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.” In the three months ended September 30, 2013, we recorded net losses on hedge ineffectiveness of $0.7 million, primarily due to the accelerated amortization of $0.5 million in connection with the partial mortgage loan repayments at Logan Valley Mall and $0.2 million in connection with the amortization of other swaps. In the nine months ended September 30, 2013, we recorded net losses on hedge ineffectiveness of $3.4 million, primarily in connection with the May 2013 Jacksonville Mall mortgage loan repayment, we recorded net losses on hedge ineffectiveness of $2.9 million relating to a forward starting swap that was cash settled in 2008. The mortgage loan repayment made it probable that the hedged transaction identified in our original hedge documentation would not occur, and we therefore reclassified $2.9 million from “Accumulated other comprehensive income (loss)” to “Interest expense, net.” No gain or loss on hedge ineffectiveness was recorded during the three and nine months ended September 30, 2012. We recognize all derivatives at fair value as either assets or liabilities in the accompanying consolidated balance sheets. The carrying amount of the derivative assets is reflected in “Deferred costs and other assets,” the amount of the associated liabilities is reflected in “Accrued expenses and other liabilities” and the amount of the net unrealized loss is reflected in “Accumulated other comprehensive income (loss)” in the accompanying balance sheets. 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 $2.8 million will be reclassified as an increase to interest expense in connection with derivatives.

Interest Rate Swaps

As of September 30, 2013, we had entered into six interest rate swap agreements with a weighted average interest rate of 2.54% on a notional amount of $198.8 million maturing on various dates through January 2018, and two forward starting interest rate swap agreements with a weighted average interest rate of 1.12% on a notional amount of $103.0 million maturing in January 2018.

We entered into these interest rate swap agreements (including the forward starting 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 on a quarterly basis. As of September 30, 2013, we considered these interest rate swap agreements to be highly effective as cash flow hedges. The interest rate swap agreements are net settled monthly.

As of September 30, 2013, the aggregate estimated unrealized net loss attributed to these interest rate derivatives was $1.0 million. Accumulated other comprehensive loss as of September 30, 2013 includes a net loss of $4.6 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 and forward starting swap derivative instruments at September 30, 2013 and December 31, 2012. 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 September 30, 2013 ⁽¹⁾			Fair Value at December 31, 2012 ⁽¹⁾			Interest Rate		Effective Date	Maturity Date
Interest Rate Swaps
$60.0	N/A			(0.2		)	1.74	%		March 11, 2013
200.0	N/A			(1.0		)	2.96	%		March 11, 2013
40.0	N/A			(0.1		)	1.82	%		March 11, 2013
65.0	N/A			(1.5		)	3.60	%		September 9, 2013
68.0	N/A			(1.6		)	3.69	%		September 9, 2013
35.0	N/A			(1.4		)	3.73	%		September 9, 2013
55.0	(0.2		)	(1.3		)	2.90	%		November 29, 2013
48.0	(0.2		)	(1.2		)	2.90	%		November 29, 2013
25.0	(0.4		)	(0.5		)	1.10	%		July 31, 2016
28.1	(0.6		)	(0.9		)	1.38	%		January 2, 2017
35.1	0.1			N/A			3.72	%		December 1, 2017
7.6	0.1			N/A			1.00	%		January 1, 2018
Forward Starting Interest Rate Swaps
48.0	0.1			N/A			1.12	%	December 1, 2013	January 1, 2018
55.0	0.1			N/A			1.12	%	December 1, 2013	January 1, 2018
	$	(1.0	)	$	(9.7	)

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⁽¹⁾	As of September 30, 2013 and December 31, 2012, derivative valuations in their entirety were classified in Level 2 of the fair value hierarchy. As of September 30, 2013 and December 31, 2012, we did not have any significant recurring fair value measurements related to derivative instruments using significant unobservable inputs (Level 3).

The table below presents the effect of derivative financial instruments on our consolidated statements of operations and our share of our partnerships’ statements of operations for the three and nine months ended September 30, 2013 and 2012:



	Three Months Ended September 30,						Nine Months Ended September 30,						Consolidated Statements of Operations Location
(in millions of dollars)	2013			2012			2013			2012			Consolidated Statements of Operations Location
Derivatives in cash flow hedging relationships:
Interest rate products
Gain (loss) recognized in Other Comprehensive Income (Loss) on derivatives	$	0.3		$	(1.3	)	$	7.9		$	(4.9	)	N/A
Loss reclassified from Accumulated Other Comprehensive Income (Loss) into income (effective portion)	$	2.0		$	4.6		$	9.0		$	13.0		Interest expense
Loss recognized in income on derivatives (ineffective portion and amount excluded from effectiveness testing)	$	(0.7	)	$	—		$	(3.4	)	$	—		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 September 30, 2013, 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 September 30, 2013, the fair value of derivatives in a net liability position, which excludes accrued interest but includes any adjustment for nonperformance risk related to these agreements, was $1.0 million. If we had breached any of the default provisions in these agreements as of September 30, 2013, we might have been required to settle our obligations under the agreements at their termination value (including accrued interest) of $1.3 million. We had not breached any of these provisions as of September 30, 2013.