Fair Value of Assets and Liabilities

9 Months Ended

Sep. 30, 2015

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 September 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)	$	374	$	—	$	—	$	374
Investments in available for sale securities(2)	$	13,086	$	13,086	$	—	$	—
Additional purchase consideration(3)	$	1,000	$	—	$	—	$	1,000

⁽¹⁾

Assets held for sale consist of one of our properties (one building) that we expect to sell that is reported at fair value less estimated costs to sell. We used offers to purchase this property made by third parties or comparable sales transactions (Level 3 inputs) to determine the fair values of this property. We have recorded cumulative impairments of approximately $2,283 to this property in order to reduce its book value to fair value. We also have one additional property (one building) held for sale as of September 30, 2015. This asset is recorded at its carrying value of $4,703, which is lower than what we believe its fair value less estimated costs to sell to be at September 30, 2015.

⁽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 September 30, 2015 in active markets (Level 1 inputs).

⁽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 September 30, 2015. We estimate the fair value of this liability at September 30, 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 condensed 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 six issuances of senior notes (Level 2 inputs) on or about September 30, 2015. The fair values of these senior note obligations exceed their aggregate book values of $1,744,694 by $66,116 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 $723,170 by $60,036 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 September 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.

- 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.

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