Derivative Financial Instruments

3 Months Ended

Mar. 31, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company uses derivative instruments to mitigate the effects of interest rate fluctuations on specific forecasted transactions as well as recognized financial obligations or assets. Utilizing derivative instruments allows the Company to manage the risk of fluctuations in interest rates and their related potential impact on future earnings and cash flows. The Company does not use derivative instruments for speculative or trading purposes. At March 31, 2024, a one percentage point increase or decrease in the underlying interest rate curve would result in a corresponding increase or decrease in the fair value of the derivative instruments by up to $64 million.

In April 2022, the Company entered into two interest rate swap instruments that are designated as cash flow hedges and mature in May 2026 on $142 million of variable rate mortgage debt secured by a portfolio of outpatient medical buildings (see Note 10). In February 2023, the Company modified these two interest rate swap instruments to reflect the change in the related variable rate mortgage debt’s interest rate benchmarks from LIBOR to SOFR (see Note 10). The Company applied certain practical expedients provided by the reference rate reform ASUs in connection with the modifications to these cash flow hedges (see Note 2).

In August 2022, the Company entered into two forward-starting interest rate swap instruments on the $500 million aggregate principal amount of the 2027 Term Loan Facilities (see Note 10). The interest rate swap instruments are designated as cash flow hedges.

In January 2024, the Company entered into forward-starting interest rate swap instruments on the $750 million aggregate principal amount of the 2029 Term Loan (see Note 10). The interest rate swap instruments are designated as cash flow hedges.

Additionally, on March 1, 2024, concurrently with the consummation of the Merger, the Company acquired: (i) three interest rate swap instruments on the $400 million aggregate principal amount of the 2028 Term Loan that are designated as cash flow hedges and (ii) one interest rate swap instrument on $36 million of variable rate mortgage debt that is designated as a cash flow hedge (see Note 10).

The following table summarizes the Company’s interest rate swap instruments (in thousands):


							Fair Value(2)
Date Entered(1)	Maturity Date	Hedge Designation	Notional Amount		Pay Rate	Receive Rate	March 31, 2024		December 31, 2023
October 2019(3)	October 2024	Cash flow	$	36,050	1.37 %	1 mo. USD-SOFR CME Term	$	787	$	—
April 2022	May 2026	Cash flow	51,100		4.99 %	USD-SOFR w/ -5 Day Lookback + 2.50%	2,003		1,602
April 2022	May 2026	Cash flow	91,000		4.54 %	USD-SOFR w/ -5 Day Lookback + 2.05%	3,566		2,851
August 2022	February 2027	Cash flow	250,000		2.60 %	1 mo. USD-SOFR CME Term	10,952		7,933
August 2022	August 2027	Cash flow	250,000		2.54 %	1 mo. USD-SOFR CME Term	12,408		8,973
May 2023(3)(4)	May 2028	Cash flow	400,000		3.59 %	USD-SOFR w/ -5 Day Lookback	6,279		—
January 2024(5)	February 2029	Cash flow	750,000		3.59 %	USD-SOFR w/ -5 Day Lookback	11,445		—
							$	47,440	$	21,359

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(1)Represents interest rate swap instruments that hedge fluctuations in interest payments on variable rate debt by converting the interest rates to fixed interest rates. The changes in fair value of designated derivatives that qualify as cash flow hedges are recorded in accumulated other comprehensive income (loss) on the Consolidated Balance Sheets.

(2)At each of March 31, 2024 and December 31, 2023, the interest rate swap instruments were in an asset position. Derivative assets are recorded at fair value in other assets, net on the Consolidated Balance Sheets.

(3)Includes interest rate swap instruments acquired as part of the Merger (see Note 3). These interest rate swap instruments were redesignated as cash flow hedges on the Closing Date. As a result of the Merger, the aggregate fair value of these interest rate swap instruments was determined to be $7 million on March 1, 2024, which was recognized within other assets, net on the Consolidated Balance Sheets on the Closing Date. These fair values are being amortized into interest expense on the Consolidated Statements of Operations over the terms of the related interest rate swap instruments.

(4)Includes two interest rate swap instruments each with notional amounts of $110 million and one interest rate swap instrument with a notional amount of $180 million.

(5)Includes the following: (i) two interest rate swap instruments each with a pay rate of 3.56% and $50 million notional amount; (ii) three interest rate swap instruments each with a pay rate of 3.57% and $50 million notional amount; (iii) one interest rate swap instrument with a pay rate of 3.58% and $100 million notional amount; (iv) five interest rate swap instruments each with a pay rate of 3.60% and $50 million notional amount; and (v) three interest rate swap instruments each with a pay rate of 3.61% and $50 million notional amount