Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to interest rate risk with respect to our variable-rate mortgage payable as increases in interest rates would cause our payments to increase. With respect to our fixed-rate mortgage payable, increases in interest rates could make it more difficult to refinance such debt when it becomes due.
Based on our variable rate debt balance, interest expense would have increased by approximately $0.9 million for the year ended December 31, 2024 if short-term interest rates had been 1% higher. We manage our exposure to interest rate risk on variable-rate debt by regularly monitoring market conditions and adjusting our financing strategy as needed. While no derivative instruments are currently employed to hedge against interest rate fluctuations, we may consider future strategies, such as refinancing or utilizing fixed-rate debt, to mitigate potential volatility in interest expenses. As of December 31, 2024, the weighted average interest rate on the $41.1 million of fixed-rate indebtedness outstanding was 4.92% per annum, with principal paydowns at various dates through December 15, 2038.
For additional information concerning our debt and management’s estimation process to arrive at a fair value of our debt as required by GAAP, please refer to the Liquidity and Capital Resources section above and Note 6 – Mortgages Payable, Net in the Notes to Consolidated and Combined Financial Statements included in this Annual Report.
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