Fair Value of Assets and Liabilities

12 Months Ended

Dec. 31, 2019

The following table presents certain of our assets that are measured at fair value at December 31, 2019, categorized by the level of inputs as defined in the fair value hierarchy under GAAP, used in the valuation of each asset.



							Significant
			Quoted Prices in Active		Significant Other		Unobservable
			Markets for Identical		Observable Inputs		Inputs
Description	Total		Assets (Level 1)		(Level 2)		(Level 3)
Recurring Fair Value Measurements Assets:
Investment in Five Star ⁽¹⁾	$	1,571	$	1,571	$	—	$	—
Non-Recurring Fair Value Measurements Assets:
Real estate properties held for sale ⁽²⁾	$	88,656	$	—	$	88,656	$	—
Real estate properties at fair value ⁽³⁾	$	106,850	$	—	$	—	$	106,850

(1)

The 423,500 Five Star common shares we owned as of December 31, 2019 are included in investments in equity securities in our consolidated balance sheets, and are reported at fair value, which is based on quoted market prices (Level 1 inputs). Our adjusted cost basis for these shares was $6,353 as of December 31, 2019. During the year ended December 31, 2019, we recorded an unrealized loss of $462, which is included in gains and losses on equity securities, net in our consolidated statements of comprehensive income (loss), to adjust the carrying value of our investment in Five Star common shares to their fair value. See Note 7 for further information about our investment in Five Star.

(2)

We have assets in our consolidated balance sheets that are measured at fair value on a nonrecurring basis. During the year ended December 31, 2019, we recorded impairment charges of $16,977 to reduce the carrying value of 14 medical office properties that are classified as held for sale to their estimated sales price, less estimated costs to sell of $2,141, based on purchase and sale agreements that we have entered into with third party buyers for these medical office properties of $71,121. We also recorded impairment charges of $4,984 to reduce the carrying value of two senior living communities that are classified as held for sale to their estimated sales price, less estimated costs to sell of $515, based on purchase and sale agreements that we have entered into with third party buyers for these senior living communities of $17,535. See Note 3 for further information about impairment charges and these and other properties we have classified as held for sale.


(3)	We recorded impairment charges of $51,797 to reduce the carrying value of seven senior living communities to their estimated fair value of $106,850 based on third party offers. The valuation techniques and significant unobservable inputs used in the valuation of this property are considered Level 3 inputs as defined in the fair value hierarchy under GAAP.

In addition to the assets described in the table above, our financial instruments at December 31, 2019 and December 31, 2018 included cash and cash equivalents, restricted cash, other assets, our revolving credit facility, term loans, senior unsecured notes, secured debt and capital leases and other unsecured obligations and liabilities. The fair values of these financial instruments approximated their carrying values in our consolidated financial statements as of such dates, except as follows:



	As of December 31, 2019				As of December 31, 2018
Description	Carrying Amount ⁽¹⁾		Estimated Fair Value		Carrying Amount ⁽¹⁾		Estimated Fair Value
Senior unsecured notes	$	1,820,681	$	1,890,386	$	2,216,945	$	2,138,202
Secured debt ^{(2) (3)}	697,729		697,142		744,186		723,003
	$	2,518,410	$	2,587,528	$	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.


(3)	Includes $3,015 of principal mortgage obligations and $25 of unamortized debt issuance costs for properties classified as held for sale as of December 31, 2019. These debts are included in liabilities of properties held for sale in our consolidated balance sheets as of December 31, 2019.

We estimated the fair values of our two issuances of senior unsecured notes due 2042 and 2046 based on the closing price of our common shares trading on Nasdaq (Level 1 input) as of December 31, 2019. We estimated the fair values of our four issuances of senior unsecured notes due 2020, 2021, 2024 and 2028 using an average of the bid and ask price on Nasdaq on or about December 31, 2019 (Level 2 inputs as defined in the fair value hierarchy under GAAP). We estimated the fair values of our secured debts by using discounted cash flows analyses and currently prevailing market terms as of the measurement date (Level 3 inputs as defined in the fair value hierarchy under GAAP). Because Level 3 inputs are unobservable, our estimated fair values may differ materially from the actual fair values.

Realized and unrealized gains and losses for our equity securities for the years ended December 31, 2019 and 2018 were as follows:



	For the Year Ended December 31,
	2019			2018
Realized gains and losses on equity securities sold ⁽¹⁾	$	(41,436	)	$	—
Unrealized gains and losses on equity securities held	(462		)	(20,724		)
Losses on equity securities, net	$	(41,898	)	$	(20,724	)

(1)

See Note 7 for further information about our former investment in RMR Inc.

- 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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