Derivative and Hedging Activities

3 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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 March 31, 2020, 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
UJVs:
Receive variable (LIBOR) /pay-fixed swap⁽⁴⁾	50.1%	157,666	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 payment 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 payment 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 1.90%, 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

We 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).

Amounts reported in Accumulated Other Comprehensive Income (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 $13.9 million of 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 three months ended March 31, 2020 and 2019. 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						Location of Gain or (Loss) Reclassified from AOCI into Income	Amount of Gain or (Loss) Reclassified from AOCI into Income
	Three Months Ended March 31							Three Months Ended March 31
	2020			2019				2020			2019
Derivatives in cash flow hedging relationships:
Interest rate contracts – consolidated subsidiaries	$	(15,545	)	$	(5,716	)	Interest Expense	$	(1,211	)	$	838
Interest rate contracts – UJVs	(1,564		)	(625		)	Equity in Income of UJVs	(31		)	137
Cross-currency interest rate contract – UJV	(42		)	30			Equity in Income of UJVs	474			448
Total derivatives in cash flow hedging relationships	$	(17,151	)	$	(6,311	)		$	(768	)	$	1,423

We record all derivative instruments at fair value on our Consolidated Balance Sheet. The following table presents the location and fair value of our derivative financial instruments as reported on our Consolidated Balance Sheet as of March 31, 2020 and December 31, 2019.



		Fair Value
	Consolidated Balance Sheet Location	March 31, 2020			December 31, 2019
Derivatives designated as hedging instruments:
Asset derivatives:
Cross-currency interest rate contract - UJV	Investment in UJVs	$	343
Total assets designated as hedging instruments		$	343		$	—

Liability derivatives:
Interest rate contracts – consolidated subsidiaries	Accounts Payable and Accrued Liabilities	$	(30,965	)	$	(15,419	)
Interest rate contract – UJV	Investment in UJVs	(1,975		)	(412		)
Cross-currency interest rate contract – UJV	Investment in UJVs				(91		)
Total liabilities designated as hedging instruments		$	(32,940	)	$	(15,922	)

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 March 31, 2020, we are not in default on any indebtedness that would trigger a credit-risk-related default on our current outstanding derivatives.

As of March 31, 2020 and December 31, 2019, the fair value of derivative instruments with credit-risk-related contingent features that were in a liability position was $32.9 million and $15.9 million, respectively. As of March 31, 2020 and December 31, 2019, 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 5 regarding guarantees and Note 11 for fair value information on derivatives.