v3.8.0.1
Fair Value Measurements
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12 Months Ended |
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Fair Value Disclosures [Abstract] |
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Fair Value Measurements |
Fair Value Measurements GAAP establishes a hierarchy of valuation techniques based on the observability of inputs used in measuring financial instruments at fair value. GAAP establishes market-based or observable inputs as the preferred sources of values, followed by valuation models using management assumptions in the absence of market inputs. The three levels of the hierarchy are described below: Level 1 — Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date. Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability. Level 3 — Unobservable inputs that reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques. The determination of where an asset or liability falls in the hierarchy requires significant judgment and considers factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter. However, the Company expects that changes in classifications between levels will be rare. The Company’s derivative instrument is measured at fair value on a recurring basis. Although the Company has determined that the majority of the inputs used to value its derivative fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with this derivative utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparty. However, as of December 31, 2017, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative position and has determined that the credit valuation adjustments are not significant to the overall valuation of the Company’s derivative. As a result, the Company has determined that its derivative valuation in its entirety is classified in Level 2 of the fair value hierarchy. The valuation of derivative instruments is determined using a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves and implied volatilities. In addition, credit valuation adjustments are incorporated into the fair values to account for the Company’s potential nonperformance risk and the performance risk of the counterparties. The Company had impaired real estate investments held for sale, which were carried at fair value on a non-recurring basis on the consolidated balance sheets as of December 31, 2017 and 2016. Impaired real estate investments held for sale were valued using the sale price from the applicable PSA less costs to sell, which is an observable input. As a result, the Company’s impaired real estate investments held for sale are classified in Level 2 of the fair value hierarchy. The Company also had impaired real estate investments held for use, which were carried at fair value on a non-recurring basis on the consolidated balance sheet as of December 31, 2017 and 2016. The Company recognized an aggregate impairment charge of $24.7 million during 2016 related to real estate investments held for use. During the year ended, December 31, 2017, the Company recognized additional impairment charges of $20.5 million related to real estate investments held for use. See Note 4 — Real Estate Investments for additional information on impairment charges incurred by the Company. The Company primarily used a market approach to estimate the future cash flows expected to be generated. This approach involved evaluating comparable sales of properties in the same geographic region as the SunTrust properties in order to generate an estimated sale price, which is an unobservable input. As a result, the impaired properties that the Company evaluated using this approach are classified in Level 3 of the fair value hierarchy. For some of the impaired properties, the Company had an executed LOI or PSA to sell the property. In those instances, the Company used the sale price from the applicable LOI or PSA to estimate the future cash flows expected to be generated, which is an observable input. As a result, the impaired properties that the Company evaluated using this approach are classified in Level 2 of the fair value hierarchy. The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2017 and 2016, aggregated by the level in the fair value hierarchy within which those instruments fall. | | | | | | | | | | | | | | | | | | (In thousands) | | Quoted Prices in Active Markets Level 1 | | Significant Other Observable Inputs Level 2 | | Significant Unobservable Inputs Level 3 | | Total | | | |
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| Impaired real estate investments held for sale | | $ | — |
| | $ | 432 |
| | $ | — |
| | $ | 432 |
| Impaired real estate investments held for use | | — |
| | 20,434 |
| | 10,330 |
| | 30,764 |
| Interest rate swaps | | — |
| | 23 |
| | — |
| | 23 |
| Total | | $ | — |
| | $ | 20,889 |
| | $ | 10,330 |
| | $ | 31,219 |
| | | | | | | | | | | | | | | | | | | Impaired real estate investments held for sale | | $ | — |
| | $ | 961 |
| | $ | — |
| | $ | 961 |
| Impaired real estate Investments held for use | | — |
| | 6,525 |
| | 45,032 |
| | 51,557 |
| Total | | $ | — |
| | $ | 7,486 |
| | $ | 45,032 |
| | $ | 52,518 |
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A review of the fair value hierarchy classification is conducted on a quarterly basis. Changes in the type of inputs may result in a reclassification for certain assets and liabilities. The Company’s policy with respect to transfers between levels of the fair value hierarchy is to recognize transfers into and out of each level as of the end of the reporting period. There were no transfers between levels of the fair value hierarchy during the years ended December 31, 2017 and 2016. The Company is required to disclose the fair value of financial instruments for which it is practicable to estimate that value. The fair value of short-term financial instruments such as cash and cash equivalents, restricted cash, prepaid expenses and other assets, accounts payable and accrued expenses and distributions payable approximates their carrying value on the consolidated balance sheets due to their short-term nature. The fair values of the Company’s remaining financial instruments that are not reported at fair value on the consolidated balance sheets as of December 31, 2017 and 2016 are reported in the following table: | | | | | | | | | | | | | | | | | | | | | | | | | | | (In thousands) | | Level | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | Gross mortgage notes payable | | 3 | | $ | 1,307,887 |
| | $ | 1,332,240 |
| | $ | 1,048,448 |
| | $ | 1,076,065 |
| Credit facility | | 3 | | $ | 95,000 |
| | $ | 95,000 |
| | $ | — |
| | $ | — |
| Commercial mortgage loan, held for investment | | 3 | | $ | — |
| | $ | — |
| | $ | 17,175 |
| | $ | 17,200 |
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The fair value of gross mortgage notes payable is based on combinations of independent third party estimates and management’s estimates of market interest rates. Advances under the Amended Credit Facility are considered to be reported at fair value, because its interest rate varies with changes in LIBOR, and there has not been a significant change in the credit risk of the Company or credit markets since assumption. The fair value of the commercial mortgage loan was estimated using a discounted cash flow analysis, based on the Advisor’s experience with similar types of investments.
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- DefinitionThe 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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