Derivative Financial Instruments

6 Months Ended

Mar. 31, 2013

Derivative Financial Instruments

Derivative Financial Instruments

Note 12 — Derivative Financial Instruments

Cash Flow Hedges of Interest Rate Risk

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

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Income (Loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.  In March 2012, the Trust executed an interest rate swap used to hedge the variable cash flows associated with existing variable-rate debt.  The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings.  During the three and six months ended March 31, 2013 the Trust did not record any hedge ineffectiveness.

Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Trust’s variable-rate debt.

As of March 31, 2013, the Trust had the following outstanding interest rate derivative that was designated as a cash flow hedge of interest rate risk (dollars in thousands):

Interest Rate Derivative	Notional Amount		Rate		Maturity
Interest Rate Swap	$	1,908	5.25	%	April 1, 2022

Non-designated Hedges

Derivatives not designated as hedges are not speculative and are used to manage the Trust’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings and were equal to $1,110 and $5,700 for the three and six months ended March 31, 2013, respectively. As of March 31, 2013, the Trust had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships (dollars in thousands):

	Notional
Interest Rate Derivative	Amount		Rate		Maturity
Interest Rate Caps	$	24,700	1.0	%	October 1, 2014

The table below presents the fair value of the Trust’s derivative financial instruments as well as its classification on the consolidated balance sheets as of the dates indicated (amounts in thousands):

Derivatives as of:

March 31, 2013			September 30, 2012
Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Other Assets	$	4	Other assets	$	10
Accounts payable and accrued liabilities	$	78	Accounts payable and accrued liabilities	$	104

The following table presents the effect of the Trust’s derivative financial instrument on the consolidated statements of comprehensive (loss) income for the three and six months ended March 31, 2013 (dollars in thousands):

	Three Months Ended					Six Months Ended
	March 31					March 31
	2013			2012		2013			2012
Amount of loss recognized on derivative in Other Comprehensive Income	$	9		$	27	$	11		$	27
Amount of loss reclassified from Accumulated Other Comprehensive Income into Interest Expense	(9		)		—	(18		)		—

No gain or loss was recognized related to hedge ineffectiveness or to amounts excluded from effectiveness testing on the Trust’s cash flow hedges during the three and six months ended March 31, 2013 or March 31, 2012.  During the twelve months ending March 31, 2013, the Trust estimates an additional $35,000 will be reclassified from Accumulated Other Comprehensive Income (Loss) as an increase to interest expense.

Credit-risk-related Contingent Features

The agreement between the Trust and its derivatives counterparty provides that if the Trust defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, the Trust could be declared in default on its derivative obligation.

As of March 31, 2013 the fair value of the derivative in a net liability position, which includes accrued interest, but excludes any adjustment for nonperformance risk related to this agreement, was $79,000.  As of March 31, 2013, the Trust has not posted any collateral related to this agreement.  If the Trust had been in breach of this agreement at March 31, 2013, it could have been required to settle it obligations thereunder at its termination value of $79,000.