9. DERIVATIVE FINANCIAL INSTRUMENTS

Risk Management Objective of Using Derivatives

Certain of our international investments expose us to fluctuations in foreign interest rates and currency exchange rates. These fluctuations may impact the value of our cash receipts and payments in terms of our functional currency, the U.S. Dollar. We use derivative financial instruments to protect the value or fix the amount of certain investments or cash flows in terms of the U.S. Dollar.

Certain of our financing transactions expose us to a fixed versus floating rate mismatch between our assets and liabilities. We use derivative financial instruments, which include interest rate caps and swaps, and may also include interest rate options, floors, and other interest rate derivative contracts, to hedge interest rate risk associated with our borrowings where there is potential for an index mismatch.

The sole objective of our use of derivative financial instruments is to minimize the risks and/or costs associated with the situations described above. We do not intend to utilize derivatives for speculative or other purposes. The use of derivative financial instruments involves certain risks, including the risk that the counterparties to these contractual arrangements do not perform as agreed. To mitigate this risk, we only enter into derivative financial instruments with counterparties that have appropriate credit ratings and are major financial institutions with which we and our affiliates may also have other financial relationships. We do not anticipate that any of the counterparties will fail to meet their obligations.

Net Investment Hedges of Foreign Currency Risk

We have made investments in foreign currencies that expose us to fluctuations between the U.S. Dollar and the foreign currency of each such investment. Currently, we use derivative financial instruments to manage, or hedge, the variability in the carrying value of certain of our net investments in consolidated subsidiaries whose functional currencies are not the U.S. Dollar. For derivatives that are designated and qualify as a hedge of our net investment in a foreign currency, the gain or loss on such derivatives is reported in other comprehensive income as part of the cumulative translation adjustment to the extent it is effective. Any ineffective portion of a net investment hedge is recognized in our consolidated statements of operations. For derivatives that are not designated as hedging instruments, gains or losses are recognized in our consolidated statements of operations as incurred.

The following table details our outstanding foreign exchange derivatives that were designated as net investment hedges of foreign currency risk (notional amount in thousands):


March 31, 2016				December 31, 2015
Foreign Currency Derivatives	Number of Instruments	Notional Amount		Foreign Currency Derivatives	Number of Instruments	Notional Amount
Sell CAD Forward	2	C$	154,450	Sell CAD Forward	2	C$	154,900
Sell GBP Forward	3	£	108,300	Sell GBP Forward	2	£	90,400
Sell EUR Forward	1	€	48,000	Sell EUR Forward	1	€	49,000

Cash Flow Hedges of Interest Rate Risk

Our objective in using interest rate derivatives is to add stability to interest expense and to manage our exposure to interest rate movements. In addition, we may be required by our lenders to enter into certain derivative contracts related to our credit facilities. To accomplish this objective, we primarily use interest rate caps and swaps. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts if interest rates rise above a certain level in exchange for an up-front premium. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged transaction affects net income. These derivatives were used to hedge the variable cash flows associated with floating rate debt. The ineffective portion of the change in fair value of such derivatives is recognized directly in net income. During the three months ended March 31, 2016 and 2015, we did not record any hedge ineffectiveness in our consolidated statements of operations.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on our floating rate debt. During the twelve months following March 31, 2016, we estimate that an additional $1.3 million will be reclassified from other accumulated comprehensive income as an increase to interest expense.

The following tables detail our outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (notional amount in thousands):


March 31, 2016
Interest Rate	Number of Instruments	Notional Amount		Strike	Index	Wtd.-Avg. Maturity (Years)
Interest Rate Caps	26	$	1,097,632	2%	USD LIBOR	1.1
Interest Rate Caps	7	C$	483,286	2%	CDOR	1.0
Interest Rate Caps	1	€	152,710	2%	EURIBOR	0.8
Interest Rate Caps	1	£	15,142	2%	GBP LIBOR	1.1
Interest Rate Swap	1	C$	14,673	n/a	CDOR	4.4

December 31, 2015
Interest Rate	Number of Instruments	Notional Amount		Strike	Index	Wtd.-Avg. Maturity (Years)
Interest Rate Caps	26	$	1,097,632	2%	USD LIBOR	1.3
Interest Rate Caps	7	C$	483,286	2%	CDOR	1.2
Interest Rate Caps	1	€	152,710	2%	EURIBOR	1.0
Interest Rate Caps	1	£	15,142	2%	GBP LIBOR	1.3

Non-designated Hedges

Derivatives not designated as hedges are not speculative and are used to manage our exposure to interest rate movements and other identified risks, but do not meet the strict hedge accounting requirements of ASC 815 – “Derivatives and Hedging.” Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in our consolidated statement of operations. During the three months ended March 31, 2016, we recorded losses of $976,000, related to non-designated hedges. We did not record any losses related to non-designated hedges during the three months ended March 31, 2015.

The following table summarizes our non-designated hedges (notional amount in thousands):


March 31, 2016				December 31, 2015
	Number of	Notional			Number of	Notional
Non-designated Hedges	Instruments	Amount		Non-designated Hedges	Instruments	Amount
Interest Rate Caps	4	C$	67,303	Interest Rate Caps	4	C$	67,303
Interest Rate Caps	1	$	13,387	Interest Rate Caps	1	$	13,387
Buy GBP / Sell EUR Forward	1	€	12,857	Buy GBP / Sell EUR Forward	1	€	12,857
Buy CAD / Sell USD Forward	1	C$	950	Buy GBP / Sell USD Forward	1	£	10,400
Buy USD / Sell CAD Forward	1	C$	950	Buy USD / Sell GBP Forward	1	£	10,400
				Buy CAD / Sell USD Forward	1	C$	1,000
				Buy USD / Sell CAD Forward	1	C$	1,000

Valuation of Derivative Instruments

The following table summarizes the fair value of our derivative financial instruments ($ in thousands):


	Fair Value of Derivatives in an				Fair Value of Derivatives in a
	Asset Position⁽¹⁾ as of				Liability Position⁽²⁾ as of
	March 31, 2016		December 31, 2015		March 31, 2016		December 31, 2015
Derivatives designated as hedging instruments:
Foreign exchange contracts	$	566	$	7,999	$	8,981	$	511
Interest rate derivatives		45		238		15		—

Total derivatives designated as hedging instruments	$	611	$	8,237	$	8,996	$	511

Derivatives not designated as hedging instruments:
Foreign exchange contracts	$	14	$	419	$	293	$	937
Interest rate derivatives		—		1		—		—

Total derivatives not designated as hedging instruments	$	14	$	420	$	293	$	937

Total Derivatives	$	625	$	8,657	$	9,289	$	1,448

(1)	Included in other assets in our consolidated balance sheets.

(2)	Included in accounts payable, accrued expenses, and other liabilities in our consolidated balance sheets.

The following table presents the effect of our derivative financial instruments on our consolidated statements of operations ($ in thousands):


	Amount of (Loss)							Amount of
	Gain Recognized in							Loss Reclassified from
	OCI on Derivatives					Location of		Accumulated OCI into
	(Effective Portion)					Gain (Loss)		Income (Effective Portion)
	Three Months Ended March 31,					Reclassified from Accumulated OCI into Income		Three Months Ended March 31,
Derivatives in Hedging Relationships	2016			2015		(Effective Portion)		2016			2015

Foreign exchange contracts⁽¹⁾	$	(6,470	)	$	3,337		Interest Expense	$	—		$	—
Interest rate derivatives		(196	)		—		Interest Expense		(27	)		—

Total	$	(6,666	)	$	3,337			$	(27	)	$	—

(1)	During the three months ended March 31, 2016 and 2015, we received net cash settlements of $8.2 million and $4.1 million, respectively, on our foreign currency forward contracts. Those amounts are included as a component of accumulated other comprehensive loss on our consolidated balance sheets.

Credit-Risk Related Contingent Features

We have entered into agreements with certain of our derivative counterparties that contain provisions where if we were to default on any of our indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, we may also be declared in default on our derivative obligations. In addition, certain of our agreements with our derivative counterparties require that we post collateral to secure net liability positions. As of March 31, 2016, we were in a net asset position of $135,000 with one of our derivative counterparties and a net liability position of $8.8 million with another of our derivative counterparties. While we were in a net liability position with one counterparty as of March 31, 2016, we were not required to post collateral as our liability position was below the threshold defined in our agreement with this counterparty.