P 7 We utilize interest rate swap agreements to hedge a portion of our exposure to variable interest rates associated with our unsecured line of credit and unsecured term loan. These agreements involve an exchange of fixed and floating interest payments without the exchange of the underlying principal amount (the “notional amount”). Interest received under all of our swap agreements is based on the one- month LIBOR rate.The net difference between the interest paid and the interest received is reflected as an adjustment to interest expense.  We reflect our interest rate swap agreements on the balance sheet at their estimated fair values. We use a variety of methods and assumptions based on market conditions and risks existing at each balance sheet date to determine the fair values of our interest rate swap agreements.These methods of assessing fair value result in a general approximation of value, and such value may never be realized. All of our interest rate swap agreements meet the criteria to be deemed “highly effective” under the provisions of Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” in reducing our exposure to variable interest rates.Accordingly, we have categorized these instruments as cash flow hedges.While we intend to continue to meet the con- ditions for such hedge accounting, if hedges did not qualify as “highly effective”, the changes in the fair value of the derivatives used as hedges would be reflected in earnings. We do not believe we are exposed to more than a nominal amount of credit risk in our interest rate swap agreements as our counterparties are established, well-capitalized financial institutions. Rental income from leases with scheduled rent increases, free rent and other rent adjustments is recog- nized on a straight-line basis over the respective lease terms.We include amounts currently recognized as income, and expected to be received in later years, in deferred rent in the accompanying consolidat- ed balance sheets.Amounts received currently, but recognized as income in future years, are included as unearned rent in accounts payable, accrued expenses and tenant security deposits in the accompanying consolidated balance sheets. Tenant recoveries related to reimbursement of real estate taxes, insurance, repairs and maintenance, and other operating expenses are recognized as revenue in the period the appli- cable expenses are incurred.  We maintain an allowance for estimated losses that may result from the inability of our tenants to  make required payments. If a tenant fails to make contractual payments beyond any allowance, we may recognize additional bad debt expense in future periods equal to the amount of unpaid rent and unre- alized deferred rent.  We follow the provisions of Statement of Financial Accounting Standards No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets” in determining whether a property qualifies as an asset “held for sale” and should be classified as “discontinued operations”.A property is classified as “held for sale” when all of the following criteria for a plan of sale have been met: (1) management, having the authority to approve the action, commits to a plan to sell the property; (2) the property is available for immediate sale in its present condition, subject only to the terms that are usual and customary; (3) an active program to locate a buyer, and other actions required to complete the plan to sell, have been ini- tiated; (4) the sale of the property is probable and is expected to be completed within one year; (5) the property is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (6) actions necessary to complete the plan of sale indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. When all of these criteria have been met, the property is classified as “held for sale” and its operations are classified as discontinued oper- ations in our consolidated statements of income. When a property is designated as “held for sale”, amounts for all prior periods presented are reclassified from continuing operations to discontinued oper- ations.A loss is recognized for any initial adjustment of the asset’s carrying amount to fair value less costs to sell in the period the asset qualifies as “held for sale”. Depreciation of assets is discontinued com- mencing on the date they are designated as “held for sale”.  Discontinued Operations Recognition of Rental Income Interest Rate Swap Agreements