Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk refers to the risk of loss from adverse changes in market prices and interest rates. Our future revenue, cash flows, and fair values of certain financial instruments are dependent upon prevailing market prices and interest rates.
Our exposure to market risk is primarily related to fluctuations in the general level of interest rates on our current and future fixed and variable rate debt obligations. Our operating results are, therefore, affected by changes in interest rates, including SOFR.
As of December 31, 2023, we had $30.0 million of variable-rate borrowings under our lines of credit. We estimate that an increase in 30-day SOFR of 100 basis points with constant risk spreads would result in a $300,000 reduction to our net income (loss) on an annual basis. We estimate that a decrease in 30-day SOFR of 100 basis points would increase our net income (loss) by a similar amount.
Mortgage loan indebtedness, excluding the FMCF, increased by $91.7 million as of December 31, 2023, compared to December 31, 2022, primarily due to one new mortgage loan and the assumption of a mortgage loan in connection with a 2023 acquisition, offset by the payoff of mortgages. As of December 31, 2023 and 2022, all of our mortgage debt, $391.1 million and $299.4 million, respectively, was at fixed rates of interest with staggered maturities. As of December 31, 2023, the weighted average rate of interest on our mortgage debt was 4.05%, compared to 3.85% on December 31, 2022. Even though our goal is to maintain a fairly low exposure to interest rate risk, we may become vulnerable to significant fluctuations in interest rates on any future repricing or refinancing of our fixed or variable rate debt or future debt.
We cannot predict with certainty the effect of adverse changes in interest rates on our debt and, therefore, our market risk.
The following table provides information about our financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. Average variable rates are based on rates in effect at the reporting date.
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Future Principal Payments (in thousands, except percentages)
Fair
Debt 2024 2025 2026 2027 2028 Thereafter Total Value
Fixed Rate $ 6,860 $ 36,290 $ 99,120 $ 48,666 $ 118,365 $ 580,689 $ 889,990 $ 787,743
Average Interest Rate (1)
3.59 % 3.61 % 3.60 % 3.57 % 3.58 % 3.71 % 3.61 %
Variable Rate — $ 30,000 — $ — $ — — $ 30,000 $ 30,000
Average Interest Rate (1)(2)
— 6.74 % — — — — 6.74 %
(1) Interest rate is annualized.
(2) Interest rate excludes any unused facility fees and amounts reclassified from accumulated other comprehensive income into interest expense from terminated interest rate swaps
Item 8. Financial Statements and Supplementary Data
Our Consolidated Financial Statements and related notes, together with the Report of the Independent Registered Public Accounting Firm, are set forth beginning on page F-1 of this Report and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.