Derivative and Hedging Activities
 9 Months Ended
Sep. 30, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative and Hedging Activities
Derivative and Hedging Activities
The Company uses interest rate derivative contracts to manage its exposure to changes in interest rates on its variable rate debt. These derivatives are considered cash flow hedges and are recorded on a gross basis at fair value. Assessments of hedge effectiveness are performed quarterly using regression analysis and the measurement of hedge ineffectiveness is based on the hypothetical derivative method. The effective portion of changes in fair value are recorded in AOCL and subsequently reclassified to earnings when the hedged transactions affect earnings. The ineffective portion is recorded immediately in earnings in general and administrative expenses.
The Company is exposed to credit risk in the event of non-performance by its derivative counterparties. The Company evaluates counterparty credit risk through monitoring the creditworthiness of counterparties, which includes review of debt ratings and financial performance. To mitigate its credit risk, the Company enters into agreements with counterparties it considers credit-worthy, such as large financial institutions with favorable credit ratings.
The following table summarizes the notional amount and fair value of the Company’s derivative instruments (dollars in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
Fair Value of Liability
Derivatives Designated as Hedging Instruments
 
Balance Sheet Location
 
Notional
Amount
 
Fixed
Interest
Rate
 
Effective
Date
 
Maturity
Date
 
September 30,
2016
 
December 31,
2015
Interest Rate Swaps(1)
 
Accounts payable, accrued expenses and other liabilities
 
$
61,758

 
5.14
%
 
01/02/14
 
12/13/18
 
$
—

 
$
(934
)
 
 
 
 
 
 
 
 
 
 
 
 
$
—

 
$
(934
)
(1) Represents a tranche of eight individual interest rate swap agreements with notional amounts ranging from $7.6 million to $7.9 million. The payment terms, stated interest rate, effective date, and maturity date of these swaps are consistent with the terms of the debt.
During June 2016, the Company terminated the remaining interest rate swap agreements upon the repayment of eight CMBS variable-rate loans. The Company paid $1.7 million to terminate these interest rate swap agreements and recognized a loss of $1.7 million, which is included in general and administrative expenses.
The following tables provide information about the amounts recorded in AOCL, as well as the loss recorded in operations, when reclassified out of AOCL or recognized in earnings immediately, for the three and nine months ended September 30, 2016 and 2015, respectively (in thousands):
 
 
Amount of Gain or (Loss) Recognized
in AOCL on Derivative
(Effective Portion)
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
Derivatives in Cash Flow Hedging Relationships
 
2016
 
2015
 
2016
 
2015
Interest rate swaps
 
$
28

 
$
(797
)
 
$
(1,145
)
 
$
(1,608
)
 
 
 
 
 
 
 
 
 
 
 
Amount of Loss Reclassified from
AOCL into Operations
(Effective Portion)
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
Location of Loss Reclassified from AOCL into Operations
 
2016
 
2015
 
2016
 
2015
Interest expense
 
$
—

 
$
(277
)
 
$
(459
)
 
$
(898
)
 
 
 
 
 
 
 
 
 
 
 
Amount of Loss Recognized in
Operations on Derivative
(Ineffective Portion) (1)
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
Location of Loss Recognized in Operations on Derivatives
 
2016
 
2015
 
2016
 
2015
General and administrative expense
 
$
—

 
$
—

 
$
(1,706
)
 
$
(78
)
 
 
 
 
 
 
 
 
 
 
 
Amount of Loss Recognized in
Operations on Derivative
Derivatives Not Designated as Hedging instruments
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
Location of Loss Recognized in Operations on Derivatives
 
2016
 
2015
 
2016
 
2015
General and administrative expense
 
$
—

 
$
—

 
$
(18
)
 
$
—


(1) Amounts for the nine months ended September 30, 2016 and 2015, respectively, include losses of $1.7 million and $76.0 thousand that were reclassified from accumulated other comprehensive loss in the balance sheet resulting from hedged transactions that were no longer probable of occurring as the swaps were terminated prior to their respective maturity dates.
Approximately $8 thousand of the remaining balance in AOCL is estimated to be reclassified as an increase to interest expense during the next twelve months. The Company does not enter into derivative contracts for speculative or trading purposes.