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Fair Value Measurements

6 Months Ended

Jun. 30, 2019

NOTE 14. FAIR VALUE MEASUREMENTS

As of June 30, 2019 and December 31, 2018, our only fair value measurement on a recurring basis relates to our interest rate cap, which is classified within other assets. As of June 30, 2019 and December 31, 2018, the fair value was approximately less than $0.1 million and $0.2 million, respectively, determined as Level 2 under the fair value hierarchy. For the three and six months ended June 30, 2019, we recorded interest expense of less than $0.1 million and less than $0.2 million related to the change in fair value of the interest rate cap, respectively.

During 2018, our fair value measurement on a recurring basis related to our interest rate swap. As part of the Spin-Off, the fair value of the interest rate swap was terminated. For the three months ended June 30, 2018, we recorded a $3 million gain on termination of cash flow hedge in our condensed consolidated statement of comprehensive income.

As of June 30, 2019 and 2018, there were no assets or liabilities recorded at fair value on a nonrecurring basis.

For those financial instruments not carried at fair value, the carrying amount and estimated fair values of our financial assets and liabilities were as follows as of June 30, 2019 and December 31, 2018 (in millions):

	June 30, 2019				December 31, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value

Debt - CMBS Facility⁽¹⁾⁽²⁾	$	1,016	$	1,016	$	1,035	$	1,035
Mandatorily redeemable preferred shares⁽¹⁾		15		15		15		15

⁽¹⁾

Classified as Level 3 under the fair value hierarchy.

⁽²⁾

Carrying amount excludes deferred finance costs of $14 million as of June 30, 2019 and $21 million as of December 31, 2018.

We estimate the fair value of our debt and mandatorily redeemable preferred stock by using discounted cash flow analysis based on current market inputs for similar types of arrangements, including prepayment terms. As our debt instruments predominantly have interest rates set by floating rates and due to the recent issuance of the instruments, we have estimated that the contractual interest rates approximate their market rate. Fluctuations in these assumptions will result in different estimates of fair value.

We believe the carrying amounts of our cash and cash equivalents, accounts receivable and lender and other escrows approximate fair value as of June 30, 2019 and December 31, 2018, as applicable. Our estimates of the fair values were determined using available market information and valuation methods appropriate in the circumstances.

- 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.

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