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. 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 12 months, we estimate that $4.4 million will be reclassified as an increase to interest expense in connection with derivatives. The amortization of these amounts could be accelerated in the event that we repay amounts outstanding on the debt instruments and do not replace them with new borrowings.

In June 2014, we gave notice to the mortgage lender that we intended to repay the mortgage loan secured by Logan Valley Mall, and in connection therewith, we recorded hedge ineffectiveness of $1.2 million in the three and six months ended June 30, 2014. The notice of our intention to repay the mortgage loan made it probable that the hedged transaction identified in our original hedge documentation would not occur, and we reclassified $1.2 million from accumulated other comprehensive loss to interest expense. We repaid the mortgage loan in July 2014.

Interest Rate Swaps

As of June 30, 2014, we had entered into 12 interest rate swap agreements with a weighted average interest rate of 1.67% on a notional amount of $328.1 million maturing on various dates through January 2019.

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 on a quarterly basis. As of June 30, 2014, we considered these interest rate swap agreements to be highly effective as cash flow hedges. The interest rate swap agreements are net settled monthly.

Accumulated other comprehensive loss as of June 30, 2014 includes a net loss of $2.8 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 June 30, 2014 and December 31, 2013. 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 June 30, 2014 ⁽¹⁾			Fair Value at December 31, 2013 ⁽¹⁾			Interest Rate		Maturity Date
Interest Rate Swaps
$25.0	$	(0.3	)	$	(0.3	)	1.10	%	July 31, 2016
28.1	(0.5		)	(0.5		)	1.38	%	January 2, 2017
34.4	—			0.2			3.72	%	December 1, 2017
7.6	—			0.1			1.00	%	January 1, 2018
55.0	(0.1		)	0.2			1.12	%	January 1, 2018
48.0	(0.1		)	0.2			1.12	%	January 1, 2018
30.0	(0.5		)	N/A			1.78	%	January 2, 2019
20.0	(0.3		)	N/A			1.78	%	January 2, 2019
20.0	(0.3		)	N/A			1.78	%	January 2, 2019
20.0	(0.4		)	N/A			1.79	%	January 2, 2019
20.0	(0.4		)	N/A			1.79	%	January 2, 2019
20.0	(0.3		)	N/A			1.79	%	January 2, 2019
	$	(3.2	)	$	(0.1	)

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⁽¹⁾	As of June 30, 2014 and December 31, 2013, derivative valuations in their entirety were classified in Level 2 of the fair value hierarchy. As of June 30, 2014 and December 31, 2013, 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 on our share of our partnerships’ statements of operations for the three and six months ended June 30, 2014 and 2013:



	Three Months Ended June 30,						Six Months Ended June 30,						Consolidated Statements of Operations Location
(in millions of dollars)	2014			2013			2014			2013			Consolidated Statements of Operations Location
Derivatives in cash flow hedging relationships:
Interest rate products
(Loss) gain recognized in Other Comprehensive Income (Loss) on derivatives	$	(0.3	)	$	9.7		$	(2.2	)	$	7.6		N/A
Loss reclassified from Accumulated Other Comprehensive Income (Loss) into income (effective portion)	$	1.2		$	3.0		$	2.2		$	7.0		Interest expense
Loss recognized in income on derivatives (ineffective portion and amount excluded from effectiveness testing)	$	(1.2	)	$	(3.2	)	$	(1.2	)	$	(2.7	)	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 June 30, 2014, 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 June 30, 2014, 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 $3.2 million. If we had breached any of the default provisions in these agreements as of June 30, 2014, we might have been required to settle our obligations under the agreements at their termination value (including accrued interest) of $3.6 million. We had not breached any of these provisions as of June 30, 2014.