Quarterly report pursuant to Section 13 or 15(d)

DEFERRED CHARGES AND OTHER ASSETS, NET

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DEFERRED CHARGES AND OTHER ASSETS, NET
 9 Months Ended
Sep. 30, 2024
Other Assets [Abstract]  
DEFERRED CHARGES AND OTHER ASSETS, NET DEFERRED CHARGES AND OTHER ASSETS, NET
(dollars in thousands) September 30,
2024		 December 31,
2023
Deferred leasing costs $ 4,667 $ 8,324
Deferred financing costs (a) 6,228 771
Deferred charges 10,895 9,095
Accumulated amortization (3,977) (5,063)
Deferred charges, net 6,918 4,032
In-place lease values, related intangibles and other assets, net 9,617 10,034
Right of use assets (b) 5,403 6,161
Prepaid expenses and other assets, net 27,172 33,729
Total deferred charges and other assets, net $ 49,110 $ 53,956
(a)This amount relates to the deferred financing costs associated with the revolving credit facility and undrawn term loan balances, when applicable. Deferred financing costs related to all other debt liabilities are netted against those debt liabilities for all periods presented.
(b)This amount has a corresponding liability of $6.8 million and $7.4 million as of September 30, 2024 and December 31, 2023, respectively, which is included in Accounts payable, accrued expense and other liabilities. See Note 12: Commitments and Contingencies – Office and Ground Lease agreements for further details.
DERIVATIVE FINANCIAL INSTRUMENTS
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate caps as part of its interest rate risk management strategy. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.
The changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in accumulated other comprehensive income and subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next 12 months, the Company estimates $1.9 million will be reclassified as an increase to interest expense.
During the second quarter of 2024, the Company entered into an interest rate cap to hedge the Riverhouse 9 mortgage loan with a notional amount of $110 million, replacing the in place interest rate cap upon expiration. The cap expires in July 2026.
During the third quarter of 2024, the Company entered into interest rate cap agreements to hedge the 2024 Term Loan draws, with notional amounts totaling $200 million. The interest rate caps expire in July 2026.
During the third quarter of 2024, the Company entered into an interest rate cap agreement with a notional amount of $150.0 million to hedge the interest rate exposure of its variable-rate revolving credit facility. The interest rate cap expires in June 2025. The Company elected to not designate this interest rate cap as a cash flow hedge at inception and therefore changes in the fair value of the derivative are recorded in earnings. For the three months ended September 30, 2024, the Company recorded $16 thousand of fair value adjustments as an increase in Interest expense in the Company's Consolidated Statements of Operations.
The interest rate caps entered into during the three and nine months ended September 30, 2024 each have a strike rate of 3.50%.
As of September 30, 2024, the Company had six interest rate caps outstanding and in effect with a notional amount of $441.5 million designated as cash flow hedges of interest rate risk, and one interest rate cap outstanding and in effect with a notional amount of $150.0 million not designated as a cash flow hedge.
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets as of September 30, 2024 and December 31, 2023 (dollars in thousands):
Derivative Instruments
 Fair Value
Balance sheet location
September 30,
2024		 December 31,
2023
Interest rate caps designated as hedging instruments $ 3,149  $ 5,098  Deferred charges and other assets, net
Interest rate caps not designated as hedging instruments 711 —  Deferred charges and other assets, net
The table below presents the effect of the Company’s derivative financial instruments designated as hedging instruments on the Consolidated Statements of Operations for the three and nine months ended September 30, 2024 and 2023, respectively (dollars in thousands):
Derivatives in Cash Flow Hedging Relationships
Amount of Gain or (Loss) Recognized in OCI on Derivative (a)
 Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (a) (b)
 Total Amount of Interest Expense presented in the Consolidated Statements of Operations
Three months ended September 30, Nine months ended September 30, Three months ended September 30, Nine months ended September 30, Three months ended September 30, Nine months ended September 30,
2024 2023 2024 2023 2024 2023 2024 2023 2024 2023 2024 2023
Interest Rate Caps $ (2,792) $ 658  $ (1,640) $ 2,356  $ 766  $ 1,372  $ 2,891  $ 2,478  $ (21,507) $ (23,715) $ (64,683) $ (67,422)
(a)Amounts exclude net losses of $1.3 million and $0 recognized on unconsolidated jointly owned investments during the three months ended September 30, 2024 and 2023, respectively and $30 thousand and $0 during the nine months ended September 30, 2024 and 2023.
(b)The gain or loss reclassified from Accumulated OCI into Income is recorded in Interest Expense.
Credit-risk-related Contingent Features
The Company has agreements with each of its derivative counterparties that contain a provision where if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations. Specifically, the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company's default on the indebtedness.
As of September 30, 2024, the Company did not have any interest rate derivatives in a net liability position.