Derivative Financial Instruments

9 Months Ended

Sep. 30, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

We utilize interest rate swap agreements for risk management purposes to reduce the impact of changes in interest rates on our variable rate debt. We may also enter into forward starting swaps to set the effective interest rate on planned variable rate financing. On the date we enter into an interest rate swap, the derivative is designated as a hedge against the variability of cash flows that are to be paid in connection with a recognized liability. Subsequent changes in the fair value of a derivative designated as a cash flow hedge that is determined to be effective are recorded in other comprehensive income (“OCI”) until earnings are affected by the variability of cash flows of the hedged transaction. The differential between fixed and variable rates to be paid or received is accrued, as interest rates change, and recognized currently as interest expense in the condensed consolidated statements of operations and comprehensive income. We assess effectiveness of our cash flow hedges both at inception and on an ongoing basis. Our cash flow hedges become ineffective, for example, if critical terms of the hedging instrument and the debt do not perfectly match such as notional amounts, settlement dates, reset dates and calculation period and LIBOR rate. At September 30, 2021, all of our hedges were effective.

In July 2017, the Financial Conduct Authority, the authority that regulates LIBOR, announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. In November 2020, the ICE Benchmark Administration, the administrator of LIBOR, announced plans to consult on ceasing publications of LIBOR on December 31, 2021 for only the one week and two week LIBOR tenors, and on June 30, 2023 for all other LIBOR tenors. The Alternative Reference Rates Committee (ARRC) has proposed that the Secured Overnight Financing Rate (SOFR) is the rate that represents best practice as the alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. ARRC has proposed a paced market transition plan to SOFR from USD-LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to USD-LIBOR. There is no guarantee that a transition from LIBOR to an alternative will not result in financial market disruptions, significant increases in benchmark rates, or financing costs to borrowers. We have material contracts that are indexed to USD-LIBOR, and we are monitoring this activity and evaluating the related risks.

At September 30, 2021, we had ten interest rate swap agreements in effect for an aggregate notional amount of $310.0 million converting our floating rate corporate debt to fixed rate debt.

The following table summarizes the notional values and fair values of our derivative financial instruments as of September 30, 2021:


	Hedge Type	Notional Value		Fixed Rate		Fair Value		Expiration Date
Underlying Debt
		(In thousands)				(In thousands)










Derivative Liabilities
Unsecured term loan	Cash Flow	$	60,000	1.770	%	$	(1,355)	03/2023
Unsecured term loan	Cash Flow	30,000		1.260	%	(631)		11/2024
Unsecured term loan	Cash Flow	10,000		1.259	%	(210)		11/2024
Unsecured term loan	Cash Flow	10,000		1.269	%	(213)		11/2024
Unsecured term loan	Cash Flow	25,000		1.310	%	(564)		01/2025
Unsecured term loan	Cash Flow	25,000		1.324	%	(576)		01/2025
Unsecured term loan	Cash Flow	50,000		1.297	%	(863)		11/2026
Unsecured term loan	Cash Flow	25,000		1.402	%	(551)		01/2027
Unsecured term loan	Cash Flow	50,000		1.382	%	(1,053)		01/2027
Unsecured term loan	Cash Flow	25,000		1.398	%	(547)		01/2027
Total Derivative Liabilities:		$	310,000			$	(6,563)

The following table summarizes the notional values and fair values of our derivative financial instruments as of December 31, 2020:


	Hedge Type	Notional Value		Fixed Rate		Fair Value		Expiration Date
Underlying Debt
		(In thousands)				(In thousands)
Derivative Liabilities
Unsecured term loan	Cash Flow	$	20,000	1.498	%	$	(112)	05/2021
Unsecured term loan	Cash Flow	15,000		1.490	%	(83)		05/2021
Unsecured term loan	Cash Flow	40,000		1.480	%	(220)		05/2021
Unsecured term loan	Cash Flow	60,000		1.770	%	(2,128)		03/2023
Unsecured term loan	Cash Flow	30,000		1.260	%	(1,193)		11/2024
Unsecured term loan	Cash Flow	10,000		1.259	%	(397)		11/2024
Unsecured term loan	Cash Flow	10,000		1.269	%	(401)		11/2024
Unsecured term loan	Cash Flow	25,000		1.310	%	(1,071)		01/2025
Unsecured term loan	Cash Flow	25,000		1.324	%	(1,085)		01/2025
Unsecured term loan	Cash Flow	50,000		1.297	%	(2,522)		11/2026
Unsecured term loan	Cash Flow	25,000		1.402	%	(1,425)		01/2027
		$	310,000			$	(10,637)
Derivative Liabilities - Forward Swaps
Unsecured term loan	Cash Flow	50,000		1.382	%	(2,541)		01/2027
Unsecured term loan	Cash Flow	25,000		1.398	%	(1,290)		01/2027
Total Derivative Liabilities		$	385,000			$	(14,468)

The effect of derivative financial instruments on our condensed consolidated statements of operations and comprehensive income for the three months ended September 30, 2021 and 2020 is summarized as follows:


	Amount of Gain (Loss) Recognized in OCI on Derivative				Location of Gain (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
Derivatives in Cash Flow Hedging Relationship	Three Months Ended September 30,					Three Months Ended September 30,
	2021		2020			2021		2020
	(In thousands)					(In thousands)
Interest rate contracts - assets	$	—	$	—	Interest Expense	$	—	$	—
Interest rate contracts - liabilities	2,248		1,949		Interest Expense	(1,047)		(1,013)
Total	$	2,248	$	1,949	Total	$	(1,047)	$	(1,013)

The effect of derivative financial instruments on our condensed consolidated statements of operations and comprehensive income for the nine months ended September 30, 2021 and 2020 is summarized as follows:


	Amount of Gain (Loss) Recognized in OCI on Derivative				Location of Gain (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
Derivatives in Cash Flow Hedging Relationship	Nine Months Ended September 30,					Nine Months Ended September 30,
	2021		2020			2021		2020
	(In thousands)					(In thousands)
Interest rate contracts - assets	$	—	$	(2,345)	Interest Expense	$	—	$	14
Interest rate contracts - liabilities	10,976		(14,458)		Interest Expense	(3,070)		(1,711)
Total	$	10,976	$	(16,803)	Total	$	(3,070)	$	(1,697)