Note 9. Mortgage Loans Payable and Unsecured Credit Facilities

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, and, as a result of the adoption, unamortized debt issuance costs for mortgage loans payable and term loans, aggregating $0.9 million and $2.3 million, respectively, have been reclassified from other assets and deferred charges, net, on the consolidated balance sheet.

Debt is composed of the following at December 31, 2016 and 2015:

	December 31, 2016						December 31, 2015
				Contractual interest rates						Contractual interest rates
	Balance			Weighted -			Balance			Weighted -
Description	outstanding			average		Range	outstanding			average		Range
Fixed-rate mortgages	$	138,288,000			4.6%	3.9% - 7.5%	$	298,779,000			5.4%	3.9% - 7.5%
Unsecured credit facilities:
Variable-rate:
Revolving credit facility		72,000,000			2.1%			78,000,000			1.7%
Term loan		50,000,000			2.1%			50,000,000			1.7%
Fixed-rate (a):
Term loan		75,000,000			2.9%			75,000,000			2.9%
Term loan		50,000,000			2.8%			50,000,000			2.8%
Term loan		75,000,000			4.0%			75,000,000			4.0%
Term loan		50,000,000			3.3%			50,000,000			3.3%
Term loan		100,000,000			3.2%			-		-
		610,288,000			3.3%			676,779,000			3.3%
Unamortized premium		667,000						243,000
Unamortized debt issuance costs		(3,210,000	)					(3,202,000	)
	$	607,745,000					$	673,820,000

(a)

The interest rates on these term loans consist of LIBOR plus a credit spread based on the Company’s leverage ratio, for which the Company has interest rate swap agreements which convert the LIBOR rates to fixed rates. Accordingly, these term loans are presented as fixed-rate debt.

Mortgage Loans Payable

During 2016 and 2015, the Company repaid the following mortgage loans payable:

		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
San Souci Plaza	September 1, 2016	$	27,200,000
Camp Hill	September 30, 2016	$	60,742,000
Swede Square	December 29, 2016	$	9,652,000
Golden Triangle	December 30, 2016	$	18,496,000

		Principal payoff
Property	Repayment date	amount
New London Mall	February 1, 2015	$	27,365,000
Oak Ridge Shopping Center	March 11, 2015	$	3,155,000
Pine Grove Plaza	June 1, 2015	$	5,139,000
Quartermaster Plaza	July 1, 2015	$	41,327,000
Groton Shopping Center	July 1, 2015	$	10,953,000
Jordan Lane	August 2, 2015	$	11,682,000
Southington Center	August 2, 2015	$	5,129,000
Oakland Mills	September 1, 2015	$	4,385,000

During 2016 and 2015, in connection with these repayments, the Company incurred charges relating to early extinguishment of mortgage loans payable (prepayment penalties and accelerated amortization of deferred financing costs) of $2.6 million and $0.1 million, respectively, included in continuing operations.

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, as amended on February 5, 2015, consists of (1) a $260 million revolving credit facility, expiring on February 5, 2019, and (2) a $50 million term loan, expiring on February 5, 2020. The revolving credit facility may be extended, at the Company’s option, for an additional one-year period, subject to customary conditions. Under an accordion feature, the facility can be increased to $750 million, subject to customary conditions and lending commitments. Interest on borrowings under the revolving credit facility component can range from LIBOR plus 135 basis points (“bps”) to 195 bps (135 bps at December 31, 2016) and interest on borrowings under the term loan component can range from LIBOR plus 130 to 190 bps (130 bps at December 31, 2016), each based on the Company’s leverage ratio. As of December 31, 2016, the Company had $168.0 million available for additional borrowings under the revolving credit facility.

The Company has $150 million of unsecured term loans comprised 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. Interest on borrowings under the five-year $75 million term loan can range from LIBOR plus 130 bps to 190 bps (130 bps at December 31, 2016) and interest on borrowings under the seven-year $75 million term loan can range from LIBOR plus 170 bps to 230 bps (170 bps at December 31, 2016), each based on the Company’s leverage ratio. Additionally, the Company has entered into forward interest rate swap agreements which convert the LIBOR rates to fixed rates for these term loans through their maturities. Based on the Company’s leverage ratio as of December 31, 2016, the effective fixed interest rates are 2.9% for the five-year $75 million term loan and 4.0% for the seven-year $75 million term loan, respectively.

On February 5, 2015, the Company closed $100 million of new unsecured term loans comprised of a five-year $50 million term loan maturing February 5, 2020 (all of which was borrowed at closing), and a seven-year $50 million term loan maturing February 5, 2022 (all of which was borrowed on June 26, 2015). Interest on borrowings under the five-year $50 million term loan can range from LIBOR plus 130 to 190 bps (130 bps at December 31, 2016) and interest on borrowings under the seven-year $50 million term loan can range from LIBOR plus 155 bps to 215 bps (155 bps at December 31, 2016), each based on the Company’s leverage ratio. Additionally, the Company entered into forward interest rate swap agreements which convert the LIBOR rates to fixed rates for these term loans beginning on July 1, 2015 through their maturities. Based on the Company’s leverage ratio as of December 31, 2016, the effective fixed interest rates are 2.8% for the five-year $50 million term loan and 3.3% for the seven-year $50 million term loan.

On April 26, 2016, the Company closed a new $100 million unsecured term loan maturing on April 26, 2023 (all of which was borrowed on September 30, 2016). Proceeds were 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 December 31, 2016), based on the Company’s leverage ratio. Additionally, the Company entered into a forward interest rate swap agreement which converts the LIBOR rate to a fixed rate for the term loan beginning November 1, 2016 through its maturity. Based on the Company’s leverage ratio as of December 31, 2016, the effective fixed interest rate is 3.2%.

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 December 31, 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.

Scheduled Principal Payments

Scheduled principal payments on mortgage loans payable, unsecured term loans, and the unsecured credit facility at December 31, 2016, due on various dates from 2017 to 2029, are as follows:

	Secured Debt				Unsecured Debt									Unamortized
	Scheduled		Balloon		Revolving			Term				Unamortized		Debt
Year	Amortization		Payments		Credit Facility			Loans		Total		Premium		Issuance Costs			Total
2017	$	3,221,000	$	-	$	-		$	-	$	3,221,000	$	119,000	$	(759,000	)	$	2,581,000
2018		3,377,000		-		-			-		3,377,000		126,000		(759,000	)		2,744,000
2019		3,542,000		-		72,000,000	(a)		75,000,000		150,542,000		126,000		(607,000	)		150,061,000
2020		3,707,000		-		-			100,000,000		103,707,000		126,000		(391,000	)		103,442,000
2021		3,253,000		22,367,000		-			75,000,000		100,620,000		126,000		(259,000	)		100,487,000
Thereafter		11,561,000		87,260,000		-			150,000,000		248,821,000		44,000		(435,000	)		248,430,000
	$	28,661,000	$	109,627,000	$	72,000,000		$	400,000,000	$	610,288,000	$	667,000	$	(3,210,000	)	$	607,745,000

(a)

The revolving credit facility is subject to a one-year extension at the Company's option.

Derivative Financial Instruments

At December 31, 2016, the Company had $3.1 million included in other assets and deferred charges, net, in addition to $2.3 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 $3.0 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 December 31, 2016 and December 31, 2015:

December 31, 2016

Designation/

Notional

Fair

Maturity

Balance sheet

Cash flow

Derivative

Count

value

dates

location

Qualifying

Interest rate swaps

200,000,000

3,074,000

2020 - 2023

Other assets and deferred charges, net

Qualifying

Interest rate swaps

150,000,000

2,321,000

2019 - 2021

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 2016, 2015 and 2014, respectively:

		Gain (loss) recognized in other
		comprehensive income
		(effective portion)
Designation/		Years ended December 31,
Cash flow	Derivative	2016			2015			2014
Qualifying	Interest rate swaps	$	1,162,000		$	(4,539,000	)	$	(3,650,000	)

		(Loss) recognized in other
		comprehensive income
		reclassified into earnings (effective portion)
		Years ended December 31,
	Classification	2016			2015			2014
	Continuing Operations	$	(3,739,000	)	$	(3,621,000	)	$	(1,663,000	)
	Discontinued Operations	$	-		$	-		$	(129,000	)

As of December 31, 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 December 31, 2016, if a counterparty were to default, the Company would receive a net interest benefit.