Fair Value of Assets and Liabilities

3 Months Ended

Mar. 31, 2019

Items Measured at Fair Value on a Recurring Basis:

The following table presents certain of our assets that are measured at fair value on a recurring basis at March 31, 2019, categorized by the level of inputs as defined in the fair value hierarchy under GAAP, used in the valuation of each asset or liability.



			Fair Value at Reporting Date Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	Total		(Level 1)		(Level 2)		(Level 3)
Recurring Fair Value Measurements
Assets:
Investment in RMR Inc. ⁽¹⁾	$	160,830	$	160,830	$	—	$	—
Investment in Five Star ⁽²⁾	$	4,129	$	4,129	$	—	$	—

(1)

Our 2,637,408 shares of class A common stock of The RMR Group Inc., or RMR Inc., which are included in other assets in our condensed consolidated balance sheets, are reported at fair value which is based on quoted market prices (Level 1 inputs). Our historical cost basis for these shares is $69,826 as of March 31, 2019. During the three months ended March 31, 2019, we recorded an unrealized gain of $20,836 to adjust the carrying value of our investment in RMR Inc. class A common shares to their fair value.

(2)

Our 4,235,000 common shares of Five Star Senior Living Inc., or Five Star, which are included in other assets in our condensed consolidated balance sheets, are reported at fair value which is based on quoted market prices (Level 1 inputs). Our adjusted cost basis for these shares is $6,353 as of March 31, 2019. During the three months ended March 31, 2019, we recorded an unrealized gain of $2,096 to adjust the carrying value of our investment in Five Star common shares to their fair value.

Items Measured at Fair Value on a Nonrecurring Basis:

In addition to items that are measured at fair value on a recurring basis, we also have assets in our condensed consolidated balance sheets that are measured at fair value on a nonrecurring basis. During the three months ended March 31, 2019, we recorded impairment charges of $6,206 to reduce the carrying value of 15 SNFs that are classified as held for sale to their estimated sales price, based on a letter of intent, less estimated costs to sell of $7,489. See Note 3 for further information about impairment charges and these and other properties we have classified as held for sale. The estimated fair value of these 15 SNFs as of March 31, 2019 was as follows:



			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	Total		(Level 1)		(Level 2)		(Level 3)
Non-Recurring Fair Value Measurements
Real estate properties held for sale	$	7,489	$	—	$	7,489	$	—

In addition to the assets described in the tables above, our financial instruments at March 31, 2019 and December 31, 2018 included cash and cash equivalents, restricted cash, other assets, our revolving credit facility, term loans, senior unsecured notes, secured debt and capital leases and other unsecured obligations and liabilities. The fair values of these financial instruments approximated their carrying values in our condensed consolidated financial statements as of such dates, except as follows:



	As of March 31, 2019				As of December 31, 2018
Description	Carrying Amount ⁽¹⁾		Estimated Fair Value		Carrying Amount ⁽¹⁾		Estimated Fair Value
Senior unsecured notes	$	2,217,989	$	2,225,390	$	2,216,945	$	2,138,202
Secured debts⁽²⁾	742,883		720,339		744,186		723,003
	$	2,960,872	$	2,945,729	$	2,961,131	$	2,861,205


(1)	Includes unamortized debt issuance costs, premiums and discounts.

(2)

We assumed certain of these secured debts in connection with our acquisitions of certain properties. We recorded the assumed mortgage notes debts at estimated fair value on the date of acquisition and we are amortizing the fair value adjustments, if any, to interest expense over the respective terms of the mortgage notes to reduce interest expense to the estimated market interest rates as of the date of acquisition.

We estimated the fair value of our two issuances of senior unsecured notes due 2042 and 2046 based on the closing price on The Nasdaq Stock Market LLC, or Nasdaq, (a Level 1 input) as of March 31, 2019. We estimated the fair values of our five issuances of senior unsecured notes due 2019, 2020, 2021, 2024 and 2028 using an average of the bid and ask price on or about March 31, 2019 (Level 2 inputs as defined in the fair value hierarchy under GAAP). We estimated the fair values of our secured debts by using discounted cash flows analyses and currently prevailing market terms as of the measurement date (Level 3 inputs as defined in the fair value hierarchy under GAAP). Because Level 3 inputs are unobservable, our estimated fair value may differ materially from the actual fair value.

- 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 + Details