Derivative instruments

9 Months Ended

Sep. 30, 2012

Derivative instruments

Note 9 – Derivative instruments

The Company uses interest rate swaps and caps to manage exposure to variable cash flows on portions of its borrowings under repurchase agreements. The Company’s repurchase agreements bear interest at a LIBOR-based variable rate and increases in LIBOR could negatively impact earnings. Interest rate swap and cap agreements allow the Company to receive a variable rate cash flow based on LIBOR and pay a fixed rate cash flow, mitigating the impact of this exposure.

The Company entered into interest rate swaps and forward-starting caps in an effort to economically hedge a portion of its floating-rate interest payments due under the Wells Facility as well as potential extensions of the collateral securing the Wells Facility borrowings. The Company’s derivative instruments consist of the following at September 30, 2012 and December 31, 2011:

		September 30, 2012						December 31, 2011
	Balance Sheet Location	Notional Value			Estimated Fair Value			Notional Value			Estimated Fair Value
Interest rate swaps	Derivative instruments	$	90,266		$	(252	)	$	241,850		$	(666	)
Interest rate caps	Derivative instruments		206,469	*		1			26,189	*		188
Total derivative instruments					$	(251	)				$	(478	)

* Represents the notional values at September 30, 2012 and December 31, 2011 but does not include forward-starting notionals.

The Company has an agreement with its derivative counterparty that contains a provision where if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.

The following table summarizes the amounts recognized on the consolidated statements of operations related to the Company’s derivatives for the three and nine months ended September 30, 2012 and 2011.

		For the three months ended September 30						For the nine months ended September 30
	Location of Loss Recognized in Income	2012			2011			2012			2011
Interest rate swaps	Loss on derivative instruments – realized *	$	(127	)	$	(475	)	$	(796	)	$	(1,388	)
Interest rate swaps	Loss on derivative instruments – unrealized		50			343			414			(1,923	)
Interest rate caps	Loss on derivative instruments – unrealized		(10	)		(545	)		(187	)		632
Total		$	(87	)	$	(677	)	$	(569	)	$	(2,679	)

* Realized losses represent net amounts accrued for the Company’s derivative instruments during the period.