DERIVATIVES DERIVATIVES

3 Months Ended

Mar. 31, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVES

DERIVATIVES

Cash Flow Hedges of Interest Rate Risk

The Company records its derivative instruments on its Consolidated Balance Sheets at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative, whether the derivative has been designated as a hedge and if so, whether the hedge has met the criteria necessary to apply hedge accounting.

The Company's objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from the counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.

The effective portion of changes in fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) ("AOCI/L") and is subsequently reclassified into earnings in the period in which the hedged forecasted transactions affect earnings. During the three months ended March 31, 2016 and 2015, such derivatives were used to hedge the variable cash flows associated with existing variable-rate borrowings. The ineffective portion of the change in fair value of the derivatives is recognized in earnings. During the three months ended March 31, 2016, the Company recorded a loss of $0.01 million of ineffectiveness in earnings.

Amounts reported in AOCI/L related to derivatives are reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. As of March 31, 2016, the Company expects that an additional $2.3 million will be reclassified as an increase to interest expense over the next 12 months.

Interest Rate Swaps

The Company entered into an interest rate swap to hedge the risk of changes in cash flows on borrowings related to the West Valley Mall in January 2014 through June 2018. The interest related to this loan was computed at a variable rate of LIBOR plus 1.75% and the Company swapped this for a fixed rate of 1.49% plus a spread of 1.75%.

In September 2015, the Company entered into an interest rate swap to hedge the risk of changes in cash flows on borrowings related to NewPark Mall through September 2018. The interest related to this loan was computed at a variable rate of LIBOR plus 2.10% with a forward starting swap, beginning on January 1, 2016 with a fixed interest rate of 1.16% plus a spread of 2.10%. In February 2016, the Company received an additional funding related to the NewPark Mall and entered into an interest rate swap to hedge the risk of changes in cash flows on borrowings related to the funding through September 2018. The interest related to the additional funding of this loan was computed at a variable rate of LIBOR plus 2.10% and the Company swapped this for a fixed rate of 0.71% plus a spread of 2.10%.

In October 2015, the Company entered into an interest rate swap to hedge the risk of changes in cash flows on borrowings related to The Shoppes at Bel Air through November 2018. The interest related to this loan was computed at a variable rate of LIBOR plus 2.35% with a forward starting swap, beginning on January 1, 2016 with a fixed interest rate of 0.99% plus a spread of 2.35%.

In December 2015, the Company entered into an interest rate swap to hedge the risk of changes in cash flows on borrowings related to The Shoppes at Gateway through January 2020. The interest related to this loan was computed at a variable rate of LIBOR plus 2.33% and the Company swapped this for a fixed rate of 1.44% plus a spread of 2.33%.

The interest rate swaps protect the Company from increases in the hedged cash flows attributable to increases in LIBOR.

As of March 31, 2016, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:

Interest Rate Derivative	Number of Instruments	Notional Amount
		(in thousands)
Interest rate swaps	5	$369,450

Non-Designated Hedges - Interest Rate Cap

Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the hedge accounting requirements. Changes in the fair value of derivatives not designated as hedges are recorded directly in earnings. For the three months ended March 31, 2015, such amounts equaled $475. As of March 31, 2016, the Company had the following outstanding derivative:

Interest Rate Derivative	Number of Instruments	Notional Amount
		(in thousands)
Interest rate cap	1	$64,221

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Company's Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015:

Instrument Type	Location in consolidated balance sheets	Notional Amount		Designated Benchmark Interest Rate	Strike Rate		Fair Value at March 31, 2016			Fair Value at December 31, 2015			Maturity Date
Derivatives not designated as hedging instruments		(dollars in thousands)
Interest Rate Cap	Prepaid expenses and other assets, net	$	64,221	One-month LIBOR	4.50	%	$	—		$	—		May 2016
Derivatives designated as hedging instruments
Pay fixed / receive variable rate swaps	Accounts payable and accrued expenses, net	$	59,000	One-month LIBOR	1.49	%	$	(1,001	)	$	(577	)	June 2018
Pay fixed / receive variable rate swaps	Accounts payable and accrued expenses, net	$	114,250	One-month LIBOR	1.16	%	$	(1,177	)	$	(24	)	September 2018
Pay fixed / receive variable rate swaps	Accounts payable and accrued expenses, net	$	110,450	One-month LIBOR	0.99	%	$	(666	)	$	612		November 2018
Pay fixed / receive variable rate swaps	Accounts payable and accrued expenses, net	$	75,000	One-month LIBOR	1.44	%	$	(1,430	)	$	(75	)	January 2020
Pay fixed / receive variable rate swaps	Accounts payable and accrued expenses, net	$	10,750	One-month LIBOR	0.71	%	$	5		$	—		September 2018

The table below presents the effect of the Company’s derivative financial instruments on the Company's Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2016 and 2015:

							Location of Losses Reclassified from OCI/L Into Earnings (Effective Portion)					Location of Gain (Loss) Recognized in Earnings (Ineffective Portion)
Hedging Instrument	Gain (Loss) Recognized in OCI/L (Effective Portion)							Loss Recognized in Earnings (Effective Portion)					Gain Recognized in Earnings (Ineffective Portion)
	(dollars in thousands)
Three Months Ended March 31,	2016			2015				2016		2015			2016			2105
Pay fixed / receive variable rate swaps	$	(4,895	)	$	(601	)	Interest expense	$	703	$	195	Interest expense	$	(13	)	$	—

Credit Risk-Related Contingent Features

The borrower (a special purpose entity) has an agreement with its derivative counterparty that contains a provision whereby, if the borrower defaults on any of its indebtedness, including a default whereby repayment of such indebtedness has not been accelerated by the lender, the borrower could also be declared in default on its derivative obligations. The borrower has not posted any collateral related to this agreement. As of March 31, 2016, the fair value of the derivative liability, which includes accrued interest but excludes any adjustment for nonperformance risk, related to this agreement was $4.6 million. If the borrower had breached this provision as of March 31, 2016, it would have been required to settle its obligations under the agreement at its termination value of $4.6 million.