collateral Received
 
Net Amount
June 30, 2015
$
12

 
$
—

 
$
12

 
$
—

 
$
—

 
$
12

 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
$
88

 
$
—

 
$
88

 
$
(27
)
 
$
—

 
$
61

(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 of Recognized Liabilities
 
Gross Amounts Offset in the Consolidated Balance Sheets
 
Net Amounts of Liabilities Presented in the Consolidated Balance Sheets (b)
 
Gross Amounts Not Offset in the Consolidated Balance Sheets
 
 
 
 
 
 
Financial Instruments
 
Cash Collateral Posted
 
Net Amount
June 30, 2015
$
9,109

 
$
—

 
$
9,109

 
$
—

 
$
—

 
$
9,109

 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
$
10,368

 
$
—

 
$
10,368

 
$
(27
)
 
$
—

 
$
10,341

(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.