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Derivative Instruments | 6 Months Ended
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Jun. 30, 2018
Summary of Derivative Instruments [Abstract] |
Derivative Instruments | Derivative Instruments All derivatives are recognized at fair value in the consolidated balance sheets within the line items "Other assets" and "Accounts payable and accrued liabilities" as applicable. The Company's derivatives are subject to a master netting arrangement and the Company has elected not to offset its derivative position for purposes of balance sheet presentation and disclosure. The Company had derivative liabilities of $0.6 million and $0.1 million recorded in “Accounts payable and accrued liabilities” in the consolidated balance sheet at June 30, 2018 and December 31, 2017, respectively. The Company had derivative assets of $40.7 million and $25.8 million recorded in “Other assets” in the consolidated balance sheet at June 30, 2018 and December 31, 2017, respectively. The Company had not posted or received collateral with its derivative counterparties as of June 30, 2018 or December 31, 2017. See Note 11 for disclosures relating to the fair value of the derivative instruments as of June 30, 2018 and December 31, 2017. Risk Management Objective of Using Derivatives The Company is exposed to certain risk arising from both its business operations and economic conditions including the effect of changes in foreign currency exchange rates and interest rates on its LIBOR based borrowings. The Company manages this risk by following established risk management policies and procedures including the use of derivatives. The Company’s objective in using derivatives is to add stability to reported earnings and to manage its exposure to foreign exchange and interest rate movements or other identified risks. To accomplish this objective, the Company primarily uses interest rate swaps, cross-currency swaps and foreign currency forwards. Cash Flow Hedges of Interest Rate Risk 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 on its LIBOR based borrowings. To accomplish these objectives, the Company currently uses interest rate swaps as its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt or payment of variable-rate amounts from a counterparty which results in the Company recording net interest expense that is fixed over the life of the agreements without exchange of the underlying notional amount. As of June 30, 2018, the Company had two interest rate swap agreements to fix the interest rate at 2.64% on $300.0 million of borrowings under the unsecured term loan facility from July 6, 2017 to April 5, 2019. Additionally, as of June 30, 2018, the Company had three additional interest rate swap agreements to fix the interest rate at 3.15% on an additional $50.0 million of borrowings under the unsecured term loan facility from November 6, 2017 to April 5, 2019 and on $350.0 million of borrowings under the unsecured term loan facility from April 6, 2019 to February 7, 2022. The change in the fair value of interest rate derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (AOCI) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings within the same income statement line item as the earnings effect of the hedged transaction. During the six months ended June 30, 2018 and 2017, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. As of June 30, 2018, the Company estimates t hat during the twelve months ending June 30, 2019, $2.4 million will be reclassified from AOCI to a reduction of interest expense. Cash Flow Hedges of Foreign Exchange Risk The Company is exposed to foreign currency exchange risk against its functional currency, USD, on its four Canadian properties. The Company uses cross currency swaps and foreign currency forwards to mitigate its exposure to fluctuations in the USD-CAD exchange rate on its Canadian properties. These foreign currency derivatives should hedge a significant portion of the Company's expected CAD denominated cash flow of the Canadian properties as their impact on the Company's cash flow when settled should move in the opposite direction of the exchange rates used to translate revenues and expenses of these properties. As of June 30, 2018, the Company had USD-CAD cross-currency swaps with a fixed original notional value of $100.0 million CAD and $98.1 million USD. The net effect of these swaps is to lock in an exchange rate of $1.05 CAD per USD on approximately $13.5 million of annual CAD denominated cash flows on the properties through July 1, 2018. Additionally, on August 30, 2017, the Company entered into a cross-currency swap that became effective July 1, 2018 with a fixed original notional value of $100.0 million CAD and $79.5 million USD. The net effect of this swap is to lock in an exchange rate of $1.26 CAD per USD on approximately $13.5 million of annual CAD denominated cash flows on the properties through June 2020. On June 29, 2019, the Company entered into two cross-currency swap agreements designated as net investment hedges and are described below. The change in the fair value of foreign currency derivatives designated and that qualify as cash flow hedges of foreign exchange risk is recorded in AOCI and subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings within the same income statement line item as the earnings effect of the hedged transaction. As of June 30, 2018, the Company estimates t hat during the twelve months ending June 30, 2019, $0.4 million of gains will be reclassified from AOCI to other income. Net Investment Hedges As discussed above, the Company is exposed to fluctuations in foreign exchange rates on its four Canadian properties. As such, the Company uses currency forward agreements to hedge its exposure to changes in foreign exchange rates. Currency forward agreements involve fixing the USD-CAD exchange rate for delivery of a specified amount of foreign currency on a specified date. The currency forward agreements are typically cash settled in USD for their fair value at or close to their settlement date. In order to hedge the net investment in four of the Canadian properties, on June 13, 2013, the Company entered into a forward contract with a fixed notional value of $100.0 million CAD and $94.3 million USD with a July 2018 settlement. The exchange rate of this forward contract is approximately $1.06 CAD per USD. Additionally, on February 28, 2014, the Company entered into a forward contract with a fixed notional value of $100.0 million CAD and $88.1 million USD with a July 2018 settlement date. The exchange rate of this forward contract was approximately $1.13 CAD per USD. On June 29, 2018, the Company de-designated these CAD to USD currency forward agreements in conjunction with entering into new agreements, described below, effectively terminating the currency forward agreements. These contracts were previously designated as net investment hedges. Subsequent to June 30, 2018, the Company received $30.8 million of cash in connection with the settlement of the CAD to USD currency forward agreements. The corresponding change in value of the forward contracts for the period from inception through settlement of $30.8 million will be reported in AOCI and will be reclassified into earnings upon a sale or complete or substantially complete liquidation of the Company's investment in its four Canadian properties. Additionally, on June 29, 2018, the Company entered into two cross-currency swaps, designated as net investment hedges that became effective July 1, 2018 with a total fixed notional value of $200.0 million CAD and $151.6 million USD with a maturity date of July 1, 2023. Included in this net investment hedge, the Company locked in an exchange rate of $1.32 CAD per USD on approximately $4.5 million of additional annual CAD denominated cash flows on the properties through July 1, 2023. For foreign currency derivatives designated as net investment hedges, the change in the fair value of the derivatives are reported in AOCI 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. Below is a summary of the effect of derivative instruments on the consolidated statements of changes in equity and income for the three and six months ended June 30, 2018 and 2017.
Effect of Derivative Instruments on the Consolidated Statements of Changes in Equity and Income for the Three and Six Months Ended June 30, 2018 and 2017 (Dollars in thousands)
| Three Months Ended June 30, |  | Six Months Ended June 30,
Description | 2018 |  | 2017 |  | 2018 |  | 2017
Cash Flow Hedges |  |  |  |  |  |  |
Interest Rate Swaps |  |  |  |  |  |  |
Amount of Gain (Loss) Recognized in AOCI on Derivative | $ | 2,115 |  |  | $ | (297 | ) |  | $ | 6,893 |  |  | $ | 207 |
Amount of Income (Expense) Reclassified from AOCI into Earnings (1) | 275 |  |  | (913 | ) |  | 262 |  |  | (1,984 | )
Cross-Currency Swaps |  |  |  |  |  |  |
Amount of Gain (Loss) Recognized in AOCI on Derivative | 447 |  |  | (209 | ) |  | 1,062 |  |  | (375 | )
Amount of Income Reclassified from AOCI into Earnings (2) | 621 |  |  | 697 |  |  | 1,175 |  |  | 1,359 |
Net Investment Hedges |  |  |  |  |  |  |
Cross-Currency Swaps |  |  |  |  |  |  |
Amount of Loss Recognized in AOCI on Derivative | (591 | ) |  | — |  |  | (591 | ) |  | — |
Amount of Income Reclassified from AOCI into Earnings | — |  |  | — |  |  | — |  |  | — |
Currency Forward Agreements |  |  |  |  |  |  |
Amount of Gain (Loss) Recognized in AOCI on Derivative | 4,009 |  |  | (3,166 | ) |  | 8,555 |  |  | (4,715 | )
Amount of Income Reclassified from AOCI into Earnings | — |  |  | — |  |  | — |  |  | — |
Total |  |  |  |  |  |  |
Amount of Gain (Loss) Recognized in AOCI on Derivatives | $ | 5,980 |  |  | $ | (3,672 | ) |  | $ | 15,919 |  |  | $ | (4,883 | )
Amount of Income (Expense) Reclassified from AOCI into Earnings | 896 |  |  | (216 | ) |  | 1,437 |  |  | (625 | )
Interest expense, net in accompanying consolidated statements of income | 34,079 |  |  | 32,967 |  |  | 68,416 |  |  | 63,659 |
Other income in accompanying consolidated statements of income | 646 |  |  | 1,304 |  |  | 1,276 |  |  | 1,996 |
(1) | Included in "Interest expense, net" in the accompanying consolidated statements of income for the three and six months ended June 30, 2018 and 2017.
(2) | Included in "Other income" in the accompanying consolidated statements of income for the three and six months ended June 30, 2018 and 2017.
Credit-risk-related Contingent Features The Company has agreements with each of its interest rate derivative counterparties that contain a provision where if the Company defaults on any of its obligations for borrowed money or credit in an amount exceeding $25.0 million for two of the agreements and $50.0 million for three of the agreements and such default is not waived or cured within a specified period of time, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its interest rate derivative obligations. As of June 30, 2018, the fair value of the Company's derivatives in a liability position related to these agreements was $0.6 million. If the Company breached any of the contractual provisions of these derivative contracts, it would be required to settle its obligations under the agreements at their termination value, after considering the right of offset, of $0.6 million. As of June 30, 2018, the Company had not posted any collateral related to these agreements and was not in breach of any provisions in these agreements.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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