Interest Rate Derivative Agreements

12 Months Ended

Dec. 31, 2014

Interest Rate Derivative Agreements

Interest Rate Derivative Agreements

5. Interest Rate Derivative Agreements

At December 31, 2014 and 2013, the Company held two interest rate cap agreements. At December 31, 2013, the Company also held one interest rate swap agreement. The Company holds its interest rate derivative agreements in order to manage its exposure to the interest rate risks related to its floating rate debt. The first interest rate cap agreement is on the Hilton San Diego Bayfront mortgage, which mortgage currently bears an interest rate of one-month LIBOR plus 225 basis points. The initial interest rate cap agreement, whose strike rate was 3.75%, matured in April 2013. In April 2013, the Company purchased a new interest rate cap agreement on the Hilton San Diego Bayfront mortgage for a cost of $12,000, which extended the maturity date from April 2013 to April 2015. The new interest rate cap agreement on the Hilton San Diego Bayfront continues to cap the LIBOR rate at 3.75%. The notional amount of the related debt capped totaled $117.0 million at both December 31, 2014 and 2013. The second interest rate cap agreement is on the Doubletree Guest Suites Times Square mortgage, which mortgage currently bears an interest rate of one-month LIBOR plus 325 basis points. The Doubletree Guest Suites Times Square cap agreement caps the LIBOR rate at 4.0% until October 2015. The notional amount of the related debt capped totaled $177.4 million and $179.6 million at December 31, 2014 and 2013, respectively.

At December 31, 2013, the Company held an interest rate swap agreement on the JW Marriott New Orleans mortgage. The interest rate swap agreement capped the LIBOR interest rate on the underlying debt at a total interest rate of 5.45%, and the maturity date was in September 2015. The notional amount of the related debt totaled $39.8 million as of December 31, 2013. In conjunction with the Company’s refinancing of the mortgage secured by the JW Marriott New Orleans in December 2014 (see Note 7), the Company paid a fee of $0.6 million to terminate the interest rate swap agreement.

None of the interest rate derivative agreements qualify for effective hedge accounting treatment. Accordingly, changes in the fair value of the Company’s interest rate derivative agreements resulted in net gain of $0.5 million for both the years ended December 31, 2014 and 2013, and a net loss of $0.4 million for the year ended December 31, 2012, which have been reflected as decreases in interest expense for 2014 and 2013, and as an increase in interest expense for 2012. As of December 31, 2014, the fair values of the interest rate cap agreements were de minimus. As of December 31, 2013, the fair values of the interest rate cap agreements totaled an asset of $16,000. The interest rate cap agreements are included in other assets, net on the Company’s consolidated balance sheets. The fair value of the interest rate swap agreement was a liability of zero and $1.1 million as of December 31, 2014 and 2013, respectively, and is included in other liabilities on the Company’s consolidated balance sheet as of December 31, 2013.