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Fair Value Measurements | 6 Months Ended
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Jun. 30, 2022
Fair Value Measurements |
Fair Value Measurements |
11. | Fair Value Measurements
In accordance with the accounting guidance regarding the fair value option for financial assets and financial liabilities, entities are permitted to choose to measure certain financial assets and liabilities at fair value, with the change in unrealized gains and losses reported in earnings. We did not elect the fair value option for any of our financial assets and financial liabilities. As of June 30, 2022, we had two interest rate swaps related to our term loans that were designated as cash flow hedges of interest rate risk with a total notional amount of $100,000,000. See Footnote 6. Debt Obligations within our consolidated financial statements for further detail on our interest rate swaps. We record cash flow hedges either as an asset or a liability measured at fair value. We estimate the fair value of our interest rate swaps using the assistance of a third-party using inputs that are observable in the market which include forward yield curves and other relevant information. Although we have determined that the majority of the inputs used to value our derivative instruments fall within level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize level 3 inputs to evaluate the likelihood of default by us and our counterparties. The carrying amount of cash and cash equivalents, prepaid expenses and other assets, accrued interest, accrued expenses and other liabilities approximates fair value because of the short-term maturity of these instruments. We do not invest our cash in auction rate securities. The carrying value and estimated fair value of our financial instruments as of June 30, 2022 and December 31, 2021 were as follows (in thousands): ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | At June 30, 2022 | ​ | At December 31, 2021 | ​
​ | ​ | Carrying | ​ | Fair | ​ | Carrying | ​ | Fair | ​
​ | ​ | Value | ​ | Value | ​ | Value | ​ | Value | ​
Mortgage loans receivable, net of credit loss reserve | ​ | $ | 379,817 | ​ | $ | 444,125 | (1) | $ | 344,442 | ​ | $ | 405,162 | (1)
Notes receivable, net of credit loss reserve | ​ |  | 58,206 | ​ |  | 63,008 | (2) |  | 28,337 | ​ |  | 28,653 | (2)
Revolving line of credit | ​ |  | 56,000 | ​ | ​ | 56,000 | (3) | ​ | 110,900 | ​ | ​ | 110,900 | (3)
Term loans, net of debt issue costs | ​ | ​ | 99,437 | ​ | ​ | 100,000 | (3) | ​ | 99,363 | ​ | ​ | 100,000 | (3)
Senior unsecured notes, net of debt issue costs | ​ |  | 579,431 | ​ | ​ | 531,880 | (4) | ​ | 512,456 | ​ | ​ | 540,045 | (4)
(1) | Our investment in mortgage loans receivable is classified as Level 3. The fair value is determined using a widely accepted valuation technique, discounted cash flow analysis on the expected cash flows. The discount rate is determined using our assumption on market conditions adjusted for market and credit risk and current returns on our investments. The discount rate used to value our future cash inflows of the mortgage loans receivable at June 30, 2022 and December 31, 2021 was 9.3% and 9.5%, respectively.
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(2) | Our investments in notes receivable are classified as Level 3. The discount rate is determined using our assumption on market conditions adjusted for market and credit risk and current returns on our investments. The discount rate used to value our future cash flows of the notes receivable at June 30, 2022 and December 31, 2021, were 6.6% and 5.6%, respectively.
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(3) | Our revolving line of credit and term loans bear interest at a variable interest rate. The estimated fair value of our revolving line of credit and term loans approximated their carrying values at June 30, 2022 and December 31, 2021 based upon prevailing market interest rates for similar debt arrangements.
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(4) | Our obligation under our senior unsecured notes is classified as Level 3 and thus the fair value is determined using a widely accepted valuation technique, discounted cash flow analysis on the expected cash flows. The discount rate is measured based upon management’s estimates of rates currently prevailing for comparable loans available to us, and instruments of comparable maturities. At June 30, 2022, the discount rate used to value our future cash outflow of our senior unsecured notes was 5.75% for those maturing before year 2030 and 6.25% for those maturing at or beyond year 2030. At December 31, 2021, the discount rate used to value our future cash outflow of our senior unsecured notes was 3.00% for those maturing before year 2030 and 3.25% for those maturing at or beyond year 2030.
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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 http://asc.fasb.org/extlink&oid=123874694&loc=d3e19207-110258 + Details
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