Note 6. Mortgage Loans Payable and Credit Facility

Mortgage Loans Payable

During the six months ended June 30, 2014, the Company repaid the following mortgage loans payable:


	Repayment	Maturity	Principal Payoff
Property	Date	Date	Amount
East Little Creek (a)	February 3, 2014	September 1, 2021	$ 295,000
Upland Square	February 11, 2014	October 26, 2014	$ 57,839,000
Kings Plaza	April 1, 2014	July 1, 2014	$ 7,188,000
Coliseum Marketplace	April 1, 2014	July 1, 2014	$ 11,045,000
Liberty Marketplace	April 1, 2014	July 1, 2014	$ 8,171,000
Trexler Mall	May 11, 2014	May 11, 2014	$ 19,479,000
Yorktowne Plaza	June 2, 2014	July 1, 2014	$ 18,726,000
Quartermaster Plaza	June 5, 2014	October 1, 2014	$ 11,217,000

(a) Included in mortgage loans payable - real estate held for sale/conveyance on the accompanying balance sheet at December 31, 2013.

Unsecured Revolving Credit Facility and Term Loans

The Company has a $260 million revolving credit facility, expiring on August 1, 2016. The revolving credit facility may be extended, at the Company’s option, for two additional one-year periods, subject to customary conditions. Under an accordion feature, the facility can be increased to $500 million, subject to customary conditions, and lending commitments from participating banks. The facility contains financial covenants including, but not limited to, maximum debt leverage, maximum secured debt, minimum interest coverage, minimum fixed charge coverage, and minimum net worth. In addition, the facility contains restrictions including, but not limited to, limits on indebtedness, certain investments and distributions. Although the facility is unsecured, borrowing availability is based on unencumbered property adjusted net operating income, as defined in the agreement. The Company’s failure to comply with the covenants or the occurrence of an event of default under the facility could result in the acceleration of the related debt. As of June 30, 2014, the Company is in compliance with all financial covenants.

Borrowings under the revolving credit facility are priced at LIBOR plus 195 basis points (“bps”) (a weighted average rate of 2.2% per annum at June 30, 2014), and can range from LIBOR plus 165 bps to 225 bps based on the Company’s leverage ratio. As of June 30, 2014, the Company had $76.5 million outstanding under the revolving credit facility, and had $165.8 million available for additional borrowings.

On February 11, 2014, the Company closed $150 million of unsecured term loans consisting of a five-year $75 million term loan, maturing on February 11, 2019, and a seven-year $75 million term loan, maturing on February 11, 2021. Under an accordion feature, the term loans can be increased to an aggregate of $300 million, subject to customary conditions and lending commitments from participating banks. The financial covenants and other terms contained in the loan agreement are substantially the same as those contained in the Company’s revolving credit facility (see above). In connection with the transaction, the Company paid fees and legal expenses of approximately $1.1 million.

The five-year term loan, all of which was borrowed at closing, is priced at LIBOR plus 175 bps (a weighted average rate of 1.9% per annum at June 30, 2014), and can range from LIBOR plus 145 bps to 205 bps based on the Company’s leverage ratio. The seven-year term loan, all of which was borrowed on June 24, 2014, is priced at LIBOR plus 200 bps (a weighted average rate of 2.1% per annum at June 30, 2014), and can range from LIBOR plus 170 bps to 230 bps, also based on the Company’s leverage ratio. The Company has entered into forward interest rate swap agreements which convert the LIBOR rates to fixed rates for the new term loans beginning July 1, 2014 through their maturities. As a result, based on the Company’s leverage ratio as of June 30, 2014, the effective fixed interest rates are 3.37% for the five-year term loan and 4.27% for the seven-year term loan beginning July 1, 2014.

Derivative Financial Instruments

As discussed above, on February 11, 2014, the Company closed $150 million of unsecured term loans for which it entered into forward interest rate swap agreements, effective July 1, 2014.

On May 29, 2014, the Company sold Townfair Center, which collateralized an $11.8 million mortgage loan payable subject to an interest rate swap having a fair value recorded as a liability of $0.7 million. At closing, the buyer assumed both the outstanding mortgage loan payable and the related interest rate swap, and the aforementioned $0.7 million was relieved from both other comprehensive loss and accounts payable and accrued liabilities.

At June 30, 2014, the Company had $1,943,000 on the consolidated balance sheet included in accounts payable and accrued liabilities relating to the fair value of the interest rate swaps applicable to the $150 million unsecured term loans which closed on February 11, 2014. Charges and/or credits relating to the changes in the fair value of the interest rate swaps are made to accumulated other comprehensive income (loss), noncontrolling interests (minority interests in consolidated joint ventures and limited partners’ interest), or operations (included in interest expense), as applicable. Over time, the unrealized gains and losses recorded in accumulated other comprehensive loss will be reclassified into earnings as an increase or reduction to interest expense in the same periods in which the hedged interest payments affect earnings. The Company estimates that approximately $2.8 million of accumulated other comprehensive loss will be reclassified into earnings within the next twelve months.

The following is a summary of the derivative financial instruments held by the Company at June 30, 2014 and December 31, 2013:


			Notional values					Balance	Fair value
Designation/			June 30,		December 31,		Maturity	sheet	June 30,	December 31,
Cash flow	Derivative	Count	2014	Count	2013		date	location	2014	2013
Qualifying	Interest rate swaps	2	$ 150,000,000	-	$ -		2019/2021	Accounts payable and accrued liabilities	$ 1,943,000	$ -
Qualifying	Interest rate swap	-	$ -	1	$ 11,894,000	(a)	-	Accounts payable and accrued liabilities	$ -	$ 647,000

(a) Amount is an interest rate swap related to mortgage loans payable - real estate held for sale/conveyance on the consolidated balance sheets.

The following presents the effect of the Company’s derivative financial instruments on the consolidated statements of operations and the consolidated statements of equity for the three and six months ended June 30, 2014 and 2013, respectively:


		Net amount of (loss) gain recognized in other
		comprehensive income (effective portion)
Designation/		Three months ended June 30,		Six months ended June 30,
Cash flow	Derivative	2014	2013	2014	2013

Qualifying (a)	Interest rate swaps	$ (1,850,000)	$ 570,000	$ (1,162,000)	$ 910,000

(a) The following table details the amounts which were reclassified from other comprehensive income to interest expense in the consolidated statements of operations:
		Three months ended June 30,		Six months ended June 30,
	Classification	2014	2013	2014	2013
	Continuing Operations	$ 74,000	$ 233,000	$ 151,000	$ 490,000
	Discontinued Operations	$ 53,000	$ 77,000	$ 129,000	$ 154,000

As of June 30, 2014, the Company believes it has no significant risk associated with non-performance of the financial institutions which are the counterparties to its derivative contracts.