COPT Defense Properties Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Interest Rate Derivatives

Interest Rate Derivatives

9 Months Ended

Sep. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The following table sets forth the key terms and fair values of our interest rate swap derivatives (dollars in thousands):


							Fair Value at
Notional Amount			Fixed Rate	Floating Rate Index	Effective Date	Expiration Date	September 30, 2023		December 31, 2022
$	10,700	(1)	1.678%	SOFR + 0.10%	8/1/2019	8/1/2026	$	833	$	806
$	22,550	(2)	0.573%	SOFR + 0.10%	4/1/2020	3/26/2025	1,490		1,825
$	150,000		3.742%	One-Month SOFR	2/1/2023	2/2/2026	3,313		—
$	50,000		3.747%	One-Month SOFR	2/1/2023	2/2/2026	1,100		—
							$	6,736	$	2,631

(1)The notional amount of this instrument is scheduled to amortize to $10.0 million.

(2)The notional amount of this instrument is scheduled to amortize to $22.1 million.

Each of these swaps was designated as a cash flow hedge of interest rate risk.

The table below sets forth the fair value of our interest rate derivatives as well as their classification on our consolidated balance sheets (in thousands):

Fair Value at

Derivatives

Balance Sheet Location

September 30,
2023

December 31,
2022

Interest rate swaps designated as cash flow hedges

Prepaid expenses and other assets, net

6,736

2,631

The table below presents the effect of our interest rate derivatives on our consolidated statements of operations and comprehensive income (in thousands):


	Amount of Income Recognized in AOCI on Derivatives								Amount of Income (Loss) Reclassified from AOCI into Interest Expense on Statement of Operations
Derivatives in Hedging Relationships	For the Three Months Ended September 30,				For the Nine Months Ended September 30,				For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022		2023		2022		2023		2022
Interest rate derivatives	$	2,042	$	1,101	$	6,816	$	4,646	$	1,146	$	77	$	2,711	$	(1,680)

Based on the fair value of our derivatives as of September 30, 2023, we estimate that approximately $4.5 million of gains will be reclassified from accumulated other comprehensive income (“ AOCI”) as a decrease to interest expense over the next 12 months.

We have agreements with each of our interest rate derivative counterparties that contain provisions under which, if we default or are capable of being declared in default on defined levels of our indebtedness, we could also be declared in default on our derivative obligations. Failure to comply with the loan covenant provisions could result in our being declared in default on any derivative instrument obligations covered by the agreements. As of September 30, 2023, we were not in default with any of these provisions. As of September 30, 2023, we did not have any derivatives in liability positions.