Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. 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.
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Floating Rate Debt
As of December 31, 2024, our outstanding floating rate debt consisted of the following:
Annual
Annual Interest
Principal Interest Interest Payments
Debt Balance
Rate (1)
Expense
Maturity Due
ILPT Floating Rate Loan $ 1,235,000 6.71% $ 84,019 10/09/2025 Monthly
Mountain Floating Rate Loan 1,400,000 5.81% 82,470 03/09/2025 Monthly
Total / weighted average $ 2,635,000 6.32% $ 166,489
(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 has two remaining 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 has 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 and as required under the applicable loan agreements, we purchased an interest rate cap with a current SOFR strike rate equal to 2.78% for the ILPT Floating Rate Loan and our consolidated joint venture purchased an interest rate cap with a current SOFR strike rate equal to 3.04% for the Mountain Floating Rate Loan. In February 2025, our consolidated joint venture provided notice to exercise the second extension option for the maturity of the Mountain Floating Rate Loan and in connection therewith purchased a one year interest rate cap for $15,010 with a SOFR strike rate equal to 3.10%.
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 December 31, 2024, including the impact of our interest rate caps:
Impact of an Increase in Interest Rates
Weighted
Total Interest Annual
Average
Outstanding Expense Earnings Per
Interest Rate
Debt Per Year Share Impact (1)
At December 31, 2024
6.32 % $ 2,635,000 $ 166,489 $ (2.53)
One percentage point increase (2)
6.32 % $ 2,635,000 $ 166,489 $ (2.53)
(1) Based on the diluted weighted average common shares outstanding for the year ended December 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. However, a one percentage point increase in our weighted average interest rate percentage of our floating rate loan debt at December 31, 2024 would result in a weighted average interest rate of 7.32%, total floating rate interest expense per year of $195,517 and a decrease in annual earnings per share of $2.98.
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.
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Fixed Rate Debt
At December 31, 2024, our outstanding fixed rate debt consisted of the following mortgage notes:
Number of Annual
Annual Interest
Properties Principal Interest Interest Payments
Entity Secured By Balance
Rate (1)
Expense
Maturity Due
ILPT 186 $ 650,000 4.31% $ 28,015 02/07/2029 Monthly
ILPT 17 700,000 4.42% 30,940 03/09/2032 Monthly
Mountain JV 4 91,000 6.25% 5,688 06/10/2030 Monthly
Mountain JV 1 10,020 3.67% 368 05/01/2031 Monthly
Mountain JV 1 11,636 4.14% 482 07/01/2032 Monthly
Mountain JV 1 26,200 4.02% 1,053 10/01/2033 Monthly
Mountain JV 1 36,684 4.13% 1,515 11/01/2033 Monthly
Mountain JV 1 22,637 3.10% 702 06/01/2035 Monthly
Mountain JV 1 36,655 2.95% 1,081 01/01/2036 Monthly
Mountain JV 1 41,491 4.27% 1,772 11/01/2037 Monthly
Mountain JV 1 46,506 3.25% 1,511 01/01/2038 Monthly
Total / weighted average $ 1,672,829 4.37% $ 73,127
(1) The annual interest rate is the rate stated in the applicable contract.
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 $16,728.
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. Interest rates continue to remain elevated despite recent reductions by the U.S. Federal Reserve. There are uncertainties surrounding interest rates and they may remain at current levels, decrease or increase. Based on the balances outstanding at December 31, 2024 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 $78,250.
Item 8. Financial Statements and Supplementary Data
The information required by this item is included in Item 15 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.