v3.26.1
Derivatives and Hedging Activities
 3 Months Ended
Mar. 31, 2026
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives and Hedging Activities Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives
The Company may use derivative financial instruments, including interest rate swaps, caps, collars, options, floors and other interest rate derivative contracts, to hedge all or a portion of the interest rate risk associated with its borrowings.
The principal objective of such arrangements is to minimize the risks and/or costs associated with the Company’s operating and financial structure as well as to hedge specific anticipated transactions. Additionally, in using interest rate derivatives, the Company aims to add stability to interest expense and to manage its exposure to interest rate movements. The Company does not intend to utilize derivatives for speculative purposes or purposes other than interest rate risk management. The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, the Company only enters into derivative financial instruments with counterparties with high credit ratings and with major financial institutions with which the Company, and its affiliates, may also have other financial relationships. The Company does not anticipate that any of its counterparties will fail to meet their obligations.
Cash Flow Hedges of Interest Rate Risk
Interest rate swaps designated as cash flow hedges involve the receipt of variable rate amounts from a counterparty in exchange for the Company making fixed rate payments over the life of the agreements without exchange of the underlying notional amount. These derivatives are used to hedge the variable cash flows associated with variable rate debt.
The changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in accumulated other comprehensive loss and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.
Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable rate debt. The Company estimates that during the 12 month period from April 1, 2026 through March 31, 2027, $4.8 million of unrealized gain will be reclassified from accumulated other comprehensive income into earnings as a decrease to interest expense.
The following table summarizes the Company’s interest rate swaps, designated as cash flow hedges for interest rate risk (dollars in thousands):
Number of instrumentsNotional amountIndexPay rateEffective dateMaturity dateFair value
As of March 31, 2026
Interest rate “pay-fixed” swap (1)
10$150,000USD-SOFR with -5 Day Lookback3.34%12/11/202512/11/2028$759 
As of December 31, 2025
Interest rate “pay-fixed” swaps (2)
10$150,000USD-SOFR with -5 Day Lookback3.34%12/11/202512/11/2028$(188)
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(1)Recorded at fair value in “Derivative assets, at fair value” on the consolidated balance sheets.
(2)Recorded at fair value in “Derivative liabilities, at fair value” on the consolidated balance sheets.

The table below details the location in the financial statements of the gain (loss) recognized on interest rate derivatives designated as cash flow hedges for the periods presented (dollars in thousands):
Three months ended March 31,
20262025
Gain (loss) recognized in accumulated other comprehensive income on interest rate derivatives$1,070 $(1,200)
Gain reclassified from accumulated other comprehensive income into income as interest expense$1,598 $3,794 
Total interest expense presented in the consolidated statements of operations and comprehensive loss$(14,671)$(14,529)

Non-Designated Derivatives
The Company had the following interest rate derivatives that were not designated as hedges in qualifying hedging relationships as of March 31, 2026 and December 31, 2025 (dollars in thousands):
March 31, 2026December 31, 2025
Number of instrumentsNotional amountFair value
Number of instruments
Notional amount
Fair value
Interest rate caps (1)
7$394,098 $636 6$337,999 $569 
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(1)Recorded at fair value in “Derivative assets, at fair value” on the consolidated balance sheets. Fair and notional values may include contracts acquired but not yet effective as of the dates presented. All of the Company’s interest rate cap agreements
limited one-month Secured Overnight Financing Rate (“SOFR”) to 3.50% with terms through November 2026. The actual one-month SOFR rates during the three months ended March 31, 2026 exceeded the strike price rate of 3.50% and the Company received payments under these agreements. While the Company does not apply hedge accounting for these interest rate caps, they are economically hedging the Fannie Mae Secured Debt. Changes in the fair market value of these non-designated derivatives, as well as any cash received, are presented within gain (loss) on non-designated derivatives in the Company’s consolidated statements of operations and comprehensive loss.
During the three months ended March 31, 2026, the Company paid $0.2 million for an interest rate cap related to the Fannie Mae Secured Debt with a notional amount of $56 million to replace an existing cap set to expire on April 1, 2026.

Credit-risk-related Contingent Features
The Company has agreements in place with each of its derivative counterparties that contain a provision where if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.