Derivative Instruments

12 Months Ended

Dec. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Risk Management Objective of Using Derivatives

In addition to operational risks which arise in the normal course of business, Piedmont is exposed to economic risks such as interest rate, liquidity, and credit risk. In certain situations, Piedmont has entered into derivative financial instruments such as interest rate swap agreements and other similar agreements to manage interest rate risk exposure arising from current or future variable rate debt transactions. Interest rate swap agreements involve the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Piedmont’s objective in using interest rate derivatives is to add stability to interest expense and to manage its exposure to interest rate movements.

Cash Flow Hedges of Interest Rate Risk

Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for Piedmont making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

In January 2018, Piedmont repaid the $300 Million Unsecured 2013 Term Loan in advance of its maturity without penalty. In connection with this early debt prepayment, six interest rate swap agreements which were identified as cash flow hedges were also terminated, resulting in a receipt of approximately $0.8 million from Piedmont's counterparties for the settlement of the swaps. These proceeds were recorded in accumulated other comprehensive income/(loss) ("OCI") and were amortized as an offset to interest expense in the consolidated statement of income over the original term of the terminated interest rate swaps through January 2019. In connection with this termination Piedmont also recognized a non-cash loss of approximately $1.3 million due to it becoming probable that the hedged forecasted transactions would not occur, offset by a mark-to-market gain on these cash flow hedges of approximately $0.1 million for the year ended December 31, 2018.

As of December 31, 2019, Piedmont was party to interest rate swap agreements, all of which are designated as effective cash flow hedges and fully hedge the variable cash flows covering the entire outstanding balance of the Amended and Restated $300 Million Unsecured 2011 Term Loan, and $150 million of the $250 Million Unsecured 2018 Term Loan. The maximum length of time over which Piedmont is hedging its exposure to the variability in future cash flows for forecasted transactions is 63 months.

A detail of Piedmont’s interest rate derivatives outstanding as of December 31, 2019 is as follows:

Interest Rate Derivatives:

Number of Swap Agreements

Associated Debt Instrument

Notional Amount
(in millions)

Effective Date

Maturity Date

Interest rate swaps

Amended and Restated $300 Million Unsecured 2011 Term Loan

300

11/22/2016

1/15/2020

Interest rate swaps

$250 Million Unsecured 2018 Term Loan

100

3/29/2018

3/31/2025

Interest rate swaps

$250 Million Unsecured 2018 Term Loan

3/29/2018

3/29/2020

Total

450

Piedmont presents its interest rate derivatives on its consolidated balance sheets on a gross basis as interest rate swap assets and interest rate swap liabilities. A detail of Piedmont’s interest rate derivatives on a gross and net basis as of December 31, 2019 and 2018, respectively, is as follows (in thousands):


Interest rate swaps classified as:	December 31, 2019		December 31, 2018
Gross derivative assets	$	—	$	1,199
Gross derivative liabilities	(5,121)		(839)
Net derivative asset/(liability)	$	(5,121)	$	360

The gain/(loss) on Piedmont's interest rate derivatives, including previously settled forward swaps, that was recorded in OCI and the accompanying consolidated statements of income as a component of interest expense for the years ended December 31, 2019, 2018, and 2017, respectively, was as follows (in thousands):


Interest Rate Swaps in Cash Flow Hedging Relationships:	2019		2018		2017
Amount of gain/(loss) recognized in OCI	$	(5,659)	$	692	$	2,479
Amount of previously recorded gain/(loss) reclassified from OCI into Interest Expense	$	1,836	$	1,558	$	(3,502)
Amount of loss recognized on derivatives reclassified from OCI into Loss on Extinguishment of Debt	$	—	$	(1,258)	$	—

Total amount of Interest Expense presented in the consolidated statements of income	$	(61,594)	$	(61,023)	$	(68,124)
Total amount of Loss on Extinguishment of Debt presented in the consolidated statements of income ⁽¹⁾	$	—	$	(1,680)	$	—

⁽¹⁾Includes the write-off of approximately $0.4 million of discounts and unamortized debt issuance costs associated with the repayment of the $300 Million Unsecured 2013 Term Loan in January 2018.

Piedmont estimates that approximately $0.3 million will be reclassified from OCI as a reduction to interest expense over the next twelve months. Piedmont did not recognize any hedge ineffectiveness on its cash flow hedges during the three years ended December 31, 2019.

See Note 6 for fair value disclosures of Piedmont's derivative instruments.

Credit-risk-related Contingent Features

Piedmont has agreements with its derivative counterparties that contain a provision whereby if Piedmont defaults on any of its indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender, then Piedmont could also be declared in default on its derivative obligations. If Piedmont were to breach any of the contractual provisions of the derivative contracts, it could be required to settle its liability obligations under the agreements at their termination value of the estimated fair values plus accrued interest, or approximately $5.3 million as of December 31, 2019. Additionally, Piedmont has rights of set-off under certain of its derivative agreements related to potential termination fees and amounts payable under the agreements, if a termination were to occur.