Derivative Financial Instruments

3 Months Ended

Mar. 31, 2017

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):

March 31, 2017				December 31, 2016
Foreign Currency Derivatives	Number of Instruments	Notional Amount		Foreign Currency Derivatives	Number of Instruments	Notional Amount
Sell GBP Forward	1	£	141,900	Sell GBP Forward	2	£	141,900
Sell CAD Forward	1	C$	122,900	Sell CAD Forward	2	C$	122,900
				Sell EUR Forward	1	€	44,900

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):

March 31, 2017
Interest Rate Derivatives	Number of Instruments	Notional Amount		Strike	Index	Wtd.-Avg. Maturity (Years)
Interest Rate Swaps(1)	4	C$	108,271	1.0%	CDOR	2.2
Interest Rate Caps	19	$	633,903	2.0%	USD LIBOR	0.2
Interest Rate Caps	6	C$	304,931	2.0%	CDOR	0.2
Interest Rate Caps	1	£	15,142	2.0%	GBP LIBOR	0.1
December 31, 2016
Interest Rate Derivatives	Number of Instruments	Notional Amount		Strike	Index	Wtd.-Avg. Maturity (Years)
Interest Rate Swaps(1)	4	C$	108,271	1.0%	CDOR	2.4
Interest Rate Caps	21	$	802,256	2.0%	USD LIBOR	0.4
Interest Rate Caps	5	C$	400,035	2.0%	CDOR	0.4
Interest Rate Caps	1	£	15,142	2.0%	GBP LIBOR	0.3

(1) Two of our interest rate swaps totaling C$91.0 million ($68.3 million and $67.7 million as of March 31, 2017 and December 31, 2016, respectively) do not become effective until June 1, 2017.

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, 2017, we estimate that an additional $470,000 will be reclassified from accumulated other comprehensive income as an increase to interest expense. Additionally, during the three months ended March 31, 2017 and 2016, we did not record any hedge ineffectiveness in our consolidated statements of operations.

Non-designated Hedges

During the three months ended March 31, 2017 and 2016, we recorded gains of $90,000 and losses of $976,000, respectively, related to non-designated hedges that were reported as a component of interest expense in our consolidated financial statements.

The following tables summarize our non-designated hedges (notional amount in thousands):

March 31, 2017
Non-designated Hedges	Number of Instruments	Notional Amount
Interest Rate Caps	2	$	72,960
Interest Rate Caps	1	C$	18,327
Buy GBP / Sell EUR Forward	1	€	12,857
December 31, 2016
Non-designated Hedges	Number of Instruments	Notional Amount
Interest Rate Caps	3	$	256,875
Interest Rate Caps	2	C$	37,221
Buy GBP / Sell EUR Forward	1	€	12,857

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
	March 31, 2017		December 31, 2016		March 31, 2017		December 31, 2016
Derivatives designated as hedging instruments:
Foreign exchange contracts	$	1,174	$	3,268	$	—	$	210
Interest rate derivatives		236		331		—		—
Total derivatives designated as hedging instruments	$	1,410	$	3,599	$	—	$	210
Derivatives not designated as hedging instruments:
Foreign exchange contracts	$	14	$	487	$	—	$	—
Interest rate derivatives		—		—		—		—
Total derivatives not designated as hedging instruments	$	14	$	487	$	—	$	—
Total Derivatives	$	1,424	$	4,086	$	—	$	210

(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 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 March 31,								Three Months Ended March 31,
	2017			2016					2017			2016
Net Investment
Foreign exchange contracts(1)	$	(4,294	)	$	(6,470	)		Interest Expense	$	—		$	—
Cash Flow Hedges
Interest rate derivatives		(105	)		(196	)		Interest Expense		(474	)		(27	)
Total	$	(4,399	)	$	(6,666	)			$	(474	)	$	(27	)

(1)   During the three months ended March 31, 2017 and 2016, we paid net cash settlements of $1.8 million and received $8.2 million on our foreign currency forward contracts, respectively. 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, 2017, we were in a net asset position with each such derivative counterparty.