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Financial Instruments: Derivatives and Hedging | 9 Months Ended
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Sep. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Financial Instruments: Derivatives and Hedging | Financial Instruments: Derivatives and Hedging In the normal course of business, we use a variety of commonly used derivative instruments, including, but not limited to, interest rate swaps, caps, collars and floors, to manage interest rate risk. We hedge our exposure to variability in future cash flows for forecasted transactions in addition to anticipated future interest payments on existing debt. We recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges are adjusted to fair value through earnings. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedge asset, liability, or firm commitment through earnings, or recognized in other comprehensive income (loss) until the hedged item is recognized in earnings. Reported net income and equity may increase or decrease prospectively, depending on future levels of interest rates and other variables affecting the fair values of derivative instruments and hedged items, but will have no effect on cash flows. Currently, all of our designated derivative instruments are effective hedging instruments. The following table summarizes the notional value at inception and fair value of our consolidated derivative financial instruments as of September 30, 2024 based on Level 2 information. The notional value is an indication of the extent of our involvement in these instruments at that time, but does not represent exposure to credit, interest rate or market risks (dollars in thousands).
| Notional Value |  | Strike Rate |  | Effective Date |  | Expiration Date |  | Balance Sheet Location |  | Fair Value
Interest Rate Cap | $ | 205,000 |  |  | 4.000 | % |  | February 2024 |  | February 2025 |  | Other Assets |  | $ | 395 |
Interest Rate Cap | 370,000 |  |  | 3.250 | % |  | June 2024 |  | June 2025 |  | Other Assets |  | 2,287 |
Interest Rate Cap | 370,000 |  |  | 3.250 | % |  | June 2024 |  | June 2025 |  | Other Liabilities |  | (2,275) |
Interest Rate Cap | 68,678 |  |  | 4.000 | % |  | August 2024 |  | July 2025 |  | Other Liabilities |  | (161) |
Interest Rate Swap | 150,000 |  |  | 2.621 | % |  | December 2021 |  | January 2026 |  | Other Assets |  | 1,870 |
Interest Rate Swap | 200,000 |  |  | 2.662 | % |  | December 2021 |  | January 2026 |  | Other Assets |  | 2,393 |
Interest Rate Swap | 125,000 |  |  | 3.667 | % |  | August 2024 |  | December 2026 |  | Other Liabilities |  | (826) |
Interest Rate Swap | 125,000 |  |  | 3.670 | % |  | August 2024 |  | December 2026 |  | Other Liabilities |  | (841) |
Interest Rate Swap | 100,000 |  |  | 2.903 | % |  | February 2023 |  | February 2027 |  | Other Assets |  | 991 |
Interest Rate Swap | 100,000 |  |  | 2.733 | % |  | February 2023 |  | February 2027 |  | Other Assets |  | 1,374 |
Interest Rate Swap | 50,000 |  |  | 2.463 | % |  | February 2023 |  | February 2027 |  | Other Assets |  | 992 |
Interest Rate Swap | 200,000 |  |  | 2.591 | % |  | February 2023 |  | February 2027 |  | Other Assets |  | 3,391 |
Interest Rate Swap | 300,000 |  |  | 2.866 | % |  | July 2023 |  | May 2027 |  | Other Assets |  | 3,333 |
Interest Rate Swap | 150,000 |  |  | 3.524 | % |  | January 2024 |  | May 2027 |  | Other Liabilities |  | (792) |
Interest Rate Swap | 370,000 |  |  | 3.888 | % |  | November 2022 |  | June 2027 |  | Other Liabilities |  | (5,513) |
Interest Rate Swap | 68,678 |  |  | 4.466 | % |  | August 2024 |  | June 2027 |  | Other Liabilities |  | (2,076) |
Interest Rate Swap | 300,000 |  |  | 4.487 | % |  | November 2024 |  | November 2027 |  | Other Liabilities |  | (10,723) |
Interest Rate Swap | 100,000 |  |  | 3.756 | % |  | January 2023 |  | January 2028 |  | Other Liabilities |  | (1,482) |
Interest Rate Swap | 204,963 |  |  | 3.915 | % |  | February 2025 |  | May 2028 |  | Other Liabilities |  | (4,683) |
|  |  |  |  |  |  |  |  |  |  | $ | (12,346) |
During the three and nine months ended September 30, 2024, we recorded a loss of $9.2 million and $2.8 million, respectively, based on the changes in the fair value of forward-starting interest rate swaps, which is included in Purchase price and other fair value adjustments in the consolidated statements of operations. During the three and nine months ended September 30, 2023, we recorded a loss of $0.0 million and $0.2 million, respectively, based on the changes in the fair value of an interest rate cap we sold, which is included in Purchase price and other fair value adjustments in the consolidated statements of operations. During the three and nine months ended September 30, 2024, we recorded a gain of $0.2 million and $0.1 million, respectively, on the changes in fair value, which is included in interest expense in the consolidated statements of operations. During the three and nine months ended September 30, 2023, we recorded a loss of $0.0 million and $0.2 million, respectively, on the changes in fair value, which is included in interest expense in the consolidated statements of operations. Certain agreements the Company has with each of its derivative counterparties contain a provision where if the Company defaults on any of its indebtedness, then the Company could also be declared in default on its derivative obligations. As of September 30, 2024, the fair value of derivatives in a net liability position, including accrued interest but excluding any adjustment for nonperformance risk related to these agreements, was ($29.7 million). As of September 30, 2024, the Company was not required to post any collateral related to these agreements and was not in breach of any agreement provisions. If the Company had breached any of these provisions, it could have been required to settle its obligations under the agreements at their aggregate termination value of $31.0 million as of September 30, 2024. Gains and losses on terminated hedges are included in accumulated other comprehensive income, and are recognized into earnings over the term of the related obligation. Over time, the realized and unrealized gains and losses held in accumulated other comprehensive income will be reclassified into earnings as an adjustment to interest expense in the same periods in which the hedged interest payments affect earnings. We estimate that ($11.2 million) of the current balance held in accumulated other comprehensive income will be reclassified into interest expense and $1.3 million of the portion related to our share of joint venture accumulated other comprehensive income will be reclassified into equity in net loss from unconsolidated joint ventures within the next 12 months. The following table presents the effect of our derivative financial instruments and our share of our joint ventures' derivative financial instruments that are designated and qualify as hedging instruments on the consolidated statements of operations for the three months ended September 30, 2024 and 2023, respectively (in thousands):
|  | Amount of Gain Recognized in Other Comprehensive (Loss) Income |  | Location of Gain Reclassified from Accumulated Other Comprehensive (Loss) Income into Income |  | Amount of Gain Reclassified from Accumulated Other Comprehensive (Loss) Income into Income
|  | Three Months Ended September 30, |  |  | Three Months Ended September 30,
Derivative |  | 2024 |  | 2023 |  |  | 2024 |  | 2023
Interest Rate Swaps/Caps |  | $ | (38,205) |  |  | $ | 24,910 |  |  | Interest expense |  | $ | 10,248 |  |  | $ | 11,422 |
Share of unconsolidated joint ventures' derivative instruments |  | (19,493) |  |  | 3,927 |  |  | Equity in net (loss) income from unconsolidated joint ventures |  | 4,222 |  |  | 4,616 |
|  | $ | (57,698) |  |  | $ | 28,837 |  |  |  |  | $ | 14,470 |  |  | $ | 16,038 |
The following table presents the effect of our derivative financial instruments and our share of our joint ventures' derivative financial instruments that are designated and qualify as hedging instruments on the consolidated statements of operations for the nine months ended September 30, 2024 and 2023, respectively (in thousands):
|  | Amount of Gain Recognized in Other Comprehensive (Loss) Income |  | Location of Gain Reclassified from Accumulated Other Comprehensive (Loss) Income into Income |  | Amount of Gain Reclassified from Accumulated Other Comprehensive (Loss) Income into Income
|  | Nine Months Ended September 30, |  |  | Nine Months Ended September 30,
Derivative |  | 2024 |  | 2023 |  |  | 2024 |  | 2023
Interest Rate Swaps/Caps |  | $ | 4,143 |  |  | $ | 52,624 |  |  | Interest expense |  | $ | 29,746 |  |  | $ | 31,043 |
Share of unconsolidated joint ventures' derivative instruments |  | (11,951) |  |  | 13,467 |  |  | Equity in net (loss) income from unconsolidated joint ventures |  | 11,498 |  |  | 11,986 |
|  | $ | (7,808) |  |  | $ | 66,091 |  |  |  |  | $ | 41,244 |  |  | $ | 43,029 |
The following table summarizes the notional value at inception and fair value of our joint ventures' derivative financial instruments as of September 30, 2024 based on Level 2 information. The notional value is an indication of the extent of our involvement in these instruments at that time, but does not represent exposure to credit, interest rate or market risks (dollars in thousands).
| Notional Value |  | Strike Rate |  | Effective Date |  | Expiration Date |  | Classification |  | Fair Value
Interest Rate Cap | $ | 312,783 |  |  | 4.000 | % |  | May 2024 |  | November 2024 |  | Asset |  | $ | 294 |
Interest Rate Cap | 312,783 |  |  | 4.000 | % |  | May 2024 |  | November 2024 |  | Asset |  | 294 |
Interest Rate Cap | 285,000 |  |  | 4.000 | % |  | August 2024 |  | July 2025 |  | Asset |  | 671 |
Interest Rate Swap | 250,000 |  |  | 3.608 | % |  | April 2023 |  | February 2026 |  | Liability |  | (67) |
Interest Rate Swap | 250,000 |  |  | 3.608 | % |  | April 2023 |  | February 2026 |  | Liability |  | (67) |
Interest Rate Swap | 177,000 |  |  | 1.555 | % |  | December 2022 |  | February 2026 |  | Asset |  | 4,836 |
Interest Rate Swap | 268,750 |  |  | 4.039 | % |  | July 2024 |  | September 2028 |  | Liability |  | (7,984) |
Interest Rate Swap | 268,750 |  |  | 4.058 | % |  | July 2024 |  | September 2028 |  | Liability |  | (8,176) |
Interest Rate Swap | 537,500 |  |  | 4.065 | % |  | July 2024 |  | September 2028 |  | Liability |  | (16,710) |
|  |  |  |  |  |  |  |  |  |  | $ | (26,909) |

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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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