Derivative Financial Instruments

6 Months Ended

Jun. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Cash Flow Hedges of Interest Rate Risk

The Company's objective in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.

As of June 30, 2019, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (dollars in thousands):


Interest Rate Derivative	Current Notional Amount		Fixed Rate		Maturity
Interest rate swap	$	1,234	5.25	%	April 1, 2022
Interest rate swap	25,794		3.61	%	May 6, 2023
Interest rate swap	27,000		4.05	%	September 19, 2026

Non-designated Derivatives

Derivatives not designated as hedges are not speculative and are used to manage the Company's exposure to interest rate movements and other identified risks but do not meet the hedge accounting requirements. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings. As a result of two mortgage refinancings of adjustable rate loans to fixed rate loans, at June 30, 2019, the Company had two interest rate caps with a notional value of $38,200,000 that were not designated as hedges in a qualifying hedge relationship. At June 30, 2019, these derivatives had no value.

The table below presents the fair value of the Company’s derivative financial instruments as well as its classification on the consolidated balance sheets as of the dates indicated (dollars in thousands):


Derivatives as of:
June 30, 2019				December 31, 2018
Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Other Assets	$	225	Other Assets	$	3,793
Accounts payable and accrued liabilities	$	13	Accounts payable and accrued liabilities	$	—

The following table presents the effect of the Company’s interest rate swaps on the consolidated statements of comprehensive (loss) income for the dates indicated (dollars in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2019		2018		2019		2018
Amount of gain (loss) recognized on derivative in Other Comprehensive Income	$	(1,234)	$	444	$	(1,978)	$	1,576
Amount of gain (loss) reclassified from Accumulated Other Comprehensive Income into Interest expense	$	108	$	46	$	226	$	46
Total amount of Interest expense presented in the Consolidated Statement of Operations	$	9,739	$	8,786	$	18,508	$	17,443

The Company estimates an additional $135,000 will be reclassified from other comprehensive loss as a decrease to interest expense over the next twelve months.

Credit-risk-related Contingent Features

The agreement between the Company and its derivative counterparties provides that if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, the Company could be declared in default on its derivative obligations.