Derivative Instruments

9 Months Ended

Sep. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Note 16 — Derivative Instruments

During the quarter ended September 30, 2023, the Company began utilizing forward starting interest rate swap derivative instruments designated as cash flow hedges to manage the exposure to interest rate volatility with regard to forecasted issuances of fixed-rate debt. The Company’s risk management objective is to hedge the risk of variability in its interest payment cash flows attributable to changes in the benchmark Secured Overnight Financing Rate ("SOFR") between the time the fixed rate mortgages are originated and the fixed rate debt is issued. The gains or losses on the derivative instruments that are designated and qualify as cash flow hedges are reported as a component of AOCI. Beginning in the period in which the forecasted debt issuance occurs and the related derivative instruments are terminated, the accumulated gains or losses are then reclassified into interest expense over the term of the related debt. For the three and nine months ended September 30, 2023, there were no reclassifications of net (gains) losses on derivative instruments from AOCI to interest expense. As of September 30, 2023, the Company had $0.9 million in after-tax unrealized gains associated with cash flow hedging instruments recorded in AOCI. As of September 30, 2023, the Company expects to reclassify an estimated $0.2 million of after-tax unrealized gains on derivative instruments designated as cash flow hedges from AOCI into earnings over the next 12 months.

The following table presents the fair value of the Company’s derivative financial instruments on a gross basis, as well as its classification on the Company’s consolidated balance sheets as of September 30, 2023:

September 30, 2023

(in thousands)

Fair Value (1)

Derivatives designated as hedging instruments:

Balance Sheet Location

Notional Amount

Derivative Assets

Derivative Liabilities

Cash flow hedges:

Forward starting payer interest rate swaps

Derivative assets

155,000

1,261

—

(1)

Fair value reported is exclusive of collateral held and pledged. As of September 30, 2023, collateral held related to derivative exposure between the Company and its derivative counterparty was $0.8 million and is recorded in accounts payable and accrued expenses.

The counterparty to the financial derivatives that the Company enters into is a major institution. The Company is exposed to credit-related losses in the event of non-performance by the counterparty. This credit risk is generally limited to the unrealized gains in such contracts, less collateral held, should the counterparty fail to perform as contracted.