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INTEREST RATE SWAP DERIVATIVES | 9 Months Ended
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Sep. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
INTEREST RATE SWAP DERIVATIVES | INTEREST RATE SWAP DERIVATIVES The 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 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 which was effective through December 31, 2022. The derivative instrument failed to qualify as a cash flow hedge during the year ended December 31, 2023 and the three and nine months ended September 30, 2024 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 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 at no cost. 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 following table summarizes the notional amount and other information related to the Company’s interest rate swaps as of September 30, 2024 and December 31, 2023:
|  | September 30, 2024 |  | December 31, 2023
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) |  | Weighted Average Remaining Term
Non-designated |  | 2 |  | $ | 250,000,000 |  |  | USD - SOFR |  | 4.53 | % |  | 2.3 years |  | 2 |  | $ | 250,000,000 |  |  | USD - SOFR |  | 4.53 | % |  | 3.0 years
(i)The notional amount of the Company’s swaps corresponds to the principal balance on the Term Loan. The minimum notional amount (outstanding principal balance at the maturity date) as of September 30, 2024 and December 31, 2023 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 50%. 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 September 30, 2024 and December 31, 2023:
|  |  |  | September 30, 2024 |  | December 31, 2023 |  |
Derivative Instrument |  | Balance Sheet Location |  | Number of Instruments |  | Fair Value |  | Number of Instruments |  | Fair Value |  | Change in Fair Value
Interest Rate Swap |  | Asset - Interest rate swap derivatives, at fair value |  | 1 |  | $ | 807,337 |  |  | 1 |  | $ | 2,970,733 |  |  | $ | (2,163,396) |
Interest Rate Swap |  | Liability - Interest rate swap derivatives, at fair value |  | 1 |  | $ | (755,490) |  |  | 1 |  | $ | (473,348) |  |  | $ | (282,142) |
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. Subsequent to December 31, 2022, based on the Company's prospective effectiveness testing of the derivative instrument, the swap failed to qualify as a cash flow hedge because it 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. As a result, the net change in fair value of the first Term Loan swap is recorded as a component of interest expense with losses reflecting an increase to interest expense and gains reflecting a decrease to interest expense. During the three and nine months ended September 30, 2024, the Company recognized unrealized losses of $1,355,228 and $2,163,396, respectively. During the three and nine months ended September 30, 2023, the Company recognized an unrealized loss (gain) of $167,926 and $(327,824), respectively. Due to the above $150,000,000 Term Loan derivative instrument's failure to qualify as a cash flow hedge subsequent to December 31, 2022, 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 debt agreement. There is no income tax expense resulting from this amortization. During the three and nine months ended September 30, 2024, interest expense was reduced by $255,873 and $762,059, respectively, and $253,092 and $756,496 during the three and nine months ended September 30, 2023, respectively, for amortization of the unrealized gain on this swap previously recorded in accumulated other comprehensive income and noncontrolling interest in Operating Partnership. As of September 30, 2024, the Company's unamortized unrealized gain on interest rate swap derivative in accumulated other comprehensive income and noncontrolling interest in Operating Partnership in the Company's consolidated balance sheet amounted to $2,327,893. The Company estimates that $255,874 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 remaining three months in 2024. The second interest rate swap derivative on the additional $100,000,000 Term Loan was not designated as a cash flow hedge for financial accounting purposes. The decreases in the fair value of $1,323,446 and $282,142 for the three and nine months ended September 30, 2024, respectively, were recorded as unrealized losses on interest rate swap valuation and reflected as increases in interest expense in the Company's accompanying unaudited condensed consolidated statements of operations. The unrealized losses on the second swap during the three and nine months ended September 30, 2024 reflect recent decreases in the forward curve for future SOFR rates through December 31, 2024 (the one-time cancellation option date). The increases in the fair value of $710,258 and $1,697,520 for the three and nine months ended September 30, 2023, respectively, were recorded as unrealized gains on the interest rate swap valuation and reflected as reductions 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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