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Financial Instruments and Fair Value Measurements | 3 Months Ended
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Mar. 31, 2017
Fair Value Disclosures [Abstract] |
Financial Instruments and Fair Value Measurements | Financial Instruments and Fair Value Measurements The fair value of an asset is defined as the exit price, which is the amount that would either be received when an asset is sold or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance establishes a three-tier fair value hierarchy based on the inputs used in measuring fair value. These tiers are: Level 1, for which quoted market prices for identical instruments are available in active markets, such as money market funds, equity securities, and U.S. Treasury securities; Level 2, for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument, such as certain derivative instruments including interest rate caps and interest rate swaps; and Level 3, for financial instruments or other assets/liabilities that do not fall into Level 1 or Level 2 and for which little or no market data exists, therefore requiring us to develop our own assumptions. Items Measured at Fair Value on a Recurring Basis The methods and assumptions described below were used to estimate the fair value of each class of financial instrument. For significant Level 3 items, we have also provided the unobservable inputs along with their weighted-average ranges. Money Market Funds — The Company has money market funds, which are included in Cash and cash equivalents in the consolidated financial statements, are comprised of government securities and/or U.S. Treasury bills. These funds were classified as Level 1 as we used quoted prices from active markets to determine their fair values. Derivative Assets — Our derivative assets, which are included in Other assets, net in the consolidated financial statements, are comprised of interest rate swaps. The interest rate swaps were measured at fair value using readily observable market inputs, such as quotations on interest rates, and were classified as Level 2 as these instruments are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market. See “Derivative Financial Instruments,” below. Derivative Liabilities — Our derivative liabilities, which are included in Accounts payable and other liabilities in the consolidated financial statements, are comprised of interest rate swaps. These derivative instruments were measured at fair value using readily observable market inputs, such as quotations on interest rates, and were classified as Level 2 because they are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market. See “Derivative Financial Instruments,” below. We did not have any transfers into or out of Level 1, Level 2, and Level 3 measurements during the three months ended March 31, 2017 or 2016. The following table presents the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis (in thousands):
|  | March 31, 2017 |  | December 31, 2016
|  | Level 1 |  | Level 2 |  | Level 3 |  | Level 1 |  | Level 2 |  | Level 3
Assets |  |  |  |  |  |  |  |  |  |  |  |
Money Market Funds |  | $ | 3 |  |  | $ | — |  |  | $ | — |  |  | $ | 20,001 |  |  | $ | — |  |  | $ | — |
Derivative financial instruments |  | — |  |  | 3,378 |  |  | — |  |  | — |  |  | 2,921 |  |  | — |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |
Derivative financial instruments |  | — |  |  | 3,013 |  |  | — |  |  | — |  |  | 3,590 |  |  | — |
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. Derivative Financial Instruments The Company had the following interest rate swaps for the periods presented (dollars in thousands):
| Aggregate Notional Amount |  |  | Strike Rate | Balance Sheet Location | Fair Value
Derivative Instrument | Effective Date | Maturity Date | Low |  | High | March 31, 2017 |  | December 31, 2016
Core |  |  |  |  |  |  |  |  |  |
Interest Rate Swaps | $ | 125,247 |  | Oct 2011 - Mar 2015 | Jul 2018 - Mar 2025 | 1.38% | — | 3.77% | Other Liabilities | $ | (2,515 | ) |  | $ | (3,218 | )
Interest Rate Swaps | 205,134 |  | Sep 2012 - Jul 2016 | Jul 2020 - Jun 2026 | 1.24% | — | 3.77% | Other Assets | 3,224 |  |  | 2,609 |
| $ | 330,381 |  |  |  |  |  |  |  | $ | 709 |  |  | $ | (609 | )
Fund II |  |  |  |  |  |  |  |  |  |
Interest Rate Swap | $ | 19,726 |  | Oct 2014 | Nov 2021 | 2.88% | — | 2.88% | Other Liabilities | $ | (160 | ) |  | $ | (228 | )
Interest Rate Cap | 29,500 |  | Apr 2013 | Apr 2018 | 4% | — | 4% | Other Assets | — |  |  | — |
| $ | 49,226 |  |  |  |  |  |  |  | $ | (160 | ) |  | $ | (228 | )
Fund III |  |  |  |  |  |  |  |  |  |
Interest Rate Cap | $ | 58,000 |  | Dec 2016 | Jan 2020 | 3% | — | 3% | Other Assets | $ | 64 |  |  | $ | 127 |
Fund IV |  |  |  |  |  |  |  |  |  |
Interest Rate Swaps | $ | 81,668 |  | May 2014 - Mar 2017 | May 2019 - Apr 2022 | 1.78% | — | 1.98% | Other Liabilities | $ | (338 | ) |  | $ | (144 | )
Interest Rate Caps | 108,900 |  | Jul 2016 - Nov 2016 | Aug 2019 - Dec 2019 | 3% | — | 3% | Other Assets | 90 |  |  | 185 |
| $ | 190,568 |  |  |  |  |  |  |  | $ | (248 | ) |  | $ | 41 |
Total asset derivatives |  |  |  |  |  |  | $ | 3,378 |  |  | $ | 2,921 |
Total liability derivatives |  |  |  |  |  |  | $ | (3,013 | ) |  | $ | (3,590 | )
All of the Company’s derivative instruments have been designated as cash flow hedges and hedge the future cash outflows on variable rate mortgage debt (Note 7). Risk Management Objective of Using Derivatives The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its debt funding and, from time to time, through the use of derivative financial instruments. The Company enters into derivative financial instruments to manage exposures that result in the receipt or payment of future known and uncertain cash amounts, the values of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings. The Company is exposed to credit risk in the event of non-performance by the counterparties to the Swaps if the derivative position has a positive balance. The Company believes it mitigates its credit risk by entering into Swaps with major financial institutions. The Company continually monitors and actively manages interest costs on its variable-rate debt portfolio and may enter into additional interest rate swap positions or other derivative interest rate instruments based on market conditions. The Company has not entered, and does not plan to enter, into any derivative financial instruments for trading or speculative purposes. The following table presents the location in the financial statements of the income (losses) recognized related to the Company’s cash flow hedges (in thousands):
| Three Months Ended March 31,
| 2017 |  | 2016
Amount of gain (loss) related to the effective portion recognized in other comprehensive income (loss) | $ | 118 |  |  | $ | (8,819 | )
Amount of loss related to the effective portion subsequently reclassified to earnings | $ | — |  |  | $ | — |
Amount of gain (loss) related to the ineffective portion and amount excluded from effectiveness testing | $ | — |  |  | $ | — |
Credit Risk-Related Contingent Features The Company has agreements with each of its Swap counterparties that contain a provision whereby if the Company defaults on certain of its unsecured indebtedness the Company could also be declared in default on its swaps, resulting in an acceleration of payment under the swaps. Other Financial Instruments Our other financial instruments had the following carrying values and fair values as of the dates shown (dollars in thousands):
|  |  |  | March 31, 2017 |  | December 31, 2016
|  | Level |  | Carrying Amount |  | Estimated Fair Value |  | Carrying Amount |  | Estimated Fair Value
Notes Receivable (a) |  | 3 |  | $ | 276,507 |  |  | $ | 272,347 |  |  | $ | 276,163 |  |  | $ | 272,052 |
Mortgage and Other Notes Payable, net (a) |  | 3 |  | 1,143,049 |  |  | 1,164,861 |  |  | 1,055,728 |  |  | 1,077,926 |
Investment in non-traded equity securities |  | 3 |  | 802 |  |  | 25,194 |  |  | 802 |  |  | 25,194 |
Unsecured notes payable, net (b) |  | 2 |  | 358,847 |  |  | 361,559 |  |  | 432,990 |  |  | 435,779 |
(a) | The Company determined the estimated fair value of these financial instruments using a discounted cash flow model with rates that take into account the credit of the borrower or tenant, where applicable, and interest rate risk. The Company also considered the value of the underlying collateral, taking into account the quality of the collateral, the credit quality of the borrower, the time until maturity and the current market interest rate environment.
(b) | The Company determined the estimated fair value of the unsecured notes payable using quoted market prices in an open market with limited trading volume where available. In cases where there was no trading volume, the Company determined the estimated fair value using a discounted cash flow model using a rate that reflects the average yield of similar market participants.
The Company’s cash and cash equivalents, restricted cash, accounts receivable, accounts payable and certain financial instruments included in other assets and other liabilities had fair values that approximated their carrying values at March 31, 2017.

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