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.



(In thousands)	Balance Sheet Location	June 30, 2020			December 31, 2019
Derivatives designated as hedging instruments:
Interest rate “pay-fixed” swaps (USD)	Derivative liabilities, at fair value	$	(6,127	)	$	(939	)
Interest rate “pay-fixed” swaps (GBP)	Derivative assets, at fair value	—			366
Interest rate “pay-fixed” swaps (GBP)	Derivative liabilities, at fair value	(8,836		)	(4,524		)
Interest rate “pay-fixed” swaps (EUR)	Derivative assets, at fair value	—			228
Interest rate “pay-fixed” swaps (EUR)	Derivative liabilities, at fair value	(2,024		)	(1,139		)
Total		$	(16,987	)	$	(6,008	)
Derivatives not designated as hedging instruments:
Foreign currency forwards (GBP-USD)	Derivative assets, at fair value	$	2,114		$	1,205
Foreign currency forwards (GBP-USD)	Derivative liabilities, at fair value	(378		)	(831		)
Foreign currency forwards (EUR-USD)	Derivative assets, at fair value	1,926			2,352
Foreign currency forwards (EUR-USD)	Derivative liabilities, at fair value	(177		)	—
Interest rate swaps (EUR)	Derivative liabilities, at fair value	—			(74		)
Total		$	3,485		$	2,652

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. 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 (“AOCI”) and are subsequently reclassified into earnings in the period that the hedged forecasted transaction impacts earnings. During the three and six months ended June 30, 2020, such derivatives were used to hedge the variable cash flows associated with variable-rate debt.

Additionally, during the three and six months ended June 30, 2019, 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 six months ended June 30, 2019, the accelerated amounts were gains of $2,151 and losses of $24,449, respectively. Amounts reported in AOCI 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 ending June 30, 2021, the Company estimates that an additional $6.7 million will be reclassified from other comprehensive income as an increase to interest expense.



	June 30, 2020			December 31, 2019
Derivatives	Number of Instruments	Notional Amount		Number of Instruments	Notional Amount
		(In thousands)			(In thousands)
Interest rate “pay-fixed” swaps (GBP)	49	$	272,017	49	$	290,965
Interest rate “pay-fixed” swaps (EUR)	22	587,219		16	521,471
Interest rate “pay-fixed” swaps (USD)	9	150,000		3	150,000
Total	80	$	1,009,236	68	$	962,436

In connection with a multi-property loan which refinanced all of the Company’s mortgage notes payable secured by the Company’s properties located in France during the second quarter of 2020 (see Note 4 — Mortgage Notes Payable, Net), the Company terminated two interest rate swaps with an aggregate notional amount of €14.5 million for a payment of approximately $0.1 million. Amounts recorded to AOCI and interest expense following these terminations was not significant.

In connection with a multi-property loan which refinanced all of the Company’s mortgage notes payable secured by the Company’s properties located in Finland during the first quarter of 2019 (see Note 4 — Mortgage Notes Payable, Net), 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 and $0.2 million was recorded as an increase to interest expense for the three and six months ended June 30, 2020 and approximately $0.1 million remained in AOCI as of June 30, 2020.

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 and $0.2 million was recorded as an increase to interest expense for the three and six months ended June 30, 2020 and approximately $0.1 million remained in AOCI as of June 30, 2020.

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 and six months ended June 30, 2020 and 2019.



	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands)	2020			2019			2020			2019
Amount of loss recognized in AOCI from derivatives	$	(4,663	)	$	(4,397	)	$	(13,035	)	$	(9,094	)
Amount of loss reclassified from AOCI into income as interest expense	$	(1,294	)	$	(481	)	$	(2,118	)	$	(980	)
Total interest expense recorded in the consolidated statements of operations	$	17,529		$	15,689		$	33,969		$	30,851

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. For derivatives designated as net investment hedges, all of the changes in the fair value of the derivatives, including the ineffective portion of the change in fair value of the derivatives, if any, are reported in AOCI (outside of earnings) as part of the cumulative translation adjustment. Amounts are reclassified out of AOCI into earnings when the hedged net investment is either sold or substantially liquidated. As of June 30, 2020 and December 31, 2019 the Company did not have foreign currency derivatives that were designated as net investment hedges used to hedge its net investments in foreign operations and during the six months ended June 30, 2020 and the year ended December 31, 2019, the Company did not use foreign currency derivatives that were designated as net investment hedges.

The Company is exposed to fluctuations in the exchange rates of its functional currency, the USD, against the GBP and the EUR. The Company has used and may continue to use 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 a loss of $0.3 million and a gain of $2.8 million for the three and six months ended June 30, 2020, respectively. The Company recorded gains of $1.4 million and $1.7 million for the three and six months ended June 30, 2019, respectively.



	June 30, 2020			December 31, 2019
Derivatives	Number of Instruments	Notional Amount		Number of Instruments	Notional Amount
		(In thousands)			(In thousands)
Foreign currency forwards (GBP-USD)	46	$	35,132	38	$	38,898
Foreign currency forwards (EUR-USD)	38	24,704		32	27,478
Interest rate swaps (EUR)	—	—		1	10,655
Total	84	$	59,836	71	$	77,031

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of June 30, 2020 and December 31, 2019. 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
June 30, 2020	$	4,040	$	(17,542	)	$	—	$	(13,502	)	$	—	$	—	$	(13,502	)
December 31, 2019	$	4,151	$	(7,507	)	$	—	$	(3,356	)	$	—	$	—	$	(3,356	)

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.

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 June 30, 2020, 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 $18.4 million. As of June 30, 2020, 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.