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Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2021

Fair Value of Financial Instruments

Our financial instruments consist primarily of cash, cash equivalents and restricted cash, marketable securities, notes and other receivables, derivatives 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:

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 December 31, 2021. The table presents the carrying values and fair values of our financial instruments as of December 31, 2021 and 2020, that were measured using the valuation techniques described below. 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.


	December 31, 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	$	78,198	$	78,198	$	—	$	—	$	78,198
Marketable securities	186,898		186,898		—		—		186,898
Installment notes receivable on manufactured homes, net	79,096		—		—		79,096		79,096

Notes receivable from real estate developers and operators	284,035		—		—		284,035		284,035
Derivatives designated as hedges - interest rate derivative	360		—		360		—		360
Total assets measured at fair value	$	628,587	$	265,096	$	360	$	363,131	$	628,587

Financial Liabilities
Secured debt	$	3,380,739	$	—	$	3,380,739	$	—	$	3,405,916

Unsecured debt
Senior unsecured notes	1,186,350		—		1,186,350		—		1,201,753

Line of credit and other unsecured debt	1,104,745		—		1,104,745		—		1,104,745
Total unsecured debt	2,291,095		—		2,291,095		—		2,306,498
Other financial liabilities (contingent consideration)	11,317		—		—		11,317		11,317
Total liabilities measured at fair value	$	5,683,151	$	—	$	5,671,834	$	11,317	$	5,723,731


	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 and operators	52,638		—		52,638		—		52,638
Total assets measured at fair value	$	355,871	$	217,367	$	138,504	$	—	$	355,871

Financial Liabilities
Secured debt	$	3,489,983	$	—	$	3,489,983	$	—	$	3,588,901

Unsecured debt


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

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 instruments. These are classified as Level 1 in the hierarchy.

Marketable Securities

Marketable securities held by us and accounted for under ASC 321 "Investments - Equity Securities" are measured at fair value. Any change in fair value is recognized in the Consolidated Statement of Operations in Gain / (loss) on 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):


	Year Ended
	December 31, 2021		December 31, 2020
Beginning Balance	$	124,726	$	94,727
Additional purchases	35,524		11,757
Change in fair value measurement	33,432		6,132
Foreign currency translation adjustment	(9,229)		10,139
Dividend reinvestment, net of tax	2,445		1,971
Ending Balance	$	186,898	$	124,726

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 and Operators

Notes receivable from real estate developers and operators 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.

Derivatives Designated as Hedges - Interest Rate Derivative

Interest rate derivatives are recorded at fair value and consist of a treasury lock transaction that we have designated as a cash flow hedge of forecasted interest payments on a forecasted issuance of long-term debt. The fair value of the treasury lock is measured using observable inputs based on the 10 year Treasury note rate (Level 2).

Secured Debt

Secured debt consists primarily of our 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.

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 Senior Credit Facility. We have variable rates on our Senior 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 December 31, 2021 approximated its gross carrying value.

Other Financial Liabilities

We estimate the fair value of contingent consideration liabilities 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 year ended December 31, 2021.

Inputs that are used to derive the fair value for installment notes receivables on manufactured homes and notes receivable from real estate developers and operators 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 year ended December 31, 2021 (in thousands):


	Year Ended
	December 31, 2021
Assets:	Installment Notes Receivable on MH, net		Notes Receivable From Real Estate Developers and Operators
Level 3 beginning balance at December 31, 2020	$	—	$	—
Transfer to level 3	85,866		52,638

Realized gains	685		—
Purchases and issuances	8,606		239,731
Sales and settlements	(14,612)		(13,050)
Dispositions of properties	(1,919)		—
Other adjustments	470		4,716
Level 3 ending balance at December 31, 2021	$	79,096	$	284,035


	Year Ended
	December 31, 2021
Liabilities:	Other Liabilities (Contingent Consideration)
Level 3 beginning balance at December 31, 2020	$	15,842


Realized losses	9,339
Purchases and issuances	17,649
Sales and settlements	(33,767)

Other adjustments	2,254
Level 3 ending balance at December 31, 2021	$	11,317

Although we have determined the estimated fair value amounts using available market information and commonly accepted valuation methodologies, considerable judgment is required in interpreting market data to develop fair value estimates. The fair value estimates are based on information available as of December 31, 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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