CENTERSPACE 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 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. We currently use interest rate swaps to offset the impact of interest rate fluctuations on our $70.0 million and $75.0 million variable-rate term loans and a portion of our line of credit. The swap on our $70.0 million term loan has a notional amount of $70.0 million and an average pay rate of 2.16%. The swap on our $75.0 million term loan has a notional amount of $75.0 million and an average pay rate of 2.81%. The swap on our line of credit has a notional amount of $50.0 million and an average pay rate of 2.02%. The aggregate fair value of our interest rate swaps is a liability of $15.9 million, as of December 31, 2020. We do not enter into derivative instruments for trading or speculative purposes. The interest rate swaps expose us to credit risk in the event of non-performance by the counterparty under the terms of the agreement. We have a private shelf agreement for the issuance of up to $150.0 million of unsecured senior promissory notes (“unsecured senior notes”). Under this agreement, we issued $75.0 million of Series A notes due September 13, 2029, bearing interest at a rate of 3.84% annually, and $50.0 million of Series B notes due September 30, 2028, bearing interest at a rate of 3.69% annually. As of December 31, 2020, we had no variable-rate mortgage debt outstanding and $297.9 million of variable-rate borrowings under our line of credit and term loans, of which $195.0 million is fixed through interest rate swaps. We estimate that an increase in 30-day LIBOR of 100 basis points with constant risk spreads would result in our net income being reduced by approximately $1.0 million on an annual basis. We estimate that a decrease in 30-day LIBOR of 100 basis points would increase the amount of net income by a similar amount. Mortgage loan indebtedness decreased by $32.9 million as of December 31, 2020, compared to December 31, 2019, primarily due to loan maturities and prepayments. As of December 31, 2020 and 2019, 100.0% of our $298.4 million of mortgage debt was at fixed rates of interest, with staggered maturities. As of December 31, 2020, the weighted average rate of interest on our 38 Table of Contents mortgage debt was 3.93%, compared to 4.02% on December 31, 2019. 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. 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. Future Principal Payments (in thousands, except percentages) Fair Debt 2021 2022 2023 2024 2025 Thereafter Total Value Fixed Rate $ 25,665 $ 37,219 $ 45,068 $ 3,777 $ 32,505 $ 279,211 $ 423,445 $ 439,851 Average Interest Rate (1) 4.23 % 3.99 % 3.79 % 3.75 % 3.75 % 3.74 % 3.89 % Variable Rate (2) $ 5,871 $ 147,000 — $ 70,000 $ 75,000 — $ 297,871 $ 297,871 Average Interest Rate (1) 3.64 % 2.85 % — 3.65 % 4.63 % — 3.23 % (1) Interest rate is annualized and includes the effect of our interest rate swaps. (2) Includes $152.9 million under our line of credit and $145.0 million on our term loans, of which $195.0 million is synthetically fixed with 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.