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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2024-02-15 compared with 2023-02-15 · 36 added, 30 removed, 53 unchanged (55% of the section changed)

8 unchanged sentences

Annual Interest Expense Maturity Interest Payments Due

Senior unsecured notes $ 350,000 4.250% $ 14,875 2024 Semi-annually

Senior unsecured notes (2)

$ 350,000 4.250% $ 14,875 2024 Semi-annually

Senior unsecured notes 650,000 4.500% 29,250 2025 Semi-annually

1 unchanged sentence

Senior unsecured notes 350,000 2.400% 8,400 2027 Semi-annually

Mortgage note (one property) 26,340 8.139% 2,144 2028 Monthly

Mortgage note (one property) 42,700 8.272% 3,532 2028 Monthly

Mortgage note (two properties) 54,300 7.671% 4,165 2028 Monthly

Senior unsecured notes 400,000 3.450% 13,800 2031 Semi-annually

Mortgage note (one property) 30,680 7.210% 2,212 2033 Monthly

Mortgage note (one property) 8,400 7.305% 614 2033 Monthly

Mortgage note (one property) 14,900 7.717% 1,150 2033 Monthly

Senior unsecured notes 162,000 6.375% 10,328 2050 Quarterly

Mortgage note (one property in Chicago, IL) 50,000 3.700% 1,850 2023 Monthly

Total $ 2,389,320 $ 98,420

2 unchanged sentences

For more information, see Notes 9 and 10 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

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Our senior unsecured notes require semi-annual or quarterly interest payments through maturity.

Our mortgage requires interest only payments through maturity.

(2) In February 2024, we issued a notice of early redemption, at par plus accrued interest, for these senior unsecured notes in conjunction with the issuance of the 2029 Notes.

For more information, see Note 9 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K

Our senior notes require semi-annual or quarterly interest payments through maturity.

Our mortgage notes require monthly payments of interest only or payments of principal and interest through maturity.

Because these debts require interest to be paid at a fixed rate, changes in market interest rates during the term of these debts will not affect our interest obligations.

If these debts were refinanced at interest rates which are one percentage point higher or lower than shown above, our annual interest cost would increase or decrease by approximately $22,620.

debts were refinanced at interest rates which are one percentage point higher or lower than shown above, our annual interest cost would increase or decrease by approximately $23,893.

Changes in market interest rates also would affect the fair value of our fixed rate debt obligations;

increases in market interest rates decrease the fair value of our fixed rate debt, while decreases in market interest rates increase the fair value of our fixed rate debt.

Federal Reserve has raised interest rates several times since the beginning of 2022 in an effort to combat inflation and may continue to do so.

In response to significant and prolonged increases in inflation, the U.S.

Federal Reserve has raised interest rates multiple times since the beginning of 2022.

Although the U.S.

Federal Reserve has indicated that it may lower interest rates in 2024, we cannot be sure that it will do so, and interest rates may remain at the current high levels or continue to increase.

Based on the balances outstanding at December 31, 2023, and discounted cash flow analyses through the respective maturity dates, and assuming no other changes in factors that may affect the fair value of our fixed rate debt obligations, a hypothetical immediate one percentage point increase in interest rates would change the fair value of those obligations by approximately $63,573.

2 unchanged sentences

These prepayment rights may afford us opportunities to mitigate the risk of refinancing our debts at maturity at a higher rate by refinancing prior to maturity.

In addition to the fixed rate debt presented in the table above, at December 31, 2022, we had noncontrolling ownership interests of 51% and 50% in two unconsolidated joint ventures that own three properties that are secured by fixed rate debt consisting of the following mortgage notes:

In addition to the fixed rate debt presented in the table above, at December 31, 2023, we had noncontrolling ownership interests of 51% and 50% in two unconsolidated joint ventures that owned three properties that were secured by fixed rate debt consisting of the following mortgage notes:

Debt Our JV Ownership Interest Principal Balance (1)(2)

1 unchanged sentence

Annual Interest Expense Maturity Interest Payments Due

Mortgage note (two properties in Fairfax, VA) 51% $ 50,000 4.090 % $ 2,045 2029 Monthly

Mortgage note (one property in Washington, D.C.) 50% 32,000 3.690 % 1,181 2024 Monthly

Mortgage note 51% $ 50,000 4.090 % $ 2,045 2029 Monthly

Mortgage note (3)

50% 32,000 3.690 % 1,181 2027 Monthly

Total $ 82,000 $ 3,226

1 unchanged sentence

In accordance with GAAP, the joint ventures’ recorded interest expense may differ from these amounts because of market conditions at the time they incurred the debt.

(2) Reflects the entire balance of the debt secured by the properties and is not adjusted to reflect the interests in the joint ventures we do not own.

(2) Reflects the entire balance of the debt secured by the properties and is not adjusted to reflect the interests in the joint ventures we did not own.

None of the debt is recourse to us.

(3) In July 2023, the maturity date of this mortgage loan was extended by three years at the same interest rate.

Floating Rate Debt

At December 31, 2022, our floating rate debt consisted of $195,000 outstanding under our $750,000 revolving credit facility.

Our revolving credit facility matures on July 31, 2023 and, subject to the payment of an extension fee and meeting certain other conditions, we have the option to extend the maturity date of our revolving credit facility by one additional six month period.

No principal repayments are required under our revolving credit facility prior to maturity, and we can borrow, repay and reborrow funds available under our revolving credit facility, subject to conditions, at any time without penalty.

Borrowings under our revolving credit facility are in U.S.

dollars and require interest to be paid at a rate of LIBOR plus premiums that are subject to adjustment based upon changes to our credit ratings.

As of December 31, 2023, our floating rate debt consisted of $205,000 outstanding under our prior revolving credit facility.

In January 2024, we entered into our credit agreement governing a new $325,000 secured revolving credit facility and a $100,000 secured term loan.

Our credit agreement replaced our prior revolving credit facility, which had a maturity date of January 31, 2024.

Borrowings under our credit agreement are in U.S.

dollars and require interest to be paid at a rate of SOFR plus a margin of 350 basis points.

Accordingly, we are vulnerable to changes in U.S.

dollar based short term rates, specifically LIBOR, and to changes in our credit ratings.

In addition, upon renewal or refinancing of our revolving credit facility, we are vulnerable to increases in interest rate premiums due to market conditions or our perceived credit characteristics.

dollar based short term rates, specifically SOFR.

Generally, a change in interest rates would not affect the value of our floating rate debt but would affect our operating results.

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The following table presents the impact a one percentage point increase in interest rates would have on our annual floating rate interest expense as of December 31, 2023:

4 unchanged sentences

One percentage point increase 9.9 % $ 205,000 $ 20,295 $ 0.42

(1) Based on LIBOR plus a premium, which was 110 basis points per annum, at December 31, 2022.

(1) Reflects the interest rate that would have been payable on borrowings under our revolving credit facility and term loan, in accordance with our credit agreement assuming it were in place as of December 31, 2023, which was SOFR plus a margin of 350 basis points per annum.

(2) Based on the weighted average shares outstanding (diluted) for the year ended December 31, 2023.

The following table presents the impact a one percentage point increase in interest rates would have on our annual floating rate interest expense as of December 31, 2022, if we were fully drawn on our revolving credit facility:

The following table presents the impact a one percentage point increase in interest rates would have on our annual floating rate interest expense as of December 31, 2023, if we were fully drawn on our revolving credit facility and term loan:

Impact of an Increase in Interest Rates

Annual Interest Rate (1)

Outstanding Debt Total Interest Expense Per Year Annual Earnings Per Share Impact (2)

Outstanding Debt (2)

Total Interest Expense Per Year Annual Earnings Per Share Impact (3)

At December 31, 2023 8.9 % $ 425,000 $ 37,825 $ 0.78

One percentage point increase 9.9 % $ 425,000 $ 42,075 $ 0.87

(1) Based on LIBOR plus a premium, which was 110 basis points per annum, at December 31, 2022.

(2) Represents the maximum amount available under our revolving credit facility and term loan.

(3) Based on the weighted average shares outstanding (diluted) for the year ended December 31, 2023.

1 unchanged sentence

If interest rates were to increase gradually over time, the impact would be spread over time.

Our exposure to fluctuations in floating interest rates will increase or decrease in the future with increases or decreases in the outstanding amount under our revolving credit facility or our other floating rate debt, if any.

Although we have no present plans to do so, we may in the future enter into hedge arrangements from time to time to mitigate our exposure to changes in interest rates.

LIBOR Phase Out

We are required to pay interest on borrowings under our revolving credit facility at floating rates based on LIBOR.

LIBOR has been phased out for new contracts and is expected to be phased out for pre-existing contracts by June 30, 2023.

We currently expect that the determination of interest under our revolving credit facility will be revised as provided under our credit agreement or amended as necessary to provide for an alternative interest rate index.

We expect that the alternative interest rate index would likely be SOFR because interest rates based on SOFR have gained significant market adoption as the replacement to LIBOR for debt facilities similar to ours.

Any alternative interest rate index that may replace LIBOR may result in changes to the amount of interest we are required to pay and could result in our paying increased interest amounts.

Financial Statements and Supplementary Data

2 unchanged sentences

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.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk