Risk Management and Derivatives

12 Months Ended

Dec. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Risk management

In the normal course of its on-going business operations, the Company encounters economic risk. There are three main components of economic risk: interest rate risk, credit risk and market risk. The Company is subject to interest rate risk to the degree that its interest-bearing liabilities mature or reprice at different points in time and potentially at different bases, than its interest-earning assets. Credit risk is the risk of default on the Company's lending investments or leases that result from a borrower's or tenant's inability or unwillingness to make contractually required payments. Market risk reflects changes in the value of loans and other lending investments due to changes in interest rates or other market factors, including the rate of prepayments of principal and the value of the collateral underlying loans, the valuation of real estate assets by the Company as well as changes in foreign currency exchange rates.

Risk concentrations—Concentrations of credit risks arise when a number of borrowers or tenants related to the Company's investments are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to the Company, to be similarly affected by changes in economic conditions.

Substantially all of the Company's real estate as well as assets collateralizing its loans receivable are located in the United States. As of December 31, 2019, the only states with a concentration greater than 10.0% were New York with 16.7%, New Jersey with 14.2% and California with 12.5%. As of December 31, 2019, the Company's portfolio contains concentrations in the following asset types: office/industrial 28.5%, land 15.4%, entertainment/leisure 20.1%, hotel 5.2% and mixed use/mixed collateral 5.3%.

The Company underwrites the credit of prospective borrowers and tenants and often requires them to provide some form of credit support such as corporate guarantees, letters of credit and/or cash security deposits. Although the Company's loans and real estate assets are geographically diverse and the borrowers and tenants operate in a variety of industries, to the extent the Company has a significant concentration of interest or operating lease revenues from any single borrower or tenant, the inability of that borrower or tenant to make its payment could have a material adverse effect on the Company. As of December 31, 2019, the Company's five largest borrowers or tenants collectively accounted for approximately 19.8% of the Company's 2019 revenues, of which the largest customer, from the Company's net lease segment, accounted for 11.8%.

Derivatives

The Company's use of derivative financial instruments has historically been limited to the utilization of interest rate swaps, interest rate caps and foreign exchange contracts. The principal objective of such financial instruments is to minimize the risks and/or costs associated with the Company's operating and financial structure and to manage its exposure to interest rates and foreign exchange rates. The Company may have derivatives that are not designated as hedges because they do not meet the strict hedge accounting requirements. Although not designated as hedges, such derivatives are entered into to manage the Company's

exposure to interest rate movements and other identified risks.

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 December 31, 2019 and 2018 ($ in thousands)⁽¹⁾:



	Derivative Assets			Derivative Liabilities
As of December 31, 2019	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives Designated in Hedging Relationships
Interest rate swaps	Deferred expenses and other assets, net	$	114	Accounts payable, accrued expenses and other liabilities	$	8,680
Total		$	114		$	8,680

As of December 31, 2018
Derivatives Designated in Hedging Relationships
Interest rate swaps	Deferred expenses and other assets, net	$	3,669	Accounts payable, accrued expenses and other liabilities	$	10,244
Total		$	3,669		$	10,244

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(1)	Over the next 12 months, the Company expects that $5.1 million related to cash flow hedges will be reclassified from "Accumulated other comprehensive income (loss)" as an increase to interest expense.

The tables below present the effect of the Company's derivative financial instruments, including the Company's share of derivative financial instruments at certain of its equity method investments, in the consolidated statements of operations and the consolidated statements of comprehensive income (loss) ($ in thousands):



Derivatives Designated in Hedging Relationships	Location of Gain (Loss) When Recognized in Income	Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Income			Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Earnings
For the Year Ended December 31, 2019
Interest rate swaps⁽¹⁾	Interest expense	$	(21,165	)	$	(1,861	)
Interest rate swaps	Earnings from equity method investments	(21,417		)	(184		)
For the Year Ended December 31, 2018
Interest rate swaps	Interest expense	(12,963		)	(388		)
Interest rate swaps	Earnings from equity method investments	(1,736		)	20
For the Year Ended December 31, 2017
Interest rate cap	Earnings from equity method investments	(16		)	(16		)
Interest rate swaps	Interest expense	495			339
Interest rate swap	Earnings from equity method investments	368			(285		)
Foreign exchange contracts	Earnings from equity method investments	(352		)	—

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(1)	For the year ended December 31, 2019, $4.3 million of the loss recognized in accumulated other comprehensive income was attributable to a noncontrolling interest.

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(1)	The Company did not have any derivatives not designated in hedging relationships during the years ended December 31, 2019 and 2018.

Interest Rate Hedges—For derivatives designated and qualifying as cash flow hedges, the changes in the fair value of the derivatives are reported in Accumulated Other Comprehensive Income (Loss). For derivatives not designated as cash flow hedges, the changes in the fair value of the derivatives are reported in the Company's consolidated statements of operations within "Other Expense."

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.

The Company reports derivative instruments on a gross basis in its consolidated financial statements. In connection with its derivatives which were in a liability position as of December 31, 2018, the Company posted collateral of $6.4 million and is included in "Deferred expenses and other assets, net" on the Company's consolidated balance sheets. The Company's net exposure under these contracts was zero as of December 31, 2018.

Location of Gain or
(Loss) Recognized in
Income

Amount of Gain
or (Loss) Recognized in Income

Derivatives not Designated in Hedging Relationships⁽¹⁾

Location of Gain or
(Loss) Recognized in
Income

For the Year
Ended December 31, 2017

Interest rate cap

Other expense

Foreign exchange contracts

Other expense