Safehold Inc. 10-Q

Item 3. Quantitative and Qualitative Disclosures about Market Risk Market Risks Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevalent market prices and interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. One of the principal market risks facing us is interest rate risk on our floating rate indebtedness. Subject to qualifying and maintaining our qualification as a REIT for U.S. 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. 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. 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. Our current portfolio is not subject to foreign currency risk. 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. 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. We do not enter into derivative or interest rate transactions for speculative purposes. As of June 30, 2023, we had $2.9 billion principal amount of fixed-rate debt outstanding and $1.1 billion principal amount of floating-rate debt outstanding. The following table quantifies the potential changes in annual net income should interest rates decrease or increase by 10, 50 and 100 basis points, assuming no change in our interest earning assets, interest bearing liabilities, derivative contracts or the shape of the yield curve (i.e., relative interest rates). The base interest rate scenario assumes a 1-month SOFR rate of 5.14% and a 3-month SOFR rate of 5.27% as of June 30, 2023. Actual results could differ significantly from those estimated in the table. Estimated Change In Net Income ($ in thousands) (1) ​ ​ ​ ​ ​ Change in Interest Rates Net Income (Loss) -100 Basis Points ​ $ 6,480 -50 Basis Points ​ ​ 3,240 -10 Basis Points ​ ​ 648 Base Interest Rate ​ — +10 Basis Points ​ (648) + 50 Basis Points ​ (3,240) +100 Basis Points ​ (6,480) (1) The table above includes the effect of interest rate swaps.