NOTE 7 FAIR VALUE

ASC 820, Fair Value Measurement, emphasizes that fair value is a market-based measurement that should be determined using assumptions market participants would use in pricing an asset or liability. The standard establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in measuring assets or liabilities at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the asset or liability. Assets or liabilities with readily available active quoted prices, or for which fair value can be measured from actively quoted prices, generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

The following table presents the fair value measurement hierarchy levels required under ASC 820 for each of our assets and liabilities that are measured at fair value on a recurring basis:


	December 31, 2017								December 31, 2016
	Fair Value Measurements Using								Fair Value Measurements Using
(In thousands)	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	50,135	$	50,135	$	—	$	—	$	18	$	18	$	—	$	—
Interest rate swap derivative assets		4,470		—		4,470		—		—		—		—		—
Liabilities:
Interest rate swap derivative liabilities		5,961		—		5,961		—		(149)		—		(149)		—
Warrants		—		—		—		—		332,170		—		—		332,170

Cash equivalents consist of registered money market mutual funds which are invested in United States Treasury bills that are valued at the net asset value of the underlying shares in the funds as of the close of business at the end of each period.

The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of future interest rates derived from observable market interest rate curves.

As discussed further in Note 3 – Warrant Liabilities, as of December 31, 2017, all Sponsor and Management warrants had been exercised. The following table presents a rollforward of the valuation of our Warrant liabilities:


(In thousands)	2017		2016		2015
Balance as of January 1	$	332,170	$	307,760	$	366,080
Warrant liability loss (gain) (a)		43,443		24,410		(58,320)
Exercises of Sponsor and Management Warrants		(375,613)		—		—
Balance as of December 31	$	—	$	332,170	$	307,760

(a)

For 2017, this amount represents losses recognized relating to each warrant prior to the respective exercise date. For 2016, represents unrealized losses recorded for outstanding warrants at the end of the period. Changes in the fair value of the Sponsor Warrants and Management Warrants prior to exercise were recognized in net income as a warrant liability gain or loss.

The valuation of warrants was based on an option pricing valuation model, utilizing inputs which were classified as Level 3 due to the unavailability of comparable market data. The inputs to the valuation model included the fair value of stock related to the warrants, exercise price and term of the warrants, expected volatility, risk-free interest rate, dividend yield and, as appropriate, a discount for lack of marketability. Generally, an increase in expected volatility would increase the fair value of the liability. The impact of the volatility on fair value diminished as the market value of the stock increased above the strike price. As the period of restriction lapsed, the marketability discount reduced to zero and increased the fair value of the warrants.

The significant unobservable inputs used in the fair value measurement of our warrant liabilities as of December 31, 2016 were as follows:


	Unobservable Inputs
	Expected Volatility (a)	Marketability Discount (b)
December 31, 2017 (c)	N/A	N/A
December 31, 2016	31.0%	0.0% - 1.0%

(a)

Based on our implied equity volatility.

(b)

Marketability discount decreases as the contractual expiration date of the marketability restrictions approaches.

(c)

See Note 3 – Warrant Liabilities for additional information.

The estimated fair values of our financial instruments that are not measured at fair value on a recurring basis are as follows:


		December 31, 2017				December 31, 2016
(In thousands)	Fair Value Hierarchy	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets:
Cash	Level 1	$	810,924	$	810,924	$	665,492	$	665,492
Accounts receivable, net (a)	Level 3		13,041		13,041		9,883		9,883
Notes receivable, net (b)	Level 3		5,864		5,864		155		155

Liabilities:
Fixed-rate debt (c)	Level 2	$	1,526,875	$	1,554,766	$	1,184,141	$	1,224,573
Variable-rate debt (c)	Level 2		1,350,914		1,350,914		1,524,319		1,524,319

(a)

Accounts receivable, net is shown net of an allowance of $9.3 million and $7.9 million at December 31, 2017 and 2016, respectively.

(b)

Notes receivable, net is shown net of an allowance of $0.1 million at December 31, 2017 and 2016.

(c)

Excludes related unamortized financing costs.

The fair value of our 2025 Notes, included in fixed-rate debt in the table above, is based upon the trade price closest to the end of the period presented. The fair value of other fixed-rate debt in the table above (please refer to Note 8 – Mortgages, Notes and Loans Payable in our Consolidated Financial Statements), was estimated based on a discounted future cash payment model, which includes risk premiums and a risk free rate derived from the current London Interbank Offered Rate (“LIBOR”) or U.S. Treasury obligation interest rates. The discount rates reflect our judgment as to what the approximate current lending rates for loans or groups of loans with similar maturities and credit quality would be if credit markets are operating efficiently and assuming that the debt is outstanding through maturity.

The carrying amounts for our variable-rate debt approximate fair value given that the interest rates are variable and adjust with current market rates for instruments with similar risks and maturities.

The carrying amounts of cash and cash equivalents and accounts receivable approximate fair value because of the short‑term maturity of these instruments.