Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market Risk
Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, and equity prices. The primary market risk that we are exposed to is interest rate risk.
We are also exposed to further market risk as a result of tenant concentrations in certain industries and/or geographic regions, since adverse market factors can affect the ability of tenants in a particular industry/region to meet their respective lease obligations. In order to manage this risk, we view our collective tenant roster as a portfolio and monitor its diversification.
Interest Rate Risk
The values of our real estate and related fixed-rate debt obligations are subject to fluctuations based on changes in interest rates. The value of our real estate is also subject to fluctuations based on local and regional economic conditions and changes in the creditworthiness of lessees, which may affect our ability to refinance debt when balloon payments are scheduled, if we do not choose to repay the debt when due. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political conditions, and other factors beyond our control. An increase in interest rates would likely cause the fair value of our assets to decrease. Increases in interest rates may also have an impact on the credit profile of certain tenants.
We are exposed to the effects of interest rate changes as a result of borrowings used to maintain liquidity and to fund the financing and refinancing of our real estate investment portfolio and operations. Our profitability and the value of our real estate investment portfolio may be adversely affected during any period as a result of interest rate changes.
We have borrowed funds at a combination of fixed and variable rates. Interest rate fluctuations will generally not affect future earnings or cash flows on fixed-rate debt unless such debt matures or is otherwise terminated. However, interest rate changes will affect the fair value of fixed-rate instruments. At December 31, 2025, fixed-rate debt comprises 100% of our debt. We have entered into, and may continue to enter into, interest rate cap agreements with counterparties related to variable-rate debt. See Note 9 for additional information on our interest rate caps.
Our debt obligations are more fully described in Note 10 and Liquidity and Capital Resources — Summary of Financing in Item 7 above. The following table presents principal cash flows based upon expected maturity dates of our debt obligations outstanding at December 31, 2025 (in thousands):
2026 2027 2028 2029 2030 Total Fair Value
Fixed-rate debt $ 21,900 $ — $ — $ — $ — $ 21,900 $ 21,900
Foreign Currency Exchange Rate Risk
We sold all of our international investments during the year ended December 31, 2025 ( Note 3 , Note 1 5 ).
Concentration of Credit Risk
Concentrations of credit risk arise when a number of tenants are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to the Company, to be similarly affected by changes in economic conditions. The Company is subject to tenant, geographic and industry concentrations. Any downturn of the economic conditions in one or more of these tenants, geographies or industries could result in a material reduction of our cash flows or material losses to us.
The factors we consider in determining the credit risk of our tenants include, but are not limited to: payment history; credit status (credit ratings for public companies are used as a primary metric); change in tenant space needs (i.e., expansion/downsize); tenant financial performance; economic conditions in a specific geographic region; and industry specific credit considerations. We believe that the credit risk of our portfolio is reduced by the high quality and diversity of our existing tenant base, reviews of prospective tenants’ risk profiles prior to lease execution and consistent monitoring of our portfolio to identify potential problem tenants.
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For the year ended December 31, 2025, our consolidated portfolio had the following significant characteristics in excess of 10%, based on the percentage of our consolidated total revenues:
• 27% related to our tenant KBR, 13% related to our tenant Master Lock (including a lease termination fee of $13.0 million received during the year ended December 31, 2025 ( Note 5 )), and 12% related to our tenant JPMorgan Chase; we sold the KBR property in January 2026 ( Note 17 ) and we sold the properties leased to Master Lock and JPMorgan Chase during 2025 ( Note 15 ); and
• 97% related to domestic operations, which included concentrations of 41%, 13%, and 11% in Texas, Wisconsin, and Minnesota, respectively.
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