Derivative Financial Instruments

The Company may enter into interest rate derivative contracts to manage exposure to interest rate risks. The Company does not use derivative financial instruments for trading or speculative purposes. Derivative financial instruments are recognized at fair value and presented within other assets and liabilities in the condensed consolidated balance sheets. Gains and losses resulting from changes in the fair value of derivatives that are neither designated nor qualify as hedging instruments are recognized within the change in fair value of interest rate derivatives in the condensed consolidated statements of income. For derivatives that qualify as cash flow hedges, the gain or loss is reported as a component of other comprehensive income (loss) and reclassified into earnings in the periods during which the hedged forecasted transaction affects earnings.

On March 7, 2018, the Operating Partnership entered into a LIBOR interest rate cap agreement on a notional amount of $50.0 million at a strike rate of 2.25% for a premium of $0.3 million. The interest rate cap expires on April 1, 2020. This interest rate cap has not been designated as a hedge for accounting purposes.

On April 23, 2018, the Operating Partnership entered into a floating-to-fixed interest rate swap attributable to one-month LIBOR indexed interest payments with a notional amount of $50.0 million. The interest rate swap has a fixed rate of 2.783%, an effective date of May 1, 2018, and a maturity date of May 1, 2023. This interest rate swap has not been designated as a hedge for accounting purposes.

On July 16, 2018, the Operating Partnership entered into a LIBOR interest rate cap agreement on a notional amount of $50.0 million at a strike rate of 2.50% for a premium of $0.3 million. The interest rate cap expires on August 1, 2020. This interest rate cap has not been designated as a hedge for accounting purposes.

On July 27, 2018, the Company entered into a LIBOR interest rate swap agreement that effectively fixes the interest rate of the new Johns Hopkins Village note payable at 4.19% with a maturity date of August 7, 2025. The Company designated the interest rate swap as a hedge for accounting purposes. During the three months ended September 30, 2018, unrealized losses of $130,000 were recorded to other comprehensive loss, and $67,000 of realized losses were reclassified out of accumulated other comprehensive loss to interest expense due to payments made to the swap counterparty during the three months ended September 30, 2018. During the next 12 months, the Company anticipates reclassifying approximately $173,000 of net hedging losses from accumulated other comprehensive loss into earnings to offset the variability of the hedged item during this period.

The Company’s derivatives were comprised of the following as of September 30, 2018 and December 31, 2017 (in thousands):



	September 30, 2018							December 31, 2017
	(Unaudited)
	Notional Amount		Fair Value					Notional Amount		Fair Value
Derivatives not designated as accounting hedges			Asset		Liability					Asset		Liability
Interest rate swaps	$	100,000	$	744	$	—		$	56,079	$	10	$	(69	)
Interest rate caps	300,000		2,597		—			345,000		1,515		—
Total derivatives not designated as accounting hedges	400,000		3,341		—			401,079		1,525		(69		)
Interest rate swap designated as accounting hedge	52,930		—		(63		)	—		—		—
Total derivatives	$	452,930	$	3,341	$	(63	)	$	401,079	$	1,525	$	(69	)

The changes in the fair value of the Company’s derivatives during the three and nine months ended September 30, 2018 and 2017 were comprised of the following (in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Interest rate swaps	$	319		$	124		$	673		$	392
Interest rate caps	(151		)	(37		)	453			(92		)
Total change in fair value of interest rate derivatives	$	168		$	87		$	1,126		$	300
Comprehensive income statement presentation:
Change in fair value of interest rate derivatives	$	298		$	87		$	1,256		$	300
Unrealized cash flow hedge gains losses	(130		)	$	—		$	(130	)	$	—
Total change in fair value of interest rate derivatives	$	168		$	87		$	1,126		$	300

Subsequent to September 30, 2018

On October 12, 2018, the Company entered into a LIBOR interest rate swap agreement that effectively fixes the variable component on the interest rate of the initial $10.5 million tranche of new Lightfoot Marketplace note payable. The swap matures on October 12, 2023. The Company designated the interest rate swap as a hedge for accounting purposes.