Fair Value of Assets and Liabilities

3 Months Ended

Mar. 31, 2023

The following table presents certain of our assets that are measured at fair value at March 31, 2023 and December 31, 2022, categorized by the level of inputs as defined in the fair value hierarchy under GAAP, used in the valuation of each asset.


	As of March 31, 2023				As of December 31, 2022
Description	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Recurring Fair Value Measurements Assets:
Investment in AlerisLife (Level 1) (1)	$	—	$	—	$	5,880	$	5,880
Investment in unconsolidated joint venture (Level 3) (2)	$	104,764	$	104,764	$	104,697	$	104,697
Investment in unconsolidated joint venture (Level 3) (3)	$	48,655	$	48,655	$	50,780	$	50,780
Non-Recurring Fair Value Measurements Assets:

Real estate properties at fair value (Level 3) (4)	$	6,000	$	6,000	$	—	$	—

(1)On February 2, 2023, in connection with the proposed acquisition of AlerisLife Inc., or AlerisLife, by a subsidiary of ABP Trust, which is the controlling shareholder of The RMR Group Inc., or RMR Inc., we agreed to tender all of the 10,691,658 shares of common stock of AlerisLife, we owned at a price of $1.31 per share, and the acquisition was completed on March 20, 2023. Prior to March 20, 2023, these AlerisLife common shares were included in other assets, net in our condensed consolidated balance sheets, and were reported at fair value, which was based upon quoted market prices on Nasdaq (Level 1 inputs). During the three months ended March 31, 2023 and 2022, we recorded an unrealized gain of $8,126 and an unrealized loss of $8,553, respectively, which are included in gains and losses on equity securities, net in our condensed consolidated statements of comprehensive income (loss), to adjust the carrying value of our former investment in AlerisLife common shares to their fair value. See Note 10 for further information about our investment in AlerisLife.

(2)The 10% equity interest we own in the Seaport JV is included in investments in unconsolidated joint ventures in our condensed consolidated balance sheet, and is reported at fair value, which is based on significant unobservable inputs (Level 3 inputs). The significant unobservable inputs used in the fair value analysis are a discount rate of 7.00%, an exit capitalization rate of 6.00%, a holding period of 10 years and market rents. The assumptions made in the fair value analysis are based on the location, type and nature of the property, and current and anticipated market conditions, which are derived from appraisers. See Note 2 for further information regarding this joint venture.

(3)The 20% equity interest we own in the LSMD JV is included in investments in unconsolidated joint ventures in our condensed consolidated balance sheet, and is reported at fair value, which is based on significant unobservable inputs (Level 3 inputs). The significant unobservable inputs used in the fair value analysis are discount rates of between 6.00% and 7.25%, exit capitalization rates of between 4.50% and 7.00%, holding periods of 10 years and market rents. The assumptions we made in the fair value analysis are based on the location, type and nature of each property, and current and anticipated market conditions, which are derived from appraisers. See Note 2 for further information regarding this joint venture.

(4)During the three months ended March 31, 2023, we recorded impairment charges of $3,617 to reduce the carrying value of one of our senior living communities to its estimated fair value of $3,500 based upon the market comparison approach, which utilizes recent transactions. During the three months ended March 31, 2023, we also recorded impairment charges of $2,308 to reduce the carrying value of one of our medical office properties to its estimated fair value of $2,500 based upon the income approach and unobservable inputs such as estimated market rent, operating expense assumptions, vacancy data and capitalization rates. The valuation techniques and significant unobservable inputs used in the valuation of these properties 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 March 31, 2023 and December 31, 2022 included cash and cash equivalents, restricted cash, certain other assets, our credit facility, senior unsecured notes, secured debt and finance leases and certain other unsecured obligations and liabilities. The fair values of these financial instruments approximated their carrying values in our condensed consolidated financial statements as of such dates, except as follows:


	As of March 31, 2023				As of December 31, 2022
Description	Carrying Amount (1)		Estimated Fair Value		Carrying Amount (1)		Estimated Fair Value
Senior unsecured notes, 4.750% coupon rate, due 2024	$	249,698	$	225,153	$	249,628	$	211,250
Senior unsecured notes, 9.750% coupon rate, due 2025	496,146		479,980		495,710		478,985
Senior unsecured notes, 4.750% coupon rate, due 2028	493,791		337,550		493,473		284,375
Senior unsecured notes, 4.375% coupon rate, due 2031	493,201		359,530		492,986		317,130
Senior unsecured notes, 5.625% coupon rate, due 2042	342,660		178,640		342,565		151,200
Senior unsecured notes, 6.250% coupon rate, due 2046	243,411		133,800		243,338		115,300
Secured debts (2)	29,574		28,089		30,177		28,275
	$	2,348,481	$	1,742,742	$	2,347,877	$	1,586,515

(1)Includes unamortized net 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.

We estimated the fair values of our two issuances of senior unsecured notes due 2042 and 2046 based on the closing price on Nasdaq (Level 1 inputs) as of March 31, 2023 and December 31, 2022. We estimated the fair values of our four issuances of senior unsecured notes due 2024, 2025, 2028 and 2031 using an average of the bid and ask price on Nasdaq on or about March 31, 2023 and December 31, 2022 (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.

- 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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