Derivatives and Hedging Activities

12 Months Ended

Dec. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Risk Management Objective of Using Derivatives

The Company may use derivative financial instruments, including interest rate swaps, caps, options, floors and other interest rate derivative contracts, to hedge all or a portion of the interest rate risk associated with its borrowings. The principal objective of such arrangements is to minimize the risks and costs associated with the Company’s operating and financial structure as well as to hedge specific anticipated transactions. The Company does not intend to utilize derivatives for speculative or other purposes other than interest rate risk management. The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, the Company only enters into derivative financial instruments with counterparties with high credit ratings and with major financial institutions with which the Company and its related parties may also have other financial relationships. The Company does not anticipate that any of the counterparties will fail to meet their obligations.

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the accompanying consolidated balance sheets as of December 31, 2018. The Company did not have any derivative instruments outstanding as of December 31, 2019 due to the termination of its interest rate swaps after the repayment of certain mortgages during the third quarter of 2019 (see Note 5 — Mortgage Notes Payable, Net for additional information).

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily has used, and may use in the future, interest rate swaps and collars as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate collars designated as cash flow hedges involve the receipt of variable-rate amounts if interest rates rise above the cap strike rate on the contract and payments of variable-rate amounts if interest rates fall below the floor strike rate on the contract.

Effective January 1, 2019 and upon adoption of ASU No. 2017-12 (see Note 3 — Summary of Significant Accounting Policies), all of the changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in accumulated other comprehensive income (loss) and are subsequently reclassified into earnings in the period that the hedged forecasted transaction impacts earnings. Prior to January 1, 2019, the ineffective portion of the change in fair value of the derivatives was recognized directly in earnings. During the years ended December 31, 2019, 2018 and 2017, such derivatives were used to hedge the variable cash flows associated with variable-rate debt.

Additionally, during the year ended December 31, 2019, the Company accelerated the reclassification of amounts in other comprehensive income to earnings because it became probable that the hedged forecasted amounts would not occur. This acceleration resulted in a loss of $1.5 million during the year ended December 31, 2019, which is included in interest expense in the consolidated statement of operations and comprehensive (loss) income.

As of December 31, 2019 the Company did not have any derivatives that were designated as cash flow hedges of interest rate risk. As of December 31, 2018, the Company had the following derivatives that were designated as cash flow hedges of interest rate risk:

The table below details the location in the consolidated financial statements of the gain or loss recognized on interest rate derivatives designated as cash flow hedges for the years ended December 31, 2019, 2018 and 2017, respectively:



	Year Ended December 31,
(In thousands)	2019			2018			2017
Amount of (loss) gain recognized in accumulated other comprehensive (loss) income on interest rate derivatives (effective portion)^[1]	$	(979	)	$	(670	)	$	56
Amount of loss reclassified from accumulated other comprehensive loss into income as interest expense	$	(36	)	$	(125	)	$	(39	)
Amount of gain recognized in income on derivative (ineffective portion, reclassifications of missed forecasted transactions and amounts excluded from effectiveness testing)	$	—		$	81		$	—
Total interest expense recorded in the consolidated statement of operations	$	77,994		$	66,789		$	60,305

^__________


^[1]	Excludes a loss of $1.5 million in the Company’s consolidated statements of operations for the year ended December 31, 2019 recorded upon termination of its interest rate swaps after the repayment of certain mortgages (see Note 5 — Mortgage Notes Payable, Net for additional information).

Non-Designated Hedges

As of December 31, 2019, the Company did not have any derivatives that were not designated as hedges of in qualifying hedging relationships. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings. A gain of approximately $21,000 is included in interest expense on the consolidated statements of operations and comprehensive loss for the year ended December 31, 2017. There were no gains or losses on non-designated hedging relationships during the years ended December 31, 2019 and 2018.

Offsetting Derivatives

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of December 31, 2018. The Company did not have any derivatives outstanding as of December 31, 2019. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the consolidated balance sheets.



											Gross Amounts Not Offset on the Balance Sheet
(In thousands)	Gross Amounts of Recognized Assets		Gross Amounts of Recognized (Liabilities)			Gross Amounts Offset on the Balance Sheet		Net Amounts of Assets (Liabilities) Presented on the Balance Sheet			Financial Instruments		Cash Collateral Received (Posted)		Net Amount
December 31, 2019	$	—	$	—		$	—	$	—		$	—	$	—	$	—
December 31, 2018	$	—	$	(531	)	$	—	$	(531	)	$	—	$	—	$	(531	)

(In thousands)

Balance Sheet Location

As of December 31, 2018

Derivatives designated as hedging instruments:

Interest Rate “Pay fixed” Swaps

Derivative liabilities, at fair value