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Fair Value Measurements

9 Months Ended

Sep. 30, 2022

Note 7 — Fair Value Measurements

Recurring Fair Value Measurements

From time to time we purchase interest rate swaps, caps, and other instruments to provide protection against increases in interest rates on our variable rate debt. As of September 30, 2022, we held interest rate swaps and caps with $1.7 billion notional value that provide protection through the fourth quarter of 2024. These instruments were acquired for $15.7 million. The fair value of these instruments is noted in the table below.

During the nine months ended September 30, 2022, we monetized an interest rate swap and a portion of an interest rate cap for $15.5 million and recognized gains of $9.8 million, net of transaction costs.

On a recurring basis, we measure at fair value our interest rate options, which are presented in Other assets, net in our Condensed Consolidated Balance Sheets. Our interest rate options are classified within Level 2 of the GAAP fair value hierarchy, and we estimate their fair value using pricing models that rely on observable market information, including contractual terms, market prices, and interest rate yield curves. The fair value adjustment is included in earnings in Unrealized gains on interest rate options in our Condensed Consolidated Statements of Operations. Changes in fair value are reflected as a non-cash transaction in adjustments to arrive at cash flows from operations, and any upfront premium is reflected in Purchase of interest rate options in our Condensed Consolidated Statements of Cash Flows.

As of September 30, 2022, we have investments of $3.9 million in property technology funds consisting of entities that develop technology for the real estate industry. These investments are measured at net asset value (“NAV”) as a practical expedient. See Note 4 for further information.

The following table summarizes fair value for our interest rate options and our investments in real estate technology funds as of September 30, 2022, and December 31, 2021 (in thousands):


	As of September 30, 2022								As of December 31, 2021
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Interest rate options	$	61,329	$	—	$	61,329	$	—	$	25,449	$	—	$	25,449	$	—
Investment in real estate technology funds (1)	$	3,909		—		—		—	$	9,613		—		—		—

(1) Investments measured at fair value using NAV as a practical expedient are not classified in the fair value hierarchy.

Nonrecurring Fair Value Measurements

As of September 30, 2022, assets measured at fair value on a nonrecurring basis shown in our Condensed Consolidated Balance Sheets consisted of our investment in IQHQ. IQHQ was initially reported at cost. In June 2022, 22% of our original investment with a cost basis of $10.8 million was redeemed for $16.5 million. As a result, our remaining shares in IQHQ after the partial redemption were re-valued on a stepped up basis to fair value at the same per share value as the cash redemption per share value. These observable inputs are classified as Level 1 within the GAAP fair value hierarchy. As of September 30, 2022, the fair value of our investment in IQHQ measured on a nonrecurring basis remained at $59.7 million.

Fair Value Disclosures

We believe that the carrying value of the consolidated amounts of cash and cash equivalents, restricted cash, accounts receivable and payables approximated their fair value as of September 30, 2022, and December 31, 2021, due to their relatively short-term nature and high probability of realization. We estimate the fair value of our debt using an income and market approach, including comparison of the contractual terms to observable and unobservable inputs such as market interest rate risk spreads, contractual interest rates, remaining periods to maturity, debt service coverage ratios, and loan to value ratios. We classify the fair value of our non-recourse property debt and construction loans within Level 2 of the GAAP fair value hierarchy based on the significance of certain of the unobservable inputs used to estimate their fair value. As of July 2022, we had prepaid the $534.1 million of Notes Payable to AIR.

The following table summarizes the carrying value and fair value of our non-recourse property debt, construction loans, and Notes Payable to AIR as of September 30, 2022, and December 31, 2021, (in thousands):


	As of September 30, 2022				As of December 31, 2021
	Carrying Value		Fair Value		Carrying Value		Fair Value
Non-recourse property debt	$	868,237	$	796,311	$	484,883	$	498,960
Construction loans		86,693		86,693		168,376		168,376
Notes Payable to AIR		—		—		534,127		534,127
Total	$	954,930	$	883,004	$	1,187,386	$	1,201,463

- 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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