Investments and Fair Value Measurements

12 Months Ended

Dec. 31, 2020

INVESTMENTS AND FAIR VALUE MEASUREMENTS

The Company’s financial assets and liabilities subject to fair value measurements were as follows:


	Fair Value Measurements as of December 31, 2020
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds (1)	$	255,294	$	255,294	$	—	$	—

Commercial paper (1)	44,397		—		44,397		—

Certificates of deposit (2)	2,111		—		2,111		—

Money market funds securing legal bonds (2)	535		535		—		—

Investment securities at fair value
Equity securities at fair value
Marketable equity securities	21,155		21,155		—		—
Mutual funds invested in debt securities	23,226		23,226		—		—
Total equity securities at fair value	44,381		44,381		—		—
Debt securities available for sale
U.S. government securities	19,200		—		19,200		—
Corporate securities	52,434		—		52,434		—
U.S. government and federal agency	10,484		—		10,484		—


Commercial paper	9,086		—		9,086		—


Total debt securities available for sale	91,204		—		91,204		—

Total investment securities at fair value	135,585		44,381		91,204		—

Long-term investments
Long-term investment securities at fair value (3)	34,218		—		—		—

Total	$	472,140	$	300,210	$	137,712	$	—

Liabilities:
Fair value of contingent liability	$	999	$	—	$	—	$	999

Total	$	999	$	—	$	—	$	999

_____________________________

(1)Amounts included in Cash and cash equivalents on the consolidated balance sheets, except for $10,374 that is included in current restricted assets and $1,907 that is included in non-current restricted assets.

(2)Amounts included in current restricted assets and non-current restricted assets on the consolidated balance sheets.

(3)In accordance with Subtopic 820-10, investments that are measured at fair value using the NAV practical expedient are not classified in the fair value hierarchy.


	Fair Value Measurements as of December 31, 2019
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds (1)	$	307,655	$	307,655	$	—	$	—

Commercial paper (1)	47,328		—		47,328		—

Certificates of deposit (2)	2,193		—		2,193		—

Money market funds securing legal bonds (2)	535		535		—		—

Investment securities at fair value
Equity securities at fair value
Marketable equity securities	23,819		23,819		—		—
Mutual funds invested in debt securities	22,377		22,377		—		—
Total equity securities at fair value	46,196		46,196		—		—
Debt securities available for sale
U.S. government securities	14,660		—		14,660		—
Corporate securities	54,413		—		54,413		—
U.S. government and federal agency	6,816		—		6,816		—
Commercial mortgage-backed securities	382		—		382		—
Commercial paper	5,887		—		5,887		—

Index-linked U.S. bonds	779		—		779		—
Foreign fixed-income securities	508		—		508		—
Total debt securities available for sale	83,445		—		83,445		—

Total investment securities at fair value	129,641		46,196		83,445		—

Long-term investments
Long-term investment securities at fair value (3)	45,781		—		—		—
Total	$	533,133	$	354,386	$	132,966	$	—

Liabilities:

Fair value of contingent liability	$	3,147	$	—	$	—	$	3,147
Fair value of derivatives embedded within convertible debt	4,999		—		—		4,999
Total	$	8,146	$	—	$	—	$	8,146

_____________________________

(1)Amounts included in Cash and cash equivalents on the consolidated balance sheets, except for $4,423 that is included in current restricted assets and $3,160 that is included in non-current restricted assets.

(2)Amounts included in current restricted assets and non-current restricted assets on the consolidated balance sheets.

(3)In accordance with Subtopic 820-10, investments that are measured at fair value using the NAV practical expedient are not classified in the fair value hierarchy.

The fair value of the Level 2 certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is the rate offered by the financial institution. The fair value of investment securities at fair value included in Level 1 is based on quoted market prices from various stock exchanges. The Level 2 investment securities at fair value are based on quoted market prices of securities that are thinly traded, quoted prices for identical or similar assets in markets that are not active or inputs other than quoted prices such as interest rates and yield curves.

The long-term investments are based on NAV per share provided by the partnerships based on the indicated market value of the underlying assets or investment portfolio. In accordance with Subtopic 820-10, these investments are not classified under the fair value hierarchy disclosed above because they are measured at fair value using the NAV practical expedient.

The fair value of derivatives embedded within convertible debt was derived using a valuation model. These derivatives have been classified as Level 3. The valuation model assumed future dividend payments by the Company and utilized interest rates and credit spreads based upon the implied credit spread of the 5.5% Convertible Notes due 2020 to determine the fair value of the derivatives embedded within the convertible debt. The changes in fair value of derivatives embedded within convertible debt are presented on the consolidated statements of operations.

The value of the embedded derivatives was contingent on changes in implied interest rates of the convertible debt, the Company’s stock price, stock volatility as well as projections of future cash and stock dividends over the term of the debt. The interest rate component of the value of the embedded derivative was computed by calculating an equivalent non-convertible, unsecured and subordinated borrowing cost. This rate was determined by calculating the implied rate on the Company’s 5.5% Convertible Notes when removing the embedded option value within the convertible security. This rate was based upon market observable inputs and influenced by the Company’s stock price, convertible bond trading price, risk-free interest rates and stock volatility.

The fair value of the Level 3 contingent liability was derived using a Monte Carlo valuation model. As part of the acquisition of the 29.41% non-controlling interest in Douglas Elliman, New Valley entered into a four-year payout agreement that requires it to pay the sellers a portion of the fair value in excess of the purchase price of Douglas Elliman should a sale of a controlling interest in Douglas Elliman occur.

The contingent liability is recorded within “Other liabilities” in the consolidated balance sheets, and any change in fair value will be recorded in “Other, net” within the consolidated statements of operations. The value of the contingent liability is calculated using the outstanding payable owed to the sellers and the estimated fair value of Douglas Elliman. The liability is contingent upon the sale of a controlling interest in Douglas Elliman by the Company prior to October 1, 2022.

The unobservable inputs related to the valuations of the Level 3 assets and liabilities were as follows at December 31, 2020:


	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at
	December 31, 2020		Valuation Technique	Unobservable Input	Range (Actual)

















Fair value of contingent liability	$	999	Monte Carlo simulation model	Estimated fair value of the Douglas Elliman reporting unit	$	169,000
				Risk-free rate for a 2-year term	0.13		%
				Leverage-adjusted equity volatility of peer firms	78.57		%

The unobservable inputs related to the valuations of the Level 3 assets and liabilities were as follows at December 31, 2019:


	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at
	December 31, 2019		Valuation Technique	Unobservable Input	Range (Actual)








Fair value of derivatives embedded within convertible debt	$	4,999	Discounted cash flow	Assumed annual stock dividend	5		%
				Assumed annual cash dividend	$0.40/$0.20
				Stock price	$	13.39
				Convertible trading price (as a percentage of par value)	103.94		%
				Maturity	April 15, 2020
				Volatility	36.94		%


				Risk-free rate	Term structure of US Treasury Securities
				Implied credit spread	1.0% - 3.0% (2.0%)


Fair value of contingent liability	$	3,147	Monte Carlo simulation model	Estimated fair value of the Douglas Elliman reporting unit	$	271,500
				Risk-free rate for a 3-year term	1.61		%
				Leverage-adjusted equity volatility of peer firms	35.56		%

In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company is required to record assets and liabilities at fair value on a nonrecurring basis. Generally, assets and liabilities are recorded at fair value on a nonrecurring basis as a result of impairment charges. The Company had no nonrecurring nonfinancial assets subject to fair value measurements except for investments in real estate ventures that were impaired as of December 31, 2020 and 2019, respectively.

The Company’s investment in real estate ventures subject to nonrecurring fair value measurements are as follows:


			Fair Value Measurement Using:
	Year Ended December 31, 2020				Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Description	Impairment Charge		Total

Assets:
Investments in real estate ventures	$	16,513	$	—	$	—	$	—	$	—

The Company estimated the fair value of its investments in real estate ventures using observable inputs such as market pricing based on recent events, however, significant judgment was required to select certain inputs from observed market data. The decrease in the investments in real estate ventures was attributed to the decline in the projected sales prices and the duration of the estimated sell out of the respective real estate ventures. The $16,513 of impairment charges were included in the results from operations as a component of equity in losses from real estate ventures for the year ended December 31, 2020.


			Fair Value Measurement Using:
	Year Ended December 31, 2019				Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Description	Impairment Charge		Total

Assets:
Investments in real estate ventures	$	39,757	$	18,335	$	—	$	—	$	18,335

The Company estimated the fair value of its investments in real estate ventures using observable inputs such as market pricing based on recent events, however, significant judgment was required to select certain inputs from observed market data. The decrease in the investments in real estate ventures was attributed to the decline in the projected sales prices and the duration of the estimated sell out of the respective real estate ventures. The $39,757 of impairment charges were included in the results from operations for the year ended December 31, 2019.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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