Derivatives

6 Months Ended

Jun. 30, 2011

Derivatives

Derivatives

7. DERIVATIVES

In the normal course of business, we are exposed to financial market risks, including interest rate risk on our interest bearing liabilities. We attempt to limit these risks by following established risk management policies, procedures and strategies, including the use of financial instruments such as derivatives. We do not use financial instruments for trading or speculative purposes.

Cash Flow Hedges of Interest Rate Risk

Our outstanding derivatives have been designated under accounting requirements as cash flow hedges. We recognize all derivatives at fair value as either assets or liabilities in the accompanying consolidated balance sheets. Our derivative assets are recorded in "Deferred costs and other assets" and our derivative liabilities are recorded in "Fair value of derivative instruments." The effective portion of changes in the fair value of derivatives designated as, and that qualify as, cash flow hedges is recorded in "Accumulated other comprehensive loss" and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Amounts reported in "Accumulated other comprehensive loss" that are related to derivatives will be reclassified to "Interest expense, net" as interest payments are made on the corresponding debt. During the next twelve months, we estimate that $16.0 million will be reclassified as an increase to interest expense in connection with derivatives and related transactions. To the extent our derivative instruments are ineffective as cash flow hedges, changes in the fair value of these instruments are recorded in "Interest expense, net."

Interest Rate Swaps and Cap

As of June 30, 2011, we had entered into 10 interest rate swap agreements and one interest rate cap agreement that collectively have a weighted average interest rate of 2.65% (excluding the spread on related debt) on a notional amount of $687.5 million maturing on various dates through November 2013, and one forward starting interest rate swap agreement that has an interest rate of 2.96% (excluding the spread on related debt) on a notional amount of $200.0 million maturing in March 2013.

We entered into these interest rate swap agreements (including the forward starting swap agreement) and the cap agreement in order to hedge the interest payments associated with our LIBOR-based debt. We have assessed the effectiveness of these interest rate swap agreements and the cap agreement as hedges at inception and on a quarterly basis. On June 30, 2011, we considered these interest rate swap agreements and cap agreement to be highly effective as cash flow hedges. The interest rate swap agreements and cap agreement are net settled monthly.

Accumulated other comprehensive loss as of June 30, 2011 includes a net loss of $11.3 million relating to swaps that we cash settled and are being amortized over 10 year periods commencing on the closing dates of the debt instruments that are associated with these settled swaps.

The following table summarizes the terms and estimated fair values of our interest rate swap, cap and forward starting swap derivative instruments at June 30, 2011 and December 31, 2010. The notional amounts provide an indication of the extent of our involvement in these instruments, but do not represent the amount of exposure to credit, interest rate or market risks. The fair values of our derivative instruments are recorded in "Fair value of derivative instruments" on our balance sheet.

Notional Value	Fair Value at June 30, 2011(1)		Fair Value at December 31, 2010(1)		Interest Rate(2)			Effective Date		Maturity Date
Interest Rate Swaps
$200.0 million	$	N/A	$	(0.2) million		0.61	%				April 1, 2011
45.0 million		N/A		(0.8) million		4.02	%				June 19, 2011
54.0 million		(0.1) million		(1.1) million		3.84	%				July 25, 2011
200.0 million		(2.2) million		(2.5) million		1.78	%				April 2, 2012
25.0 million		(0.5) million		(0.5) million		1.83	%				December 31, 2012
60.0 million		(1.2) million		(1.2) million		1.74	%				March 11, 2013
40.0 million		(0.9) million		(0.8) million		1.82	%				March 11, 2013
65.0 million		(3.9) million		(4.2) million		3.60	%				September 9, 2013
68.0 million		(4.2) million		(4.5) million		3.69	%				September 9, 2013
56.3 million		(3.5) million		(3.8) million		3.73	%				September 9, 2013
55.0 million		(2.7) million		(2.6) million		2.90	%				November 29, 2013
48.0 million		(2.3) million		(2.3) million		2.90	%				November 29, 2013
Interest Rate Cap
16.3 million		0.0 million		0.0 million		2.50	%				April 2, 2012
Forward Starting Interest Rate Swap
200.0 million		(4.0) million		(2.7) million		2.96	%		April 2, 2012		March 11, 2013
	$	(25.5) million	$	(27.2) million

⁽¹⁾ As of June 30, 2011 and December 31, 2010, derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. As of June 30, 2011 and December 31, 2010, we did not have any significant fair value measurements using significant unobservable inputs (Level 3).

⁽²⁾ Interest rate does not include the spread on the designated debt.

The table below presents the effect of our derivative financial instruments on our consolidated statements of operations for the three and six months ended June 30, 2011 and 2010:

	Three months ended				Six months ended				Consolidated Statement of Operations location
	June 30, 2011		June 30, 2010		June 30, 2011		June 30, 2010
Derivatives in cash flow hedging relationships
Interest Rate Products
Loss recognized in Other comprehensive income on derivatives	$	(6.6) million	$	(13.3) million	$	(7.0) million	$	(21.1) million		N/A
Gain reclassified from Accumulated other comprehensive loss into income (effective portion)	$	4.9 million	$	4.3 million	$	9.0 million	$	9.1 million		Interest expense
Gain (loss) recognized in income on derivatives (ineffective portion and amount excluded from effectiveness testing)		—		—		—		—		Interest expense

Credit-Risk-Related Contingent Features

We have agreements with some of our derivative counterparties that contain a provision pursuant to which, if our entity that originated such derivative instruments defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then we could also be declared in default on our derivative obligations. As of June 30, 2011, we were not in default on any of our derivative obligations.

We have an agreement with a derivative counterparty that incorporates the loan covenant provisions of our mortgage loan agreement with a lender affiliated with the derivative counterparty. Failure to comply with the loan covenant provisions would result in our being in default on any derivative instrument obligations covered by the agreement.

As of June 30, 2011, the fair value of derivatives in a net liability position, which excludes accrued interest but includes any adjustment for nonperformance risk related to these agreements, was $25.5 million. If we had breached any of the default provisions in these agreements as of June 30, 2011, we might have been required to settle our obligations under the agreements at their termination value (including accrued interest) of $28.2 million. We have not breached any of the default provisions as of June 30, 2011.