Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Our future income and cash flows relevant to financial instruments are dependent upon prevalent market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates.
As of December 31, 2025, we had $2,565 million of variable-rate debt under our revolver and term loan agreements, primarily bearing interest at Adjusted SOFR of 3.9%, plus a margin of 77.5 basis points and 92.5 basis points for the revolver and term loan agreements, respectively (refer to Note 10, Debt to our consolidated financial statements for details of the entire balance by currency and rate). We have entered into interest rate hedges to effectively lock in the floating rates on $1,625 million of our variable-rate debt at a weighted average rate of 2.34% plus applicable margin. These hedges include swapping $500 million of borrowings under the Term Loan A to a weighted average fixed interest rate of 3.11% plus a margin of 92.5 basis points through February 2028 and 2% caps (plus a margin of 77.5 basis points) totaling $1,125 million on other variable-rate debt that expired in January 2026. As a result, our exposure to changes in interest rates as of December 31, 2025 primarily consists of our $1,021 million of unhedged variable rate debt. As of December 31, 2025, a 100 basis point increase in market interest rates would result in an increase in interest expense to service our variable-rate debt of approximately $10 million on an annualized basis. A 100 basis point decrease in market interest rates would result in a decrease in interest of approximately $10 million on an annualized basis.
During the year ended December 31, 2025, we executed forward-starting hedges which effectively lock in the floating rates on $750 million of borrowings under the Revolving Credit Facility to a weighted average fixed interest rate of 3.19% plus a margin of 77.5 basis points upon the expiration of the above-described hedges in January 2026. These forward-starting hedges will expire in February 2028. After the replacement of the hedges which expired in January 2026 with these forward-starting hedges, our unhedged variable rate debt increased by $375 million.
Foreign Currency Risk
We are exposed to foreign currency exchange variability related to investments in and earnings from our foreign subsidiaries, as the revenues and expenses of these subsidiaries are typically generated in the currencies of the countries in which they operate. Foreign currency market risk is the possibility that our results of operations or financial position could be better or worse than planned because of changes in foreign currency exchange rates. When the local currencies in these countries decline relative to our reporting currency, the U.S. dollar, our consolidated revenues, segment NOI margins, and net investment in properties and operations outside the United States decrease. The impact of currency fluctuations on our earnings is partially mitigated by the fact that most operating and other expenses are also incurred and paid in the local currency. The impact of devaluation or depreciating currency on an entity depends on the residual effect on the local economy and the ability of an entity to raise prices and/or reduce expenses. Due to our constantly changing currency exposure and the potential substantial volatility of currency exchange rates, we cannot predict the effect of exchange rate fluctuations on our business. As a result, changes in the relation of the currency of our international operations to U.S. dollars may also affect the book value of our assets and the amount of total equity. A hypothetical 10% decline in the period-end functional currencies of our foreign subsidiaries relative to the U.S. dollar would have resulted in a reduction in our total equity of approximately $310 million as of December 31, 2025.
Gains or losses from translating the financial statements of our foreign subsidiaries are reflected in the Accumulated other comprehensive income (loss) component of equity within our consolidated financial statements included in this Annual Report.
We enter into foreign currency derivative instruments to manage our exposure to fluctuations in exchange rates between the functional currencies of our subsidiaries and the currencies of the underlying cash flows. All derivatives are recognized on the consolidated balance sheets at fair value.
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