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, 2024 (dollars in thousands).
2025 2026 2027 2028 2029 Thereafter Total Fair Value
Unsecured fixed rate debt
Principal $ — $ 125,000 (1) $ — $ 50,000 $ — $ 350,000 $ 525,000 $ 472,412
Interest payments $ 23,908 $ 18,154 $ 17,995 $ 16,155 $ 14,315 $ 14,315 $ 104,842
Interest rate on debt maturities — % 4.7 % — % 5.7 % — % 4.1 % 4.7 %
Unsecured variable rate debt
Principal — $ — $ — $ 176,000 $ — $ — $ 176,000 $ 176,000
Variable interest rate on debt maturities 5.3 % 5.3 %
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(1) Represents a $125.0 million term loan with a floating interest rate. 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 initial maturity date of January 10, 2025. In the fourth quarter of 2024, we exercised one of two one-year extension options on the 2023 Term Loan to extend the maturity of the loan to January 10, 2026. The full amount of the term loan is effectively fixed by two interest rate swaps that became effective on January 10, 2025 and expire on the loan maturity date of January 10, 2026.
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, 2024 and 2023 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, 2024 December 31, 2023
$75,000 3.677% USD-SOFR July 21, 2023 January 10, 2025 $ 14 $ 740
50,000 3.676% USD-SOFR July 21, 2023 January 10, 2025 9 494
100,000 4.719% USD-SOFR
January 10, 2025 January 10, 2026 (624) —
50,000 4.720% USD-SOFR
January 10, 2025 January 10, 2026 (312) —
$ (913) $ 1,234
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 116 are incorporated herein by reference.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.