Industrial Logistics Properties Trust 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk ( dollars in thousands, except per share data ) 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, 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 As of September 30, 2024, our outstanding floating rate debt consisted of the following: Annual Annual Interest Principal Interest Interest Maturity Payments Debt Balance Rate (1) Expense Date Due ILPT Floating Rate Loan $ 1,235,000 6.18% $ 77,383 10/09/2024 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 is the rate stated in the applicable contract, as adjusted by our interest rate caps. The ILPT Floating Rate Loan was subject to three, one year extension options as of September 30, 2024, 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 remaining 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 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 October 2024, we exercised the first of our three, one year extension options for the maturity date of this loan. In connection with the exercise of the extension, we purchased a one year interest rate cap for $16,975 with a SOFR strike rate equal to 2.78%, which replaced the previous interest rate cap with a SOFR strike rate equal to 2.25%. 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, 2024, including the impact of our interest rate caps: Impact of an Increase in Interest Rates Total Interest Annual Weighted Average Outstanding Expense Earnings Per Interest Rate Debt Per Year Share Impact (1) At September 30, 2024 5.98 % $ 2,635,000 $ 159,853 $ (2.43) One percentage point increase (2) 5.98 % $ 2,635,000 $ 159,853 $ (2.43) (1) Based on the diluted weighted average common shares outstanding for the three months ended September 30, 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. However, a one percentage point increase in our weighted average interest rate percentage of our floating rate loan debt at September 30, 2024 would result in a weighted average interest rate of 6.98%, total interest expense per year of $186,568 and a decrease in annual earnings per share of $2.84. 31 Tabl e of Contents 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 and nine months ended September 30, 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.