Fair Value

The carrying amount of rents and other receivables, restricted cash, escrow deposits, prepaid expenses and other assets, and accounts payable and accrued expenses approximate fair value because of the short maturity of these amounts. The Company’s participating preferred shares derivative liability and treasury lock are the only financial instruments recorded at fair value on a recurring basis in the consolidated financial statements.

Our revolving credit facility, term loan facility, asset-backed securitizations and secured note payable are also financial instruments, which are classified as Level 3 in the fair value hierarchy as they were estimated by using unobservable inputs. We estimated their fair values by modeling the contractual cash flows required under the instruments and discounting them back to their present values using estimates of current market rates. Our exchangeable senior notes are also financial instruments, which are classified as Level 2 in the fair value hierarchy as their fair value is estimated using observable inputs, based on the market value of the last trade at the end of the period.

The following table displays the carrying values and fair values of our debt instruments as of December 31, 2017 and 2016 (in thousands):



	December 31, 2017				December 31, 2016
	Carrying Value		Fair Value		Carrying Value		Fair Value
AH4R 2014-SFR1 securitization	$	—	$	—	$	456,074	$	465,343
AH4R 2014-SFR2 securitization	496,326		504,730		501,810		510,941
AH4R 2014-SFR3 securitization	512,041		521,252		517,827		530,549
AH4R 2015-SFR1 securitization	537,723		544,592		543,480		553,689
AH4R 2015-SFR2 securitization	467,267		475,832		472,043		483,901
Total asset-backed securitizations (1)	2,013,357		2,046,406		2,491,234		2,544,423
Exchangeable senior notes, net (2)	111,697		147,462		108,148		142,808
Secured note payable	48,859		49,027		49,828		50,053
Revolving credit facility (3)	140,000		140,000		—		—
Term loan facility (4)	200,000		200,000		325,000		325,000
Total debt	$	2,513,913	$	2,582,895	$	2,974,210	$	3,062,284


(1)	The carrying values of the asset-backed securitizations exclude $36.0 million and $48.4 million of deferred financing costs as of December 31, 2017 and 2016, respectively.


(2)	The carrying value of the exchangeable senior notes, net is presented net of an unamortized discount.


(3)	As our revolving credit facility bears interest at a floating rate based on an index plus a spread, which is a LIBOR rate plus a margin ranging from 0.825% to 1.55% or a base rate (generally determined according to a prime rate or federal funds rate) plus a margin ranging from 0.00% to 0.55%, management believes that the carrying value of the term loan facility reasonably approximates fair value.

(4)

The carrying value of the term loan facility excludes $2.0 million and $3.3 million of deferred financing costs as of December 31, 2017 and 2016, respectively. As our term loan facility bears interest at a floating rate based on an index plus a spread, which is a LIBOR rate plus a margin ranging from 0.90% to 1.75% or a base rate (generally determined according to a prime rate or federal funds rate) plus a margin ranging from 0.00% to 0.75%, management believes that the carrying value of the term loan facility reasonably approximates fair value.

Valuation of the participating preferred shares derivative liability considers scenarios in which the participating preferred shares would be redeemed or converted into Class A common shares by the Company and the subsequent payoffs under those scenarios. The valuation also considers certain variables such as the risk-free rate matching the assumed timing of either redemption or conversion, volatility of the underlying home price appreciation index, dividend payments, conversion rates, the assumed timing of either redemption or conversion and an assumed drift factor in home price appreciation across certain metropolitan statistical areas, or MSAs, as outlined in the agreement. The Series A and B participating preferred shares were redeemed through a conversion into Class A common shares on October 3, 2017 (see Note 8).

In October 2017, in anticipation of the issuance of the 2028 Notes and in order to hedge interest rate risk, the Operating Partnership entered into a treasury lock agreement on a notional amount of $350.0 million, based on the 10-year treasury note rate at the time. The treasury lock was designated as a cash flow hedging instrument and had a fair value of $0.1 million as of December 31, 2017, which was included in escrow deposits, prepaid expenses and other assets within the consolidated balance sheets, with a corresponding unrealized gain reflected in other comprehensive income. The treasury lock was settled upon the issuance of the 2028 Notes in February 2018 and resulted in a $9.6 million gain that will be recorded in other comprehensive income and reclassified into earnings as a reduction of interest expense over the term of the 2028 Notes. The treasury lock is classified as Level 2 within the fair value hierarchy as its fair value is estimated using observable inputs, based on the 10-year treasury note rate.

The following tables set forth the fair values of the participating preferred shares derivative liability and treasury lock as of December 31, 2017 and 2016 (in thousands):



	December 31, 2017
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Treasury lock	$	—	$	75	$	—	$	75

Liabilities:
Participating preferred shares derivative liability	$	—	$	—	$	29,470	$	29,470



	December 31, 2016
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Liabilities:
Participating preferred shares derivative liability	$	—	$	—	$	69,810	$	69,810

The following tables present changes in the fair values of our Level 3 financial instruments that are measured on a recurring basis with changes in fair value recognized in remeasurement of participating preferred shares within the consolidated statements of operations for the years ended December 31, 2017 and 2016 (in thousands):



Description	January 1, 2017		Conversions			Remeasurement included in earnings			December 31, 2017
Liabilities:
Participating preferred shares derivative liability	$	69,810	$	(37,499	)	$	(2,841	)	$	29,470



Description	January 1, 2016		Conversions			Gain and remeasurement included in earnings			December 31, 2016
Liabilities:
Contingently convertible Series E units liability	$	69,957	$	(58,494	)	$	(11,463	)	$	—
Participating preferred shares derivative liability	$	62,790	$	—		$	7,020		$	69,810

Changes in inputs or assumptions used to value the participating preferred shares derivative liability may have a material impact on the resulting valuation.