XML 28 R18.htm IDEA: XBRL DOCUMENT v3.23.3
FAIR VALUE MEASUREMENTS AND DERIVATIVE INSTRUMENTS
 9 Months Ended
Sep. 30, 2023
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 September 30, 2023, 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 counter-party’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 counter-parties. However, as of September 30, 2023 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 following table presents our derivative instruments as of September 30, 2023 and December 31, 2022:
    Estimated Fair Value
      Asset Balance
Hedged DebtTypeStrike RateIndexEffective DateDerivative Contract Maturity DateNotional AmountSeptember 30, 2023December 31, 2022
Term Loan Instruments:        
Credit FacilitySwap1.341 %
1-Month SOFR + 2.50%
August 30, 2022September 10, 2024$270,000 $9,988 $14,123 
Credit FacilitySwap1.279 %
1-Month SOFR + 2.50%
September 6, 2022August 4, 202430,000 1,017 1,533 
        
Mortgages:        
Hyatt, Union Square, New York, NYSwap1.870 %
1-Month LIBOR + 2.30%
June 7, 2019June 7, 202356,000 — 699 
Hilton Garden Inn Tribeca, New York, NYSwap1.768 %
1-Month LIBOR + 2.25%
July 25, 2019July 25, 202422,725 678 1,007 
Hilton Garden Inn Tribeca, New York, NYSwap1.768 %
1-Month LIBOR + 2.25%
July 25, 2019July 25, 202422,725 678 1,007 
Hilton Garden Inn 52nd Street, New York, NYCap4.000 %1-Month SOFRDecember 4, 2022December 1, 202344,325 100 340 
Hyatt, Union Square, New York, NYSwap4.988 %
1-Month SOFR + 2.40%
June 7, 2023June 7, 202456,000 145 — 
     $12,606 $18,709 

The fair value of the interest rate swaps and cap are included in Other Assets at September 30, 2023 and December 31, 2022.

The net change related to derivative instruments designated as cash flow hedges recognized as unrealized gains reflected on our consolidated balance sheet in accumulated other comprehensive income was a (loss)/gain of $(2,701) and $5,799, and $(6,005) and $25,902 for the three and nine months ended September 30, 2023 and 2022, respectively.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made and received on the Company’s variable-rate derivatives. The change in net unrealized gains/(losses) on cash flow hedges reflects a reclassification of $46 and $(136), and $98 and $(875) of net unrealized gains/(losses) from accumulated other comprehensive income as an increase/decrease to interest expense for the three and nine months ended September 30, 2023 and 2022, respectively. For the next twelve months ending September 30, 2024, we estimate that an additional $12,847 will be reclassified as a decrease to interest expense.

Fair Value of Debt
We estimate the fair value of our fixed rate debt and the credit spreads over variable market rates on our 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 September 30, 2023, the carrying value and estimated fair value of our debt was $582,351 and $566,640, respectively. As of December 31, 2022, the carrying value and estimated fair value of our debt was $629,885 and $610,401, respectively.