Capital and Financing Transactions

Notes Payable to Banks, Net

At June 30, 2016 and December 31, 2015, the carrying amounts of the Company's notes payable to banks, net were $543.7 million and $542.9 million, respectively, including $550.0 million outstanding under the following term loans (in thousands):



Credit Facilities	Interest Rate	Initial Maturity	Outstanding Balance at June 30, 2016			Outstanding Balance at December 31, 2015
$10.0 Million Working Capital Revolving Credit Facility	1.8%	03/30/2018	$	—		$	—
$450.0 Million Revolving Credit Facility	1.8%	03/30/2018	—			—
$250.0 Million Five-Year Term Loan	2.6%	03/29/2019	250,000			250,000
$200.0 Million Five-Year Term Loan	1.8%	06/26/2020	200,000			200,000
$100.0 Million Seven-Year Term Loan	4.4%	03/31/2021	100,000			100,000
Notes payable to banks outstanding			550,000			550,000
Unamortized debt issuance costs, net			(6,258		)	(7,120		)
Notes payable to banks, net			$	543,742		$	542,880

Mortgage Notes Payable, Net

At June 30, 2016, the Company had $1.1 billion of mortgage notes payable, net secured by office properties, including unamortized net premiums on debt acquired of $13.5 million and unamortized debt issuance costs of $2.4 million, with a weighted average interest rate of 4.1%.

On April 6, 2016, the Company paid in full the $114.0 million mortgage debt secured by CityWestPlace I and II and recognized a gain on extinguishment of debt of $154,000 during the six months ended June 30, 2016.

On April 11, 2016, the Company paid in full the $47.9 million mortgage debt secured by Lincoln Place and recognized a gain on extinguishment of debt of $308,000 during the six months ended June 30, 2016.

Fund II drew approximately $8.1 million on its construction loan secured by the Hayden Ferry Lakeside III development in the Tempe submarket of Phoenix, Arizona during the six months ended June 30, 2016. As of June 30, 2016, the balance of the construction loan payable was approximately $39.8 million.

Interest Rate Swaps

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 this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable 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.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During 2016 and 2015, such derivatives were used to hedge the variable cash flows associated with variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. See "Note 6—Fair Values of Financial Instruments" for the fair value of the Company's derivative financial instruments as well as their classification on the Company's consolidated balance sheets as of June 30, 2016 and December 31, 2015.

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company's derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company's known or expected cash receipts and its known or expected cash payments principally related to the Company's investments and borrowings.

Tabular Disclosure of the Effect of Derivative Instruments on the Statements of Operations and Comprehensive Income (Loss)

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 and six months ended June 30, 2016 and 2015 (in thousands):



Derivatives in Cash Flow Hedging Relationships (Interest Rate Swaps)	Three Months Ended June 30,					Six Months Ended June 30,
	2016			2015		2016			2015
Amount of gain (loss) recognized in other comprehensive income (loss) on derivatives	$	(2,341	)	$	680	$	(8,017	)	$	(4,425	)
Net loss reclassified from accumulated other comprehensive income (loss) into earnings	$	1,353		$	1,734	$	2,716		$	3,592
Amount of loss recognized in income on derivatives (ineffective portion, reclassifications of missed forecasted transactions and amounts excluded from effectiveness testing)	$	11		$	1,221	$	37		$	1,245