Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2018

Fair Value of Financial Instruments

Fair Value of Financial Instruments

11.Fair Value of Financial Instruments

Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The disclosure for assets and liabilities measured at fair value requires allocation to a three-level valuation hierarchy. This valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Categorization within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

We believe that the carrying values reflected in our consolidated balance sheets reasonably approximate the fair values for cash and cash equivalents, accounts receivable, escrow deposits, loans receivable, line of credit payable, term loans and all other liabilities, due to their short-term nature or interest rates and terms that are consistent with market, except for our notes receivable issued in connection with property sales, mortgages payable and our senior notes and bonds payable, which are disclosed as follows (dollars in millions):

			Estimated fair
At March 31, 2018	Carrying value		value
Notes receivable issued in connection with property sales	$	5.2	$	5.2
Mortgages payable assumed in connection with acquisitions (1)	308.0		320.6
Notes and bonds payable (2)	4,900.0		4,974.6

			Estimated fair
At December 31, 2017	Carrying value		value
Notes receivable issued in connection with property sales	$	5.3	$	5.3
Mortgages payable assumed in connection with acquisitions (1)	320.3		334.2
Notes and bonds payable (2)	5,250.0		5,475.3

(1) Excludes non-cash net premiums recorded on the mortgages payable. The unamortized balance of these net premiums is $5.4 million at March 31, 2018, and $5.9 million at December 31, 2017. Also excludes deferred financing costs of $223,000 at March 31, 2018 and $236,000 at December 31, 2017.

(2) Excludes non-cash original issuance premiums and discounts recorded on notes payable. The unamortized balance of the net original issuance premiums is $13.9 million at March 31, 2018, and $14.3 million at December 31, 2017. Also excludes deferred financing costs of $34.3 million at March 31, 2018 and $34.1 million at December 31, 2017.

The estimated fair values of our notes receivable issued in connection with property sales and our mortgages payable have been calculated by discounting the future cash flows using an interest rate based upon the relevant forward interest rate curve, plus an applicable credit-adjusted spread.  Because this methodology includes unobservable inputs that reflect our own internal assumptions and calculations, the measurement of estimated fair values related to our notes receivable and mortgages payable is categorized as level three on the three-level valuation hierarchy.

The estimated fair values of our senior notes and bonds payable are based upon indicative market prices and recent trading activity of our senior notes and bonds payable. Because this methodology includes inputs that are less observable by the public and are not necessarily reflected in active markets, the measurement of the estimated fair values, related to our notes and bonds payable, is categorized as level two on the three-level valuation hierarchy.

We record interest rate swaps on the consolidated balance sheet at fair value. At March 31, 2018, interest rate swaps in a liability position valued at $307,000 were included in accounts payable and accrued expenses and interest rate swaps in an asset position valued at $3.6 million were included in other assets, net on the consolidated balance sheet.  The fair value of our interest rate swaps are based on valuation techniques including discounted cash flow analysis on the expected cash flows of each swap, using both observable and unobservable market-based inputs, including interest rate curves.  Because this methodology uses observable and unobservable inputs, and the unobservable inputs are not significant to the fair value measurement, the measurement of interest rate swaps is categorized as level two on the three-level valuation hierarchy.