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Disclosure about Fair Value of Financial Instruments | 6 Months Ended
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Jun. 30, 2022
Fair Value Disclosures [Abstract] |
Disclosure about Fair Value of Financial Instruments | Disclosure about Fair Value of Financial Instruments Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A three-level valuation hierarchy exists for disclosures of fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Please see Note 2 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 for additional information. The three levels are defined below: •Level 1 - Quoted prices in active markets for identical assets or liabilities. •Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. •Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. Mortgage Loans, Other Real Estate Loans and Non-real Estate Loans Receivable — The fair value of mortgage loans, other real estate loans and non-real estate loans receivable is generally estimated by using Level 2 and Level 3 inputs such as discounting the estimated future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Cash and Cash Equivalents and Restricted Cash — The carrying amount approximates fair value. Equity Securities — Equity securities are recorded at their fair value based on Level 1 publicly available trading prices. Equity Warrants — The fair value of equity warrants is estimated using Level 3 inputs and includes data points such as enterprise value of the underlying HC-One Group real estate portfolio, marketability discount for private company warrants, dividend yield, volatility and risk-free rate. The enterprise value is driven by projected cash flows, weighted average cost of capital and a terminal capitalization rate. Borrowings Under Primary Unsecured Credit Facility and Commercial Paper Program — The carrying amount of the primary unsecured credit facility and commercial paper program approximates fair value because the borrowings are interest rate adjustable. Senior Unsecured Notes — The fair value of the senior unsecured notes payable was estimated based on Level 1 publicly available trading prices. The carrying amount of the variable rate senior unsecured notes approximates fair value because they are interest rate adjustable. Secured Debt — The fair value of fixed rate secured debt is estimated using Level 2 inputs by discounting the estimated future cash flows using the current rates at which similar loans would be made with similar credit ratings and for the same remaining maturities. The carrying amount of variable rate secured debt approximates fair value because the borrowings are interest rate adjustable. Foreign Currency Forward Contracts, Interest Rate Swaps and Cross Currency Swaps — Foreign currency forward contracts, interest rate swaps and cross currency swaps are recorded in other assets or other liabilities on the balance sheet at fair value that is derived from observable market data, including yield curves and foreign exchange rates. Redeemable OP Unitholder Interests — Our redeemable OP unitholder interests are recorded on the balance sheet at fair value using Level 2 inputs unless the fair value is below the initial amount in which case the redeemable OP unitholder interests are recorded at the initial amount adjusted for distributions to the unitholders and income or loss attributable to the unitholders. The fair value is measured using the closing price of our common stock, as units may be redeemed at the election of the holder for cash or, at our option, one share of our common stock per unit, subject to adjustment in certain circumstances. The carrying amounts and estimated fair values of our financial instruments are as follows (in thousands):
|  | June 30, 2022 |  | December 31, 2021
|  | Carrying Amount |  | Fair Value |  | Carrying Amount |  | Fair Value
Financial assets: |  |  |  |  |  |  |  |
Mortgage loans receivable |  | $ | 748,833 |  |  | $ | 914,562 |  |  | $ | 877,102 |  |  | $ | 932,552 |
Other real estate loans receivable |  | 207,452 |  |  | 213,867 |  |  | 191,579 |  |  | 193,999 |
Equity securities |  | 958 |  |  | 958 |  |  | 1,608 |  |  | 1,608 |
Cash and cash equivalents |  | 363,339 |  |  | 363,339 |  |  | 269,265 |  |  | 269,265 |
Restricted cash |  | 78,912 |  |  | 78,912 |  |  | 77,490 |  |  | 77,490 |
Non-real estate loans receivable |  | 257,697 |  |  | 266,817 |  |  | 223,627 |  |  | 241,544 |
Foreign currency forward contracts, interest rate swaps and cross currency swaps |  | 135,854 |  |  | 135,854 |  |  | 7,205 |  |  | 7,205 |
Equity warrants |  | 37,404 |  |  | 37,404 |  |  | 41,909 |  |  | 41,909 |
Financial liabilities: |  |  |  |  |  |  |  |
Borrowings under unsecured credit facility and commercial paper program |  | $ | 354,000 |  |  | $ | 354,000 |  |  | $ | 324,935 |  |  | $ | 324,935 |
Senior unsecured notes |  | 12,488,718 |  |  | 11,987,673 |  |  | 11,613,758 |  |  | 13,139,748 |
Secured debt |  | 2,191,826 |  |  | 2,153,353 |  |  | 2,192,261 |  |  | 2,252,107 |
Foreign currency forward contracts, interest rate swaps and cross currency swaps |  | 27,698 |  |  | 27,698 |  |  | 39,296 |  |  | 39,296 |
Redeemable OP unitholder interests |  | $ | 122,287 |  |  | $ | 122,287 |  |  | $ | 153,098 |  |  | $ | 153,098 |
Items Measured at Fair Value on a Recurring Basis The market approach is utilized to measure fair value for our financial assets and liabilities reported at fair value on a recurring basis. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The following summarizes items measured at fair value on a recurring basis (in thousands):
|  | Fair Value Measurements as of June 30, 2022
|  | Total |  | Level 1 |  | Level 2 |  | Level 3
Equity securities |  | $ | 958 |  |  | $ | 958 |  |  | $ | — |  |  | $ | — |
Equity warrants |  | 37,404 |  |  | — |  |  | — |  |  | 37,404 |
Foreign currency forward contracts, interest rate swaps and cross currency swaps, net asset (liability) (1) |  | 108,156 |  |  | — |  |  | 108,156 |  |  | — |
Totals |  | $ | 146,518 |  |  | $ | 958 |  |  | $ | 108,156 |  |  | $ | 37,404 |
(1) Please see Note 12 for additional information. The following table summarizes the change in fair value for equity warrants using unobservable Level 3 inputs for the periods presented (in thousands):
|  | Six Months Ended
|  | June 30, 2022 |  | June 30, 2021
Beginning balance |  | $ | 41,909 |  |  | $ | — |
Warrants acquired |  | — |  |  | 32,419 |
Mark-to-market adjustment |  | (520) |  |  | — |
Foreign currency |  | (3,985) |  |  | — |
Ending balance |  | $ | 37,404 |  |  | $ | 32,419 |
The most significant assumptions utilized in the valuation of the equity warrants are the cash flows of the underlying HC-One Group enterprise, as well as the terminal capitalization rate of 9.5%. Items Measured at Fair Value on a Nonrecurring Basis In addition to items that are measured at fair value on a recurring basis, we also have assets and liabilities in our balance sheet that are measured at fair value on a nonrecurring basis that are not included in the tables above. Assets, liabilities and noncontrolling interests that are measured at fair value on a nonrecurring basis include those acquired or assumed. Asset impairments (if applicable, see Note 5 for impairments of real property and Note 7 for impairments of loans receivable) are also measured at fair value on a nonrecurring basis. We have determined that the fair value measurements included in each of these assets and liabilities rely primarily on company-specific inputs and our assumptions about the use of the assets and settlement of liabilities, as observable inputs are not available. As such, we have determined that each of these fair value measurements generally resides within Level 3 of the fair value hierarchy. We estimate the fair value of real estate and related intangibles using the income approach and unobservable data such as net operating income and estimated capitalization and discount rates. We also consider local and national industry market data including comparable sales, and commonly engage an external real estate appraiser to assist us in our estimation of fair value. We estimate the fair value of assets held for sale based on current sales price expectations or, in the absence of such price expectations, Level 3 inputs described above. We estimate the fair value of loans receivable using projected payoff valuations based on the expected future cash flows and/or the estimated fair value of collateral, net of sales costs, if the repayment of the loan is expected to be provided solely by the collateral. We estimate the fair value of secured debt assumed in asset acquisitions using current interest rates at which similar borrowings could be obtained on the transaction date.

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI https://asc.fasb.org/extlink&oid=126976982&loc=d3e19207-110258 + Details
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