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FAIR VALUE MEASUREMENT | 6 Months Ended
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Jun. 30, 2018
Fair Value Disclosures [Abstract] |
FAIR VALUE MEASUREMENT | FAIR VALUE MEASUREMENT The following table presents information about our financial instruments measured at fair value on a recurring basis at June 30, 2018 and December 31, 2017. In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, we classify assets and liabilities based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Disclosures concerning financial instruments measured at fair value are as follows (in thousands):
|  | Fair Value Measurements at June 30, 2018 using
|  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | — |  |  | $ | 6,544 |  |  | $ | — |  |  | $ | 6,544 |
Purchase options related to real estate loans |  | — |  |  | — |  |  | 6,120 |  |  | 6,120 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | — |  |  | 1,119 |  |  | — |  |  | 1,119 |
|  | Fair Value Measurements at December 31, 2017 using
|  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | — |  |  | $ | 1,509 |  |  | $ | — |  |  | $ | 1,509 |
Purchase options related to real estate loans |  | — |  |  | — |  |  | 6,078 |  |  | 6,078 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | — |  |  | 190 |  |  | — |  |  | 190 |
We are a mezzanine lender on three construction loans to fund up to an aggregate of $29.6 million for the development of three hotel properties. The three real estate loans closed in the fourth quarter of 2017 and each has a stated interest rate of 8% and an initial term of approximately three years. As of June 30, 2018, we have funded the full amount of $29.6 million. We have separate options related to each loan (each the "Initial Option") to purchase a 90% interest in each joint venture that owns the respective hotel upon completion of construction. We also have the right to purchase the remaining interests in each joint venture at future dates, generally five years after we exercise our Initial Option. We have recorded the aggregate estimated fair value of the Initial Options totaling $6.1 million in Other assets and as a discount to the related real estate loans. The discount will be amortized as a component of interest income over the term of the real estate loans using the straight-line method, which approximates the interest method. We recorded amortization of the discount of $0.5 million during the three months ended June 30, 2018 and $1.0 million during the six months ended June 30, 2018. Our purchase options do not have readily determinable fair values. The fair value of each purchase option was estimated using a binomial lattice model. The estimated fair values of the purchase options were based on unobservable inputs for which there is little or no market information available and required us to develop our own assumptions as follows (dollar amounts in thousands):
|  | Real Estate Loan 1 |  | Real Estate Loan 2 |  | Real Estate Loan 3
Exercise price |  | $ | 15,143 |  |  | $ | 17,377 |  |  | $ | 5,503 |
First option exercise date |  | 12/31/2018 |  |  | 3/31/2019 |  |  | 5/31/2019 |
Last option exercise date |  | 11/1/2020 |  |  | 12/5/2020 |  |  | 12/1/2020 |
Expected volatility |  | 32.0 | % |  | 38.0 | % |  | 37.0 | %
Risk free rate |  | 1.7 | % |  | 1.8 | % |  | 1.9 | %
Expected annualized equity dividend yield |  | 6.8 | % |  | 9.9 | % |  | 6.5 | %

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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