Fair Value

6 Months Ended

Jun. 30, 2019

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.

Our revolving credit facility, term loan facility and asset-backed securitizations are 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 unsecured senior notes are also financial instruments which are classified as Level 2 in the fair value hierarchy as their fair values are 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 June 30, 2019 and December 31, 2018 (in thousands):



	June 30, 2019				December 31, 2018
	Carrying Value		Fair Value		Carrying Value ⁽¹⁾		Fair Value
AH4R 2014-SFR2 securitization	$	481,749	$	493,762	$	483,790	$	494,820
AH4R 2014-SFR3 securitization	497,106		512,386		499,108		511,450
AH4R 2015-SFR1 securitization	521,771		535,892		523,865		534,666
AH4R 2015-SFR2 securitization	452,654		467,750		454,748		467,303
Total asset-backed securitizations ⁽¹⁾	1,953,280		2,009,790		1,961,511		2,008,239
2028 unsecured senior notes, net	493,195		517,880		492,800		479,730
2029 unsecured senior notes, net	394,582		434,488		—		—
Total unsecured senior notes, net ⁽¹⁾	887,777		952,368		492,800		479,730
Revolving credit facility ⁽²⁾	—		—		250,000		250,000
Term loan facility ^{(1) (2)}	—		—		99,232		100,000
Total debt	$	2,841,057	$	2,962,158	$	2,803,543	$	2,837,969


(1)	To conform with current year presentation, the carrying values of the asset-backed securitizations, unsecured senior notes and term loan facility have been presented net of unamortized deferred financing costs of $31.0 million, $4.7 million and $0.8 million, respectively, as of December 31, 2018. The carrying values of the unsecured senior notes, net remain presented net of unamortized discounts.


(2)	As our revolving credit facility and term loan facility bear interest at a floating rate based on an index plus a spread (see Note 8), management believes that the carrying values (excluding deferred financing costs) of the revolving credit facility and term loan facility reasonably approximate fair value.

In October 2017, in anticipation of the issuance of the 2028 unsecured senior 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 was settled upon the issuance of the 2028 unsecured senior notes in February 2018, which resulted in a $9.6 million gain that was recorded in other comprehensive income and is being reclassified into earnings as a reduction of interest expense over the term of the 2028 unsecured senior notes. The estimated amount of existing gains that are reported in accumulated other comprehensive income at the reporting date that are expected to be reclassified into earnings within the next 12 months is approximately $1.0 million.

Valuation of the participating preferred shares derivative liability considered 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 considered 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. On April 5, 2018, the Company redeemed all outstanding participating preferred shares through a conversion of those participating preferred shares into Class A common shares. As a result of the redemption, the Company recorded a $32.2 million allocation of income to the Series C participating preferred shareholders in the second quarter of 2018, which represents the initial liquidation value of the Series C participating preferred shares in excess of the original equity carrying value of the Series C participating preferred shares as of the redemption date.

The following table presents changes in the fair values of our Level 3 financial instruments that were measured on a recurring basis with changes in fair value recognized in remeasurement of participating preferred shares within the condensed consolidated statements of operations for the six months ended June 30, 2018 (in thousands):



Description	January 1, 2018		Conversions			Remeasurement included in earnings			June 30, 2018
Liabilities:
Participating preferred shares derivative liability	$	29,470	$	(28,258	)	$	(1,212	)	$	—

- 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 + Details