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To achieve our objectives, we may borrow or lend at fixed or variable rates.
−Removed: 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 have 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.
We did not elect to apply hedge accounting treatment to these derivatives;
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 loss.
−Removed: As of September 30, 2022, we did not have any derivative financial instruments.
+Added: As of March 31, 2023, our interest rate swap is recorded in security deposits, prepaid rent and other liabilities in our accompanying condensed consolidated balance sheet at its fair value of $195,000.
We do not enter into derivative transactions for speculative purposes.
The Financial Conduct Authority, or 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.
−Removed: On January 19, 2022, we, through our operating partnership, entered into the 2022 Credit Facility that bears interest at varying rates based upon, at our option, (1) the Daily SOFR, plus the applicable rate for Daily SOFR Rate Loans;
−Removed: or (2) the Term SOFR plus the applicable rate for Term SOFR Rate Loans, as such terms are defined in the 2022 Credit Facility.
−Removed: Please see Note 9, Lines of Credit and Term Loans — 2022 Credit Facility, to our accompanying condensed consolidated financial statements for a further discussion.
−Removed: We have variable rate debt outstanding and maturing on various dates from 2023 to 2031 that are indexed to LIBOR.
−Removed: 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.
+Added: We have two variable rate mortgage loans outstanding for an aggregate principal balance of $98,743,000, which are maturing in 2024 and 2031 and are indexed to LIBOR.
+Added: As such, we are monitoring and evaluating the related risks of the discontinuation of LIBOR.
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 when LIBOR is discontinued.
+Added: value of mortgage loans payable tied to LIBOR could also be impacted when LIBOR is discontinued.
For some instruments, the method of transitioning to an alternative rate may be challenging, as they may require negotiation with the respective counterparty.
If a contract is not transitioned to an alternative rate when LIBOR is discontinued, the impact on our contracts is likely to vary.
−Removed: When LIBOR is discontinued, interest rates on our current or future indebtedness may be adversely affected.
−Removed: 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.
−Removed: It is not possible to predict whether LIBOR will continue to be viewed as an acceptable market “benchmark” prior to June 30, 2023, and it is possible that LIBOR will become unavailable prior to that point.
−Removed: This could result, for example, if a sufficient number of banks decline to make submissions to the LIBOR administrator.
−Removed: In that case, the risks associated with the transition to an alternative reference rate will be accelerated and magnified.
−Removed: As of September 30, 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.
+Added: When LIBOR is discontinued, interest rates on our current indebtedness may be adversely affected.
+Added: We estimate the overall impact of the phase-out of LIBOR on our current debt agreements to be minimal, but it is possible that an alternative variable rate could raise our borrowing costs.
+Added: As of March 31, 2023, 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, excluding the effect of our interest rate swap.
+Added: For information on our interest rate swap, see Note 9, Derivative Financial Instruments, to our accompanying condensed consolidated financial statements.
Expected Maturity Date
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$ 450,203,000 $ 204,502,000 $ 30,179,000 $ 428,092,000 $ 550,206,000 $ 27,239,000 $ 1,690,421,000 $ 1,697,118,000
−Removed: Weighted average interest rate on maturing variable-rate debt (based on rates in effect as of September 30, 2022)
+Added: Weighted average interest rate on maturing variable-rate debt (based on rates in effect as of March 31, 2023)
7.60 % 7.24 % 7.06 % 6.60 % 6.55 % 6.90 % 6.94 % —
Debt Security Investment, Net
−Removed: As of September 30, 2022, the net carrying value of our debt security investment was $82,067,000.
+Added: As of March 31, 2023, the net carrying value of our debt security investment was $83,955,000.
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.
See Note 14, 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.
−Removed: The effective interest rate on our debt security investment was 4.24% per annum as of September 30, 2022.
−Removed: Mortgage Loans Payable, Net and Lines of Credit and Term Loans
−Removed: Mortgage loans payable were $1,177,244,000 as of September 30, 2022.
−Removed: As of September 30, 2022, we had 64 fixed-rate mortgage loans payable and 13 variable-rate mortgage loans payable with effective interest rates ranging from 2.21% to 6.52% per annum and a weighted average effective interest rate of 3.85%.
−Removed: In addition, as of September 30, 2022, we had $1,292,935,000 outstanding under our lines of credit and term loans, at a weighted average interest rate of 5.04% per annum.
−Removed: As of September 30, 2022, the weighted average effective interest rate on our outstanding debt, factoring in our fixed-rate interest rate swaps (if any), was 4.47% per annum.
−Removed: 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.
−Removed: As of September 30, 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 $8,440,000, or 10.7% of total annualized interest expense on our mortgage loans payable and lines of credit and term loans.
−Removed: See Note 8, Mortgage Loans Payable, Net and Note 9, Lines of Credit and Term Loans, to our accompanying condensed consolidated financial statements.
+Added: The effective interest rate on our debt security investment was 4.24% per annum as of March 31, 2023.
+Added: Mortgage Loans Payable, Net and Lines of Credit and Term Loan
+Added: Mortgage loans payable were $1,257,057,000 ($1,233,745,000, net of discount/premium and deferred financing costs) as of March 31, 2023.
+Added: As of March 31, 2023, we had 68 fixed-rate mortgage loans payable and 12 variable-rate mortgage loans payable with effective interest rates ranging from 2.21% to 7.76% per annum and a weighted average effective interest rate of 4.46%.
+Added: In addition, as of March 31, 2023, we had $1,314,134,000 ($1,313,222,000, net of deferred financing fees) outstanding under our lines of credit and term loan, at a weighted average interest rate of 6.84% per annum.
+Added: As of March 31, 2023, the weighted average effective interest rate on our outstanding debt, factoring in our fixed-rate interest rate swap, was 5.56% per annum.
+Added: An increase in the variable interest rate on our variable-rate mortgage loans payable and lines of credit and term loan constitutes a market risk.
+Added: As of March 31, 2023, 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 unhedged term loan by $7,176,000, or 5.0% of total annualized interest expense on our mortgage loans payable and lines of credit and term loan.
+Added: See Note 7, Mortgage Loans Payable, Net and Note 8, Lines of Credit and Term Loan, to our accompanying condensed consolidated financial statements.
Other Market Risk
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