Quantitative and Qualitative Disclosures About Market Risk.
−Removed: Market risk includes risks that arise from changes in interest rates, commodity prices, equity prices and other market changes that affect market sensitive instruments.
+Added: Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments.
In pursuing our business plan, we expect that the primary market risk to which we will be exposed is interest rate risk.
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Interest Rate Risk
−Removed: We are exposed to the effects of interest rate changes primarily as a result of long-term debt used to acquire properties and other permitted investments.
+Added: We are exposed to the effects of interest rate changes primarily as a result of long-term debt used to acquire and develop properties and other permitted investments.
Our interest rate risk is monitored using a variety of techniques.
−Removed: Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs while taking into account variable interest rate risk.
−Removed: To achieve our objectives, we may borrow at fixed or variable rates.
−Removed: We have entered into, and may continue to enter into, derivative financial instruments such as interest rate swaps in order to mitigate our interest rate risk on a related financial instrument.
−Removed: We do not apply hedge accounting treatment to these derivatives;
−Removed: therefore, changes in the fair value of interest rate derivative financial instruments are recorded as a component of interest expense in gain or loss in fair value of derivative financial instruments in our accompanying condensed consolidated statements of operations.
−Removed: As of September 30, 2021, our interest rate swap liabilities are recorded in our accompanying condensed consolidated balance sheets at their aggregate fair value of $824,000.
−Removed: We will not enter into derivatives or interest rate transactions for speculative purposes.
+Added: Our interest rate risk management objectives are to limit the impact of interest rate increases on earnings, prepayment penalties and cash flows and to lower overall borrowing costs while taking into account variable interest rate risk.
+Added: To achieve our objectives, we may borrow or lend at fixed or variable rates.
+Added: We entered into, and may continue to enter into, derivative financial instruments such as interest rate swaps and interest rate caps in order to mitigate our interest rate risk on a related financial instrument, and for which we have not and may not elect hedge accounting treatment.
+Added: We did not elect to apply hedge accounting treatment to these derivatives;
+Added: therefore, changes in the fair value of interest rate derivative financial instruments were recorded as a component of interest expense in gain or loss in fair value of derivative financial instruments in our accompanying condensed consolidated statements of operations and comprehensive income (loss).
+Added: As of March 31, 2022, we did not have any derivative financial instruments.
+Added: We do not enter into derivative transactions for speculative purposes.
In July 2017, the Financial Conduct Authority, or FCA, that regulates LIBOR announced its intention to stop compelling banks to submit rates for the calculation of LIBOR after 2021.
−Removed: As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee, which identified the Secured Overnight Financing Rate, or SOFR, as its preferred alternative to United States dollar LIBOR in derivatives and other financial contracts.
−Removed: In March 2021, the FCA confirmed its intention to cease publishing one-week and two-month LIBOR after December 31, 2021 and all remaining LIBOR after June 30, 2023.
−Removed: At this time, it is not known whether or when SOFR or other alternative reference rates will attain market traction as replacements for LIBOR.
−Removed: As of September 30, 2021, we have variable rate debt outstanding under our credit facilities and derivative financial instruments maturing on November 19, 2021 that are indexed to LIBOR.
−Removed: We intend to extend the maturity date of such variable rate credit facilities for an additional 12 months pursuant to the terms of the 2018 Credit Agreement, as amended.
+Added: As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee, which identified SOFR as its preferred alternative to United States dollar LIBOR in derivatives and other financial contracts.
+Added: The FCA ceased publishing one-week and two-month LIBOR after December 31, 2021 and intends to cease publishing all remaining LIBOR after June 30, 2023.
+Added: On January 19, 2022, we entered into the 2022 Credit Agreement that bears interest at varying rates based upon SOFR.
+Added: Please see Note 9, Lines of Credit and Term Loans — 2022 Credit Facility, to our accompanying condensed consolidated financial statements for a further discussion.
+Added: We have variable rate debt outstanding and maturing on various dates from 2022 to 2031 that are indexed to LIBOR.
As such, we are monitoring and evaluating the related risks of the discontinuation of LIBOR, which include possible changes to the interest on loans or amounts received and paid on derivative instruments we may enter into in the future.
These risks arise in connection with transitioning contracts to a new alternative rate, including any resulting value transfer that may occur.
−Removed: The value of loans or derivative instruments tied to LIBOR could also be impacted if LIBOR is discontinued.
+Added: The value of loans or derivative instruments tied to LIBOR could also be impacted by the discontinuation of LIBOR.
For some instruments, the method of transitioning to an alternative rate may be challenging, as they may require negotiation with the respective counterparty.
−Removed: If a contract is not transitioned to an alternative rate and LIBOR is discontinued, the impact on our contracts is likely to vary.
−Removed: If LIBOR is discontinued, interest rates on our current or future indebtedness may be adversely affected.
+Added: If a contract is not transitioned to an alternative rate, upon LIBOR’s discontinuation the impact on our contracts is likely to vary.
Currently we cannot estimate the overall impact of the phase-out of LIBOR on our current debt agreements, although it is possible that an alternative variable rate could raise our borrowing costs.
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In that case, the risks associated with the transition to an alternative reference rate will be accelerated and magnified.
−Removed: As of September 30, 2021, the table below presents the principal amounts and weighted average interest rates by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes.
+Added: As of March 31, 2022, the table below presents the principal amounts and weighted average interest rates by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes.
Expected Maturity Date
2022 2023 2024 2025 2026 Thereafter Total Fair Value
+Added: Debt security held-to-maturity
+Added: $ — $ — $ — $ 93,433,000 $ — $ — $ 93,433,000 $ 93,859,000
+Added: Weighted average interest rate on maturing fixed-rate debt security
+Added: — % — % — % 4.24 % — % — % 4.24 % —
Fixed-rate debt — principal payments
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$ 60,431,000 $ 391,343,000 $ 92,338,000 $ 464,000 $ 384,875,000 $ 569,104,000 $ 1,498,555,000 $ 1,505,193,000
−Removed: Weighted average interest rate on maturing variable-rate debt (based on rates in effect as of September 30, 2021) 2.05 % — % — % — % — % — % 2.05 % —
−Removed: Mortgage Loans Payable, Net and Line of Credit and Term Loans
−Removed: Mortgage loans payable was $18,291,000 ($17,409,000, net of discount/premium and deferred financing costs) as of September 30, 2021.
−Removed: As of September 30, 2021, we had three fixed-rate mortgage loans payable with interest rates ranging from 3.67% to 5.25% per annum.
−Removed: In addition, as of September 30, 2021, we had $488,900,000 outstanding under our line of credit and term loans at a weighted average interest rate of 2.05% per annum.
−Removed: As of September 30, 2021, the weighted average effective interest rate on our outstanding debt, factoring in our fixed-rate interest rate swaps, was 3.32% per annum.
−Removed: An increase in the variable interest rate on our variable-rate line of credit and term loans constitutes a market risk.
−Removed: As of September 30, 2021, a 0.50% increase in the market rates of interest would have increased our overall annualized interest expense on our variable-rate line of credit and term loans by $983,000, or 5.63% of total annualized interest expense on our mortgage loans payable and our line of credit and term loans.
−Removed: See Note 6, Mortgage Loans Payable, Net, and Note 7, Line of Credit and Term Loans, to our accompanying condensed consolidated financial statements, for a further discussion.
+Added: Weighted average interest rate on maturing variable-rate debt (based on rates in effect as of March 31, 2022)
+Added: 2.33 % 3.20 % 3.76 % 2.33 % 2.07 % 2.03 % 2.46 % —
+Added: Debt Security Investment, Net
+Added: As of March 31, 2022, the net carrying value of our debt security investment was $80,239,000.
+Added: As we expect to hold our debt security investment to maturity and the amounts due under such debt security investment would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our debt security investment, would have a significant impact on our operations.
+Added: See Note 16, Fair Value Measurements, to our accompanying condensed consolidated financial statements, for a discussion of the fair value of our investment in a held-to-maturity debt security.
+Added: The effective interest rate on our debt security investment was 4.24% per annum as of March 31, 2022.
+Added: Mortgage Loans Payable, Net and Lines of Credit and Term Loans
+Added: Mortgage loans payable were $1,121,901,000 as of March 31, 2022.
+Added: As of March 31, 2022, we had 67 fixed-rate mortgage loans payable and 11 variable-rate mortgage loans payable with effective interest rates ranging from 2.21% to 5.25% per annum and a weighted average effective interest rate of 3.16%.
+Added: In addition, as of March 31, 2022, we had $1,239,134,000 outstanding under our lines of credit and term loans, at a weighted average interest rate of 2.32% per annum.
+Added: As of March 31, 2022, the weighted average effective interest rate on our outstanding debt was 2.72% per annum.
+Added: An increase in the variable interest rate on our variable-rate mortgage loans payable and lines of credit and term loans constitutes a market risk.
+Added: As of March 31, 2022, a 0.50% increase in the market rates of interest would have increased our overall annualized interest expense on all of our other variable-rate mortgage loans payable and lines of credit and term loans by $7,597,000, or 11.7% of total annualized interest expense on our mortgage loans payable and lines of credit and term loans.
+Added: See Note 8, Mortgage Loans Payable, Net and Note 9, Lines of Credit and Term Loans, to our accompanying condensed consolidated financial statements.
Other Market Risk
−Removed: In addition to changes in interest rates, the value of our investments is subject to fluctuations based on changes in local and regional economic conditions and changes in the creditworthiness of tenants, which may affect our ability to refinance our debt if necessary.
+Added: In addition to changes in interest rates and foreign currency exchange rates, the value of our future investments is subject to fluctuations based on changes in local and regional economic conditions and changes in the creditworthiness of tenants, which may affect our ability to refinance our debt if necessary.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.