Derivative Contracts
Derivative Summary
As of March 31, 2017, all of our interest rate swaps, which include the interest rate swaps of our consolidated JVs and our unconsolidated Funds, were designated as cash flow hedges:
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| | | | | | |
| | Number of Interest Rate Swaps | | Notional (in thousands) |
| | | | |
Consolidated derivatives(1) | | 22 | | $ | 2,985,480 |
|
Unconsolidated Funds' derivatives(2) | | 2 | | $ | 435,000 |
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(1) | The notional amount includes 100%, not our pro-rata share, of our consolidated JVs' derivatives. |
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(2) | The notional amount includes 100%, not our pro-rata share, of our unconsolidated Funds' derivatives. |
Credit-risk-related Contingent Features
We have agreements with each of our interest rate swap counterparties that contain a provision under which we could also be declared in default on our derivative obligations if we default on the underlying indebtedness that we are hedging. As of March 31, 2017, there have been no events of default with respect to our interest rate swaps or our unconsolidated Funds' interest rate swaps. We do not post collateral for our swaps in a liability position. The fair value of our interest rate swaps in a liability position were as follows (in thousands):
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| | | | | | | | |
Fair value of derivatives in a liability position(1) | | March 31, 2017 | | December 31, 2016 |
| | | | |
Consolidated derivatives(2) | | $ | 3,596 |
| | $ | 7,689 |
|
Unconsolidated Funds' derivatives(3) | | $ | — |
| | $ | — |
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(1) | Includes accrued interest and excludes adjustments for credit risk. |
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(2) | Includes 100%, not our pro-rata share, of our consolidated JVs' derivatives. |
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(3) | Our unconsolidated Funds did not have any derivatives in a liability position. |
Counterparty Credit Risk
We are also subject to credit risk from the counterparties on our interest rate swap and interest rate cap contracts. We seek to minimize our credit risk by entering into agreements with a variety of high quality counterparties with investment grade ratings. We do not receive collateral for our swaps in an asset position. The fair value of our interest rate swaps in an asset position were as follows (in thousands):
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| | | | | | | | |
Fair value of derivatives in an asset position(1) | | March 31, 2017 | | December 31, 2016 |
| | | | |
Our derivatives(2) | | $ | 40,748 |
| | $ | 35,144 |
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Our Funds' derivatives(3) | | $ | 3,904 |
| | $ | 3,724 |
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(1) | Includes accrued interest and excludes adjustments for credit risk. |
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(2) | Includes 100%, not our pro-rata share, of our consolidated JVs' derivatives. |
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(3) | Includes 100%, not our pro-rata share, of our unconsolidated Funds' derivatives. |
Impact of Hedges on AOCI and Consolidated Statements of Operations
The table below presents (in thousands) the effect of derivative instruments on our AOCI and statements of operations:
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| | | | | | | |
| Three Months Ended March 31, |
| 2017 | | 2016 |
Derivatives Designated as Cash Flow Hedges: | | | |
Gain (loss) recorded in AOCI - Consolidated derivatives(1)(5) | $ | 4,722 |
| | $ | (28,812 | ) |
Gain (loss) recorded in AOCI - unconsolidated Funds' derivatives(2)(5) | $ | 99 |
| | $ | (611 | ) |
Loss reclassified from AOCI - Consolidated derivatives(3)(5) | $ | (5,100 | ) | | $ | (8,710 | ) |
Gain (loss) reclassified from AOCI - unconsolidated Funds' derivatives(4)(5) | $ | 92 |
| | $ | (105 | ) |
Gain (loss) recorded - Consolidated derivatives(6) | $ | 13 |
| | $ | — |
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| | | |
Derivatives Not Designated as Cash Flow Hedges: | |
| | |
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Gain (loss) recorded as interest expense(7) | $ | — |
| | $ | — |
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(1) | Represents the effective portion of the change in fair value of interest rate swaps. |
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(2) | Represents our share of the effective portion of the change in fair value of our unconsolidated Funds' interest rate swaps. |
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(3) | Reclassified from AOCI as an increase to Interest expense. |
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(4) | Reclassified from AOCI as a increase (decrease) to Income, including depreciation, from unconsolidated real estate funds (our share). |
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(5) | See the reconciliation of our AOCI in Note 10. |
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(6) | Represents the ineffective portion of the change in fair value of interest rate swaps, which is recorded as a reduction (increase) to interest expense. |
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(7) | We do not have any derivatives that are not designated as cash flow hedges. |
Future Reclassifications from AOCI
At March 31, 2017, our estimate of the AOCI related to derivatives, designated as cash flow hedges, that will be reclassified to earnings during the next twelve months as swap interest payments are made, is presented in the table below (in thousands):
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| | | |
Consolidated derivatives(1) | $ | 5,279 |
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Unconsolidated Funds' derivatives(2) | $ | (158 | ) |
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(1) | Reclassified as an increase to Interest expense. |
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(2) | Reclassified as a decrease to Income, including depreciation, from unconsolidated real estate funds (our share). |