5.    DEFERRED CHARGES, GOODWILL AND OTHER ASSETS, NET



(a)Deferred financing costs related to all other debt liabilities (other than for the unsecured revolving credit facility) are netted against those debt liabilities for all periods presented. See Note 2: Significant Accounting Policies – Deferred Financing Costs.

(b)Includes as of December 31, 2018 and 2017, respectively, a mortgage receivable with a balance of $45.2 million and $45.7 million (acquired in August 2017) which bears interest at 5.85 percent and matures in July 2019, with a three-month extension option and an interest-free note receivable with a net present value of $2.2 million and $2.5 million, which matures in April 2023.   The Company believes these balances are fully collectible.

(c)In accordance with ASC 805, Business Combinations, the Company recognizes rental revenue of acquired above and below market lease intangibles over the terms of the respective leases.  The impact of amortizing the acquired above and below-market lease intangibles increased revenue by approximately $5.3 million, $7.9 million and $1.9 million for the years ended December 31, 2018,  2017 and 2016, respectively.  The following table summarizes, as of December 31, 2018, the scheduled amortization of the Company’s acquired above and below-market lease intangibles for each of the five succeeding years (dollars in thousands): 





(d)The value of acquired in-place lease intangibles are amortized to expense over the remaining initial terms of the respective leases.  The impact of the amortization of acquired in-place lease values is included in depreciation and amortization expense and amounted to approximately $17.9 million, $32.2 million and $14.3 million for the years ended December 31, 2018,  2017 and 2016, respectively.  The following table summarizes, as of December 31, 2018, the scheduled amortization of the Company’s acquired in-place lease values for each of the five succeeding years (dollars in thousands): 





(e)All goodwill is attributable to the Company’s Multi-family Real Estate and Services segment.

(f)Includes as of December 31, 2018 and 2017, $49.2 million and $26.9 million, respectively, of proceeds from property sales held by a qualified intermediary.



DERIVATIVE FINANCIAL INSTRUMENTS



Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy.  As of December 31, 2018, the Company had outstanding interest rate swaps with a combined notional value of $675 million that were designated as cash flow hedges of interest rate risk. During the year ending December 31, 2018, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.



The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.  The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the years ended December 31, 2018,  2017 and 2016 the Company recorded ineffectiveness gain (loss) of $ (0.2) million,  $(37,000) and 0.6 million, respectively, which is included in interest and other investment income (loss) in the consolidated statements of operations, attributable to a floor mismatch in the underlying indices of the derivatives and the hedged interest payments made on its variable-rate debt.  Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt.  During the next 12 months, the Company estimates that an additional $6.7 million will be reclassified as a decrease to interest expense. 



Undesignated Cash Flow Hedges of Interest Rate Risk

Interest rate caps not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements but do not meet the strict hedge accounting requirements.  Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings.  The Company recognized expenses of $2,000 for the year ended December 31, 2016, which is included in interest and other investment income (loss) in the consolidated statements of operations.



The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Balance Sheet as of December 31, 2018 and 2017 (dollars in thousands):





The table below presents the effect of the Company’s derivative financial instruments on the Income Statement for the years ending December 31, 2018,  2017 and 2016 (dollars in thousands):





Credit-risk-related Contingent Features

The Company has agreements with each of its derivative counterparties that contain a provision where the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company's default on the indebtedness.  As of December 31, 2018, the Company did not have derivatives in a net liability position including accrued interest but excluding any adjustment for nonperformance risk related to these agreements.  As of December 31, 2018, the Company has not posted any collateral related to these agreements.