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INTEREST RATE SWAP DERIVATIVES | 6 Months Ended
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Jun. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
INTEREST RATE SWAP DERIVATIVES | INTEREST RATE SWAP DERIVATIVESThe Company, through its Operating Partnership, entered into a five-year swap agreement on May 10, 2022 to fix SOFR at 2.258% effective May 31, 2022 related to the variable interest rate on its original $150,000,000 Term Loan. The swap agreement matures on January 15, 2027 and the financial institution counterparty has a one-time option to cancel the swap on December 31, 2024. The Company granted this cancellation option because it reduced the swap rate by approximately 50 basis points. The Company designated the pay-fixed, receive-floating interest rate swap with the terms described in the table below as of July 1, 2022 as a cash flow hedge and it was effective through December 31, 2022. The derivative instrument failed to qualify as a cash flow hedge during the three and six months ended June 30, 2023 as described below. The Company, through its Operating Partnership, entered into another five-year swap agreement on October 26, 2022 to fix SOFR at 3.440% effective November 30, 2022 related to the variable interest rate on its additional $100,000,000 Term Loan commitment. The Company did not designate the pay-fixed, receive-floating interest rate swap with the terms described in the table below as of November 30, 2022 as a cash flow hedge. The swap agreement matures on November 30, 2027 and the financial institution counterparty has a one-time option to cancel the swap on December 31, 2024. The Company granted this cancellation option because it reduced the swap rate by approximately 50 basis points. The following table summarizes the notional amount and other information related to the Company’s interest rate swaps as of June 30, 2023 and December 31, 2022:
|  | June 30, 2023 |  | December 31, 2022
Interest Rate Derivative Instruments |  | Number of Instruments |  | Notional Amount (i) |  | Reference Rate |  | Weighted Average Fixed Pay Rate (ii) |  | Weighted Average Remaining Term |  | Number of Instruments |  | Notional Amount (i) |  | Reference Rate |  | Fixed Pay Rate (ii) |  | Remaining Term
Designated |  | — |  | $ | — |  |  | — |  | — | % |  | 0 years |  | 1 |  | $ | 150,000,000 |  |  | USD - SOFR |  | 3.86 | % |  | 4.1 years
Non-designated |  | 2 |  | $ | 250,000,000 |  |  | USD - SOFR |  | 4.33 | % |  | 3.5 years |  | 1 |  | $ | 100,000,000 |  |  | USD - SOFR |  | 5.04 | % |  | 4.1 years
(i)The notional amount of the Company’s swaps correspond to the principal balance on the Term Loan. The minimum notional amount (outstanding principal balance at the maturity date) as of June 30, 2023 and December 31, 2022 was $250,000,000. (ii)Based on the terms of the Credit Facility, the fixed pay rate increases if the Company's leverage ratio increases above 40%. The following table sets forth the fair value of the Company’s derivative instruments (Level 2 measurement), as well as their classification in the accompanying unaudited condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022:
|  |  |  | June 30, 2023 |  | December 31, 2022 |  |
Derivative Instrument |  | Balance Sheet Location |  | Number of Instruments |  | Fair Value |  | Number of Instruments |  | Fair Value |  | Change in Fair Value
Interest Rate Swaps |  | Asset - Interest rate swap derivatives, at fair value |  | 2 |  | $ | 5,613,847 |  |  | 1 |  | $ | 4,629,702 |  |  | $ | 984,145 |
Interest Rate Swaps |  | Liability - Interest rate swap derivatives, at fair value |  | — |  | $ | — |  |  | 1 |  | $ | (498,866) |  |  | $ | 498,866 |
The interest rate swap derivative on the original $150,000,000 Term Loan was designated as a cash flow hedge for financial accounting purposes from July 1, 2022 through December 31, 2022. Based on the Company's prospective effectiveness testing of the derivative instrument during the three months ended March 31, 2023 and the three months ended June 30, 2023, the derivative instrument failed to qualify as a cash flow hedge because the swap was deemed ineffective due to the potential for a reduced term of the swap that could result from the cancellation option described above as compared with the maturity of the Term Loan. If there is a significant drop in interest rates in the future, this interest rate swap derivative could potentially qualify again as a cash flow hedge. As a result, the net change in fair values of the first Term Loan swap of $1,639,768 and $495,750 for the three and six months ended June 30, 2023, respectively, were recorded as unrealized gains on interest rate swap valuation and reflected as a decrease to interest expense in the Company's accompanying unaudited condensed consolidated statements of operations. The unrealized gain reflects increases during the second quarter of 2023 in the forward curve for future SOFR rates through December 31, 2024 (the one-time cancellation option date). Future increases or decreases in the forward curve for SOFR rates through December 31, 2024 will result in future unrealized gains or losses on swap valuations. Interest expense was also reduced by the $253,093 and $503,404 amortization of the unrealized gain on this swap for the three and six months ended June 30, 2023, respectively, as further described below. Due to the above $150,000,000 Term Loan derivative instrument's failure to qualify as a cash flow hedge for the quarterly periods ended June 30, 2023, the unrealized gain on interest rate swap derivative of $4,105,103 as of December 31, 2022 (recorded in the Company's financial statements as follows: (i) $3,502,616 of accumulated other comprehensive income and (ii) $602,487 of noncontrolling interest in operating partnership) is being amortized on a straight-line basis as a reduction to interest expense through the maturity date of the swap agreement. There is no income tax expense resulting from this amortization. As of June 30, 2023, the Company's unamortized unrealized gain on interest rate swap derivative in accumulated other comprehensive income and noncontrolling interest in operating partnership amounted to $3,601,699. The Company estimates that $511,747 of the remaining unrealized gain on interest rate swap derivative will be reclassified from accumulated other comprehensive income and noncontrolling interest in operating partnership as a reduction to interest expense in the Company's accompanying unaudited condensed consolidated statements of operations over the next six months. The second interest rate swap derivative on the additional $100,000,000 Term Loan commitment was not designated as a cash flow hedge for financial accounting purposes. The change in its fair value of $1,815,737 and $987,262 for the three and six months ended June 30, 2023, respectively, was recorded as an unrealized gain on interest rate swap valuation and reflected as a decrease to interest expense in the Company's accompanying unaudited condensed consolidated statements of operations.

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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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