DEFERRED CHARGES AND OTHER ASSETS, NET
|12 Months Ended|
Dec. 31, 2022
|Other Assets [Abstract]|
|DEFERRED CHARGES AND OTHER ASSETS, NET||DEFERRED CHARGES AND OTHER ASSETS, NET
(a)Deferred financing costs related to all other debt liabilities (other than for the revolving credit facility) are netted against those debt liabilities for all periods presented. See Note 2: Significant Accounting Policies – Deferred Financing Costs.
(b)As of December 31, 2022 and 2021, includes an interest-free note receivable with a net present value of $0.2 million and $0.7 million, respectively, which matures in April 2023. The Company believes this balance is fully collectible. Also includes $1.0 million, net of a loan loss allowance of $26.0 thousand, as of December 31, 2022, and $3.1 million, net of a loan loss allowance of $0.2 million as of December 31, 2021, of seller-financing provided by the Company to the buyers of the Metropark portfolio. The receivable is secured against available cash of one of the Metropark properties disposed of and earned an annual return of four percent for 90 days after the disposition, with the interest rate increased to 15 percent through November 18, 2021 and to 10 percent thereafter, pursuant to an amended operating agreement. See Note 3: Transactions – Real Estate Held for Sale/Discontinued Operations/Dispositions.
(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 $0.2 million, $2.7 million and $3.7 million for the years ended December 31, 2022, 2021 and 2020, respectively. The following table summarizes, as of December 31, 2022, 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 $1.5 million, $2.1 million and $9.1 million for the years ended December 31, 2022, 2021 and 2020,
respectively. The following table summarizes, as of December 31, 2022, the scheduled amortization of the Company’s acquired in-place lease values for each of the five succeeding years (dollars in thousands):
(e)This amount has a corresponding liability of $3.2 million, which is included in Accounts payable, accrued expense and other liabilities. See Note 12: Commitments and Contingencies – Ground Lease agreements for further details.
(f)The amount as of December 31, 2022 and 2021, includes $1.4 million and $0.5 million, respectively, for properties classified as held for sale.
DERIVATIVE FINANCIAL INSTRUMENTS
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.
The changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. 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 $2.7 million will be reclassified as a decrease to interest expense.
As of December 31, 2022, the Company had three interest rate caps outstanding with a notional amount of $485 million designated as cash flow hedges of interest rate risk.
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets as of December 31, 2022 and 2021 (dollars in thousands):
The table below presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of Operations for the years ending December 31, 2022, 2021 and 2020 (dollars in thousands):
Credit-risk-related Contingent Features As of December 31, 2022, the Company did not have any interest rate derivatives in a net liability position.