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Derivatives | 3 Months Ended
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Mar. 31, 2012
Derivatives [Abstract] |
Derivatives | 9. 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 Treasury CMT Rate, ii) the 10 year Treasury CMT Rate or iii) 3 month LIBOR. For the first quarter of 2012, the new coupon rate was 5.415% (see Note 6). 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”). This Series F Agreement fixes the 30 year Treasury CMT 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 months ended March 31, 2012 and 2011, gains of $124 and $44, respectively, are recognized as Mark-to-Market Gain on Interest Rate Protection Agreements. Quarterly payments are treated as a component of the mark to market gains or losses and for the three months ended March 31, 2012 and 2011, totaled $292 and $99, 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 $2,308 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:
Hedge Product |  | Notional Amount |  |  | Strike |  |  | Trade Date |  |  | Maturity Date |  |  | Fair Value As of March 31, 2012 |  |  | Fair Value As of December 31, 2011 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Series F Agreement* |  | $ | 50,000 |  |  |  | 5.2175 | % |  |  | October 2008 |  |  |  | October 1, 2013 |  |  | $ | (1,251 | ) |  | $ | (1,667 | )
* | Fair value excludes quarterly settlement payment due on Series F Agreement. As of March 31, 2012 and December 31, 2011, the outstanding payable was $292 and $280, 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 months ended March 31, 2012 and 2011:
Interest Rate Products |  | Location on Statement |  | Three Months Ended |
|  | March 31, 2012 |  |  | March 31, 2011 |
Amortization Reclassified from OCI into Income |  | Interest Expense |  | $ | (540 | ) |  | $ | (556 | )
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 March 31, 2012 and December 31, 2011:
Description |  | Fair Value |  |  | Fair Value Measurements at Reporting Date Using: |
|  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Unobservable Inputs (Level 3) |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Series F Agreement at March 31, 2012 |  | $ | (1,251 | ) |  |  | — |  |  |  | — |  |  | $ | (1,251 | )
Series F Agreement at December 31, 2011 |  | $ | (1,667 | ) |  |  | — |  |  |  | — |  |  | $ | (1,667 | )
The following table presents the quantitative information about the Level 3 fair value measurements at March 31, 2012.
Quantitative Information about Level 3 Fair Value Measurements:
Description |  | Fair Value at March 31, 2012 |  |  | Valuation Technique |  | Unobservable Inputs |  | Range
Series F Agreement |  | $ | (1,251 | ) |  | Discounted Cash Flow |  | Long Dated Treasuries (A) |  | 3.32%-3.58%
|  |  |  |  |  |  |  | Own Credit Risk (B) |  | 1.51%-2.85%
(A) | Represents the forward 30 year Treasury CMT Rate.
(B) | Represents credit default swap spread curve used in the valuation analysis.
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 of 5.2175% for floating rate payments based on 30 year Treasury CMT rate. No market observable prices exist for long dated Treasuries. Therefore, we have classified the Series F Agreement in its entirety as Level 3. The following table presents a reconciliation of our liabilities classified as Level 3 at March 31, 2012:
|  | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Derivatives |
Ending liability balance at December 31, 2011 |  | $ | (1,667 | )
Total unrealized gains: |  |  |  |
Mark-to-Market of the Series F Agreement |  |  | 416 |
Ending liability balance at March 31, 2012 |  | $ | (1,251 | )

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- Definition The entire disclosure for the entity's entire derivative instruments and hedging activities. Describes an entity's risk management strategies, derivatives in hedging activities and non-hedging derivative instruments, the assets, obligations, liabilities, revenues and expenses arising therefrom, and the amounts of and methodologies and assumptions used in determining the amounts of such items. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. 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