DEBT

The Company’s consolidated indebtedness is currently comprised of borrowings under its lines of credit and unsecured term loans, and under its mortgage note financings. The borrowings under its secured line of credit and the mortgage note financings are secured by mortgages or deeds of trust and related assignments and security interests in collateralized and certain cross-collateralized properties, which are generally owned by single purpose entities. A summary of the Company’s debt is as follows:


	Weighted-Average Stated Interest Rate as of					Balance as of
($ in thousands)	September 30, 2014		December 31, 2013		Maturity Date	September 30, 2014		December 31, 2013
Secured line of credit (1)		2.05%		2.32%	January 2017	$	85,000	$	85,000
Unsecured line of credit (2)		1.90%		2.16%	August 2015		223,000		165,000
Unsecured term loans (3)		2.13%		2.03%	January 2018 - January 2019		500,000		500,000
Variable-rate mortgage note (4)		2.15%		2.19%	May 2015		9,080		9,080
Fixed-rate mortgage notes (5)		4.25%		4.26%	June 2015 - November 2024		1,128,817		1,117,551

Total / Weighted-Average		3.33%		3.39%		$	1,945,897	$	1,876,631

Gross book value of properties encumbered by debt						$	2,404,595	$	2,285,998

(1)	The interest rate is calculated based on one-month London Interbank Offered Rate (“LIBOR”), plus a margin ranging from 1.80% to 2.65%. As of September 30, 2014, the unused portion was $55.0 million, of which $36.9 million was available.

(2)	The interest rate is calculated based on one-month LIBOR, plus a margin ranging from 1.75% to 2.50%. As of September 30, 2014, the unused portion was $277.0 million, of which $75.5 million was available.

(3)

The interest rate is calculated based on one-month LIBOR, plus a margin ranging from 1.50% to 2.45%. Effective January 14, 2014, the interest rate for the $200.0 million unsecured term loan was fixed through the use of interest rate swaps at an all-in interest rate of 2.68% as of September 30, 2014.

(4)	The interest rate is calculated based on one-month LIBOR, plus 2.00%.

(5)	Interest rates range from 3.30% to 6.24%.

As of September 30, 2014, the principal payments due on the Company’s consolidated debt during each of the next five years and thereafter were as follows:


(in thousands)	Lines of Credit		Term Loans		Mortgage Notes		Total
Remainder of 2014	$	-	$	-	$	1,808	$	1,808
2015 (1)		223,000		-		52,981		275,981
2016		-		-		20,040		20,040
2017 (1)		85,000		-		62,175		147,175
2018		-		200,000		169,418		369,418
Thereafter		-		300,000		826,556		1,126,556

Total principal payments		308,000		500,000		1,132,978		1,940,978
Unamortized premium on assumed debt		-		-		4,919		4,919

Total	$	308,000	$	500,000	$	1,137,897	$	1,945,897

(1)	The line of credit may be extended pursuant to two one-year extension options, subject to certain conditions.

Debt Covenants

The Company’s mortgage note financings and secured line of credit contain various property level covenants, including customary affirmative and negative covenants. In addition, the unsecured line of credit and unsecured term loans contain certain corporate level financial covenants, including leverage ratio, fixed charge coverage ratio, and tangible net worth thresholds. The Company was in compliance with all debt covenants as of September 30, 2014.

Derivative Instruments

To manage interest rate risk for certain of its variable rate debt, the Company uses interest rate swaps as part of its risk management strategy. These derivatives are designed to mitigate the risk of future interest rate increases by providing a fixed interest rate for a limited, pre-determined period of time. Interest rate swaps designated as cash flow hedges involved the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. As of September 30, 2014, the Company had seven outstanding interest rate swap contracts that were designated as cash flow hedges of interest rate risk. Certain of the Company’s variable rate borrowings are not hedged, and therefore, to an extent, the Company has on-going exposure to interest rate movements.

The effective portion of the change in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (“AOCI”) on the condensed consolidated balance sheets and is subsequently reclassified into earnings as interest expense for the period that the hedged forecasted transaction affects earnings, which is when the interest expense is recognized on the related debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. For the three and nine months ended September 30, 2014 and 2013, there was no hedge ineffectiveness. The Company expects no hedge ineffectiveness in the next 12 months.

The following table summarizes the location and fair value of the cash flow hedges on the Company’s condensed consolidated balance sheets:


				Fair Value as of
(in thousands)	Notional Amount		Balance Sheet Location	September 30, 2014		December 31, 2013
Interest rate swaps	$	507,560	(Other liabilities) / Other assets	$	(1,029)	$	2,613

The following table presents the effect of the Company’s cash flow hedges on the Company’s condensed consolidated financial statements:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands)	2014		2013		2014		2013
Interest rate swaps:
Gain (loss) recognized in AOCI (effective portion)	$	2,761	$	(1,421)	$	(2,367)	$	1,158
Loss reclassified from AOCI into income (effective portion)		(450)		(29)		(1,275)		(83)

Net other comprehensive gain (loss)	$	2,311	$	(1,450)	$	(3,642)	$	1,075