Note 5. Mortgage Loans Payable and Credit Facility

In April 2015, the FASB issued guidance which amends the balance sheet presentation for debt issuance costs. Under the amended guidance, the Company presents the balance of unamortized debt issuance costs for mortgage loans payable and term loans as a direct deduction from the carrying amount of that debt liability. The guidance was adopted on January 1, 2016 and has been applied on a retrospective basis.

Mortgage Loans Payable

The Company repaid the following mortgage loans payable during 2016:

		Principal payoff
Property	Repayment date	amount
Gold Star Plaza	March 10, 2016	$	953,000
West Bridgewater	June 6, 2016	$	10,037,000
Hamburg Square	July 1, 2016	$	4,569,000
Meadows Marketplace	August 1, 2016	$	9,089,000
Carman's Plaza	August 1, 2016	$	33,500,000

On May 3, 2016, the Company refinanced its existing $40.3 million mortgage loan payable secured by Franklin Village Plaza with a new $50.0 million mortgage loan payable, bearing interest at the rate of 3.9% per annum and maturing in June 2026.

Unsecured Revolving Credit Facility and Term Loans

The Company has a $310 million unsecured credit facility which consists of (1) a $260 million revolving credit facility, and (2) a $50 million term loan. Under an accordion feature, the facility can be increased to $750 million, subject to customary conditions and lending commitments. As of June 30, 2016, the Company had $168.0 million available for additional borrowings under the revolving credit facility.

The Company’s unsecured credit facility and term loans contain financial covenants including, but not limited to, maximum debt leverage, maximum secured debt, 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 credit facility is unsecured, borrowing availability is based on unencumbered property adjusted net operating income, as defined in the agreements. The Company’s failure to comply with the covenants or the occurrence of an event of default under the facilities could result in the acceleration of the related debt. As of June 30, 2016 the Company is in compliance with all financial covenants. Interest on borrowings under the unsecured credit facility and terms loans are based on the Company’s leverage ratio.

On April 26, 2016, the Company closed a new $100 million unsecured term loan maturing April 26, 2023 (none of which was borrowed at closing). Proceeds from the term loan can be drawn at any time from closing until October 26, 2016, and are expected to be used primarily to repay mortgages maturing through January 2017. Interest on borrowings under the term loan can range from LIBOR plus 165 to 225 bps (165 bps on June 30, 2016), based on the Company’s leverage ratio. Additionally, the Company entered into a forward interest rate swap agreement which will convert the LIBOR rate to a fixed rate for the term loan beginning November 1, 2016 through its maturity. As a result, the effective fixed interest rate will be 3.2%, based on the Company’s leverage ratio at June 30, 2016.

Derivative Financial Instruments

At June 30, 2016, the Company had $13.6 million included in accounts payable and accrued liabilities on the consolidated balance sheet relating to the fair value of the interest rate swaps applicable to the unsecured term loans discussed above. 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 $4.0 million of accumulated other comprehensive loss will be reclassified as a charge to earnings within the next twelve months.

The following is a summary of the derivative financial instruments held by the Company at June 30, 2016 and December 31, 2015:

June 30, 2016

Designation/

Notional

Fair

Maturity

Balance sheet

Cash flow

Derivative

Count

value

dates

location

Qualifying

Interest rate swaps

350,000,000

13,618,000

2019 - 2023

Accounts payable and accrued liabilities

December 31, 2015

Designation/

Notional

Fair

Maturity

Balance sheet

Cash flow

Derivative

Count

value

dates

location

Qualifying

Interest rate swaps

250,000,000

3,945,000

2019 - 2022

Accounts payable and accrued liabilities

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, 2016 and 2015, respectively:

		(Loss) gain recognized in other
		comprehensive income
		(effective portion)
Designation/		Three months ended June 30,						Six months ended June 30,
Cash flow	Derivative	2016			2015			2016			2015
Qualifying	Interest rate swaps	$	(5,504,000	)	$	1,562,000		$	(11,396,000	)	$	(1,185,000	)

		(Loss) recognized in other
		comprehensive income
		reclassified into earnings (effective portion)
		Three months ended June 30,						Six months ended June 30,
	Classification	2016			2015			2016			2015
	Continuing Operations	$	(908,000	)	$	(732,000	)	$	(1,830,000	)	$	(1,463,000	)

As of June 30, 2016 the Company believes it has no significant risk associated with non-performance of the financial institutions which are the counterparties to its derivative contracts. Additionally, based on the rates in effect as of June 30, 2016, if a counterparty were to default, the Company would receive a net interest benefit.