Annual report pursuant to Section 13 and 15(d)

Interest Rate Derivatives

v2.4.0.6
Interest Rate Derivatives
 12 Months Ended
Dec. 31, 2012
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Interest Rate Derivatives
Interest Rate Derivatives
 
The following table sets forth the key terms and fair values of our interest rate swap derivatives (dollars in thousands):
 
 
 
 
 
 
 
 
 
 
Fair Value at
Notional
 
 
 
 
 
Effective
 
Expiration
 
December 31,
Amount
 
Fixed Rate
 
Floating Rate Index
 
Date
 
Date
 
2012
 
2011
$
100,000

 
0.6123
%
 
One-Month LIBOR
 
1/3/2012
 
9/1/2014
 
$
(594
)
 
$
55

100,000

 
0.6100
%
 
One-Month LIBOR
 
1/3/2012
 
9/1/2014
 
(591
)
 
56

100,000

 
0.8320
%
 
One-Month LIBOR
 
1/3/2012
 
9/1/2015
 
(1,313
)
 
(66
)
100,000

 
0.8320
%
 
One-Month LIBOR
 
1/3/2012
 
9/1/2015
 
(1,313
)
 
(49
)
38,475

(1)
3.8300
%
 
One-Month LIBOR + 2.25%
 
11/2/2010
 
11/2/2015
 
(1,268
)
 
(1,054
)
100,000

 
0.8055
%
 
One-Month LIBOR
 
9/2/2014
 
9/1/2016
 
(263
)
 
—

100,000

 
0.8100
%
 
One-Month LIBOR
 
9/2/2014
 
9/1/2016
 
(272
)
 
—

100,000

 
1.6730
%
 
One-Month LIBOR
 
9/1/2015
 
8/1/2019
 
(154
)
 
—

100,000

 
1.7300
%
 
One-Month LIBOR
 
9/1/2015
 
8/1/2019
 
(417
)
 
—

50,000

 
0.5025
%
 
One-Month LIBOR
 
1/3/2011
 
1/3/2012
 
—

 
(1
)
50,000

 
0.5025
%
 
One-Month LIBOR
 
1/3/2011
 
1/3/2012
 
—

 
(1
)
120,000

 
1.7600
%
 
One-Month LIBOR
 
1/2/2009
 
5/1/2012
 
—

 
(552
)
100,000

 
1.9750
%
 
One-Month LIBOR
 
1/1/2010
 
5/1/2012
 
—

 
(532
)
100,000

(2)
3.8415
%
 
Three-Month LIBOR
 
9/30/2011
 
9/30/2021
 
—

 
(16,333
)
75,000

(2)
3.8450
%
 
Three-Month LIBOR
 
9/30/2011
 
9/30/2021
 
—

 
(12,275
)
100,000

(2)
2.0525
%
 
Three-Month LIBOR-Reverse
 
12/30/2011
 
9/30/2021
 
—

 
345

75,000

(2)
2.0525
%
 
Three-Month LIBOR-Reverse
 
12/30/2011
 
9/30/2021
 
—

 
260

 

 
 

 
 
 
 
 
 
 
$
(6,185
)
 
$
(30,147
)

(1)
The notional amount of this instrument is scheduled to amortize to $36.2 million.
(2)
As described below, we settled these instruments on January 5, 2012, along with interest accrued thereon, for an aggregate of $29.7 million.  Our policy is to present payments to terminate interest rate swaps entered into in order to hedge forecasted interest payments as operating activities on our consolidated statement of cash flows.  Accordingly, the payments to settle these instruments were included in net cash provided by operating activities on our consolidated statement of cash flows.

Each of the one-month LIBOR interest rate swaps set forth in the table above was designated as a cash flow hedge of interest rate risk.

On April 5, 2011, we entered into the two forward starting three-month LIBOR swaps set forth above with an effective date of September 30, 2011 for an aggregate notional amount of $175 million. We designated these swaps as cash flow hedges of interest payments on ten-year, fixed-rate borrowings forecasted to occur between August 2011 and April 2012.  After meeting with our Board of Trustees on December 21, 2011, we determined that we would pursue other financing options and concluded that the originally forecasted borrowings were expected not to occur.  Accordingly, the swaps no longer qualified for hedge accounting. On December 22, 2011, we entered into the two reverse three-month LIBOR swaps set forth above with an effective date of December 30, 2011 for an aggregate notional amount of $175 million in order to remove the majority of the variability in the termination value of the forward starting swaps entered into on April 5, 2011. We recognized aggregate net losses of $29.8 million on these interest rate swaps in December 2011. On January 5, 2012, we settled all of the forward starting swaps entered into on April 5, 2011 and December 22, 2011 and interest accrued thereon for an aggregate of $29.7 million.

The table below sets forth the fair value of our interest rate derivatives as well as their classification on our consolidated balance sheet (in thousands):
 
 
December 31, 2012
 
December 31, 2011
Derivatives
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Interest rate swaps designated as cash flow hedges
 
Prepaid expenses and other assets
 
$
—

 
Prepaid expenses and other assets
 
$
111

Interest rate swaps not designated as hedges
 
N/A
 
—

 
Prepaid expenses and other assets
 
605

Interest rate swaps designated as cash flow hedges
 
Interest rate derivatives
 
(6,185
)
 
Interest rate derivatives
 
(2,255
)
Interest rate swaps not designated as hedges
 
N/A
 
—

 
Interest rate derivatives
 
(28,608
)

 
The table below presents the effect of our interest rate derivatives on our consolidated statements of operations and comprehensive income (in thousands):
 
For the Years Ended December 31,
 
2012
 
2011
 
2010
Amount of loss recognized in accumulated other comprehensive loss (“AOCL”) (effective portion)
$
(7,676
)
 
$
(31,531
)
 
$
(5,473
)
Amount of loss reclassified from AOCL into interest expense (effective portion)
(3,697
)
 
(4,601
)
 
(3,689
)
Amount of loss reclassified from AOCL to loss on interest rate derivatives upon discontinuing hedge accounting
—

 
28,430

 
—

Amount of loss on interest rate derivatives recognized subsequent to such derivatives no longer being designated as hedges
—

 
1,375

 
—



Over the next 12 months, we estimate that approximately $2.6 million will be reclassified from AOCL as an increase to interest expense.

We have agreements with each of our interest rate derivative counterparties that contain provisions under which, if we default or are capable of being declared in default on any of our indebtedness, we could also be declared in default on our derivative obligations.  These agreements also incorporate the loan covenant provisions of our indebtedness with a lender affiliate of the derivative counterparties.  Failure to comply with the loan covenant provisions could result in our being declared in default on any derivative instrument obligations covered by the agreements.  As of December 31, 2012, the fair value of interest rate derivatives in a liability position related to these agreements was $6.2 million, excluding the effects of accrued interest. As of December 31, 2012, we had not posted any collateral related to these agreements.  We are not in default with any of these provisions.  If we breached any of these provisions, we could be required to settle our obligations under the agreements at their termination value of $6.4 million.