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Fair Value of Assets and Liabilities
 6 Months Ended
Jun. 30, 2015
Fair Value of Assets and Liabilities  
Fair Value of Assets and Liabilities

Note 7.  Fair Value of Assets and Liabilities

 

The following table presents certain of our assets and liabilities that are measured at fair value on a recurring and non-recurring basis at June 30, 2015 categorized by the level of inputs used in the valuation of each asset or liability.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

 

    

Quoted Prices in

    

Significant

    

Significant

 

 

 

 

 

 

Active Markets for

 

Other

 

Unobservable

 

 

 

 

 

 

Identical Assets

 

Observable Inputs

 

Inputs

 

 

 

 

 

 

 

 

 

 

 

Description

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets held for sale(1)

 

$
1,280

 

$

—

 

$

—

 

$
1,280

 

Investments in available for sale securities(2)

 

$
20,328

 

$
20,328

 

$

—

 

$

—

 

Additional purchase consideration(3)

 

$
1,000

 

$

 —

 

$

—

 

$
1,000

 

 

(1)

Assets held for sale consist of three of our properties (three buildings) that we have sold subsequent to June 30, 2015 or expect to sell that are reported at fair value less estimated costs to sell. We used offers to purchase these properties made by third parties or comparable sales transactions (Level 3 inputs) to determine the fair values of these properties. We have recorded cumulative impairments of approximately $2,970 to these properties in order to reduce their book value to fair value.

(2)

Our investments in available for sale securities include our 4,235,000 common shares of Five Star. The fair values of these shares are based upon quoted prices at June 30, 2015 in active markets (Level 1 inputs).

(3)

In May 2015, we acquired one senior living community located in Georgia, for a contractual purchase price of approximately $9,750, excluding closing costs. Pursuant to the purchase agreement, $1,000 of the purchase price has been withheld until the seller satisfies various conditions. We anticipate these conditions will be satisfied and therefore have recorded the withheld $1,000 as a liability as of June 30, 2015. This liability is included in other liabilities in our condensed consolidated balance sheets as described in Note 3. We estimate the fair value of this liability at June 30, 2015 to be $1,000 as agreed upon in the purchase agreement (Level 3 inputs).

 

We estimate the fair values of our senior unsecured notes using an average of the bid and ask price of our outstanding six issuances of senior notes (Level 2 inputs) on or about June 30, 2015.  The fair values of these senior note obligations exceed their aggregate book values of $1,744,339 by $47,126 because these notes were trading at premiums to their face amounts.

 

We estimate the fair values of our secured debt by using discounted cash flow analyses and currently prevailing market terms as of the measurement date (Level 3 inputs). The fair value of our secured debt exceeds its book value of $714,374 by $56,791 because current market interest rates are lower than the market interest rates at the time we assumed the secured debt. Because Level 3 inputs are unobservable, our estimated fair value may differ materially from the actual fair value.

 

In addition to the assets and liabilities described in the above table and our senior unsecured notes and secured debt, our additional financial instruments include rents receivable, cash and cash equivalents, restricted cash, investment in RMR Inc. and other unsecured debt. The fair values of these additional financial instruments approximate their carrying values at June 30, 2015 based upon their liquidity, short term maturity, variable rate pricing or our estimate of fair value using discounted cash flow analyses and prevailing interest rates.