Derivatives

9 Months Ended

Sep. 30, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

12. Derivatives

Derivative Instruments & Hedging Activities

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company manages economic risks, including interest rate, liquidity, and credit risks primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company may use derivatives to manage exposures that arise

from changes in interest rates and limits the risk by following established risk management policies and procedures, including the use of derivatives.

During the nine months ended September 30, 2024, the Company entered into 26 interest rate swap agreements with notional amounts aggregating to $860.0 million. The Company did not enter into any interest rate swap agreements during 2023. The interest rate swap agreements are designated as cash flow hedges and are held by the Company to reduce the impact of changes in interest rates on variable rate debt. The differential between fixed and variable rates to be paid or received is accrued, as interest rates change, and recognized as Interest expense in the Company’s Condensed Consolidated Statements of Income. If the hedges are deemed to be effective, the fair value is included within the Accumulated other comprehensive (loss)/income (“AOCI”) on the Company’s Condensed Consolidated Balance Sheets, and subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. As of September 30, 2024, all interest rate swaps were deemed effective and are therefore included within AOCI. As of September 30, 2024, the Company expects approximately $0.4 million of accumulated comprehensive income on derivative instruments to be reclassified into earnings as a reduction to interest expense during the next 12 months.

The interest rate swaps are measured at fair value using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The Company classifies the interest rate swaps as Level 2 and are measured on a recurring basis.

The following table summarizes the terms and fair value of the Company’s derivative financial instruments as of September 30, 2024 (amounts in thousands):


Instrument	Number of Swap Agreements	Associated Debt Instrument	Effective Date	Maturity Date	Notional Amount (1)			Fair Value (2)
Interest rate swap	1	$200.0 Million Term Loan	Jan-24	Jan-29	$	(200,000	)	$	(3,137	)
Interest rate swaps	3	$50.0 Million Term Loan	Jan-24	Nov-26		(50,000	)		(496	)
Interest rate swaps	3	$100.0 Million Term Loan	Jan-24	Feb-27		(100,000	)		(1,089	)
Interest rate swaps	7	$50.0 Million Term Loan	Jan-24	Aug-27		(50,000	)		(598	)
Interest rate swaps	7	$110.0 Million Term Loan	Jan-24	Feb-28		(110,000	)		(1,460	)
Interest rate swaps	4	$300.0 Million Term Loan	Jul-24	Jan-29		(300,000	)		(7,162	)
Interest rate swap	1	$50.0 Million Term Loan	Sept-24	Jan-29		(50,000	)		(288	)
					$	(860,000	)	$	(14,230	)

(1)

These interest rate swap agreements utilize a 1-month SOFR CME index.

(2)

Included within Other liabilities on the Company’s Condensed Consolidated Balance Sheets.

The table below details the location in the financial statements of the gain/(loss) recognized on interest rate swaps designated as cash flow hedges for the three and nine months ended September 30, 2024 (amounts in thousands):


	Three Months Ended September 30, 2024			Nine Months Ended September 30, 2024
Amount of loss recognized in AOCI on interest rate swaps, net	$	(18,978	)	$	(6,996	)
Amount reclassified from AOCI into income as Interest expense	$	3,072		$	7,234
Total amount of Interest expense presented in the Condensed Consolidated Statements of Income in which the effects of cash flow hedges are being recorded	$	(76,216	)	$	(224,122	)

The Company has interests in certain unconsolidated joint ventures, which have interest rate swaps. As of September 30, 2024 and December 31, 2023, the Company’s share of the change in fair value of the cash flow hedges for interest payments was $0.7 million and $3.3 million, respectively, which is included within Accumulated other comprehensive (loss)/income on the Company’s Condensed Consolidated Balance Sheets.