Derivatives

The Company enters into derivatives in order to hedge interest rate risk. The Company had six interest rate swaps with aggregate notional amounts of $839.5 million as of March 31, 2018 and December 31, 2017. These derivatives were designated as effective cash flow hedges for accounting purposes. There is no impact on the Company’s Consolidated Statements of Cash Flows.

The Company’s derivatives are classified as Level 2 and their fair values are derived from estimated values obtained from observable market data for similar instruments.

The following table summarizes the Company’s derivative instruments as of March 31, 2018:



						Strike Rate Range⁽¹⁾
Underlying Debt Instrument	Number of Hedges	Notional Amount		Effective Date	Maturity Date	Low	High	Fair Value
Met Park North	1	$	64,500	Aug 2013	August 2020	2.16%	2.16%	$	322
Term Loan A⁽²⁾	2	300,000		July 2016	April 2020	2.56%	3.06%	5,313
Term Loan B⁽³⁾	2	350,000		July 2016	April 2022	2.96%	3.46%	10,143
Term Loan D⁽⁴⁾	1	125,000		June 2016	November 2022	2.63%	3.13%	6,144

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(1)	The rate is based on the operating partnership’s leverage ratio.


(2)	On March 13, 2018, the underlying debt instrument that was hedged was amended. Prior to the amendment, the interest was effectively fixed at 2.75% to 3.65%.


(3)	On March 13, 2018, the underlying debt instrument that was hedged was amended. Prior to the amendment, the interest was effectively fixed at 3.36% to 4.31%.


(4)	On March 13, 2018, the underlying debt instrument that was hedged was amended. Prior to the amendment, the interest was effectively fixed at 3.03% to 3.98%.

On January 1, 2018, the Company early adopted ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”). As a result of the adoption, the Company is no longer recognizing unrealized gains or losses related to ineffective portions of its derivative instruments. The Company recognized a $231 thousand cumulative-effect adjustment to other comprehensive income, with a corresponding adjustment to the opening balance of retained earnings (accumulated deficit). For the three months ended March 31, 2017, the Company recognized an unrealized gain of $6 thousand, reflected in the unrealized gain on ineffective portion of derivative instruments line item on the Consolidated Statements of Operations.

The fair market value of derivative instruments is presented on a gross basis in prepaid and other expenses, net and derivative liabilities line items on the Consolidated Balance Sheets. The derivative assets as of March 31, 2018 and December 31, 2017 were $21.9 million and $12.6 million, respectively. The derivative liabilities as of March 31, 2018 and December 31, 2017 were $0.0 million and $0.3 million, respectively.

The Company reclassifies into earnings in the same period during which the hedged forecasted transaction affects earnings. As of March 31, 2018, the Company expects $4.6 million of unrealized gain included in accumulated other comprehensive income will be reclassified to interest expense in the next 12 months.