Derivatives

3 Months Ended

Mar. 31, 2025

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 derivative financial instruments.

The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate these risks, the Company only enters into derivative financial instruments with counterparties with major financial institutions. The Company does not anticipate that any of the counterparties will fail to meet their obligations. The Company's objectives in using interest rate derivatives are to attempt to stabilize interest expense where possible and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

During 2024, the Company entered into 26 interest rate swap agreements with notional amounts aggregating to $860.0 million. 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 March 31, 2025, all interest rate swaps were deemed effective and are therefore included within Accumulated other comprehensive (loss)/income (“AOCI”) on the Company’s Condensed Consolidated Balance Sheets. As of March 31, 2025, the Company expects approximately $1.5 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 the fair value of the interest rate swaps are measured on a recurring basis.

The following table summarizes the terms and fair value of the Company’s derivative financial instruments as of March 31, 2025 (dollars in thousands):


Instrument	Number of Swap Agreements	Associated Debt Instrument	Effective Date	Maturity Date	Notional Amount (1)		Derivative Assets (2)		Derivative Liabilities (2)
Interest rate swap	1	$200.0 Million Term Loan	Jan-24	Jan-29	$	200,000	$	-	$	(230	)
Interest rate swaps	3	$50.0 Million Term Loan	Jan-24	Nov-26		50,000		-		(108	)
Interest rate swaps	3	$100.0 Million Term Loan	Jan-24	Feb-27		100,000		-		(244	)
Interest rate swaps	7	$50.0 Million Term Loan	Jan-24	Aug-27		50,000		-		(104	)
Interest rate swaps	7	$110.0 Million Term Loan	Jan-24	Feb-28		110,000		-		(199	)
Interest rate swaps	4	$300.0 Million Term Loan	Jul-24	Jan-29		300,000		-		(2,529	)
Interest rate swap	1	$50.0 Million Term Loan	Sept-24	Jan-29		50,000		384		-
					$	860,000	$	384	$	(3,414	)

(1)

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

(2)

Derivative assets and derivative liabilities are included within Other assets and Other liabilities, respectively, on the Company’s Condensed 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 15 of the Notes to Condensed Consolidated Financial Statements.

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 months ended March 31, 2025 (in thousands):


	Three Months Ended March 31,
	2025			2024
Amount of (loss)/gain recognized in AOCI on interest rate swaps, net	$	(8,987	)	$	8,536
Amount reclassified from AOCI into income as Interest expense	$	1,282		$	2,077
Total amount of Interest expense presented in the Condensed Consolidated Statements of Operations in which the effects of cash flow hedges are being recorded	$	(80,377	)	$	(74,565	)

The Company has interests in certain unconsolidated joint ventures, which have cash flow hedges for interest payments. As of March 31, 2025 and December 31, 2024, the Company’s share of the fair value of cash flow hedges for interest payments of unconsolidated investees was $2.1 million and $3.8 million, respectively, which is included within AOCI on the Company’s Condensed Consolidated Balance Sheets.