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Item 3. Quantitative and Qualitative Disclosures About Market Risk

2022-04-27 compared with 2021-10-27 · 54 added, 32 removed, 25 unchanged (77% of the section changed)

5 unchanged sentences

Fixed Rate Debt

At September 30, 2021, our outstanding fixed rate debt consisted of the following mortgage notes:

At March 31, 2022, our outstanding fixed rate debt consisted of the following mortgage notes:

Annual Annual Interest

2 unchanged sentences

Mortgage notes (186 properties in Hawaii) $ 650,000 4.310 % $ 28,015 2029 Monthly

Mortgage notes (17 U.S.

Mainland Properties ) 700,000 4.417 % 30,919 2032 Monthly

Mortgage note (2)

13,644 3.670 % 501 2031 Monthly

Mortgage note (2)

27,446 3.100 % 851 2035 Monthly

Mortgage note (2)

15,585 3.560 % 555 2030 Monthly

Mortgage note (2)

45,534 4.130 % 1,881 2033 Monthly

Mortgage note (2)

15,032 4.140 % 622 2032 Monthly

Mortgage note (2)

32,634 4.020 % 1,312 2033 Monthly

Mortgage note (2)

5,290 3.770 % 199 2030 Monthly

Mortgage note (2)

5,594 3.850 % 215 2030 Monthly

Mortgage note (2)

44,042 2.950 % 1,299 2036 Monthly

Mortgage note (2)

47,742 4.270 % 2,039 2037 Monthly

Mortgage note (2)

54,012 3.250 % 1,755 2038 Monthly

Mortgage note (2)

15,095 3.760 % 568 2028 Monthly

$ 1,671,650 $ 70,731

1 unchanged sentence

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 or issued this debt.

These mortgage notes require interest only payments until maturity.

(2) Our consolidated joint venture, in which we have a 61% interest, assumed MNR’s existing mortgages secured by 11 properties in aggregate.

Our $650,000 and $700,000 mortgage notes require interest only payments until maturity.

The remaining fixed rate mortgage notes require amortizing payment of principal and interest until maturity.

Because our mortgage notes require interest to be paid at a fixed rate, changes in market interest rates during the terms of these mortgage notes will not affect our interest obligations.

2 unchanged sentences

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 balance outstanding at September 30, 2021 and discounted cash flow analyses through the maturity date, and assuming no other changes in factors that may affect the fair value of our fixed rate debt obligation, a hypothetical immediate one percentage point change in the interest rates would change the fair value of this obligation by approximately $44,108.

Based on the balance outstanding at March 31, 2022 and discounted cash flow analyses through the maturity date, and assuming no other changes in factors that may affect the fair value of our fixed rate debt obligation, a hypothetical immediate one percentage point change in the interest rates would change the fair value of this obligation by approximately $55,883.

Floating Rate Debt

At September 30, 2021, our floating rate debt consisted of $354,000 outstanding under our revolving credit facility.

Our revolving credit facility matures on December 29, 2021 and, subject to the payment of extension fees and satisfaction of other conditions, we have the option to extend the maturity date for two, six month periods.

No principal repayments are required under our revolving credit facility prior to maturity, and prepayments may be made at any time without penalty.

Borrowings under our revolving credit facility are in U.S.

dollars and require interest to be paid at LIBOR plus a premium that varies based on our leverage ratio.

Accordingly, we are vulnerable to changes in the U.S.

dollar based short term rates, specifically LIBOR.

In addition, upon renewal or refinancing of this obligation, we are vulnerable to increases in interest rate premiums due to market conditions or our perceived credit risk.

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 approximate impact a one percentage point increase in interest rates would have on our annual floating rate interest expense at September 30, 2021:

Impact of an Increase in Interest Rates

Total Interest Annual

Interest Rate Outstanding Expense Earnings Per

Per Year Debt Per Year Share Impact (1)

At September 30, 2021 1.39 % $ 354,000 $ 4,921 $ (0.08)

One percentage point increase 2.39 % $ 354,000 $ 8,461 $ (0.13)

(1) Based on the diluted weighted average common shares outstanding for the nine months ended September 30, 2021.

The following table presents the approximate impact a one percentage point increase in interest rates would have on our annual floating rate interest expense at September 30, 2021 if we were fully drawn on our revolving credit facility:

At March 31, 2022, our outstanding floating rate debt consisted of the following:

Annual Annual Interest

Principal Interest Interest Payments

Debt Balance (1)

Bridge Loan - mortgage $ 1,125,982 2.040 % $ 22,970 2023 Monthly

Bridge Loan - mezzanine 259,176 8.290 % 21,486 2023 Monthly

Floating Rate Loan 1,400,000 3.060 % 42,840 2024 (2)

2,785,158 $ 87,296

(1) The principal balance, annual interest rate and annual interest expense are the amounts stated in the applicable contract.

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 or issued this debt.

(2) The Floating Rate Loan matures in March 2024, subject to three, one year extension options.

At March 31, 2022, our aggregate floating rate debt was $2,785,158, consisting of the $1,400,000 outstanding principal amount of the Floating Rate Loan secured by 82 properties owned by our consolidated joint venture and the $1,385,158 outstanding principal amount of the Bridge Loan.

The Bridge Loan matures on February 24, 2023 and requires that interest be paid at an annual rate of SOFR plus a premium of 1.75% under the loan agreement and a premium of 8.00% under the mezzanine loan agreement.

The Floating Rate Loan matures on March 9, 2024, subject to three, one year extension options, and requires that interest be paid at an annual rate of SOFR plus a premium of 2.765% .

In conjunction with these borrowings, to hedge our exposure to risks related to changes in SOFR rates, we purchased interest rate caps with a strike rate of 2.70% for the Bridge Loan and 3.40% for the Floating Rate Loan.

However, we are vulnerable to changes in the U.S.

dollar based short term rates, specifically SOFR.

In addition, upon renewal or refinancing of these obligations, we are vulnerable to increases in interest rate premiums due to market conditions or our perceived credit risk.

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 approximate impact a one percentage point increase in interest rates would have on our annual floating rate interest expense at March 31, 2022:

Impact of an Increase in Interest Rates

2 unchanged sentences

Per Year Debt Per Year Share Impact (1)

At September 30, 2021 1.39 % $ 750,000 $ 10,425 $ (0.16)

At March 31, 2022 3.13 % $ 2,785,158 $ 87,296 $ 1.34

One percentage point increase 4.13 % $ 2,785,158 $ 115,148 $ 1.77

(1) Based on the diluted weighted average common shares outstanding for the nine months ended September 30, 2021.

(1) Based on the diluted weighted average common shares outstanding for the three months ended March 31, 2022.

The foregoing tables show the impact of an immediate one percentage point change in floating interest rates.

If interest rates were to change 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 outstanding amounts of our revolving credit facility and any other floating rate debt.

LIBOR Phase Out

LIBOR is currently expected to be phased out for new contracts by December 31, 2021 and 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.

Interest we may pay on any future debt that we may incur may also require that we pay interest based upon LIBOR.

We currently expect that the determination of interest under our revolving credit facility would be revised as provided under our credit agreement or amended as necessary to provide for an interest rate that approximates the existing interest rate as calculated in accordance with LIBOR.

Despite our current expectations, we cannot be sure that, if LIBOR is phased out or transitioned, the changes to the determination of interest under our agreements would approximate the current calculation in accordance with LIBOR.

We cannot be certain of what standard, if any, will replace LIBOR if it is phased out or transitioned.

Our exposure to fluctuations in floating interest rates will increase or decrease in the future with increases or decreases in the outstanding amounts of any floating rate debt we may incur.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk