Fair Value of Assets and Liabilities (Tables)

6 Months Ended

Jun. 30, 2019

Assets and liabilities recurring and nonrecurring measured at fair value

The following table presents certain of our assets and liabilities that are measured at fair value at June 30, 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⁾	$	123,905	$	123,905	$	—	$	—
Investment in Five Star ⁽²⁾	$	1,953	$	1,953	$	—	$	—
Non-Recurring Fair Value Measurements Assets:
Real estate properties held for sale ⁽³⁾	$	7,613	$	—	$	7,613	$	—
Non-Recurring Fair Value Measurements Liabilities:
Other Liability ⁽¹⁾	$	18,409	$	—	$	18,409	$	—

(1)

Our 2,637,408 shares of class A common stock of The RMR Group Inc., or RMR Inc., are included in other assets, net in our condensed consolidated balance sheets and had a fair value at June 30, 2019 of $123,905, based on quoted market prices (Level 1 inputs as defined in the fair value hierarchy under GAAP). On June 26, 2019, we entered into an agreement to sell all of our shares of RMR Inc. class A common stock in an underwritten public offering at a price to the public of $40.00 per share. We completed this sale on July 1, 2019 in accordance with the terms of the underwriting agreement. See Note 11 for additional information regarding this sale. We have elected to account for the contract to sell our shares of RMR Inc. class A common stock using the fair value option, based upon the difference between the contractual offering price (Level 2 inputs as defined in the fair value hierarchy under GAAP) and the fair value of the underlying assets at June 30, 2019. Our historical cost basis for these shares is $69,826 as of June 30, 2019. During the three and six months ended June 30, 2019, we recorded unrealized losses of $36,925 and $16,089, respectively, to adjust the carrying value of our investment in RMR Inc. class A common shares to their fair value. In addition, during the three and six months ended June 30, 2019, we recorded a loss of $18,409 and estimated expenses of $6,938 related to the agreement to sell our shares of RMR Inc. class A common stock, both of which are included in unrealized gains and losses on equity securities, net in our condensed consolidated statements of comprehensive income (loss).

(2)

Our 4,235,000 shares of Five Star common stock are included in other assets, net in our condensed consolidated balance sheets, and are reported at fair value, which is based upon quoted market prices (Level 1 inputs). Our adjusted cost basis for these shares is $6,353 as of June 30, 2019. During the three and six months ended June 30, 2019, we recorded unrealized losses of $2,176 and $80, respectively, which are included in unrealized gains and losses on equity securities, net in our condensed consolidated statements of comprehensive income (loss), to adjust the carrying value of our investment in Five Star common shares to their fair value.

(3)

We also have assets in our condensed consolidated balance sheets that are measured at fair value on a nonrecurring basis. During the three and six months ended June 30, 2019, we recorded impairment charges of $2,117 and $8,323, respectively, to reduce the carrying value of 15 SNFs that are classified as held for sale to their estimated sales price, based on a purchase and sale agreement that we have entered into with a third party buyer for these SNFs, less estimated costs to sell of $7,613. See Note 3 for further information about impairment charges and these and other properties we have classified as held for sale.

Schedule of carrying value and fair value of the financial instruments

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 June 30, 2019				As of December 31, 2018
Description	Carrying Amount ⁽¹⁾		Estimated Fair Value		Carrying Amount ⁽¹⁾		Estimated Fair Value
Senior unsecured notes	$	1,818,923	$	1,813,227	$	2,216,945	$	2,138,202
Secured debts⁽²⁾	699,640		699,684		744,186		723,003
	$	2,518,563	$	2,512,911	$	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 acquisition of certain properties. We recorded the assumed mortgage notes 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 adjust interest expense to the estimated market interest rates as of the date of acquisition.

- Definition

Tabular disclosure of financial instruments measured at fair value, including those classified in shareholders' equity measured on a recurring or nonrecurring basis. Disclosures include, but are not limited to, fair value measurements recorded and the reasons for the measurements, level within the fair value hierarchy in which the fair value measurements are categorized and transfers between levels 1 and 2. Nonrecurring fair value measurements are those that are required or permitted in the statement of financial position in particular circumstances.

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