DERIVATIVES

12 Months Ended

Dec. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVES

8. DERIVATIVES

In the ordinary course of business, the Company may use certain types of derivative instruments for the purpose of managing or hedging its interest rate risk. During the year ended December 31, 2023, the Company entered into two interest rate cap agreements in connection with the assumption of two mortgage loans.

On December 28, 2023, the Company terminated one of its interest rate cap agreements with a value of $1.2 million and an outstanding notional amount of $79.6 million. In connection with the termination of the interest rate cap agreement, a realized loss of $1.1 million was recorded as a change to interest expense on the accompanying consolidated statements of operations and a receivable of $1.2 million was recorded in accounts receivable, net on the accompanying consolidated balance sheet and which was paid in January 2024.

The following table summarizes the terms of the Company’s interest rate cap agreement as of December 31, 2023 (dollar amounts in thousands):

		Outstanding Notional					Fair Value of Assets as of
	Balance Sheet	Amount as of		Strike	Effective	Maturity	December 31,
	Location	December 31, 2023		Rates (1)	Date	Date	2023
Interest Rate Cap	Other assets	$	87,000	4.5%	5/03/2023	7/07/2025	$	491

____________________________________

(1)The index used for the Company’s interest rate cap agreement is 1-Month Term SOFR.

Additional disclosures related to the fair value of the Company’s derivative instrument are included in Note 13. The notional amount under the derivative instrument is an indication of the extent of the Company’s involvement in such instrument but does not represent exposure to credit, interest rate or market risks.

Accounting for changes in the fair value of a derivative instrument depends on the intended use and designation of the derivative instrument. The Company has interest rate caps that are used to manage exposure to interest rate movements but do not meet the requirements to be designated as hedging instruments. The change in fair value of the derivative instruments that are not designated as hedges is recorded directly to earnings as interest expense on the accompanying consolidated statements of operations. During the year ended December 31, 2023, the Company recorded an unrealized loss of $539,000, which was included in interest expense on the accompanying consolidated statements of operations related to its interest rate caps.