COPT Defense Properties Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Interest Rate Derivatives

Interest Rate Derivatives

3 Months Ended

Mar. 31, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The following table sets forth the key terms and fair values of our interest rate swap derivatives (dollars in thousands):


							Fair Value at
Notional Amount			Fixed Rate	Floating Rate Index	Effective Date	Expiration Date	March 31, 2022		December 31, 2021
$	100,000		1.901%	One-Month LIBOR	9/1/2016	12/1/2022	$	(331)	$	(1,361)
$	100,000		1.905%	One-Month LIBOR	9/1/2016	12/1/2022	(334)		(1,365)
$	11,060	(1)	1.678%	One-Month LIBOR	8/1/2019	8/1/2026	307		(234)
$	23,000	(2)	0.573%	One-Month LIBOR	4/1/2020	3/26/2025	1,231		355
$	50,000	(3)	1.908%	One-Month LIBOR	9/1/2016	N/A	—		(684)
							$	873	$	(3,289)

(1)The notional amount of this instrument is scheduled to amortize to $10.0 million.

(2)The notional amount of this instrument is scheduled to amortize to $22.1 million.

(3)We cash settled this swap and accrued interest thereon for $625,000 on January 28, 2022.

Each of these swaps was designated as a cash flow hedge of interest rate risk except for the swap with a $50.0 million notional amount for which we discontinued hedge accounting in December 2021.

The table below sets forth the fair value of our interest rate derivatives as well as their classification on our consolidated balance sheets (in thousands):


		Fair Value at
Derivatives	Balance Sheet Location	March 31, 2022		December 31, 2021
Interest rate swaps designated as cash flow hedges	Prepaid expenses and other assets, net	$	1,538	$	355
Interest rate swaps designated as cash flow hedges	Other liabilities	$	(665)	$	(2,960)
Interest rate swap not designated	Other liabilities	$	—	$	(684)

The table below presents the effect of our interest rate derivatives on our consolidated statements of operations and comprehensive income (in thousands):


		Amount of Income Recognized in AOCL on Derivatives						Amount of Loss Reclassified from AOCL into Interest Expense on Statement of Operations
Derivatives in Hedging Relationships	For the Three Months Ended March 31,						For the Three Months Ended March 31,
			2022		2021				2022		2021
Interest rate derivatives			$	2,537	$	784			$	(1,003)	$	(1,175)

Based on the fair value of our derivatives as of March 31, 2022, we estimate that approximately $804,000 of losses will be reclassified from AOCL as an increase to interest expense over the next 12 months.

We have agreements with each of our interest rate derivative counterparties that contain provisions under which, if we default or are capable of being declared in default on defined levels of our indebtedness, we could also be declared in default on our derivative obligations. Failure to comply with the loan covenant provisions could result in our being declared in default on any derivative instrument obligations covered by the agreements. As of March 31, 2022, we were not in default with any of these provisions. As of March 31, 2022, the fair value of interest rate derivatives in a liability position related to these agreements was $665,000, excluding the effects of accrued interest and credit valuation adjustments. As of March 31, 2022, we had not posted any collateral related to these agreements. If we breach any of these provisions, we could be required to settle our obligations under the agreements at their termination value, which was $952,000 as of March 31, 2022.