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In October 2004, ARLP received proceeds of approximately $9.4&#160;million from the exercise of warrants for 629,345 operating partnership units. Additionally, in 2004 and 2005, the Company issued 973,354 and 282,776 shares of common stock, respectively, from the exercise of warrants under its Warrant Agreement, dated July&#160;1, 2003, and received net proceeds of $12.9&#160;million and $4.2&#160;million, respectively. </font></p> <p style="FONT-FAMILY: times"><font size="2">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;In June 2007, the Company completed a public offering in which it sold 2,700,000 shares of its common stock registered for $27.65 per share, and received net proceeds of approximately $73.6&#160;million after deducting the underwriting discount and the other estimated offering expenses. 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VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated by its primary beneficiary, which is the party that (i)&#160;has the power to control the activities that most significantly impact the VIE's economic performance and (ii)&#160;has the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. Current accounting guidance requires the Company to present a)&#160;assets of a consolidated VIE that can be used only to settle obligations of the consolidated VIE, and b)&#160;liabilities of a consolidated VIE for which creditors (or beneficial interest holders) do not have recourse to the general credit of the primary beneficiary. As a result of this guidance, the Company has separately disclosed parenthetically the assets and liabilities of its three collateralized debt obligation ("CDO") subsidiaries on its Consolidated Balance Sheets. Entities in which the Company owns a voting interest of 20&#160;percent to 50&#160;percent are accounted for primarily under the equity method. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. 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Restricted cash primarily represents proceeds from loan repayments on deposit with the trustees for the Company's CDOs which will be used to purchase replacement loans as collateral for the CDO that has not reached its replenishment date, unfunded loan commitments, interest payments received from loans and principal repayments for the CDOs that have reached their replenishment dates and are remitted quarterly to the bond holders and the Company in the month following the quarter. As of January 2012, all three of the CDOs have reached the end of their replenishment periods. See Note&#160;7&#8212;"Debt Obligations." The Company's real estate owned assets also have restricted cash balances totaling $2.0&#160;million as of December&#160;31, 2011 due to escrow requirements. 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The determination of other-than-temporary impairment is a subjective process requiring judgments and assumptions. The process may include, but is not limited to, assessment of recent market events and prospects for near-term recovery, assessment of cash flows, internal review of the underlying assets securing the investments, credit of the issuer and the rating of the security, as well as the Company's ability and intent to hold the investment to maturity. Management closely monitors market conditions on which it bases such decisions. </font></p> <p style="FONT-FAMILY: times"><font size="2">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;The Company also assesses certain of its securities, other than those of high credit quality, to determine whether significant changes in estimated cash flows or unrealized losses on these securities, if any, reflect a decline in value which is other-than-temporary and, accordingly, should be written down to their fair value against earnings. On a quarterly basis, the Company reviews these changes in estimated cash flows, which could occur due to actual prepayment and credit loss experience, to determine if an other-than-temporary impairment is deemed to have occurred. The determination of other-than-temporary impairment is a subjective process requiring judgments and assumptions and is not necessarily intended to indicate a permanent decline in value. The Company calculates a revised yield based on the current amortized cost of the investment, including any other-than-temporary impairments recognized to date, and the revised yield is then applied prospectively to recognize interest income. </font></p> <p style="FONT-FAMILY: times"><font size="2">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;Loans held for investment are intended to be held to maturity and, accordingly, are carried at cost, net of unamortized loan origination costs and fees, loan purchase discounts, and net of the allowance for loan losses when such loan or investment is deemed to be impaired. The Company invests in preferred equity interests that, in some cases, allow the Company to participate in a percentage of the underlying property's cash flows from operations and proceeds from a sale or refinancing. At the inception of each such investment, management must determine whether such investment should be accounted for as a loan, joint venture or as real estate. 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The Company evaluates all of this information as well as general market trends related to specific classes of assets, collateral type and geographic locations, when determining the appropriate assumptions such as capitalization and market discount rates, as well as the borrower's operating income and cash flows, in estimating the value of the underlying collateral when determining if a loan is impaired. The Company utilizes internally developed valuation models and techniques primarily consisting of discounted cash flow and direct capitalization models in determining the fair value of the underlying collateral on an individual loan. The Company may also obtain a third party appraisal, which may value the collateral through an "as-is" or "stabilized value" methodology. Such appraisals may be used as an additional source of valuation information only and no adjustments are made to appraisals. 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At December&#160;31, 2010, the Company had an allowance for loan losses of $205.5&#160;million relating to 30 loans with an aggregate carrying value, before loan loss reserves, of approximately $530.6&#160;million and at December&#160;31, 2009, the Company had an allowance for loan losses of $326.3&#160;million relating to 31 loans with an aggregate carrying value, before loan loss reserves, of approximately $693.7&#160;million. </font></p> <p style="FONT-FAMILY: times"><font size="2">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;Loan terms may be modified if the Company determines that based on the individual circumstances of a loan and the underlying collateral, a modification would more likely increase the total recovery of the combined principal and interest from the loan. Any loan modification is predicated upon a goal of maximizing the collection of the loan. Typical triggers for a modification would include situations where the projected cash flow is insufficient to cover required debt service, when asset performance is lagging the initial projections, where there is a requirement for rebalancing, where there is an impending maturity of the loan, and where there is an actual loan default. Loan terms that have been modified have included, but are not limited to interest rate, maturity date and in certain cases, principal amount. Length and amounts of each modification have varied based on individual circumstances and are determined on a case by case basis. If the loan modification constitutes a concession whereas the Company does not receive ample consideration in return for the modification, and the borrower is experiencing financial difficulties and cannot repay the loan under the current terms, then the modification is considered by the Company to be a troubled debt restructuring. 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In addition, a gain or loss may be recorded upon the sale of a loan to a third party as a charge to the Consolidated Statement of Operations in the period in which the loan was sold. 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Additionally, the fair value adjustments will affect either accumulated other comprehensive income (loss) until the hedged item is recognized in earnings, or net income (loss) depending on whether the derivative instrument qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity. The Company utilizes quotations from a third party to assist in the determination of these fair values. </font></p> <p style="FONT-FAMILY: times"><font size="2">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;The Company records all derivatives on the Consolidated Balance Sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. 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In cases where a derivative financial instrument is terminated early, any gain or loss is generally amortized over the remaining life of the hedged item. Any derivative instrument used for risk management that does not meet the hedging criteria is marked-to-market with the changes in value included in net income (loss). The Company uses derivatives for hedging purposes rather than speculation. See Note&#160;10&#8212;"Derivative Financial Instruments" for further details. </font></p> <p style="FONT-FAMILY: times"><font size="2"><b><i>Recently Issued Accounting Pronouncements </i></b></font></p> <p style="FONT-FAMILY: times"><font size="2">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;In December 2011, the FASB issued updated guidance on disclosure about offsetting assets and liabilities which amends U.S.&#160;GAAP to conform more to the disclosure requirements of International Financial Reporting Standards ("IFRS"). 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This guidance is effective as of the first quarter of 2012, except for the disclosure of reclassification adjustments which was postponed for re-deliberation by the FASB, and early adoption is permitted. The Company early adopted the guidance, with exception to the disclosure of reclassification adjustments postponed for re-deliberation by the FASB. As the guidance only amends existing disclosure requirements, its adoption did not have a material effect on the Company's Consolidated Financial Statements. </font></p> <p style="FONT-FAMILY: times"><font size="2">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;In May 2011, the FASB issued updated guidance on fair value measurement which amends U.S.&#160;GAAP to conform to IFRS measurement and disclosure requirements. The amendments change the wording used to describe the requirements in U.S.&#160;GAAP for measuring fair value, changes certain fair value measurement principles and enhances disclosure requirements. 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In February 2011, the portfolio of hotel assets (the "Hotel Portfolio") securing this loan were transferred to the Company by the owner, a creditor trust. As of the date of this transaction, as well as at December&#160;31, 2010, the loan was contractually current. The Company recorded this transaction as real estate owned in its first quarter 2011 Consolidated Financial Statements at a fair value of $67.3&#160;million and the carrying value of the loan represented the fair value of the underlying collateral at the time of the transfer. For the year ended December&#160;31, 2011, the Company recorded property operating income of $16.9&#160;million, property operating expense of $15.0&#160;million, and depreciation of $2.8&#160;million. The operating results of the Hotel Portfolio are seasonal with the majority of revenues earned in the first two quarters of the calendar year. 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During 2009, the Company established a $5.6&#160;million provision for loan loss related to this property equal to the carrying value of the loan and in the second quarter of 2010, the Company purchased the property securing this loan by deed-in-lieu of foreclosure and assumed the $20.8&#160;million interest in a first mortgage loan. The Company recorded this transaction as real estate owned in its Consolidated Financial Statements at a fair value of $20.8&#160;million and the carrying value of the loan represented the fair value of the underlying collateral at the time of the transfer. During the fourth quarter of 2011, the Company entered into negotiations to sell the property to a third party at which time it was determined that the property met the held-for-sale requirements pursuant to the accounting guidance. The Company will continue to receive cash flows from this property until a sale is completed within one year. As a result, the Company reclassified this investment from real estate owned to real estate held-for-sale at a value of $19.4&#160;million and reclassified property operating income and expenses and impairment loss for current and prior periods to discontinued operations in the Company's Consolidated Financial Statements. In addition, discontinued operations have not been segregated in the Company's Consolidated Statements of Cash Flows. For the years ended December&#160;31, 2011 and 2010, loss from discontinued operations consisted of property operating income of $2.5&#160;million and $1.7&#160;million, respectively, property operating expense of $2.4&#160;million and $2.0 million, respectively, which included $1.3&#160;million and $1.0&#160;million, respectively, of interest expense, and depreciation of $0.7&#160;million and $0.6&#160;million, respectively. 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During the second quarter of 2011, through site visits and discussion with market participants, the Company determined that the asset exhibited indicators of impairment and performed an impairment analysis. As a result of the impairment analysis based on the indicators of value from the market participants, the Company recorded an impairment loss of $0.8&#160;million in the Consolidated Statement of Operations. During the third quarter of 2011, the Company entered into negotiations to sell the property to a third party at which time it was determined that the property met the held-for-sale requirements pursuant to the accounting guidance. As a result, the Company reclassified this investment from real estate owned to real estate held-for-sale at a value of $1.9&#160;million and reclassified property operating income and expenses and impairment loss for current and prior periods to discontinued operations in the Company's Consolidated Financial Statements. In addition, discontinued operations have not been segregated in the Company's Consolidated Statements of Cash Flows. In the fourth quarter of 2011, the Company recorded an additional impairment loss of $0.7 million in the Consolidated Statement of Operations, reducing the carrying value of the investment to $1.2&#160;million at December&#160;31, 2011. The Company will continue to receive cash flows from this property until a sale is completed within one year. For the years ended December&#160;31, 2011, 2010 and 2009, loss from discontinued operations consisted of property operating income of $0.3&#160;million, $0.8&#160;million and $0.7&#160;million, respectively, property operating expense of $1.0&#160;million, $1.5&#160;million and $1.2&#160;million, respectively, and depreciation of less than $0.1&#160;million, respectively. 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During the third quarter of 2010, the Company agreed to sell the property to a third party at which time it was determined that the property met the held-for-sale requirements pursuant to the accounting guidance. As a result, the Company reclassified this investment from real estate owned to real estate held-for-sale at a value of $5.5&#160;million and reclassified property operating income and expenses for current and prior periods to discontinued operations in the Company's Consolidated Financial Statements. In addition, discontinued operations have not been segregated in the Company's Consolidated Statements of Cash Flows. For the years ended December&#160;31, 2010 and 2009, loss from discontinued operations consisted of property operating income of $0.5&#160;million and $0.3&#160;million, respectively, property operating expense of $0.8&#160;million and $0.2&#160;million, respectively, and depreciation of less than $0.1&#160;million and $0.1 million, respectively. 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For purposes of determining the number of shares that are paid to ACM to satisfy the common stock portion of the incentive fee from and after the date the Company's common shares are publicly traded, each common share shall have a value equal to the average closing price per common share based on the last twenty days of the fiscal quarter with respect to which the incentive fee is being paid. The incentive fee is accrued as it is earned. The expense incurred for incentive fee paid in common stock is determined using the amount of stock calculated as noted above and the quoted market price of the stock on the last day of each quarter. At December&#160;31 of each year, the Company remeasures the incentive fee expense paid to ACM in shares of the Company's common stock in accordance with current accounting guidance, which discusses how to determine the expense when certain terms are not known prior to the measurement date. 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The RMBS investments bear interest at a weighted average fixed rate of 6.28%, have a weighted average stated maturity of 36.8&#160;years, but have weighted average estimated lives of 2.1&#160;years based on the estimated maturity of the RMBS investments with approximately $10.8&#160;million, $4.8&#160;million and $13.6&#160;million maturing in 2012, 2014 and 2015, respectively, and have a total fair value of $29.3&#160;million at December&#160;31, 2011. The RMBS investments were financed with a repurchase agreement with a financial institution for a total of $30.0&#160;million which finances 80% to 90% of the value of each individual investment. During the year ended December&#160;31, 2011, the Company paid down the debt by $3.9&#160;million due to the principal paydowns received on the RMBS investments, reducing the total debt amount to $26.1&#160;million at December&#160;31, 2011. 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The Company evaluates these securities periodically to determine whether a decline in their value is other-than-temporary, though such a determination is not intended to indicate a permanent decline in value. The Company's evaluation is based on its assessment of cash flows which is supplemented by third-party research reports, internal review of the underlying assets securing the investments, levels of subordination and the ratings of the securities and the underlying collateral. The Company's estimation of cash flows expected to be generated by the securities portfolio is based upon an internal review of the underlying mortgage loans securing the investments both on an absolute basis and compared to the Company's initial underwriting for each investment and efforts are supplemented by third party research reports, third party market assessments and dialogue with market participants. Management closely monitors market conditions on which it bases such decisions. 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