v3.26.1
Derivative Instruments and Hedging Activities
 3 Months Ended
Mar. 31, 2026
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities
8. Derivative Instruments and Hedging Activities

The Company is exposed to interest rate risk related to its variable interest rate debt, and it manages this risk by utilizing interest rate derivatives. The Company uses interest rate swaps, collars, and caps to add stability to interest costs by reducing the Company’s exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company’s fixed‑rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate collars designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above an established ceiling rate and payment of variable amounts to a counterparty if interest rates fall below an established floor rate, in exchange for an upfront premium. No payments or receipts are exchanged on interest rate collar contracts unless interest rates rise above or fall below the established ceiling and floor rates. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an upfront premium. Certain of the Company’s interest rate caps are not currently designated as hedges, and therefore, any gains or losses are recognized in current-period earnings within Interest expense in the Condensed Consolidated Statements of Operations. These derivatives are recorded on a gross basis at fair value on the Condensed Consolidated Balance Sheets.

Assessments of hedge effectiveness are performed quarterly using regression analysis. The change in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in Accumulated other comprehensive income (loss) (AOCI) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings within the same income statement line item being hedged. Derivatives accounted for as cash flow hedges are classified in the same category in the Condensed Consolidated Statements of Cash Flows as the items being hedged. Gains and losses from derivative financial instruments are reported in Cash provided by (used in) operating activities within the Condensed Consolidated Statements of Cash Flows.

The Company is exposed to credit risk in the event of non-performance by its derivative counterparties. To mitigate its credit risk, the Company reviews the creditworthiness of counterparties and enters into agreements with those that are considered credit-worthy, such as large financial institutions with favorable credit ratings. There were no derivative counterparty defaults as of March 31, 2026, or December 31, 2025.

If the derivative contracts are terminated prior to their maturity, the amounts previously recorded in AOCI are recognized in earnings over the period that the hedged transaction impacts earnings. The reduction in Interest expense related to the amortization of terminated swaps is immaterial.
Amounts reported in AOCI related to derivatives are reclassified to Interest expense as interest payments are made on the Company’s variable‑rate debt. Over the next 12 months, the Company estimates that $2.0 million of net gain will be reclassified to Interest expense including amounts related to the amortization of terminated swaps.

The following table summarizes certain terms of the Company’s derivative contracts. The Company reports derivative assets in Other assets, net and derivative liabilities in Accounts payable and other liabilities.
     Fair Value Asset (Liability)
thousands Notional AmountFixed Interest Rate (a)Effective DateMaturity DateMarch 31, 2026December 31, 2025
Derivative instruments not designated as hedging instruments: (b)
Interest rate cap$250,000 4.50%6/17/20257/1/2026$1 $1 
Interest rate cap95,715 6.00%6/20/20247/15/2026— — 
Interest rate cap12,039 6.00%6/20/20247/15/2026— — 
Interest rate cap169,591 5.25%12/2/202412/15/20268 1 
Interest rate cap80,291 5.50%2/26/20263/9/2028161 — 
Interest rate cap14,169 5.50%2/26/20263/9/202828 — 
Derivative instruments designated as hedging instruments:
Interest rate swap79,198 3.97 %5/1/20254/15/2026(10)(59)
Interest rate swap32,400 3.98%7/10/20258/1/2026(35)(88)
Interest rate swap175,000 3.69%1/3/20231/1/2027(59)(542)
Interest rate swap40,800 1.68%3/1/20222/18/2027710 792 
Interest rate swap127,000 3.50%11/7/20251/8/2027268 145 
Interest rate cap58,846 4.15%12/21/202512/21/2028339 183 
Interest rate swap33,765 4.89%11/1/20191/1/20322,106 1,991 
Interest rate swap300,000 3.68%3/30/20263/30/2031(1,452)— 
Other:
Warrants (c)n/an/aVariousVarious208 — 
Total fair value derivative assets$3,829 $3,113 
Total fair value derivative liabilities(1,556)(689)
Total fair value derivative asset (liability), net $2,273 $2,424 
(a)These rates represent the swap rate and cap strike rate on the Company’s interest rate swaps, caps, and collars.
(b)Interest related to these contracts was $0.6 million income for the three months ended March 31, 2026, and $0.2 million expense for the three months ended March 31, 2025.
(c)The Company holds two outstanding warrants. One warrant represents approximately 98% of the aggregate fair value and has an effective date of February 2025 and a maturity date of February 2035. The remaining warrant is immaterial and has similar economic characteristics.

The tables below present the effect of the Company’s derivative financial instruments in the Condensed Consolidated Statements of Operations:
Amount of Gain (Loss) Recognized in AOCI on Derivatives
Derivatives in Cash Flow Hedging RelationshipsThree Months Ended March 31,
thousands20262025
Interest rate derivatives$(200)$(1,120)

Location of Gain (Loss) Reclassified from AOCI into Statements of OperationsAmount of Gain (Loss) Reclassified from AOCI into
Statements of Operations
Three Months Ended March 31,
thousands20262025
Interest expense$354 $699 
Credit-risk-related Contingent Features The Company has agreements at the property level with certain derivative counterparties that contain a provision where if the Company defaults on the related property-level indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its related derivative obligations. The fair value of derivatives in a net liability position related to these agreements was $1.8 million as of March 31, 2026.