DERIVATIVE INSTRUMENTS

6 Months Ended

Jun. 30, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS

DERIVATIVE INSTRUMENTS

Centerspace’s objective in using interest rate derivatives is to add stability to interest expense and to manage its exposure to interest rate fluctuations. To accomplish this objective, the Company primarily uses interest rate swap contracts to fix the variable interest rate on its term loans and a portion of its primary line of credit. The interest rate swap contracts qualify as cash flow hedges.

Changes in the fair value of cash flow hedges are recorded in accumulated other comprehensive income (“OCI”) and subsequently reclassified into earnings in the period that the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income for the interest rate swaps will be reclassified to interest expense as interest expense is incurred on the term loans and the hedged portion of the primary line of credit. During the next twelve months, the company estimates an additional $4.4 million will be reclassified as an increase to interest expense.

At June 30, 2021 and December 31, 2020, Centerspace had a $50.0 million interest rate swap to fix the interest rate on a portion of the primary line of credit.

At June 30, 2021 and December 31, 2020, Centerspace had three interest rate swap contracts in effect with a notional amount of $195.0 million and one additional interest rate swap that becomes effective on January 31, 2023, with a notional amount of $70.0 million. These interest rate swaps are to fix the interest rate on the term loans.

The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020.

		(in thousands)
		June 30, 2021		December 31, 2020
	Balance Sheet Location	Fair Value		Fair Value
Total derivative instruments designated as hedging instruments - interest rate swaps	Accounts Payable and Accrued Expenses	$	12,064	$	15,905

The table below presents the effect of the Company’s derivative financial instruments on the Condensed Consolidated Statements of Operations as of June 30, 2021 and 2020.

	(in thousands)
	Gain (Loss) Recognized in OCI				Location of Gain (Loss) Reclassified from Accumulated OCI into Income	Gain (Loss) Reclassified from Accumulated OCI into Income
Three months ended June 30,	2021		2020			2021		2020
Total derivatives in cash flow hedging relationships - Interest rate contracts	$	(386)	$	(1,696)	Interest expense	$	(1,120)	$	(917)
Six months ended June 30,
Total derivatives in cash flow hedging relationships - Interest rate contracts	$	1,625	$	(11,105)	Interest expense	$	(2,216)	$	(573)