XML 73 R17.htm IDEA: XBRL DOCUMENT v2.4.0.8
Derivative and Hedging Activities
 12 Months Ended
Dec. 31, 2013
Notes to Financial Statements [Abstract]  
Derivative and Hedging Activities
Derivative and Hedging Activities

Risk Management Objective and Strategies for Using Derivatives

The Company uses derivative instruments, such as interest rate swaps and interest rate caps, primarily to manage exposure to interest rate risks inherent in variable rate debt and refinancings. The Company may also enter into forward starting swaps or treasury lock agreements to set the effective interest rate on a planned fixed-rate financing. The Company’s interest rate swaps involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. In a forward starting swap or treasury lock agreement that the Company cash settles in anticipation of a fixed rate financing or refinancing, the Company will receive or pay an amount equal to the present value of future cash flow payments based on the difference between the contract rate and market rate on the settlement date.

The Company does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated as hedging instruments under the accounting requirements for derivatives and hedging.

As of December 31, 2013, the Company had the following outstanding interest rate derivatives that were designated and are expected to be effective as cash flow hedges of the interest payments on the associated debt.
Instrument Type
 
Ownership
 
Notional Amount
 
Swap Rate
 
Credit Spread on Loan
 
Total Swapped Rate on Loan
 
Maturity Date
Consolidated Subsidiaries:
 
 
 
 
 
 
 
 
 
 
 
 
Receive variable (LIBOR) /pay-fixed swap (1)
 
100
%
 
$
200,000

 
1.64
%
 
1.35
%
(1) 
2.99
%
(1) 
February 2019
Receive variable (LIBOR) /pay-fixed swap (1)
 
100
%
 
175,000

 
1.65
%
 
1.35
%
(1) 
3.00
%
(1) 
February 2019
Receive variable (LIBOR) /pay-fixed swap (1)
 
100
%
 
100,000

 
1.64
%
 
1.35
%
(1) 
2.99
%
(1) 
February 2019
Receive variable (LIBOR) /pay-fixed swap (2)
 
95.0
%
 
129,205

 
2.64
%
 
2.35
%
 
4.99
%
 
September 2020
Unconsolidated Joint Ventures:
 
 

 
 

 
 

 
 

 
 

 
 
Receive variable (LIBOR) /pay-fixed swap (3)
 
50.0
%
 
137,500

 
2.40
%
 
1.70
%
 
4.10
%
 
April 2018
Receive variable (LIBOR) /pay-fixed swap (3)
 
50.0
%
 
137,500

 
2.40
%
 
1.70
%
 
4.10
%
 
April 2018


(1)
The hedged forecasted transaction for each of these swaps is the first previously unhedged one-month LIBOR-indexed interest payments accrued and made each month beginning January 2, 2014 on a debt principal amount equal to the swap notional, regardless of the specific debt agreement from which they may flow. The Company is currently using these swaps to manage interest rate risk on the $475 million TRG Term Loan. The credit spread on this loan can also vary within a range of 1.35% to 1.90%, depending on the Company's leverage ratio at the measurement date.
(2)
The notional amount of the swap is equal to the outstanding principal balance of the loan on MacArthur Center.
(3)
The notional amount on each of these swaps is equal to 50% of the outstanding principal balance of the loan on Fair Oaks Mall, which begins amortizing in August 2014.

Cash Flow Hedges of Interest Rate Risk

For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the unrealized gain or loss on the derivative is reported as a component of Other Comprehensive Income (OCI). The ineffective portion of the change in fair value, if any, is recognized directly in earnings. Net realized gains or losses resulting from derivatives that were settled in conjunction with planned fixed-rate financings or refinancings continue to be included in Accumulated Other Comprehensive Income (Loss) (AOCI) during the term of the hedged debt transaction.

Amounts reported in AOCI related to currently outstanding derivatives are recognized as an adjustment to income as interest payments are made on the Company’s variable-rate debt. Realized gains or losses on settled derivative instruments included in AOCI are recognized as an adjustment to income over the term of the hedged debt transaction.

The Company expects that approximately $13.0 million of the AOCI of Taubman Centers, Inc. and the noncontrolling interests will be reclassified from AOCI and recognized as a reduction of income in the following 12 months.

The following tables present the effect of derivative instruments on the Company’s Consolidated Statement of Operations and Comprehensive Income for the years ended December 31, 2013, 2012, and 2011. The tables include the location and amount of unrealized gains and losses on outstanding derivative instruments in cash flow hedging relationships and the location and amount of realized losses reclassified from AOCI into income resulting from settled derivative instruments associated with hedged debt.

During the years ended December 31, 2013, 2012, and 2011 the Company did not have any hedge ineffectiveness or amounts that were excluded from the assessment of hedge effectiveness recorded in earnings.

 
Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)
 
Location of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)
 
Amount of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)
 
2013
 
2012
 
2011
 
 
 
2013
 
2012
 
2011
Derivatives in cash flow hedging relationships:
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts – consolidated subsidiaries
$
9,990

 
$
(2,821
)
 
$
(13,609
)
 
Interest Expense
 
$
(3,221
)
 
$
(3,190
)
 
$
(3,488
)
Interest rate contracts – UJVs
5,083

 
(1,976
)
 
(7,081
)
 
Equity in Income of UJVs
 
(3,080
)
 
(3,600
)
 
(2,788
)
Total derivatives in cash flow hedging relationships
$
15,073

 
$
(4,797
)
 
$
(20,690
)
 
 
 
$
(6,301
)
 
$
(6,790
)
 
$
(6,276
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Realized losses on settled cash flow hedges:
 

 
 

 
 
 
 
 
 

 
 

 
 
Interest rate contracts – consolidated subsidiaries
 

 
 

 
 
 
Interest Expense
 
$
(605
)
 
$
(605
)
 
$
(839
)
Interest rate contract – UJVs
 

 
 

 
 
 
Equity in Income of UJVs
 


 
(188
)
 
(376
)
Total realized losses on settled cash flow hedges
 

 
 

 
 
 
 
 
$
(605
)
 
$
(793
)
 
$
(1,215
)


The Company records all derivative instruments at fair value in the Consolidated Balance Sheet. The following table presents the location and fair value of the Company’s derivative financial instruments as reported in the Consolidated Balance Sheet as of December 31, 2013 and 2012.
 
 
 
Fair Value
 
Consolidated Balance Sheet Location
 
December 31 2013
 
December 31
2012
Derivatives designated as hedging instruments:
 
 
 
 
 
Asset derivatives:
 
 
 
 
 
Interest rate contracts – consolidated subsidiaries
Deferred Charges and Other Assets
 
$
1,543

 


Liability derivatives:
 
 
 

 
 

Interest rate contract – consolidated subsidiaries
Accounts Payable and Accrued Liabilities
 
$
(3,418
)
 
$
(11,865
)
Interest rate contracts – UJVs
Investment in UJVs
 
(5,938
)
 
(11,021
)
Total liabilities designated as hedging instruments
 
 
$
(9,356
)
 
$
(22,886
)


Contingent Features

Three of the Company's outstanding derivatives contain provisions that state if the hedged entity defaults on any of its indebtedness in excess of $1 million, then the derivative obligation could also be declared in default. Three of the Company’s outstanding derivatives contain provisions that state if the Operating Partnership defaults on any of its recourse indebtedness in excess of $50 million, then the derivative obligation could also be declared in default. As of December 31, 2013, the Company is not in default on any indebtedness that would trigger a credit risk related default on its current outstanding derivatives.

As of December 31, 2013 and 2012, the fair value of derivative instruments with credit-risk-related contingent features that are in a liability position was $9.4 million and $22.9 million, respectively. As of December 31, 2013 and 2012, the Company was not required to post any collateral related to these agreements. If the Company breached any of these provisions it would be required to settle its obligations under the agreements at their fair value. See Note 17 for fair value information on derivatives.