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Financial Instruments: Derivatives and Hedging
 3 Months Ended
Mar. 31, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Financial Instruments: Derivatives and Hedging Financial Instruments: Derivatives and Hedging
In the normal course of business, we use a variety of commonly used derivative instruments, such as interest rate swaps, caps, collar and floors, to manage, or hedge interest rate risk. We hedge our exposure to variability in future cash flows for forecasted transactions in addition to anticipated future interest payments on existing debt. We recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges are adjusted to fair value through earnings. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedge asset, liability, or firm commitment through earnings, or recognized in other comprehensive income (loss) until the hedged item is recognized in earnings. Reported net income and equity may increase or decrease prospectively, depending on future levels of interest rates and other variables affecting the fair values of derivative instruments and hedged items, but will have no effect on cash flows. Currently, all of our designated derivative instruments are effective hedging instruments.
The following table summarizes the notional value at inception and fair value of our consolidated derivative financial instruments at March 31, 2020 based on Level 2 information. The notional value is an indication of the extent of our involvement in these instruments at that time, but does not represent exposure to credit, interest rate or market risks (dollars in thousands).
 
Notional
Value
 
Strike
Rate
 
Effective
Date
 
Expiration
Date
 
Balance Sheet Location
 
Fair
Value
Interest Rate Cap
$
300,000

 
3.750
%
 
May 2019
 
May 2020
 
Other Assets
 
$
—

Interest Rate Swap
100,000

 
1.928
%
 
December 2017
 
November 2020
 
Other Liabilities
 
(1,029
)
Interest Rate Swap
100,000

 
1.934
%
 
December 2017
 
November 2020
 
Other Liabilities
 
(1,033
)
Interest Rate Cap
111,869

 
3.500
%
 
December 2019
 
December 2020
 
Other Assets
 
—

Interest Rate Cap
85,000

 
4.000
%
 
March 2019
 
March 2021
 
Other Assets
 
2

Interest Rate Swap
200,000

 
1.131
%
 
July 2016
 
July 2023
 
Other Liabilities
 
(5,352
)
Interest Rate Swap
100,000

 
1.161
%
 
July 2016
 
July 2023
 
Other Liabilities
 
(2,774
)
Interest Rate Swap
150,000

 
2.696
%
 
January 2019
 
January 2024
 
Other Liabilities
 
(13,202
)
Interest Rate Swap
150,000

 
2.721
%
 
January 2019
 
January 2026
 
Other Liabilities
 
(19,338
)
Interest Rate Swap
200,000

 
2.740
%
 
January 2019
 
January 2026
 
Other Liabilities
 
(25,994
)
 
 
 
 
 
 
 
 
 
 
 
$
(68,720
)

No gains or losses on the changes in the fair values were included in interest expense in the consolidated statements of operations during the three months ended March 31, 2020 or 2019.
The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, then the Company could also be declared in default on its derivative obligations. As of March 31,
2020, the fair value of derivatives in a net liability position, including accrued interest but excluding any adjustment for nonperformance risk related to these agreements, was $69.2 million. As of March 31, 2020, the Company has not posted any collateral related to these agreements and was not in breach of any agreement provisions. If the Company had breached any of these provisions, it could have been required to settle its obligations under the agreements at their aggregate termination value of $70.6 million at March 31, 2020.
Gains and losses on terminated hedges are included in accumulated other comprehensive income (loss), and are recognized into earnings over the term of the related mortgage obligation. Over time, the realized and unrealized gains and losses held in accumulated other comprehensive loss will be reclassified into earnings as an adjustment to interest expense in the same periods in which the hedged interest payments affect earnings. We estimate that $16.7 million of the current balance held in accumulated other comprehensive loss will be reclassified into interest expense and $5.8 million of the portion related to our share of joint venture accumulated other comprehensive loss will be reclassified into equity in net income from unconsolidated joint ventures within the next 12 months.
The following table presents the effect of our derivative financial instruments and our share of our joint ventures' derivative financial instruments that are designated and qualify as hedging instruments on the consolidated statements of operations for the three months ended March 31, 2020 and 2019, respectively (in thousands):
 

Amount of Loss
Recognized in
Other Comprehensive
Loss

Location of (Loss) Gain Reclassified from Accumulated Other Comprehensive Loss into Income

Amount of (Loss) Gain Reclassified from
Accumulated Other
Comprehensive Loss into Income


Three Months Ended March 31,


Three Months Ended March 31,
Derivative

2020

2019


2020

2019
Interest Rate Swaps/Caps

$
(45,082
)
 
$
(11,963
)

Interest expense

$
(725
)
 
$
535

Share of unconsolidated joint ventures' derivative instruments

(7,089
)
 
(5,369
)

Equity in net loss from unconsolidated joint ventures

(711
)
 
368



$
(52,171
)

$
(17,332
)



$
(1,436
)

$
903