Quantitative and Qualitative Disclosures about Market Risk
−Removed: Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices.
−Removed: In pursuing our business plan, the primary market risk to which we are exposed is interest rate risk.
−Removed: Our operating results will depend in part on the difference between the interest and related income earned on our assets and the interest expense incurred in connection with our interest-bearing liabilities.
−Removed: Changes in the general level of interest rates prevailing in the financial markets will affect the spread between our floating rate assets and liabilities subject to the net amount of floating rate assets/liabilities and the impact of interest rate floors and caps.
−Removed: Any significant compression of the spreads between interest-earning assets and interest-bearing liabilities could have a material adverse effect on us.
−Removed: In the event of a significant rising interest rate environment or economic downturn, defaults could increase and cause us to incur additional credit losses which would adversely affect our liquidity and operating results.
−Removed: Such delinquencies or defaults would likely have a material adverse effect on the spreads between interest-earning assets and interest-bearing liabilities.
−Removed: In addition, an increase in interest rates could, among other things, reduce the value of our fixed-rate interest-bearing assets and our ability to realize gains from the sale of such assets.
−Removed: 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.
−Removed: We monitor the spreads between our interest-earning assets and interest-bearing liabilities and may implement hedging strategies to limit the effects of changes in interest rates on our operations, including engaging in interest rate swaps, interest rate caps and other interest rate-related derivative contracts.
−Removed: Such strategies are designed to reduce our exposure, on specific transactions or on a portfolio basis, to changes in cash flows as a result of interest rate movements in the market.
−Removed: We do not enter into derivative contracts for speculative purposes or as a hedge against changes in our credit risk or the credit risk of our borrowers.
−Removed: While a REIT may utilize derivative instruments to hedge interest rate risk on its liabilities incurred to acquire or carry real estate assets without generating non-qualifying income, use of derivatives for other purposes will generate non-qualified income for REIT income test purposes.
−Removed: This includes hedging asset related risks such as credit and interest rate exposure on our loan assets.
−Removed: As a result, our ability to hedge these types of risks is limited.
−Removed: There can be no assurance that our profitability will not be materially adversely affected during any period as a result of changing interest rates.
−Removed: The following table quantifies the potential changes in annual net income, assuming no change in our interest earning assets or interest bearing liabilities, should interest rates decrease or increase by 10, 50 or 100 basis points, assuming no change in the shape of the yield curve (i.e., relative interest rates).
−Removed: The base interest rate scenario assumes the one-month LIBOR rate of 3.14% as of September 30, 2022.
+Added: Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevalent market prices and interest rates.
+Added: Market risk refers to the risk of loss from adverse changes in market prices and interest rates.
+Added: One of the principal market risks facing us is interest rate risk on our floating rate indebtedness.
+Added: Subject to qualifying and maintaining our qualification as a REIT for U.S.
+Added: federal income tax purposes, we may mitigate the risk of interest rate volatility through the use of hedging instruments, such as interest rate swap agreements and interest rate cap agreements.
+Added: Our primary objectives when undertaking hedging transactions will be to reduce our floating rate exposure and to fix a portion of the interest rate for anticipated financing and refinancing transactions.
+Added: However, we can provide no assurances that our efforts to manage interest rate volatility will successfully mitigate the risks of such volatility on our portfolio.
+Added: Our current portfolio is not subject to foreign currency risk.
+Added: Our objectives with respect to interest rate risk are to limit the impact of interest rate changes on operations and cash flows, and to lower our overall borrowing costs.
+Added: To achieve these objectives, we may borrow at fixed rates and may enter into hedging instruments such as interest rate swap agreements and interest rate cap agreements in order to mitigate our interest rate risk on a related floating rate financial instrument.
+Added: We do not enter into derivative or interest rate transactions for speculative purposes.
+Added: As of March 31, 2023, we had $2.9 billion principal amount of fixed-rate debt outstanding and $1.1 billion principal amount of floating-rate debt outstanding.
+Added: The following table quantifies the potential changes in annual net income should interest rates decrease or increase by 10, 50 and 100 basis points, assuming no change in our interest earning assets, interest bearing liabilities, derivative contracts or the shape of the yield curve (i.e., relative interest rates).
+Added: The base interest rate scenario assumes a 3-month SOFR rate of 4.91%, a 3-month LIBOR rate of 5.19% and a 1-month LIBOR rate of 4.86% as of March 31, 2023.
Actual results could differ significantly from those estimated in the table.
2 unchanged sentences
Change in Interest Rates
−Removed: Net Income (1)
+Added: Net Income (Loss)
-100 Basis Points
5 unchanged sentences
+100 Basis Points
−Removed: (1) As of September 30, 2022, we have an overall net variable-rate asset position.
−Removed: In addition, as of September 30, 2022, $72.0 million of our floating rate loans have a weighted average interest rate floor of 2.2%.
+Added: (1) The table above does not include the effect of interest rate derivatives.
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.