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 as part of its interest rate risk management strategy. As of December 31, 2018, approximately $8.4 million of gains, which are included in accumulated other comprehensive income, are expected to be reclassified into earnings in the next 12 months.

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 derivative instruments as of the dates indicated (in thousands):



	December 31, 2018		December 31, 2017
Derivatives designated as cash flow hedges:
Denominated in U.S. Dollars⁽¹⁾	$	1,045,000	$	845,000
Denominated in Canadian Dollars	$	125,000	$	125,000

Derivatives designated as net investment hedges:
Denominated in Canadian Dollars	$	55,401	$	56,300

Financial instrument designated as net investment hedge:
Denominated in Canadian Dollars	$	125,000	$	125,000

Derivatives not designated as net investment hedges:
Denominated in Canadian Dollars	$	899	$	—

⁽¹⁾Balance includes forward starting interest rate swaps having an effective date of June 2019 that have been entered into as of December 31, 2018 to hedge $200.0 million of anticipated fixed-rate debt issuance to occur sometime during 2019.

Derivative and Financial Instruments Designated as Hedging Instruments

The following is a summary of the derivative and financial instruments designated as hedging instruments held by the Company at December 31, 2018 and 2017 (dollars in thousands):



		Count as of December 31, 2018	Fair Value				Maturity Dates
			December 31,
Type	Designation		2018		2017			Balance Sheet Location
Assets:
Interest rate swap	Cash Flow	12	$	25,184	$	25,221	2020 - 2023	Accounts receivable, prepaid expenses and other assets, net
Cross currency interest rate swaps	Net Investment	2	4,160		674		2025	Accounts receivable, prepaid expenses and other assets, net
			$	29,344	$	25,895
Liabilities:
Forward starting interest rate swap	Cash Flow	2	$	4,529	$	—	2029	Accounts payable and accrued liabilities
CAD term loan	Net Investment	1	91,700		99,588		2022	Term loans, net
			$	96,229	$	99,588

The following presents the effect of the Company’s derivative and financial instruments designated as hedging instruments on the consolidated statements of income and the consolidated statements of equity for years ended December 31, 2018, 2017 and 2016:



	Gain (Loss) Recognized in Other Comprehensive Income								Gain (Loss) Reclassified from Accumulated Other Comprehensive Income Into Income								Income Statement Location
	For the year ended December 31,
	2018		2017			2016			2018		2017			2016
Cash Flow Hedges:
Interest rate products	$	2,707	$	10,807		$	5,879		$	3,099	$	(2,174	)	$	(1,360	)	Interest expense
Net Investment Hedges:
Foreign currency products	3,554		(2,378		)	(2,085		)	—		—			—			N/A
CAD term loan	7,888		(6,588		)	(3,750		)	—		—			—			N/A
	$	14,149	$	1,841		$	44		$	3,099	$	(2,174	)	$	(1,360	)

The gain (loss) in the table above related to interest rate products reclassified from accumulated other comprehensive income into income are included in interest expense on the consolidated statements of income. Interest expense totaled $147.1 million, $88.4 million and $64.9 million for the years ended December 31, 2018, 2017 and 2016, respectively.

During the year ended December 31, 2018, no cash flow hedges were determined to be ineffective. During the year ended December 31, 2017, the Company determined that a portion of a cash flow hedge was ineffective and recognized $22,000 of unrealized gains related to its interest rate swaps to other income on the consolidated statements of income. During the year ended December 31, 2016, the Company determined that a portion of a cash flow hedge was ineffective and recognized $0.8 million of unrealized gains related to its interest rate swaps to other income on the consolidated statements of income.

Derivatives Not Designated as Hedging Instruments

As of December 31, 2018, the Company had one outstanding cross currency interest rate swap not designated as a hedging instrument in an asset position with a fair value of $67,000 and included this amount in accounts receivable, prepaid expenses and other assets, net on the consolidated balance sheets. During the years ended December 31, 2018 and 2017, the Company recorded $34,000 of other income and $8,000 of other expense, respectively, related to cross currency interest rate swaps not designated as hedging instruments.

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 December 31, 2018 and 2017 (in thousands):



	As of December 31, 2018
							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	$	29,344	$	—	$	29,344	$	(2,069	)	$	—	$	27,275
Offsetting Liabilities:
Derivatives	$	4,529	$	—	$	4,529	$	(2,069	)	$	—	$	2,460



	As of December 31, 2017
							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	$	25,895	$	—	$	25,895	$	—	$	—	$	25,895
Offsetting Liabilities:
Derivatives	$	—	$	—	$	—	$	—	$	—	$	—

Credit-risk-related Contingent Features

The Company has agreements with each of its derivative counterparties that contain a provision pursuant to which the Company could be declared in default on the derivative obligation if the Company defaults on any of its indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender. As of December 31, 2018, 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 $2.5 million. As of December 31, 2018, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions at December 31, 2018, it could have been required to settle its obligations under the agreements at their termination value of $2.5 million.