Fair Value Measures (Tables)

9 Months Ended

Sep. 30, 2018

Schedule of assets and liabilities measured at fair value on a recurring basis

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2018 and December 31, 2017, aggregated by the level in the fair value hierarchy within which those instruments fall (in thousands):



	Level 1		Level 2		Level 3		Balance as of September 30, 2018
Assets:
CMBS	$	12,756	$	—	$	13,526	$	26,282
Derivative assets	—		764		—		764
Investment in Cole REITs	—		—		7,844		7,844
Total assets	$	12,756	$	764	$	21,370	$	34,890

	Level 1		Level 2		Level 3		Balance as of December 31, 2017
Assets:
CMBS	$	—	$	—	$	40,974	$	40,974
Derivative assets	—		627		—		627
Total assets	$	—	$	627	$	40,974	$	41,601

Reconciliations of the changes in liabilities with Level 3 inputs

The following are reconciliations of the changes in assets and liabilities with Level 3 inputs in the fair value hierarchy for the nine months ended September 30, 2018 (in thousands):



	CMBS			Investment in Cole REITs⁽¹⁾
Balance as of December 31, 2017	$	40,974		$	3,264
Total gains and losses
Unrealized loss included in other comprehensive income, net	(71		)	—
Realized loss included in other income, net	(34		)	—
Valuation Allowance	—			—
Unrealized gain included in other income, net	—			5,102
Purchases, issuance, settlements
Return of principal received	(4,864		)	—
Amortization included in net income, net	157			—
Sale of investments	(9,880		)	(522		)
Transfers out of Level 3 into Level 1 ⁽²⁾	(12,756		)	—
Ending Balance, September 30, 2018	$	13,526		$	7,844

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(1)	As discussed in Note 2 – Summary of Significant Accounting Policies, as of December 31, 2017, the Company accounted for its investment in Cole REITs using the equity method of accounting. Subsequent to the sale of Cole Capital, the Company retained interests in CCIT II, CCIT III and CCPT V, which were carried at fair value as of September 30, 2018.


(2)	As of December 31, 2017, the Company’s CMBS were carried at fair value and were valued using Level 3 inputs. As discussed in Note 16 – Subsequent Events, the Company sold two CMBS which resulted in transfers during the nine months ended September 30, 2018 from Level 3 to Level 1, as the Company had trade confirmations, which settled subsequent to September 30, 2018.

The following are reconciliations of the changes in assets and liabilities with Level 3 inputs in the fair value hierarchy for the nine months ended September 30, 2017 (in thousands):



	CMBS
Balance as of December 31, 2016	$	47,215
Total gains and losses
Unrealized loss included in other comprehensive income, net	(547		)
Purchases, issuance, settlements
Return of principal received	(4,077		)
Amortization included in net income, net	(914		)
Ending Balance, September 30, 2017	$	41,677

Reconciliations of the changes in assets with Level 3 inputs

The following are reconciliations of the changes in assets and liabilities with Level 3 inputs in the fair value hierarchy for the nine months ended September 30, 2018 (in thousands):



	CMBS			Investment in Cole REITs⁽¹⁾
Balance as of December 31, 2017	$	40,974		$	3,264
Total gains and losses
Unrealized loss included in other comprehensive income, net	(71		)	—
Realized loss included in other income, net	(34		)	—
Valuation Allowance	—			—
Unrealized gain included in other income, net	—			5,102
Purchases, issuance, settlements
Return of principal received	(4,864		)	—
Amortization included in net income, net	157			—
Sale of investments	(9,880		)	(522		)
Transfers out of Level 3 into Level 1 ⁽²⁾	(12,756		)	—
Ending Balance, September 30, 2018	$	13,526		$	7,844

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(1)	As discussed in Note 2 – Summary of Significant Accounting Policies, as of December 31, 2017, the Company accounted for its investment in Cole REITs using the equity method of accounting. Subsequent to the sale of Cole Capital, the Company retained interests in CCIT II, CCIT III and CCPT V, which were carried at fair value as of September 30, 2018.


(2)	As of December 31, 2017, the Company’s CMBS were carried at fair value and were valued using Level 3 inputs. As discussed in Note 16 – Subsequent Events, the Company sold two CMBS which resulted in transfers during the nine months ended September 30, 2018 from Level 3 to Level 1, as the Company had trade confirmations, which settled subsequent to September 30, 2018.

The following are reconciliations of the changes in assets and liabilities with Level 3 inputs in the fair value hierarchy for the nine months ended September 30, 2017 (in thousands):



	CMBS
Balance as of December 31, 2016	$	47,215
Total gains and losses
Unrealized loss included in other comprehensive income, net	(547		)
Purchases, issuance, settlements
Return of principal received	(4,077		)
Amortization included in net income, net	(914		)
Ending Balance, September 30, 2017	$	41,677

Summary of impairment charges by asset class

The following table presents the impairment charges by asset class recorded during the nine months ended September 30, 2018 and 2017 (dollar amounts in thousands):



	Nine Months Ended September 30,
	2018			2017
Properties impaired	53			53

Asset classes impaired:
Investment in real estate assets, net	$	35,196		$	30,327
Investment in direct financing leases, net	1,108			553
Below-market lease liabilities, net	(222		)	(23		)
Total impairment loss	$	36,082		$	30,857

Fair value, by balance sheet grouping

The fair values of the Company’s financial instruments are reported below (dollar amounts in thousands):



	Level	Carrying Amount at September 30, 2018		Fair Value at September 30, 2018		Carrying Amount at December 31, 2017		Fair Value at December 31, 2017
Assets:
Mortgage notes receivable, net	3	$	18,757	$	19,483	$	20,294	$	28,272

Liabilities⁽¹⁾:
Mortgage notes payable and other debt, net	2	$	1,947,749	$	1,957,907	$	2,095,690	$	2,144,522
Corporate bonds, net	2	2,849,306		2,826,897		2,848,768		2,922,027
Convertible debt, net	2	398,118		406,485		992,218		1,012,349
Credit facility	2	793,000		793,000		185,000		185,000
Total liabilities		$	5,988,173	$	5,984,289	$	6,121,676	$	6,263,898

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(1)	Current and prior period liabilities’ carrying and fair values exclude net deferred financing costs.