DERIVATIVE FINANCIAL INSTRUMENTS

6 Months Ended

Jun. 30, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS

DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses derivative financial instruments, which includes interest rate swaps and interest rate caps, on certain borrowing transactions to manage its net exposure to interest rate changes and to reduce its overall cost of borrowing. These derivatives may or may not qualify as cash flow hedges under the hedge accounting requirements of FASB ASC Topic 815, Derivatives and Hedging (“ASC 815”). Derivatives not designated as cash flow hedges are not speculative and are used to manage our exposure to interest rate movements. See Note 2 included in these consolidated financial statements for additional discussion of the accounting for designated and non-designated hedges.

The use of derivative financial instruments involves certain risks, including the risk that the counterparties to these contractual arrangements do not perform as agreed. To mitigate this risk, the Company only enters into derivative financial instruments with counterparties that have appropriate credit ratings and are major financial institutions with which the Company and its affiliates may also have other financial relationships.

The following tables detail our outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk as of June 30, 2022 and December 31, 2021 (notional amount in thousands):

	As of
	June 30, 2022					December 31, 2021
Interest Rate Derivatives	Number of Instruments	Notional Amount	Rate(1)	Index	Weighted Average Maturity (Years)	Number of Instruments	Notional Amount	Rate(1)	Index	Weighted Average Maturity (Years)
Interest rate swaps	1	$520,000	0.2075%	LIBOR(2)	0.8	1	$700,000	0.2075%	LIBOR(2)	1.0
Interest rate caps	0(3)	—	—	—	—	1	220,000	0.5000%	LIBOR	1.0

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(1)    Represents fixed rate for interest rate swaps and strike rate for interest rate caps.

(2)    Subject to a 0.00% floor.

(3)    In March 2022, the Company re-calibrated its net exposure to interest rate changes by terminating its interest rate cap derivative, which had a notional amount of $170.0 million on the termination date and a strike rate of 0.50%. For the three months ended March 31, 2022, the Company recognized a $2.0 million realized gain within other comprehensive income in conjunction with the termination of the interest rate cap. In accordance with ASC 815, the realized gain will be recognized within current earnings over the remaining original term of the interest rate cap derivative as it was designated as an effective hedge. For the three and six months ended June 30, 2022, the Company recognized a realized gain of $264 thousand and $268 thousand, respectively, through a reduction in interest expense, on the termination of the interest rate cap within current earnings.

The following table summarizes the fair value of our derivative financial instruments ($ in thousands):

	Fair Value of Derivatives in an Asset Position(1) as of			Fair Value of Derivatives in a Liability Position(2) as of
	June 30, 2022		December 31, 2021	June 30, 2022	December 31, 2021
Derivatives designated as hedging instruments:
Interest rate derivatives	$	10,692	2,979	—	—

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(1)    Included in other assets in the Company’s consolidated balance sheets.

(2)    Included in other liabilities in the Company’s consolidated balance sheets.