DERIVATIVE AND HEDGING INSTRUMENTS

9 Months Ended

Sep. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE AND HEDGING INSTRUMENTS

DERIVATIVE AND HEDGING INSTRUMENTS

The Company is exposed to various market risks, including the potential loss arising from adverse changes in interest rates and foreign exchange rates. The Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates and foreign exchange rates. The Company’s derivative financial instruments are used to manage differences in the amount of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and 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 in the Company’s functional currency, the U.S. dollar, of the Company’s investment in foreign operations, the cash receipts and payments related to these foreign operations and payments of interest and principal under Canadian dollar denominated debt. The Company enters into derivative financial instruments to protect the value of its foreign investments and fix a portion of the interest payments for certain debt obligations. The Company does not enter into derivatives for speculative purposes.

Cash Flow Hedges

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 these objectives, the Company primarily uses interest rate swaps and caps as part of its interest rate risk management strategy. Approximately $3.6 million of losses, which are included in accumulated other comprehensive loss, as of September 30, 2016, are expected to be reclassified into earnings in the next 12 months. During the nine months ended September 30, 2016, the Company terminated its interest rate cap, generating cash proceeds of $0.3 million. The balance of the loss in other comprehensive income will be reclassified to earnings through 2019.

Net Investment Hedges

The Company is exposed to fluctuations in foreign exchange rates on investments it holds in Canada. The Company uses cross currency interest rate swaps to hedge its exposure to changes in foreign exchange rates on these foreign investments.

The following presents the notional amount of derivatives instruments as of the dates indicated (in thousands):    

	September 30, 2016		December 31, 2015
Derivatives designated as cash flow hedges:
Denominated in U.S. Dollars	$	245,000	$	200,000
Denominated in Canadian Dollars	$	125,000	$	90,000
Derivatives designated as net investment hedges:
Denominated in Canadian Dollars	$	56,300	$	56,300
Financial instrument designated as net investment hedge:
Denominated in Canadian Dollars	$	125,000	$	90,000

The following is a summary of the derivative and financial instruments designated as hedging instruments held by the Company at September 30, 2016 and December 31, 2015 (in thousands):    

			September 30, 2016		December 31, 2015		Maturity Dates
Type	Designation	Count	Fair Value					Balance Sheet Location
Assets:
Interest rate cap	Cash Flow	—	$	—	$	1,695	2019	Prepaid expenses, deferred financing costs and other assets, net
Interest rate swap	Cash Flow	2	452		—		2021	Prepaid expenses, deferred financing costs and other assets, net
Cross currency interest rate swaps	Net Investment	2	3,173		5,392		2025	Prepaid expenses, deferred financing costs and other assets, net
			$	3,625	$	7,087
Liabilities:
Interest rate swap	Cash Flow	2	$	1,724	$	1,468	2020 - 2021	Accounts payable and accrued liabilities
CAD Term Loan	Net Investment	1	95,112		64,890		2020	Term loans, net
			$	96,836	$	66,358

The following presents the effect of the Company’s derivative financial instruments on the condensed consolidated statements of income and the condensed consolidated statements of equity for the three and nine months ended September 30, 2016:

	Gain (Loss) Recognized in Other Comprehensive Income (Effective Portion)												Income Statement Location
	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Cash Flow Hedges:
Interest Rate Products	$	(40	)	$	(1,991	)	$	(2,019	)	$	(4,626	)	Interest Expense
Net Investment Hedges:
Foreign Currency Products	102			4,600			(2,118		)	4,436			N/A
CAD Term Loan	1,363			(5,733		)	(5,863		)	(6,129		)	N/A
	$	1,425		$	(3,124	)	$	(10,000	)	$	(6,319	)

	Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion)												Income Statement Location
	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Cash Flow Hedges:
Interest Rate Products	$	(413	)	$	(136	)	$	(802	)	$	(161	)	Interest Expense
Net Investment Hedges:
Foreign Currency Products	—			—			—			—			N/A
CAD Term Loan	—			—			—			—			N/A
	$	(413	)	$	(136	)	$	(802	)	$	(161	)

During the three and nine months ended September 30, 2016, the Company determined that a portion of a cash flow hedge was ineffective and recognized $0.4 million of unrealized gains related to its interest rate swaps to other income (expense) in the condensed consolidated statements of income.

Offsetting Derivatives

The Company enters into master netting arrangements, which reduce credit risk by permitting net settlement of transactions with the same counterparty. The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of September 30, 2016 and December 31, 2015:

	As of September 30, 2016
							Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts of Recognized Assets / Liabilities		Gross Amounts Offset in the Balance Sheet		Net Amounts of Assets / Liabilities presented in the Balance Sheet		Financial Instruments			Cash Collateral Received		Net Amount
Offsetting Assets:
Derivatives	$	3,625	$	—	$	3,625	$	(1,607	)	$	—	$	2,018
Offsetting Liabilities:
Derivatives	$	1,724	$	—	$	1,724	$	(1,607	)	$	—	$	117

	As of December 31, 2015
							Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts of Recognized Assets / Liabilities		Gross Amounts Offset in the Balance Sheet		Net Amounts of Assets / Liabilities presented in the Balance Sheet		Financial Instruments			Cash Collateral Received		Net Amount
Offsetting Assets:
Derivatives	$	7,087	$	—	$	7,087	$	(1,468	)	$	—	$	5,619
Offsetting Liabilities:
Derivatives	$	1,468	$	—	$	1,468	$	(1,468	)	$	—	$	—

Credit-risk-related Contingent Features

The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.

As of September 30, 2016, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $0.4 million. As of September 30, 2016, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions at September 30, 2016, it could have been required to settle its obligations under the agreements at their termination value of $0.4 million.