NOTE 10—FAIR VALUE MEASUREMENTS

The carrying amounts of cash and cash equivalents, restricted cash, escrow, deposits and other assets and receivables (excluding available-for-sale securities and interest rate swaps), dividends payable, and accrued expenses and other liabilities (excluding interest rate swaps), are not measured at fair value on a recurring basis, but are considered to be recorded at amounts that approximate fair value.

At December 31, 2016, the $413,916,000 estimated fair value of the Company's mortgages payable is greater than their $399,192,000 carrying value (before unamortized deferred financing costs) by approximately $14,724,000, assuming a blended market interest rate of 3.74% based on the 9.3 year weighted average remaining term of the mortgages. At December 31, 2015, the $346,614,000 estimated fair value of the Company's mortgages payable is greater than their $334,428,000 carrying value (before unamortized deferred financing costs) by approximately $12,186,000, assuming a blended market interest rate of 4.07% based on the 8.9 year weighted average remaining term of the mortgages.

At December 31, 2016 and 2015, the carrying amount of the Company's line of credit (before unamortized deferred financing costs) of $10,000,000 and $18,250,000, respectively, approximates its fair value.

The fair value of the Company's mortgages payable and line of credit are estimated using unobservable inputs such as available market information and discounted cash flow analysis based on borrowing rates the Company believes it could obtain with similar terms and maturities. These fair value measurements fall within Level 3 of the fair value hierarchy.

Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Fair Value on a Recurring Basis

The fair value of the Company's available-for-sale securities and derivative financial instruments was determined using the following inputs (amounts in thousands):

					Fair Value Measurements on a Recurring Basis
	As of December 31,		Carrying and Fair Value		Fair Value Measurements on a Recurring Basis
	As of December 31,		Carrying and Fair Value		Level 1		Level 2
Financial assets:
Available-for-sale securities:
Equity securities		2016	$	—	$	—	$	—
		2015		32		32		—
Derivative financial instruments:
Interest rate swaps		2016	$	1,257	$	—	$	1,257
		2015		—		—		—
Financial liabilities:
Derivative financial instruments:
Interest rate swaps		2016	$	2,695	$	—	$	2,695
		2015		4,299		—		4,299

The Company does not currently own any financial instruments that are classified as Level 3.

Available-for-sale securities

During 2016, the Company sold its available-for-sale securities for $33,000 which had a cost of $5,300. The Company realized a gain on sale of $27,000, which was reclassified from Accumulated other comprehensive loss on the consolidated balance sheet into Other income on the consolidated statement of income. At December 31, 2015, these equity securities had a fair value of $32,000 (included in other assets on the consolidated balance sheet). Fair value was approximated based on current market quotes from financial sources that track such securities.

During 2014, the Company sold to Gould Investors L.P. ("Gould Investors"), a related party, 37,081 shares of BRT Realty Trust, a related party, for $266,000 (based on the average of the closing prices for the 30 days preceding the sale). The cost of these shares was $132,000 and the Company realized a gain on sale of $134,000, of which $132,000 was reclassified from Accumulated other comprehensive loss on the consolidated balance sheet into earnings.

Derivative financial instruments

The Company's objective in using interest rate swaps is to add stability to interest expense. The Company does not use derivatives for trading or speculative purposes.

Fair values are approximated using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivatives. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities.

Although the Company has determined the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with it use Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and its counterparty. As of December 31, 2016, the Company has assessed and determined the impact of the credit valuation adjustments on the overall valuation of its derivative positions is not significant. As a result, the Company determined its derivative valuation is classified in Level 2 of the fair value hierarchy.

As of December 31, 2016, the Company had entered into 30 interest rate derivatives, all of which were interest rate swaps, related to 30 outstanding mortgage loans with an aggregate $141,866,000 notional amount and mature between 2018 and 2028 (weighted average remaining term to maturity of 7.9 years). Such interest rate swaps, all of which were designated as cash flow hedges, converted LIBOR based variable rate mortgages to fixed annual rate mortgages (with interest rates ranging from 3.02% to 5.75% and a weighted average interest rate of 4.21% at December 31, 2016). The fair value of the Company's derivatives designated as hedging instruments is reflected as other assets and other liabilities on the consolidated balance sheets.

Three of the Company's unconsolidated joint ventures, in which wholly-owned subsidiaries of the Company are 50% partners, had two interest rate derivatives outstanding at December 31, 2016 with an aggregate $10,747,000 notional amount. These interest rate swaps, which were designated as cash flow hedges, have interest rates of 3.49% and 5.81% and mature in 2022 and 2018, respectively.

The following table presents the effect of the Company's derivative financial instruments on the consolidated statements of income for the periods presented (amounts in thousands):

	Year Ended December 31,
	2016			2015			2014
One Liberty Properties Inc. and Consolidated Subsidiaries
Amount of gain (loss) recognized on derivatives in Other comprehensive loss	$	255		$	(3,722	)	$	(4,453	)
Amount of loss reclassification from Accumulated other comprehensive loss into Interest expense		(2,624	)		(2,554	)		(1,810	)
Unconsolidated Joint Ventures (Company's share)
Amount of loss recognized on derivatives in Other comprehensive loss	$	(31	)	$	(109	)	$	(32	)
Amount of loss reclassification from Accumulated other comprehensive loss into Equity in earnings of unconsolidated joint ventures		(95	)		(108	)		(55	)

No gain or loss was recognized with respect to hedge ineffectiveness or to amounts excluded from effectiveness testing on the Company's cash flow hedges for the three years ended December 31, 2016, 2015 and 2014. During the twelve months ending December 31, 2017, the Company estimates an additional $1,744,000 will be reclassified from Accumulated other comprehensive loss as an increase to Interest expense and $66,000 will be reclassified from Accumulated other comprehensive loss as a decrease to Equity in earnings of unconsolidated joint ventures.

The derivative agreements in effect at December 31, 2016 provide that if the wholly-owned subsidiary of the Company which is a party to the agreement defaults or is capable of being declared in default on any of its indebtedness, then a default can be declared on such subsidiary's derivative obligation. In addition, the Company is a party to one of the derivative agreements and if there is a default by the subsidiary on the loan subject to the derivative agreement to which the Company is a party and if there are swap breakage losses on account of the derivative being terminated early, then the Company could be held liable for such swap breakage losses, if any. During the year ended December 31, 2016, the Company terminated three interest rate swaps in connection with the early payoff of the related mortgages, and during the year ended December 31, 2015, the Company terminated one interest rate swap in connection with the sale of its Cherry Hill, New Jersey property. The Company accelerated the reclassification of amounts in Accumulated other comprehensive loss to earnings as a result of these hedged forecasted transactions being terminated. The accelerated amounts were losses of $178,000 and $472,000 during the years ended December 31, 2016 and 2015, respectively, all of which are included in Prepayment costs on debt on the consolidated statements of income. There were no such accelerated amounts during the year ended December 31, 2014.

As of December 31, 2016, the fair value of the derivatives in a liability position, including accrued interest of $113,000, but excluding any adjustments for nonperformance risk, was approximately $2,951,000. In the event the Company breaches any of the contractual provisions of the derivative contracts, it would be required to settle its obligations thereunder at their termination liability value of $2,951,000. This termination liability value, net of $143,000 adjustments for nonperformance risk, or $2,808,000, is included in Accrued expenses and other liabilities on the consolidated balance sheet at December 31, 2016.