Quantitative and Qualitative Disclosures about Market Risk
−Removed: Hedging our Floating Rate Borrowings
−Removed: As of December 31, 2022, the interest rates for 89% of our consolidated borrowings were fixed or swap-fixed with interest rate swaps.
−Removed: Our use of these instruments exposes us to credit risk from the potential inability of our counterparties to perform under the terms of those agreements.
+Added: Fixed-Rate Borrowings and Hedged Borrowings
+Added: As of December 31, 2023, the interest rates for 69% of our consolidated borrowings were fixed or swap-fixed with interest rate swaps, and 15% were capped with interest rate caps.
+Added: Our use of interest rate swaps and caps exposes us to credit risk from the potential inability of our counterparties to perform under the terms of those agreements.
We attempt to minimize this credit risk by contracting with a variety of financial counterparties with investment grade ratings.
+Added: As of December 31, 2023, the maximum amount the interest expense on our capped-rate borrowings could increase is $14.3 million per year.
+Added: Higher interest rates would cause an increase in our future interest expense on our capped-rate debt, which would reduce our future net income, cash flows from operations and FFO.
+Added: Unhedged Floating-Rate Borrowings
+Added: As of December 31, 2023, the interest rates for 16% of our consolidated borrowings were floating.
As of December 31, 2023, the interest expense for our floating-rate borrowings that are not hedged would increase by $9.3 million per year for every one hundred basis point increase in the related benchmark interest rate.
−Removed: See Note 8 to our consolidated financial statements in Item 15 of this Report for the future swap expirations with a total notional amount of $837.4 million in the first quarter of 2023.
−Removed: Higher interest rates would cause an increase in our future interest expense, which would reduce our future net income and cash flows from operations.
−Removed: Market Transition to SOFR from USD-LIBOR
−Removed: On March 5, 2021, the FCA announced that USD-LIBOR would no longer be published after June 30, 2023.
−Removed: This announcement has several implications, including setting the type of SOFR to which LIBOR is converted (e.g., Term SOFR, Daily Simple SOFR or Daily Compounded SOFR) and agreeing on a spread that may be applied when converting contracts from USD-LIBOR to SOFR.
−Removed: As of December 31, 2022, most of our floating rate borrowings and interest rate swaps are indexed to USD-LIBOR, and we currently expect that all of these loans and interest rate swaps will be converted to SOFR by July 1, 2023.
−Removed: We are evaluating issues relating to transitioning contracts to SOFR - which include, among other issues, the calculation of:
−Removed: (i) loan interest payments, (ii) swap interest payments, and (iii) the value of, and accounting for, loans and swaps.
−Removed: While we currently expect USD-LIBOR to be available in substantially its current form until at least June 30, 2023, it is possible that USD-LIBOR will become unavailable prior to that time.
−Removed: This could occur if, for example, sufficient banks decline to make submissions to the LIBOR administrator.
−Removed: In that case, the risks associated with the transition to SOFR will be accelerated and potentially magnified.
−Removed: See Notes 8 and 10 to our consolidated financial statements in Item 15 of this Report for more information regarding our debt and interest rate swaps.
+Added: Higher interest rates would cause an increase in our future interest expense on our floating-rate debt, which would reduce our future net income, cash flows from operations and FFO.
+Added: See Note 8 to our consolidated financial statements in Item 15 of this Report for more information regarding our debt and our future swap and cap expirations.
+Added: See Note 10 to our consolidated financial statements in Item 15 of this Report for more information regarding our swaps and caps.
+Added: Market Transition to SOFR from LIBOR
+Added: During the third quarter of 2023, we converted all of our LIBOR loans and swaps to SOFR.
+Added: The LIBOR loans converted to SOFR include a small SOFR adjustment (an increase to the SOFR rate) to calculate the interest payable to the lender.
+Added: The SOFR conversion did not change the swap-fixed interest rates for our swap-fixed loans.
+Added: See Notes 8 and 10 to our consolidated financial statements in Item 15 of this Report for more information regarding our debt and derivatives, respectively.
Financial Statements and Supplementary Data
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