XML 38 R19.htm IDEA: XBRL DOCUMENT

Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2018

10. Fair Value of Financial Instruments

We have various assets and liabilities that are considered financial instruments. We estimate that the carrying value of cash and cash equivalents, and accounts payable and accrued expenses approximate their fair values. We estimate the fair value of our interest and rent receivables using Level 2 inputs such as discounting the estimated future cash flows using the current rates at which similar receivables would be made to others with similar credit ratings and for the same remaining maturities. The fair value of our mortgage and working capital loans are estimated by using Level 2 inputs such as discounting the estimated future cash flows using the current rates which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. We determine the fair value of our senior unsecured notes, using Level 2 inputs such as quotes from securities dealers and market makers. We estimate the fair value of our revolving credit facility and term loans using Level 2 inputs based on the present value of future payments, discounted at a rate which we consider appropriate for such debt.

Fair value estimates are made at a specific point in time, are subjective in nature, and involve uncertainties and matters of significant judgment. Settlement of such fair value amounts may not be possible and may not be a prudent management decision. The following table summarizes fair value estimates for our financial instruments (in thousands):

	December 31, 2018						December 31, 2017
Asset (Liability)	Book Value			Fair Value			Book Value			Fair Value
Interest and rent receivables	$	25,855		$	24,942		$	78,970		$	78,028
Loans(1)		1,471,520			1,490,758			1,698,471			1,722,101
Debt, net		(4,037,389	)		(3,947,795	)		(4,898,667	)		(5,073,707	)

(1)	Excludes loans to Ernest that are recorded at fair value – see below for further details.

Items Measured at Fair Value on a Recurring Basis

Our equity interest in Ernest and related loans, which we sold or were repaid in full (other than our mortgage loans) on October 4, 2018, were measured at fair value on a recurring basis as we elected to account for these investments using the fair value option method. We elected to account for these investments at fair value due to the size of the investments and because we believe this method is more reflective of current values. We have not made a similar election for other equity interests or loans existing at December 31, 2018 or December 31, 2017.

At December 31, 2018 and 2017, the amounts recorded under the fair value option method were as follows (in thousands):

	As of December 31, 2018				As of December 31, 2017				Asset Type
Asset (Liability)	Fair Value		Original Cost		Fair Value		Original Cost		Classification
Mortgage loans	$	115,000	$	115,000	$	115,000	$	115,000	Mortgage loans
Equity investment and other loans		—		—		114,554		118,354	Other loans/other assets
	$	115,000	$	115,000	$	229,554	$	233,354

Our mortgage and other loans (for 2017 only) with Ernest are recorded at fair value based on Level 2 inputs by discounting the estimated cash flows using the market rates which similar loans would be made to borrowers with similar credit ratings and the same remaining maturities. Our equity investment in Ernest was recorded at fair value based on Level 3 inputs, by using a discounted cash flow model, which requires significant estimates of our investee such as projected revenue and expenses and appropriate consideration of the underlying risk profile of the forecasted assumptions associated with the investee. We classified the equity investment as Level 3, as we used certain unobservable inputs to the valuation methodology that were significant to the fair value measurement, and the valuation required management judgment due to the absence of quoted market prices. For these cash flow models, our observable inputs included use of a capitalization rate, discount rate (which is based on a weighted average cost of capital), and market interest rates, and our unobservable input included an adjustment for a marketability discount (“DLOM”) on our equity investment of 40% at December 31, 2018.

In arriving at the DLOM, we started with a DLOM range based on the results of studies supporting valuation discounts for other transactions or structures without a public market. To select the appropriate DLOM within the range, we then considered many qualitative factors including the percent of control, the nature of the underlying investee’s business along with our rights as an investor pursuant to the operating agreement, the size of investment, expected holding period, number of shareholders, access to capital marketplace, etc.

Because the fair value of Ernest investments noted above was below our original cost, we recognized an unrealized loss during 2018 (before selling our investment) and 2017. We did not recognize any unrealized gains/losses on the Ernest investments in 2016.

- 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.

+ References + Details