XML 24 R15.htm IDEA: XBRL DOCUMENT
v3.19.3

Derivatives and Hedging Activities | 9 Months Ended
--- | ---
Sep. 30, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives and Hedging Activities | Derivatives and Hedging Activities Risk Management Objective of Using Derivatives 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 which the Company and its affiliates may also have other financial relationships with. The Company does not anticipate that any such counterparty will fail to meet its obligations. The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets as of September 30, 2019 and December 31, 2018:
(In thousands) |  | Balance Sheet Location |  | September 30, 2019 |  | December 31, 2018
Derivatives designated as hedging instruments: |  |  |  |  |  |
Interest rate “pay-fixed” swaps (USD) |  | Derivative (liabilities) assets, at fair value |  | $ | (1,516 | ) |  | $ | 3,258 |
Interest rate “pay-fixed” swaps (GBP) |  | Derivative liabilities, at fair value |  | (6,503 | ) |  | (1,157 | )
Interest rate “pay-fixed” swaps (EUR) |  | Derivative liabilities, at fair value |  | (2,373 | ) |  | (1,443 | )
Total |  |  |  | $ | (10,392 | ) |  | $ | 658 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |
Foreign currency forwards (GBP-USD) |  | Derivative assets, at fair value |  | $ | 3,846 |  |  | $ | 3,247 |
Foreign currency forwards (GBP-USD) |  | Derivative liabilities, at fair value |  | (141 | ) |  | — |
Foreign currency forwards (EUR-USD) |  | Derivative assets, at fair value |  | 3,627 |  |  | 2,225 |
Interest rate swaps (EUR) |  | Derivative liabilities, at fair value |  | (105 | ) |  | (1,286 | )
Total |  |  |  | $ | 7,227 |  |  | $ | 4,186 |
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. 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. Effective January 1, 2019, 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 (loss) and are subsequently reclassified into earnings in the period that the hedged forecasted transaction impacts earnings. Prior to January 1, 2019, the ineffective portion of the change in fair value of the derivatives was recognized directly in earnings. During the three and nine months ended September 30, 2019, such derivatives were used to hedge the variable cash flows associated with variable-rate debt. Additionally, during the three and nine months ended September 30, 2019 and 2018, the Company accelerated the reclassification of amounts in other comprehensive income to earnings as a result of the hedged forecasted transactions becoming probable not to occur. During the three and nine months ended September 30, 2019, the accelerated amounts were losses of $0.1 million and $0.1 million, respectively. During the three and nine months ended September 30, 2018, the accelerated amounts were losses of $90,899 and $0.1 million, respectively. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next 12 months, the Company estimates that an additional $2.0 million will be reclassified from other comprehensive income as an increase to interest expense. As of September 30, 2019 and December 31, 2018, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:
|  | September 30, 2019 |  | December 31, 2018
Derivatives |  | Number of Instruments |  | Notional Amount |  | Number of Instruments |  | Notional Amount
|  |  |  | (In thousands) |  |  |  | (In thousands)
Interest rate “pay-fixed” swaps (GBP) |  | 49 |  | $ | 271,387 |  |  | 48 |  | $ | 234,312 |
Interest rate “pay-fixed” swaps (EUR) |  | 22 |  | 630,399 |  |  | 13 |  | 212,255 |
Interest rate “pay-fixed” swaps (USD) |  | 3 |  | 150,000 |  |  | 3 |  | 150,000 |
Total |  | 74 |  | $ | 1,051,786 |  |  | 64 |  | $ | 596,567 |
In connection with a multi-property loan which refinanced all of the Company’s mortgage notes payable secured by its properties located in Finland during the first quarter of 2019, the Company terminated five interest rate swaps with an aggregate notional amount of €57.4 million for a payment of approximately $0.8 million. Following these terminations, $0.7 million was recorded in AOCI and is being recorded as an adjustment to interest expense over the term of the original EUR hedges and respective borrowings. Of the amount recorded in AOCI following these terminations, $0.1 million was recorded as an increase to interest expense for the nine months ended September 30, 2019 and approximately $0.4 million remained in AOCI as of September 30, 2019. In connection with a multi-property loan which refinanced all of the Company’s mortgage notes payable denominated in GBP, during the third quarter of 2018, the Company terminated 15 interest rate swaps with an aggregate notional amount of £208.8 million and one floor with a notional amount of £28.1 million. Following these terminations, the amount relating to GBP borrowings still outstanding of approximately $1.2 million was recorded in AOCI and is being recorded as an adjustment to interest expense over the term of the original GBP hedges and respective borrowings. Of the amount recorded in AOCI following these terminations, $0.1 million was recorded as an increase to interest expense for the nine months ended September 30, 2019 and approximately $0.3 million remained in AOCI as of September 30, 2019. 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 September 30, 2019 and 2018.
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(In thousands) |  | 2019 |  | 2018 |  | 2019 |  | 2018
Amount of (loss) gain recognized in accumulated other comprehensive income (loss) from derivatives |  | $ | (4,139 | ) |  | $ | 2,018 |  |  | $ | (13,250 | ) |  | $ | 8,656 |
Amount of loss reclassified from accumulated other comprehensive income (loss) into income as interest expense |  | $ | (660 | ) |  | $ | (755 | ) |  | $ | (1,640 | ) |  | $ | (3,090 | )
Amount of loss recognized in income on derivative instruments (ineffective portion, reclassifications of missed forecasted transactions and amounts excluded from effectiveness testing) |  | $ | — |  |  | $ | 16 |  |  | $ | — |  |  | $ | (96 | )
Total interest expense recorded in the consolidated statement of operations |  | $ | 16,154 |  |  | $ | 15,104 |  |  | $ | 47,005 |  |  | $ | 42,494 |
Net Investment Hedges 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 hold debt instruments in currencies other than its functional currency, the USD. Through the third quarter of 2018, the Company used foreign currency derivatives including cross currency swaps to hedge its exposure to changes in foreign exchange rates on certain of its foreign investments. Cross currency swaps involve fixing the applicable exchange rate for delivery of a specified amount of foreign currency on specified dates. Effective January 1, 2019, for derivatives designated as net investment hedges, all of the changes in the fair value of the derivatives are reported in AOCI (outside of earnings) as part of the cumulative translation adjustment. Prior to January 1, 2019, the ineffective portion of the change in fair value of the derivatives, if any, was recognized directly in earnings. Amounts are reclassified out of AOCI into earnings when the hedged net investment is either sold or substantially liquidated. As of September 30, 2019 and December 31, 2018 the Company did not have foreign currency derivatives that were designated as net investment hedges used to hedge its net investments in foreign operation. Non-designated Derivatives The Company is exposed to fluctuations in the exchange rates of its functional currency, the USD, against the GBP and the EUR. The Company uses 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 gains of $3.1 million and $4.8 million for the three and nine months ended September 30, 2019, respectively. The Company recorded gains of $1.4 million and $4.8 million for the three and nine months ended September 30, 2018, respectively. As of September 30, 2019 and December 31, 2018, the Company had the following outstanding derivatives that were not designated as hedges under qualifying hedging relationships.
|  | September 30, 2019 |  | December 31, 2018
Derivatives |  | Number of Instruments |  | Notional Amount |  | Number of Instruments |  | Notional Amount
|  |  |  | (In thousands) |  |  |  | (In thousands)
Foreign currency forwards (GBP-USD) |  | 45 |  | $ | 44,275 |  |  | 50 |  | $ | 43,000 |
Foreign currency forwards (EUR-USD) |  | 36 |  | 32,478 |  |  | 38 |  | 39,500 |
Interest rate swaps (EUR) |  | 1 |  | 10,371 |  |  | 5 |  | 138,625 |
Total |  | 82 |  | $ | 87,124 |  |  | 93 |  | $ | 221,125 |
Offsetting Derivatives The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of September 30, 2019 and December 31, 2018. 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
September 30, 2019 |  | $ | 7,473 |  |  | $ | (10,638 | ) |  | $ | — |  |  | $ | (3,165 | ) |  | $ | (141 | ) |  | $ | — |  |  | $ | (3,306 | )
December 31, 2018 |  | $ | 8,730 |  |  | $ | (3,886 | ) |  | $ | — |  |  | $ | 4,844 |  |  | $ | 141 |  |  | $ | — |  |  | $ | 4,985 |
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 (see Note 4 — Mortgage Notes Payable, Net). Credit-risk-related Contingent Features 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 September 30, 2019, the fair value of derivatives in a net liability position including accrued interest but excluding any adjustment for nonperformance risk related to these agreements was $11.5 million. As of September 30, 2019, 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.

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration