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DERIVATIVE INSTRUMENTS, HEDGING ACTIVITIES AND OTHER COMPREHENSIVE INCOME | 9 Months Ended
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Sep. 30, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVE INSTRUMENTS, HEDGING ACTIVITIES AND OTHER COMPREHENSIVE INCOME | DERIVATIVE INSTRUMENTS, HEDGING ACTIVITIES AND OTHER COMPREHENSIVE INCOME In order to manage potential future variable interest rate risk, we enter into interest rate derivative agreements from time to time. We do not use interest rate derivative agreements for trading or speculative purposes. The agreements with each of our derivative counterparties provide that in the event of default on any of our indebtedness, we could also be declared in default on our derivative obligations. During the three months ended September 30, 2022, we amended certain interest rate swap agreements, contemporaneous with a modification of the Company’s unsecured revolving credit facility and $300M Term Loan, $120M Term Loan and $150M Term Loan, to facilitate reference rate reform, converting the outstanding swaps from LIBOR to SOFR. In addition, we (i) designated the interest rate swaps related to the $200M Term Loan that was repaid in July 2022 to the $300M Term Loan with an effective date of August 2022 and a maturity date of November 2023; (ii) entered into two forward-starting interest rate swap contracts with notional amounts totaling $200.0 million that swap a floating rate of term SOFR to a fixed rate of 2.37% plus a credit spread of 1.35% with an effective date of November 2023 and a maturity date of August 2025; and (iii) entered into two agreements to swap a total of $100.0 million of SOFR-based variable rate debt to a fixed rate of 2.66% plus a credit spread of 1.35% with an effective date of August 2022 and a maturity date of August 2025. The following table summarizes the terms and fair values of the Company’s derivative financial instruments that were designated and qualified as part of a hedging relationship as of September 30, 2022 and December 31, 2021:
($ in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  | Fair Value Assets (Liabilities)(1)
Type of Hedge |  | Number of Instruments |  | Aggregate Notional |  | Reference Rate |  | Interest Rate |  | Effective Date |  | Maturity Date |  | September 30, 2022 |  | December 31, 2021
Cash Flow |  | Four |  | $ | 250,000 |  |  | LIBOR |  | 3.09 | % |  | 12/3/2018 |  | 10/24/2025 |  | $ | 7,243 |  |  | $ | (18,282) |
Cash Flow |  | Two |  | 100,000 |  |  | SOFR |  | 2.66 | % |  | 8/1/2022 |  | 8/1/2025 |  | 3,645 |  |  | — |
Cash Flow |  | Two |  | 200,000 |  |  | SOFR |  | 2.72 | % |  | 8/3/2022 |  | 11/22/2023 |  | 3,295 |  |  | (7,769) |
Cash Flow |  | Three |  | 120,000 |  |  | SOFR |  | 1.58 | % |  | 8/15/2022 |  | 7/17/2024 |  | 5,414 |  |  | (2,190) |
Cash Flow |  | Three |  | 150,000 |  |  | SOFR |  | 1.68 | % |  | 8/15/2022 |  | 7/17/2026 |  | 11,684 |  |  | (3,876) |
|  |  |  | $ | 820,000 |  |  |  |  |  |  |  |  |  |  | $ | 31,281 |  |  | $ | (32,117) |
Fair Value(2) |  | Two |  | $ | 155,000 |  |  | LIBOR |  | LIBOR + 3.70% |  | 4/23/2021 |  | 9/10/2025 |  | $ | (14,979) |  |  | $ | (2,630) |
Forward-Starting Cash Flow(3) |  | Two |  | $ | 150,000 |  |  | SOFR |  | 1.356 | % |  | 12/1/2022 |  | 6/1/2032 |  | $ | 26,732 |  |  | $ | 299 |
Forward-Starting Cash Flow |  | Two |  | $ | 200,000 |  |  | SOFR |  | 2.37 | % |  | 11/22/2023 |  | 8/1/2025 |  | $ | 4,761 |  |  | $ | — |
(1)Derivatives in an asset position are included within “Prepaid and other assets” and derivatives in a liability position are included within “Accounts payable and accrued expenses” in the accompanying consolidated balance sheets. (2)The derivative agreements swap a blended fixed rate of 4.52% for a blended floating rate of LIBOR plus 3.70%. (3)Subsequent to September 30, 2022, we terminated these two forward-starting interest rate swaps with notional amounts totaling $150.0 million and received proceeds of $30.9 million upon termination. This settlement is included as a component of accumulated other comprehensive income and will be reclassified to earnings over time as the hedged items are recognized in earnings. These interest rate derivative agreements are the only assets or liabilities that we record at fair value on a recurring basis. The valuation of these assets and liabilities is determined using widely accepted techniques including discounted cash flow analysis. These techniques consider the contractual terms of the derivatives (including the period to maturity) and use observable market-based inputs such as interest rate curves and implied volatilities. We also incorporate credit valuation adjustments into the fair value measurements to reflect nonperformance risk on both our part and that of the respective counterparties. We determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, although the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. As of September 30, 2022 and December 31, 2021, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined the credit valuation adjustments were not significant to the overall valuation of our derivatives. As a result, we determined our derivative valuations were classified within Level 2 of the fair value hierarchy. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to earnings over time as the hedged items are recognized in earnings. Approximately $1.2 million and $1.7 million was reclassified as a reduction to earnings during the three months ended September 30, 2022 and 2021, respectively. Approximately $8.6 million and $4.1 million was reclassified as a reduction to earnings during the nine months ended September 30, 2022 and 2021, respectively. As interest payments on our derivatives are made over the next 12 months, we estimate the decrease to interest expense to be $13.1 million, assuming the current LIBOR and SOFR curves. Unrealized gains and losses on our interest rate derivative agreements are the only components of the change in accumulated other comprehensive loss.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI https://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI https://asc.fasb.org/extlink&oid=126731327&loc=d3e90205-114008 + Details
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