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Fair Value Measurements
 6 Months Ended
Jun. 30, 2011
Fair Value Measurements  
Fair Value Measurements

11.                               Fair Value Measurements

 

In accordance with the accounting guidance regarding the fair value option for financial assets and financial liabilities, entities are permitted to choose to measure certain financial assets and liabilities at fair value, with the change in unrealized gains and losses on items for which the fair value option has been elected reported in earnings.  We did not adopt the elective fair market value option for our financial assets and financial liabilities.

 

The carrying amount of cash and cash equivalents approximates fair value because of the short-term maturity of these instruments.  We do not invest our cash in auction rate securities.  The carrying value and fair value of our financial instruments as of June 30, 2011 and December 31, 2010 assuming election of fair value for our financial assets and financial liabilities were as follows (in thousands):

 

 

 

At June 30, 2011

 

At December 31, 2010

 

 

 

Carrying
Value

 

Fair
Value

 

Carrying
Value

 

Fair
Value

 

Mortgage loans receivable

 

$

55,410

 

$

63,188

(1)

$

59,026

 

$

67,697

(1)

Marketable debt securities

 

6,481

 

6,679

(2)

6,478

 

6,695

(2)

Bonds payable

 

3,200

 

3,200

(3)

3,730

 

3,730

(3)

Bank borrowings

 

70,000

 

70,000

(3)

37,700

 

37,700

(3)

Senior Unsecured Notes

 

50,000

 

51,367

(4)

50,000

 

49,943

(4)

 

 

(1)          Our investment in mortgage loans receivable is classified as Level 3.  The fair value is determined using a widely accepted valuation technique, discounted cash flow analysis on the expected cash flows.  The discount rate is determined using our assumption on market conditions adjusted for market and credit risk and current returns on our investments.  The discount rate used to value our future cash inflows of the mortgage loans receivable at June 30, 2011 and December 31, 2010 was 7.5%.

(2)          Our investment in marketable debt securities is classified as Level 2.  The fair value is measured using quoted market rates based on most recent transactions from an independent third party source.  The pricing of our marketable debt securities as of June 30, 2011 and December 31, 2010 was 102.75% and 103.00%, respectively.  See Note 4. Marketable Securities for further discussion.

(3)          Our bonds payable and bank borrowings are at a variable interest rate.  The estimated fair value of our bonds payable and bank borrowings approximated their carrying values at June 30, 2011 and December 31, 2010 based upon prevailing market interest rates for similar debt arrangements. Subsequent to June 30, 2011, we borrowed $5,000 and repaid $50,000 under our Unsecured Credit Agreement.  As a result, we had $25,000 outstanding under our Unsecured Credit Agreement with $185,000 available for borrowing.

(4)          Our obligation under our senior unsecured notes is classified as Level 3 and thus the fair value is determined using a widely accepted valuation technique, discounted cash flow analysis on the expected cash flows.  The discount rate is measured based upon management’s estimates of rates currently prevailing for comparable loans available to us, and instruments of comparable maturities.  At June 30, 2011 and December 31, 2010, the discount rate used to value our future cash outflow of our senior unsecured notes was 4.8% and 5.5%, respectively.  Subsequent to June 30, 2011, we sold to Prudential $50,000 aggregate principal amount of 4.8% senior unsecured term notes fully amortizing to maturity of July 20, 2021. The proceeds were used to pay down amounts outstanding under our Unsecured Credit Agreement.