DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

Hedges of Interest Rate Risk

In order to manage financing costs and interest rate exposure related to our $385,000,000 unsecured term loan facility (Note 8), on August 13, 2015, we entered into interest rate swap agreements with multiple counterparties. These swap agreements became effective on November 2, 2015. Each of our interest rate swap agreements meets the criteria for cash flow hedge accounting treatment and we have designated the interest rate swap agreements as cash flow hedges of the risk of variability attributable to changes in the one-month LIBOR on the term loan facility. Accordingly, the interest rate swaps are recorded on the consolidated balance sheets at fair value and the changes in the fair value of the swaps are recorded in OCI and reclassified to earnings as an adjustment to interest expense as interest becomes receivable or payable (Note 2). We do not expect any significant losses from counterparty defaults related to our swap agreements.

Summary of Derivatives

The following table sets forth the key terms of our interest rate swap contracts:

Number of Interest
Rate Swaps(1)(2)

Total Notional
Amount

Fixed Rates

Floating Rate Index

Effective
Date

Expiration
Date

(in thousands)

385,000

1.559% - 1.569%

One-Month LIBOR

11/2/2015

5/8/2020

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(1)	See Note 14 for our fair value disclosures.


(2)	Our interest rate swaps are not subject to master netting arrangements.

These swaps hedge the future cash flows of interest payments on our $385,000,000 unsecured term loan facility by fixing the rate until May 8, 2020 at a weighted average rate of 1.563% plus the credit spread, which was 1.60% at June 30, 2017 and December 31, 2016, or an all-in rate of 3.16%.

Credit-Risk-Related Contingent Features

Each of our interest rate swap agreements contains a provision under which we could also be declared in default under such agreements if we default on the term loan facility. As of June 30, 2017 and December 31, 2016, there have been no events of default under our interest rate swap agreements.

Impact of Hedges on AOCI and Consolidated Statements of Operations

The changes in the balance of each component of AOCI related to our interest rate swaps designated as cash flow hedges are as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
	(in thousands)
Accumulated other comprehensive income (loss), at beginning of period	$	1,043		$	(10,444	)	$	(509	)	$	(2,519	)
Other comprehensive income (loss) before reclassifications	(983		)	(3,535		)	(189		)	(12,568		)
Amounts reclassified from accumulated other comprehensive income (loss) (1)	543			1,090			1,301			2,198
Net current period other comprehensive income (loss)	(440		)	(2,445		)	1,112			(10,370		)
Accumulated other comprehensive income (loss), at end of period	$	603		$	(12,889	)	$	603		$	(12,889	)

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(1)	The amounts from AOCI are reclassified as an increase to interest expense in the statements of operations.

Future Reclassifications from AOCI

We estimate that $1,108,000 related to our derivatives designated as cash flow hedges will be reclassified out of AOCI as an increase to interest expense during the next twelve months.

On August 3, 2017, we repaid $65,000,000 of outstanding borrowings on our unsecured term loan facility. In connection with such pay down, we terminated three interest rate swaps with an aggregate notional value of $65,000,000. Costs incurred to terminate such swaps totaled $38,000, which will be reflected in earnings. At June 30, 2017, a positive fair value of $101,000 was included in accumulated other comprehensive income on our consolidated balance sheet related to the swaps that we terminated.