Creative Media & Community Trust Corp 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk 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 June 30, 2026 and December 31, 2025 (including our variable rate mortgages payable subject to interest rate cap agreements and excluding premiums, discounts, and deferred loan costs), $438.9 million (or 87.4%) and $440.4 million (or 85.6%) of our debt, respectively, was fixed rate borrowings. As of June 30, 2026 and December 31, 2025 (excluding debt reclassified as held for sale and excluding our variable rate mortgages payable subject to interest rate cap agreements as well as premiums, discounts and deferred loan costs), $63.3 million (or 12.6%) and $74.1 million (or 14.4%), respectively, was floating rate borrowings. Based on the level of floating rate debt outstanding as of June 30, 2026 and December 31, 2025, a 50 basis point change in SOFR would result in an annual impact to our earnings of approximately $317,000 and $371,000, respectively. We calculate interest rate sensitivity by multiplying the amount of floating rate debt by the respective change in rate. As of June 30, 2026, we had two interest rate cap agreements outstanding with an aggregate notional amount of $172.5 million and an aggregate fair value of the net derivative assets of $16,000. As of June 30, 2026, an increase or decrease of 50 basis points in interest rates would not result in a significant change to the fair value of the derivative asset.