Note 7. Derivative Instruments

Interest Rate Derivatives

Our objectives in using interest rate derivatives is to add stability to our earnings (losses) and to manage our exposure to interest rate movements. To accomplish this objective, we have used interest rate swaps and caps as part of our interest rate risk management strategy.

For interest rate derivatives designated and qualified as a hedge for GAAP purposes, the change in the fair value of the effective portion of the derivative is recorded in accumulated other comprehensive income (loss) (“AOCI”) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Amounts reported in AOCI related to such derivatives will be reclassified to interest expense as interest payments are made on our variable rate debt. In addition, we classify cash flows from qualifying cash flow hedging relationships in the same category as the cash flows from the hedged items in our consolidated statements of cash flows. We do not use interest rate derivatives for trading or speculative purposes.

Interest rate derivatives not designated as hedges for GAAP are not speculative and are used to manage our exposure to interest rate movements and other identified risks but we have elected not to apply hedge accounting. Changes in the fair value of interest rate derivatives not designated in hedging relationships are recorded in other income (expense) within our consolidated statements of operations.

In connection with the 2027 NBC Loan borrowing, on March 12, 2024, we entered into a CORRA Swap with NBC with an initial notional amount of CAD $75,000,000 at a rate of 3.926% for the initial duration of the 2027 NBC Loan, maturing on March 7, 2027. The amortization of this swap corresponded with the amortizing principal payments on the related loan. This CORRA Swap was terminated on June 16, 2025 in connection with the full repayment of the 2027 NBC Loan on June 16, 2025. In connection with the termination of the CORRA Swap, we paid National Bank of Canada approximately $1.7 million CAD.

On May 1, 2024, to hedge our exposure to potentially rising interest rates, we entered into three SOFR interest rate caps for a total of approximately $8.2 million, which hedged approximately $400 million of notional exposure. We initially deferred payment for these SOFR interest rate caps, and recorded these interest rate caps net of the remaining amount of such deferred payment liability on our balance sheet. On April 8, 2025, in connection with our principal paydown on the Credit Facility, we terminated two of these three SOFR interest rate caps, and paid approximately $3.5 million. On May 1, 2025, the third of these three SOFR interest rate caps matured, whereby we owed and paid approximately $3.7 million, representing $3.9 million of deferred payment, less $0.2 million related to the prior month's settlement.

On December 30, 2024, in relation to the outstanding balance on our 2025 KeyBank Acquisition Facility, we entered into a SOFR interest rate cap, which capped SOFR at 1.25% until maturity on July 1, 2025 for a notional amount of $100.2 million. The total cost for this interest rate cap was approximately $1.5 million, which was due and paid on January 2, 2025. In connection with our full repayment of the 2025 KeyBank Acquisition Facility, we terminated this cap on April 7, 2025, receiving a termination payment of approximately $0.7 million.

On March 4, 2025, in relation to the outstanding balance on our 2025 KeyBank Acquisition Facility, we entered into a SOFR interest rate cap, which capped SOFR at 1.25% until maturity on September 1, 2025 for a notional amount of $74.8 million. The total cost for this interest rate cap was approximately $1.2 million, which was due and paid on March 6, 2025. In connection with our full repayment of the 2025 KeyBank Acquisition Facility, we terminated this cap on April 7, 2025, receiving a termination payment of approximately $0.9 million.

On June 16, 2025, we terminated a $100 million SOFR interest rate cap with no remuneration; such cap was set to mature on December 1, 2025.

In connection with our 2028 Canadian Notes issuance, on May 29, 2025 we entered into a government of Canada treasury rate forward with a notional amount of $400 million CAD, with a rate locked at 2.6730%, and an expiration date of June 18, 2025. On June 11, 2025 we terminated this forward early, and received approximately $0.5 million USD in connection with such transaction.

Foreign Currency Hedges

Our objectives in using foreign currency derivatives are to add stability to potential fluctuations in exchange rates between foreign currencies and the U.S. dollar and to manage our exposure to exchange rate movements. To accomplish this objective, we have used foreign currency forwards and foreign currency options as part of our exchange rate risk management strategy. A foreign currency forward contract is a commitment to deliver a certain amount of currency at a certain price on a specific date in the future. By entering into the forward contract and holding it to maturity, we are locked into a future currency exchange rate in an amount equal to and for the term of the forward contract. A foreign currency option contract is a commitment by the seller of the option to deliver, solely at the option of the buyer, a certain amount of currency at a certain price on a specific date.

For derivatives designated as net investment hedges for GAAP purposes, the changes in the fair value of the derivatives are reported in AOCI. Amounts are reclassified out of AOCI into earnings when the hedged net investment is either sold or substantially liquidated. The change in the value of the designated portion of our settled and unsettled foreign currency hedges is recorded net in foreign currency hedge contract gain (loss) in our consolidated statements of comprehensive income (loss) in the related period.

The change in the value of the portion of our settled and unsettled foreign currency forwards that are not designated for hedge accounting for GAAP is recorded in other income (expense) within our consolidated statements of operations and represented a gain of approximately $0.2 million and a loss of approximately $0.4 million for the three months ended September 30, 2025 and 2024, respectively, and loss of approximately $3.6 million and a gain of approximately $1.3 million for the nine months ended September 30, 2025 and 2024, respectively.

On December 30, 2024, in an effort to hedge the cash generated at our Canadian properties, we entered into four new foreign currency forwards; (i) one such hedge had a notional amount of $2.8 million CAD at a strike rate of 1.4412, and matured on February 27, 2025, (ii) the second hedge had a notional amount of $3.3 million CAD at a strike rate of 1.4363, and matured on May 27, 2025, (iii) the third hedge had a notional amount of $3.5 million CAD at a strike rate of 1.4312, and matured on August 27, 2025, whereby we paid approximately $0.1 million CAD (iv) the fourth hedge has a notional amount of $3.3 million CAD at a strike rate of 1.4261, maturing on November 28, 2025.

On February 28, 2025, we entered into a similar hedge with a notional amount of $3.2 million CAD at a strike rate of 1.4217, maturing on February 27, 2026. On May 29, 2025, we entered into a similar hedge with a notional amount of $3.3 million CAD at a strike rate of 1.3600, maturing on May 27, 2026.

On April 11, 2025, we settled a net investment hedge FX Forward, receiving approximately $2.6 million USD, and simultaneously entered into a new net investment hedge FX Forward for the same notional amount of approximately $136.5 million CAD, maturing on July 11, 2025. On June 23, 2025, we entered into a net investment hedge FX Forward to directly offset the pre-existing $136.5 million CAD FX Forward. This hedge negated the impact of the previously existing hedge. On June 29, 2025, we were able to terminate both hedges, and we paid approximately $1.8 million on July 1, 2025 in connection with settling both of these derivatives.