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DERIVATIVES
12 Months Ended
Dec. 31, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVES
DERIVATIVES
In the normal course of business, we are exposed to financial market risks, including interest rate risk on our interest bearing liabilities. We attempt to limit these risks by following established risk management policies, procedures and strategies, including the use of financial instruments such as derivatives. We do not use financial instruments for trading or speculative purposes.
Cash Flow Hedges of Interest Rate Risk
Our outstanding derivatives have been designated under applicable accounting authority as cash flow hedges. The effective portion of changes in the fair value of derivatives designated as, and that qualify as, cash flow hedges is recorded in “Accumulated other comprehensive income (loss)” and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. To the extent these instruments are ineffective as cash flow hedges, changes in the fair value of these instruments are recorded in “Interest expense, net.” We recognize all derivatives at fair value as either assets or liabilities in the accompanying consolidated balance sheets. Our derivative assets are recorded in “Deferred costs and other assets” and our derivative liabilities are recorded in “Fair value of derivative instruments.”
Amounts reported in “Accumulated other comprehensive income (loss)” that are related to derivatives will be reclassified to “Interest expense, net” as interest payments are made on our corresponding debt. During the next twelve months, we estimate that $2.4 million will be reclassified as an increase to interest expense in connection with derivatives.
Interest Rate Swaps
As of December 31, 2016, we had entered into 26 interest rate swap agreements with a weighted average interest swap rate of 1.25% on a notional amount of $627.7 million maturing on various dates through March 2021, and one forward starting interest rate swap agreement with a base interest rate of 1.42% on a notional amount of $48.0 million, which will be effective starting January 2018 and will mature in February 2021. We entered into these interest rate swap agreements in order to hedge the interest payments associated with our issuances of variable interest rate long term debt. We have assessed the effectiveness of these interest rate swap agreements as hedges at inception and do so on a quarterly basis. As of December 31, 2016, we considered these interest rate swap agreements to be highly effective as cash flow hedges. The interest rate swap agreements are net settled monthly.

In the years ended December 31, 2016, 2015 and 2014, we recorded net losses on hedge ineffectiveness of $0.1 million, $0.5 million and $1.8 million, respectively.

In 2016, in connection with the sale of, and repayment of, the mortgage loan secured by Lycoming Mall, we recorded a net loss on hedge ineffectiveness of $0.1 million.

Following our July 2014 repayment of the $25.8 million mortgage loan secured by 801 Market Street, Philadelphia, Pennsylvania, we anticipated that we would not have sufficient 1-month LIBOR based interest payments to meet the entire swap notional amount related to two of our swaps, and we estimated that this condition would exist until approximately March 2015, when we planned to incur variable rate debt as part of the consideration for Springfield Town Center. These swaps, with an aggregate notional amount of $40.0 million, did not qualify for ongoing hedge accounting for the period from July 2014 to March 2015 as a result of the unrealized forecasted transactions. We recognized mark-to-market interest expense on these two swaps of $0.5 million for the period from January 2015 to March 31, 2015 and $0.5 million for the period from July 2014 to December 2014. Also, previously deferred losses in other comprehensive income for the period from July 2014 to March 2015 in the amount of $0.1 million related to these interest rate swaps were reclassified into interest expense in 2014. These swaps are scheduled to expire by their terms in January 2019.

Also, in the year ended December 31, 2014, we gave notice to the mortgage lender that we intended to repay the mortgage loan secured by Logan Valley Mall prior to its maturity, and in connection therewith, we recorded hedge ineffectiveness of $1.2 million. The notice of our intention to repay the mortgage loan made it probable that the hedged transaction identified in our original hedge documentation would not occur, we reclassified $1.2 million from accumulated other comprehensive loss to interest expense. We repaid the mortgage loan secured by Logan Valley Mall in July 2014.
Accumulated other comprehensive income (loss) as of December 31, 2016 includes a net loss of $1.5 million relating to forward-starting swaps that we cash settled in prior years that are being amortized over 10 year periods commencing on the closing dates of the debt instruments that are associated with these settled swaps.
The following table summarizes the terms and estimated fair values of our interest rate swap derivative instruments at December 31, 2016 and 2015. The notional values provide an indication of the extent of our involvement in these instruments, but do not represent exposure to credit, interest rate or market risks.  
(in millions of dollars)
Notional Value
Fair Value at
December 31, 2016(1)
 
Fair Value at
December 31, 2015(1)
 
Interest
Rate
 
Effective Date
 
Maturity Date
Interest Rate Swaps
 
 
 
 
 
 
 
 
$25.0
N/A(2)

 
$
(0.1
)
 


 
 
 
July 31, 2016
28.1

 
(0.2
)
 
1.38
%
 
 
 
January 2, 2017
33.0
N/A(3)

 

 

 
 
 
December 1, 2017
48.0
$
(0.1
)
 
(0.1
)
 
1.12
%
 
 
 
January 1, 2018
7.6

 

 
1.00
%
 
 
 
January 1, 2018
55.0
(0.1
)
 
(0.1
)
 
1.12
%
 
 
 
January 1, 2018
30.0
(0.3
)
 
(0.5
)
 
1.78
%
 
 
 
January 2, 2019
25.0
0.3

 
N/A

 
0.7
%
 
 
 
January 2, 2019
20.0
(0.2
)
 
(0.4
)
 
1.78
%
 
 
 
January 2, 2019
20.0
(0.2
)
 
(0.3
)
 
1.78
%
 
 
 
January 2, 2019
20.0
(0.2
)
 
(0.3
)
 
1.79
%
 
 
 
January 2, 2019
20.0
(0.2
)
 
(0.3
)
 
1.79
%
 
 
 
January 2, 2019
20.0
(0.2
)
 
(0.3
)
 
1.79
%
 
 
 
January 2, 2019
25.0
0.1

 

 
1.16
%
 
 
 
January 2, 2019
25.0
0.1

 

 
1.16
%
 
 
 
January 2, 2019
25.0
0.1

 

 
1.16
%
 
 
 
January 2, 2019
20.0

 

 
1.16
%
 
 
 
January 2, 2019
20.0
0.2

 
0.1

 
1.23
%
 
 
 
June 26, 2020
20.0
0.2

 
0.2

 
1.23
%
 
 
 
June 26, 2020
20.0
0.2

 
0.2

 
1.23
%
 
 
 
June 26, 2020
20.0
0.2

 
0.2

 
1.23
%
 
 
 
June 26, 2020
20.0
0.2

 
0.2

 
1.24
%
 
 
 
June 26, 2020
9.0
0.2

 
N/A

 
1.19
%
 
 
 
February 1, 2021
35.0
0.9

 
N/A

 
1.01
%
 
 
 
March 1, 2021
35.0
0.9

 
N/A

 
1.02
%
 
 
 
March 1, 2021
20.0
0.5

 
N/A

 
1.01
%
 
 
 
March 1, 2021
20.0
0.5

 
N/A

 
1.02
%
 
 
 
March 1, 2021
20.0
0.5

 
N/A

 
1.02
%
 
 
 
March 1, 2021
 
 
 
 
 
 
 
 
 
 
Forward Starting Swap
 
 
 
 
 
 
 
 
48.0
0.7

 
N/A

 
1.42
%
 
January 2, 2018
 
February 1, 2021
 
$
4.3

 
$
(1.7
)
 
 
 
 
 
 
 
(1) 
As of December 31, 2016 and December 31, 2015, derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy and we do not have any significant recurring fair value measurements related to derivative instruments using significant unobservable inputs (Level 3).
(2) 
This interest rate swap matured in July 2016.
(3) 
This interest rate swap was terminated in March 2016.


The table below presents the effect of our derivative financial instruments on our consolidated statements of operations for the years ended December 31, 2016, 2015 and 2014: 
 
For the Year Ended December 31,
 
Consolidated
Statements of
Operations Location
 
2016
 
2015
 
2014
 
 
Derivatives in cash flow hedging relationships:
 
 
 
 
 
 
 
Interest rate products
 
 
 
 
 
 
 
Gain (loss) recognized in Other Comprehensive Income (Loss) on derivatives
$
1.5

 
$
(2.4
)
 
$
(1.9
)
 
N/A
Loss reclassified from Accumulated Other Comprehensive Income (Loss) into income (effective portion)
5.1

 
5.0

 
4.3

 
Interest expense
Loss recognized in income on derivatives (ineffective portion and amount excluded from effectiveness testing)
(0.1
)
 
(0.5
)
 
(1.8
)
 
Interest expense

Credit-Risk-Related Contingent Features
We have agreements with some of our derivative counterparties that contain a provision pursuant to which, if our entity that originated such derivative instruments defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then we could also be declared in default on our derivative obligations. As of December 31, 2016, we were not in default on any of our derivative obligations.
We have an agreement with a derivative counterparty that incorporates the loan covenant provisions of our loan agreement with a lender affiliated with the derivative counterparty. Failure to comply with the loan covenant provisions would result in our being in default on any derivative instrument obligations covered by the agreement.
As of December 31, 2016, the fair value of derivatives in a liability position, which excludes accrued interest but includes any adjustment for nonperformance risk related to these agreements, was $1.5 million. If we had breached any of the default provisions in these agreements as of December 31, 2016, we might have been required to settle our obligations under the agreements at their termination value (including accrued interest) of $1.5 million. We had not breached any of these provisions as of December 31, 2016.