Derivative Financial Instruments

9 Months Ended

Sep. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

9. DERIVATIVE FINANCIAL INSTRUMENTS

The sole objective of our use of derivative financial instruments is to minimize the risks and/or costs associated with our investments and/or financing transactions. These derivatives may or may not qualify as net investment, cash flow, or fair value hedges under the hedge accounting requirements of ASC 815 – “Derivatives and Hedging.” Derivatives not designated as hedges are not speculative and are used to manage our exposure to interest rate movements and other identified risks. For more information on the accounting for designated and non-designated hedges, refer to Note 2.

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

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 foreign currency forward contracts to protect the value or fix the amount of certain investments or cash flows in terms of the U.S. Dollar.

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

September 30, 2016				December 31, 2015
Foreign Currency Derivatives	Number of Instruments	Notional Amount		Foreign Currency Derivatives	Number of Instruments	Notional Amount
Sell CAD Forward	1	C$	119,600	Sell CAD Forward	2	C$	154,900
Sell GBP Forward	1	£	117,900	Sell GBP Forward	2	£	90,400
Sell EUR Forward	1	€	44,900	Sell EUR Forward	1	€	49,000

Cash Flow Hedges of Interest Rate Risk

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

September 30, 2016
Interest Rate Derivatives	Number of Instruments	Notional Amount		Rate/ Strike	Index	Wtd.-Avg. Maturity (Years)
Interest Rate Swaps	2	C$	17,273	1.0%	CDOR	3.9
Interest Rate Caps	25	$	1,086,261	2.0%	USD LIBOR	0.6
Interest Rate Caps	6	C$	439,320	2.0%	CDOR	0.6
Interest Rate Caps	1	£	15,142	2.0%	GBP LIBOR	0.6
December 31, 2015
Interest Rate Derivatives	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

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 September 30, 2016, we estimate that an additional $1.4 million will be reclassified from accumulated other comprehensive income as an increase to interest expense. Additionally, during the three and nine months ended September 30, 2016 and 2015, we did not record any hedge ineffectiveness in our consolidated statements of operations.

Non-designated Hedges

During the three and nine months ended September 30, 2016, we recorded unrealized losses of $528,000 and $2.2 million, respectively, related to non-designated hedges that were reported as a component of interest expense in our consolidated financial statements. We recorded losses of $748,000 and $759,000 during the three and nine months ended September 30, 2015, respectively.

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

September 30, 2016				December 31, 2015
Non-designated Hedges	Number of Instruments	Notional Amount		Non-designated Hedges	Number of Instruments	Notional Amount
Interest Rate Caps	2	€	152,710	Interest Rate Caps	4	C$	67,303
Interest Rate Caps	3	C$	52,630	Interest Rate Caps	1	$	13,387
Buy GBP / Sell EUR	1	€	12,857	Buy GBP / Sell EUR Forward	1	€	12,857
Buy USD / Sell CAD	1	C$	7,000	Buy GBP / Sell USD Forward	1	£	10,400
Buy CAD / Sell USD	1	C$	7,000	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 Asset Position(1) as of				Fair Value of Derivatives in a Liability Position(2) as of
	September 30, 2016		December 31, 2015		September 30, 2016		December 31, 2015
Derivatives designated as hedging instruments:
Foreign exchange contracts	$	251	$	7,999	$	895	$	511
Interest rate derivatives		—		238		25		—
Total derivatives designated as hedging instruments	$	251	$	8,237	$	920	$	511
Derivatives not designated as hedging instruments:
Foreign exchange contracts	$	17	$	419	$	221	$	937
Interest rate derivatives		—		1		—		—
Total derivatives not designated as hedging instruments	$	17	$	420	$	221	$	937
Total Derivatives	$	268	$	8,657	$	1,141	$	1,448

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

(2) Included in 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 Gain (Loss) Recognized in OCI on Derivatives (Effective Portion)					Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)		Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)
Derivatives in Hedging Relationships	Three Months Ended September 30, 2016		Nine Months Ended September 30, 2016					Three Months Ended September 30, 2016			Nine Months Ended September 30, 2016
Net Investment
Foreign exchange contracts(1)	$	5,627	$	11,748			Interest Expense	$	—		$	—
Cash Flow Hedges
Interest rate derivatives		14		(274	)		Interest Expense		(241	)		(367	)
Total	$	5,641	$	11,474				$	(241	)	$	(367	)

(1) During the three and nine months ended September 30, 2016, we received net cash settlements of $19.2 million and $17.4 million, respectively, on our foreign currency forward contracts, compared to receiving $10.8 million and $13.7 million during the same periods in 2015. 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 September 30, 2016, we were in a net asset position of $48,000 with one of our derivative counterparties and a net liability position of $921,000 with another of our derivative counterparties. While we were in a net liability position with one counterparty as of September 30, 2016, we were not required to post collateral as our liability position was below the threshold defined in our agreement with this counterparty.