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Fair Value Measurements
 6 Months Ended
Jun. 30, 2025
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value Measurements
Fair Value Hierarchy—For disclosure purposes, financial instruments, whether measured at fair value on a recurring or nonrecurring basis or not measured at fair value, are classified in a hierarchy consisting of three levels based on the observability of valuation inputs in the marketplace as discussed below:
•Level 1: Fair value measurements that are quoted prices (unadjusted) in active markets that we have the ability to access for identical assets or liabilities. Market price data generally are obtained from exchange or dealer markets.
•Level 2: Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.
•Level 3: Fair value measurements based on valuation techniques that use significant inputs that are unobservable. The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or liability.
The fair value of interest rate caps and floors is determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates fall below the strike rates of the floors or rise above the strike rates of the caps. Variable interest rates used in the calculation of projected receipts and payments on the caps are based on an expectation of future interest rates derived from observable market interest rate curves (SOFR forward curves) and volatilities (Level 2 inputs). We also incorporate credit valuation adjustments (Level 3 inputs) to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk.
When a majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. However, when valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties, which we consider significant (10% or more) to the overall valuation of our derivatives, the derivative valuations in their entirety are classified in Level 3 of the fair value hierarchy. Transfers of inputs between levels are determined at the end of each reporting period. In determining the fair values of our derivatives at June 30, 2025, the SOFR interest rate forward curve (Level 2 inputs) assumed a downtrend from 4.322% to 3.130% for the remaining term of our derivatives. Credit spreads (Level 3 inputs) used in determining the fair values of derivatives assumed an uptrend in nonperformance risk for us and all of our counterparties through the maturity dates.
Prior to the Company’s repayment of the Oaktree term loan on February 12, 2025, we recorded an embedded debt derivative attributed to the Oaktree term loan’s compound embedded derivative liability. The compound embedded derivative liability was considered a Level 3 measurement due to the utilization of significant unobservable inputs in the valuation, which were based on “with and without” valuation models.
The following table includes a summary of the compound embedded derivative liabilities measured at fair value using significant unobservable (Level 3) inputs (in thousands):
Fair Value
Balance at March 31, 202421,072 
Re-measurement of fair value128 
Balance at June 30, 202421,200 
Re-measurement of fair value1,200 
Balance at September 30, 202422,400 
Re-measurement of fair value6,699 
Balance at December 31, 202429,099 
Re-measurement of fair value901 
Payment of derivative liability
(30,000)
Balance at March 31, 2025 and June 30, 2025
$— 
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents our assets and liabilities measured at fair value on a recurring basis aggregated by the level within which measurements fall in the fair value hierarchy (in thousands):
Quoted Market Prices (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)Total
June 30, 2025:
Assets
Derivative assets:
Interest rate derivatives – floors
$— $657 $— $657 
Interest rate derivatives – caps
— 1,788 — 1,788 
Total$— $2,445 $— $2,445 
(1)
December 31, 2024:
Assets
Derivative assets:
Interest rate derivatives – floors
$— $434 $— $434 
Interest rate derivatives – caps
— 2,160 — 2,160 
Total$— $2,594 $— $2,594 
(1)
Liabilities
Embedded debt derivative$— $— $(29,099)$(29,099)
(2)
Net$— $2,594 $(29,099)$(26,505)
____________________________________
(1)    Reported as “derivative assets” in our consolidated balance sheets.
(2)    Reported in “indebtedness, net” in our consolidated balance sheets.
Effect of Fair Value Measured Assets and Liabilities on Consolidated Statements of Operations
The following table summarizes the effect of fair value measured assets and liabilities on our consolidated statements of operations (in thousands):
Gain (Loss) Recognized in Income
Three Months Ended June 30,
20252024
Assets
Derivative assets:
Interest rate derivatives – floors
$39 $— 
Interest rate derivatives – caps
(875)1,485 
Total$(836)$1,485 
Liabilities
Derivative liabilities:
Embedded debt derivative$— $(128)
Net$(836)$1,357 
Total combined
Interest rate derivatives – floors
$39 $— 
Interest rate derivatives – caps
(1,348)(5,873)
Embedded debt derivative— (128)
Unrealized gain (loss) on derivatives(1,309)
(1)
(6,001)
(1)
Realized gain (loss) on interest rate caps473 
(1) (2)
7,358 
(1) (2)
Net$(836)$1,357 
____________________________________
(1)    Reported as “realized and unrealized gain (loss) on derivatives” in our consolidated statements of operations.
(2)    Represents settled and unsettled payments from counterparties on interest rate caps.
Gain (Loss) Recognized in Income
Six Months Ended June 30,
20252024
Assets
Derivative assets:
Interest rate derivatives – floors
$223 $— 
Interest rate derivatives – caps
(2,898)3,622 
Total$(2,675)$3,622 
Liabilities
Derivative liabilities:
Embedded debt derivative$(901)$2,496 
Net$(3,576)$6,118 
Total combined
Interest rate derivatives – floors
$223 $— 
Interest rate derivatives – caps
(3,693)(12,450)
Embedded debt derivative(901)2,496 
Unrealized gain (loss) on derivatives(4,371)
(1)
(9,954)
(1)
Realized gain (loss) on interest rate caps795 
(1) (2)
16,072 
(1) (2)
Net$(3,576)$6,118 
____________________________________
(1)    Reported as “realized and unrealized gain (loss) on derivatives” in our consolidated statements of operations.
(2)    Represents settled and unsettled payments from counterparties on interest rate caps.