Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2021

5. Fair Value of Financial Instruments

Except as described below, the carrying value of the Company’s financial instruments approximates fair value due to the short-term nature of these financial instruments.

Debt

The Company estimates the fair value of its debt by discounting the future cash flows of each instrument at estimated market rates consistent with the maturity of a debt obligation with similar credit terms and credit characteristics, which are Level 3 inputs under the fair value hierarchy. Market rates take into consideration general market conditions and maturity. As of September 30, 2021, the carrying value and estimated fair value of the Company’s debt were approximately $1.4 billion and $1.3 billion, respectively. As of December 31, 2020, both the carrying value and estimated fair value of the Company’s debt were approximately $1.5 billion. Both the carrying value and estimated fair value of the Company’s debt (as discussed above) are net of unamortized debt issuance costs related to term loans, senior notes and mortgage debt for each specific year.

Derivative Instruments

Currently, the Company uses interest rate swaps to manage its interest rate risk on variable-rate debt. Throughout the terms of these interest rate swaps, the Company pays a fixed rate of interest and receives a floating rate of interest equal to the one-month LIBOR. The swaps are designed to effectively fix the interest payments on variable-rate debt instruments. These swap instruments are recorded at fair value and, if in an asset position, are included in other assets, net, and, if in a liability position, are included in accounts payable and other liabilities in the Company’s consolidated balance sheets. The fair values of the Company’s interest rate swap agreements are determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts, which is considered a Level 2 measurement under the fair value hierarchy. The variable cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The following table sets forth information for each of the Company’s interest rate swap agreements outstanding as of September 30, 2021 and December 31, 2020. All dollar amounts are in thousands.

						Fair Value Asset (Liability)
Notional Amount at September 30, 2021		Origination Date	Effective Date	Maturity Date	Swap Fixed Interest Rate	September 30, 2021			December 31, 2020
Active interest rate swaps designated as cash flow hedges at September 30, 2021:
	100,000	4/7/2016	9/30/2016	3/31/2023	1.33%	$	(1,690	)	$	(2,681	)
	75,000	5/31/2017	7/31/2017	6/30/2024	1.96%		(3,022	)		(4,639	)
	10,000	8/10/2017	8/10/2017	6/30/2024	2.01%		(416	)		(636	)
	50,000	6/1/2018	1/31/2019	6/30/2025	2.89%		(4,065	)		(5,911	)
	50,000	7/2/2019	7/5/2019	7/18/2024	1.65%		(1,610	)		(2,593	)
	50,000	8/21/2019	8/23/2019	8/18/2024	1.32%		(1,141	)		(2,036	)
	50,000	8/21/2019	8/23/2019	8/30/2024	1.32%		(1,143	)		(2,049	)
	85,000	12/31/2019	12/31/2019	12/31/2029	1.86%		(3,978	)		(8,677	)
	25,000	12/6/2018	1/31/2020	6/30/2025	2.75%		(1,904	)		(2,801	)
	50,000	12/7/2018	5/18/2020	1/31/2024	2.72%		(2,736	)		(3,967	)
	75,000	8/21/2019	5/18/2020	5/18/2025	1.27%		(1,536	)		(3,294	)
	75,000	7/31/2020	8/18/2020	8/18/2022	0.13%		(8	)		14
	75,000	8/21/2019	5/18/2021	5/18/2026	1.30%		(1,401	)		(3,415	)
	770,000						(24,650	)		(42,685	)

Matured interest rate swap at September 30, 2021:
$	50,000	4/7/2016	9/30/2016	3/31/2021	1.09%		-			(117	)
						$	(24,650	)	$	(42,802	)

The Company assesses, both at inception and on an ongoing basis, the effectiveness of its qualifying cash flow hedges. As of September 30, 2021, all of the 13 active interest rate swap agreements listed above were designated as cash flow hedges. The change in the fair value of the Company’s designated cash flow hedges is recorded to accumulated other comprehensive loss, a component of shareholders’ equity in the Company’s consolidated balance sheets. Amounts reported in accumulated other comprehensive loss will be reclassified to interest and other expense, net as interest payments are made or received on the Company’s variable-rate derivatives. The Company estimates that approximately $11.4 million of net unrealized losses included in accumulated other comprehensive loss at September 30, 2021 will be reclassified as an increase to interest and other expense, net within the next 12 months.

The following table presents the effect of derivative instruments in cash flow hedging relationships in the Company’s consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2021 and 2020 (in thousands):

	Net Unrealized Gain Recognized in Other Comprehensive Income (Loss)				Net Unrealized Loss Reclassified from Accumulated Other Comprehensive Income (Loss) to Interest and Other Expense, net
	Three Months Ended September 30,				Three Months Ended September 30,
	2021		2020		2021			2020
Interest rate derivatives in cash flow hedging relationships	$	478	$	33	$	(2,948	)	$	(2,706	)

	Net Unrealized Gain (Loss) Recognized in Other Comprehensive Income (Loss)					Net Unrealized Loss Reclassified from Accumulated Other Comprehensive Income (Loss) to Interest and Other Expense, net
	Nine Months Ended September 30,					Nine Months Ended September 30,
	2021		2020			2021			2020
Interest rate derivatives in cash flow hedging relationships	$	9,714	$	(48,628	)	$	(8,438	)	$	(5,006	)

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details