Note 5. Mortgage Loans Payable and Credit Facility

Debt is composed of the following at September 30, 2018:

			September 30, 2018
						Contractual
	Maturity		Balance			interest rates
Description	dates		outstanding			weighted-average
Fixed-rate mortgage	Jun 2026		$	47,917,000		3.9%
Unsecured credit facilities:
Variable-rate:
Revolving credit facility	Sep 2021	(a)		102,000,000		3.5%
Term loan	Sep 2022			50,000,000		3.4%
Fixed-rate (b):
Term loan	Feb 2021			75,000,000		3.6%
Term loan	Feb 2022			50,000,000		3.0%
Term loan	Sep 2022	(c)		50,000,000		2.8%
Term loan	Apr 2023			100,000,000		3.2%
Term loan	Sep 2024	(d)		75,000,000		3.3%
Term loan	Jul 2025			75,000,000		4.6%
				624,917,000		3.5%
Unamortized debt issuance costs				(3,418,000	)
			$	621,499,000

(a)

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

(b)

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.

(c)

The current interest rate swap agreement expires in February 2019 at which time a new interest rate swap agreement will begin resulting in an effective interest rate of 3.2%, based on the Company’s current leverage ratio.

(d)

The current interest rate swap agreement expires in February 2020 at which time a new interest rate swap agreement will begin resulting in an effective interest ratio of 3.7%, based on the Company’s current leverage ratio.

Mortgage Loans Payable

During 2018, the Company repaid the following mortgage loans payable:

		Principal payoff
Property	Repayment date	amount
East River Park	August 10, 2018	$	18,772,000
Colonial Commons	August 24, 2018	$	24,108,000
Shoppes at Arts District	August 24, 2018	$	8,114,000
The Point	September 6, 2018	$	27,003,000

In connection with these repayments, the Company incurred charges relating to early extinguishment of mortgage loans payable (defeasance fees, prepayment penalties and accelerated amortization of deferred financing and premium costs) of $4.8 million.

Unsecured Revolving Credit Facility and Term Loans

The Company has a $300 million unsecured credit facility which, as amended and restated on September 8, 2017, consists of (1) a $250 million revolving credit facility, expiring on September 8, 2021, and (2) a $50 million term loan, expiring on September 8, 2022. 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 the London Interbank Offered Rate (“LIBOR”) plus 135 basis points (“bps”) to 195 bps (135 bps at September 30, 2018) and interest on borrowings under the term loan component can range from LIBOR plus 130 to 190 bps (130 bps at September 30, 2018), each based on the Company’s leverage ratio. As of September 30, 2018, the Company had $135.1 million available for additional borrowings under the revolving credit facility.

On July 24, 2018, the Company closed a new $75.0 million unsecured term loan maturing on July 24, 2025 (all of which was borrowed on September 28, 2018). Interest on borrowings under the term loan can range from LIBOR plus 170 to 225 bps (170 bps at September 30, 2018) based on the Company’s leverage ratio. Additionally, the Company entered into forward interest rate swap agreements which convert the LIBOR rate to a fixed rate through its maturity.

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 and exercise of other lender remedies. As of September 30, 2018, the Company is in compliance with all financial covenants. Interest on borrowings under the unsecured credit facility and term loans are based on the Company’s leverage ratio.

Derivative Financial Instruments

At September 30, 2018, the Company had $15.8 million included in other assets and deferred charges, net, 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), 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 $2.6 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 September 30, 2018 and December 31, 2017:

September 30, 2018

Designation/

Fair

Maturity

Balance sheet

Cash flow

Derivative

Count

value

dates

location

Qualifying

Interest rate swaps

15,755,000

2019-2025

Other assets and deferred charges, net

December 31, 2017

Designation/

Fair

Maturity

Balance sheet

Cash flow

Derivative

Count

value

dates

location

Qualifying

Interest rate swaps

6,394,000

2019-2024

Other assets and deferred charges, net

Qualifying

Interest rate swaps

511,000

2021

Accounts payable and accrued liabilities

The notional values of the interest rate swaps held by the Company at September 30, 2018 and December 30, 2017 were $425.0 million and $350.0 million, respectively.

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 nine months ended September 30, 2018 and 2017, respectively:

		Gain recognized in other
		comprehensive (loss) income
		(effective portion)
Designation/		Three months ended September 30,					Nine months ended September 30,
Cash flow	Derivative	2018		2017			2018		2017
Qualifying	Interest rate swaps	$	2,375,000	$	872,000		$	10,221,000	$	(332,000	)

		Gain (loss) recognized in other
		comprehensive (loss) income
		reclassified into earnings (effective portion)
		Three months ended September 30,					Nine months ended September 30,
	Classification	2018		2017			2018		2017
	Continuing Operations	$	246,000	$	(407,000	)	$	265,000	$	(1,923,000	)

As of September 30, 2018 the Company believes it has no significant risk associated with non-performance of the financial institutions which are the counterparties to its derivative contracts.