Derivatives

Our objectives in using derivatives are to add stability to interest expense and to manage our cash flow volatility and exposure to interest rate movements. To accomplish this objective, we primarily use interest rate protection agreements as part of our interest rate risk management strategy. Interest rate protection agreements designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

Our agreements with our derivative counterparties contain provisions whereby a default on any of our indebtedness, could cause us to be declared in default on our derivative obligations subject to certain thresholds. As of September 30, 2017, we had not posted any collateral related to these agreements and were not in breach of any of the provisions of these agreements. If we had breached these agreements, we could have been required to settle our obligations under the agreements at their termination value.

Fair Value Hedges

In connection with the originations of the seven-year, $200,000 unsecured loan (the "2014 Unsecured Term Loan") and the seven-year, $260,000 unsecured loan (the "2015 Unsecured Term Loan" and together with the 2014 Unsecured Term Loan, the "Unsecured Term Loans") (See Note 4) , we entered into interest rate protection agreements to manage our exposure to changes in the one month LIBOR rate. The four interest rate protection agreements, which fix the variable rate of the 2014 Unsecured Term Loan, have an aggregate notional value of $200,000, mature on January 29, 2021 and fix the LIBOR rate at a weighted average rate of 2.29% (the "2014 Swaps"). The six interest rate protection agreements, which fix the variable rate of the 2015 Unsecured Term Loan, have an aggregate notional value of $260,000, mature on September 12, 2022 and fix the LIBOR rate at a weighted average rate of 1.79% (the "2015 Swaps"). We designated the 2014 Swaps and 2015 Swaps as cash flow hedges.

Derivative Instruments Not Designated for Hedge Accounting Treatment

In September 2017, we entered into two interest rate protection agreements (the "Treasury Locks"), with an aggregate notional value of $100,000, in order to fix the interest rate on an anticipated unsecured debt offering. The Treasury Locks fix the ten year U.S. Treasury rate at a weighted average rate of approximately 2.18% and are required to be cash settled by March 2, 2018. Due to the strict requirements surrounding the application of hedge accounting, we elected not to designate the Treasury Locks as hedges. As such, the full change in the fair value of the Treasury Locks during the third quarter is recorded as a mark-to-market gain on interest rate protection agreements within the income statement as opposed to being recorded in other comprehensive income. For the three months ended September 30, 2017, we recognized $1,848 in mark-to-market gain on interest rate protection agreements related to the Treasury Locks.

The following table sets forth our financial assets and liabilities related to the 2015 Swaps and the Treasury Locks, which are included in prepaid expenses and other assets on the consolidated balance sheets, and the 2014 Swaps, which are included in accounts payable, accrued expenses and other liabilities on the consolidated balance sheets, and all of which are accounted for at fair value on a recurring basis as of September 30, 2017:



				Fair Value Measurements at Reporting Date Using:
Description	Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)			Unobservable Inputs (Level 3)
Derivatives designated as a hedging instrument:
Assets:
2015 Swaps	$	1,174		—	$	1,174		—
Liabilities:
2014 Swaps	$	(3,405	)	—	$	(3,405	)	—

Derivatives not designated as a hedging instrument:
Assets:
Treasury Locks	$	1,848		—	$	1,848		—

There was no ineffectiveness recorded on the 2014 Swaps and 2015 Swaps during the nine months ended September 30, 2016. See Note 7 for more information regarding our derivatives.

The estimated fair value of the 2014 Swaps, 2015 Swaps and the Treasury Locks was determined using the market standard methodology of netting the discounted fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of interest rates (forward curves) derived from observable market interest rate curves. In addition, credit valuation adjustments are incorporated in the fair value to account for potential non-performance risk, including our own non-performance risk and the respective counterparty’s non-performance risk. We determined that the significant inputs used to value the 2014 Swaps, the 2015 Swaps and the Treasury Locks fell within Level 2 of the fair value hierarchy.