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, 2024

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, 2024		December 31, 2023
$	10,460	(1)	1.678%	SOFR + 0.10%	8/1/2019	8/1/2026	$	343	$	571
$	22,250	(2)	0.573%	SOFR + 0.10%	4/1/2020	3/26/2025	411		1,084
$	150,000		3.742%	One-Month SOFR	2/1/2023	2/2/2026	(304)		681
$	50,000		3.747%	One-Month SOFR	2/1/2023	2/2/2026	(105)		222
							$	345	$	2,558

(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, 2024		December 31, 2023
Interest rate swaps designated as cash flow hedges	Prepaid expenses and other assets, net	$	754	$	2,558
Interest rate swaps designated as cash flow hedges	Other liabilities	$	(409)	$	—

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


	Amount of (Loss) Income Recognized in AOCI on Derivatives								Amount of Income 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,
	2024		2023		2024		2023		2024		2023		2024		2023
Interest rate derivatives	$	(2,582)	$	2,042	$	1,309	$	6,816	$	1,170	$	1,146	$	3,522	$	2,711

Based on the fair value of our derivatives as of September 30, 2024, we estimate that approximately $708,000 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, 2024, we were not in default with any of these provisions. As of September 30, 2024, the fair value of interest rate derivatives in a liability position related to these agreements was $412,000, excluding the effects of accrued interest and credit valuation adjustments, and we had not posted any collateral related to these agreements. If we breach any of these provisions, we could be required to settle our obligations under the agreements at their termination value, which was $185,000 as of September 30, 2024.