Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to risks associated with market changes in interest rates. We manage our exposure to this market risk by monitoring available financing alternatives. Other than as described below, we do not currently foresee any significant changes in our exposure to fluctuations in interest rates or in how we manage this exposure in the near future.
Although we have no present plans to do so, we may in the future enter into hedge arrangements or derivative contracts from time to time to mitigate our exposure to changes in interest rates.
Fixed Rate Debt
At December 31, 2021, our outstanding fixed rate debt included the following (dollars in thousands):
Annual Annual
Principal Interest Interest Interest
Debt Balance (1)
Rate (1)
Expense Maturity Payments Due
Senior unsecured notes $ 250,000 4.750 % $ 11,875 2024 Semi-Annually
Senior unsecured notes 1,000,000 9.750 % 97,500 2025 Semi-Annually
Senior unsecured notes 500,000 4.750 % 23,750 2028 Semi-Annually
Senior unsecured notes 500,000 4.375 % 21,875 2031 Semi-Annually
Senior unsecured notes 350,000 5.625 % 19,688 2042 Quarterly
Senior unsecured notes 250,000 6.250 % 15,625 2046 Quarterly
Mortgage note 11,120 6.280 % 698 2022 Monthly
Mortgage note 10,479 4.850 % 508 2022 Monthly
Mortgage note 15,456 5.750 % 889 2022 Monthly
Mortgage note 15,204 6.640 % 1,010 2023 Monthly
Mortgage note 10,240 4.444 % 455 2043 Monthly
$ 2,912,499 $ 193,873
(1) The principal balances and interest rates are the amounts stated in the applicable contracts. In accordance with GAAP, our carrying values and recorded interest expense may differ from these amounts because of market conditions at the time we assumed certain of these debts. This table does not include obligations under finance leases.
No principal repayments are due under our unsecured notes until maturity. Our mortgage notes generally require principal and interest payments through maturity pursuant to amortization schedules. Because these debts require interest to be paid at a fixed rate, changes in market interest rates during the term of these debts will not affect our interest obligations. If these debts were refinanced at interest rates which are one percentage point higher or lower than shown above, our annual interest cost would increase or decrease by approximately $29.1 million.
Changes in market interest rates also would affect the fair value of our fixed rate debt obligations; increases in market interest rates decrease the fair value of our fixed rate debt, while decreases in market interest rates increase the fair value of our fixed rate debt. Based on the balances outstanding at December 31, 2021, and discounted cash flows analyses through the respective maturity dates, and assuming no other changes in factors that may affect the fair value of our fixed rate debt obligations, a hypothetical immediate one percentage point increase in interest rates would change the fair value of those obligations by approximately $1.6 million.
Our senior unsecured notes and certain of our mortgages contain provisions that allow us to make repayments earlier than the stated maturity date. In some cases, we are not allowed to make early repayment prior to a cutoff date and we are generally allowed to make prepayments only at a premium equal to a make whole amount, as defined, which is generally designed to preserve a stated yield to the noteholder. In the past, we have repurchased and retired some of our outstanding debt and we may do so again in the future. These prepayment rights and our ability to repurchase and retire outstanding debt may afford us opportunities to mitigate the risk of refinancing our debts at maturity at higher rates by refinancing prior to maturity.
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Floating Rate Debt
At December 31, 2021, our floating rate debt obligations consisted of $800.0 million outstanding under our revolving credit facility. As of December 31, 2021, the maturity date of our revolving credit facility was January 2023. In February 2022, we exercised our option to extend the maturity date of our revolving credit facility by one year to January 2024. Generally, no principal repayments are required under our revolving credit facility prior to maturity, and we can borrow, repay and re-borrow funds available, subject to conditions, at any time without penalty.
Borrowings under our revolving credit facility are in U.S. dollars and interest is required to be paid at the rate of LIBOR plus a premium that is subject to adjustment based upon changes to our credit ratings. Accordingly, we are exposed to interest rate risk for changes in U.S. dollar based short term rates, specifically LIBOR, and to changes in our credit ratings. In addition, upon renewal or refinancing of our revolving credit facility, we are vulnerable to increases in interest rate premiums due to market conditions or our perceived credit characteristics. Generally, a change in interest rates would not affect the value of our floating rate debt but would affect our operating results.
The following table presents the impact a one percentage point increase in interest rates would have on our annual floating rate interest expense as of December 31, 2021 (dollars in thousands except per share amounts):
Impact of Changes in Interest Rates
Interest Rate (1)
Outstanding
Floating Rate Debt Total Interest
Expense Per Year Annual
Earnings per Share
Impact (2)
At December 31, 2021 2.85 % $ 800,000 $ 22,800 $ 0.10
One percentage point increase 3.85 % $ 800,000 $ 30,800 $ 0.13
(1) Interest rate under our revolving credit facility as of December 31, 2021.
(2) Based on weighted average number of shares outstanding (basic and diluted) for the year ended December 31, 2021.
The foregoing table shows the impact of an immediate increase in floating interest rates. If interest rates were to increase gradually over time, the impact would be spread over time. Our exposure to fluctuations in floating interest rates will increase or decrease in the future with increases or decreases in the amount of our borrowings outstanding under our revolving credit facility or other floating rate debt.
LIBOR Phase Out
As of December 31, 2021, LIBOR has been phased out for new contracts and is currently expected to be phased out for pre-existing contracts by June 30, 2023. We are required to pay interest on borrowings under our revolving credit facility at floating rates based on LIBOR and interest we may pay on any future debt that we may incur may also require that we pay interest based upon LIBOR. In September 2021, we amended our credit agreement to set forth the mechanics for establishing a replacement benchmark rate under our revolving credit facility at such time as LIBOR is no longer available to calculate interest payable on amounts outstanding thereunder. Despite this amendment, we cannot be sure that any changes to the determination of interest under our agreement will approximate the current calculation in accordance with LIBOR. We cannot be sure what standard, if any, will replace LIBOR, and any alternative interest rate index that may replace LIBOR may result in our paying increased interest.
Item 8. Financial Statements and Supplementary Data.
The information required by this item is included in Part IV, Item 15 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.