Fair Value of Financial Instruments

The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:


•	Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;


•	Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and


•	Level 3: prices or valuation techniques where little or no market data is available that require inputs that are both significant to the fair value measurement and unobservable.

In September 2016, the Company entered into an agreement to receive shares of a nonpublic company in lieu of rental revenues and tenant recoveries. The shares were accounted for under the cost method of accounting as there was no readily determinable fair value. The investment in the shares has been accounted for under ASC 825-10, Recognition and Measurement of Financial Assets and Financial Liabilities, since the Company adopted ASU 2016-01 on January 1, 2018, at which point the Company elected the measurement alternative. This standard requires the Company to mark the investment in shares to fair value based on Level 2 inputs, whenever fair value is readily available or observable. Changes in fair value are included in the unrealized gain on non-real estate investment line item on the Consolidated Statements of Operations.

The Company’s financial assets and liabilities measured and reported at fair value on a recurring basis include the following as of:



	June 30, 2018								December 31, 2017
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Derivative assets⁽¹⁾	$	—	$	25,485	$	—	$	25,485	$	—	$	12,586	$	—	$	12,586
Derivative liabilities	—		—		—		—		—		265		—		265
Non-real estate investment⁽¹⁾⁽²⁾	—		2,713		—		2,713		—		—		—		—

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(1)	Included in the prepaid expenses and other assets line item on the Consolidated Balance Sheets.


(2)	Related to our investment in shares in a non-public company. Pursuant to our adoption of ASU 2016-01 during 2018, the Company marked the investment to fair value during the second quarter of 2018. The investment was not fair valued in 2017 and was accounted for under the cost method.

Other Financial Instruments

The carrying values of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities are reasonable estimates of fair value, using Level 1 inputs, because of the short-term nature of these instruments. Fair values for notes payable are estimates based on rates currently prevailing for similar instruments of similar maturities using Level 2 inputs.

The table below represents the carrying value and fair value of the Company’s notes payable as of:



	June 30, 2018				December 31, 2017
	Carrying Value		Fair Value		Carrying Value	Fair Value
Unsecured notes payable⁽¹⁾⁽²⁾	$	2,014,315	$	1,968,163	1,974,278	$	1,960,560
Secured notes payable	365,652		357,092		464,311	458,441

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(1)	Amounts represent notes payable excluding net deferred financing costs.


(2)	The $400.0 million registered senior notes were issued at a discount. The discount, net of amortization, was $685 thousand and $722 thousand at June 30, 2018 and December 31, 2017, respectively, and is included within unsecured notes payable.