DERIVATIVES AND HEDGING ACTIVITIES |
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| DERIVATIVES AND HEDGING ACTIVITIES | NOTE 10 – DERIVATIVES AND HEDGING ACTIVITIES As part of our interest rate risk management strategy, we have used derivative instruments to manage our exposure to interest rate movements and add stability to interest expense. Interest rate swaps designated as cash flow hedges involve the receipt of variable rate amounts from a counterparty. In exchange, the Trust makes fixed rate payments over the life of the agreement without exchange of the underlying notional amount. As of September 30, 2026, the Trust used 17 interest rate swaps to hedge the variable cash flows associated with variable rate debt. Changes in fair value of the derivatives that are designated and qualify as cash flow hedges are recorded in accumulated other comprehensive income (loss) and are reclassified into interest expense as interest payments are made on the Trust’s variable rate debt. During the next twelve months, the Trust estimates that an additional $3,027 will be reclassified as a decrease to interest expense. The following table summarizes the Trust’s interest rate swaps as of September 30, 2026, which effectively convert 30-day average SOFR to a fixed rate:
The following table summarizes the Trust’s interest rate swaps that were designated as cash flow hedges of interest rate risk:
The table below presents the estimated fair value of the Trust’s derivative financial instruments as well as their classification in the accompanying consolidated balance sheets. The valuation techniques are described in Note 11 to the consolidated financial statements.
The carrying amounts of the swaps have been adjusted to their fair value at the end of the quarter, which because of changes in forecasted levels and 30-day average SOFR, resulted in reporting an asset for the fair value of the future net payments forecasted under the swap. The interest rate swaps are accounted for as effective hedges in accordance with ASC 815-20 whereby it is recorded at fair value and changes in fair value are recorded to other comprehensive income. The following table presents the effect of the Trust’s derivative financial instruments on the accompanying consolidated statements of operations and other comprehensive income for the three months ended September 30, 2026 and 2025:
The following table presents the effect of the Trust’s derivative financial instruments on the accompanying consolidated statements of operations and other comprehensive income for the nine months ended September 30, 2026 and 2025:
Credit-risk-related Contingent Features The Trust’s agreements with each of its derivative counterparties also contain a provision whereby if the Trust consolidates with, merges with or into, or transfers all or substantially all of its assets to another entity and the creditworthiness of the resulting, surviving or transferee entity, is materially weaker than the Trust’s, the counterparty has the right to terminate the derivative obligations. As of September 30, 2026, the termination value of derivatives in a liability position was $0. The termination value of derivatives in an asset position was $12,597. As of September 30, 2026, the Trust has pledged the properties related to the loans which are hedged as collateral. |
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