Annual report pursuant to Section 13 and 15(d)

Orion Office REIT, Derivative and Hedging Activities

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Orion Office REIT, Derivative and Hedging Activities
 12 Months Ended
Dec. 31, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative and Hedging Activities
Note 7 – Derivatives and Hedging Activities
Cash Flow Hedges of Interest Rate Risk
As of December 31, 2023 and 2022, the Company had outstanding derivative agreements with aggregate notional amounts of $60.0 million and $175.0 million, respectively, which were designated as cash flow hedges under U.S. GAAP. The interest rate derivative agreements were entered into in order to hedge interest rate volatility. The initial interest rate swap agreements were effective on December 1, 2021 and were scheduled to terminate on November 12, 2023. During the year ended December 31, 2022, in connection with the transition of the benchmark rate for borrowings under the Credit Agreement from LIBOR to SOFR, the Company terminated the initial interest rate swap agreements and entered into new interest rate swap agreements with an aggregate notional amount of $175.0 million, effective on December 1, 2022 and terminating on November 12, 2023.
Upon the scheduled expiration of the interest rate swap agreements, the Company entered into interest rate collar agreements on a total notional amount of $60.0 million. Under the agreements, the benchmark rate for the Revolving Facility will float between 5.50% per annum and 4.20% per annum on $25.0 million, and 5.50% per annum and 4.035% per annum on $35.0 million, effective from November 13, 2023 until May 12, 2025.
The table below presents the fair value of the Company’s derivative financial instruments designated as a cash flow hedges as well as its classification in the Company’s consolidated balance sheets as of December 31, 2023 and 2022 (in thousands):
Derivatives Designated as Hedging Instruments Balance Sheet Location December 31, 2023 December 31, 2022
Interest rate swaps Other assets, net $ —  $ 6,308 
Interest rate collars Other liabilities, net $ (264) $ — 
During the years ended December 31, 2023, 2022 and 2021, the Company recorded net unrealized gains of $0.1 million, $7.8 million and $0.2 million, respectively, for changes in the fair value of its cash flow hedges in accumulated other comprehensive (loss) income.
During the years ended December 31, 2023, 2022 and 2021, the Company reclassified previous net gains of $6.7 million and $1.8 million, and previous losses of $0.1 million respectively, from accumulated other comprehensive (loss) income into interest expense as a result of the hedged transactions impacting earnings.
During the next twelve months, the Company estimates that less than $0.1 million will be reclassified from other comprehensive income as an increase to interest expense.
Derivatives Not Designated as Hedging Instruments
As of each of December 31, 2023 and 2022, the Company had no derivatives that were not designated as qualifying hedging relationships.
Tabular Disclosure of Offsetting Derivatives
The table below details a gross presentation, the effects of offsetting and a net presentation of the Company’s derivatives as of December 31, 2023 and 2022 (in thousands). The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value.
Offsetting of Derivative Assets and Liabilities
Gross Amounts of Recognized Assets Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Consolidated Balance Sheets Net Amounts of Assets Presented in the Consolidated Balance Sheets Net Amounts of Liabilities Presented in the Consolidated Balance Sheets Financial Instruments Cash Collateral Received Net Amount
December 31, 2023 $ —  $ (264) $ —  $ —  $ (264) $ —  $ —  $ (264)
December 31, 2022 $ 6,308  $ —  $ —  $ 6,308  $ —  $ —  $ —  $ 6,308