Interest Rate Contracts

9 Months Ended

Sep. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Interest Rate Contracts

Interest Rate Contracts

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both business operations and economic conditions. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of debt funding and the use of derivative financial instruments. Specifically, the Company entered into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by expected cash payments principally related to borrowings and interest rates. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The Company does not use derivatives for trading or speculative purposes.

Derivative Instruments

On July 9, 2015, the Company executed three interest rate swap agreements to hedge the variable cash flows associated with certain existing or forecasted LIBO Rate-based variable-rate debt, including the Company's Unsecured Credit Facility (July 2015). Three interest rate swaps are effective for the periods from July 9, 2015 to July 1, 2020, January 1, 2016 to July 1, 2018, and July 1, 2016 to July 1, 2018, and have notional amounts of $425.0 million, $300.0 million, and $100.0 million, respectively.

On March 24, 2016, the Company executed an interest rate swap agreement to hedge interest risk related to a future fixed-rate debt issuance. The forward-starting interest rate swap with a notional amount of $200.0 million became effective May 2016 and has a term of 10 years with a mandatory settlement date on November 30, 2016.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive loss ("AOCL") and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During 2016, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt and forecasted issuances of debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings.

The following table sets forth a summary of the interest rate swaps at September 30, 2016 and December 31, 2015:

				Fair Value (1)						Current Notional Amount (2)
Derivative Instrument	Effective Date	Maturity Date	Interest Strike Rate	September 30, 2016			December 31, 2015			September 30, 2016		December 31, 2015
Liabilities:
Interest Rate Swap	7/9/2015	7/1/2020	1.687%	$	(12,187	)	$	(4,305	)	$	425,000	$	425,000
Interest Rate Swap	1/1/2016	7/1/2018	1.320%	(2,956		)	(1,605		)	300,000		—
Interest Rate Swap	7/1/2016	7/1/2018	1.495%	(1,290		)	(484		)	100,000		—
Interest Rate Swap	5/31/2016	(3)	1.811%	(6,817		)	—			200,000		—
Total				$	(23,250	)	$	(6,394	)	$	1,025,000	$	425,000

(1) The Company records all derivative instruments on a gross basis in the consolidated balance sheets, and accordingly, there are no offsetting amounts that

net assets against liabilities. As of September 30, 2016, all of the derivatives were in a liability position, and as such, the fair value is included in the line item "Interest rate swap liability" in the consolidated balance sheets.

(2) Represents the notional amount of swaps that are effective as of the balance sheet date of September 30, 2016 and December 31, 2015.

(3) This interest rate swap has a maturity date of May 31, 2026, but requires a mandatory redemption on November 30, 2016, at which time the fair value will be cash settled.

The following table sets forth the impact of the interest rate swap on the consolidated statements of operations for the periods presented:

	Three Months Ended			Nine Months Ended
	September 30, 2016			September 30, 2016
Interest Rate Swap in Cash Flow Hedging Relationship:
Amount of gain (loss) recognized in AOCL on derivatives (effective portion)	$	4,506		$	(23,815	)
Amount of gain (loss) reclassified from AOCL into earnings under “Interest expense” (effective portion)	$	(1,988	)	$	(6,209	)
Amount of gain (loss) recognized in earnings under “Interest expense” (ineffective portion and amount excluded from effectiveness testing)	$	25		$	21

During the next twelve months, the Company estimates that an additional $7.7 million will be recognized from AOCL into earnings.

Certain agreements with the derivative counterparties contain a provision where if the Company defaults on any of the Company's indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender within a specified time period, then the Company could also be declared in default on its derivative obligations.

As of September 30, 2016 and December 31, 2015, the fair value of interest rate swaps in a net liability position, which excludes any adjustment for nonperformance risk related to these agreements, was approximately $23.3 million and $6.4 million, respectively. As of September 30, 2016 and December 31, 2015, the Company had not posted any collateral related to these agreements.