Derivative Instruments and Hedging Activities

9 Months Ended

Sep. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

As of September 30, 2020, the Company had interest rate swap contracts with an aggregate notional amount of $175.0 million that effectively fixed the interest rate on the $175.0 million unsecured term loan at 2.3%. These derivatives qualify for hedge accounting.

As of September 30, 2020 and December 31, 2019, the aggregate carrying value of the interest rate swap contracts were a liability of $2.9 million and an asset of $0.8 million, respectively. As of September 30, 2020 and December 31, 2019, the swap contracts were presented in the condensed consolidated balance sheets as an asset of zero and $1.0 million, respectively, and were included in prepaid expenses and other assets on the condensed consolidated balance sheets, and a liability of $2.9 million and $0.2 million, respectively, and were included in other liabilities on the condensed consolidated balance sheets.

Hedge ineffectiveness related to cash flow hedges, which is included in interest expense on the condensed consolidated statements of income and comprehensive income, was not significant for the three and nine months ended September 30, 2020 and 2019.

Additionally, the Company has four total return swap contracts, with an aggregate notional amount of $254.9 million, that effectively convert $254.9 million of mortgage notes payable to a floating interest rate based on the Securities Industry and Financial Markets Association Municipal Swap Index ("SIFMA") plus a spread. The total return swaps provide fair market value protection on the mortgage notes payable to the counterparties during the initial period of the total return swap until the Company's option to call the mortgage notes at par can be exercised. The Company can currently call all of its total return swaps, with $254.9 million of the outstanding debt at par. These derivatives do not qualify for hedge accounting and had a carrying and fair value of zero at both September 30, 2020 and December 31, 2019. These total return swaps are scheduled to mature between November 2022 and December 2024. The realized gains of $2.9 million and $2.2 million for the three months ended September 30, 2020 and 2019, respectively, and $7.7 million and $6.2 million for the nine months ended September 30, 2020 and 2019, respectively, were reported in the condensed consolidated statements of income and comprehensive income as total return swap income.