DERIVATIVE INSTRUMENTS

9 Months Ended

Sep. 30, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS

DERIVATIVE INSTRUMENTS

The Company enters into derivative instruments for risk management purposes to hedge its exposure to cash flow variability caused by changing interest rates. The primary goal of the Company’s risk management practices related to interest rate risk is to prevent changes in interest rates from adversely impacting the Company’s ability to achieve its investment return objectives. The Company does not enter into derivatives for speculative purposes.

The Company enters into interest rate swaps as a fixed rate payer to mitigate its exposure to rising interest rates on its variable rate notes payable. The value of interest rate swaps is primarily impacted by interest rates, market expectations about interest rates, and the remaining life of the instrument. In general, increases in interest rates, or anticipated increases in interest rates, will increase the value of the fixed rate payer position and decrease the value of the variable rate payer position. As the remaining life of the interest rate swap decreases, the value of both positions will generally move towards zero.

As of September 30, 2022, the Company has entered into 17 interest rate swaps, which were not designated as hedging instruments. The following table summarizes the notional amount and other information related to the Company’s interest rate swaps as of September 30, 2022 and December 31, 2021. The notional amount is an indication of the extent of the Company’s involvement in each instrument at that time, but does not represent exposure to credit, interest rate or market risks (dollars in thousands):

	September 30, 2022			December 31, 2021				Weighted-Average Fix Pay Rate	Weighted-Average Remaining Term in Years
Derivative Instruments	Number of Instruments	Notional Amount		Number of Instruments	Notional Amount		Reference Rate as of September 30, 2022
Derivative instruments not designated as hedging instruments
Interest rate swaps (1)	17	$	1,719,490	12	$	1,420,390	One-month LIBOR/ Fixed at 0.70% - 2.11% One-month Term SOFR/ Fixed at 2.38% - 2.54%	1.7%	1.1

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(1) Includes nine forward interest rate swaps: i) four forward interest rate swaps in the total amount of $300.0 million will become effective on November 1, 2022 and mature on January 1, 2025, (ii) four forward interest rate swaps in the total amount of $200.0 million will become effective on November 1, 2023 and mature on February 1, 2026 and (iii) one forward interest rate swap in the amount of $100.0 million will become effective on November 1, 2023 and mature on May 1, 2026.

The following table sets forth the fair value of the Company’s derivative instruments as well as their classification on the consolidated balance sheets as of September 30, 2022 and December 31, 2021 (dollars in thousands):

		September 30, 2022			December 31, 2021
Derivative Instruments	Balance Sheet Location	Number of Instruments	Fair Value		Number of Instruments	Fair Value
Derivative instruments not designated as hedging instruments
Interest rate swaps	Prepaid expenses and other assets, at fair value (1)	17	$	42,530	5	$	757
Interest rate swaps	Other liabilities, at fair value (2)	—	$	—	7	$	(12,805)

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(1) Includes nine forward interest rate swaps. See footnote (1) to the table immediately above. As of September 30, 2022, prepaid expenses and other assets included a $9.6 million asset related to the fair value of two off-market interest rate swaps determined to be hybrid financial instruments for which the Company elected to apply the fair value option. As of December 31, 2021, prepaid expenses and other assets included a $0.1 million asset related to the fair value of an off-market interest rate swap determined to be a hybrid financial instrument for which the Company elected to apply the fair value option.

(2) As of December 31, 2021, other liabilities included a $2.1 million liability related to the fair value of an off-market interest rate swap determined to be a hybrid financial instrument for which the Company elected to apply the fair value option.

The following table summarizes the effects of derivative instruments on the Company’s consolidated statements of operations (in thousands):

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Derivatives not designated as hedging instruments
Realized loss recognized on interest rate swaps	$	184	$	4,571	$	7,152	$	13,437
Realized gain recognized on interest rate swaps	(1,681)		—		(1,717)		—
Unrealized gain on interest rate swaps (1)	(18,708)		(3,910)		(54,578)		(13,740)
Net (gain) loss on derivative instruments	$	(20,205)	$	661	$	(49,143)	$	(303)

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(1) For the three and nine months ended September 30, 2022, unrealized gain on interest rate swaps included a $2.2 million and $11.6 million unrealized gain, respectively, related to the change in fair value of two off-market interest rate swaps determined to be hybrid financial instruments for which the Company elected to apply the fair value option. For the three and nine months ended September 30, 2021, unrealized gain on interest rate swaps included a $0.6 million and $3.0 million unrealized gain, respectively, related to the change in fair value of two off-market interest rate swaps determined to be hybrid financial instruments for which the Company elected to apply the fair value option.