What changed in this filing

/stocks — the workspaceLOADING

Item 3. Quantitative and Qualitative Disclosures About Market Risk

2024-04-30 compared with 2023-10-25 · 28 added, 57 removed, 14 unchanged (86% of the section changed)

1 unchanged sentence

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.

Our strategy to manage exposure to changes in interest rates is materially unchanged since December 31, 2022.

We manage our exposure to this market risk by monitoring available financing alternatives, including fixed rate debt, and employing derivative instruments, including interest rate caps, to limit our exposure to increasing interest rates.

Other than as described below, we do not currently expect any significant changes in our exposure to fluctuations in interest rates or in how we manage this exposure in the near future.

Floating Rate Debt

At September 30, 2023, our outstanding floating rate debt consisted of the following:

As of March 31, 2024, our outstanding floating rate debt consisted of the following:

Annual Annual Interest

Principal Interest Interest Payments

Principal Interest Interest Current

Debt Balance Rate (1)

ILPT Floating Rate Loan $ 1,235,000 6.18% $ 77,383 10/09/2024 Monthly

Floating Rate Loan 1,400,000 6.17 % 87,580 2024 Monthly

Mountain Floating Rate Loan

1,400,000 5.81% 82,470 03/09/2025 Monthly

Total/weighted average

$ 2,635,000 5.98% $ 159,853

(1) The annual interest rate and annual interest expense are the amounts stated in the applicable contract, as adjusted by our interest rate caps as applicable.

At September 30, 2023, our aggregate floating rate debt was $2,635,000, consisting of the $1,235,000 outstanding principal amount of the ILPT Floating Rate Loan, and the $1,400,000 outstanding principal amount of the Floating Rate Loan secured by 82 properties owned by our consolidated joint venture.

The ILPT Floating Rate Loan matures on October 9, 2024, subject to three, one year extension options, and requires that interest be paid at an annual rate of SOFR plus a weighted average premium of 3.93%.

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 2.77%.

(1) The annual interest rate is the rate stated in the applicable contract, as adjusted by our interest rate caps.

The ILPT Floating Rate Loan is subject to three, one year extension options, and requires that interest be paid at an annual rate of SOFR plus a weighted average premium of 3.93%.

The Mountain Floating Rate Loan is subject to two, one year extension options, and requires that interest be paid at an annual rate of SOFR plus a premium of 2.77%.

We are vulnerable to changes in the U.S.

dollar based on short term rates, specifically SOFR.

In conjunction with these borrowings, to hedge our exposure to risks related to changes in SOFR rates, we purchased interest rate caps with a SOFR strike rate equal to 2.25% for the ILPT Floating Rate Loan and 3.40% for the Floating Rate Loan.

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

dollar based on short term interest rates, specifically SOFR.

In conjunction with these borrowings, to hedge our exposure to risks related to changes in SOFR, we purchased interest rate caps with a SOFR strike rate equal to 2.25% for the ILPT Floating Rate Loan and 3.04% for the Mountain Floating Rate Loan.

In addition, upon renewal or refinancing of these obligations, we are vulnerable to increases in interest rate premiums, including increases in the cost of replacement interest rate caps, due to market conditions and 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, 2023, excluding the impact of our interest rate caps:

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, 2024, including the impact of our interest rate caps:

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, 2023

Weighted Average

Outstanding Expense Earnings Per

Interest Rate

Debt Per Year Share Impact (1)

At March 31, 2024

5.98 % $ 2,635,000 $ 159,853 $ (2.44)

One percentage point increase (2)

(1) Based on the diluted weighted average common shares outstanding for the nine months ended September 30, 2023.

The foregoing table shows 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 any floating rate debt we may incur.

Fixed Rate Debt

At September 30, 2023, our outstanding fixed rate debt consisted of the following mortgage notes:

Annual Annual Interest

Principal Interest Interest Payments

Mortgage notes (186 Hawaii Properties)

$ 650,000 4.31 % $ 28,015 2029 Monthly

Mortgage notes (17 Mainland Properties)

700,000 4.42 % 30,940 2032 Monthly

Mortgage note (2)

91,000 6.25 % 5,688 2030 Monthly

Mortgage note (3)

11,712 3.67 % 430 2031 Monthly

Mortgage note (3)

13,228 4.14 % 548 2032 Monthly

Mortgage note (3)

29,213 4.02 % 1,174 2033 Monthly

Mortgage note (3)

40,832 4.13 % 1,686 2033 Monthly

Mortgage note (3)

24,873 3.10 % 771 2035 Monthly

Mortgage note (3)

40,087 2.95 % 1,183 2036 Monthly

Mortgage note (3)

44,423 4.27 % 1,897 2037 Monthly

Mortgage note (3)

50,002 3.25 % 1,625 2038 Monthly

5.98 % $ 2,635,000 $ 159,853 $ (2.44)

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

(2) Our consolidated joint venture, in which we own a 61% equity interest, obtained this mortgage loan, which is secured by four properties.

(3) Our consolidated joint venture, in which we own a 61% equity interest, assumed these former MNR mortgage loans, which are secured by eight properties in aggregate.

Our $650,000, $700,000 and $91,000 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.

If these mortgage notes are refinanced at an interest rate which is one percentage point higher or lower than shown above, our annual interest cost would increase or decrease by approximately $16,953.

Changes in market interest rates 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.

Federal Reserve has raised interest rates multiple times since the beginning of 2022 in an effort to combat inflation and may continue to do so.

Based on the balances outstanding at September 30, 2023 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 these obligations by approximately $89,267.

(1) Based on the diluted weighted average common shares outstanding for the three months ended March 31, 2024.

(2) A one percentage point increase in interest rates would not have an impact on annual total interest expense for our floating rate debt because current interest rates exceed the strike rates of our interest rate caps.

Excluding the impact of our interest rate caps, a one percentage point increase in interest rates would result in a weighted average interest rate of 6.98%, a total interest expense per year of $186,568 and an annual earnings per share impact of $(2.85) for our floating rate debt.

The foregoing table shows the impact of an immediate one percentage point change in floating interest rates, including the impact of our interest rate caps.

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 and the impact, if any, of interest rate caps we may purchase.

Generally, if interest rates were to change gradually over time, the impact would be spread over time.

Fixed Rate Debt

There have been no material changes to market interest rate risks associated with our fixed rate debt during the three months ended March 31, 2024.

For a discussion of market interest rate risks associated with our fixed rate debt, see “Quantitative and Qualitative Disclosures About Market Risk” included in Part II, Item 7A of our 2023 Annual Report.

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