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Derivative financial instruments – The Company occasionally uses derivative financial instruments, specifically interest rate caps and swaps, to hedge its exposure to interest rate risk arising primarily from debt instruments. |
Derivatives are initially recognized at fair value at the date the derivative contract are entered into and subsequently valued at fair value at the end of each reporting period. The gain or loss is recognized in profit or loss and other comprehensive income immediately, unless the derivative is designated as a hedging instrument and is considered to be effective. The timing of the recognition of the hedging instrument in earnings will depend on the nature of the hedge.
The Company may designate certain instruments as hedges for accounting purposes if at inception of the hedge, the Company documents the relationship between the hedging instrument and the hedged item, as well as the risk management and management strategy objectives for undertaking various hedging transactions. Additionally, at the inception of the hedge and on an ongoing basis, the Company documents whether the hedging instrument is highly effective in offsetting the exposure to changes in fair value or changes in cash flows of the hedged item.
Hedge accounting is discontinued when the Company revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or when it fails to meet the criteria for hedge accounting. Any cumulative gain or loss on the hedging instrument that has been recognized in equity remains in equity until the forecasted transaction is ultimately recognized in profit or loss. When management no longer expects the forecasted transaction to occur, the gain or loss accumulated in equity is recognized immediately in profit or loss.