Item 3. Quantitative and Qualitative Disclosures About Market Risk
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 March 31, 2025, 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 6.71% $ 84,019 10/09/2025 Monthly
Mountain Floating Rate Loan
1,400,000 5.87% 83,321 03/09/2026 Monthly
Total / weighted average $ 2,635,000 6.35% $ 167,340
(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 one remaining one-year extension option 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 3.10% 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. 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, 2025, 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 March 31, 2025
6.35 % $ 2,635,000 $ 167,340 $ (2.54)
One percentage point increase (2)
6.35 % $ 2,635,000 $ 167,340 $ (2.54)
(1) Based on the diluted weighted average common shares outstanding for the three months ended March 31, 2025.
(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 of our floating rate loan debt to 7.35% at March 31, 2025 would result in total floating rate interest expense per year of $196,381 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.
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, 2025. 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 2024 Annual Report.
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