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Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2021

Fair Value of Financial Instruments

Our financial instruments consist primarily of cash, cash equivalents and restricted cash, marketable securities, notes and other receivables, debt, and other liabilities. We utilize fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures, pursuant to ASC 820, "Fair Value Measurements and Disclosures." The following methods and assumptions were used in order to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

ASC Topic 820 "Fair Value Measurements and Disclosures," requires disclosure regarding determination of fair value for assets and liabilities and establishes a hierarchy under which these assets and liabilities must be grouped, based on significant levels of observable or unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumption. This hierarchy requires the use of observable market data when available. These two types of inputs have created the following fair value hierarchy:

Level 1 - Quoted unadjusted prices for identical instruments in active markets that we have the ability to access;

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 all significant inputs and significant value drivers are observable (e.g. interest rates, yield curves, prepayment speeds, default rates, loss severity, etc.) in active markets or can be corroborated by observable market data; and

Level 3 - Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. The unobservable inputs reflect our assumptions about the assumptions that market participants would use.

Assets by Hierarchy Level

The table below sets forth our financial assets and liabilities (in thousands) that required disclosure of fair value on a recurring basis as of June 30, 2021. The table presents the carrying values and fair values of our financial instruments as of June 30, 2021 and December 31, 2020, that were measured using the valuation techniques described above. The table excludes other financial instruments such as other receivables and accounts payable as the carrying values associated with these instruments approximate their fair value since their maturities are less than one year. These are classified as Level 1 in the hierarchy.



	June 30, 2021
Financial Assets	Carrying Value		Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
Cash, cash equivalents and restricted cash	$	119,612	$	119,612	$	—	$	—	$	119,612
Marketable securities	153,049		153,049		—		—		153,049
Installment notes receivable on manufactured homes, net	82,506		—		—		82,506		82,506

Notes receivable from real estate developers	61,955		—		—		61,955		61,955
Total assets measured at fair value	$	417,122	$	272,661	$	—	$	144,461	$	417,122

Financial Liabilities
Mortgage term loans	$	3,418,097	$	—	$	3,418,097	$	—	$	3,472,066

Collateralized term loan	39,637		—		39,637		—		39,637
Total secured debt	3,457,734		—		3,457,734		—		3,511,703
Senior unsecured notes	591,688		—		591,688		—		601,630
Line of credit and other unsecured debt	261,753		—		261,753		—		261,753
Total unsecured debt	853,441		—		853,441		—		863,383
Other financial liabilities (contingent consideration)	18,101		—		—		18,101		18,101
Total liabilities measured at fair value	$	4,329,276	$	—	$	4,311,175	$	18,101	$	4,393,187



	December 31, 2020
Financial Assets	Carrying Value		Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
Cash, cash equivalents and restricted cash	$	92,641	$	92,641	$	—	$	—	$	92,641
Marketable securities	124,726		124,726		—		—		124,726
Installment notes receivable on manufactured homes, net	85,866		—		85,866		—		85,866

Notes receivable from real estate developers	52,638		—		52,638		—		52,638
Total assets measured at fair value	$	355,871	$	217,367	$	138,504	$	—	$	355,871

Financial Liabilities(a)
Mortgage term loans	$	3,444,967	$	—	$	3,444,967	$	—	$	3,543,885

Collateralized term loan	45,016		—		45,016		—		45,016
Total secured debt	3,489,983		—		3,489,983		—		3,588,901

Line of credit and other unsecured debt	1,267,093		—		1,267,093		—		1,267,093
Total unsecured debt	1,267,093		—		1,267,093		—		1,267,093
Other financial liabilities (contingent consideration)	15,842		—		—		15,842		15,842
Total liabilities measured at fair value	$	4,772,918	$	—	$	4,757,076	$	15,842	$	4,871,836

(a)Senior unsecured notes not included above as it was not issued until June 2021.

We utilize fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The following methods and assumptions were used in order to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash, Cash Equivalents and Restricted Cash

The carrying values of cash, cash equivalents and restricted cash approximate their fair market values due to the short-term nature of the instrument. These are classified as Level 1 in the hierarchy.

Marketable Securities

Marketable securities held by us and accounted for under the ASC 321 "Investment Equity Securities" are measured at fair value. Any change in fair value is recognized in the Consolidated Statement of Operations in Remeasurement of marketable securities in accordance with ASU 2016-01 "Financial Instruments - Overall (Subtopic 825-10): Recognition and measurement of financial assets and financial liabilities." The fair value is measured by the quoted unadjusted share price which is readily available in active markets (Level 1).

The change in the marketable securities balance is as follows (in thousands):



	Six Months Ended		Year Ended
	June 30, 2021		December 31, 2020
Beginning Balance	$	124,725	$	94,727
Additional purchase	—		11,757
Change in fair value measurement	31,130		6,132
Foreign currency translation adjustment	(4,002)		10,138
Dividend reinvestment, net of tax	1,196		1,971

Ending Balance	$	153,049	$	124,725

Installment Notes Receivable on Manufactured Homes

Installment notes receivable on manufactured homes are recorded at fair value and are measured using model-derived indicative pricing using primarily unobservable inputs, inclusive of default rates, interest rates and recovery rates (Level 3). Refer to Note 4, "Notes and Other Receivables," for additional information.

Notes Receivable from Real Estate Developers

Notes receivable from real estate developers are recorded at fair value and are measured using model-derived indicative pricing using primarily unobservable inputs including interest rates and counterparty performance (Level 3). The carrying values of the notes generally approximate their fair market values either due to the nature of the note and / or the note being secured by underlying collateral and / or personal guarantees. Refer to Note 4, "Notes and Other Receivables," for additional information.

Secured Debt

Mortgage term loans - the fair value of mortgage term loans is based on the estimates of management and on rates currently quoted, rates currently prevailing for comparable loans and instruments of comparable maturities (Level 2). Refer to Note 8, "Debt and Line of Credit," for additional information.

Collateralized term loan - the fair value of the debt with variable rates approximates carrying value as the interest rates of these amounts approximate market rates. The estimated fair value of our indebtedness as of June 30, 2021 approximated its gross carrying value.

Unsecured Debt

Senior unsecured notes - the fair value of senior unsecured notes is based on the estimates of management and on rates currently quoted, rates currently prevailing for comparable loans and instruments of comparable maturities (Level 2). Refer to Note 8, "Debt and Line of Credit," for additional information.

Line of credit and other unsecured debt - consists primarily of our New Credit Facility. We have variable rates on our New Credit Facility. The fair value of the debt with variable rates approximates carrying value as the interest rates of these amounts approximate market rates. The estimated fair value of our indebtedness as of June 30, 2021, approximated its gross carrying value.

Other Financial Liabilities

We estimate the fair value of our contingent consideration liability based on valuation models using significant unobservable inputs that generally consider discounting of future cash flows using market interest rates and adjusting for non-performance risk over the remaining term of the liability (Level 3).

Level 3 Reconciliation, Measurements and Transfers

We review the fair value hierarchy classifications each reporting period. Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers in and out of Level 3 at the beginning fair value for the reporting period in which the changes occur. Availability of secondary market activity and consistency of pricing from third-party sources impacts our ability to classify securities as Level 2 or Level 3.

Our assessment resulted in a net transfer into Level 3 of $138.5 million related to installment notes receivable on manufactured homes and notes from real estate developers during the six months ended June 30, 2021.

Inputs that are used to derive the fair value for installment notes receivables on manufactured homes and notes receivable from real estate developers transferred to Level 3 from Level 2 during the quarter ended March 31, 2021 as significant inputs used to value those instruments inclusive of default rates, interest rates, recovery rates, and counterparty performance rely heavily on internally sourced assumptions as opposed to observable market-based inputs.

The following tables summarize changes to our financial instruments carried at fair value and classified within Level 3 of the fair value hierarchy for the three and six months ended June 30, 2021 (in thousands):


	Three Months Ended
	June 30, 2021
	Installment Notes Receivable on MH, net		Notes Receivable From Real Estate Developers		Other Liabilities (Contingent Consideration)
Level 3 beginning balance at March 31, 2021	$	84,109	$	58,286	$	18,156
Transfer to level 3	—		—		—
Transfer out of level 3	—		—		—
Net earnings	93		—		72
Purchases and issuances	2,721		4,348		238
Sales and settlements	(3,990)		(331)		—
Other adjustments	(427)		(348)		(365)
Level 3 ending balance at June 30, 2021	$	82,506	$	61,955	$	18,101


	Six Months Ended
	June 30, 2021
	Installment Notes Receivable on MH, net		Notes Receivable From Real Estate Developers		Other Liabilities (Contingent Consideration)
Level 3 beginning balance at December 31, 2020	$	—	$	—	$	15,842
Transfer to level 3	85,866		52,638		—
Transfer out of level 3	—		—		—
Net earnings	469		—		143
Purchases and issuances	3,933		11,140		3,439
Sales and settlements	(7,804)		(593)		—
Other adjustments	42		(1,230)		(1,323)
Level 3 ending balance at June 30, 2021	$	82,506	$	61,955	$	18,101

Although we have determined the estimated fair value amounts using available market information and commonly accepted valuation methodologies, considerable judgement is required in interpreting market data to develop fair value estimates. The fair value estimates are based on information available as of June 30, 2021. As such, our estimates of fair value could differ significantly from the actual carrying value.

- 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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