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Fair Value Measurements And Derivative Instruments
 12 Months Ended
Dec. 31, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Fair Value Measurements And Derivative Instruments FAIR VALUE MEASUREMENTS AND DERIVATIVE INSTRUMENTS
Fair Value Measurements
Our determination of fair value measurements are based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, we utilize a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liabilities, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
As of December 31, 2019, the Company’s derivative instruments represented the only financial instruments measured at fair value. Currently, the Company uses derivative instruments, such as interest rate swaps and caps, to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs.
We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.
Although we have determined that 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 us and the counterparties. However, as of December 31, 2019 we have assessed the significance of the effect of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
Derivative Instruments
The Company’s objective in using derivatives is to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and interest rate caps as part of its cash flow hedging strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts in exchange for fixed-rate payments over the life of the agreements without exchange of the underlying principal amount. Interest rate caps designated as cash flow hedges limit the Company’s exposure to increased cash payments due to increases in variable interest rates. The table on the following page presents our derivative instruments as of December 31, 2019 and  2018.
NOTE 8 – FAIR VALUE MEASUREMENTS AND DERIVATIVE INSTRUMENTS (CONTINUED)

 
 
 
 
 
 
Estimated Fair Value

 
 
 
 
 
 
Asset / (Liability) Balance
Hedged Debt
Type
Strike Rate
Index
Effective Date
Derivative Contract Maturity Date
Notional Amount
December 31, 2019
December 31, 2018
 
 
 
 
 
 
 
 
 
Term Loan Instruments:
 
 
 
 
 
 
 
 
Unsecured Credit Facility
Swap
1.011
%
1-Month LIBOR + 2.20%
November 3, 2016
October 3, 2019
$
150,000

$
—

$
1,741

Unsecured Credit Facility (1)
Swap
1.694
%
1-Month LIBOR + 2.20%
April 3, 2017
September 3, 2019
50,000

—

320

Unsecured Credit Facility (2)
Swap
2.654
%
1-Month LIBOR + 2.20%
January 10, 2019
September 3, 2019
103,500

—

(314
)
Unsecured Credit Facility (3)
Swap
2.654
%
1-Month LIBOR + 2.20%
January 10, 2019
September 3, 2019
103,500

—

(315
)
Unsecured Credit Facility (4)
Swap
1.866
%
1-Month LIBOR + 2.25%
August 10, 2017
September 10, 2019
300,000

—

2,287

Unsecured Credit Facility
Swap
1.341
%
1-Month LIBOR + 2.20%
October 3, 2019
August 2, 2021
150,000

539

—

Unsecured Credit Facility (1)
Swap
1.316
%
1-Month LIBOR + 2.20%
September 3, 2019
August 2, 2021
43,900

175

—

Unsecured Credit Facility (2)
Swap
1.824
%
1-Month LIBOR + 2.20%
September 3, 2019
August 10, 2022
103,500

(718
)
—

Unsecured Credit Facility (3)
Swap
1.824
%
1-Month LIBOR + 2.20%
September 3, 2019
August 10, 2022
103,500

(718
)
—

Unsecured Credit Facility (4)
Swap
1.460
%
1-Month LIBOR + 2.00%
September 10, 2019
September 10, 2024
300,000

1,776

—

 
 
 
 
 
 
 
 
 
Mortgages:
 
 
 
 
 
 
 
 
Hilton Garden Inn 52nd Street, New York, NY
Swap
1.600
%
1-Month LIBOR + 2.90%
February 24, 2017
February 24, 2020
44,325

—

479

Courtyard, LA Westside, Culver City, CA
Swap
1.683
%
1-Month LIBOR + 2.75%
August 1, 2017
August 1, 2020
35,000

(8
)
458

Annapolis Waterfront Hotel, MD
Cap
3.350
%
1-Month LIBOR + 2.65%
May 1, 2018
May 1, 2021
28,000

—

22

Hyatt, Union Square, New York, NY
Swap
1.870
%
1-Month LIBOR + 2.30%
June 7, 2019
June 7, 2023
56,000

(556
)
—

Hilton Garden Inn Tribeca, New York, NY
Swap
1.768
%
1-Month LIBOR + 2.25%
July 25, 2019
July 25, 2024
22,725

(169
)
—

Hilton Garden Inn Tribeca, New York, NY
Swap
1.768
%
1-Month LIBOR + 2.25%
July 25, 2019
July 25, 2024
22,725

(169
)
—

Hilton Garden Inn 52nd Street, New York, NY
Swap
1.540
%
1-Month LIBOR + 2.30%
December 4, 2019
December 4, 2022
44,325

23

—

 
 
 
 
 
 
 
$
175

$
4,678

(1) On September 3, 2019, we entered into an accelerated termination agreement on the interest rate swap associated with $50,000 of our unsecured credit facility, which had an initial maturity of October 3, 2019. Also on September 3, 2019, we entered into a new interest rate swap associated with $43,900 of our unsecured credit facility, which will mature on August 2, 2021. As the initial swap was only one month from maturity, the balance in other comprehensive income was reclassified to interest expense.
(2) On September 3, 2019, we entered into an accelerated termination agreement on the interest rate swap associated with $103,500 of our unsecured credit facility, which had an initial maturity of January 10, 2021. Also on September 3, 2019, we entered into a new interest rate swap associated with $103,500 of our unsecured credit facility, which will mature on August 10, 2022. The fair value of the old swap at the time of termination was a liability in the amount of $1,783. Instead of settling this amount with cash consideration at termination, the rate and terms of the new swap were such that, the fair value at termination of the old swap would carry over as the fair value of the new swap at inception. The other
NOTE 8 – FAIR VALUE MEASUREMENTS AND DERIVATIVE INSTRUMENTS (CONTINUED)

comprehensive income related to the old swap will be reclassified to interest expense until the original maturity date of January 10, 2021.
(3) On September 3, 2019, we entered into an accelerated termination agreement on the interest rate swap associated with $103,500 of our unsecured credit facility, which had an initial maturity of January 10, 2021. Also on September 3, 2019, we entered into a new interest rate swap associated with $103,500 of our unsecured credit facility, which will mature on August 10, 2022. The fair value of the old swap at the time of termination was a liability in the amount of $1,783. Instead of settling this amount with cash consideration at termination, the rate and terms of the new swap were such that, the fair value at termination of the old swap would carry over as the fair value of the new swap at inception. The other comprehensive income related to the old swap will be reclassified to interest expense until the original maturity date of January 10, 2021.
(4) On September 10, 2019, we entered into an accelerated termination agreement on the interest rate swap associated with $300,000 of our unsecured credit facility, which had an initial maturity of August 10, 2020. Also on September 10, 2019, we entered into a new interest rate swap associated with $300,000 of our unsecured credit facility, which will mature on September 10, 2024. The fair value of the old swap at the time of termination was a liability in the amount of $1,379. Instead of settling this amount with cash consideration at termination, the rate and terms of the new swap were such that, the fair value at termination of the old swap would carry over as the fair value of the new swap at inception. The other comprehensive income related to the old swap will be reclassified to interest expense until the original maturity date of August 10, 2020.

The fair value of certain swaps and our interest rate caps is included in other assets at December 31, 2019 and December 31, 2018 and the fair value of certain of our interest rate swaps is included in accounts payable, accrued expenses and other liabilities at December 31, 2019 and December 31, 2018.

The net change related to derivative instruments designated as cash flow hedges recognized as unrealized gains and losses reflected on our consolidated balance sheet in accumulated other comprehensive income was a loss of $3,495, a gain of $516, and a gain of $2,536 for the years ended December 31, 2019, 2018 and 2017, respectively.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate derivative. The change in net unrealized gains/losses on cash flow hedges reflects a reclassification of $3,105 of net unrealized gains/losses from accumulated other comprehensive income as a decrease to interest expense during 2019. During 2020, the Company estimates that an additional $3,918 will be reclassified as an increase to interest expense.

Fair Value of Debt
The Company estimates the fair value of its fixed rate debt and the credit spreads over variable market rates on its variable rate debt by discounting the future cash flows of each instrument at estimated market rates or credit spreads consistent with the maturity of the debt obligation with similar credit policies. Credit spreads take into consideration general market conditions and maturity. The inputs utilized in estimating the fair value of debt are classified in Level 2 of the fair value hierarchy.  As of December 31, 2019, the carrying value and estimated fair value of the Company’s debt were $1,128,199 and $1,098,082, respectively.  As of December 31, 2018, the carrying value and estimated fair value of the Company’s debt were $1,093,031 and $1,082,485, respectively.