Item 7A – Quantitative and Qualitative Disclosures About Market Risk
−Removed: We are exposed to various market risks, including the potential loss arising from adverse changes in interest rates.
−Removed: We do not enter into derivatives or other financial instruments for trading or speculative purposes, but we seek to mitigate the effects of fluctuations in interest rates by matching the term of new investments with new long-term fixed rate borrowings to the extent possible.
−Removed: The following disclosures of estimated fair value of financial instruments are subjective in nature and are dependent on a number of important assumptions, including estimates of future cash flows, risks, discount rates and relevant comparable market information associated with each financial instrument.
−Removed: Readers are cautioned that many of the statements contained in these paragraphs are forward-looking and should be read in conjunction with our disclosures under the heading “Forward-looking Statements and Factors Affecting Future Results” set forth above.
+Added: We are exposed to various market risks, including the potential loss arising from adverse changes in interest rates and foreign currency exchange rates .
+Added: We seek to mitigate the effects of fluctuations in interest rates by matching the terms of new investments with new long-term fixed rate borrowings to the extent possible.
+Added: We also use financial derivative instruments to hedge our interest rate exposure as well as our foreign currency exchange rate exposure.
+Added: We do not enter into our market risk sensitive financial instruments and related derivative positions (if any) for trading or speculative purposes.
+Added: The following disclosures discuss potential fluctuations in interest rates and foreign currency exchange rates and are subjective in nature and are dependent on a number of important assumptions, including estimates of future cash flows, risks, discount rates and relevant comparable market information associated with each financial instrument.
+Added: Readers are cautioned that many of the statements contained in these paragraphs are forward-looking and should be read in conjunction with our disclosures under the heading “Forward-Looking Statements” set forth above.
The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts.
Accordingly, the estimates presented below are not necessarily indicative of the amounts we would realize in a current market exchange.
−Removed: Mortgage notes receivable - The fair value of mortgage notes receivable is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.
−Removed: Other investments - The fair value of other investments is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.
−Removed: Borrowings under our credit agreements and term loan - The fair value of our borrowings under our credit agreements and term loan is estimated using an expected present value technique based on expected cash flows discounted using the current credit-adjusted risk-free rate.
−Removed: S enior unsecured notes and HUD mortgages - The fair value of the senior unsecured notes and HUD mortgages is estimated based on open market trading activity provided by third parties.
−Removed: The market value of our long-term fixed rate borrowings and mortgages is subject to interest rate risks.
−Removed: Generally, the market value of fixed rate financial instruments will decrease as interest rates rise and increase as interest rates fall.
−Removed: The estimated fair value of our total long-term borrowings at December 31, 2020 was approximately $5.8 billion.
−Removed: A one percent increase in interest rates would result in a decrease in the fair value of long-term borrowings by approximately $324.2 million at December 31, 2020.
−Removed: We may enter into certain types of derivative financial instruments to further reduce interest rate risk.
−Removed: We use interest rate swap agreements, for example, to convert some of our variable rate debt to a fixed-rate basis or to hedge anticipated financing transactions.
−Removed: At December 31, 2020 and 2019, $1.0 million and $3.7 million, respectively, of qualifying cash flow hedges were recorded at fair value in accrued expenses and other liabilities on our Consolidated Balance Sheets.
−Removed: At December 31, 2020, $17.0 million of qualifying cash flow hedges were recorded at fair value in other assets on our Consolidated Balance Sheets.
+Added: Interest Rate Risk
+Added: We borrow debt at a combination of variable and fixed rates.
+Added: Movements in interest rates on our variable rate borrowings would change our future earnings and cash flows but not significantly affect the fair value of those instruments.
+Added: During the year ended December 31, 2021, we incurred interest expense of $1.1 million related to variable rate borrowings outstanding under our Revolving Credit Facility.
+Added: Assuming no changes in outstanding balances, a 1% increase in interest rates would not have significantly impacted the annual interest expense on our Revolving Credit Facility.
+Added: Our OP Term Loan bears interest at a variable interest rate, but the entire outstanding principal of $50.0 million was hedged by two notional interest rate swaps at December 31, 2021 that effectively fix the variable portion of the interest rate at 1.84%.
+Added: Assuming no changes in outstanding balances, a 1% increase in interest rates would have no effect on annual interest expense because of the interest rate swaps.
+Added: A change in interest rates will not affect the interest expense associated with our long-term fixed rate borrowings but will affect the fair value of our long-term fixed rate borrowings.
+Added: The estimated fair value of our total long-term fixed-rate borrowings at December 31, 2021 was approximately $5.6 billion.
+Added: A one percent increase in interest rates would result in a decrease in the fair value of long-term fixed-rate borrowings by approximately $319.8 million at December 31, 2021.
+Added: At December 31, 2021, we have $400 million of forward interest rate swaps outstanding that are recorded at fair value in other assets on our Consolidated Balance Sheets.
+Added: The forward-starting swaps hedge the interest rate risk associated with interest payments on a forecasted issuance of fixed rate long-term debt.
+Added: Foreign Currency Risk
+Added: We are exposed to foreign currency risk through our investments in the U.K.
+Added: Increases or decreases in the value of the British Pound Sterling relative to the U.S.
+Added: Dollar impact the amount of net income we earn from our investments in the U.K.
+Added: Based solely on our results for the year ended December 31, 2021, if the applicable exchange rate was to increase or decrease by 10%, our net income from our consolidated U.K.-based investments would increase or decrease, as applicable by $1.0 million.
+Added: To hedge a portion of our net investments in the U.K., at December 31, 2021, we have four foreign currency forward contracts with notional amounts totaling £174.0 million, which mature on March 8, 2024.
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.