Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Gables’ capital structure includes the use of variable rate and fixed rate indebtedness. As such, Gables is exposed to the impact of changes in interest rates. Gables’ senior management periodically seeks input from third-party consultants regarding market interest rate and credit risk in order to evaluate its interest rate exposure. In certain situations, Gables may utilize derivative financial instruments, in the form of rate caps, rate swaps or rate locks, to hedge interest rate exposure by modifying the interest rate characteristics of related balance sheet instruments and prospective financing transactions. Gables does not utilize such instruments for trading or speculative purposes.

Gables typically refinances maturing debt instruments at then-existing market interest rates and terms which may be more or less than the interest rates and terms on the maturing debt.

The following table provides information about Gables’ derivative financial instruments and other financial instruments that are sensitive to changes in interest rates and should be read in conjunction with the accompanying consolidated financial statements and notes thereto. For debt obligations, the table presents principal cash flows and related weighted-average interest rates in effect at December 31, 1999 by expected maturity dates. The weighted-average interest rates presented in this table are inclusive of credit enhancement fees. For interest rate protection agreements, the table presents the notional amounts and related weighted-average pay rates by fiscal year of maturity. There have been no substantial changes in Gables’ market risk profile from the preceding year and the assumptions are consistent with prior year assumptions.

Gables estimates that the fair value of its debt approximates carrying value based upon its effective current borrowing rate for issuance of debt with similar terms and remaining maturities. At December 31, 1999 and 1998, the fair values of Gables’ interest rate swaps and caps were $460 and $(161), respectively.