The Company may use derivative financial instruments, including interest rate swaps, caps, options, floors and other interest rate derivative contracts to hedge all or a portion of the interest rate risk associated with its borrowings. Certain of the Company’s foreign operations expose the Company to fluctuations of foreign interest rates and exchange rates. These fluctuations may impact the value of the Company’s cash receipts and payments in terms of the Company’s functional currency. The Company enters into derivative financial instruments to protect the value or fix the amount of certain obligations in terms of its functional currency, the USD.

The principal objective of such arrangements is to minimize the risks and/or costs associated with the Company’s operating and financial structure as well as to hedge specific anticipated transactions. The Company does not intend to utilize derivatives for speculative or other purposes other than interest rate and currency risk management. The use of derivative financial instruments carries certain risks, including the risk that any counterparty to a contractual arrangement may not be able to perform under the agreement. To mitigate this risk, the Company only enters into a derivative financial instrument with a counterparty with a high credit rating with a major financial institution, with which the Company and its affiliates may also have other financial relationships. The Company does not anticipate that any such counterparty will fail to meet its obligations, but there is no assurance that any counterparty will meet these obligations.


(In thousands)	Balance Sheet Location	June 30, 2023		December 31, 2022
Derivatives designated as hedging instruments:




Interest rate “pay-fixed” swaps (USD)	Derivative assets, at fair value	$	1,167	$	—
Interest rate “pay-fixed” swaps (GBP)	Derivative assets, at fair value	$	189	$	4,200

Interest rate “pay-fixed” swaps (EUR)	Derivative assets, at fair value	17,139		19,347

Total		$	18,495	$	23,547
Derivatives not designated as hedging instruments:
Foreign currency forwards (GBP-USD)	Derivative assets, at fair value	$	1,779	$	4,091
Foreign currency forwards (GBP-USD)	Derivative liabilities, at fair value	(1,024)		(29)
Foreign currency forwards (EUR-USD)	Derivative assets, at fair value	1,325		2,411
Foreign currency forwards (EUR-USD)	Derivative liabilities, at fair value	(774)		(299)

Interest rate swaps (EUR)	Derivative assets, at fair value	6,050		7,230

Total		$	7,356	$	13,404

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

All of the changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in accumulated other comprehensive income (“AOCI”) and are subsequently reclassified into earnings in the period that the hedged forecasted transaction impacts earnings. During the six months ended June 30, 2023, such derivatives were used to hedge the variable cash flows associated with variable-rate debt.

Amounts reported in AOCI related to derivatives are reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next 12 months ending June 30, 2024, the Company estimates that $14.1 million will be reclassified from other comprehensive income as an increase to interest expense.


	June 30, 2023			December 31, 2022
Derivatives	Number of Instruments	Notional Amount		Number of Instruments	Notional Amount
		(In thousands)			(In thousands)
Interest rate “pay-fixed” swaps (GBP)	3	$	50,650	45	$	229,752
Interest rate “pay-fixed” swaps (EUR)	11	303,922		16	343,055
Interest rate “pay-fixed” swaps (USD)	5	300,000		—	—
Total	19	$	654,572	61	$	572,807

The table below details the location in the consolidated financial statements of the gain or loss recognized on interest rate derivatives designated as cash flow hedges for the three months ended June 30, 2023 and 2022.


	Three Months Ended June 30,
(In thousands)	2023		2022
Amount of gain recognized in AOCI from derivatives	$	3,917	$	5,197
Amount of loss reclassified from AOCI into income as interest expense	$	4,481	$	1,652
Total interest expense recorded in the consolidated statements of operations	$	27,710	$	23,449

The Company is exposed to fluctuations in foreign currency exchange rates on property investments in foreign countries which pay rental income, incur property related expenses and borrow in currencies other than its functional currency, the USD. For derivatives designated as net investment hedges, all of the changes in the fair value of the derivatives, including the ineffective portion of the change in fair value of the derivatives, if any, are reported in AOCI (outside of earnings) as part of the cumulative translation adjustment. Amounts are reclassified out of AOCI into earnings when the hedged net investment is either sold or substantially liquidated. As of June 30, 2023 and December 31, 2022 the Company did not have foreign currency derivatives that were designated as net investment hedges used to hedge its net investments in foreign operations and during the six months ended June 30, 2023 and the year ended December 31, 2022, the Company did not use foreign currency derivatives that were designated as net investment hedges.

All foreign currency denominated borrowings under the Credit Facility are designated as net investment hedges. As such, the designated portion of changes in value due to currency fluctuations are reported in AOCI (outside of earnings) as part of the cumulative translation adjustment. The remeasurement gains and losses attributable to the undesignated portion of the foreign currency denominated debt are recognized directly in earnings. Amounts are reclassified out of AOCI into earnings when the hedged net investment is either sold or substantially liquidated, or if the Company should no longer possess a controlling interest. The Company records adjustments to earnings for currency impacts related to undesignated excess positions, if any. During the six months ended June 30, 2023 and 2022, the Company did not have any undesignated excess positions.

The Company is exposed to fluctuations in the exchange rates of its functional currency, the USD, against the GBP and the EUR. The Company has used and may continue to use foreign currency derivatives, including options, currency forward and cross currency swap agreements, to manage its exposure to fluctuations in GBP-USD and EUR-USD exchange rates. While these derivatives are economically hedging the fluctuations in foreign currencies, they do not meet the strict hedge accounting requirements to be classified as hedging instruments. Changes in the fair value of derivatives not designated as hedges under qualifying hedging relationships are recorded directly in net income (loss). The Company recorded losses of $0.8 million and $2.4 million for the three and six months ended June 30, 2023, respectively, and gains of $10.3 million and $14.9 million for the three and six months ended June 30, 2022, respectively.


	June 30, 2023			December 31, 2022
Derivatives	Number of Instruments	Notional Amount		Number of Instruments	Notional Amount
		(In thousands)			(In thousands)
Foreign currency forwards (GBP-USD)	29	$	52,550	30	$	53,833
Foreign currency forwards (EUR-USD)	33	45,721		39	50,323
Interest rate swaps (EUR)	14	455,828		3	149,418
Interest rate swaps (USD)	5	300,000		—	—
Interest rate swaps (GBP)	3	50,650		—	—


Total	84	$	904,749	72	$	253,574

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of June 30, 2023 and December 31, 2022. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the accompanying consolidated balance sheets.


									Gross Amounts Not Offset on the Balance Sheet
(In thousands)	Gross Amounts of Recognized Assets		Gross Amounts of Recognized (Liabilities)		Gross Amounts Offset on the Balance Sheet		Net Amounts of (Liabilities) Assets presented on the Balance Sheet		Financial Instruments		Cash Collateral Received (Posted)		Net Amount
June 30, 2023	$	27,649	$	(1,798)	$	—	$	25,851	$	—	$	—	$	25,851
December 31, 2022	$	37,279	$	(328)	$	—	$	36,951	$	—	$	—	$	36,951

In addition to the above derivative arrangements, the Company also uses non-derivative financial instruments to hedge its exposure to foreign currency exchange rate fluctuations as part of its risk management program, including foreign denominated debt issued and outstanding with third parties to protect the value of its net investments in foreign subsidiaries against exchange rate fluctuations. The Company has drawn, and expects to continue to draw, foreign currency advances under the Credit Facility to fund certain investments in the respective local currency which creates a natural hedge against the original equity invested in the real estate investments, removing the need for the final cross currency swaps.

The Company has agreements with each of its derivative counterparties that contain a provision where if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.

As of June 30, 2023, the Company did not have any counterparties where the net derivative fair value held by that counterparty was in a net liability position including accrued interest but excluding any adjustment for nonperformance. As of June 30, 2023, the Company had not posted any collateral related to these agreements and was not in breach of any agreement provisions. If the Company had breached any of these provisions, it could have been required to settle its obligations under the agreements at their aggregate termination value.