Fair Value Measurements

6 Months Ended

Jun. 30, 2011

Fair Value Measurements

Cash and cash equivalents, restricted cash in escrows, derivative financial instruments, and certain securities are reported at fair value. The accounting standards establish a framework for measuring fair value as well as disclosures about fair value measurements. They emphasize that fair value is a market based measurement, not an entity-specific measurement. Therefore a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, the standards establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Recurring Measurements

The table below presents the Trust’s assets and liabilities measured at fair value on a recurring basis as of June 30, 2011, according to the level in the fair value hierarchy within which those measurements fall (in thousands):


	Quoted Prices in
	Active Markets		Significant Other		Significant
	for Identical Assets		Observable		Unobservable
	and Liabilities		Inputs		Inputs
Recurring Basis	(Level 1)		(Level 2)		(Level 3)		Total
Assets
Securities carried at fair value	$	7,613	$	—	$	—	$	7,613
Loan securities carried at fair value		—		—		5,418		5,418

	$	7,613	$	—	$	5,418	$	13,031

The table below presents the Trust’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2010, according to the level in the fair value hierarchy within which those measurements fall (in thousands):


	Quoted Prices in
	Active Markets		Significant Other		Significant
	for Identical Assets		Observable		Unobservable
	and Liabilities		Inputs		Inputs
Recurring Basis	(Level 1)		(Level 2)		(Level 3)		Total
Assets
Securities carried at fair value	$	33,032	$	—	$	—	$	33,032
Loan securities carried at fair value		—		—		11,981		11,981

	$	33,032	$	—	$	11,981	$	45,013

Liabilities
Derivative liabilities	$	—	$	63	$	—	$	63

The table below includes a roll forward of the balance sheet amounts from January 1, 2011 to June 30, 2011, including the change in fair value, for financial instruments classified by the Trust within Level 3 of the valuation hierarchy. When a determination is made to classify a financial instrument within Level 3 of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement.


	Loan Securities
	Carried at Fair
Six Months Ended June 30, 2011	Value
(in thousands)

Fair value, January 1, 2011	$	11,981
Sales		(662	)
Payoff at par		(8,748	)
Unrealized gain, net		2,847


Fair value, June 30, 2011	$	5,418

Non-Recurring Measurements

Equity Investments

Equity investments are assessed for other-than-temporary impairment. The determination of fair value of equity investments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each asset as well as the income capitalization approach considering prevailing market capitalization rates. The Trust reviews each investment based on the highest and best use of the investment and market participation assumptions. The significant assumptions used in this analysis include the discount rate and terminal capitalization rate used in the income capitalization valuation. The Trust has determined that the significant inputs used to value its Sealy equity investments fall within Level 3. The Trust recognized other-than-temporary impairment losses of $3,800,000 on these investments during the three and six months ended June 30, 2011.

The table below presents as of June 30, 2011 the Trust’s equity method investments measured at fair value according to the level in the fair value hierarchy within which those measurements fall (in thousands):


	Quoted Prices in
	Active Markets for		Significant Other		Significant
	Identical Assets and		Observable Inputs		Unobservable
Non-Recurring Basis	Liabilities (Level 1)		(Level 2)		Inputs (Level 3)		Total

Equity investments	$	—	$	—	$	8,723	$	8,723

	$	—	$	—	$	8,723	$	8,723

Fair Value Option

The current accounting guidance for fair value measurement provides a fair value option election that allows companies to irrevocably elect fair value as the measurement for certain financial assets and liabilities. Changes in fair value for assets and liabilities for which the election is made are recognized in earnings on a quarterly basis based on the then market price regardless of whether such assets or liabilities have been disposed of at such time. The fair value option guidance permits the fair value option election to be made on an instrument by instrument basis when it is initially recorded or upon an event that gives rise to a new basis of accounting for that asset or liability. The Trust elected the fair value option for all loan securities and REIT securities.

For the three months ended June 30, 2011, the Trust recognized net unrealized losses of $689,000 and for the six months ended June 30, 2011 net unrealized gains of $3,010,000. For the three and six months ended June 30, 2010, the Trust recognized net unrealized gains of $2,875,000 and $4,802,000, respectively. The change in fair value of the securities is recorded as an unrealized gain or loss in the Trust’s statement of operations. Income related to securities carried at fair value is recorded as interest and dividend income.

The following table presents as of June 30, 2011 and December 31, 2010 the Trust’s financial assets for which the fair value option was elected (in thousands):


Financial Instruments at Fair Value	June 30, 2011		December 31, 2010

Assets
Securities carried at fair value:
REIT Preferred shares	$	4,333	$	28,547
REIT Common shares		3,280		4,485

Loan securities carried at fair value		5,418		11,981

	$	13,031	$	45,013

The table below presents as of June 30, 2011 the difference between fair values and the aggregate contractual amounts due for which the fair value option has been elected (in thousands):


	Fair Value at		Amount Due
	June 30, 2011		Upon Maturity		Difference
Assets
Loan securities carried at fair value	$	5,418	$	7,494	$	2,076

	$	5,418	$	7,494	$	2,076

- 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

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 820
-SubTopic 10
-Section 50
-Paragraph 5
-URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19296-110258

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 159
-Paragraph 17-22, 27, 28
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 10
-URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13433-108611

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15C, 15D
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 28
-URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 16
-URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13504-108611

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15A
-Subparagraph a-d
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 21
-URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13537-108611

Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 133
-Paragraph 44A, 44B
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 10: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 820
-SubTopic 10
-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19207-110258

Reference 11: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 30
-URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612

Reference 12: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 3, 10, 14, 15
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 13: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15B
-Subparagraph a, b
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 14: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 157
-Paragraph 32, 33, 34
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

+ Details