Sila Realty Trust, Inc. - S-4 filing on 2019-06-21

Fair Value

3 Months Ended

12 Months Ended

Mar. 31, 2019

Dec. 31, 2018

Notes payable—Fixed Rate—The estimated fair value of notes payable—fixed rate measured using observable inputs from similar liabilities (Level 2) was approximately $216,542,000 and $214,282,000 as of March 31, 2019 and December 31, 2018, respectively, as compared to the outstanding principal of $220,276,000 and $220,351,000 as of March 31, 2019 and December 31, 2018, respectively. The estimated fair value of notes payable—variable rate fixed through interest rate swap agreements (Level 2) was approximately $243,258,000 and $241,739,000 as of March 31, 2019 and December 31, 2018, respectively, as compared to the outstanding principal of $247,205,000 and $247,435,000 as of March 31, 2019 and December 31, 2018, respectively.

Secured credit facility—The outstanding principal of the secured credit facility—variable was $265,000,000 and $255,000,000, which approximated its fair value as of March 31, 2019 and December 31, 2018, respectively. The fair value of the Company's variable rate secured credit facility is estimated based on the interest rates currently offered to the Company by financial institutions. The estimated fair value of the secured credit facility—variable rate fixed through interest rate swap agreements (Level 2) was approximately $96,554,000 and $96,146,000 as of March 31, 2019 and December 31, 2018, respectively, as compared to the outstanding principal of $100,000,000 as of March 31, 2019 and December 31, 2018.

Derivative instruments—Considerable judgment is necessary to develop estimated fair values of financial instruments. Accordingly, the estimates presented herein are not necessarily indicative of the amount the Company could realize, or be liable for, on disposition of the financial instruments. The Company determined that the majority of the inputs used to value its interest rate swaps fall within Level 2 of the fair value hierarchy. The credit valuation adjustments associated with these instruments utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and the respective counterparty. However, as of March 31, 2019, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions, and determined that the credit valuation adjustments are not significant to the overall valuation of its interest rate swaps. As a result, the Company determined that its interest rate swaps valuation in its entirety is classified in Level 2 of the fair value hierarchy. See Note 12—"Derivative Instruments and Hedging Activities" for a further discussion of the Company's derivative instruments.

The following tables show the fair value of the Company’s financial assets and liabilities that are required to be measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018 (amounts in thousands):



	March 31, 2019
	Fair Value Hierarchy
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Assets:
Derivative assets	$	—	$	3,420	$	—	$	3,420
Total assets at fair value	$	—	$	3,420	$	—	$	3,420
Liabilities:
Derivative liabilities	$	—	$	827	$	—	$	827
Total liabilities at fair value	$	—	$	827	$	—	$	827



	December 31, 2018
	Fair Value Hierarchy
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Assets:
Derivative assets	$	—	$	6,204	$	—	$	6,204
Total assets at fair value	$	—	$	6,204	$	—	$	6,204

Fair Value

Notes payable—Fixed Rate—The estimated fair value of notes payable—fixed rate measured using observable inputs from similar liabilities (Level 2) was approximately $214,282,000 and $211,011,000 as of December 31, 2018 and December 31, 2017, respectively, as compared to the outstanding principal of $220,351,000 and $220,436,000 as of December 31, 2018 and December 31, 2017, respectively. The estimated fair value of notes payable—variable rate fixed through interest rate swap agreements (Level 2) was approximately $241,739,000 and $243,812,000 as of December 31, 2018 and December 31, 2017, respectively, as compared to the outstanding principal of $247,435,000 and $247,699,000 as of December 31, 2018 and December 31, 2017, respectively.

Secured credit facility—The outstanding principal of the secured credit facility—variable was $255,000,000 and $120,000,000, which approximated its fair value as of December 31, 2018 and December 31, 2017, respectively. The fair value of the Company's variable rate secured credit facility is estimated based on the interest rates currently offered to the Company by financial institutions. The estimated fair value of the secured credit facility—variable rate fixed through interest rate swap agreements (Level 2) was approximately $96,146,000 and $98,593,000 as of December 31, 2018 and December 31, 2017, respectively, as compared to the outstanding principal of $100,000,000 and $100,000,000 as of December 31, 2018 and December 31, 2017, respectively.

Derivative instruments—Considerable judgment is necessary to develop estimated fair values of financial instruments. Accordingly, the estimates presented herein are not necessarily indicative of the amount the Company could realize, or be liable for, on disposition of the financial instruments. The Company has determined that the majority of the inputs used to value its interest rate swaps fall within Level 2 of the fair value hierarchy. The credit valuation adjustments associated with these instruments utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and the respective counterparty. However, as of December 31, 2018, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions, and has determined that the credit valuation adjustments are not significant to the overall valuation of its interest rate swaps. As a result, the Company determined that its interest rate swaps valuation is classified in Level 2 of the fair value hierarchy.

The following tables show the fair value of the Company’s financial assets and liabilities that are required to be measured at fair value on a recurring basis as of December 31, 2018 and 2017 (amounts in thousands):



	December 31, 2018
	Fair Value Hierarchy
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Assets:
Derivative assets	$	—	$	6,204	$	—	$	6,204
Total assets at fair value	$	—	$	6,204	$	—	$	6,204



	December 31, 2017
	Fair Value Hierarchy
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Assets:
Derivative assets	$	—	$	3,934	$	—	$	3,934
Total assets at fair value	$	—	$	3,934	$	—	$	3,934
Liabilities:
Derivative liabilities	$	—	$	22	$	—	$	22
Total liabilities at fair value	$	—	$	22	$	—	$	22