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Derivative Financial Instruments
 3 Months Ended
Mar. 31, 2012
Derivative Financial Instruments  
Derivative Financial Instruments

Note 13 - Derivative Financial Instruments

 

As of March 31, 2012, 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

 

$

9,216

 

6.50

%

December 2014

 

Interest Rate Swap

 

4,389

 

5.75

 

November 2020

 

Interest Rate Swap

 

3,951

 

4.75

 

August 2016

 

Interest Rate Swap

 

5,850

 

4.63

 

February 2019

 

Interest Rate Swap

 

2,192

 

4.50

 

April 2016

 

Interest Rate Swap (a)

 

—

 

4.50

 

March 2017

 

 

(a) The Company closed on a $3,950 mortgage on March 29, 2012 and the interest rate swap with a notional amount of $3,950 was effective April 1, 2012.

 

The following table presents the fair value of the Company’s derivatives designated as hedging instruments as of March 31, 2012 and December 31, 2011 (dollars in thousands):

 

Liability Derivatives as of

 

March 31, 2012

 

December 31, 2011

 

Balance Sheet
Location

 

Fair Value

 

Balance Sheet
Location

 

Fair Value

 

Other Liabilities

 

$

934

 

Other Liabilities

 

$

923

 

 

The following table presents the effect of the Company’s derivative financial instruments that were designated as cash flow hedges on the consolidated statement of income for the periods presented (dollars in thousands):

 

 

 

March 31,

 

 

 

2012

 

2011

 

Amount of (loss) gain recognized on derivative in Other Comprehensive Income

 

$

(117

)

$

52

 

 

 

 

 

 

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

 

$

(106

)

$

(80

)

 

No gain or loss was recognized with respect to hedge ineffectiveness or to amounts excluded from effectiveness testing on the Company’s cash flow hedges for the quarters ended March 31, 2012 or 2011.  During the twelve months ending March 31, 2013, the Company estimates an additional $505,000 will be reclassified from other comprehensive income as an increase to interest expense.

 

The derivative agreements in effect at March 31, 2012 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 the subsidiary defaults on the loan subject to the derivative agreement to which the Company is a party, then the Company could be held liable for such swap breakage losses, if any.

 

As of March 31, 2012, the fair value of the derivatives including accrued interest but excluding any adjustments for nonperformance risk was approximately $1,016,000.  If the Company breaches any of the contractual provisions of the derivative contracts, it would be required to settle its obligations under the derivative agreements at their termination liability value of $1,016,000.

 

Two of the Company’s unconsolidated joint ventures, in which a wholly owned subsidiary of the Company is a 50% partner, had a $3,934,000 interest rate derivative outstanding at March 31, 2012. The interest rate derivative had an interest rate of 5.81% and matures in April 2018. The Company’s 50% share of the interest rate derivative is $1,967,000 and its 50% share of the value is $(172,000) as of March 31, 2012 and $(182,000) as of December 31, 2011 and is included in “Investment in Unconsolidated Joint Ventures” on the Company’s balance sheet. The Company’s 50% share of loss recognized in other comprehensive income was $3,000 and $23,000 for the three months ended March 31, 2012 and 2011, respectively, and the amount of loss reclassified from accumulated other comprehensive income into equity in net earnings of unconsolidated joint ventures was $14,000 and zero for the three months ended March 31, 2012 and 2011, respectively.