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Financial Instruments and Fair Value Measurements
 3 Months Ended
Mar. 31, 2021
Fair Value Disclosures [Abstract]  
Financial Instruments and Fair Value Measurements Financial Instruments and Fair Value Measurements
Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The disclosure for assets and liabilities measured at fair value requires allocation to a three-level valuation hierarchy. This valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Categorization within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
We believe that the carrying values reflected in our consolidated balance sheets reasonably approximate the fair values for cash and cash equivalents, accounts receivable, escrow deposits, loans receivable, line of credit payable and commercial paper borrowings, term loan and all other liabilities, due to their short-term nature or interest rates and terms that are consistent with market, except for our mortgages payable assumed in connection with acquisitions and our senior notes and bonds payable, which are disclosed as follows (dollars in millions):
March 31, 2021
Carrying value
Estimated fair value
Mortgages payable assumed in connection with acquisitions (1)
$281.5$292.7 
Notes and bonds payable (2)
7,360.07,896.2 
December 31, 2020
Carrying value
Estimated fair value
Mortgages payable assumed in connection with acquisitions (1)
$299.6$309.4 
Notes and bonds payable (2)
8,302.49,324.0 
(1)Excludes non-cash net premiums recorded on the mortgages payable. The unamortized balance of these net premiums was $1.4 million at March 31, 2021, and $1.7 million at December 31, 2020. Also excludes deferred financing costs of $907,000 at March 31, 2021 and $973,000 at December 31, 2020.
(2)Excludes non-cash original issuance premiums and discounts recorded on notes payable. The unamortized balance of the net original issuance premiums was approximately $11.8 million at March 31, 2021, and $14.6 million at December 31, 2020. Also excludes deferred financing costs of $45.7 million at March 31, 2021 and $49.2 million at December 31, 2020.
The estimated fair values of our mortgages payable assumed in connection with acquisitions and private senior notes payable have been calculated by discounting the future cash flows using an interest rate based upon the relevant forward interest rate curve, plus an applicable credit-adjusted spread. Because this methodology includes unobservable inputs that reflect our own internal assumptions and calculations, the measurement of estimated fair values related to our mortgages payable is categorized as level three on the three-level valuation hierarchy.
The estimated fair values of our publicly-traded senior notes and bonds payable are based upon indicative market prices and recent trading activity of our senior notes and bonds payable. Because this methodology includes inputs that are less observable by the public and are not necessarily reflected in active markets, the measurement of the
estimated fair values related to our notes and bonds payable is categorized as level two on the three-level valuation hierarchy.

During March 2021, we entered into a currency exchange swap to exchange £810.0 million for $1.11 billion, which matured in April 2021. The currency exchange swap was entered into to hedge our exposure to foreign currency risk associated with Sterling-denominated liabilities. As the currency exchange swap is not accounted for as a hedging instrument, the change in fair value is recorded in earnings through the caption entitled 'Foreign currency and derivative gains, net' in the consolidated statements of income and comprehensive income. The net loss from derivatives not designated in hedging relationships for the three months ended March 31, 2021 totaled $5.7 million. We did not enter into or settle any currency exchange swaps during the three months ended March 31, 2020.
The following table summarizes the terms and fair values of our derivative financial instruments at March 31, 2021 and December 31, 2020 (dollars in millions):
Derivative Type (1)
Accounting Classification
Hedge Designation
Notional Amount
Strike
Effective Date
Maturity Date
Fair Value - asset (liability)
March 31,December 31,March 31,December 31,
2021202020212020
Interest rate swap
Derivative
Cash flow
250.0 250.03.04%10/24/201803/24/2024(19.4)(22.6)
Cross-currency swap (2)
Derivative
Cash flow
41.6 41.6(3)05/20/201905/22/2034(6.0)(5.2)
Cross-currency swap (2)
Derivative
Cash flow
41.6 41.6(4)05/20/201905/22/2034(6.1)(5.1)
Cross-currency swap (2)
Derivative
Cash flow
41.6 41.6(5)05/20/201905/22/2034(6.3)(5.4)
Cross-currency swap (2)
Derivative
Cash flow
41.6 41.6(6)05/20/201905/22/2034(6.6)(5.7)
Currency exchange swap (2)
Derivative
N/A
— 625.0(7)12/23/202001/29/2021— (8.2)
Currency exchange swap (2)
Derivative
N/A
1,112.1 —(8)03/25/202104/29/2021(3.7)— 
Forward-starting swapDerivative
Cash flow
75.0 75.02.02%(9)06/30/20332.0 (5.0)
Forward-starting swapDerivative
Cash flow
75.0 75.01.94%(9)11/30/20321.7 (5.2)
Forward-starting swapDerivative
Cash flow
25.0 25.01.67%(9)11/30/20321.2 (1.1)
Forward-starting swapDerivative
Cash flow
125.0 125.01.75%(9)06/30/20336.4 (5.2)
Forward-starting swapHybrid debt
Cash flow
125.0 125.01.88%(9)11/30/20322.3 (7.9)
Forward-starting swapHybrid debt
Cash flow
75.0 75.02.00%(9)06/30/20331.3 (4.9)
$2,028.5 $1,541.4$(33.2)$(81.5)
(1)There have been no changes to hedging arrangements in-place at December 31, 2020. All hedges remained effective through March 31, 2021. For full discussion of the hedging arrangements, please refer to note 2 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020.
(2)Represents British Pound Sterling, or GBP, United States Dollar, or USD, currency instrument.
(3)GBP fixed rates initially at 4.82% and escalating to 10.96%, and USD fixed rate at 9.800%.
(4)GBP fixed rates initially at 4.82% and escalating to 10.96%, and USD fixed rate at 9.803%.
(5)GBP fixed rates initially at 4.82% and escalating to 10.96%, and USD fixed rate at 9.745%.
(6)GBP fixed rates initially at 4.82% and escalating to 10.96%, and USD fixed rate at 9.755%.
(7) Forward GBP-USD exchange rate of 1.35.
(8) Forward GBP-USD exchange rate of 1.37.
(9) There were five treasury rate locks entered into during February 2020 that were terminated in June 2020 and converted into six forward starting interest rate swaps through a cashless settlement. For full discussion of the hedging arrangements for these six forward starting swaps, please refer to Note 2 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020.
We measure our derivatives at fair value and include the balances within other assets and accounts payable and accrued expenses on our consolidated balance sheets.
We have agreements with each of our derivative counterparties containing provisions under which we could be declared in default on our derivative obligations if repayment of our indebtedness is accelerated by the lender due to our default.
We utilize interest rate swap agreements to manage interest rate risk and cross-currency swaps to manage foreign currency risk. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the
contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, spot and forward rates, as well as option volatility.
To comply with the provisions of ASC 820, Fair Value Measurement, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.
Although we have determined that the majority of the inputs used to value our derivatives fall within level two on the three-level valuation hierarchy, the credit valuation adjustments associated with our derivatives utilize level three inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by ourselves and our counterparties. However, at March 31, 2021 and December 31, 2020, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we determined that our derivative valuations in their entirety are classified as level two on the three-level valuation hierarchy.
Unrealized gains and losses in accumulated other comprehensive income, or AOCI, are reclassified to interest expense in the case of interest rate swaps and to foreign currency gains and losses, net in the case of cross-currency swaps, when the related hedged items are recognized. During the three months ended March 31, 2021, we reclassified $2.5 million from AOCI as an increase to interest expense and a $1.2 million loss for cross-currency swaps into foreign exchange gains. During the three months ended March 31, 2020, we reclassified $1.6 million from AOCI as an increase to interest expense for our interest rate swaps and $11.4 million in cross-currency swap losses into foreign currency and derivative gains, net.
We expect to reclassify $10.2 million from AOCI as an increase to interest expense relating to interest rate swaps and $908,000 from AOCI to foreign currency gain relating to cross-currency swaps within the next twelve months.