Fair Value Disclosures

3 Months Ended

Mar. 31, 2012

Fair Value Disclosures [Abstract]

Fair Value Disclosures

Fair Value Disclosures

The Company’s has certain financial instruments that are required to be measured under the FASB’s Fair Value Measurements and Disclosures guidance. Additionally, the Company's rental properties held for sale are measured at fair value.

As a basis for considering market participant assumptions in fair value measurements, the FASB’s Fair Value Measurements and Disclosures guidance establishes 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). In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Derivative Financial Instruments

The Company uses interest rate swaps, foreign currency forwards and cross currency swaps to manage its interest rate and foreign currency risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, foreign exchange rates, and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The variable cash payments are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. In conjunction with the FASB's fair value measurement guidance, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives also utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by itself and its counterparties. As of March 31, 2012, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives and therefore, has classified its derivatives as Level 2 within the fair value reporting hierarchy.

Rental Properties Held for Sale, Net

Assets that are classified as held for sale are recorded at the lower of their carrying amount or fair value less costs to sell. Management estimates the fair values of these properties taking into account various factors, including current market conditions. Based on this input, the Company determined that its valuation of this investment was classified within Level 3 of the fair value hierarchy.

The table below presents the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2012 aggregated by the level in the fair value hierarchy within which those measurements are classified and by derivative type.

Assets and Liabilities Measured at Fair Value on a Recurring Basis at March 31, 2012 (Dollars in thousands)
Description	Quoted Prices in Active Markets for Identical Assets (Level I)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Balance at March 31, 2012
Cross Currency Swaps*	$	—	$	(996	)	$	—	$	(996	)
Currency Forward Agreements*	$	—	$	(2,535	)	$	—	$	(2,535	)
Interest Rate Swap Agreements*	$	—	$	(994	)	$	—	$	(994	)
Rental properties held for sale, net	$	—	$	—		$	3,895	$	3,895

*Included in "Accounts payable and accrued liabilities" in the accompanying consolidated balance sheet.

Non-recurring fair value measurements

The table below presents the Company’s assets measured at fair value on a non-recurring basis during the three months ended March 31, 2012, aggregated by the level in the fair value hierarchy within which those measurements fall.

Assets Measured at Fair Value on a Non-Recurring Basis During the Three Months Ended March 31, 2012 (Dollars in thousands)
Description	Quoted Prices in Active Markets for Identical Assets (Level I)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at December 31, 2011
Rental properties, net	$	—	$	—	$	43,233	$	43,233

As further discussed in Note 4, during the three months ended March 31, 2012, the Company recorded impairment charges of $12.8 million relating to adjustments to the carrying values of certain of the Company's vineyard and winery properties.  The $12.8 million is the amount that the carrying values of the assets exceed the estimated fair market values. Of this amount, $12.0 million relates to rental properties, net measured at fair value on a non-recurring basis and $0.8 million relates to rental properties held for sale, net that are measured at fair value on a recurring basis.   Management estimated the fair values of these properties taking into account the various purchase offers, pending purchase agreements, input from an outside broker and previous appraisals.  Based on these inputs, the Company determined that its valuation of these investments was classified within Level 3 of the fair value hierarchy. 

Fair Value of Financial Instruments

Management compares the carrying value and the estimated fair value of the Company’s financial instruments. The following methods and assumptions were used by the Company to estimate the fair value of each class of financial instruments at March 31, 2012:

Mortgage notes receivable and related accrued interest receivable:

The fair value of the Company’s mortgage notes and related accrued interest receivable is estimated by discounting the future cash flows of each instrument using current market rates. At March 31, 2012, the Company had a carrying value of $364.4 million in fixed rate mortgage notes receivable outstanding, including related accrued interest, with a weighted average interest rate of approximately 7.82%. The fixed rate mortgage notes bear interest at rates of 7.00% to 10.46%. Discounting the future cash flows for fixed rate mortgage notes receivable using an estimated weighted average market rate of 9.15%, management estimates the fair value of the fixed rate mortgage notes receivable to be approximately $338.8 million at March 31, 2012 .

Investment in a direct financing lease, net:

The fair value of the Company’s investment in a direct financing lease as of March 31, 2012 is estimated by discounting the future cash flows of the instrument using current market rates. At March 31, 2012, the Company had an investment in a direct financing lease with a carrying value of $234.9 million and a weighted average effective interest rate of 12.02%. The investment in direct financing lease bears interest at effective interest rates of 11.93% to 12.38%. The carrying value of the investment in a direct financing lease approximates the fair market value at March 31, 2012.

Cash and cash equivalents, restricted cash:

Due to the highly liquid nature of the Company's short term investments, the carrying values of its cash and cash equivalents and restricted cash approximate the fair market values at March 31, 2012.

Accounts receivable, net:

The carrying values of accounts receivable approximate the fair market value at March 31, 2012.

Notes and related accrued interest receivable, net:

The fair value of the Company’s notes and related accrued interest receivable as of March 31, 2012 is estimated by discounting the future cash flows of each instrument using current market rates. At March 31, 2012, the Company had a carrying value of $5.0 million in fixed rate notes receivable outstanding, including related accrued interest and net of loan loss reserve, with a weighted average interest rate of approximately 8.44%. The fixed rate notes bear interest at rates of 6.00% to 15.00%. Discounting the future cash flows for fixed rate notes receivable using an estimated market rate of 9.40%, management estimates the fair value of the fixed rate notes receivable to be approximately $4.8 million at March 31, 2012.

Derivative instruments:

Derivative instruments are carried at their fair market value.

Debt instruments:

The fair value of the Company's debt as of March 31, 2012 is estimated by discounting the future cash flows of each instrument using current market rates. At March 31, 2012, the Company had a carrying value of $308.6 million in variable rate debt outstanding with an average weighted interest rate of approximately 1.92%. The carrying value of the variable rate debt outstanding approximates the fair market value at March 31, 2012. As described in Note 11, $240.0 million of variable rate debt outstanding at March 31, 2012 under our unsecured term loan facility has been effectively converted to a fixed rate by interest rate swap agreements.

At March 31, 2012, the Company had a carrying value of $916.2 million in fixed rate long-term debt outstanding with an average weighted interest rate of approximately 6.56%. Discounting the future cash flows for fixed rate debt using an estimated market rate of 5.35%, management estimates the fair value of the fixed rate debt to be approximately $950.1 million at March 31, 2012.

Accounts payable and accrued liabilities:

The carrying value of accounts payable and accrued liabilities approximates fair value at March 31, 2012 due to the short term maturities of these amounts.

Common and preferred dividends payable:

The carrying values of common and preferred dividends payable approximate fair value at March 31, 2012 due to the short term maturities of these amounts.