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Financial Instruments and Fair Values | 3 Months Ended
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Mar. 31, 2018
Fair Value Disclosures [Abstract] |
Financial Instruments and Fair Values | Financial Instruments and Fair Values Derivative Financial Instruments We use derivative financial instruments primarily to manage interest rate risk and such derivatives are not considered speculative. These derivative instruments are typically in the form of interest rate swap and forward agreements and the primary objective is to minimize interest rate risks associated with investing and financing activities. The counterparties of these arrangements are major financial institutions with which we may also have other financial relationships. We are exposed to credit risk in the event of non-performance by these counterparties; however, we currently do not anticipate that any of the counterparties will fail to meet their obligations. We have agreements with our derivative counterparties that contain a provision where if we either default or are capable of being declared in default on any of our indebtedness, then we could also be declared in default on our derivative obligations. As of March 31, 2018, we did not have any derivatives in a net liability position. As of March 31, 2018 and December 31, 2017, we had one interest rate LIBOR swap with an aggregate notional value of $265.0 million. The notional value does not represent exposure to credit, interest rate or market risks. As of March 31, 2018, the fair value of this derivative instrument amounted to $4.1 million which is included in prepaid expenses and other assets on the condensed consolidated balance sheet. As of December 31, 2017, the fair value of this derivative instrument amounted to ($0.4 million) which was included in accounts payable and accrued expenses on the condensed consolidated balance sheet. This interest rate swap has been designated as a cash flow hedge and hedges the future cash outflows on our term loan facility that is subject to a floating interest rate. As of March 31, 2018 and 2017, our cash flow hedges are deemed highly effective and a net unrealized gain of $4.8 million and $1.4 million for the three months ended March 31, 2018 and 2017, respectively, are reflected in the condensed consolidated statements of comprehensive income. Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the debt. We estimate that $0.04 million of the current balance held in accumulated other comprehensive income (loss) will be reclassified into interest expense within the next 12 months relating to the interest rate swap contract in effect as of March 31, 2018. As of March 31, 2018 and December 31, 2017, the deferred net losses from terminated hedges amounted to $14.8 million and $15.1 million, respectively, which are included in accumulated other comprehensive income (loss) related to derivatives. We will reclassify into earnings, as an increase to interest expense, approximately $1.5 million within the next 12 months related to the deferred losses from the terminated hedges. For the three months ended March 31, 2017, we also recognized a $0.2 million loss from derivative financial instruments incurred in connection with the partial termination and re-designation of related cash flow hedges on a $20.0 million notional amount. The table below summarizes the terms of the agreement and the fair value of our derivative financial instrument as of March 31, 2018 and December 31, 2017 (dollar amounts in thousands):
|  |  |  | March 31, 2018 |  | December 31, 2017
Derivative |  | Notional Amount | Receive Rate | Pay Rate | Effective Date | Expiration Date |  | Asset | Liability |  | Asset | Liability
Interest rate swap |  | $ | 265,000 |  | 1 Month LIBOR | 2.1485% | August 31, 2017 | August 24, 2022 |  | $ | 4,103 |  | $ | — |  |  | $ | — |  | $ | (436 | )
|  |  |  |  |  |  |  | $ | 4,103 |  | $ | — |  |  | $ | — |  | $ | (436 | )
The table below shows the effect of our derivative financial instruments designated as cash flow hedges on accumulated other comprehensive income (loss) for the three months ended March 31, 2018 and 2017 (amounts in thousands):
|  | Three Months Ended
Effects of Cash Flow Hedges |  | March 31, 2018 |  | March 31, 2017
Amount of gain (loss) recognized in other comprehensive income (loss) |  | $ | 4,180 |  |  | $ | 1,394 |
Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into interest expense |  | (599 | ) |  | — |
The table below shows the effect of our derivative financial instruments designated as cash flow hedges on the condensed consolidated statements of income for the three months ended March 31, 2018 and 2017 (amounts in thousands):
|  | Three Months Ended
Effects of Cash Flow Hedges |  | March 31, 2018 |  | March 31, 2017
Total interest (expense) presented in the condensed consolidated statements of income in which the effects of cash flow hedges are recorded |  | $ | (17,591 | ) |  | $ | (17,742 | )
Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into interest expense |  | (599 | ) |  | — |
Fair Valuation The estimated fair values at March 31, 2018 and December 31, 2017 were determined by management, using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts we could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The fair value of our senior unsecured notes - exchangeable was derived from quoted prices in active markets and is classified as Level 2 since trading volumes are low. The fair value of derivative instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. Although the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by ourselves and our counterparties. The impact of such credit valuation adjustments, determined based on the fair value of each individual contract, was not significant to the overall valuation. As a result, all of our derivatives were classified as Level 2 of the fair value hierarchy. The fair value of our mortgage notes payable, senior unsecured notes - Series A, B, C, D, E and F, and unsecured term loan facility which are determined using Level 3 inputs, are estimated by discounting the future cash flows using current interest rates at which similar borrowings could be made to us. The following tables summarize the carrying and estimated fair values of our financial instruments as of March 31, 2018 and December 31, 2017 (amounts in thousands):
| March 31, 2018
|  |  | Estimated Fair Value
| Carrying Value |  | Total |  | Level 1 |  | Level 2 |  | Level 3
Interest rate swaps included in prepaid expenses and other assets | $ | 4,103 |  |  | $ | 4,103 |  |  | $ | — |  |  | $ | 4,103 |  |  | $ | — |
Interest rate swaps included in accounts payable and accrued expenses | — |  |  | — |  |  | — |  |  | — |  |  | — |
Mortgage notes payable | 610,826 |  |  | 588,596 |  |  | — |  |  | — |  |  | 588,596 |
Senior unsecured notes - Exchangeable | 245,556 |  |  | 257,903 |  |  | — |  |  | 257,903 |  |  | — |
Senior unsecured notes - Series A, B, C, D, E and F | 798,121 |  |  | 791,005 |  |  | — |  |  | — |  |  | 791,005 |
Unsecured term loan facility | 263,777 |  |  | 265,000 |  |  | — |  |  | — |  |  | 265,000 |
| December 31, 2017
|  |  | Estimated Fair Value
| Carrying Value |  | Total |  | Level 1 |  | Level 2 |  | Level 3
Interest rate swaps included in prepaid expenses and other assets | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Interest rate swaps included in accounts payable and accrued expenses | 436 |  |  | 436 |  |  | — |  |  | 436 |  |  | — |
Mortgage notes payable | 717,164 |  |  | 707,300 |  |  | — |  |  | — |  |  | 707,300 |
Senior unsecured notes - Exchangeable | 244,739 |  |  | 275,723 |  |  | — |  |  | 275,723 |  |  | — |
Senior unsecured notes - Series A, B, C and D | 463,156 |  |  | 460,352 |  |  | — |  |  | — |  |  | 460,352 |
Unsecured term loan facility | 263,662 |  |  | 265,000 |  |  | — |  |  | — |  |  | 265,000 |
Disclosure about the fair value of financial instruments is based on pertinent information available to us as of March 31, 2018 and December 31, 2017. Although we are not aware of any factors that would significantly affect the reasonable fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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