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Derivative and Hedging Activities
 12 Months Ended
Dec. 31, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative and Hedging Activities Derivative and Hedging Activities

Risk Management Objective and Strategies for Using Derivatives

We use derivative instruments, such as interest rate swaps and interest rate caps, primarily to manage exposure to interest rate risks inherent in variable rate debt and refinancings. We may also enter into forward starting swaps or treasury lock agreements to set the effective interest rate on a planned fixed rate financing. Our interest rate swaps involve the receipt of variable-rate amounts from a counterparty in exchange for us making fixed rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. In a forward starting swap or treasury lock agreement that we cash settle in anticipation of a fixed rate financing or refinancing, we will receive or pay an amount equal to the present value of future cash flow payments based on the difference between the contract rate and market rate on the settlement date.

We do not use derivatives for trading or speculative purposes and currently do not have material derivatives that are not designated as hedging instruments under the accounting requirements for derivatives and hedging.
As of December 31, 2019, we had the following outstanding derivatives that were designated and are expected to be effective as cash flow hedges of the interest payments and/or the currency exchange rate on the associated debt.
Instrument Type
 
Ownership
 
Notional Amount
 
Swap Rate
 
Credit Spread on Loan
 
Total Swapped Rate on Loan
 
Maturity Date
Consolidated Subsidiaries:
 
 
 
 
 
 
 
 
 
 
 
 
Receive variable (LIBOR) /pay-fixed swap (1)
 
100
%
 
100,000

 
2.14
%
 
1.55
%
(1) 
3.69
%
(1) 
February 2022
Receive variable (LIBOR) /pay-fixed swap (1)
 
100
%
 
100,000

 
2.14
%

1.55
%
(1) 
3.69
%
(1) 
February 2022
Receive variable (LIBOR) /pay-fixed swap (1)
 
100
%
 
50,000

 
2.14
%

1.55
%
(1) 
3.69
%
(1) 
February 2022
Receive variable (LIBOR) /pay-fixed swap (1)
 
100
%
 
50,000

 
2.14
%

1.55%/1.38%

(1) 
3.69%/3.51%

(1) 
February 2022
Receive variable (LIBOR) / pay-fixed swap (2)
 
100
%
 
125,000

 
3.02
%

1.60
%
(2) 
4.62
%
(2) 
March 2023
Receive variable (LIBOR) / pay-fixed swap (2)
 
100
%
 
75,000

 
3.02
%

1.60
%
(2) 
4.62
%
(2) 
March 2023
Receive variable (LIBOR) / pay-fixed swap (2)
 
100
%
 
50,000

 
3.02
%

1.60
%
(2) 
4.62
%
(2) 
March 2023
Receive variable (LIBOR) /pay-fixed swap (3)
 
100
%
 
12,000

 
2.09
%
 
1.40
%
 
3.49
%
 
March 2024
Unconsolidated Joint Ventures:
 
 

 
 

 
 

 
 

 
 

 
 
Receive variable (LIBOR) /pay-fixed swap (4)
 
50.1
%
 
158,590

 
1.83
%
 
1.75
%
 
3.58
%
 
December 2021
Receive variable (LIBOR) USD/pay-fixed Korean Won (KRW) cross-currency interest rate swap (5)
 
17.15
%
 
52,065 USD / 60,500,000 KRW

 
1.52
%
 
1.60
%
 
3.12
%
 
September 2020

(1)
The hedged forecasted transaction for each of these swaps is the first previously unhedged one-month LIBOR-indexed interest payments accrued and made each month on a debt principal amount equal to the swap notional amount, regardless of the specific debt agreement from which they may flow. We are currently using these swaps to manage interest rate risk on the $275 million unsecured term loan and $25 million on the $1.1 billion primary unsecured revolving line of credit. The credit spread on these loans can vary within a range of 1.15% to 1.80% on the $275 million unsecured term loan and 1.05% to 1.60% on the $1.1 billion unsecured revolving line of credit, depending on our total leverage ratio at the measurement date, resulting in an effective rate in the range of 3.29% to 3.94% on the $275 million unsecured term loan and 3.19% to 3.74% on $25 million of the $1.1 billion primary unsecured revolving line of credit during the remaining swap period.
(2)
The hedged forecasted transaction for each of these swaps is the first previously unhedged one-month LIBOR-indexed interest payments accrued and made each month on a debt principal amount equal to the swap notional amount, regardless of the specific debt agreement from which they may flow beginning with the March 2019 effective date of these swaps. We are currently using these swaps to manage interest rate risk on the $250 million unsecured term loan. The credit spread on this loan can vary within a range of 1.25% to 1.9%, depending on our total leverage ratio at the measurement date, resulting in an effective rate in the range of 4.27% to 4.92% during the swap period.
(3)
The notional amount on this swap is equal to the outstanding principal balance of the floating rate loan on the U.S. headquarters building.
(4)
The notional amount on this swap is equal to the outstanding principal balance of the floating rate loan on International Plaza.
(5)
The notional amount on this swap is equal to the outstanding principal balance of the U.S. dollar construction loan for Starfield Hanam. There is a cross-currency interest rate swap to fix the interest rate on the loan and swap the related principal and interest payments from U.S. dollars to KRW in order to reduce the impact of fluctuations in interest rates and exchange rates on the cash flows of the joint venture. The currency swap exchange rate is 1,162.0.
Cash Flow Hedges

On January 1, 2018, we early adopted ASU No. 2017-12, "Targeted Improvements to Accounting for Hedging Activities", which provided changes in hedge accounting recognition and presentation requirements. We now recognize all changes in fair value for hedging instruments designated and qualifying for cash flow hedge accounting treatment as a component of Other Comprehensive Income (OCI), as opposed to previously recognizing the ineffective portion, if any, directly in earnings. Upon adoption, we applied the modified-retrospective approach and recorded a one-time cumulative-effect adjusting entry to reclassify an inconsequential amount of previous hedge ineffectiveness for cash flow hedges from Dividends in Excess of Net Income to AOCI on our Consolidated Balance Sheet. Net realized gains or losses resulting from derivatives that were settled in conjunction with planned fixed rate financings or refinancings continue to be included in AOCI during the term of the hedged debt transaction.

Amounts reported in AOCI related to currently outstanding interest rate derivatives are recognized as an adjustment to income as interest payments are made on our variable-rate debt. Realized gains or losses on settled derivative instruments included in AOCI are recognized as an adjustment to income over the term of the hedged debt transaction. Amounts reported in AOCI related to the cross-currency interest rate swap are recognized as an adjustment to income as transaction gains or losses arising from the remeasurement of foreign currency denominated loans are recognized and as actual interest and principal obligations are repaid.

We expect that approximately $5.4 million of the AOCI of TCO and the noncontrolling interests will be reclassified from AOCI and recognized as an increase in expense in the following 12 months.

The following tables present the effect of derivative instruments on our Consolidated Statement of Operations and Comprehensive Income (Loss) for the years ended December 31, 2019, 2018, and 2017. The tables include the amount of gains or losses on outstanding derivative instruments recognized in OCI in cash flow hedging relationships and the location and amount of gains or losses reclassified from AOCI into income resulting from outstanding derivative instruments.

 
Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)
 
Location of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)
 
Amount of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)
 
2019
 
2018
 
2017
 
 
 
2019
 
2018
 
2017
Derivatives in cash flow hedging relationships:
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts – consolidated subsidiaries
$
(13,239
)

$
(2,636
)
 
$
3,994

 
Interest Expense
 
$
(628
)

$
1,133

 
$
(2,879
)
Interest rate contracts – UJVs
(1,757
)

943

 
2,898

 
Equity in Income of UJVs
 
355


(188
)
 
(2,406
)
Cross-currency interest rate contract – UJV
28


(154
)
 
201

 
Equity in Income of UJVs
 
1,203


864

 
(2,279
)
Total derivatives in cash flow hedging relationships
$
(14,968
)

$
(1,847
)
 
$
7,093

 
 
 
$
930


$
1,809

 
$
(7,564
)




We record all derivative instruments at fair value on the Consolidated Balance Sheet. The following table presents the location and fair value of our derivative financial instruments as reported on the Consolidated Balance Sheet as of December 31, 2019 and 2018.
 
 
 
Fair Value
 
Consolidated Balance Sheet Location
 
December 31 2019
 
December 31
2018
Derivatives designated as hedging instruments:
 
 
 
 
 
Asset derivatives:
 
 
 
 
 
Interest rate contracts – consolidated subsidiaries
Deferred Charges and Other Assets
 


 
$
3,530

Interest rate contract – UJV
Investment in UJVs
 

 
1,345

Total assets designated as hedging instruments


$
—


$
4,875

 
 
 
 
 
 
Liability derivatives:
 

 


 

Interest rate contracts – consolidated subsidiary
Accounts Payable and Accrued Liabilities

$
(15,419
)

$
(5,710
)
Interest rate contract – UJV
Investment in UJVs

(412
)



Cross-currency interest rate contract - UJV
Investment in UJVs

(91
)

(963
)
Total liabilities designated as hedging instruments
 

$
(15,922
)

$
(6,673
)


Contingent Features

Our outstanding derivatives contain provisions that state if the hedged entity defaults on its indebtedness above a certain threshold, then the derivative obligation could also be declared in default. The cross default thresholds vary for each agreement, ranging from $0.1 million of any indebtedness to $50 million of indebtedness on TRG's indebtedness. As of December 31, 2019, we are not in default on any indebtedness that would trigger a credit-risk-related default on our current outstanding derivatives.
As of December 31, 2019 and 2018, the fair value of derivative instruments with credit-risk-related contingent features that are in a liability position was $15.9 million and $6.7 million, respectively. As of December 31, 2019 and 2018, we were not required to post any collateral related to these agreements. If we breached any of these provisions, we would be required to settle our obligations under the agreements at their fair value. See Note 8 regarding guarantees and Note 17 for fair value information on derivatives.