Derivative Instruments

12 Months Ended

Dec. 31, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

DERIVATIVE INSTRUMENTS

In connection with the Cabot acquisition, the Company assumed the seller’s interest in three interest rate swap contracts (“Swaps”) that eliminate the impact of changes in interest rates on the payments required under variable rate mortgages that were also assumed. The Swaps had an aggregate notional amounts of $103.6 million and $105.2 million at December 31, 2014 and 2013, respectively, and expire at various dates between 2018 and 2020.

The Company designated the Swaps as cash flow hedges on November 22, 2013. The change in the fair value of the Swaps from October 8, 2013 through November 22, 2013 in the amount of $813,000 is included as an increase in interest expense in the accompanying consolidated statements of comprehensive income. From November 22, 2013 through December 31, 2013, the effective portion of the change in the fair value of the Swaps was an increase in the amount of $1.6 million and was recorded as an increase to other comprehensive (loss) income. For the year ended December 31, 2014, the effective portion of the change in the fair value of the Swaps was a decrease in the amount of $3.4 million which was recorded as a decrease in other comprehensive (loss) income. These amounts reported in accumulated other comprehensive (loss) income will be reclassified to interest expense as interest payments are made on the variable rate mortgages. The amount of loss reclassified from accumulated other comprehensive (loss) income was $1.5 million for the year ended December 31, 2014. The ineffective portion of the change in the fair value of the Swaps from November 22, 2013 through December 31, 2013 in the amount of $266,000 was recorded as a reduction of interest expense in the accompanying consolidated statements of comprehensive income. The ineffective portion of the change in the fair value of the Swaps for the year ended December 31, 2014 in the amount of $82,000 was recorded as an increase to interest expense in the accompanying consolidated statements of comprehensive income.

The fair value of the interest rate swaps in the amount of $8.5 million and $8.4 million as of December 31, 2014 and 2013, respectively, is included in other liabilities in the accompanying consolidated balance sheets. The Company estimates that $1.2 million will be reclassified from accumulated other comprehensive income as an increase to interest expense over the next twelve months.

The Company has agreements with its derivative counterparties that contain a provision whereby if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. If the Company were to breach any of the contractual provisions of the derivative contracts, it would be required to settle its obligations under the agreements at their termination value including accrued interest for approximately $8.5 million.