FAIR VALUE MEASUREMENT

12 Months Ended

Dec. 31, 2019

The following table presents information about our financial instruments measured at fair value on a recurring basis as of December 31, 2019 and 2018. In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, we classify assets and liabilities based on the lowest level of input that is significant to the fair value measurement. Our 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.

Disclosures concerning financial instruments measured at fair value are as follows (in thousands):



	Fair Value Measurement at December 31, 2019 using
	Level 1		Level 2		Level 3		Total
Assets:
Purchase options related to real estate loans	$	—	$	—	$	8,920	$	8,920
Liabilities:
Interest rate swaps	—		16,177		—		16,177

	Fair Value Measurement at December 31, 2018 using
	Level 1		Level 2		Level 3		Total
Assets:
Interest rate swaps	$	—	$	3,461	$	—	$	3,461
Purchase options related to real estate loans	—		—		6,120		6,120
Liabilities:
Interest rate swaps	—		5,042		—		5,042

Our purchase options related to real estate loans do not have readily determinable fair values. The fair value of each purchase option was estimated using a binomial lattice or Black-Scholes model. The estimated fair values of the purchase options were based on unobservable inputs for which there is little or no market information available and required us to develop our own assumptions as follows (dollar amounts in thousands):



	Real Estate Loan 1			Real Estate Loan 2			Real Estate Loan 3			Real Estate Loan 4
Exercise price	$	15,143		$	17,377		$	5,503		$	37,800
First option exercise date ⁽¹⁾	12/31/2018			3/31/2019			5/31/2019			8/15/2021
Last option exercise date	11/1/2020			12/5/2020			12/1/2020			8/30/2021
Expected volatility	32.0		%	38.0		%	37.0		%	31.3		%
Risk free rate	1.7		%	1.8		%	1.9		%	1.5		%
Expected annualized equity dividend yield	6.8		%	9.9		%	6.5		%	—		%	⁽²⁾

(1) The first option date is the date used for valuing the Purchase Option. The actual option exercise dates are on or after the hotels are fully constructed and open for business. As of December 31, 2019, three of the four hotels were open for business.

(2) The purchase option was valued using the Black-Scholes model which assumes no dividends.

There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the years ended December 31, 2019 or 2018.

- 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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