(Unaudited) 

The accompanying notes are an integral part of these condensed consolidated financial statements.

1. Organization, Basis of Presentation and Significant Accounting Policies

Gladstone Commercial Corporation is a real estate investment trust (“REIT”) that was incorporated under the General Corporation Law of the State of Maryland on February 14, 2003. We focus on acquiring, owning and managing primarily office and industrial properties. On a selective basis, we may make long term industrial and commercialoffice mortgage loans; however, we do not have any mortgage loans currently outstanding. Subject to certain restrictions and limitations, our business is managed by Gladstone Management Corporation, a Delaware corporation ("Adviser"(the “Adviser”), and administrative services are provided by Gladstone Administration, LLC, a Delaware limited liability company ("Administrator"(the “Administrator”), each pursuant to a contractual arrangement with us. Our Adviser and Administrator collectively employ all of our personnel and pay their salaries, benefits, and other general expenses directly. Gladstone Commercial Corporation conducts substantially all of its operations through a subsidiary, Gladstone Commercial Limited Partnership, a Delaware limited partnership or the Operating Partnership.(the “Operating Partnership”).

All further references herein to “we,” “our,” “us” and “us”the “Company” mean Gladstone Commercial Corporation and its consolidated subsidiaries, except where it is made clear that the term means only Gladstone Commercial Corporation.

Interim Financial Information

Our interim financial statements are prepared in accordance with generally accepted accounting principles ("GAAP"(“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and in accordance with Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with GAAP are omitted. The year-end balance sheet data presented herein was derived from audited financial statements, but does not include all disclosures required by GAAP. In the opinion of our management, all adjustments, consisting solely of normal recurring accruals, necessary for the fair statement of financial statements for the interim period, have been included. The interim financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2016,2019, as filed with the U.S. Securities and Exchange Commission on February 15, 2017.12, 2020. The results of operations for the three and nine months ended September 30, 2017March 31, 2020 are not necessarily indicative of the results that may be expected for other interim periods or for the full fiscal year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, including the impact of extraordinary events such as the novel coronavirus (“COVID-19”) pandemic, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could materiallymay differ from those estimates.these estimates under different assumptions or conditions.

Critical Accounting Policies

InThe preparation of our financial statements in accordance with GAAP, we apply certain critical accounting policies which requirerequires management to make judgments that are subjective in nature to make certain estimates and assumptions. Application of ourthese accounting policies involves the exercise of judgment regarding the use of assumptions as to future uncertainties, and as a result, actual results could materially differ from these estimates. A summary of all of our significant accounting policies is provided in Note 1, “Organization, Basis of Presentation and Significant Accounting Policies,” to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016.2019. On January 1, 2020, we completed the integration of the accounting records of certain of our triple net leased third-party asset managed properties into our accounting system and paid out of our operating bank accounts. For periods prior to January 1, 2020, we recorded property operating expenses and offsetting lease revenues for these certain triple net leased properties on a net basis. Beginning January 1, 2020, we are recording the property operating expenses and offsetting lease revenues for these triple net leased properties on a gross basis, as we have amended our process whereby we are paying operating expenses on behalf of our tenants and receiving reimbursement, whereas, previously these tenants were paying these expenses directly with limited insight provided to us. There were no other material changes to our critical accounting policies during the three and nine months ended September 30, 2017.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued guidance regarding the recognition of revenue from contracts with customers. Under this guidance, an entity will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance also requires improved disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. We expect the new revenue standard will apply to executory costs and other components of revenue due under leases that are deemed to be non-lease components (examples include common area maintenance and provision of utilities), even when the revenue for such activities is not separately stipulated in the lease. Revenue from these non-lease components, which were previously recognized on a straight-line basis under current lease guidance, would be recognized under the new revenue guidance as the related services are delivered. As a result, while the total revenue recognized over the lease term would not differ under the new guidance, the revenue recognition pattern could be different. We are in the process of evaluating the significance of the difference in the revenue recognition pattern that would result from this change, and adjustments in revenue recognition attributable to non-lease components will take effect in tandem with the new leasing standard described below, which is effective January 1, 2019. We will adopt this guidance for our annual and interim periods beginning January 1, 2018 and expect to use the modified retrospective method, under which the cumulative effect of initially applying the guidance is recognized at the date of initial application.

In August 2016,March 2020, the FASB issued Accounting Standards Update 2020-04, “Reference Rate Reform (Topic 848)” (“ASU 2016-15, "Statement2020-04”). The main provisions of Cash Flows (Topic 230): Classificationthis update provide optional expedients and exceptions for contracts, hedging relationships, and other transactions that reference the London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of Certain Cash Receipts and Cash Payments (a consensus of the Emerging issues Task Force)," which clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows with the objective of reducing the existing diversity in practice related to eight specific cash flow issues. The areas addressed in the new guidance relate to debt prepayment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned and bank-owned life insurance policies, distributions received from equity method investments, beneficial interest in securitization transactions and separately identifiable cash flows and application of the predominance principle. The guidancereference rate reform. ASU 2020-04 is effective for usall entities as of March 12, 2020. We adopted ASU 2020-04 beginning January 1, 2018 with early adoption permitted. We dothe three months ended March 31, 2020. Adopting ASU 2020-04 has not expect the adoption of this guidance to haveresulted in a material impact onto our consolidated financial statements.

2. Related-Party Transactions

We are externally managed pursuant to contractual arrangements with our Adviser and our Administrator, which collectively employ all of our personnel and pay their salaries, benefits, and other general expenses directly. Both our Adviser and Administrator are affiliates of ours, as their parent company is owned and controlled by Mr. David Gladstone, our chairman and chief executive officer. Two of our executive officers, Mr. Gladstone and Mr. Terry Lee Brubaker (our vice chairman and chief operating officer) serve as directors and executive officers of our Adviser and our Administrator. Our president, Mr. Robert Cutlip, is an executive managing director of our Adviser. Mr. Michael LiCalsi, our general counsel and secretary, also serves as our Administrator’s president, general counsel and secretary. We have entered into an advisory agreement with our Adviser, as amended from time to time or the Advisory Agreement,(the “Advisory Agreement”), and an administration agreement with our Administrator or the Administration Agreement.(the “Administration Agreement”). The services and fees under the Advisory Agreement and Administration Agreement are described below. As of September 30, 2017March 31, 2020 and December 31, 2016, $2.32019, $3.2 million and $2.1$2.9 million, respectively, were collectively due to our Adviser and Administrator.

Under the July 2015 amendment,Advisory Agreement, the calculation of the annual base management fee equals 1.5% of our adjusted total stockholders’ equity,Total Equity, which is our total stockholders’ equity plus total mezzanine equity (before giving effect to the base management fee and incentive fee), adjusted to exclude the effect of any unrealized gains or losses that do not affect realized net income (including impairment charges) and, adjusted for any one-time events and certain non-cash items (the later to occur for a given quarter only upon the approval of our Compensation Committee), and adjusted to include operating partnership units in the Operating Partnership (“OP Units”) held by holders who do not control the Operating Partnership (“Non-controlling OP Unitholders”). The fee is calculated and accrued quarterly as 0.375% per quarter of such adjusted total stockholders’ equityTotal Equity figure. As a result of the July 2016 amendment, the definition of adjusted total stockholders' equity in the calculation of the base management fee and the incentive fee (described below) includes total mezzanine equity. Our Adviser does not charge acquisition or disposition fees when we acquire or dispose of properties, as is common in other externally managed REITs; however, our Adviser may earn fee income from our borrowers, tenants or other sources. Prior to the 2015 amendment, the Advisory Agreement provided for an annual base management fee equal to 2.0% of our common stockholders’ equity, which was our total stockholders’ equity, less the recorded value of any preferred stock and adjusted to exclude the effect of any unrealized gains, losses, or other items that did not affect realized net income (including impairment charges).

For the three and nine months ended September 30, 2017,March 31, 2020 and 2019, we recorded a base management fee of $1.4 million and $1.3 million, and $3.7 million, respectively. For the three and nine months ended September 30, 2016, we recorded a base management fee of $1.1 million and $2.8 million, respectively.

Incentive Fee

As a result ofPursuant to the July 2015 amendment,Advisory Agreement, the calculation of the incentive fee was revised to rewardrewards the Adviser in circumstances where our quarterly Core FFO (defined at the end of this paragraph), before giving effect to any incentive fee, or pre-incentive fee Core FFO, exceeds 2.0% quarterly, or 8.0% annualized, of adjusted total stockholders’ equity (after giving effect to the base management fee but before giving effect to the incentive fee, and which, as a result of the July 2016 amendment to the Advisory Agreement, now includes total mezzanine equity)fee). We refer to this as the new hurdle rate. The Adviser will receive 15.0% of the amount of our pre-incentive fee Core FFO that exceeds the new hurdle rate. However, in no event shall the incentive fee for a particular quarter exceed by 15.0% (the cap) the average quarterly incentive fee paid by us for the previous four quarters (excluding quarters for which no incentive fee was paid). Core FFO (as defined in the Advisory Agreement) is GAAP net income (loss) available to common stockholders, excluding the incentive fee, depreciation and amortization, any realized and unrealized gains, losses or other non-cash items recorded in net income (loss) available to common stockholders for the period, and one-time events pursuant to changes in GAAP.

Capital Gain Fee

Under the Advisory Agreement, as amended in July 2015, we will pay to the Adviser a capital gains-basedgain-based incentive fee that will be calculated and payable in arrears as of the end of each fiscal year (or upon termination of the Advisory Agreement). In determining the capital gain fee, we will calculate aggregate realized capital gains and aggregate realized capital losses for the applicable time period. For this purpose, aggregate realized capital gains and losses, if any, equals the realized gain or loss calculated by the difference between the sales price of the property, less any costs to sell the property and the current gross value of the property (which is calculated as(equal to the property’s original acquisition price plus any subsequent non-reimbursed capital improvements). of the disposed property. At the end of the fiscal year, if this number is positive, then the capital gain fee payable for such time period shall equal 15.0% of such amount. No capital gain fee was recognized during the three and nine months ended September 30, 2017March 31, 2020 or 2016.

Termination Fee

The Advisory Agreement includes a termination fee whereby, in the event of our termination thereofof the agreement without cause (with 120 days’ prior written notice and the vote of at least two-thirds of our independent directors), a termination fee would be payable to the Adviser equal to two times the sum of the average annual base management fee and incentive fee earned by the Adviser during the 24-month period prior to such termination. A termination fee is also payable if the Adviser terminates the Advisory Agreement after we have defaulted and applicable cure periods have expired. The Advisory Agreement may also be terminated for cause by us (with 30 days’ prior written notice and the vote of at least two-thirds of our independent directors), with no termination fee payable. Cause is defined in the agreement to include if the Adviser breaches any material provisions thereof, the bankruptcy or insolvency of the Adviser, dissolution of the Adviser and fraud or misappropriation of funds.

Administration Agreement

Under the terms of the Administration Agreement, we pay separately for our allocable portion of the Administrator’s overhead expenses in performing its obligations to us including, but not limited to, rent and our allocable portion of the salaries and benefits expenses of our Administrator’s employees, including, but not limited to, our chief financial officer, treasurer, chief compliance officer, general counsel and secretary (who also serves as our Administrator’s president, general counsel and secretary), and their respective staffs. Our allocable portion of the Administrator’s expenses are generally derived by multiplying our Administrator’s total expenses by the approximate percentage of time the Administrator'sAdministrator’s employees perform services for us in relation to their time spent performing services for all companies serviced by our Administrator under contractual agreements. We believe this approach helps approximate fees paid by us to actual services performed by the Administrator for us. For the three and nine months ended September 30, 2017,March 31, 2020 and 2019, we recorded an administration fee of $0.3$0.4 million and $1.0 million, respectively, and for the three and nine months ended September 30, 2016, we recorded an administration fee of $0.3 million and $1.1$0.4 million, respectively.

Gladstone Securities, LLC or (“Gladstone Securities,Securities”), is a privately held broker dealer registered with the Financial Industry Regulatory Authority and insured by the Securities Investor Protection Corporation. Gladstone Securities is an affiliate of ours, as its parent company is owned and controlled by Mr. David Gladstone, our chairman and chief executive officer. Mr. Gladstone also serves on the board of managers of Gladstone Securities.

Mortgage Financing Arrangement Agreement

We entered into an agreement with Gladstone Securities, effective June 18, 2013, for it to act as our non-exclusive agent to assist us with arranging mortgage financing for properties we own.own (the “Financing Arrangement Agreement”). In connection with this engagement, Gladstone Securities will, from time to time, continue to solicit the interest of various commercial real estate lenders or recommend to us third party lenders offering credit products or packages that are responsive to our needs. We pay Gladstone Securities a financing fee in connection with the services it provides to us for securing mortgage financing on any of our properties. The amount of these financing fees, which are payable upon closing of the financing, are based on a percentage of the amount of the mortgage, generally ranging from 0.15% to a maximum of 1.0% of the mortgage obtained. The amount of the financing fees may be reduced or eliminated, as determined by us and Gladstone Securities, after taking into consideration various factors, including, but not limited to, the involvement of any third partythird-party brokers and market conditions. We paid financing fees to Gladstone Securities of $0.1$0.09 million and $0.2$0.02 million during the three and nine months ended September 30, 2017, respectively, which are included in mortgage notes payable, net, in the consolidated balance sheets, or 0.25%March 31, 2020 and 0.27%, respectively, of mortgage principal secured. We paid financing fees to Gladstone Securities of $0.1 million and $0.2 million during the three and nine months ended September 30, 2016,2019, respectively, which are included in mortgage notes payable, net, in the condensed consolidated balance sheets, or 0.28%0.25% and 0.36%0.15%, respectively, of the mortgage principal secured.secured and/or extended. Our Board of Directors renewed the agreementFinancing Arrangement Agreement for an additional year, through August 31, 2018,2020, at its July 20172019 meeting.

3. Loss per(Loss) Earnings Per Share of Common Stock

The following tables set forth the computation of basic and diluted loss(loss) earnings per share of common stock for the three and nine months ended September 30, 2017March 31, 2020 and 2016. 2019. The OP Units held by Non-controlling OP Unitholders (which may be redeemed for shares of common stock) have been excluded from the diluted (loss) earnings per share calculations, as there would be no effect on the amounts since the Non-controlling OP Unitholders’ share of (loss) income would also be added back to net (loss) income. Net (loss) income figures are presented net of such non-controlling interests in the (loss) earnings per share calculation.

We computed basic loss(loss) earnings per share for the three and nine months ended September 30, 2017March 31, 2020 and 20162019 using the weighted average number of shares outstanding during the respective periods. Diluted loss(loss) earnings per share for the three and nine months ended September 30, 2017March 31, 2020 and 2016,2019 reflects additional shares of common stock related to our convertible Seniorsenior common stock (the “Senior Common Stock (ifStock”), if the effect would be dilutive),dilutive, that would have been outstanding if dilutive potential shares of common stock had been issued, as well as an adjustment to net (loss) income (attributable) available to common stockholders as applicable to common stockholders that would result from their assumed issuance (dollars in thousands, except per share amounts).

 

4. Real Estate and Intangible Assets

Real Estate

The following table sets forth the components of our investments in real estate as of September 30, 2017March 31, 2020 and December 31, 20162019, excluding real estate held for sale as of December 31, 20162019 (dollars in thousands):

 

Real estate depreciation expense on building and tenant improvements was $6.9$9.0 million and $19.8$8.0 million for the three and nine months ended September 30, 2017, respectively,March 31, 2020 and $6.1 million and $17.9 million for the three and nine months ended September 30, 2016,2019, respectively.

We acquired five properties during the ninethree months ended September 30, 2017,March 31, 2020, and two properties during the ninethree months ended September 30, 2016, whichMarch 31, 2019. The acquisitions are summarized below (dollars in thousands):

We determined the fair value of assets acquired and liabilities assumed related to the properties acquired during the ninethree months ended September 30, 2017March 31, 2020 and 20162019 as follows (dollars in thousands):

Significant Real Estate Activity on Existing Assets

During the ninethree months ended September 30, 2017March 31, 2020 and 2016,2019, we executed sixthree and seven lease extensions and/or modifications, or newtwo leases, respectively, which are aggregatedsummarized below (dollars in thousands):

Future operating lease payments from tenants under non-cancelable leases, excluding tenant reimbursement of expenses, for the nine months ending December 31, 2020 and each of the five succeeding fiscal years and thereafter is as follows (dollars in thousands):

Intangible Assets

The following table summarizes the carrying value of intangible assets, liabilities and the accumulated amortization for each intangible asset and liability class as of September 30, 2017March 31, 2020 and December 31, 2016,2019, excluding real estate held for sale as of December 31, 20162019 (dollars in thousands):

Total amortization expense related to in-place leases, leasing costs and customer relationship lease intangible assets was $3.9$5.1 million and $10.9$5.0 million for the three and nine months ended September 30, 2017, respectively,March 31, 2020 and $3.4 million and $9.9 million for the three and nine months ended September 30, 2016,2019, respectively, and is included in depreciation and amortization expense in the condensed consolidated statements of operations and other comprehensive income (loss).income.

Total amortization related to above-market lease values was $0.2 million and $0.4$0.3 million for the three and nine months ended September 30, 2017, respectively,March 31, 2020 and $0.1 million and $0.4 million for the three and nine months ended September 30, 2016,2019, respectively, and is included in rentallease revenue in the condensed consolidated statements of operations and other comprehensive income (loss).income. Total amortization related to below-market lease values was $0.4$0.7 million and $1.1$0.6 million for the three and nine months ended September 30, 2017, respectively,March 31, 2020 and $0.3 million and $0.7 million for the three and nine months ended September 30, 2016,2019, respectively, and is included in rentallease revenue in the condensed consolidated statements of operations and other comprehensive income (loss).income.

The weighted average amortization periods in years for the intangible assets acquired and liabilities assumed during the ninethree months ended September 30, 2017March 31, 2020 and 20162019 were as follows:

 

5. Real Estate Dispositions, Held for Sale and Impairment Charges

Real Estate Dispositions

During the ninethree months ended September 30, 2017,March 31, 2020, we continued to execute our capital recycling program, whereby we soldsell properties outside of our core markets and redeployedredeploy proceeds to either fund property acquisitions in our target secondary growth markets, as well asor repay outstanding debt. During the nine months ended September 30, 2017,We expect to continue to execute our capital recycling plan and sell non-core properties as reasonable disposition opportunities become available. On February 20, 2020, we sold fourone non-core propertiesproperty, located in Franklin, New Jersey, Hazelwood, Missouri, Concord Township, Ohio, and Newburyport, Massachusetts,Charlotte, North Carolina, which are summarizedis detailed in the table below (dollars in thousands):

Our dispositionsdisposition during the ninethree months ended September 30, 2017 wereMarch 31, 2020 was not classified as a discontinued operationsoperation because theyit did not represent a strategic shift in operations, nor will theyit have a major effect on our operations and financial results. Accordingly, the operating results of these properties arethis property is included within continuing operations for all periods reported.

The table below summarizes the components of operating income from the real estate and related assets disposed of during the three and nine months ended September 30, 2017,March 31, 2020, and 20162019 (dollars in thousands):

Real Estate Held for Sale

At September 30, 2017,As of March 31, 2020, we did not have any properties classified as held for sale. At December 31, 2016,2019, we had two propertiesone property classified as held for sale, located in Hazelwood, Missouri and Franklin, New Jersey. Both of these properties wereCharlotte, North Carolina. This property was sold during the ninethree months ended September 30, 2017.March 31, 2020.

The table below summarizes the components of the assets and liabilities held for sale reflected on the accompanying condensed consolidated balance sheetsheets (dollars in thousands):

 

Impairment Charges

We evaluated our portfolio for triggering events to determine if any of our held and used assets were impaired during the ninethree months ended September 30, 2017March 31, 2020 and identified twodid not identify any held and used assets which were impaired during first quarter 2017.impaired. We also did not identify any impairment on held and used assets during the second or third quarter of 2017. For these properties, during first quarter 2017, we received unsolicited interest from potential buyers, and as a result, we included a sale scenario and shortened our hold period when comparing the undiscounted cash flows against the respective carrying values. Based upon our analysis, we concluded that the undiscounted cash flows for these properties were below their respective carrying values indicating that these assets were impaired as of March 31, 2017, and accordingly, we recordedrecognize an impairment charge of $3.7 million during the three months ended March 31, 2017. During the three months ended June 30, 2017, we sold one of these impaired properties to the tenant for a further loss on sale of $1.8 million. During the second quarter of 2017, we became aware of a decline in the tenant's financial results. The tenant expressed interest in acquiring our property as part of their corporate reorganization. Due to the re-tenanting risk of the property if it were to go vacant and as the location was in a non-core market, we executed a sale with this tenant. We sold the other impaired property during the three months ended September 30, 2017, recognizing a gain on sale of $1,000.2019.

6. Mortgage Note Receivable

Our mortgage notes payable and Credit Facility as of September 30, 2017March 31, 2020 and December 31, 20162019 are summarized below (dollars in thousands):

 

N/A - Not Applicable

Mortgage Notes Payable

As of September 30, 2017,March 31, 2020, we had 4558 mortgage notes payable, collateralized by a total of 6774 properties with a net book value of $674.9$730.5 million. We have limited recourse liabilities that could result from any one or more of the following circumstances: a borrower voluntarily filing for bankruptcy, improper conveyance of a property, fraud or material misrepresentation, misapplication or misappropriation of rents, security deposits, insurance proceeds or condemnation proceeds, or physical waste or damage to the property resulting from a borrower’s gross negligence or willful misconduct. We have full recourse for $11.7$4.8 million of the mortgages notes payable, outstanding,net, or 2.6%1.0% of the outstanding balance. We will also indemnify lenders against claims resulting from the presence of hazardous substances or activity involving hazardous substances in violation of environmental laws on a property. 

During the ninethree months ended September 30, 2017,March 31, 2020, we repaidissued four mortgages, collateralized by tenfour properties, which are aggregated below (dollars in thousands):

We made payments of $0.6$0.4 million and $1.0$0.3 million for deferred financing costs during the three and nine months ended September 30, 2017,March 31, 2020 and 2019, respectively. We made payments of $0.4 million and $1.0 million for deferred financing costs during the three and nine months ended September 30, 2016, respectively.

Scheduled principal payments of mortgage notes payable for the remainder of 2017,nine months ending December 31, 2020, and each of the five succeeding fiscal years and thereafter are as follows (dollars in thousands):

 

We have entered into interest rate cap agreements that cap the interest rate on certain of our variable-rate debt and we have assumed anor entered into interest rate swap agreementagreements in which we hedged our exposure to variable interest rates by agreeing to pay fixed interest rates to our respective counterparty. We have adopted the fair value measurement provisions for our financial instruments recorded at fair value. The fair value guidance establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. Generally, we will estimate the fair value of our interest rate caps and interest rate swap,swaps, in the absence of observable market data, using estimates of value including estimated remaining life, counterparty credit risk, current market yield and interest rate spreads of similar securities as of the measurement date. At September 30, 2017March 31, 2020 and December 31, 2016,2019, our interest rate cap agreements and interest rate swapswaps were valued using Level 2 inputs.

The fair value of the interest rate cap agreements is recorded in other assets on our accompanying condensed consolidated balance sheets. We record changes in the fair value of the interest rate cap agreements quarterly based on the current market valuations at quarter end asend. If the interest rate cap qualifies for hedge accounting, the change in the estimated fair value is recorded to accumulated other comprehensive income to the extent that it is effective, with any ineffective portion recorded to interest expense onin our accompanying condensed consolidated statements of operations and other comprehensive income (loss).income. If the interest rate cap does not qualify for hedge accounting, or if it is determined the hedge is ineffective, any change in the fair value is recognized in interest expense in our consolidated statements of operations and comprehensive income. The following table summarizes the interest rate caps at September 30, 2017March 31, 2020 and December 31, 20162019 (dollars in thousands):

 

We have assumed anor entered into interest rate swap agreementagreements in connection with certain of our June 22, 2017 acquisition,acquisitions or mortgage financings, whereby we will pay our counterparty ana fixed rate interest rate equivalent to 1.80% on a monthly basis, and receive payments from our counterparty equivalent to one month LIBOR.the stipulated floating rate. The fair valuevalues of our interest rate swap agreement isagreements are recorded in other assets or other liabilities on our accompanying condensed consolidated balance sheets. We have designated our interest rate swapswaps as a cash flow hedge,hedges, and we record changes in the fair value of the interest rate swap agreement to accumulated other comprehensive income on the condensed consolidated balance sheet.sheets. We record changes in fair value on a quarterly basis, using current market valuations at quarter end. We assumedThe following table summarizes our interest rate swap with a valueswaps at March 31, 2020 and December 31, 2019 (dollars in thousands):