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Interest Rate Contracts
 3 Months Ended
Mar. 31, 2013
Interest Rate Contracts [Abstract]  
Interest Rate Contracts
Interest Rate Contracts

Cash Flow Hedges of Interest Rate Risk
We manage our interest rate risk associated with floating-rate borrowings by obtaining interest rate swap and interest rate cap contracts. Our objective in using derivatives is to add stability to interest expense and to manage our exposure to interest rate movements or other identified risks. To accomplish this objective, we primarily use interest rate swaps as part of our cash flow hedging strategy to convert our floating-rate debt to a fixed-rate basis, thus reducing the impact of interest rate changes on future interest expense and cash flows. These agreements involve the receipt of floating-rate amounts in exchange for fixed-rate interest payments over the life of the agreements without an exchange of the underlying principal amount. In limited instances, we use interest rate caps to limit our exposure to interest rate increases on an underlying floating-rate debt instrument. We may enter into derivative contracts that are intended to hedge certain economic risks, even though hedge accounting does not apply, or for which we elect to not apply hedge accounting. We do not use any other derivative instruments.

As of March 31, 2013, the totals of our existing swaps that qualified as highly effective cash flow hedges were as follows:

Interest Rate Derivative
 
Number of Instruments
 
Notional (in thousands)
Interest Rate Swaps
 
7
 
$1,828,080
Interest Rate Caps
 
2
 
$111,920


Non-designated Hedges
Derivatives not designated as hedges are not speculative. As of March 31, 2013, we had the following outstanding interest rate derivatives that were not designated for accounting purposes as hedging instruments, but were used to hedge our economic exposure to interest rate risk:
Interest Rate Derivative
 
Number of Instruments
 
Notional (in thousands)
Purchased Caps
 
4
 
$100,000
Credit-risk-related Contingent Features
We have agreements with each of our derivative counterparties that contain a provision under which we could also be declared in default on our derivative obligations if we default on any of our indebtedness, including any default where repayment of the indebtedness has not been accelerated by the lender. There have been no events of default on any of our derivatives.

As of March 31, 2013 and December 31, 2012, the fair value of derivatives in a net liability position, when aggregated by counterparty, was $98.9 million and $107.4 million, respectively, which includes accrued interest but excludes any adjustment for nonperformance risk related to these agreements.

Accounting for Interest Rate Contracts
Hedge accounting generally provides for the timing of gain or loss recognition on the hedging instrument to match the earnings effect of the hedged forecasted transactions in a cash flow hedge. All other changes in fair value, with the exception of hedge ineffectiveness, are recorded in accumulated other comprehensive income (loss) (AOCI), which is a component of equity outside of earnings. Amounts reported in AOCI related to derivatives designated as accounting hedges will be reclassified to interest expense as interest payments are made on our hedged variable-rate debt. The ineffective portion of changes in the fair value of the derivative is recognized directly in earnings as interest expense. We assess the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction. For derivatives not designated as hedges, changes in fair value are recognized directly in earnings as interest expense.

For derivatives designated as cash flow hedges, we estimate an additional $35.0 million will be reclassified within the next 12 months from AOCI to interest expense as an increase to interest expense.

The following table represents the effect of derivative instruments on our consolidated statements of operations (in thousands) for the three months ended March 31:
 
2013
 
2012
Derivatives Designated as Cash Flow Hedges:
 
 
 
Amount of gain (loss) recognized in other comprehensive income (OCI) on derivatives (effective portion)
$
(1,880
)
 
$
(6,405
)
Amount of gain (loss) reclassified from AOCI into earnings under "interest expense" (effective portion)
$
(8,894
)
 
$
(15,916
)
Amount of gain (loss) on derivatives recognized in earnings under "interest expense" (ineffective portion and amount excluded from effectiveness testing) (1)
$
(21
)
 
$
(616
)
Derivatives Not Designated as Cash Flow Hedges:
 

 
 

Amount of realized and unrealized gain (loss) on derivatives recognized in earnings under "interest expense"
$
(3
)
 
$
(1
)

(1)
The three months ended March 31, 2012 includes a non-cash expense of $552 thousand related to the amortization of accumulated other comprehensive income balances on previously terminated swaps.



Fair Value Measurement
We record all derivatives on the balance sheet at fair value using the framework for measuring fair value established by the FASB.  The fair value of these hedges is obtained through independent third-party valuation sources that use conventional valuation algorithms. All of our derivative contracts are subject to enforceable master netting arrangements, and we have elected to present the fair value of our derivatives on a gross basis. See Note 9.  The following table represents the fair values of derivative instruments (in thousands) as of:
 
 
March 31, 2013
 
December 31, 2012
Derivative assets disclosed within "Other Assets":
 
 
 
Derivatives designated as accounting hedges
$
—

 
$
—

Derivatives not designated as accounting hedges
1

 
4

Total derivative assets
$
1

 
$
4

 
 
 
 
Derivative liabilities disclosed as "Interest Rate Contracts":
 

 
 

Derivatives designated as accounting hedges
$
93,280

 
$
100,294

Derivatives not designated as accounting hedges
—

 
—

Total derivative liabilities
$
93,280

 
$
100,294