Derivative Instruments

Interest Rate Derivatives—We are exposed to risks arising from our business operations, economic conditions and financial markets. To manage these risks, we primarily use interest rate derivatives to hedge our debt and our cash flows. The interest rate derivatives include interest rate caps and interest rate floors, which are subject to master netting settlement arrangements. All derivatives are recorded at fair value.

During the six months ended June 30, 2018 and 2017, we entered into interest rate caps as summarized in the table below:



	Six Months Ended June 30,
	2018			2017
Notional amount (in thousands)	$	685,000		$	619,500
Strike rate minimum	2.43		%	3.00		%
Strike rate maximum	7.80		%	5.35		%
Effective date range	February 2018 - May 2018			January 2017 - May 2017
Maturity date range	March 2019 - June 2020			March 2018 - May 2019
Total cost of interest rate cap (in thousands)	$	348		$	338

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No instruments were designated as cash flow hedges

As of June 30, 2018, we held interest rate instruments as summarized in the table below:



Interest rate caps⁽¹⁾
Notional amount (in thousands)	$	1,393,200
Strike rate minimum	2.43		%
Strike rate maximum	11.61		%
Effective date range	January 2017 - May 2018
Maturity date range	November 2018 - June 2020
Aggregate principal balance on corresponding mortgage loans (in thousands)	$	993,826

Interest rate floors^{(1) (2)}
Notional amount (in thousands)	$	6,850,000
Strike rate minimum	(0.25		)%
Strike rate maximum	1.50		%
Maturity date range	March 2019 - July 2020

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⁽¹⁾	No instruments were designated as cash flow hedges


⁽²⁾	Cash collateral is posted by us as well as our counterparties. We offset the fair value of the derivative and the obligation/right to return/reclaim cash collateral.

Credit Default Swap Derivatives—We use credit default swaps, tied to the CMBX index, to hedge financial and capital market risk. A credit default swap is a derivative contract that functions like an insurance policy against the credit risk of an entity or obligation. The seller of protection assumes the credit risk of the reference obligation from the buyer (us) of protection in exchange for annual premium payments. If a default or a loss, as defined in the credit default swap agreements, occurs on the underlying bonds, then the buyer of protection is protected against those losses. The only liability for us, the buyer, is the annual premium and any change in value of the underlying CMBX index (if the trade is terminated prior to maturity). For all CMBX trades completed to date, we were the buyer of protection. Credit default swaps are subject to master-netting settlement arrangements and credit support annexes. As of June 30, 2018, we held a credit default swap with a notional amount of $50.0 million, an effective date of August 2017 and an expected maturity date of October 2026. Assuming the underlying bonds pay off at par over their remaining average life, our estimated total exposure for these trades was approximately $2.3 million as of June 30, 2018. Cash collateral is posted by us as well as our counterparties. We offset the fair value of the derivative and the obligation/right to return/reclaim cash collateral. The change in market value of credit default swaps is settled net through posting cash collateral or reclaiming cash collateral between us and our counterparties when such change in market value is over $250,000.