Derivatives

12 Months Ended

Dec. 31, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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 December 31, 2018 and 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 has agreements with its derivative counterparties that contain a provision where the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on the indebtedness.

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 fair market value of derivatives is presented on a gross basis on the Consolidated Balance Sheets. The following table summarizes the Company’s derivative instruments as of December 31, 2018 and December 31, 2017:


Underlying Debt Instrument	# Hedges	Notional Amount		Effective Date	Maturity Date	Interest Rate Range⁽¹⁾							Fair Value Asset/(Liabilities)
												Low			High	2018	2017
Met Park North	1	64,500		August 2013	August 2020	3.71	%	3.71	%	$	350		$	(265)
Term loan A⁽²⁾	2	300,000		July 2016	April 2020	2.65	%	3.06	%	4,038			3,520
Term loan B⁽³⁾	2	350,000		April 2015	April 2022	2.96	%	3.46	%	7,543			4,960
Term loan D⁽⁴⁾	1	125,000		June 2016	November 2022	2.63	%	3.13	%	4,756			4,106
TOTAL	6	$	839,500							$	16,687		$	12,321

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1.The rate is based on the fixed rate from the swap and the spread based on the operating partnership’s leverage ratio as of December 31, 2018.

2.On March 13, 2018, the underlying debt instrument that was hedged was amended. Prior to the amendment, the interest rate 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 rate 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 rate 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 derivatives. 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). The Company recognized an unrealized loss of $70 thousand and $1.4 million during the years

ended December 31, 2017 and 2016, respectively, reflected in the unrealized loss on ineffective portion of derivatives line item on the Consolidated Statements of Operations.

The Company reclassifies into earnings in the same period during which the hedged forecasted transaction affects earnings. As of December 31, 2018, the Company expects $7.9 million of unrealized gain included in accumulated other comprehensive income will be reclassified as a reduction to interest expense in the next 12 months.