Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure is interest rate risk. The Company has managed and will continue to manage interest rate risk by (1) maintaining a ratio of fixed rate, long-term debt to total debt such that floating rate exposure is kept at an acceptable level, (2) reducing interest rate exposure on certain long-term floating rate debt through the use of interest rate caps and/or swaps with matching maturities where appropriate, (3) using treasury rate locks where appropriate to fix rates on anticipated debt transactions, and (4) taking advantage of favorable market conditions for long-term debt and/or equity.
The following table sets forth information as of December 31, 2021 concerning the Company's long term debt obligations, including principal cash flows by scheduled maturity, weighted average interest rates and estimated fair value (dollars in thousands):
Expected Maturity Date
For the years ending December 31,
2022 2023 2024 2025 2026 Thereafter Total Fair Value
CONSOLIDATED CENTERS:
Long term debt:
Fixed rate $ 494,526 $ 337,791 $ 378,120 $ 607,399 $ 537,742 $ 1,460,000 $ 3,815,578 $ 3,652,545
Average interest rate 4.56 % 4.12 % 4.05 % 3.49 % 3.55 % 4.00 % 3.94 %
Floating rate 300,000 135,320 303,602 — — — 738,922 727,082
Average interest rate 1.59 % 2.93 % 3.48 % — % — % — % 2.61 %
Total debt—Consolidated Centers
$ 794,526 $ 473,111 $ 681,722 $ 607,399 $ 537,742 $ 1,460,000 $ 4,554,500 $ 4,379,627
UNCONSOLIDATED JOINT VENTURE CENTERS:
Long term debt (at the Company's pro rata share):
Fixed rate $ 493,631 $ 324,877 $ 366,029 $ 150,870 $ 424,682 $ 1,051,763 $ 2,811,852 $ 2,735,187
Average interest rate 3.81 % 3.30 % 4.09 % 4.15 % 3.72 % 3.91 % 3.83 %
Floating rate — 11,500 60,347 — 32,500 — 104,347 97,237
Average interest rate — % 1.96 % 1.80 % — % 4.30 % — % 2.60 %
Total debt—Unconsolidated Joint Venture Centers
$ 493,631 $ 336,377 $ 426,376 $ 150,870 $ 457,182 $ 1,051,763 $ 2,916,199 $ 2,832,424
The Consolidated Centers' total fixed rate debt at December 31, 2021 and 2020 was $3.8 billion and $4.3 billion, respectively. The average interest rate on such fixed rate debt at December 31, 2021 and 2020 was 3.94% and 3.98%, respectively. The Consolidated Centers' total floating rate debt at December 31, 2021 and 2020 was $0.7 billion and $1.7 billion. The average interest rate on such floating rate debt at December 31, 2021 and 2020 was 2.61% and 2.08%, respectively.
The Company's pro rata share of the Unconsolidated Joint Venture Centers' fixed rate debt at December 31, 2021 and 2020 was $2.8 billion and $3.0 billion, respectively. The average interest rate on such fixed rate debt at December 31, 2021 and 2020 was 3.83% and 3.82%, respectively. The Company's pro rata share of the Unconsolidated Joint Venture Centers' floating rate debt at December 31, 2021 and 2020 was $104.3 million and $70.5 million, respectively. The average interest rate on such floating rate debt at December 31, 2021 and 2020 was 2.60% and 2.02%, respectively.
The Company uses derivative financial instruments in the normal course of business to manage or hedge interest rate risk and records all derivatives on the balance sheet at fair value. Interest rate cap agreements offer protection against floating rates on the notional amount from exceeding the rates noted in the above schedule, and interest rate swap agreements effectively replace a floating rate on the notional amount with a fixed rate as noted above. As of December 31, 2021, the Company had
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two interest rate cap agreements in place (See Note 4—Investments in Unconsolidated Joint Ventures and Note 5—Derivative Instruments and Hedging Activities in the Company's Notes to the Consolidated Financial Statements).
In addition, the Company has assessed the market risk for its floating rate debt and believes that a 1% increase in interest rates would decrease future earnings and cash flows by approximately $8.4 million per year based on $843.3 million of floating rate debt outstanding at December 31, 2021.
The fair value of the Company's long-term debt is estimated based on a present value model utilizing interest rates that reflect the risks associated with long-term debt of similar risk and duration. In addition, the method of computing fair value for mortgage notes payable included a credit value adjustment based on the estimated value of the property that serves as collateral for the underlying debt (See Note 10—Mortgage Notes Payable and Note 11—Bank and Other Notes Payable in the Company's Notes to the Consolidated Financial Statements).
In July 2017, the Financial Conduct Authority announced it intended to stop compelling banks to submit rates for the calculation of LIBOR after 2021. In March 2021, the ICE Benchmark Administration, the administrator of LIBOR, announced its intention to cease publication of certain LIBOR settings after 2021, while continuing to publish overnight and one-, three-, six-, and twelve-month U.S. dollar LIBOR rates through June 30, 2023. While this announcement extended the transition period to June 2023, the United States Federal Reserve Board and other regulatory bodies concurrently issued guidance encouraging banks and other financial market participants to cease entering into new contracts that use U.S. dollar LIBOR as a reference rate as soon as practicable and in any event no later than December 31, 2021. In the United States, Alternative Reference Rates Committee (“AARC”), which was convened by the Federal Reserve Board and the Federal Reserve Bank of New York, has recommended the SOFR plus a recommended spread adjustment as its preferred alternative to USD-LIBOR. There are significant differences between LIBOR and SOFR, such as LIBOR being an unsecured lending rate while SOFR is a secured rate, and SOFR is an overnight rate while LIBOR reflects term rates at different maturities.
The Company expects that all LIBOR settings relevant to it will cease to be published or will no longer be representative after June 30, 2023. As a result, any of the Company’s LIBOR-based borrowings that extend beyond such date will need to be converted to a replacement rate. Certain risks may arise in connection with transitioning contracts to SOFR or any other alternative variable rate, including any resulting value transfer that may occur. The value of loans, securities, or derivative instruments tied to LIBOR could also be impacted. If a contract is not transitioned to an alternative variable rate and LIBOR is discontinued, the impact is likely to vary by contract. As of December 31, 2021, each of the agreements governing the Company's variable rate debt provides for the replacement of LIBOR if it becomes unavailable during the term of such agreement.
The discontinuation of LIBOR will not affect the Company’s ability to borrow or maintain already outstanding borrowings or swaps, but if the Company’s contracts indexed to LIBOR, including certain contracts governing the variable rate debt of the Company and its joint ventures and the Company’s interest rate swaps, are converted to SOFR, the differences between LIBOR and SOFR, plus the recommended spread adjustment, could result in interest costs that are higher than if LIBOR remained available. Additionally, although SOFR is the AARC’s recommended replacement rate, it is also possible that lenders may instead choose alternative replacement rates that may differ from LIBOR in ways similar to SOFR or in ways that would result in higher interest costs for the Company. It is not yet possible to predict the magnitude of LIBOR’s end on the Company’s borrowing costs given the remaining uncertainty about which rates will replace LIBOR.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Refer to the Financial Statements and Financial Statement Schedules for the required information appearing in Item 15.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.