7. Interest Rate Swaps

The Company’s objectives in using interest rate swaps are to reduce variability in interest expense and to manage exposure to adverse 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.

On April 5, 2017, the Company entered into forward interest rate swap agreements with an aggregate notional amount of $400 million. The forward swap agreements effectively fix the interest rate on $400 million of term loan borrowings, $200 million of swaps allocated to each term loan, from January 2, 2018 through December 17, 2021 and April 27, 2022, respectively, at approximately 3.3% assuming the current LIBOR spread of 1.3%.

On December 20, 2018, the Company entered into additional forward interest rate swap agreements with an aggregate notional amount of $400 million. The forward swap agreements effectively fix the interest rate on $400 million of term loan borrowings, $200 million of swaps allocated to each term loan, from December 17, 2021 and April 27, 2022 through the current maturity dates of the respective term loans which are December 17, 2023 and April 27, 2024, respectively. The weighted average effective fixed interest rate on the $400 million notional amount of term loan financing following the execution of these swap agreements will approximate 3.9%, commencing on December 17, 2021 and April 27, 2022, assuming the current LIBOR spread of 1.3%. Additionally, the Company entered into forward interest rate swap agreements with an aggregate notional amount of $200 million. The forward swap agreements effectively fix the interest rate on $200 million of additional term loan borrowings, $100 million of swaps allocated to each term loan, from January 2, 2020 through the current maturity dates of December 17, 2023 and April 27, 2024, respectively.

The Company reflects its interest rate swap agreements, which are designated as cash flow hedges, at fair value as either assets or liabilities on the consolidated balance sheets within the “Other assets, net” or “Advance rents, security deposits and other liabilities” line items, as applicable. As of December 31, 2018, the fair value of interest rates swaps included an asset of $5.3 million as well as a liability of $3.0 million. As of December 31, 2017, the fair value of interest rate swaps was an asset of $1.4 million.

The forward interest rate swap agreements are derivatives that currently qualify for hedge accounting whereby the Company records the effective portion of changes in fair value of the interest rate swaps in accumulated other comprehensive income or loss on the consolidated balance sheets and statements of comprehensive income which is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Any ineffective portion of a derivative's change in fair value is immediately recognized within net income. The amount reclassified from other comprehensive income to interest expense on the consolidated statements of operations was $0.1 million for the year ended December 31, 2018. No amounts were reclassified from other comprehensive income to interest expense on the consolidated statements of operations for the years ended December 31, 2017 and 2016. There was no ineffectiveness recognized for the years ended December 31, 2018, 2017 and 2016. During the subsequent twelve months, beginning January 1, 2019, we estimate that $2.1 million will be reclassified from other comprehensive income as a reduction to interest expense.

Interest rate derivatives and their fair values as of December 31, 2018 and December 31, 2017 were as follows (in thousands):


				Fixed One Month
Notional Amount				LIBOR rate per			Fair Value (1)
December 31, 2018		December 31, 2017		annum	Effective Date	Expiration Date	December 31, 2018		December 31, 2017
$	25,000	$	25,000	1.989%	January 2, 2018	December 17, 2021	$	331	$	100
	100,000		100,000	1.989%	January 2, 2018	December 17, 2021		1,318		401
	75,000		75,000	1.989%	January 2, 2018	December 17, 2021		990		298
	50,000		50,000	2.033%	January 2, 2018	April 27, 2022		667		158
	100,000		100,000	2.029%	January 2, 2018	April 27, 2022		1,341		337
	50,000		50,000	2.033%	January 2, 2018	April 27, 2022		666		155
	100,000		—	2.617%	January 2, 2020	December 17, 2023		(782)		—
	100,000		—	2.621%	January 2, 2020	April 27, 2024		(818)		—
	200,000		—	2.636%	December 17, 2021	December 17, 2023		(722)		—
	200,000		—	2.642%	April 27, 2022	April 27, 2024		(648)		—
$	1,000,000	$	400,000				$	2,343	$	1,449

(1)

Balance recorded in “other assets, net” in the consolidated balance sheets if in an asset position and recorded in “Advance rents, security deposits and other liabilities” in the consolidated balance sheets if in a liability position.

(2)

(3)