Fair Value Measurements

12 Months Ended

Dec. 31, 2024

Fair Value Measurements

Fair Value Measurements

19.          Fair Value Measurements

Fair Value Measurements on a Recurring Basis

To manage or hedge our exposure to interest rate risk, we follow established risk management policies and procedures, including the use of a variety of derivative financial instruments.

As of December 31, 2024 and 2023, we had various derivative financial instruments consisting of interest rate swap and cap agreements that are measured at fair value on a recurring basis. The net unrealized gain on our derivative financial instruments designated as effective hedges was $17.2 million and $22.7 million as of December 31, 2024 and 2023, and was recorded in "Accumulated other comprehensive income" in our consolidated balance sheets, of which a portion was reclassified to "Redeemable noncontrolling interests." Within the next 12 months, we expect to reclassify $5.6 million of the net unrealized gain as a decrease to interest expense.

The fair values of the derivative financial instruments are based on the estimated amounts we would receive or pay to terminate the contracts at the reporting date and are determined using interest rate pricing models and observable inputs. The derivative financial instruments are classified within Level 2 of the valuation hierarchy.

The following is a summary of assets and liabilities measured at fair value on a recurring basis:

	Fair Value Measurements
	Total		Level 1		Level 2		Level 3
	(In thousands)
December 31, 2024
Derivative financial instruments designated as effective hedges:
Classified as assets in "Other assets, net"	$	23,367		—	$	23,367		—
Classified as liabilities in "Other liabilities, net"		90		—		90		—
Non-designated derivatives:
Classified as assets in "Other assets, net"		2,315		—		2,315		—
Classified as liabilities in "Other liabilities, net"		2,305		—		2,305		—
December 31, 2023
Derivative financial instruments designated as effective hedges:
Classified as assets in "Other assets, net"	$	35,632		—	$	35,632		—
Classified as liabilities in "Other liabilities, net"		7,936		—		7,936		—
Non-designated derivatives:
Classified as assets in "Other assets, net"		6,709		—		6,709		—
Classified as liabilities in "Other liabilities, net"		6,508		—		6,508		—

The fair values of our derivative financial instruments were determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of the derivative financial instrument. This analysis reflected the contractual terms of the derivative, including the period to maturity, and used observable market-based inputs, including interest rate market data and implied volatilities in such interest rates. While it was determined that the majority of the inputs used to value the derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with the derivatives also utilized Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default. However, as of December 31, 2024 and 2023, the significance of the impact of the credit valuation adjustments on the overall valuation of the derivative financial instruments was assessed, and it was determined that these adjustments were not significant to the overall valuation of the derivative financial instruments. As a result, it was determined that the derivative financial instruments in their entirety should be classified in Level 2 of the fair value hierarchy. The net unrealized gains (losses) included in "Other comprehensive income (loss)" in our consolidated statements of comprehensive income (loss) for each of the three years in the period ended December 31, 2024 were attributable to the net change in unrealized gains (losses) related to effective derivative financial instruments that were outstanding during those periods, none of which were reported in our consolidated statements of operations as the derivative financial instruments were documented and qualified as hedging instruments. Realized and unrealized gains (losses) related to non-designated derivatives are included in "Interest expense" in our consolidated statements of operations.

Fair Value Measurements on a Nonrecurring Basis

Our real estate assets are reviewed for impairment whenever there are changes in circumstances or indicators that the carrying amount of the assets may not be recoverable.

During the year ended December 31, 2024, this assessment resulted in the impairment of 1901 South Bell Street, 2101 L Street, 8001 Woodmont and two development parcels, which had an estimated fair value totaling $332.5 million based on a market approach and were classified as Level 2 in the fair value hierarchy. 2101 L Street was sold in December 2024. The impairment loss totaled $55.4 million, which was included in "Impairment loss" in our consolidated statement of operations for the year ended December 31, 2024.

During the year ended December 31, 2023, this assessment resulted in the impairment of three commercial assets and one development parcel. Our estimate of the fair value of 2101 L Street of $121.3 million was determined using a discounted cash flow model and was classified as Level 3 in the fair value hierarchy, which considers, among other things, the anticipated holding period, current market conditions and utilizes unobservable quantitative inputs, including capitalization and discount rates. Our estimate of the fair value of 2100 Crystal Drive, 2200 Crystal Drive and a development parcel

totaling $56.4 million was based on a market approach and were classified as Level 2 in the fair value hierarchy. The development parcel was sold in December 2023. The impairment loss totaled $90.2 million, which was included in "Impairment loss" in our consolidated statement of operations for the year ended December 31, 2023.

There were no assets measured at fair value on a nonrecurring basis as of December 31, 2022.

Financial Assets and Liabilities Not Measured at Fair Value

As of December 31, 2024 and 2023, all financial instruments and liabilities were reflected in our consolidated balance sheets at amounts which, in our estimation, reasonably approximated their fair values, except for the following:

	December 31, 2024				December 31, 2023
	Carrying				Carrying
	Amount (1)		Fair Value		Amount (1)		Fair Value
	(In thousands)
Financial liabilities:
Mortgage loans	$	1,783,733	$	1,749,904	$	1,798,225	$	1,753,251
Revolving credit facility		85,000		84,886		62,000		62,000
Term loans		720,000		715,929		720,000		715,950

(1) The carrying amount consists of principal only.

The fair values of the mortgage loans, revolving credit facility and term loans were determined using Level 2 inputs of the fair value hierarchy. The fair value of our mortgage loans is estimated by discounting the future contractual cash flows of these instruments using current risk-adjusted rates available to borrowers with similar credit profiles based on market sources. The fair value of our revolving credit facility and term loans is calculated based on the net present value of payments over the term of the facilities using estimated market rates for similar notes and remaining terms.