DERIVATIVE AND HEDGING ACTIVITIES

12 Months Ended

Dec. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Our objectives in using derivatives are to add stability to interest expense and to manage exposure to interest rate movement. To accomplish these objectives, we use interest rate swaps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The following is a summary of the terms of the interest rate swaps as of December 31, 2023 (dollars in thousands):


Swap Counterparty	Notional Amount		Effective Date		Maturity Date		Fair Value
Bank of America, N.A.	$	50,000		1/14/2022		1/5/2027		$	3,317
Wells Fargo Bank, N.A.	$	50,000		1/14/2022		1/5/2027		$	3,320
Wells Fargo Bank, N.A.	$	150,000		1/5/2023		1/5/2025		$	1,150
Mizuho Capital Markets LLC	$	75,000		1/5/2023		1/5/2025		$	176

These forward-starting interest rate swap contracts are designed to fix the effective interest rates (1) associated with Term Loan A at 2.70% through its maturity date, subject to adjustments based on our consolidated leverage ratio, (2) associated with Term Loan B at 5.47% from January 5, 2023 to January 4, 2024 and at 5.57% from January 5, 2024 to January 4, 2025, subject to adjustments based on our consolidated debt ratio and (3) associated with Term Loan C at 5.47% from January 5, 2023 to January 4, 2024 and at 5.57% from January 5, 2024 to January 4, 2025, subject to adjustments based on our consolidated debt ratio. The forward-starting interest rate swap contracts associated with Term Loan A, Term Loan B, and Term Loan C each have accrual periods designed to match the respective tenors of these term loans.

We also previously entered into forward-starting interest rate swap contracts in connection with our Series D Notes (the “Series D Interest Rate Swaps”), which we subsequently settled. The Series D Interest Rate Swaps fixed the effective interest rate of the Series D Notes at 3.87% per annum. All of the forward-starting interest rate swap contracts that we have entered into have been deemed to be highly effective cash flow hedges and have been designated as accounting hedges.

In addition, we have entered into treasury lock contracts from time to time in connection with the Operating Partnership’s Notes to reduce their interest rate variability exposure. As a result of these treasury lock contracts (1) the effective interest rate of our Series E Notes is 4.18% per annum, (2) the effective interest rate of our Series F Notes is 3.85% per annum, and (3) the effective interest rate of our Series G Notes is 3.88% per annum. These treasury lock contracts have been deemed to be highly effective cash flow hedges and have been designated as accounting hedges. Any gains or losses incurred upon the settlement of these treasury lock contracts are included in accumulated other comprehensive income and are amortized to interest expense over the life of the related series of Notes.

The effective portion of changes in the fair value of the derivatives that are designated as cash flow hedges are being recorded as accumulated other comprehensive income and will be subsequently reclassified into earnings during the period in which the hedged forecasted transaction affects earnings. For the next twelve months, we estimate that $0.4 million will be reclassified as a decrease to interest expense.

The valuation of these derivatives is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivative. This analysis (1) reflects the contractual terms of the derivative, including the period to maturity, (2) considers the counterparty credit risk and (3) uses observable market-based inputs, including interest rate curves, and implied volatilities. The fair value of the interest rate swaps is 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.