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Derivatives and Hedging
 6 Months Ended
Jun. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives and Hedging Derivatives and Hedging
The Company uses derivatives as part of its overall strategy to manage our exposure to market risks associated with the fluctuations in interest rates. We are also required to enter into interest rate derivative instruments in compliance with certain debt agreements. We do not enter into derivative financial instruments for trading or speculative purposes.
During April 2024, the Company entered into an interest rate cap transaction for an aggregate notional amount of $49.2 million for $1.1 million to reduce exposure to interest rate fluctuations associated with a portion of our variable mortgage notes payable to Fannie Mae. The interest rate cap has 24-month term and effectively caps SOFR at 4.00%. The Company is funding an IRC reserve for a replacement IRC which is held by the lender. The IRC is not designated as a cash flow hedge under ASC 815-20, Derivatives – Hedging, and therefore, all changes in the fair value of the instrument are included as a component of interest expense in our condensed consolidated statements of operations.
In connection with the Macedonia loan, in May 2024 the Company entered into a SOFR-based interest rate cap to reduce exposure to the variable interest rate fluctuations associated with a new mortgage. The total cost of the IRC was $0.2 million and has an aggregate notional amount of $9.4 million. The IRC has a 24-month term and caps SOFR at 6.00%.
On December 1, 2023, in order to comply with the lender’s requirements under the Ally Bank loan agreements, the Company entered into a SOFR-based interest rate cap transaction for an aggregate notional amount of $88.1 million at a cost of $2.4 million. The interest rate cap agreement has a 12-month term and effectively caps the interest rate at 2.25% with respect to the portion of our floating rate indebtedness. On February 2, 2024, as part of the Ally Term Loan expansion, the Company entered into a SOFR-based interest rate cap transaction for an aggregate notional amount of $24.8 million at a cost of $0.6 million. See “Note 6–Notes Payable.”
The following table presents the fair values of derivative assets and liabilities in the condensed consolidated balance sheets (in thousands):
June 30, 2024
Derivative AssetDerivative Liability
Notional AmountFair ValueNotional AmountFair Value
Interest rate cap (SOFR-based)
$171,566 $2,348 $— $— 
Total derivatives, net$171,566 $2,348 $— $— 

December 31, 2023
Derivative AssetDerivative Liability
Notional AmountFair ValueNotional AmountFair Value
Interest rate cap (SOFR-based)
$138,385 $2,103 $— $— 
Total derivatives, net$138,385 $2,103 $— $— 

The following table presents the effect of the derivative instruments on the condensed consolidated statements of operations (in thousands):
Three months ended June 30,Six months ended June 30,
2024202320242023
Derivative not designated as hedge
Interest rate cap
Loss on derivatives not designated as hedges included in interest expense$(1,079)$(531)$(1,606)$(1,122)