Derivative Financial Instruments

9 Months Ended

Sep. 30, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

The Company uses derivative instruments to mitigate the effects of interest rate fluctuations on specific forecasted transactions as well as recognized financial obligations or assets. Utilizing derivative instruments allows the Company to manage the risk of fluctuations in interest rates and their related potential impact on future earnings and cash flows. The Company does not use derivative instruments for speculative or trading purposes. At September 30, 2022, a one percentage point increase or decrease in the underlying interest rate curve would result in a corresponding increase or decrease in the fair value of the derivative instruments by approximately $24 million.

In March 2021, the Company repaid $39 million of variable rate secured debt on two SHOP assets and terminated the two associated interest rate swap instruments. Therefore, at December 31, 2021, the Company had no interest rate swap instruments.

In April 2021, the Company executed two interest rate cap instruments on its $142 million of variable rate mortgage debt issued in conjunction with the acquisition of the MOB Portfolio (see Note 3).

In April 2022, the Company terminated these interest rate cap instruments and entered into two interest rate swap instruments that are designated as cash flow hedges and mature in May 2026.

In August 2022, the Company entered into two forward-starting interest rate swap instruments on the $500 million aggregate principal amount of the 2022 Term Loan Facilities (see Note 9). The forward-starting interest rate swap instruments are designated as cash flow hedges.

The following table summarizes the Company’s interest rate swap instruments as of September 30, 2022 (in thousands):

							Fair Value(1)
Date Entered	Maturity Date	Hedge Designation	Notional Amount		Pay Rate	Receive Rate	September 30, 2022		December 31, 2021
April 2022(2)	May 2026	Cash flow	$	51,100	5.08 %	1 mo. USD-LIBOR-BBA + 2.50%	$	2,444	$	—
April 2022(2)	May 2026	Cash flow	91,000		4.63 %	1 mo. USD-LIBOR-BBA + 2.05%	4,352		—
August 2022(2)	February 2027	Cash flow	250,000		2.60 %	1 mo. USD-SOFR CME Term	12,173		—
August 2022(2)	August 2027	Cash flow	250,000		2.54 %	1 mo. USD-SOFR CME Term	13,518		—

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(1)At September 30, 2022, the interest rate swap instruments were in an asset position. Derivative assets are recorded in other assets, net on the Consolidated Balance Sheets.

(2)Represents interest rate swap instruments that hedge fluctuations in interest payments on variable rate debt by converting the interest rates to fixed interest rates. The changes in fair value of designated derivatives that qualify as cash flow hedges are recorded in accumulated other comprehensive income (loss) on the Consolidated Balance Sheets.

The following table summarizes the Company’s interest rate cap instruments as of September 30, 2022 (in thousands):

							Fair Value(1)
Date Entered	Maturity Date	Hedge Designation	Notional Amount		Strike Rate	Index	September 30, 2022		December 31, 2021
April 2021(2)	May 2024	Non-designated	$	142,100	2.00 %	1 mo. USD-LIBOR-BBA	$	—	$	397

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(1)At December 31, 2021, the interest rate cap instruments were in an asset position. Derivative assets are recorded in other assets, net on the Consolidated Balance Sheets.

(2)Represents two interest rate cap instruments that manage the Company’s exposure to variable cash flows on certain mortgage debt borrowings by limiting interest rates. These interest rate cap instruments were terminated in April 2022.

During the three and nine months ended September 30, 2022, the Company recognized a zero and $2 million increase, respectively, in the fair value of the interest rate cap instruments within other income (expense), net.