Capital and Financing Transactions

Notes Payable to Banks

At June 30, 2014, the Company had $377.0 million outstanding under its unsecured revolving credit facilities and term loans. The Company was in compliance with all loan covenants under its unsecured revolving credit facilities and term loans as of June 30, 2014. The following table summarizes the Company's notes payable to banks:



Credit Facilities and Term Loans	Interest Rate		Initial Maturity	Outstanding Balance
				(in thousands)
$10.0 Million Unsecured Working Capital Credit Facility	1.60%		03/30/2018	$	—
$250.0 Million Unsecured Revolving Credit Facility	1.60%		03/30/2018	27,000
$250.0 Million Five-Year Term Loan	2.51%		03/29/2019	250,000
$100.0 Million Seven-Year Term Loan	4.31%		03/31/2021	100,000
	2.91%	(1)		$	377,000


(1)	Represents a weighted average interest rate.

Effective April 1, 2014, the Company entered into an Amended, Restated and Consolidated Credit Agreement (the "Amended Agreement") which provides for a $250.0 million unsecured revolving credit facility, a $250.0 million five-year unsecured term loan, and a $100.0 million seven-year unsecured term loan. The Amended Agreement amended, restated and consolidated the agreements governing the Company's prior $215.0 million revolving credit facility, $125.0 million term loan, and $120.0 million term loan. The maturity date of the revolving credit facility was extended to March 30, 2018, with an additional one-year extension option, and the $250.0 million five-year term loan and $100.0 million seven-year term loan have maturity dates of March 29, 2019 and March 31, 2021, respectively. The unsecured revolving credit facility bears interest at LIBOR plus an applicable margin which ranges from 1.40% to 2.00% based on the Company's overall leverage, and is currently 1.40% resulting in an all-in rate of 1.60%. The $250.0 million five-year term loan bears interest at LIBOR plus an applicable margin which ranges from 1.35% to 1.90% based on the Company's overall leverage, and is currently 1.35% resulting in a weighted average all-in rate of 2.51%, after giving effect to the floating-fixed-rate interest rate swaps. The $100.0 million seven-year term loan bears interest at LIBOR plus an applicable margin which ranges from 1.75% to 2.30% based on the Company's overall leverage, and is currently 1.75%, resulting in an all-in rate of 4.31%, after accounting for the floating-fixed-rate interest rate swap. For a discussion of interest rate swaps entered into in connection with the Company's term loans and unsecured revolving credit facility, see – "Interest Rate Swaps."

The $100.0 million seven-year term loan tranche had a delayed-draw feature which allowed the Company to draw all or a portion of the $100.0 million commitment in not more than two draws over a 12-month period. The Company drew the full amount on April 8, 2014 and simultaneously repaid in full the first mortgage debt secured by the Bank of America Center in Orlando, Florida, which had an outstanding balance of $33.9 million. The Company recognized a loss on extinguishment of debt of $339,000 on the repayment of the Bank of America Center mortgage. Additionally, the Company amended its $10.0 million unsecured working capital credit facility under terms and conditions similar to the Amended Agreement.

Mortgage Notes Payable

Mortgage notes payable at June 30, 2014 totaled $1.1 billion, including unamortized premium on debt acquired of $15.2 million, with an effective interest rate of 4.67%.

On April 14, 2014, the Company purchased One Orlando Center in Orlando, Florida, and simultaneously restructured the existing first mortgage loan secured by the property. The existing $68.3 million first mortgage note was restructured into a new $54.0 million first mortgage note and a $15.3 million subordinated note. Upon the sale or recapitalization of the property, proceeds are to be distributed first to the lender up to the amount of outstanding principal of the first mortgage note; second, to the Company up to its equity investment; third, to the Company until it receives a 12% annual return on its equity investment; fourth, 60% to the Company and 40% to the lender until the subordinated note is repaid in full; and fifth, to the Company at 100%. At the acquisition date, and as of June 30, 2014, the fair value of the subordinated note was zero.

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 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.

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 loss and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Amounts reported in accumulated other comprehensive loss 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 June 30, 2014 and December 31, 2013.

Effective June 12, 2013, the Company entered into a floating-to-fixed interest rate swap related to one-month LIBOR with a value of $120.0 million, locking LIBOR at 1.6% through June 11, 2018. On April 1, 2014, the Company dedesignated two of its existing floating-to-fixed interest rate swaps totaling $125.0 million that were previously associated with the $125.0 million five-year term loan and redesignated the swaps as a cash flow hedge of the risk of changes in cash flows attributable to changes in the benchmark interest rate for one-month LIBOR related to indexed interest payments made each month, irrespective of the specific debt agreement from which they may flow. The two swaps had an asset value of approximately $1.7 million held in other comprehensive loss, which was cleared as a result of the redesignation. The two swaps totaling $125.0 million lock LIBOR at 0.7% through September 27, 2017. Additionally, on the same date, the Company entered into a new $5.0 million floating-to-fixed interest rate swap attributable to one-month LIBOR indexed interest payments made each month. The new $5.0 million swap has a fixed rate of 1.7%, an effective date of April 1, 2014 and matures on April 1, 2019.

The Company also terminated the $33.9 million swap designated to the Bank of America Center first mortgage. The net impact of the changes made to the existing swaps during the quarter resulted in a one-time increase in interest expense of approximately $121,000.

On April 1, 2014, the Company entered into a new $100.0 million floating-to-fixed interest rate swap attributable to one-month LIBOR indexed interest payments made each month. The $100.0 million swap has a fixed rate of 2.6%, an effective date of April 1, 2014 and a maturity date of March 31, 2021. The Company entered into this interest rate swap in connection with its $100.0 million seven-year term loan that bears interest at LIBOR plus the applicable margin which ranges from 1.75% to 2.30% based on the Company's overall leverage. The current spread associated with the loan is 1.75% resulting in an all-in rate of 4.31%.

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 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 and six months ended June 30, 2014 and 2013 (in thousands):



Derivatives in Cash Flow Hedging Relationships (Interest Rate Swaps)	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Amount of gain (loss) recognized in other comprehensive loss on derivatives	$	(6,235	)	$	5,992		$	(7,874	)	$	6,481
Amount of loss reclassified from accumulated other comprehensive loss into interest expense	(2,077		)	(1,533		)	(3,530		)	(2,810		)
Amount of loss recognized in income on derivatives (ineffective portion, reclassifications of missed forecasted transactions and amounts excluded from effectiveness testing)	(197		)	(386		)	(197		)	(386		)

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 June 30, 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 $11.6 million. As of June 30, 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 $10.5 million at June 30, 2014.