Derivative Instruments and Hedging Activities

12 Months Ended

Dec. 31, 2025

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

The Company uses interest rate swaps, interest rate caps, and total return swap contracts to manage certain interest rate risks. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The fair values of interest rate swaps and total return swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.

The Company has two unsecured term loans with an outstanding balance of $600.0 million as of December 31, 2025. The Company has five interest rate swap contracts with an aggregate notional amount of $497.5 million that effectively fixed the interest rate on the $600.0 million unsecured term loans at 4.1%. The Company has two forward starting interest rate contracts with an aggregate notional amount of $150.0 million which will be effective at a future date. These derivatives qualify for hedge accounting.

In April 2025, the Company entered into three interest rate swap contracts related to the $300.0 million unsecured term loan entered into in May 2025. In September 2025, the Company had a $47.5 million interest rate swap related to debt that was paid off and subsequently applied the swap to this term loan.

In September 2022, the Company entered into one interest rate swap, with settlement payments commencing in May 2023, related to the $300.0 million unsecured term loan entered into in October 2022.

In June 2025, the Company entered into a $50.0 million forward starting interest rate swap that effectively fixes $50.0 million of this term loan which will be effective at a future date. In December 2025, the Company entered into a $100.0 million forward starting interest rate swap that effectively fixes $100.0 million of this term loan which will be effective at a future date.

As of December 31, 2025 and 2024, the aggregate carrying value of the interest rate swap contracts was an asset of $2.0 million and $5.5 million, respectively, included in prepaid expenses and other assets in the consolidated balance sheets.

The Company has five total return swap contracts, with an aggregate notional amount of $258.8 million that effectively convert mortgage notes payable to a floating interest rate based on the Securities Industry and Financial Markets Association Municipal Swap Index (“SIFMA”) plus a spread. The Company can currently settle all five total return swaps with $258.8 million of the outstanding debt at par. These derivatives do not qualify for hedge accounting and had a carrying and fair value of zero at both December 31, 2025 and 2024, respectively. The Company’s total return swaps are scheduled to mature between December 2027 and September 2035. Realized gains of $4.7 million, $3.1 million, and $3.1 million for the years ended December 31, 2025, 2024 and 2023, respectively, were reported in the consolidated statements of income as total return swap income.