Derivatives

Our objectives in using derivatives are to add stability to interest expense and to manage our cash flow volatility and exposure to interest rate movements. To accomplish this objective, we primarily use interest rate protection agreements as part of our interest rate risk management strategy. Interest rate protection agreements designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

In connection with the origination of the 2014 Unsecured Term Loan (see Note 4), during January 2014, we entered into four interest rate protection agreements, with an aggregate notional value of $200,000, to manage our exposure to changes in the one month LIBOR rate (the “2014 Swaps ”). The 2014 Swaps fix the LIBOR rate at a weighted average rate of 2.29% and mature on January 29, 2021. We designated the 2014 Swaps as cash flow hedges.

In connection with the origination of the 2015 Unsecured Term Loan (see Note 4), during September 2015, we entered into six interest rate protection agreements, with an aggregate notional value of $260,000, to manage our exposure to changes in the one month LIBOR rate (the “2015 Swaps ”). The 2015 Swaps fix the LIBOR rate at a weighted average rate of 1.79% and mature on September 12, 2022. We designated the 2015 Swaps as cash flow hedges.

In order to maintain our flexibility to pursue an offering of unsecured debt, during August 2014, we entered into three interest rate protection agreements, with an aggregate notional value of $220,000, to manage our exposure to changes in the three month LIBOR rate (the "Settled Swaps"). At origination, we designated the Settled Swaps as cash flow hedges but, during the three months ended March 31, 2015, the Settled Swaps were de-designated and the fair market value loss was reclassified to earnings from other comprehensive income since we determined the forecasted offering of unsecured debt was no longer probable to occur within the time period stated in the respective designation memos. During the year ended December 31, 2015, we made a settlement payment of $11,546 to our derivative counterparties, which is recognized as mark-to-market and settlement loss on interest rate protection agreements.

Our agreements with our derivative counterparties contain provisions where if we default on any of our indebtedness, then we could also be declared in default on our derivative obligations subject to certain thresholds. As of December 31, 2015, we had not posted any collateral related to these agreements and were not in breach of any of the agreement provisions. If we had breached these provisions, we could have been required to settle our obligations under the agreements at their termination value.

Our Series F Preferred Stock, which was redeemed during the year ended December 31, 2014, included a quarterly rate reset. In 2008, we had entered into an interest rate swap agreement to mitigate our exposure to floating interest rates related to the forecasted reset rate of the coupon rate of our Series F Preferred Stock (the "Series F Agreement"). Accounting guidance for derivatives does not permit hedge accounting treatment related to equity instruments and therefore the mark-to-market gains or losses related to the Series F agreement were recorded in the statement of operations. The Series F Agreement matured on October 1, 2013 and for the year ended December 31, 2013, gains of $52 were recognized as mark-to-market gain on interest rate protection agreements.

The following table sets forth our financial liabilities related to the 2014 and 2015 Swaps, which are included in Accounts Payable, Accrued Expenses and Other Liabilities on the accompanying consolidated balance sheets and are accounted for at fair value on a recurring basis as of December 31, 2015:



				Fair Value Measurements at Reporting Date Using:
Description	Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)			Unobservable Inputs (Level 3)
Liabilities:
Derivatives designated as a hedging instrument:
2014 Swaps	$	(7,380	)	—	$	(7,380	)	—
2015 Swaps	$	(1,064	)	—	$	(1,064	)	—

There was no ineffectiveness recorded on the 2014 and 2015 Swaps during the year ended December 31, 2015. See Note 6 for more information.

The estimated fair value of the 2014 and 2015 Swaps was determined using the market standard methodology of netting the discounted fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of interest rates (forward curves) derived from observable market interest rate curves. In addition, credit valuation adjustments are incorporated in the fair value to account for potential non-performance risk, including our own non-performance risk and the respective counterparty’s non-performance risk. We determined that the significant inputs used to value the 2014 and 2015 Swaps fell within Level 2 of the fair value hierarchy.