Derivatives

6 Months Ended

Jun. 30, 2012

Derivatives [Abstract]

Derivatives

10. Derivatives

Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our cash flow volatility and exposure to interest rate movements. To accomplish this objective, we primarily use interest rate swaps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

Our Series F Preferred Units are subject to a coupon rate reset. The coupon rate resets every quarter at 2.375% plus the greater of i) the 30 year Treasury CMT Rate, ii) the 10 year Treasury CMT Rate or iii) 3 month LIBOR. For the second quarter of 2012, the new coupon rate was 5.705% (see Note 7). In October 2008, we entered into an interest rate swap agreement with a notional value of $50,000 to mitigate our exposure to floating interest rates related to the forecasted reset rate of the coupon rate of our Series F Preferred Units (the “Series F Agreement”). This Series F Agreement fixes the 30 year Treasury CMT rate at 5.2175%. Accounting guidance for derivatives does not permit hedge accounting treatment related to equity instruments and therefore the mark to market gains or losses related to this agreement are recorded in the statement of operations. For the three and six months ended June 30, 2012, losses of $429 and $305, respectively, are recognized as Mark-to-Market Loss on Interest Rate Protection Agreements. For the three and six months ended June 30, 2011, losses of $232 and $188, respectively, are recognized as Mark-to-Market Loss on Interest Rate Protection Agreements. Quarterly payments are treated as a component of the mark to market gains or losses and for the three and six months ended June 30, 2012, totaled $247 and $539, respectively, and for the three and six months ended June 30, 2011, totaled $89 and $188, respectively.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Other Comprehensive Income (“OCI”) and is subsequently reclassified to earnings through interest expense over the life of the derivative or over the life of the debt. In the next 12 months, we will amortize approximately $2,369 into net income by increasing interest expense for interest rate protection agreements we settled in previous periods.

The following is a summary of the terms of our derivatives and their fair values, which are included in Accounts Payable, Accrued Expenses and Other Liabilities, Net on the accompanying consolidated balance sheets:

Hedge Product	Notional Amount		Strike			Trade Date		Maturity Date		Fair Value As of June 30, 2012			Fair Value As of December 31, 2011
Derivatives not designated as hedging instruments:
Series F Agreement*	$	50,000		5.2175	%		October 2008		October 1, 2013	$	(1,433	)	$	(1,667	)

* Fair value excludes quarterly settlement payment due on Series F Agreement. As of June 30, 2012 and December 31, 2011, the outstanding payable was $247 and $280, respectively.

The following is a summary of the impact of the derivatives in cash flow hedging relationships on the statement of operations and the statement of OCI for the three and six months ended June 30, 2012 and 2011:

		Three Months Ended						Six Months Ended
Interest Rate Products	Location on Statement	June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011
Amortization Reclassified from OCI into Income	Interest Expense	$	(571	)	$	(546	)	$	(1,111	)	$	(1,102	)

Our agreements with our derivative counterparties contain provisions where if we default on any of our indebtedness, then we could also be declared in default on our derivative obligations subject to certain thresholds.

The guidance for fair value measurement of financial instruments includes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The following table sets forth our financial liabilities that are accounted for at fair value on a recurring basis as of June 30, 2012 and December 31, 2011:

	Fair Value			Fair Value Measurements at Reporting Date Using:
Description				Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Liabilities:
Series F Agreement at June 30, 2012	$	(1,433	)		—		—	$	(1,433	)
Series F Agreement at December 31, 2011	$	(1,667	)		—		—	$	(1,667	)

The following table presents the quantitative information about the Level 3 fair value measurements at June 30, 2012.

Quantitative Information about Level 3 Fair Value Measurements:
Description	Fair Value at June 30, 2012			Valuation Technique		Unobservable Inputs	Range
Series F Agreement	$	(1,433	)		Discounted Cash Flow	Long Dated Treasuries (A)	2.72% – 2.88%
						Own Credit Risk (B)	1.55% – 2.78%

(A) Represents the forward 30 year Treasury CMT Rate.

(B) Represents credit default swap spread curve used in the valuation analysis.

The valuation of the Series F Agreement is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the instrument. This analysis reflects the contractual terms of the agreements including the period to maturity. In adjusting the fair value of the interest rate protection agreements for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements. To comply with the provisions of fair value measurement, we incorporated a credit valuation adjustment (“CVA”) to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. However, assessing significance of inputs is a matter of judgment that should consider a variety of factors. One factor we consider is the CVA and its materiality to the overall valuation of the derivatives on the balance sheet and to their related changes in fair value. We consider the Series F Agreement to be classified as Level 3 in the fair value hierarchy due to a significant number of unobservable inputs. The Series F Agreement swaps a fixed rate of 5.2175% for floating rate payments based on 30 year Treasury CMT rate. No market observable prices exist for long dated Treasuries. Therefore, we have classified the Series F Agreement in its entirety as Level 3.

The following table presents a reconciliation of our liabilities classified as Level 3 at June 30, 2012:

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Derivatives
Ending liability balance at December 31, 2011	$	(1,667	)
Mark-to-Market of the Series F Agreement		234
Ending liability balance at June 30, 2012	$	(1,433	)