Derivative Financial Instruments

3 Months Ended

Mar. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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 March 31, 2023, 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 $22 million.

In April 2021, the Company executed two interest rate cap instruments on $142 million of variable rate mortgage debt secured by a portfolio of MOBs (see Note 9). During the three months ended March 31, 2022, the Company recognized a $2 million increase in the fair value of the interest rate cap instruments within other income (expense), net. 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 February 2023, the Company modified its two interest rate swap instruments totaling a $142 million notional value to reflect the change in the related variable rate mortgage debt’s interest rate benchmarks from LIBOR to SOFR (see Note 9). The Company applied certain practical expedients provided by ASU 2020-04 and ASU 2021-01 in connection with the modifications to these cash flow hedges (see Note 2).

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

The following table summarizes the Company’s interest rate swap instruments (in thousands):


							Fair Value(2)
Date Entered	Maturity Date	Hedge Designation	Notional Amount		Pay Rate(1)	Receive Rate(1)	March 31, 2023		December 31, 2022
April 2022(3)	May 2026	Cash flow	$	51,100	4.99 %	USD-SOFR w/ -5 Day Lookback + 2.50%	$	1,675	$	2,300
April 2022(3)	May 2026	Cash flow	91,000		4.54 %	USD-SOFR w/ -5 Day Lookback + 2.05%	2,983		4,096
August 2022(3)	February 2027	Cash flow	250,000		2.60 %	1 mo. USD-SOFR CME Term	7,658		11,299
August 2022(3)	August 2027	Cash flow	250,000		2.54 %	1 mo. USD-SOFR CME Term	8,466		12,564

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(1)Pay rates and receive rates are as of March 31, 2023. As of December 31, 2022, the interest rate swap instrument with a $51 million notional amount had a pay rate of 5.08% and a receive rate of 1 mo. USD-LIBOR-BBA + 2.50%. As of December 31, 2022, the interest rate swap instrument with a $91 million notional amount had a pay rate of 4.63% and a receive rate of 1 mo. USD-LIBOR-BBA + 2.05%.

(2)At each of March 31, 2023 and December 31, 2022, the interest rate swap instruments were in an asset position. Derivative assets are recorded at fair value in other assets, net on the Consolidated Balance Sheets.

(3)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.