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Derivative Instruments and Hedging Activity | 9 Months Ended
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Sep. 30, 2024
Derivative Instruments and Hedging Activity |
Derivative Instruments and Hedging Activity | Note 8 – Derivative Instruments and Hedging Activity Background The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risk, including interest rate, liquidity and credit risk primarily by managing the amount, sources and duration of its debt funding and, to a limited extent, the use of derivative instruments. For additional information regarding the leveling of the Company’s derivatives, refer to Note 9 – Fair Value Measurements. The Company’s objective in using interest rate derivatives is to manage its exposure to interest rate movements and add stability to interest expense. To accomplish this objective, the Company 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 agreement without exchange of the underlying notional amount. Hedge Activity In June 2023, the Company entered into $350.0 million of forward-starting interest rate swap agreements to hedge against variability in future cash flows resulting from changes in SOFR. The swaps exchange variable rate SOFR interest on $350.0 million of SOFR indexed debt to a weighted average fixed interest rate of 3.57% beginning August 1, 2023 through the maturity date of January 1, 2029. The swaps are designated to hedge the variable rate interest payments of the 2029 Unsecured Term Loan indexed to SOFR. As of September 30, 2024, these interest rate swaps were valued as a liability of approximately $4.8 million. In December 2023, the Company entered into forward-starting interest rate swap agreements to hedge against variability in future cash flows resulting from changes in interest rates from the trade date through the forecasted issuance date of $150.0 million of long-term debt. The Company hedged its exposure to the variability in future cash flows for a forecasted issuance of long-term debt over a maximum period ending December 2025. In addition, in May 2024, the Company entered into a $150.0 million US Treasury lock at 4.51% to hedge against variability in future cash flows resulting from changes in interest rates. The Company terminated the $150.0 million forward-starting interest rate swap agreements and the $150.0 million US Treasury lock upon completion of the underwritten public offering of the 2034 Senior Unsecured Public Notes, receiving $4.4 million, net upon termination. This settlement was included as a component of accumulated OCI, to be recognized as an adjustment to income over the term of the debt. During the quarter ended September 30, 2024, the Company entered into forward-starting interest rate swap agreements to hedge against variability in future cash flows resulting from changes in interest rates from the trade date through the forecasted issuance date of $200.0 million of long-term debt. The Company hedged its exposure to the variability in future cash flows for a forecasted issuance of long-term debt over a maximum period ending December 2025. As of September 30, 2024, these interest rate swaps are valued as a net liability of approximately $0.1 million. Recognition The Company recognizes all derivative instruments as either assets or liabilities at fair value on the balance sheet. The Company recognizes its derivatives within other assets, net and accounts payable, accrued expenses and other liabilities on the condensed consolidated balance sheets. Changes in fair value for hedging instruments designated and qualifying for cash flow hedge accounting treatment are recognized as a component of other comprehensive income (OCI). Accumulated OCI relates to (i) the change in fair value of interest rate derivatives and (ii) realized gains or losses on settled derivative instruments. Amounts are reclassified out of accumulated OCI as an adjustment to interest expense for (i) realized gains or losses related to effective interest rate swaps and (ii) realized gains or losses on settled derivative instruments, amortized over the term of the hedged debt transaction. During the next twelve months, the Company estimates that an additional $3.8 million will be reclassified as a decrease to interest expense. The Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (presented in thousands, except number of instruments):
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Number of Instruments 1 | ​ | Notional Amount1
​ | ​ | September 30, | ​ | December 31, | ​ | September 30, | ​ | December 31,
Interest Rate Derivatives |  | 2024 |  | 2023 |  | 2024 |  | 2023
Interest rate swaps |  | 11 |  | 6 | ​ | $ | 550,000 | ​ | $ | 500,000
​ (1) Number of Instruments and total Notional Amount disclosed includes all interest rate swap agreements outstanding at the balance sheet date, including forward-starting interest rate swaps prior to their effective date. ​ The table below presents the estimated fair value of the Company’s derivative financial instruments, as well as their classification in the condensed consolidated balance sheets (presented in thousands). ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Asset Derivatives
​ | ​ | September 30, 2024 | ​ | December 31, 2023
Derivatives designated as cash flow hedges: |  | ​ |  |  | ​ |
Other Assets, net | ​ | $ | 733 | ​ | $ | —
​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Liability Derivatives
​ | ​ | September 30, 2024 | ​ | December 31, 2023
Derivatives designated as cash flow hedges: |  | ​ |  |  | ​ |
Accounts Payable, Accrued Expenses, and Other Liabilities | ​ | $ | 5,634 | ​ | $ | 4,501
​ ​ The table below presents the effect of the Company’s derivative financial instruments in the condensed consolidated statements of operations and other comprehensive income for the three and nine months ended September 30, 2024 and 2023 (presented in thousands). ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Amount of Income/(Loss) | ​ | Location of Accumulated OCI | ​ | Amount Reclassified from | ​
​ | ​ | Recognized in | ​ | Reclassified from Accumulated | ​ | Accumulated OCI as a | ​
​ | ​ | OCI on Derivative | ​ | OCI into Income | ​ | (Reduction)/Increase in Interest Expense | ​
Three Months Ended September 30, | ​ | 2024 |  | 2023 |  | ​ |  | 2024 |  | 2023 | ​
Interest rate swaps | ​ | $ | (10,202) | ​ | $ | 9,348 |  | Interest expense | ​ | $ | (2,297) | ​ | $ | (1,653) | ​
​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Amount of Income/(Loss) | ​ | Location of Accumulated OCI | ​ | Amount Reclassified from
​ | ​ | Recognized in | ​ | Reclassified from Accumulated | ​ | Accumulated OCI as a
​ | ​ | OCI on Derivative | ​ | OCI into Income | ​ | (Reduction)/Increase in Interest Expense
Nine Months Ended September 30, |  | 2024 |  | 2023 |  | ​ | ​ | 2024 |  | 2023
Interest rate swaps | ​ | $ | 8,612 | ​ | $ | 12,688 | ​ | Interest expense | ​ | $ | (6,709) | ​ | $ | (2,913)
​ The Company does not use derivative instruments for trading or other speculative purposes and did not have any other derivative instruments or hedging activities as of September 30, 2024. Credit-Risk-Related Contingent Features The Company has agreements with its derivative counterparties that contain a provision where the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on the indebtedness. As of September 30, 2024 and December 31, 2023, the fair value of derivatives related to these agreements, which includes interest but excludes any adjustment for nonperformance risk, was a net liability position of $4.5 million and a net liability position of $4.1 million, respectively. ​ Although the derivative contracts are subject to master netting arrangements, which serve as credit mitigants to both the Company and its counterparties under certain situations, the Company does not net its derivative fair values or any existing rights or obligations to cash collateral on the condensed consolidated balance sheets. ​ The table below presents a gross presentation of the effects of offsetting and a net presentation of the Company’s derivatives as of September 30, 2024. There was no offsetting of derivative assets or liabilities as of December 31, 2023. The gross amounts of derivative assets or liabilities can be reconciled to the Tabular Disclosure of Fair Values of Derivative Instruments above, which also provides the location that derivative assets and liabilities are presented on the condensed consolidated balance sheets (in thousands): ​ Offsetting of Derivative Assets as of September 30, 2024 ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | Gross Amounts |  | Net Amounts of | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | Offset in the | ​ | Assets presented | ​ | Gross Amounts Not Offset in the
​ | ​ | Gross Amounts |  | Statement of | ​ | in the Statement | ​ | Statement of Financial Position
​ | ​ | of Recognized | ​ | Financial | ​ | of Financial |  | Financial |  | Cash Collateral | ​ | ​ | ​
​ |  | Assets |  | Position |  | Position |  | Instruments |  | Received |  | Net Amount
Derivatives | ​ | $ | 733 | ​ | $ | — | ​ | $ | 733 | ​ | $ | (447) | ​ | $ | — | ​ | $ | 286
​ ​ Offsetting of Derivative Liabilities as of September 30, 2024 ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ |  | Gross Amounts |  | Net Amounts of | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ |  | Offset in the |  | Liabilities presented |  | Gross Amounts Not Offset in the
​ | ​ | Gross Amounts |  | Statement of |  | in the Statement |  | Statement of Financial Position
​ | ​ | of Recognized |  | Financial |  | of Financial |  | Financial |  | Cash Collateral | ​ | ​ | ​
​ | ​ | Liabilities | ​ | Position | ​ | Position | ​ | Instruments | ​ | Posted | ​ | Net Amount
Derivatives | ​ | $ | 5,634 | ​ | $ | — | ​ | $ | 5,634 | ​ | $ | (447) | ​ | $ | — | ​ | $ | 5,187
​

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org/1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org/1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/815/tableOfContent + Details
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