Capital and Financing Transactions

Notes Payable to Banks

At March 31, 2014, the Company had $245 million outstanding under its unsecured term loans. The Company was in compliance with all loan covenants under its revolving credit facilities and term loans as of March 31, 2014. The following table summarizes the Company's notes payable to banks:



Credit Facilities	Lender	Interest Rate		Maturity	Outstanding Balance
					(in thousands)
$10.0 Million Unsecured Working Capital Revolving Credit Facility	PNC Bank	—		03/29/2016	$	—
$215.0 Million Unsecured Revolving Credit Facility	Wells-Fargo	—		03/29/2016	—
$125.0 Million Unsecured Term Loan (1)	Key Bank	2.4%		09/27/2017	125,000
$120.0 Million Term Loan Facility (2)	Wells-Fargo	3.3%		06/11/2018	120,000
		2.9%	(3)		$	245,000

(1)

Effective October 1, 2012, the Company executed two floating-to-fixed interest rate swaps associated with the Unsecured Term Loan totaling $125 million, locking LIBOR at 0.7% for five years. The loan bears interest at LIBOR plus the applicable spread which ranges between 150 to 225 basis points based on overall Company leverage. The current spread associated with the loan is 1.75% resulting in an all-in rate of 2.45%.

(2)

Effective June 12, 2013, the Company entered into a new floating-to-fixed interest rate swap associated with the Term Loan Facility totaling $120 million, locking LIBOR at 1.6% for five years. The loan bears interest at LIBOR plus the applicable spread which ranges between 145 to 220 basis points based on overall Company leverage. The current spread associated with the loan is 1.7% resulting in an all-in rate of 3.3%.


(3)	Represents a weighted average interest rate.

For details regarding the amendment of the facilities and term loans in April 2014, see Note 14 – Subsequent Events.

Mortgage Notes Payable

Mortgage notes payable at March 31, 2014 totaled $1.1 billion, including unamortized premium on debt acquired of $14.6 million, with an average interest rate of 4.67% considering the amortization of the debt premium.

Interest Rate Swaps

The Company's objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an upfront premium.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company's variable-rate debt. During 2014, such derivatives were used to hedge the variable cash flows associated with variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. See Note 7 – Fair Values of Financial Instruments, for the fair value of the Company's derivative financial instruments as well as their classification on the Company's consolidated balance sheets as of March 31, 2014 and March 31, 2013.

The Company's interest rate hedge contracts at March 31, 2014, and March 31, 2013 are summarized as follows (in thousands):



							Fair Value Asset (Liability)
Type of	Balance Sheet	Notional		Maturity		Fixed	March 31,
Hedge	Location	Amount		Date	Reference Rate	Rate	2014			2013
Swap	Accounts payable and other liabilities	$	12,088	11/18/2015	1-month LIBOR	4.1%	$	—		$	(541	)
Swap	Accounts payable and other liabilities	30,000		02/01/2016	1-month LIBOR	2.3%	—			(1,666		)
Swap	Receivables and other assets	50,000		09/27/2017	1-month LIBOR	2.4%	695			26
Swap	Receivables and other assets	75,000		09/27/2017	1-month LIBOR	2.4%	1,049			39
Swap	Accounts payable and other liabilities	33,875		11/18/2017	1-month LIBOR	4.7%	(1,864		)	(3,113		)
Swap	Accounts payable and other liabilities	1,875		01/25/2018	1-month LIBOR	4.9%	(56		)	—
Swap	Accounts payable and other liabilities	22,000		01/25/2018	1-month LIBOR	4.5%	(1,015		)	(1,804		)
Swap	Accounts payable and other liabilities	45,000		01/25/2018	1-month LIBOR	4.7%	(377		)	(1,447		)
Swap	Accounts payable and other liabilities	120,000		06/11/2018	1-month LIBOR	3.3%	(1,033		)	—
Swap	Accounts payable and other liabilities	9,250		09/30/2018	1-month LIBOR	5.2%	(679		)	(1,140		)
Swap	Accounts payable and other liabilities	22,500		10/08/2018	1-month LIBOR	5.4%	(1,781		)	(2,935		)
Swap	Receivables and other assets	13,500		10/08/2018	1-month LIBOR	3.3%	65			—
Swap	Accounts payable and other liabilities	22,100		11/18/2018	1-month LIBOR	5.0%	(1,397		)	(2,458		)
							$	(6,393	)	$	(15,039	)

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company's derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company's known or expected cash receipts and its known or expected cash payments principally related to the Company's investments and borrowings.

Tabular Disclosure of the Effect of Derivative Instruments on the Combined Statements of Operations and Comprehensive Income (Loss)

The table below presents the effect of the Company's derivative financial instruments on the Company's consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2014 and 2013 (in thousands):



Derivatives in Cash Flow Hedging Relationships (Interest Rate Swaps)	Three Months Ended March 31,
	2014			2013
Amount of loss recognized in other comprehensive income (loss) on derivative	$	(1,533	)	$	(7,413	)
Amount of loss reclassified from accumulated other comprehensive income (loss) into interest expense	(1,453		)	(3,902		)

Credit Risk-Related Contingent Features

The Company has entered into agreements with each of its derivative counterparties that provide that if the Company defaults or is capable of being declared in default on any of its indebtedness, the Company could also be declared in default on its derivative obligations.

As of March 31, 2014, the fair value of derivatives in a liability position including accrued interest but excluding any adjustment for nonperformance risk related to these agreements was $8.2 million. As of March 31, 2014, the Company has not posted any collateral related to these agreements and was not in default under any of its derivative obligations. If the Company had been in default under any of its derivative obligations, it could have been required to settle its obligations under the agreements with its derivative counterparties at their aggregate termination value of $8.2 million at March 31, 2014.