11. Interest Rate Swaps

Interest rate swaps were entered into with certain financial institutions in order to mitigate the impact of interest rate variability over the term of the related debt agreements. The interest rate swaps are considered cash flow hedges. In order to reduce counterparty concentration risk, the Company has a diversification policy for institutions that serve as swap counterparties. Under these agreements, the Company receives monthly payments from the counterparties on these interest rate swaps equal to the related variable interest rates multiplied by the outstanding notional amounts. Certain interest rate swaps amortize on a monthly basis. In turn, the Company pays the counterparties each month an amount equal to a fixed rate multiplied by the related outstanding notional amounts. The intended net impact of these transactions is that the Company pays a fixed interest rate on its variable-rate borrowings.

The following is a summary of the Company’s outstanding interest rate swap agreements:


								Fair Value
(in thousands, except interest rates)								December 31,
Counterparty	Maturity Date	Fixed Rate			Variable Rate Index	Notional Amount		2017			2016
Bank of America, N.A.	November 2023		2.80	%	LIBOR 1 month	$	25,000	$	(863	)	$	(1,338	)
Bank of Montreal	July 2024		1.16	%	LIBOR 1 month		40,000		2,503			2,485
Bank of Montreal	January 2025		1.91	%	LIBOR 1 month		25,000		464			299
Bank of Montreal	July 2025		2.32	%	LIBOR 1 month		25,000		(194	)		(433	)
Bank of Montreal	January 2026		1.92	%	LIBOR 1 month		25,000		561			437
Bank of Montreal	January 2026		2.05	%	LIBOR 1 month		40,000		520			275
Bank of Montreal	December 2026		2.33	%	LIBOR 1 month		10,000		(63	)		(132	)
Bank of Montreal	December 2027		2.37	%	LIBOR 1 month		25,000		(192	)		—
Capital One, N.A.	December 2021		1.05	%	LIBOR 1 month		15,000		607			552
Capital One, N.A.	December 2024		1.58	%	LIBOR 1 month		15,000		603			565
Capital One, N.A.	January 2026		2.08	%	LIBOR 1 month		35,000		399			216
Capital One, N.A.	July 2026		1.32	%	LIBOR 1 month		35,000		2,565			2,667
Capital One, N.A.	December 2027		2.37	%	LIBOR 1 month		25,000		(189	)		—
M&T Bank	September 2017		1.09	%	LIBOR 1 month		25,000		—			(37	)
M&T Bank	April 2020		4.91	%	LIBOR 1 month		21,335		—			(2,266	)
M&T Bank	August 2021		1.02	%	LIBOR 1 month		5,183		182			—		^(a)
M&T Bank	September 2022		2.83	%	LIBOR 1 month		25,000		(810	)		(993	)
M&T Bank	November 2023		2.65	%	LIBOR 1 month		25,000		(686	)		(1,102	)
Regions Bank	March 2017		0.70	%	LIBOR 1 month		50,000		—			6
Regions Bank	March 2018		1.77	%	LIBOR 1 month		25,000		(9	)		(179	)
Regions Bank	March 2019		1.91	%	LIBOR 3 month		25,000		2			(239	)
Regions Bank	May 2020		2.12	%	LIBOR 1 month		50,000		(153	)		(940	)
Regions Bank	March 2022		2.43	%	LIBOR 3 month		25,000		(254	)		(594	)
Regions Bank	December 2023		1.18	%	LIBOR 1 month		25,000		1,402			1,392
SunTrust Bank	April 2024		1.99	%	LIBOR 1 month		25,000		261			47
SunTrust Bank	April 2025		2.20	%	LIBOR 1 month		25,000		—			(219	)
SunTrust Bank	July 2025		1.99	%	LIBOR 1 month		25,000		386			228
SunTrust Bank	December 2025		2.30	%	LIBOR 1 month		25,000		(138	)		—
SunTrust Bank	January 2026		1.93	%	LIBOR 1 month		25,000		553			429
Wells Fargo Bank, N.A.	February 2021		2.39	%	LIBOR 1 month		35,000		(369	)		(1,013	)
Wells Fargo Bank, N.A.	October 2024		2.72	%	LIBOR 1 month		15,000		(510	)		(732	)
Wells Fargo Bank, N.A.	January 2028		2.37	%	LIBOR 1 month		75,000		(590	)		—
								$	5,988		$	(619	)

^(a)	Interest rate swap was assumed in October 2017 as part of an UPREIT transaction.

The total loss recognized, and the location of the loss in the accompanying Consolidated Statements of Income and Comprehensive Income, from converting from variable rates to fixed rates under these agreements is as follows for the years ended December 31, 2017, 2016, and 2015:

	Effective Portion			Ineffective Portion
(in thousands)	Location of Loss Reclassified from Accumulated Other Comprehensive Income into Income	Amount of Loss Reclassified from Accumulated Other Comprehensive Income into Income		Location of Loss Recognized in Income on Derivatives	Amount of Loss Recognized in Income on Derivatives
Interest rate swaps
2017	Interest expense	$	5,099	Interest expense	$	332
2016	Interest expense		9,322	Interest expense		—
2015	Interest expense		7,162	Interest expense		—

Amounts related to the interest rate swaps expected to be reclassified out of Accumulated other comprehensive income to Interest expense during 2018 are estimated to be $2,401. The Company is exposed to credit risk in the event of non-performance by the counterparties of the swaps. The Company minimizes this risk exposure by limiting counterparties to major banks who meet established credit and capital guidelines.

The fair value of the interest rate swaps at December 31, 2017 and 2016 are based on a valuation of the discounted future payments as provided by the counterparties, as disclosed in Note 2.