Derivatives

9 Months Ended

Sep. 30, 2019

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 September 30, 2019 and December 31, 2018. These derivatives were designated as effective cash flow hedges for accounting purposes.

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 September 30, 2019 and December 31, 2018:


						Interest Rate Range⁽¹⁾				Fair Value (Liabilities)/Assets
Underlying Debt Instrument	Number of Hedges	Notional Amount		Effective Date	Maturity Date	Low	High	September 30, 2019		December 31, 2018
Met Park North	1	$	64,500	August 2013	August 2020	3.71%	3.71%	$	(260)	$	350
Term loan A	2	300,000		July 2016	April 2020	2.65%	3.06%	554		4,038
Term loan B	2	350,000		April 2015	April 2022	2.96%	3.46%	(2,481)		7,543
Term loan D	1	125,000		June 2016	November 2022	2.63%	3.13%	101		4,756
TOTAL	6	$	839,500					$	(2,086)	$	16,687

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1.The rate is based on the fixed rate from the interest rate swap and the spread based on the operating partnership’s leverage ratio.

In January 2019, the Company entered into a forward interest rate swap designated hedge. In February 2019, it was terminated, which resulted in a cash payment of approximately $1.6 million that was recorded in accumulated other comprehensive (loss) income on the Consolidated Balance Sheets and will be recognized over the life of the 4.65% registered senior notes entered into in February 2019 as an adjustment to interest expense. The cash payment is included in the payment of loan costs paid, net loan premium paid line item of the Consolidated Statements of Cash Flows.

On January 1, 2018, the Company early adopted ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. As a result of the adoption, the Company is no longer recognizing unrealized gains or losses related to ineffective portions of its derivatives. In 2018, 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 reclassifies into earnings in the same period during which the hedged forecasted transaction affects earnings. As of September 30, 2019, the Company expects $0.3 million of unrealized gain included in accumulated other comprehensive income will be reclassified as a reduction to interest expense in the next 12 months.