Derivative Instruments

12 Months Ended

Dec. 31, 2017

Derivative Instruments and Hedging Activities Disclosure [Text Block]

11. Derivative Instruments

We are exposed to various market risks, including the potential loss arising from adverse changes in interest rates. We may elect to use financial derivative instruments to hedge interest rate exposure. These decisions are principally based on our policy to manage the general trend in interest rates at the applicable dates and our perception of the future volatility of interest rates. In addition, non-U.S. investments expose us to the potential losses associated with adverse changes in foreign currency to U.S. Dollar exchange rates. We have elected to manage these risks through the use of forward exchange contracts and issuing debt in foreign currencies.

Interest Rate Swap Contracts and Foreign Currency Forward Contracts Designated as Cash Flow Hedges

For instruments that are designated as and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (“OCI”), and reclassified into earnings in the same period, or periods, during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in earnings. Approximately $914,000 of gains, which are included in accumulated other comprehensive income (“AOCI”), are expected to be reclassified into earnings in the next 12 months.

Foreign Currency Hedges

For instruments that are designated and qualify as net investment hedges, the variability in the foreign currency to U.S. dollar of the instrument is recorded as a cumulative translation adjustment component of OCI. During the years ended December 31, 2017 and 2016, we settled certain net investment hedges generating cash proceeds of $52,719,000 and $108,347,000, respectively. The balance of the cumulative translation adjustment will be reclassified to earnings when the hedged investment is sold or substantially liquidated.

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


		December 31, 2017		December 31, 2016
Derivatives designated as net investment hedges:
Denominated in Canadian Dollars	$	575,000	$	900,000
Denominated in Pounds Sterling	£	550,000	£	550,000

Financial instruments designated as net investment hedges:
Denominated in Canadian Dollars	$	250,000	$	250,000
Denominated in Pounds Sterling	£	1,050,000	£	1,050,000

Derivatives designated as cash flow hedges:
Denominated in U.S. Dollars	$	-	$	57,000
Denominated in Canadian Dollars	$	36,000	$	54,000
Denominated in Pounds Sterling	£	-	£	48,000

Derivative instruments not designated:
Denominated in U.S. Dollars	$	408,007	$	-
Denominated in Canadian Dollars	$	80,000	$	37,000

The following presents the impact of derivative instruments on the consolidated statements of comprehensive income for the periods presented (in thousands):


		Year Ended
	Location	December 31, 2017		December 31, 2016		December 31, 2015

Gain (loss) on forward exchange contracts recognized in income	Interest expense	$	(2,476)	$	8,544	$	14,474

Loss (gain) on option exercise⁽¹⁾	Loss (gain) on derivatives, net	$	-	$	-	$	(58,427)

Gain on release of cumulative translation adjustment related to ineffectiveness on net investment hedge	Loss (gain) on derivatives, net	$	-	$	(2,516)	$	-

Gain (loss) on forward exchange contracts and term loans designated as net investment hedge recognized in OCI	OCI	$	(252,168)	$	357,021	$	298,116

(1) In April 2011, we completed the acquisition of substantially all of the real estate assets of privately-owned Genesis. In conjunction with this transaction, we received the option to acquire an ownership interest in Genesis. In February 2015, Genesis closed on a transaction to merge with Skilled Healthcare Group to become a publicly traded company which required us to record the value of the derivative asset due to the net settlement feature.