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Fair Value Measurements and Interest Rate Derivatives (Tables)
 3 Months Ended
Mar. 31, 2017
Fair Value Measurements and Interest Rate Derivatives  
Schedule of assets measured at fair value on a recurring and non-recurring basis

The following table presents the Company’s assets measured at fair value on a recurring and non-recurring basis at March 31, 2017 and December 31, 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at Reporting Date

 

    

Total

    

Level 1

    

Level 2

    

Level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2017 (unaudited):

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate cap derivatives

 

$

 4

 

$

—

 

$

 4

 

$

—

Interest rate swap derivatives

 

 

2,421

 

 

—

 

 

2,421

 

 

—

Life insurance policy (1)

 

 

855

 

 

—

 

 

855

 

 

—

Total assets measured at fair value at March 31, 2017

 

$

3,280

 

$

—

 

$

3,280

 

$

—

December 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate cap derivative

 

$

—

 

$

—

 

$

—

 

$

—

Interest rate swap derivatives

 

 

1,749

 

 

—

 

 

1,749

 

 

—

Life insurance policy (1)

 

 

861

 

 

—

 

 

861

 

 

—

Total assets measured at fair value at December 31, 2016

 

$

2,610

 

$

—

 

$

2,610

 

$

—

 

(1)

Includes the split life insurance policy for a former Company associate. These amounts are included in other assets, net on the accompanying consolidated balance sheets, and will be used to reimburse the Company for payments made to the former associate from the related retirement benefit agreement, which is included in accrued payroll and employee benefits on the accompanying consolidated balance sheets.
Schedule of liabilities measured at fair value on a recurring and non-recurring basis

The following table presents the Company’s liabilities measured at fair value on a recurring and non-recurring basis at March 31, 2017 and December 31, 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at Reporting Date

 

    

Total

    

Level 1

    

Level 2

    

Level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2017 (unaudited):

 

 

 

 

 

 

 

 

 

 

 

 

Retirement benefit agreement (1)

 

$

855

 

$

—

 

$

855

 

$

—

Total liabilities measured at fair value at March 31, 2017

 

$

855

 

$

—

 

$

855

 

$

—

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

Retirement benefit agreement (1)

 

$

861

 

$

—

 

$

861

 

$

—

Total liabilities measured at fair value at December 31, 2016

 

$

861

 

$

—

 

$

861

 

$

—

 

(1)

Includes the retirement benefit agreement for a former Company associate. The agreement calls for the balance of the retirement benefit to be paid out to the former associate in ten annual installments, beginning in 2011. As such, the Company has paid the former associate a total of $1.2 million through March 31, 2017, which was reimbursed to the Company using funds from the related split life insurance policy noted above. These amounts are included in accrued payroll and employee benefits on the accompanying consolidated balance sheets.
Schedule of interest rate derivatives

The Company’s interest rate derivatives, which are not designated as effective cash flow hedges, consisted of the following at March 31, 2017 (unaudited) and December 31, 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated Fair

Value Asset

 

 

Strike / Capped

 

Effective

Maturity

 

Notional

 

March 31,

 

December 31, 

Hedged Debt

Type

Rate

Index

Date

Date

 

Amount

 

2017

 

2016

Hilton San Diego Bayfront (1)

Cap

4.250

%

1-Month LIBOR

April 15, 2015

May 1, 2017

 

$

110,772

 

$

 —

 

$

 —

Hilton San Diego Bayfront (1)

Cap

4.250

%

1-Month LIBOR

May 1, 2017

May 1, 2019

 

$

N/A

 

 

 4

 

 

 —

$85.0 million term loan (2)

Swap

3.391

%

1-Month LIBOR

October 29, 2015

September 2, 2022

 

$

85,000

 

 

1,610

 

 

1,336

$100.0 million term loan (3)

Swap

3.653

%

1-Month LIBOR

January 29, 2016

January 31, 2023

 

$

100,000

 

 

811

 

 

413

 

 

 

 

 

 

 

 

 

 

 

$

2,425

 

$

1,749

 

(1)

In March 2017, the Company purchased a new interest rate cap agreement for $19,000 related to the loan secured by the Hilton San Diego Bayfront. The new agreement, whose terms are substantially the same as the terms under the old cap agreement, will effectively replace the old agreement on May 1, 2017. The fair values of both Hilton San Diego Bayfront cap agreements are included in other assets, net on the accompanying consolidated balance sheets.

(2)

The fair value of the $85.0 million term loan swap agreement is included in other assets, net on the Company’s consolidated balance sheets. The 1-month LIBOR rate was swapped to a fixed rate of 1.591%.

(3)

The fair value of the $100.0 million term loan swap agreement is included in other assets, net on the Company’s consolidated balance sheets. The 1-month LIBOR rate was swapped to a fixed rate of 1.853%.
Schedule of changes in fair value of interest rate derivatives

Noncash changes in the fair values of the Company’s interest rate derivatives resulted in (decreases) increases to interest expense for the three months ended March 31, 2017 and 2016 as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Three Months Ended

 

 

 

March 31, 2017

 

March 31, 2016

 

 

 

(unaudited)

 

(unaudited)

 

(Gain) loss on derivatives, net

 

$

(657)

 

$

6,402