Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various market risks, primary interest rate risk with respect to our variable rate indebtedness and exchange rate risk for the British Pound Sterling.
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Interest rate risk —We borrow debt at a combination of variable and fixed rates. As of December 31, 2025, our indebtedness included $500.0 million in term loans and $400.0 million in notes payable. As of December 31, 2025, we had $500.0 million of outstanding variable rate indebtedness. The unused portion ($1.2 billion at December 31, 2025) of our Third Amended Credit Facility, should it be drawn upon, is subject to variable rates.
An increase in interest rates could make the financing of any acquisition by us more costly as well as increase the costs of our variable rate debt obligations. Rising interest rates could also limit our ability to refinance our debt when it matures or cause us to pay higher interest rates upon refinancing and increase interest expense on refinanced indebtedness. Increased inflation may also have a pronounced negative impact on the interest expense we pay in connection with our outstanding indebtedness, as these costs could increase at a rate higher than our rents.
We manage, or hedge, interest rate risks related to our borrowings by means of interest rate swap agreements. However, the REIT provisions of the Code substantially limit our ability to hedge our assets and liabilities. See “Risk Factors — Risks Related to Our Status as a REIT — Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.” We also expect to manage our exposure to interest rate risk by maintaining a mix of fixed and variable rates for our indebtedness.
As of December 31, 2025, we had two interest rate swaps, with a notional amount of $250.0 million each, to hedge the variable cash flows associated with the Term Loan Facility. The interest rate swaps convert the Term Loan Facility’s Term SOFR rate to an effective fixed interest rate of 3.5%. Our objective in using interest rate derivatives is to change variable interest rates to fixed interest rates by using interest rate swaps. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for us making fixed-rate payments over the term of the agreements without exchange of the underlying notional amount.
Exchange rate risk —We are exposed to changes in foreign exchange rates as a result of our real estate investments in the United Kingdom. Our foreign currency exposure is partially mitigated through the use of British Pound denominated intercompany debt totaling £462.4 million as of December 31, 2025 and foreign currency forward contracts. Based solely on our results of operations for the year ended December 31, 2025, if the applicable exchange rate were to increase or decrease by 10%, our net income from our consolidated U.K.-based investments would increase or decrease, as applicable, by $3.8 million.
To hedge a portion of the interest expense due on our intercompany debt in the U.K., at December 31, 2025, we have two foreign currency forward contracts with notional amounts totaling £15.4 million that mature in 2026.
ITEM 8. Financial Statements and Supplementary Data
See the Index to Consolidated Financial Statements on page F-1 of this report.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
None.