Fair Value Measurements

9 Months Ended

Sep. 30, 2011

Fair Value Measurements [Abstract]

Fair Value Measurements

3. Fair Value Measurements

Cash and cash equivalents, restricted cash in escrows, derivative financial instruments, and certain securities are reported at fair value. The accounting standards establish a framework for measuring fair value as well as disclosures about fair value measurements. They emphasize that fair value is a market based measurement, not an entity-specific measurement. Therefore a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, the standards establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Recurring Measurements

The table below presents the Trust’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2011, according to the level in the fair value hierarchy within which those measurements fall (in thousands):

	Quoted Prices in
	Active Markets		Significant Other		Significant
	for Identical Assets		Observable		Unobservable
	and Liabilities		Inputs		Inputs
Recurring Basis	(Level 1)		(Level 2)		(Level 3)		Total
Assets
Securities carried at fair value	$	6,652	$	—	$	—	$	6,652
Loan securities carried at fair value		—		—		5,343		5,343
	$	6,652	$	—	$	5,343	$	11,995

The table below presents the Trust’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2010, according to the level in the fair value hierarchy within which those measurements fall (in thousands):

	Quoted Prices in
	Active Markets		Significant Other		Significant
	for Identical Assets		Observable		Unobservable
	and Liabilities		Inputs		Inputs
Recurring Basis	(Level 1)		(Level 2)		(Level 3)		Total
Assets
Securities carried at fair value	$	33,032	$	—	$	—	$	33,032
Loan securities carried at fair value		—		—		11,981		11,981
	$	33,032	$	—	$	11,981	$	45,013
Liabilities
Derivative liabilities	$	—	$	63	$	—	$	63

The table below includes a roll forward of the balance sheet amounts from January 1, 2011 to September 30, 2011, including the change in fair value, for financial instruments classified by the Trust within Level 3 of the valuation hierarchy. When a determination is made to classify a financial instrument within Level 3 of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement.

	Loan Securities
	Carried at Fair
Nine months Ended September 30, 2011	Value
(in thousands)
Fair value, January 1, 2011	$	11,981
Sales		(662	)
Payoff at par		(8,748	)
Unrealized gain, net		2,772
Fair value, September 30, 2011	$	5,343

Non-Recurring Measurements

Equity Investments

Equity investments are assessed for other-than-temporary impairment. The fair value of equity investments is determined using an income capitalization approach considering prevailing market capitalization rates. The Trust reviews each investment based on the highest and best use of the investment and market participation assumptions. The significant assumptions used in this analysis include the discount rate and terminal capitalization rate used in the income capitalization valuation. The Trust has determined that the significant inputs used to value its Sealy equity investments fall within Level 3. The Trust recognized other—than—temporary impairment losses of $0 and $3,800,000 on these investments during the three and nine months ended September 30, 2011, respectively.

Investments in Real Estate and Assets Held For Sale

The Trust assesses the assets in its portfolio for recoverability based upon its estimate of undiscounted future cash flows expected to result from the use and disposition of the assets. For those assets deemed not to be fully recoverable, the Trust determines the fair value of those assets using an income capitalization approach based on assumptions it believes a market participant would utilize. The Trust records impairment charges equal to the difference between its carrying value and the estimated fair value of the asset. In July 2011 the Trust satisfied its $23,773,000 first mortgage loan on its wholly owned Lisle, Illinois properties for a discounted payoff of $14,500,000. Subsequent to the discounted payoff and as a result of continued declines in occupancy at these properties, the Trust re-evaluated its business plan and holding periods for these properties. The Trust determined that as result of the shorter holding period and higher lease up costs, the carrying value of the 701 Arboretum property was no longer fully recoverable. Significant inputs used to value this investment fall within Level 3. During the three and nine months ended September 30, 2011 the Trust recognized an impairment charge of $3,000,000 on its investments in real estate.

The table below presents as of September 30, 2011 the Trust’s equity method investments and investments in real estate measured at fair value according to the level in the fair value hierarchy within which those measurements fall (in thousands):

	Quoted Prices in
	Active Markets for		Significant Other		Significant
	Identical Assets and		Observable Inputs		Unobservable
Non-Recurring Basis	Liabilities (Level 1)		(Level 2)		Inputs (Level 3)		Total
Equity investments	$	—	$	—	$	12,583	$	12,583
Investments in real estate		—		—		5,049		5,049
	$	—	$	—	$	17,632	$	17,632

Fair Value Option

The current accounting guidance for fair value measurement provides a fair value option election that allows companies to irrevocably elect fair value as the measurement for certain financial assets and liabilities. Changes in fair value for assets and liabilities for which the election is made are recognized in earnings on a quarterly basis based on the then market price regardless of whether such assets or liabilities have been disposed of at such time. The fair value option guidance permits the fair value option election to be made on an instrument by instrument basis when it is initially recorded or upon an event that gives rise to a new basis of accounting for that asset or liability. The Trust elected the fair value option for all loan securities and REIT securities.

For the three months ended September 30, 2011, the Trust recognized net unrealized losses of $1,036,000 and for the nine months ended September 30, 2011 net unrealized gains of $1,974,000. For the three and nine months ended September 30, 2010, the Trust recognized net unrealized gains of $3,071,000 and $7,873,000, respectively. The change in fair value of the securities is recorded as an unrealized gain or loss in the Trust’s statement of operations. Income related to securities carried at fair value is recorded as interest and dividend income.

The following table presents as of September 30, 2011 and December 31, 2010 the Trust’s financial assets for which the fair value option was elected (in thousands):

Financial Instruments at Fair Value	September 30, 2011		December 31, 2010
Assets
Securities carried at fair value:
REIT Preferred shares	$	4,222	$	28,547
REIT Common shares		2,430		4,485
Loan securities carried at fair value		5,343		11,981
	$	11,995	$	45,013

The table below presents as of September 30, 2011 the difference between fair values and the aggregate contractual amounts due for which the fair value option has been elected (in thousands):

	Fair Value at		Amount Due
	September 30, 2011		Upon Maturity		Difference
Assets
Loan securities carried at fair value	$	5,343	$	7,494	$	2,151
	$	5,343	$	7,494	$	2,151