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 $2.5 million will be reclassified as an increase to interest expense in connection with derivatives.

Interest Rate Swaps

As of December 31, 2013, we had entered into six interest rate swap agreements with a weighted average interest swap rate of 1.61% on a notional amount of $198.6 million maturing on various dates through January 1, 2018. 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. On December 31, 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.

In January 2014, we entered into six forward starting interest rate swap agreements with a weighted average interest swap rate of 1.78% on a notional amount of $130.0 million, each with an effective date of February 3, 2014 and each maturing on January 2, 2019. We entered into these forward starting swap agreements in order to hedge the interest payments associated with our initial borrowings under our 2014 Term Loans.

In the year ended December 31, 2013, we recorded net losses on hedge ineffectiveness of $3.4 million. We recorded $2.9 million in net losses on hedge ineffectiveness relating to a forward starting swap that was cash settled in 2008 in connection with the May 2013 Jacksonville Mall mortgage loan repayment. 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.” We also recorded $0.5 million in net losses on hedge ineffectiveness due to the accelerated amortization of $0.5 million in connection with the partial mortgage loan repayments at Logan Valley Mall.

In the year ended December 31, 2012, we recorded net losses on hedge ineffectiveness of $1.2 million. As the result of our permanent paydown of a portion of our 2010 Credit Facility in 2012 and expected repayments of mortgage loans secured by properties expected to be sold in 2013, we anticipated that we would not have sufficient 1-month LIBOR based interest payments to meet the entire swap notional amount related to three of our swaps. Therefore, it was probable that a portion of the hedged forecasted transactions (1-month LIBOR interest payments) associated with the three swaps would not occur by the end of the originally specified time period as documented at the inception of the hedging relationships. As such, previously deferred losses in other comprehensive income in the amount of $0.6 million related to these three interest rate swaps were reclassified into interest expense during 2012. One of those swaps with a notional amount of $40.0 million no longer qualified for hedge accounting as a result of the missed forecasted transactions and was marked to market through earnings prospectively. These swaps expired by their terms in March 2013. Additionally, certain of the properties that were under contract to be sold as of December 31, 2012 served as security for mortgage loans that were previously hedged. Since it was probable because of the pending sales that the hedged transactions as identified in our original hedge documentation would not occur, we reclassified $0.6 million from other comprehensive income to interest expense.

Accumulated other comprehensive income (loss) as of December 31, 2013 includes a net loss of $4.4 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, 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 December 31, 2013⁽¹⁾			Fair Value at December 31, 2012⁽¹⁾			Interest Rate		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	N/A			(1.3		)	2.90	%	November 29, 2013
48.0	N/A			(1.2		)	2.90	%	November 29, 2013
25.0	$	(0.3	)	(0.5		)	1.10	%	July 31, 2016
28.1	(0.5		)	(0.9		)	1.38	%	January 2, 2017
34.9	0.2			N/A			3.72	%	December 1, 2017
7.6	0.1			N/A			1.00	%	January 1, 2018
48.0	0.2			N/A			1.12	%	January 1, 2018
55.0	0.2			N/A			1.12	%	January 1, 2018
	$	(0.1	)	$	(9.7	)


(1)	As of December 31, 2013 and December 31, 2012, derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. As of December 31, 2013 and December 31, 2012, we do 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 our derivative financial instruments on our consolidated statements of operations for the years ended December 31, 2013, 2012 and 2011:



	For the Year Ended December 31,									Consolidated Statements of Operations Location
	2013			2012			2011
Derivatives in cash flow hedging relationships:
Interest rate products
Gain (loss) recognized in Other Comprehensive Income (Loss) on derivatives	$	8.2		$	(3.8	)	$	(11.1	)	N/A
Loss reclassified from Accumulated Other Comprehensive Income (Loss) into income (effective portion)	9.9			18.8			17.2			Interest expense
Gain (loss) recognized in income on derivatives (ineffective portion and amount excluded from effectiveness testing)	(3.4		)	(1.2		)	—			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, 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 December 31, 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 $0.1 million. If we had breached any of the default provisions in these agreements as of December 31, 2013, we might have been required to settle our obligations under the agreements at their termination value (including accrued interest) of $0.2 million. We had not breached any of these provisions as of December 31, 2013.