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Derivative Financial Instruments
 3 Months Ended
Mar. 31, 2013
Derivative Financial Instruments  
Derivative Financial Instruments

 

Note 12 - Derivative Financial Instruments

 

As of March 31, 2013, the Company had the following outstanding interest rate derivatives, all of which were interest rate swaps, pertaining to certain of its mortgages payable, all of which were designated as cash flow hedges of interest rate risk (dollars in thousands):

 

Notional Amount

 

Fixed
Interest Rate

 

Maturity Date

 

$

8,911

 

6.50

%

December 2014

 

4,300

 

5.75

 

November 2020

 

3,864

 

4.75

 

August 2016

 

5,081

 

4.68

 

January 2023

 

5,719

 

4.63

 

February 2019

 

2,143

 

4.50

 

April 2016

 

3,870

 

4.50

 

March 2017

 

 

The following table presents the fair value of the Company’s derivatives designated as hedging instruments for the periods presented (dollars in thousands):

 

Liability Derivatives as of

 

March 31, 2013

 

December 31, 2012

 

Balance Sheet
Location

 

Fair Value

 

Balance Sheet
Location

 

Fair Value

 

Other liabilities

 

$

1,292

 

Other liabilities

 

$

1,470

 

 

The Company did not have any asset derivatives as of March 31, 2013 and December 31, 2012.

 

The following table presents the effect of the Company’s derivative financial instruments on the statement of income for the periods presented (dollars in thousands):

 

 

 

Three Months Ended
March 31,

 

 

 

2013

 

2012

 

Amount of (loss) recognized on derivatives in Other comprehensive (loss)

 

$

26

 

$

(117

)

Amount of (loss) reclassification from Accumulated other comprehensive (loss) into Interest expense

 

(152

)

(106

)

 

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 three months ended March 31, 2013 and 2012.  During the twelve months ending March 31, 2014, the Company estimates an additional $593,000 will be reclassified from other comprehensive income as an increase to interest expense.

 

The derivative agreements in effect at March 31, 2013 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 such agreement and if there are swap breakage losses on account of the derivative being terminated early, the Company could be held liable for interest rate swap breakage losses, if any.

 

As of March 31, 2013, the fair value of the derivatives including accrued interest, and excluding any adjustments for nonperformance risk, was approximately $1,347,000.  In the unlikely event that the Company breaches any of the contractual provisions of the derivative contracts, it would be required to settle its obligations thereunder at their termination liability value of $1,347,000.

 

Two of the Company’s unconsolidated joint ventures, in which a wholly owned subsidiary of the Company is a 50% partner, had a $3,857,000 interest rate derivative outstanding at March 31, 2013. The interest rate derivative, which was entered into in March 2011, has an interest rate of 5.81% and matures in April 2018. The following table presents the Company’s 50% share of such derivative financial instrument (dollars in thousands):

 

 

 

Three Months Ended
March 31,

 

 

 

2013

 

2012

 

Amount of (loss) recognized on derivative in Other comprehensive (loss)

 

$

(4

)

$

(3

)

Amount of (loss) reclassification from Accumulated other comprehensive (loss) into Equity in earnings of unconsolidated joint ventures

 

(14

)

(14

)