Derivatives

6 Months Ended

Jun. 30, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Note 11 – Derivatives

We use forward currency contracts to economically hedge interest and principal payments due under our loans denominated in currencies other than USD.

We have entered into a series of forward contracts to sell an amount of foreign currency (GBP, EUR and SEK) for an agreed upon amount of USD at various dates through February 2027. These forward contracts were executed to economically fix the USD amounts of foreign denominated cash flows expected to be received by us related to foreign denominated loan investments.

The agreements with our derivative counterparties require that we post collateral to secure net liability positions. As of both June 30, 2024 and December 31, 2023, we were in a net asset position with all of our derivative counterparties and did not have any collateral posted under these derivative contracts.

The following table summarizes our non-designated Fx forwards and interest rate cap as of June 30, 2024:

         
        June 30, 2024

        Type of Derivatives

        Number of
Contracts

        Aggregate
Notional Amount
(in thousands)

        Notional
Currency

        Maturity

        Weighted-Average
Years to Maturity

Fx contracts - GBP

85

963,399

GBP

July 2024 - February 2027

1.00

Fx contracts - EUR

114

481,209

EUR

July 2024 - August 2026

0.69

Fx contracts - SEK

16

663,828

SEK

August 2024 - May 2026

1.75

Interest rate cap

2

238,535

USD

October 2024 - July 2025

0.49

The following table summarizes our non-designated Fx forwards and interest rate cap as of December 31, 2023:

         
        December 31, 2023

        Type of Derivatives

        Number of
Contracts

        Aggregate
Notional Amount
(in thousands)

        Notional
Currency

        Maturity

        Weighted-Average
Years to Maturity

Fx contracts - GBP

97

938,903

GBP

January 2024 - February 2027

1.13

Fx contracts - EUR

135

561,441

EUR

January 2024 - August 2026

1.08

Fx contracts - SEK

17

690,740

SEK

February 2024 - May 2026

2.16

Interest rate cap

1

164,835

USD

October 2024

0.75

We have not designated any of our derivative instruments as hedges as defined in ASC 815, "Derivatives and Hedging" and, therefore, changes in the fair value of our derivative instruments are recorded directly in earnings. The following table summarizes the amounts recognized on our condensed consolidated statements of operations related to our forward currency contracts for the three and six months ended June 30, 2024 and 2023 ($ in thousands):


		Amount of gain (loss) recognized in income					Amount of gain (loss) recognized in income
		Three Months Ended June 30,					Six Months Ended June 30,
	Location of Gain (Loss) Recognized in Income	2024		2023			2024		2023
Forward currency contracts	Unrealized gain (loss) on derivative instruments	$	911	$	(20,102	)	$	18,964	$	(55,953	)
Forward currency contracts	Realized gain (loss) on derivative instruments		5,466		2,986			10,811		24,702
Total		$	6,377	$	(17,116	)	$	29,775	$	(31,251	)

In June 2020, we entered into an interest rate cap for approximately $1.1 million, which matured on June 15, 2023. Our interest rate cap managed our exposure to variable cash flows on our borrowings under the senior secured term loan by effectively limiting LIBOR from exceeding 0.75%. This limited the maximum all-in coupon on our senior secured term loan to 3.50%. The unrealized gain or loss related to the interest rate cap was recorded net under unrealized gain on interest rate hedging instruments in our condensed consolidated statement of operations. During the three and six months ended June 30, 2023, LIBOR exceeded the cap rate of 0.75%. As such, during the three and six months ended June 30, 2023, we realized a gain from the interest rate cap in the amount of $4.4 million and $9.1 million, respectively, which is included in gain (loss) on interest rate hedging instruments in our condensed consolidated statement of operations. The realized gain was a result of the increase in the current interest rate forward curve, partially offset by the nearing maturity of the cap.

On September 26, 2023, we entered into an interest rate cap that matures on October 1, 2024 with a notional amount of $164.8 million. We use our interest rate cap to hedge our exposure to variable cash flows on our construction financing. The interest rate cap effectively limits SOFR from exceeding 4.00% which results in the maximum all-in coupon on our construction financing of 6.55%. The unrealized gain or loss related to the interest rate cap was recorded under gain (loss) on interest rate hedging instruments in our condensed consolidated statement of operations. During the three and six months ended June 30, 2024, SOFR exceeded the cap rate of 4.00%. As such, during the three and six months ended June 30, 2024, we realized a gain from the interest rate cap in the amount of $0.6 million and $1.1 million, respectively, which is included in gain (loss) on interest rate hedging instruments in our condensed consolidated statement of operations.

On June 13, 2024, we entered into an interest rate cap that matures on July 1, 2025 with a notional amount of $73.7 million. We use our interest rate cap to hedge our exposure to variable cash flows on our floating rate mortgage related to the D.C. Hotel. The interest rate cap effectively limits SOFR from exceeding 6.00% which results in the maximum all-in coupon on mortgage of 9.00%. The unrealized gain or loss related to the interest rate cap was recorded under gain (loss) on interest rate hedging instruments in our condensed consolidated statement of operations. During the three months ended June 30, 2024, SOFR did not exceed the cap rate of 6.00%, and accordingly, no realized gain was recorded.

The following table summarizes the amounts recognized on our condensed consolidated statements of operations related to our interest rate caps for the three and six months ended June 30, 2024 and 2023 ($ in thousands):


		Amount of gain (loss) recognized in income						Amount of gain (loss) recognized in income
		Three Months Ended June 30,						Six Months Ended June 30,
	Location of Gain (Loss) recognized in Income	2024			2023			2024			2023
Interest rate caps	Unrealized gain (loss) on interest rate hedging instruments	$	(457	)	$	(4,328	)	$	(651	)	$	(9,141	)
Interest rate caps	Realized gain on interest rate hedging instruments		551			4,383			1,101			9,089
Total		$	94		$	55		$	450		$	(52	)

The following tables summarize the gross asset and liability amounts related to our derivatives at June 30, 2024 and December 31, 2023 ($ in thousands):


	June 30, 2024							December 31, 2023
	Gross Amount of Recognized Assets		Gross Amounts Offset in our Condensed Consolidated Balance Sheet			Net Amounts of Assets Presented in our Condensed Consolidated Balance Sheet		Gross Amount of Recognized Assets		Gross Amounts Offset in our Consolidated Balance Sheet			Net Amounts of Assets Presented in our Consolidated Balance Sheet
Forward currency contracts	$	67,325	$	(20,296	)	$	47,029	$	55,102	$	(27,037	)	$	28,065
Interest rate caps		720		—			720		1,360		—			1,360
Total derivative assets (liabilities)	$	68,045	$	(20,296	)	$	47,749	$	56,462	$	(27,037	)	$	29,425