Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal material financial market risk to which we are exposed is interest rate risk. Our exposure to interest rate risk relates primarily to refinancing long-term fixed rate obligations, the opportunity cost of fixed rate obligations in a falling interest rate environment and our variable rate line of credit. We primarily enter into debt obligations to support general corporate purposes, including acquisition of real estate properties, capital improvements and working capital needs. We use interest rate swap arrangements to reduce our exposure to the variability in future cash flows attributable to changes in interest rates.
The table below presents principal, interest and related weighted average interest rates by year of maturity, with respect to debt outstanding on December 31, 2023 (dollars in thousands).
2024 2025 2026 2027 2028 Thereafter Total Fair Value
Unsecured fixed rate debt
Principal — $ 125,000 (1) $ — $ — $ 50,000 $ 350,000 $ 525,000 $ 466,668
Interest payments $ 23,908 $ 17,995 $ 17,995 $ 17,995 $ 16,155 $ 28,061 $ 122,109
Interest rate on debt maturities — % 5.6 % — % — % 7.4 % 4.1 % 4.9 %
Unsecured variable rate debt
Principal — $ 157,000 $ — — — $ — $ 157,000 $ 157,000
Variable interest rate on debt maturities 6.3 % 6.3 %
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(1) Represents a $125.0 million term loan with a floating interest rate. A $100.0 million portion of the term loan was previously effectively fixed by an interest rate swap that expired on July 21, 2023. The full amount of the term loan is effectively fixed by two interest rate swaps that became effective on July 21, 2023 and expire on the loan’s maturity date of January 10, 2025.
We entered into the interest rate swap arrangements designated and qualifying as cash flow hedges to reduce our exposure to the variability in future cash flows attributable to changes in interest rates. Derivative instruments expose us to credit risk in the event of non-performance by the counterparty under the terms of the interest rate hedge agreement. We believe that we minimize our credit risk on these transactions by dealing with major, creditworthy financial institutions. As part of our ongoing control procedures, we monitor the credit ratings of counterparties and our exposure to any single entity, thus minimizing our credit risk concentration.
The following table sets forth information pertaining to interest rate swap contract in place as of December 31, 2023 and 2022 and its respective fair value (dollars in thousands):
Notional Amount Floating Index Rate Termination/ Fair Value as of:
Fixed Rate Effective Date Expiration Date December 31, 2023 December 31, 2022
$ 100,000 1.205% USD-SOFR 3/31/2017 7/21/2023 $ — $ 1,998
75,000 3.677% USD-SOFR 7/21/2023 1/10/2025 740 —
50,000 3.676% USD-SOFR 7/21/2023 1/10/2025 494 —
$ 1,234 $ 1,998
We enter into debt obligations primarily to support general corporate purposes including acquisition of real estate properties, capital improvements and working capital needs.
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ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data appearing on pages 83 to 118 are incorporated herein by reference.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.