Notes Payable, Commitments and Contingencies

12 Months Ended

Dec. 31, 2011

Notes Payable, Commitments and Contingencies [Abstract]

NOTES PAYABLE, COMMITMENTS AND CONTINGENCIES

3. NOTES PAYABLE, COMMITMENTS AND CONTINGENCIES

The following table summarizes the terms of notes payable outstanding at December 31, 2011 and 2010 (in thousands):

	September 30,		September 30,		September 30,		September 30,		September 30,
		Term/
		Amortization
Description (see notes below)	Interest Rate	Period (Years)		Maturity		2011		2010
Credit Facility, unsecured	LIBOR + 1.75% to 2.25%		5/N/A		8/29/12	$	198,250	$	105,400
Terminus 100 mortgage note	5.25%		12/30		1/1/23		138,194		140,000
The American Cancer Society Center mortgage note (interest only until October 1, 2011)	6.45%		10/30		9/1/17		135,650		136,000
Meridian Mark Plaza mortgage note	6.00%		10/30		8/1/20		26,554		26,892
100/200 North Point Center East mortgage note	5.39%		5/30		6/1/12		24,478		24,830
The Points at Waterview mortgage note	5.66%		10/25		1/1/16		16,135		16,592
Callaway Gardens	4.13%		N/A		11/18/13		180		173
Mahan Village LLC	3.25%		3/N/A		9/12/14		1		—
333/555 North Point Center East mortgage note	7.00%		10/25		11/1/11		—		26,412
Lakeshore Park Plaza mortgage note	5.89%		4/25		8/1/12		—		17,544
600 University Park Place mortgage note	7.38%		10/30		8/10/11		—		12,292
Handy Road Associates, LLC	Prime + 1%, but not < 6%		5/N/A		3/30/2011		—		3,374
						$	539,442	$	509,509

Credit Facility

The Company’s Credit Facility bears interest at the London Interbank Offered Rate (“LIBOR”) plus a spread, based on the Company’s leverage ratio, as defined in the Credit Facility. At December 31, 2011, the spread over LIBOR was 2.0%. The amount that the Company may draw under the Credit Facility is a defined calculation based on the Company’s unencumbered assets and other factors. Total borrowing capacity under the Credit Facility was $350 million at December 31, 2011, and the Credit Facility is recourse to the Company. The Credit Facility had a maturity date of August 29, 2011. On that date, the Company exercised a one-year extension option which changed the maturity date to August 29, 2012, and paid a $438,000 extension fee.

In February 2010, the Company amended its Credit Facility (the “Amendment”), which reduced the amount available under the Credit Facility from $600 million to $350 million. The Amendment also changed certain operating and financial covenants including, but not limited to, the minimum Consolidated Fixed Charge Coverage Ratio, as defined, which decreased from 1.50 to 1.30. The Company incurred an administrative fee of approximately $1.7 million to effect the Amendment and additionally expensed unamortized deferred loan costs related to the previous facility of $592,000, which is reflected in Loss on Extinguishment of Debt and Interest Rate Swaps on the accompanying Statement of Operations.

The Company is currently negotiating a new facility that is expected to replace the Credit Facility. This new facility is expected to be in place in the first half of 2012.

Other Debt Activity

In September 2011, the Company entered into a construction loan agreement, secured by Mahan Village, a 147,000 square foot retail center in Tallahassee, Florida, to provide for up to approximately $15.0 million to fund construction. The Company has a choice of two interest rate options, which are based on floating rate indices plus a spread. The current interest rate is 3.25%, the loan matures September 12, 2014, and may be extended for two, one-year periods if certain conditions are met. The Company guarantees up to 25% of the construction loan, which may be eliminated after project completion, based on certain covenants.

In June 2011, the Company prepaid, without penalty, the 333/555 North Point Center East mortgage note. In July 2011, the Company prepaid, without penalty, the Lakeshore Park Plaza mortgage note, and expensed approximately $74,000 of unamortized loan closing costs, which are reflected as Loss on Extinguishment of Debt and Interest Rate Swaps on the Statement of Operations. In August 2011, the Company repaid the 600 University Park Place mortgage note in full upon its maturity. In May 2011, the Company was released of its obligation under the Handy Road Associates, LLC mortgage note through foreclosure.

In July 2010, the Company obtained a new mortgage loan secured by Meridian Mark Plaza that increased the principal amount from $22.3 million to $27.0 million and reduced the interest rate from 8.27% to 6.00%. The new note requires principal and interest payments based on a 30-year amortization, and has a maturity date of August 1, 2020.

In December 2010, the Company amended its Terminus 100 mortgage note. The Company paid $40.0 million of principal, reducing the note to $140.0 million outstanding. The interest rate on the note was reduced from 6.13% to 5.25%, principal and interest payments are based on a 30-year amortization, and the note matures January 1, 2023.

Interest Rate Swap Agreements

The Company had an interest rate swap agreement with a notional amount of $100 million in order to manage its interest rate risk under a term loan that was a part of the Company’s Credit Facility. The Company designated this swap as a cash flow hedge, and this swap effectively fixed the underlying LIBOR rate of the term loan at 5.01% through August 2012. The Company repaid the term loan in 2010 and concurrently terminated the swap. Upon termination, the Company paid the counterparty to the swap agreement $9.2 million, which was recognized as an expense in 2010.

The Company had two interest rate swap agreements with notional amounts of $75 million each in order to manage interest rate risk associated with floating-rate, LIBOR-based borrowings. The Company designated these swaps as cash flow hedges, and they effectively fixed a portion of the underlying LIBOR rate on $150 million of Company borrowings at an average rate of 2.84%. In October 2009, the Company terminated one of its $75 million swaps and paid the counterparty to the agreement $1.8 million. In addition, the Company reduced the notional amount of the second interest rate swap from $75 million to $40 million and paid the counterparty $959,000. Both of these amounts were recognized as expenses in 2009. The reduced swap expired in October 2010. There was no ineffectiveness under any of the Company’s interest rate swaps in 2010 or 2009.

The fair value calculation for the swaps is deemed to be a Level 2 calculation under the guidelines as set forth in ASC 820, as the Company estimated future LIBOR rates on similar instruments to calculate fair value. The fair values of the interest rate swap agreements were recorded in Accounts Payable and Accumulated Other Comprehensive Loss on the Balance Sheets, detailed as follows (in thousands):

		September 30,			September 30,			September 30,
	Term Facility			Floating Rate, LIBOR-based Borrowings			Total
Balance, December 31, 2009	$	8,662		$	855		$	9,517
Termination of swap		(9,235	)		—			(9,235	)
Change in fair value		573			(855	)		(282	)
Balance, December 31, 2010	$	—		$	—		$	—

Debt Maturities

The aggregate maturities of the Company’s debt at December 31, 2011 are as follows (in thousands):

		September 30,
2012	$	227,050
2013		4,783
2014		4,878
2015		5,168
2016		18,869
Thereafter		278,694
	$	539,442

Other Debt Information

The real estate and other assets of The American Cancer Society Center (the “ACS Center”) are restricted under the ACS Center loan agreement in that they are not available to settle debts of the Company. However, provided that the ACS Center loan has not incurred any uncured event of default, as defined in the loan agreement, the cash flows from the ACS Center, after payments of debt service, operating expenses and reserves, are available for distribution to the Company.

The majority of the Company’s consolidated debt is fixed-rate long-term mortgage notes payable, most of which is non-recourse to the Company. Assets with carrying values of $224.5 million were pledged as security on the $341.2 million non-recourse debt of the Company. The Credit Facility is recourse to the Company. As of December 31, 2011, the weighted average maturity of the Company’s consolidated debt was 5.1 years.

At December 31, 2011 and 2010, the estimated fair value of the Company’s notes payable was approximately $568.5 million and $521.8 million, respectively, calculated by discounting future cash flows at estimated rates at which similar loans could have been obtained at December 31, 2011 and 2010. These fair value calculations are considered to be Level 2 under the guidelines as set forth in ASC 820, as the Company utilizes market rates for similar type loans from third party brokers.

For the years ended December 31, 2011, 2010 and 2009, interest was recorded as follows (in thousands):

		September 30,			September 30,		September 30,
	2011			2010		2009
Total interest incurred	$	28,384		$	37,180	$	45,129
Interest expense — discontinued operations		—			—		(1,634	)
Interest capitalized		(600	)		—		(3,736	)
Total interest expense	$	27,784		$	37,180	$	39,759

Commitments

As of December 31, 2011, outstanding commitments for the construction and design of real estate projects, including an estimate for unfunded tenant improvements at operating properties and other funding commitments, totaled approximately $26.8 million. The Company had outstanding letters of credit and performance bonds totaling approximately $3.1 million at December 31, 2011. The Company recorded lease expense of approximately $680,000, $865,000, and $765,000 in 2011, 2010 and 2009, respectively. The Company has future lease commitments under ground leases and operating leases aggregating approximately $16.4 million over weighted average remaining terms of 71 and one years, respectively. Amounts due under these lease commitments are as follows (in thousands):

		September 30,
2012	$	589
2013		274
2014		206
2015		196
2016		146
Thereafter		15,000
	$	16,411

Litigation

The Company is subject to various legal proceedings, claims and administrative proceedings arising in the ordinary course of business, some of which are expected to be covered by liability insurance. Management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters using the latest information available. The Company records a liability for litigation if an unfavorable outcome is probable and the amount of loss or range of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, the Company accrues the best estimate within the range. If no amount within the range is a better estimate than any other amount, the Company accrues the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the litigation and indicates that an estimate of the loss or range of loss cannot be made. If an unfavorable outcome is reasonably possible and the estimated loss is material, the Company discloses the nature and estimate of the possible loss of the litigation. The Company does not disclose information with respect to litigation where an unfavorable outcome is considered to be remote. Based on current expectations, such matters, both individually and in the aggregate, are not expected to have a material adverse effect on the liquidity, results of operations, business or financial condition of the Company.