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The market risk associated with financial instruments and derivative financial instruments is the risk of loss from adverse changes in market prices or interest rates.
−Removed: Our long-term debt, which consists of secured financings, our Credit Facility (which includes a Revolving Credit Facility and a Term Loan) and the Fannie Mae Master Credit Facilities, bear interest at fixed rates and variable rates.
+Added: Our long-term debt, which consists of secured financings and the Fannie Mae Master Credit Facilities, bear interest at fixed rates and variable rates.
Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs.
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We will not hold or issue these derivative contracts for trading or speculative purposes.
−Removed: As of December 31, 2022, we had entered into seven non-designated interest rate caps with a current notional amount of approximately $354.6 million (of which six caps were active as of December 31, 2022 and one has a forward start date as of April 2023), two LIBOR-based designated interest rate swaps with a notional amount of $50.0 million and seven SOFR-based designated interest rate swaps with a notional amount of $528.5 million.
−Removed: Subsequent to December 31, 2022, we terminated our two LIBOR-based designated interest rate swaps with a notional amount of $50.0 million (see Note 17 — Subsequent Events to our consolidated financial statements).
+Added: As of December 31, 2023, we had entered into seven SOFR-based non-designated interest rate caps with a current notional amount of approximately $364.2 million and one SOFR-based designated interest rate swap with a notional amount of $378.5 million.
We do not have any foreign operations and thus we are generally not directly exposed to foreign currency fluctuations.
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Credit Facilities
−Removed: Our Credit Facilities are variable-rate, before consideration of interest rate swaps, and are comprised of our Revolving Credit Facility, our Term Loan and our Fannie Mae Master Credit Facilities.
−Removed: Our Credit Facilities had a gross aggregate carrying amount of $532.0 million and a fair value of $532.5 million as of December 31, 2022.
+Added: Our Fannie Mae Master Credit Facilities and MOB Warehouse Facility are variable-rate.
+Added: Our Fannie Mae Master Credit Facilities had a gross aggregate carrying amount of $346.3 million and a fair value of $347.0 million, and our MOB Warehouse Facility had a gross carrying value of $14.7 million and a fair value of $14.8 million as of December 31, 2023.
Sensitivity Analysis - Interest Expense
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Interest Rate Swaps
−Removed: As noted above, we have two LIBOR-based designated interest rate swaps with a notional amount of $50.0 million and seven SOFR-based designated interest rate swaps with a notional amount of $528.5 million, which effectively create a fixed interest rate for a portion of our variable-rate debt.
−Removed: These interest rate swaps effectively hedge all of our variable rate debt with the exception of our Fannie Mae Master Credit Facilities discussed below.
+Added: As noted above, we have one SOFR-based designated interest rate swap with a notional amount of $378.5 million, which effectively create a fixed interest rate for a portion of our variable-rate debt.
+Added: This interest rate swap effectively hedges all of our variable rate debt with the exception of our Fannie Mae Master Credit Facilities and MOB Warehouse Facility discussed below.
Interest Rate Caps
−Removed: We also have entered into seven non-designated interest rate cap contracts with a current notional amount of $354.6 million as of December 31, 2022 (of which six caps were active as of December 31, 2022 and one has a forward start date as of April 2023), which limits 30-day LIBOR exposure on our Fannie Mae Master Credit Facilities to 3.50%.
−Removed: The active caps began limiting 30-day LIBOR during the fourth quarter of 2022 as 30-day LIBOR rates exceeded the strike price of 3.50% and we are receiving monthly cash payments on these contracts.
−Removed: Because these are non-designated derivatives, the amounts received are included in gain on non-designated derivatives in our statement of operations and comprehensive loss.
+Added: We also have entered into seven SOFR-based, non-designated interest rate cap contracts with a current notional amount of $364.2 million as of December 31, 2023, which limits SOFR exposure on our Fannie Mae Master Credit Facilities and MOB Warehouse Facility to 3.50%.
+Added: The active caps began limiting SOFR during the fourth quarter of 2022 as SOFR rates exceeded the strike price of 3.50% and we are receiving monthly cash payments on these contracts.
+Added: Because these are non-designated derivatives, the amounts received are included in (loss) gain on non-designated derivatives in our statement of operations and comprehensive loss.
As of December 31, 2023, we are not currently negatively exposed to rising interest rates.
−Removed: Assuming all other variables besides interest rates remain constant, a 100 basis point increase in variable interest rates would not impact our interest expense due to our interest rate swaps and effective interest rate caps as of December 31, 2022.
−Removed: Assuming all other variables besides interest rates remain constant, a 100 basis point decrease in variable interest rates would also not impact our swapped debt, and based on the SOFR/LIBOR rate as of December 31, 2022, a 100 basis point decrease would not have a material impact on our net interest payments (inclusive of cash received from our non-designated derivatives included in gain on non-designated derivatives).
+Added: Assuming all other variables besides interest rates remain constant, a 100 basis point increase in variable interest rates would not impact our net interest payments due to our interest rate swaps and effective interest rate caps.
+Added: Assuming all other variables besides interest rates remain constant, a 100 basis point decrease in variable interest rates would also not impact our swapped debt, and based on the SOFR rate as of December 31, 2023, a 100 basis point decrease would not have a material impact on our net interest payments (inclusive of cash received from our non-designated derivatives included in (loss) gain on non-designated derivatives).
Sensitivity Analysis - Fair Value of Debt
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A 100 basis point decrease in market interest rates would result in an increase in the fair value of our debt by $26.8 million.
−Removed: A 100 basis point increase in market interest rates would result in an increase in the fair value of our nine designated interest rate swaps by $14.6 million.
−Removed: A 100 basis point decrease in market interest rates would result in a decrease in the fair value of our nine designated interest rate swaps by $15.3 million.
+Added: A 100 basis point increase in market interest rates would result in an increase in the fair value of our designated interest rate swap by $9.7 million.
+Added: A 100 basis point decrease in market interest rates would result in a decrease in the fair value of our designated interest rate swap by $10.1 million.
These amounts were determined by considering the impact of hypothetical interest rate changes on our borrowing costs, and assuming no other changes in our capital structure.
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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.