Creative Media & Community Trust Corp 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk The fair value of our mortgage payable is sensitive to fluctuations in interest rates. Discounted cash flow analysis is generally used to estimate the fair value of our mortgage payable, using a rate of 3.59% and 3.38% as of March 31, 2021 and December 31, 2020, respectively. As of March 31, 2021 and December 31, 2020, our mortgage payable had a book value of $97.1 million, and a fair value of $99.7 million and $100.8 million, respectively. Our future income, cash flow and fair values relevant to financial instruments are dependent upon prevalent market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. We are exposed to market risk in the form of changes in interest rates and the potential impact such changes may have on the cash flows from our floating rate debt or the fair values of our fixed rate debt. As of March 31, 2021 and December 31, 2020 (excluding premiums, discounts, and deferred loan costs), $115.2 million (or 34.4%) and $111.6 million (or 34.0%) of our debt, respectively, was fixed rate borrowings, and $219.8 million (or 65.6%) and $216.3 million (or 66.0%), respectively, was floating rate borrowings. Based on the level of floating rate debt outstanding as of March 31, 2021 and December 31, 2020, a 12.5 basis point change in LIBOR would result in an annual impact to our earnings of approximately $275,000 and $270,000, respectively . We calculate interest rate sensitivity by multiplying the amount of floating rate debt by the respective change in rate. The sensitivity analysis does not take into consideration possible changes in the balances or fair value of our floating rate debt.