Derivative Financial Instruments

3 Months Ended

Mar. 31, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company enters into interest rate derivative contracts to manage exposure to interest rate risks. The Company does not use derivative financial instruments for trading or speculative purposes. Derivative financial instruments are recognized at fair value and presented within other assets and other liabilities in the condensed consolidated balance sheets. Gains and losses resulting from changes in the fair value of derivatives that are neither designated nor qualify as hedging instruments are recognized within the change in fair value of derivatives and other in the condensed consolidated statements of comprehensive income. For derivatives that qualify as cash flow hedges, the gain or loss is reported as a component of other comprehensive income (loss) and reclassified into earnings in the periods during which the hedged forecasted transaction affects earnings.

As of March 31, 2024, the Company held one interest rate cap corridor. The Company purchased a SOFR interest rate cap at 1.00% and sold a SOFR interest rate cap at 3.00%, resulting in a SOFR interest rate cap corridor of 1.00% to 3.00%, effective on September 1, 2022. This corridor is designated as a cash flow hedge. The intended goal of this corridor is to provide a level of protection from the effect of rising interest rates and reduce the all-in-cost of the derivative instrument. The Company paid a premium of $1.4 million to purchase the corridor. As of March 31, 2024, the notional amount was $73.6 million, which is the maximum notional amount. The corridor is scheduled to mature on September 1, 2024.

As of March 31, 2024, the Company held the following floating-to-fixed interest rate swaps ($ in thousands):


Related Debt	Notional Amount			Index	Swap Fixed Rate		Debt effective rate		Effective Date	Expiration Date
Senior unsecured term loan	$	25,000	(a)	1-month SOFR	0.42	%	1.97	%	4/1/2020	4/1/2024
Senior unsecured term loan	25,000		(a)	1-month SOFR	0.33	%	1.88	%	4/1/2020	4/1/2024
Senior unsecured term loan	25,000		(a)	Daily SOFR	0.44	%	1.99	%	4/1/2020	4/1/2024
Harbor Point Parcel 3 senior construction loan	90,000		(b)	1-month SOFR	2.75	%	4.82	%	10/2/2023	10/1/2025
Floating rate pool of loans	330,000		(c)	1-month SOFR	2.75	%	4.42	%	10/1/2023	10/1/2025
Harbor Point Parcel 4 senior construction loan	100,000		(d)	1-month SOFR	2.75	%	5.12	%	11/1/2023	11/1/2025
Floating rate pool of loans	300,000		(e)	1-month SOFR	2.75	%	4.42	%	12/1/2023	12/1/2025
Revolving credit facility and TD unsecured term loan	100,000			Daily SOFR	3.20	%	4.84	%	5/19/2023	5/19/2026	(f)
Thames Street Wharf	67,536		(a)	Daily SOFR	0.93	%	2.33	%	9/30/2021	9/30/2026
M&T unsecured term loan	100,000		(a)	1-month SOFR	3.50	%	5.05	%	12/6/2022	12/6/2027
Liberty Retail & Apartments	21,000		(g)	1-month SOFR	3.43	%	4.93	%	12/13/2022	1/21/2028
Senior unsecured term loan	79,000		(g)	1-month SOFR	3.43	%	4.98	%	12/13/2022	1/21/2028
Total	$	1,262,536

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(a) Designated as a cash flow hedge.

(b) This interest rate swap agreement reduces the Company's interest rate exposure on the $180.4 million senior construction loan secured by the Company's Harbor Point Parcel 3 equity method investment as described in Note 6. As such, the loan is not reflected on the Company's consolidated balance sheets. The Company also paid $3.6 million to reduce the swap fixed rate.

(d) This interest rate swap agreement reduces the Company's interest rate exposure on the $109.7 million senior construction loan secured by the Company's Harbor Point Parcel 4 equity method investment as described in Note 6. As such, the loan is not reflected on the Company's consolidated balance sheets. The Company also paid $3.9 million to reduce the swap fixed rate.

(e) The Company paid $10.5 million to reduce the swap fixed rate.

(f) Subject to cancellation by the counterparty beginning on May 1, 2025 and the first day of each month thereafter.

(g) The Company novated the existing 3.43% fixed rate swap with a $100.0 million notional amount and assigned $21.0 million to the loan secured by Liberty Retail & Apartments, effective February 1, 2024.

For the interest rate swaps and caps designated as cash flow hedges, realized gains and losses are reclassified out of accumulated other comprehensive income to interest expense in the condensed consolidated statements of comprehensive income due to payments received from and paid to the counterparty. During the next 12 months, the Company anticipates recognizing approximately $4.2 million of net hedging gains as reductions to interest expense. These amounts will be reclassified from accumulated other comprehensive income into earnings to offset the variability of the hedged items during this period.

The Company’s derivatives were comprised of the following as of March 31, 2024 and December 31, 2023 (in thousands):


	March 31, 2024						December 31, 2023
	Notional Amount		Fair Value				Notional Amount		Fair Value
			Asset		Liability				Asset		Liability
Derivatives not designated as accounting hedges
Interest rate swaps	$	1,020,000	$	27,271	$	—	$	1,020,000	$	20,761	$	—
Interest rate caps	—		—		—		—		—		—
Total derivatives not designated as accounting hedges	1,020,000		27,271		—		1,020,000		20,761		—
Derivatives designated as accounting hedges
Interest rate swaps	242,536		7,135		—		667,894		7,141		—
Interest rate caps	73,562		618		—		98,269		960		—
Total derivatives	$	1,336,098	$	35,024	$	—	$	1,786,163	$	28,862	$	—

The unrealized changes in the fair value of the Company’s derivatives during the three months ended March 31, 2024 and 2023 were comprised of the following (in thousands):


	Three Months Ended March 31,
	2024		2023
Interest rate swaps	$	10,049	$	(3,502)
Interest rate caps	15		(728)
Total unrealized change in fair value of interest rate derivatives	$	10,064	$	(4,230)
Comprehensive income statement presentation:
Change in fair value of derivatives and other	$	6,510	$	(3,804)
Unrealized cash flow hedge gains	3,554		(426)
Total unrealized change in fair value of interest rate derivatives	$	10,064	$	(4,230)