Derivatives

9 Months Ended

Sep. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company enters into derivatives in order to hedge interest rate risk. The Company had three interest rate swaps with aggregate notional amounts of $475.0 million as of September 30, 2020 and had four interest rate swaps with aggregate notional amounts of $539.5 million as of December 31, 2019. These derivatives were designated as effective cash flow hedges for accounting purposes.

On July 29, 2020, the Company entered into an interest rate cap contract, required by the lender, with respect to the Hollywood Media Portfolio loan due August 2022. The aggregate notional amount is $900.0 million as of September 30, 2020.

The interest rate cap is not designated under hedge accounting and is accounted for under mark-to-market accounting. Changes in fair value are included in the Interest expense line item on the Consolidated Statements of Operations.

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, 2020 and December 31, 2019:


						Interest Rate Range(1)		Fair Value (Liabilities) Assets
Underlying Debt Instrument	Number of Hedges	Notional Amount		Effective Date	Maturity Date	Low	High	September 30, 2020		December 31, 2019
Interest rate swaps
Met Park North	1	$	64,500	August 2013	August 2020	3.71%	3.71%	$	—	$	(195)
Hollywood Media Portfolio (formerly Term loan B)	2	350,000		April 2015	April 2022	2.96%	3.46%	(8,440)		(1,596)
Hollywood Media Portfolio (formerly Term loan D)	1	125,000		June 2016	November 2022	2.63%	3.13%	(3,353)		479
Interest rate cap						Strike rate
Hollywood Media Portfolio	1	$	900,000	July 2020	August 2022	3.5%		$	13	$	—
TOTAL								$	(11,780)	$	(1,312)

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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.

On July 31, 2020, the Company paid off the principal outstanding of $64.5 million on the Met Park North mortgage loan. The derivative on the Met Park North mortgage loan matured on August 1, 2020.

The proceeds from the Company’s sale of its 49% interest in the Hollywood Media Portfolio were used to pay off the principal outstanding of $350.0 million on Term loan B and $125.0 million on Term loan D. Instead of terminating the interest rate swaps on Term loans B and D, the swaps were designated under a first payments approach within hedge accounting, where the Company elected to designate a cash flow (LIBOR based interest payments) instead of a specific piece of debt.

The Company reclassifies into earnings in the same period during which the hedged forecasted transaction affects earnings. As of September 30, 2020, the Company expects $7.3 million of unrealized loss included in accumulated other comprehensive income will be reclassified as an increase to interest expense in the next 12 months.