Derivative Financial Instruments

Interest Rates

We are subject to interest rate volatility with regard to existing and future issuances of variable rate debt. From time to time, we enter into swap agreements to manage our exposure to interest rate fluctuations. To hedge the variability in cash flows due to changes in benchmark interest rates, we enter into interest rate swap agreements related to variable rate debt. Refer to Note 9, Debt of the Operating Partnership, for details of the components of our debt.

The Company was party to interest rate swap agreements with financial institutions that fixed the variable benchmark component of its interest rate on a portion of its ANZ Loans beginning on June 25, 2015. On December 12, 2018, the Company terminated these swap agreements in conjunction with the extinguishment of its debt. The carrying amount of the Company's interest rate swap agreements were recorded at fair value and previously qualified for hedge accounting. As a result of the termination of the swap agreements and in conjunction with the extinguishment of the ANZ loans, $1.8 million in accumulated other comprehensive income was reclassified to "Loss on debt extinguishment, modifications and termination of derivative instruments" in the accompanying Statement of Operations. As of December 31, 2017, the aggregate fair values of these cash flow hedges were $2.5 million, which was included in the "Accounts payable and accrued expenses" line of the accompanying Balance Sheets.

Foreign Currency

To reduce cash flow volatility from foreign currency fluctuations, we enter into swap contracts to hedge portions of cash flows of intercompany borrowing and lending activities, which are designated as cash flow hedges. The effective portion of the derivative's gain or loss is recorded in AOCI and is subsequently reclassified to foreign currency exchange and derivatives gain (loss), net when the hedged exposure affects net earnings. Gains and losses from these swaps offset the changes in value of interest and principal as a result of changes in foreign exchange rates.

On December 11, 2018, the Company entered into cross-currency swaps to hedge changes in the cash flows of interest and principal on the foreign-currency denominated intercompany loans between the Australia and U.S. entities and the New Zealand and U.S. entities. The critical terms of the cross-currency swap agreements correspond to the intercompany loans, including the semi-annual interest payments being hedged, and the cross-currency swap agreements mature at the same time as the intercompany loans. As the critical terms of the cross currency swaps match the underlying intercompany borrowings being hedged, no ineffectiveness is recognized on these swaps and, therefore, all unrealized changes in fair value are recorded in AOCI. The relevant terms are presented below:



Effective Date	Notional amount	Expiration Date
12/13/2018	AUD $153.5 million	1/8/2026
12/13/2018	NZD $37.5 million	12/13/2023

As of December 31, 2018, the aggregate fair values of these cash flow hedges were $2.3 million, and are included in the "Other assets" line of the accompanying balance sheet. The Company determines the fair value of these derivative instruments using a present value calculation with significant observable inputs classified as Level 2 of the fair value hierarchy. The actual amounts reclassified into earnings are dependent on future movements in the foreign exchange rates.

The Company classifies cash inflows and outflows from derivatives within operating activities on the statement of cash flows. Amounts reclassified from AOCI into earnings related to realized gains and losses on remeasurement of the intercompany loans are recognized at each remeasurement date. Prior to termination of the interest rate swaps, historical amounts reclassified from AOCI into earnings related to realized gains and losses on interest rate swaps were recognized when interest payments or receipts occurred related to the swap contracts, and corresponded to when interest payments were made on the Company’s hedged debt.

The following table summarizes the impact of the Company's interest rate swaps which were terminated in December 2018 and foreign currency cash flow hedges on the results of operations, comprehensive loss and AOCI for the years ended December 31, 2018, 2017 and 2016:



Interest Rate Swaps Designated as Cash Flow Hedges	Loss Recognized as AOCI on Derivatives, Net of Tax (Effective Portion)			Consolidated Statements of Operations Classification	Loss Reclassified from AOCI into Earnings, Net of Tax (Effective Portion)
	(In thousands)				(In thousands)
2018	$	(1,422	)	Interest expense	$	1,191
2017	$	1,422		Interest expense	$	1,547
2016	$	1,538		Interest expense	$	1,139



Cross-Currency Swaps Designated as Cash Flow Hedges	Gain Recognized as AOCI on Derivatives		Consolidated Statements of Operations Classification	Gain Reclassified from AOCI into Earnings
	(In thousands)			(In thousands)
2018	$	2,283	Foreign currency exchange gain (loss), net	$	3,449
2017	$	—	N/A	$	—
2016	$	—	N/A	$	—