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Fair Value of Assets and Liabilities
 12 Months Ended
Dec. 31, 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 that are measured at fair value on a recurring and non recurring basis at December 31, 2015 categorized by the level of inputs used in the valuation of each asset or liability.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

 

 

    

Significant

 

 

 

 

 

 

Quoted Prices in Active

 

Significant Other

 

Unobservable

 

 

 

 

 

 

Markets for Identical

 

Observable Inputs

 

Inputs

 

Description

 

Total

 

Assets (Level 1)

 

(Level 2)

 

(Level 3)

 

Recurring Fair Value Measurements

 

 

 

 

 

 

 

 

 

 

 

 

 

    Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

        Investments in available for sale securities(1)

 

$
51,472

 

$
51,472

 

$

—

 

$

—

 

Non-Recurring Fair Value Measurements

 

 

 

 

 

 

 

 

 

 

 

 

 

    Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

        Assets held for sale(2)

 

$
653

 

$

—

 

$

 —

 

$
653

 

    Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

        Additional purchase consideration(3)

 

$
1,000

 

$

 —

 

$

—

 

$
1,000

 

(1)

Our investments in available for sale securities include our 4,235,000 common shares of Five Star and our 2,637,408 shares of RMR Inc. class A common stock. The fair values of these shares are based upon quoted prices at December 31, 2015 in active markets (Level 1 inputs). Our historical cost basis for our Five Star and RMR Inc. shares is $14,230 and $69,826, respectively, as of December 31, 2015. The unrealized loss of $747 for our Five Star shares and $31,821 for our RMR Inc. shares as of December 31, 2015 is included in cumulative other comprehensive income (loss) in our consolidated balance sheets. We evaluated the decline in the fair value of the Five Star and RMR Inc. shares and determined that based on the severity and duration of the decline, and our ability and intent to hold the investment for a reasonable period of time sufficient for a forecasted recovery of fair value, we do not consider these investments to be other-than-temporarily impaired at December 31, 2015.

(2)

Assets held for sale consist of one vacant land parcel held for sale as of December 31, 2015. The land parcel is recorded at its estimated fair value less costs to sell. We used an accepted offer from a third party to purchase this parcel to determine its fair value. We also have one senior living community (one building) classified as held for sale as of December 31, 2015. The senior living community assets are recorded at their carrying value, which is lower than what we believe its fair value less estimated costs to sell to be at December 31, 2015.  The carrying value of this senior living community is not included in the above table.

(3)

In May 2015, we acquired one senior living community located in Georgia for approximately $9,750, excluding closing costs. Pursuant to the purchase agreement, $1,000 of the purchase price has been withheld until the seller satisfies certain conditions. We anticipate these conditions will be satisfied and therefore have recorded the withheld $1,000 as a liability as of December 31, 2015. We estimate the fair value of this liability at December 31, 2015 to be $1,000, which is the amount we have agreed to pay in cash when the applicable conditions are satisfied (Level 3 inputs). This liability is included in other liabilities in our consolidated balance sheets as described in Note 3.

We estimate the fair values of our senior unsecured notes using an average of the bid and ask price of our outstanding five issuances of senior notes (Level 2 inputs) on or about December 31, 2015.  The fair values of these senior note obligations exceed their aggregate book values of $1,495,066 by $70,077 because these notes were trading at premiums to their face amounts.

 

We estimate the fair values of our secured debts 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 debts exceeds their book value of $667,535 by $45,321 because current market interest rates are lower than the market interest rates at the time we assumed these secured debts. 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 debts, our additional financial instruments include rents receivable, cash and cash equivalents, restricted cash and other unsecured obligations. The fair values of these additional financial instruments approximate their carrying values at December 31, 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.