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 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 and 2022. 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. As of December 31, 2024, all interest rate swaps were deemed effective and are therefore included within AOCI. As of December 31, 2024, the Company expects approximately $3.1 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 following table summarizes the terms and fair value of the Company’s derivative financial instruments as of December 31, 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	$	2,628
Interest rate swaps	3	$50.0 Million Term Loan	Jan-24	Nov-26		50,000		131
Interest rate swaps	3	$100.0 Million Term Loan	Jan-24	Feb-27		100,000		368
Interest rate swaps	7	$50.0 Million Term Loan	Jan-24	Aug-27		50,000		339
Interest rate swaps	7	$110.0 Million Term Loan	Jan-24	Feb-28		110,000		1,026
Interest rate swaps	4	$300.0 Million Term Loan	Jul-24	Jan-29		300,000		1,623
Interest rate swap	1	$50.0 Million Term Loan	Sept-24	Jan-29		50,000		1,124
					$	860,000	$	7,239

(1)

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

(2)

Included within Other assets on the Company’s Consolidated Balance Sheets. The Company classifies the interest rate swaps as Level 2 and the fair value of the interest rate swaps are measured on a recurring basis, see Footnote 18 of the Notes to Consolidated Financial Statements.

The Company has interests in certain unconsolidated joint ventures, which have interest rate swaps. As of December 31, 2024 and 2023, the Company's share of the change in fair value of the cash flow hedges for interest payments was $3.8 million and $3.3 million, respectively, which is included within Accumulated other comprehensive income on the Company’s Consolidated Balance Sheets.

The Company evaluates its financial instruments, including equity-linked financial instruments, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). For derivative financial instruments that are classified as liabilities, the derivative instrument is initially recognized at fair value with subsequent changes in fair value recognized in each reporting period as a component of Other income, net on the Company's Consolidated Statements of Income. The classification of freestanding derivative instruments, including whether such instruments should be classified as liabilities or as equity, is evaluated at the end of each reporting period.

During 2022, the Company entered into an agreement to purchase a portfolio of eight properties for a sales price of $376.5 million, which were encumbered by $88.8 million of mortgage debt. The Company paid cash of $152.1 million and issued 6,104,831 preferred units (“Preferred Outside Partner Units”) and 678,306 common units (“Common Outside Partner Units”) with a value of $135.7 million to the sellers (collectively, the “Outside Partner Units”).

The transaction includes a call option for the Company to purchase the Outside Partner Units 10 years from the anniversary date of the agreement. The holders of the Outside Partner Units have a put option that would require the Company to purchase (i) 50% of the holder’s ownership interest after the first anniversary date, (ii) an additional 25% after the second anniversary date and (iii) the balance of the units after the third anniversary date. The put and call options cannot be separated from the noncontrolling interest. The noncontrolling interests associated with these units are classified in mezzanine equity as redeemable noncontrolling interests as a result of the put right available to the unit holders in the future, an event that is not solely in the Company’s control.

This arrangement included an embedded derivative which required separate accounting. The initial value of the embedded derivative was a liability of $56.0 million at the date of purchase. The Company estimated the fair value of the derivative liability using a “with-and-without” method. The “with-and-without” methodology involves valuing the whole instrument on an as-is basis and then valuing the instrument without the individual embedded derivative. The difference between the entire instrument with the embedded derivative compared to the instrument without the embedded derivative was the fair value of the derivative liability on issuance. The analysis reflects the contractual terms of the redeemable preferred and common units and the estimated probability and timing of underlying events, triggering the put and call options, are inputs used to determine the estimated fair value of the embedded derivative. The Company has determined the majority of the inputs used to value its embedded derivative fall within Level 3 of the fair value hierarchy, and, as a result, the fair value valuation of its embedded derivative held as of December 31, 2024 was classified as Level 3 in the fair value hierarchy and is required to be measured at fair value on a recurring basis (see Footnote 18 of the Notes to Consolidated Financial Statements). The embedded derivative liability was $19.9 million and $30.9 million at December 31, 2024 and 2023, respectively.