NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued Unaudited
29 The following table presents distributions declared for the three months ended March 31, 2016 dollars in thousands:
Distributions
1
Period Cash
DRP Total
January 2,748
2,443 5,191
February 2,672
2,353 5,025
March 2,960
2,581 5,541
Total 8,380
7,377 15,757
_________________________________________________ 1
Represents distributions declared for the period, even though such distributions are actually paid to stockholders the month following such period.
Share Repurchase Program The Company adopted a share repurchase program that may enable stockholders to sell their shares to the Company in limited
circumstances the “Share Repurchase Program”. The Company may not repurchase shares unless a stockholder has held shares for one year. However, the Company may repurchase shares held less than one year in connection with a stockholder’s death or
qualifying disability. The Company is not obligated to repurchase shares under the Share Repurchase Program. The Company may amend, suspend or terminate the Share Repurchase Program at its discretion at any time, subject to certain notice requirements.
For the three months ended March 31, 2016, the Company repurchased 0.1 million shares totaling 0.6 million pursuant to the Share Repurchase Program. For the year ended December 31, 2015, the Company repurchased 0.2 million shares totaling 2.2
million pursuant to the Share Repurchase Program. The Company funds repurchase requests received during a quarter with proceeds set aside for that purpose which are not expected to exceed proceeds received from its DRP. As of March 31, 2016, there
were no unfulfilled repurchase requests.
11. Non-controlling Interests
Operating Partnership Non-controlling interests include the aggregate limited partnership interests in the Operating Partnership held by limited partners,
other than the Company. Income loss attributable to the non-controlling interests is based on the limited partners’ ownership percentage of the Operating Partnership. Income loss allocated to the Operating Partnership non-controlling interests for the
three months ended March 31, 2016 and 2015 was de minimis.
Other Other non-controlling interests represent third-party equity interests in ventures that are consolidated with the Company’s financial
statements. Net income loss attributable to the other non-controlling interests for the three months ended March 31, 2016 was 1,000. There were no other non-controlling interests during the three months ended March 31, 2015.
12. Fair Value
Fair Value Measurement The fair value of financial instruments is categorized based on the priority of the inputs to the valuation technique and categorized
into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities Level 1 and the lowest priority to unobservable inputs Level 3. If the inputs used to measure the
financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
Financial assets and liabilities recorded at fair value on the consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:
Level 1. Quoted prices for identical assets or liabilities in an active market. Level 2. Financial assets and liabilities whose values are based on the following:
a Quoted prices for similar assets or liabilities in active markets.
b Quoted prices for identical or similar assets or liabilities in non-active markets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued Unaudited
30 c
Pricing models whose inputs are observable for substantially the full term of the asset or liability. d
Pricing models whose inputs are derived principally from or corroborated by observable market data for substantially the full term of the asset or liability.
Level 3. Prices or valuation techniques based on inputs that are both unobservable and significant to the overall fair value measurement.
Determination of Fair Value The following is a description of the valuation techniques used to measure fair value of assets accounted for at fair value on a
recurring basis and the general classification of these instruments pursuant to the fair value hierarchy. PE Investments
The Company accounts for PE Investments at fair value which is determined based on a valuation model using assumptions for the timing and amount of expected future cash flow for income and realization events for the underlying assets in the funds and
discount rate. This fair value measurement is generally based on unobservable inputs and, as such, is classified as Level 3 of the fair value hierarchy. The Company is not using the NAV practical expedient of the underlying funds for purposes of determining
fair value.
Real Estate Securities CRE securities are generally valued using a third-party pricing service or broker quotations. These quotations are not adjusted
and are based on observable inputs that can be validated, and as such, are classified as Level 2 of the fair value hierarchy. Certain CRE securities may be valued based on a single broker quote or an internal price which may have less observable pricing, and as
such, would be classified as Level 3 of the fair value hierarchy. Management determines the prices are representative of fair value through a review of available data, including observable inputs, recent transactions as well as its knowledge of and experience in
the market.
Fair Value Hierarchy Financial assets recorded at fair value on a recurring basis are classified in their entirety based on the lowest level of input that is
significant to the fair value measurement. The following table presents financial assets that were accounted for at fair value on a recurring basis as of March 31, 2016 by level within the fair value hierarchy dollars in thousands:
March 31, 2016 Unaudited December 31, 2015
Level 1 Level 2
Level 3 Total
Level 1 Level 2
Level 3 Total
Assets:
PE Investments, at fair value —
— 51,518
51,518 —
— 54,865
54,865 Real estate securities, available for sale
— 47,493
— 47,493
— 17,943
— 17,943
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued Unaudited
31 The following table presents additional information about PE Investments which are measured at fair value on a recurring basis
as of March 31, 2016 for which the Company has used Level 3 inputs to determine fair value dollars in thousands:
Three Months Ended Year Ended
March 31, 2016 unaudited December 31, 2015
Beginning balance
54,865 —
Purchasescontributions, net
12
83 73,318
Distributions 4,723
24,474 Equity in earnings
1,293 6,021
Ending balance
51,518 54,865
________________________________ 1
Represents deferred purchase price discount accretion of 83,000 for the three months ended March 31, 2016. 2
Includes a deferred purchase price of 13.7 million, net of discount for the year ended December 31 2015.
For the three months ended March 31, 2016 and year ended December 31, 2015, the Company used a discounted cash flow model to quantify Level 3 fair value measurements on a recurring basis. For the three months ended March 31, 2016 and year ended
December 31, 2015, the key unobservable inputs used in this analysis included discount rates with a weighted average of 12.2 and 13.4, respectively, and timing and amount of expected future cash flow.
Significant increases decreases in any one of the inputs described above in isolation may result in a significantly different fair value for the financial assets using such Level 3 inputs.
As of March 31, 2016 and December 31, 2015, the Company had no financial assets and liabilities that were accounted for at fair value on a non-recurring basis.
Fair Value Option The Company may elect the fair value option for certain of its financial assets or liabilities due to the nature of the instrument. In
the case of PE Investments, the Company elected the fair value option because management believes it is a more useful presentation for such investments. The Company determined recording the PE Investments based on the change in fair value of projected future
cash flow from one period to another better represents the underlying economics of the respective investment.
Fair Value of Financial Instruments U.S. GAAP requires disclosure of fair value about all financial instruments. The following disclosure of estimated fair value of
financial instruments was determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments. The use of different market assumptions andor estimation methodologies may have a material effect on estimated fair value.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued Unaudited
32 The following table presents the principal amount, carrying value and fair value of certain financial assets and liabilities as of
March 31, 2016 and December 31, 2015 dollars in thousands:
March 31, 2016 Unaudited December 31, 2015
Principal Amount
Carrying Value
Fair Value Principal
Amount Carrying
Value Fair Value
Financial assets:
1
Real estate debt investments, net 648,543
2
648,746 673,568
863,154
2
864,840 892,682
Real estate debt investments, held for sale 212,201
3
212,177 212,329
— —
— Real estate securities, available for sale
73,738 47,493
47,493 25,500
17,943 17,943
Financial liabilities:
1
Credit facilities 453,703
453,703 453,703
461,768 461,768
461,768 Mortgage and other notes payable
374,126 371,732
373,216 372,368
369,878 369,602
_____________________________
1 The fair value of other financial instruments not included in this table is estimated to approximate their carrying value.
2 As of March 31, 2016 and December 31, 2015, excludes future funding commitments of 25.2 million and 46.8 million, respectively.
3 As of March 31, 2016, excludes future funding commitments of 4.2 million.
Disclosure about fair value of financial instruments is based on pertinent information available to management as of the reporting date. Although management is not aware of any factors that would significantly affect fair value, such amounts have not been
comprehensively revalued for purposes of these consolidated financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.
Real Estate Debt Investments For CRE debt investments, fair value was approximated by comparing the current yield to the estimated yield for newly originated
loans with similar credit risk or the market yield at which a third party might expect to purchase such investment. Fair value was determined assuming fully-extended maturities regardless of structural or economic tests required to achieve such extended
maturities. The fair value of CRE debt investments held for sale is determined based on the expected sales price. These fair value measurements of CRE debt are generally based on unobservable inputs and, as such, are classified as Level 3 of the fair value
hierarchy.
Credit Facilities The Company has amounts outstanding under Term Loan Facilities. The Term Loan Facilities bear floating rates of interest. As
of the reporting date, the Company believes the carrying value approximates fair value. This fair value measurement is based on observable inputs, and as such, is classified as Level 2 of the fair value hierarchy.
Mortgage and Other Notes Payable For mortgage and other notes payable, the Company primarily uses rates currently available with similar terms and remaining
maturities to estimate fair value. These measurements are determined using comparable U.S. Treasury rates as of the end of the reporting period or market credit spreads over the rate payable on fixed rate U.S. Treasury of like maturities. These fair value
measurements are based on observable inputs, and as such, are classified as Level 2 of the fair value hierarchy.
13. Segment Reporting
