FAIR VALUE MEASUREMENT

9 Months Ended

Sep. 30, 2022

FAIR VALUE MEASUREMENT

FAIR VALUE MEASUREMENT

NOTE 10 - FAIR VALUE MEASUREMENT

The following table presents the carrying value and estimated fair value of the Company’s financial instruments:

	September 30, 2022				December 31, 2021
	Carrying				Carrying
	Value		Fair Value		Value		Fair Value
	(in thousands)
Financial assets:
Investment in securities	$	42,062	$	42,062	$	—	$	—
Notes receivable	$	7,749	$	9,073	$	7,457	$	9,840
Derivative assets	$	14,356	$	14,356	$	698	$	698
Financial liabilities:
Mortgage notes payable	$	514,297	$	493,082	$	495,650	$	508,285
Derivative liabilities	$	—	$	—	$	1,648	$	1,648

ASC 820-10 established a three-level valuation hierarchy for fair value measurement.  Management uses these valuation techniques to establish the fair value of the assets at the measurement date.  These valuation techniques are based upon observable and unobservable inputs.  Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect management’s assumptions.

These two types of inputs create the following fair value hierarchy:

● Level 1 – Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities as well as certain U.S. Treasury securities that are highly liquid and are actively traded in secondary markets;

● Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose significant inputs are observable;

● Level 3 – Instruments whose significant inputs are unobservable.

The guidance requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

Recurring Fair Value Measurements

The following table presents the Company’s financial instruments, which are measured at fair value on a recurring basis, by the level in the fair value hierarchy within which those measurements fall. Methods and assumptions used to estimate the fair value of these instruments are described after the table.

	Level 1		Level 2		Level 3		Total
	(in thousands)
September 30, 2022
Derivative assets	$	—	$	14,356	$	—	$	14,356
December 31, 2021
Derivative assets	$	—	$	698	$	—	$	698
Derivative liabilities	$	—	$	1,648	$	—	$	1,648

Derivatives:  The fair value of interest rate swaps is determined using a discounted cash flow analysis on the expected future cash flows of the derivative.

Securities: The market value of the security investments represents the price the investments could sell at on the open market based on market interest rates at a given point in time.

Fair Value Disclosures

The following table presents the Trust’s financial assets and liabilities, which are measured at fair value for disclosure purposes, by the level in the fair value hierarchy within which they fall. Methods and assumptions used to estimate the fair value of these instruments are described after the table.

	Level 1		Level 2		Level 3		Total
	(in thousands)
September 30, 2022
Mortgage notes payable	$	—	$	—	$	493,082	$	493,082
Notes receivable	$	—	$	—	$	9,073	$	9,073
December 31, 2021
Mortgage notes payable	$	—	$	—	$	508,285	$	508,285
Notes receivable	$	—	$	—	$	9,840	$	9,840

Mortgage notes payable: The Company estimates the fair value of its mortgage notes payable by discounting the future cash flows of each instrument at rates currently offered to the Trust for similar debt instruments of comparable maturities by the Trust’s lenders. The rates used range from 4.85% to 4.90% and from 3.25% to 3.35% at September 30, 2022 and December 31, 2021, respectively.

Notes receivable: The Trust estimates the fair value of its notes receivable by discounting future cash flows of each instrument at rates currently offered to the Trust for similar note instruments of comparable maturities by the Trust’s lenders. The fair value rate ranged from 3.25% to 7.25%.