XML 32 R16.htm IDEA: XBRL DOCUMENT

Derivative Instruments and Hedging Activity

12 Months Ended

Dec. 31, 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.

Hedging Activity

In May and July 2021, 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 $300.0 million of long-term debt. In August 2022, upon completion of the underwritten public offering of the 2032 Senior Unsecured Public Notes, the Company terminated the swap agreements, receiving $28.4 million upon termination. This settlement was included as a component of accumulated Other Comprehensive Income (“OCI”), to be recognized as an adjustment to income over the term of the debt.

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 December 31, 2024 these interest rate swaps were valued as an asset of approximately $5.2 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. 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 August and September 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 April 2026. As of December 31, 2024, these interest rate swaps are valued as an asset of approximately $12.3 million.

Recognition

The Company recognizes all derivative instruments as either assets or liabilities at fair value on the balance sheets. The Company recognizes its derivatives within other assets, net and accounts payable, accrued expenses and other liabilities on the 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 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 $4.8 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
		December 31,		December 31,		December 31,			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 amounts 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 consolidated balance sheets (presented in thousands).


		Asset Derivatives
		December 31, 2024			December 31, 2023
Derivatives designated as cash flow hedges:
Other Assets, net		$	17,526		$	—


		Liability Derivatives
		December 31, 2024			December 31, 2023
Derivatives designated as cash flow hedges:
Accounts Payable, Accrued Expenses, and Other Liabilities		$	—		$	4,501

The table below presents the effect of the Company’s derivative financial instruments in the consolidated statements of operations and other comprehensive income for the years ended December 31, 2024, 2023 and 2022 (presented in thousands).


										Location of Accumulated OCI		Amount Reclassified from
	Amount of Income/(Loss) Recognized									Reclassified from Accumulated		Accumulated OCI as a
	in OCI on Derivative									OCI into Income		(Reduction)/Increase in Interest Expense
Year Ended December 31,	2024			2023			2022					2024			2023			2022
Interest rate swaps	$	32,060		$	(1,911)		$	29,881		Interest expense		$	(8,458)		$	(5,109)		$	(684)

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 December 31, 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.

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 consolidated balance sheets.

The fair value of derivative contracts, which includes interest but excludes any adjustment for nonperformance risk, was in an asset position of $17.9 million as of December 31, 2024 and was in a liability position of $4.1 million as of December 31, 2023. There was no offsetting of derivative assets or liabilities as of December 31, 2024 and 2023.