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Derivative Financial Instruments
 6 Months Ended
Jun. 30, 2011
Derivative Financial Instruments  
Derivative Financial Instruments

Note 15 - Derivative Financial Instruments

 

As of June 30, 2011, the Company had the following outstanding interest rate derivatives, all of which were designated as cash flow hedges of interest rate risk (dollars in thousands):

 

Interest Rate Derivative

 

Notional Amount

 

Fixed Interest
Rate

 

Maturity Date

 

Interest Rate Swap

 

$

9,500

 

6.50

%

December 2014

 

Interest Rate Swap

 

$

4,500

 

5.75

%

November 2020

 

Interest Rate Swap (a)

 

$

2,000

 

5.81

%

April 2018

 

 

 

(a)          Represents the Company’s 50% share of the $4,000 interest rate swap held by two of the Company’s unconsolidated joint ventures.

 

The following table presents the fair value of the Company’s derivatives designated as hedging instruments as of June 30, 2011 and December 31, 2010 (dollars in thousands):

 

Asset Derivatives

 

Liability Derivatives

 

As of
June 30, 2011

 

As of
December 31, 2010

 

As of
June 30, 2011

 

As of
December 31, 2010

 

Balance
Sheet
Location

 

Fair
Value

 

Balance
Sheet
Location

 

Fair
Value

 

Balance
Sheet
Location

 

Fair
Value

 

Balance
Sheet
Location

 

Fair
Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Assets

 

$

65

 

Other Assets

 

$

126

 

Other Liabilities

 

$

368

 

Other Liabilities

 

$

302

 

 

The Company’s 50% share of the value of the interest rate swap held by two of the Company’s unconsolidated joint ventures is $(73,000) as of June 30, 2011 and zero as of December 31, 2010 and is included in “Investment in Unconsolidated Joint Ventures” on the Company’s balance sheet.

 

The following table presents the effect of the Company’s derivative financial instruments on the consolidated statement of income for the three and six months ended June 30, 2011 and June 30, 2010 (dollars in thousands):

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Amount of loss recognized on derivative in Other Comprehensive Income

 

$

(342

)

$

(331

)

$

(290

)

$

(516

)

Amount of loss reclassified from Accumulated Other Comprehensive Income into Interest Expense

 

$

(80

)

$

(54

)

$

(162

)

$

(109

)

 

For the interest rate swap held by two of the Company’s unconsolidated joint ventures, the Company’s 50% share of loss recognized in other comprehensive income was $63,000 and $87,000 for the three and six months ended June 30, 2011 and the amount of loss reclassified from accumulated other comprehensive income into equity in earnings of unconsolidated joint ventures was $14,000 for the three and six months ended June 30, 2011.

 

No gain or loss was recognized related to hedge ineffectiveness or to amounts excluded from effectiveness testing on the Company’s cash flow hedges during the three and six months ended June 30, 2011 or June 30, 2010.  During the twelve months ending June 30, 2012, the Company estimates an additional $308,000 will be reclassified from other comprehensive income as an increase to interest expense.

 

The derivative agreements in effect at June 30, 2011 provide that if the wholly-owned subsidiary of the Company which is a party to the agreement defaults or is capable of being declared in default on any of its indebtedness, then a default can be declared on such subsidiary’s derivative obligation. In addition, the Company is a party to one of the derivative agreements and if there is a default by the subsidiary on the loan subject to the derivative agreement to which the Company is a party and if there are swap breakage losses on account of the derivative being terminated early, then the Company could be held liable for such swap breakage losses.

 

As of June 30, 2011, the fair value of the derivative in a liability position including adjustments for nonperformance risk was approximately $368,000.  If the Company breaches any of the contractual provisions of this derivative contract, it would be required to settle its obligation under the derivative agreement at its termination value of $398,000.