UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017March 31, 2021
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-34436
Starwood Property Trust, Inc.
(Exact name of registrant as specified in its charter)
| | |
Maryland | | 27-0247747 |
(State or Other Jurisdiction of | | (I.R.S. Employer |
| | |
591 West Putnam Avenue | | |
Greenwich, Connecticut | | 06830 |
(Address of Principal Executive Offices) | | (Zip Code) |
Registrant’s telephone number, including area code:
(203) (203) 422-7700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common stock, $0.01 par value per share | STWD | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒⌧ No ☐◻
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒⌧ No ☐◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| | |
Large accelerated filer | | Accelerated filer |
Non-accelerated filer | | Smaller reporting company ☐ |
| | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒⌧
The number of shares of the issuer’s common stock, $0.01 par value, outstanding as of November 2, 2017April 30, 2021 was 260,998,683.286,985,112.
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains certain forward-looking statements, including without limitation, statements concerning our operations, economic performance and financial condition. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are developed by combining currently available information with our beliefs and assumptions and are generally identified by the words “believe,” “expect,” “anticipate” and other similar expressions. Forward-looking statements do not guarantee future performance, which may be materially different from that expressed in, or implied by, any such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their respective dates.
These forward-looking statements are based largely on our current beliefs, assumptions and expectations of our future performance taking into account all information currently available to us. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us or within our control, and which could materially affect actual results, performance or achievements. Factors that may cause actual results to vary from our forward-looking statements include, but are not limited to:
| factors described in our Annual Report on Form 10-K for the year ended December 31, |
| the severity and duration of the pandemic of the novel strain of coronavirus (“COVID-19”), actions that may be taken by governmental authorities to contain the COVID-19 outbreak or to treat its impact and the adverse impacts that the COVID-19 pandemic has had, and will likely continue to have, on the global economy, on the borrowersunderlying our real estate-related assets and infrastructure loans and tenants of our owned properties, including their ability to make payments on their loans or to pay rent, as the case may be, and on our operations and financial performance; |
● | defaults by borrowers in paying debt service on outstanding indebtedness; |
| impairment in the value of real estate property securing our loans or in which we invest; |
| availability of mortgage origination and acquisition opportunities acceptable to us; |
| potential mismatches in the timing of asset repayments and the maturity of the associated financing agreements; |
| our ability to integrate our prior acquisition of the project finance origination, underwriting and capital markets business of GE Capital Global Holdings, LLC into our business and to achieve the benefits that we anticipate from the acquisition; |
● | national and local economic and business |
| general and local commercial and residential real estate property conditions; |
| changes in federal government policies; |
| changes in federal, state and local governmental laws and regulations; |
| increased competition from entities engaged in mortgage lending and securities investing activities; |
| changes in interest rates; and |
2
| the availability of, and costs associated with, sources of liquidity. |
In light of these risks and uncertainties, there can be no assurances that the results referred to in the forward-looking statements contained in this Quarterly Report on Form 10-Q will in fact occur. Except to the extent required by applicable law or regulation, we undertake no obligation to, and expressly disclaim any such obligation to, update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, changes to future results over time or otherwise.
23
TABLE OF CONTENTS
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| 53 | |
| 54 | |
| 55 | |
| 59 | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 60 | |
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101 |
34
PART I - FINANCIAL INFORMATION
Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited, amounts in thousands, except share data)
| | | | | | |
| | As of | | As of | ||
| | March 31, 2021 | | December 31, 2020 | ||
Assets: | | | | | | |
Cash and cash equivalents | | $ | 351,190 | | $ | 563,217 |
Restricted cash | |
| 118,724 | |
| 158,945 |
Loans held-for-investment, net of credit loss allowances of $72,284 and $77,444 ($150,712 and $90,684 held at fair value) | |
| 12,321,493 | |
| 11,087,073 |
Loans held-for-sale ($613,061 and $932,295 held at fair value) | |
| 844,631 | |
| 1,052,835 |
Investment securities, net of credit loss allowances of $5,387 and $5,675 ($190,212 and $198,053 held at fair value) | |
| 678,287 | |
| 736,658 |
Properties, net | | | 2,244,748 | | | 2,271,153 |
Intangible assets ($12,406 and $13,202 held at fair value) | |
| 66,772 | |
| 70,117 |
Investment in unconsolidated entities | |
| 100,907 | |
| 108,054 |
Goodwill | |
| 259,846 | |
| 259,846 |
Derivative assets | |
| 38,029 | |
| 40,555 |
Accrued interest receivable | |
| 101,713 | |
| 95,980 |
Other assets | |
| 208,873 | |
| 190,748 |
Variable interest entity (“VIE”) assets, at fair value | |
| 62,367,110 | |
| 64,238,328 |
Total Assets | | $ | 79,702,323 | | $ | 80,873,509 |
Liabilities and Equity | | | | | | |
Liabilities: | | | | | | |
Accounts payable, accrued expenses and other liabilities | | $ | 178,215 | | $ | 206,845 |
Related-party payable | |
| 36,135 | |
| 39,170 |
Dividends payable | |
| 138,906 | |
| 137,959 |
Derivative liabilities | |
| 34,805 | |
| 41,324 |
Secured financing agreements, net | |
| 10,895,932 | |
| 10,146,190 |
Collateralized loan obligations, net | | | 931,178 | | | 930,554 |
Unsecured senior notes, net | |
| 1,735,658 | |
| 1,732,520 |
VIE liabilities, at fair value | |
| 60,896,709 | |
| 62,776,371 |
Total Liabilities | |
| 74,847,538 | |
| 76,010,933 |
Commitments and contingencies (Note 21) | | | | | | |
Equity: | | | | | | |
Starwood Property Trust, Inc. Stockholders’ Equity: | | | | | | |
Preferred stock, $0.01 per share, 100,000,000 shares authorized, 0 shares issued and outstanding | |
| — | |
| — |
Common stock, $0.01 per share, 500,000,000 shares authorized, 294,300,251 issued and 286,851,560 outstanding as of March 31, 2021 and 292,091,601 issued and 284,642,910 outstanding as of December 31, 2020 | |
| 2,943 | |
| 2,921 |
Additional paid-in capital | |
| 5,225,037 | |
| 5,209,739 |
Treasury stock (7,448,691 shares) | |
| (138,022) | |
| (138,022) |
Accumulated other comprehensive income | |
| 41,654 | |
| 43,993 |
Accumulated deficit | |
| (654,750) | |
| (629,733) |
Total Starwood Property Trust, Inc. Stockholders’ Equity | |
| 4,476,862 | |
| 4,488,898 |
Non-controlling interests in consolidated subsidiaries | |
| 377,923 | |
| 373,678 |
Total Equity | |
| 4,854,785 | |
| 4,862,576 |
Total Liabilities and Equity | | $ | 79,702,323 | | $ | 80,873,509 |
|
|
|
|
|
|
|
|
| As of |
| As of | ||
|
| September 30, 2017 |
| December 31, 2016 | ||
Assets: |
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 413,845 |
| $ | 615,522 |
Restricted cash |
|
| 54,591 |
|
| 35,233 |
Loans held-for-investment, net |
|
| 6,382,371 |
|
| 5,847,995 |
Loans held-for-sale, at fair value |
|
| 608,624 |
|
| 63,279 |
Loans transferred as secured borrowings |
|
| 74,339 |
|
| 35,000 |
Investment securities ($290,622 and $297,638 held at fair value) |
|
| 701,818 |
|
| 807,618 |
Properties, net |
|
| 2,521,342 |
|
| 1,944,720 |
Intangible assets ($33,781 and $55,082 held at fair value) |
|
| 181,865 |
|
| 219,248 |
Investment in unconsolidated entities |
|
| 243,450 |
|
| 204,605 |
Goodwill |
|
| 140,437 |
|
| 140,437 |
Derivative assets |
|
| 38,293 |
|
| 89,361 |
Accrued interest receivable |
|
| 35,047 |
|
| 28,224 |
Other assets |
|
| 112,265 |
|
| 101,763 |
Variable interest entity (“VIE”) assets, at fair value |
|
| 51,197,981 |
|
| 67,123,261 |
Total Assets |
| $ | 62,706,268 |
| $ | 77,256,266 |
Liabilities and Equity |
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
Accounts payable, accrued expenses and other liabilities |
| $ | 203,782 |
| $ | 198,134 |
Related-party payable |
|
| 29,989 |
|
| 37,818 |
Dividends payable |
|
| 125,674 |
|
| 125,075 |
Derivative liabilities |
|
| 22,890 |
|
| 3,904 |
Secured financing agreements, net |
|
| 5,514,695 |
|
| 4,154,126 |
Unsecured senior notes, net |
|
| 2,044,523 |
|
| 2,011,544 |
Secured borrowings on transferred loans, net |
|
| 74,200 |
|
| 35,000 |
VIE liabilities, at fair value |
|
| 50,150,781 |
|
| 66,130,592 |
Total Liabilities |
|
| 58,166,534 |
|
| 72,696,193 |
Commitments and contingencies (Note 21) |
|
|
|
|
|
|
Equity: |
|
|
|
|
|
|
Starwood Property Trust, Inc. Stockholders’ Equity: |
|
|
|
|
|
|
Preferred stock, $0.01 per share, 100,000,000 shares authorized, no shares issued and outstanding |
|
| — |
|
| — |
Common stock, $0.01 per share, 500,000,000 shares authorized, 265,406,623 issued and 260,799,738 outstanding as of September 30, 2017 and 263,893,806 issued and 259,286,921 outstanding as of December 31, 2016 |
|
| 2,654 |
|
| 2,639 |
Additional paid-in capital |
|
| 4,705,044 |
|
| 4,691,180 |
Treasury stock (4,606,885 shares) |
|
| (92,104) |
|
| (92,104) |
Accumulated other comprehensive income |
|
| 65,271 |
|
| 36,138 |
Accumulated deficit |
|
| (184,073) |
|
| (115,579) |
Total Starwood Property Trust, Inc. Stockholders’ Equity |
|
| 4,496,792 |
|
| 4,522,274 |
Non-controlling interests in consolidated subsidiaries |
|
| 42,942 |
|
| 37,799 |
Total Equity |
|
| 4,539,734 |
|
| 4,560,073 |
Total Liabilities and Equity |
| $ | 62,706,268 |
| $ | 77,256,266 |
Note: In addition to the VIE assets and liabilities which are separately presented, our condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020 include assets of $1.1 billion and liabilities of $0.9 billion related to a consolidated collateralized loan obligation (“CLO”), which is considered to be a VIE. The CLO’s assets can only be used to settle obligations of the CLO, and the CLO’s liabilities do not have recourse to Starwood Property Trust, Inc. Refer to Note 14 for additional discussion of VIEs.
See notes to condensed consolidated financial statements.
5
Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited, amounts in thousands, except per share data)
| | | | | | |
| | For the Three Months Ended | ||||
| | March 31, | ||||
|
| 2021 |
| 2020 | ||
Revenues: | | | | | | |
Interest income from loans | | $ | 190,575 | | $ | 217,427 |
Interest income from investment securities | |
| 11,610 | |
| 15,240 |
Servicing fees | |
| 8,402 | |
| 4,793 |
Rental income | | | 76,338 | | | 74,146 |
Other revenues | |
| 305 | |
| 954 |
Total revenues | |
| 287,230 | |
| 312,560 |
Costs and expenses: | | | | | | |
Management fees | |
| 38,736 | |
| 40,728 |
Interest expense | |
| 103,374 | |
| 120,025 |
General and administrative | |
| 38,636 | |
| 38,702 |
Acquisition and investment pursuit costs | |
| 185 | |
| 909 |
Costs of rental operations | | | 28,745 | | | 28,214 |
Depreciation and amortization | |
| 22,474 | |
| 23,980 |
Credit loss provision, net | |
| 44 | |
| 48,669 |
Other expense | |
| 685 | |
| 388 |
Total costs and expenses | |
| 232,879 | |
| 301,615 |
Other income (loss): | | | | | | |
Change in net assets related to consolidated VIEs | |
| 39,745 | |
| (45,493) |
Change in fair value of servicing rights | |
| (796) | |
| (393) |
Change in fair value of investment securities, net | |
| (306) | |
| 2,504 |
Change in fair value of mortgage loans, net | |
| (9,478) | |
| (16,134) |
Earnings from unconsolidated entities | |
| 1,734 | |
| 97 |
Gain on sale of investments and other assets, net | |
| 17,693 | |
| 296 |
Gain on derivative financial instruments, net | |
| 33,989 | |
| 9,710 |
Foreign currency loss, net | |
| (11,681) | |
| (34,486) |
Loss on extinguishment of debt | | | (516) | | | (170) |
Other income, net | |
| 21 | |
| 126 |
Total other income (loss) | |
| 70,405 | |
| (83,943) |
Income (loss) before income taxes | |
| 124,756 | |
| (72,998) |
Income tax (provision) benefit | |
| (2,230) | |
| 6,729 |
Net income (loss) | |
| 122,526 | |
| (66,269) |
Net income attributable to non-controlling interests | |
| (11,148) | |
| (500) |
Net income (loss) attributable to Starwood Property Trust, Inc. | | $ | 111,378 | | $ | (66,769) |
| | | | | | |
Earnings (loss) per share data attributable to Starwood Property Trust, Inc.: | | | | | | |
Basic | | $ | 0.39 | | $ | (0.24) |
Diluted | | $ | 0.38 | | $ | (0.24) |
See notes to condensed consolidated financial statements.
4
6
Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of OperationsComprehensive Income
(Unaudited, amounts in thousands, except per share data)thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
| For the Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income from loans |
| $ | 138,599 |
| $ | 121,225 |
| $ | 371,094 |
| $ | 361,314 |
Interest income from investment securities |
|
| 12,451 |
|
| 19,175 |
|
| 40,045 |
|
| 53,879 |
Servicing fees |
|
| 14,842 |
|
| 22,918 |
|
| 47,572 |
|
| 70,921 |
Rental income |
|
| 60,153 |
|
| 39,742 |
|
| 176,161 |
|
| 110,262 |
Other revenues |
|
| 722 |
|
| 1,645 |
|
| 2,184 |
|
| 3,814 |
Total revenues |
|
| 226,767 |
|
| 204,705 |
|
| 637,056 |
|
| 600,190 |
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Management fees |
|
| 30,980 |
|
| 27,780 |
|
| 79,997 |
|
| 76,510 |
Interest expense |
|
| 76,431 |
|
| 59,082 |
|
| 213,608 |
|
| 173,237 |
General and administrative |
|
| 32,892 |
|
| 51,470 |
|
| 95,841 |
|
| 119,677 |
Acquisition and investment pursuit costs |
|
| 1,024 |
|
| 1,509 |
|
| 2,232 |
|
| 5,682 |
Costs of rental operations |
|
| 23,799 |
|
| 18,011 |
|
| 67,701 |
|
| 46,518 |
Depreciation and amortization |
|
| 22,871 |
|
| 15,352 |
|
| 67,131 |
|
| 53,185 |
Loan loss allowance, net |
|
| (171) |
|
| 2,127 |
|
| (3,170) |
|
| 3,395 |
Other expense |
|
| 376 |
|
| 711 |
|
| 1,276 |
|
| 811 |
Total costs and expenses |
|
| 188,202 |
|
| 176,042 |
|
| 524,616 |
|
| 479,015 |
Income before other income (loss), income taxes and non-controlling interests |
|
| 38,565 |
|
| 28,663 |
|
| 112,440 |
|
| 121,175 |
Other income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Change in net assets related to consolidated VIEs |
|
| 56,177 |
|
| 47,848 |
|
| 203,108 |
|
| 94,388 |
Change in fair value of servicing rights |
|
| (4,867) |
|
| (14,283) |
|
| (21,301) |
|
| (33,213) |
Change in fair value of investment securities, net |
|
| (397) |
|
| (2,786) |
|
| (4,061) |
|
| (714) |
Change in fair value of mortgage loans held-for-sale, net |
|
| 19,485 |
|
| 49,996 |
|
| 45,484 |
|
| 70,122 |
(Loss) earnings from unconsolidated entities |
|
| (4,689) |
|
| 4,305 |
|
| 27,763 |
|
| 12,849 |
Gain on sale of investments and other assets, net |
|
| 11,877 |
|
| 10 |
|
| 17,004 |
|
| 165 |
Loss on derivative financial instruments, net |
|
| (24,224) |
|
| (2,328) |
|
| (66,159) |
|
| (6,793) |
Foreign currency gain (loss), net |
|
| 10,660 |
|
| (3,214) |
|
| 28,434 |
|
| (20,580) |
Total other-than-temporary impairment (“OTTI”) |
|
| (66) |
|
| — |
|
| (175) |
|
| (54) |
Noncredit portion of OTTI recognized in other comprehensive income |
|
| 66 |
|
| — |
|
| 66 |
|
| 54 |
Net impairment losses recognized in earnings |
|
| — |
|
| — |
|
| (109) |
|
| — |
Loss on extinguishment of debt |
|
| — |
|
| — |
|
| (5,916) |
|
| — |
Other income, net |
|
| 28 |
|
| 269 |
|
| 484 |
|
| 10,998 |
Total other income (loss) |
|
| 64,050 |
|
| 79,817 |
|
| 224,731 |
|
| 127,222 |
Income before income taxes |
|
| 102,615 |
|
| 108,480 |
|
| 337,171 |
|
| 248,397 |
Income tax provision |
|
| (9,816) |
|
| (2,667) |
|
| (18,285) |
|
| (3,467) |
Net income |
|
| 92,799 |
|
| 105,813 |
|
| 318,886 |
|
| 244,930 |
Net income attributable to non-controlling interests |
|
| (4,371) |
|
| (47) |
|
| (10,720) |
|
| (1,034) |
Net income attributable to Starwood Property Trust, Inc. |
| $ | 88,428 |
| $ | 105,766 |
| $ | 308,166 |
| $ | 243,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share data attributable to Starwood Property Trust, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.34 |
| $ | 0.44 |
| $ | 1.18 |
| $ | 1.02 |
Diluted |
| $ | 0.33 |
| $ | 0.44 |
| $ | 1.17 |
| $ | 1.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share |
| $ | 0.48 |
| $ | 0.48 |
| $ | 1.44 |
| $ | 1.44 |
| | | | | | |
| | For the Three Months Ended | ||||
| | March 31, | ||||
|
| 2021 | | 2020 | ||
Net income (loss) | | $ | 122,526 | | $ | (66,269) |
Other comprehensive (loss) income (net change by component): | | | | | | |
Available-for-sale securities | |
| (2,403) | |
| (15,048) |
Foreign currency translation | |
| 64 | |
| — |
Other comprehensive loss | |
| (2,339) | |
| (15,048) |
Comprehensive income (loss) | |
| 120,187 | |
| (81,317) |
Less: Comprehensive income attributable to non-controlling interests | |
| (11,148) | |
| (500) |
Comprehensive income (loss) attributable to Starwood Property Trust, Inc. | | $ | 109,039 | | $ | (81,817) |
See notes to condensed consolidated financial statements.
57
Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive IncomeEquity
For the Three Months Ended March 31, 2021 and 2020
(Unaudited, amounts in thousands)thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | Total | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Starwood | | | | | | | ||
| | | | | | | | | | | | | | | | | Accumulated | | Property | | | | | | | |||
| | Common stock | | Additional | | | | | | | | | Other | | Trust, Inc. | | Non- | | | | ||||||||
| | | | Par | | Paid-in | | Treasury Stock | | Accumulated | | Comprehensive | | Stockholders’ | | Controlling | | Total | ||||||||||
|
| Shares |
| Value |
| Capital |
| Shares |
| Amount |
| Deficit |
| Income |
| Equity |
| Interests |
| Equity | ||||||||
Balance, December 31, 2020 |
| 292,091,601 | | $ | 2,921 | | $ | 5,209,739 |
| 7,448,691 | | $ | (138,022) | | $ | (629,733) | | $ | 43,993 | | $ | 4,488,898 | | $ | 373,678 | | $ | 4,862,576 |
Cumulative effect of convertible notes accounting standard update adopted January 1, 2021 | | — | | | — | | | (3,755) | | — | | | — | | | 2,219 | | | — | | | (1,536) | | | — | | | (1,536) |
Proceeds from DRIP Plan | | 12,234 | | | — | | | 262 | | — | | | — | | | — | | | — | | | 262 | | | — | | | 262 |
Redemption of Class A Units | | 50,000 | | | 1 | | | 1,038 | | — | | | — | | | — | | | — | | | 1,039 | | | (1,039) | | | — |
Equity offering costs | | — | | | — | | | (22) | | — | | | — | | | — | | | — | | | (22) | | | — | | | (22) |
Share-based compensation | | 1,814,414 | | | 18 | | | 10,292 | | — | | | — | | | — | | | — | | | 10,310 | | | — | | | 10,310 |
Manager fees paid in stock |
| 332,002 | | | 3 | | | 7,483 | | — | | | — | | | — | | | — | | | 7,486 | | | — | | | 7,486 |
Net income |
| — | | | — | | | — | | — | | | — | | | 111,378 | | | — | | | 111,378 | | | 11,148 | | | 122,526 |
Dividends declared, $0.48 per share |
| — | | | — | | | — | | — | | | — | | | (138,614) | | | — | | | (138,614) | | | — | | | (138,614) |
Other comprehensive loss, net |
| — | | | — | | | — | | — | | | — | | | — | | | (2,339) | | | (2,339) | | | — | | | (2,339) |
Contributions from non-controlling interests | | — | | | — | | | — | | — | | | — | | | — | | | — | | | — | | | 2,969 | | | 2,969 |
Distributions to non-controlling interests |
| — | | | — | | | — | | — | | | — | | | — | | | — | | | — | | | (8,833) | | | (8,833) |
Balance, March 31, 2021 |
| 294,300,251 | | $ | 2,943 | | $ | 5,225,037 |
| 7,448,691 | | $ | (138,022) | | $ | (654,750) | | $ | 41,654 | | $ | 4,476,862 | | $ | 377,923 | | $ | 4,854,785 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2019 |
| 287,380,891 | | $ | 2,874 | | $ | 5,132,532 | | 5,180,140 | | $ | (104,194) | | $ | (381,719) | | $ | 50,932 | | $ | 4,700,425 | | $ | 436,589 | | $ | 5,137,014 |
Cumulative effect of credit loss accounting standard effective January 1, 2020 | | — | | | — | | | — | | — | | | — | | | (32,286) | | | — | | | (32,286) | | | — | | | (32,286) |
Proceeds from DRIP Plan | | 7,718 | | | — | | | 153 | | — | | | — | | | — | | | — | | | 153 | | | — | | | 153 |
Redemption of Class A Units | | 409,712 | | | 4 | | | 8,534 | | — | | | — | | | — | | | — | | | 8,538 | | | (8,538) | | | — |
Equity offering costs | | — | | | — | | | (14) | | — | | | — | | | — | | | — | | | (14) | | | — | | | (14) |
Common stock repurchased |
| — | | | — | | | — | | 1,925,421 | | | (28,830) | | | — | | | — | | | (28,830) | | | — | | | (28,830) |
Share-based compensation |
| 1,195,208 | | | 12 | | | 8,788 | | — | | | — | | | — | | | — | | | 8,800 | | | — | |
| 8,800 |
Manager fees paid in stock |
| 355,910 | | | 4 | | | 9,076 | | — | | | — | | | — | | | — | | | 9,080 | | | — | |
| 9,080 |
Net loss |
| — | | | — | | | — | | — | | | — | | | (66,769) | | | — | | | (66,769) | | | 500 | |
| (66,269) |
Dividends declared, $0.48 per share |
| — | | | — | | | — | | — | | | — | | | (135,991) | | | — | | | (135,991) | | | — | |
| (135,991) |
Other comprehensive loss, net |
| — | | | — | | | — | | — | | | — | | | — | | | (15,048) | | | (15,048) | | | — | |
| (15,048) |
VIE non-controlling interests |
| — | | | — | | | — | | — | | | — | | | — | | | — | | | — | | | (2,188) | | | (2,188) |
Contributions from non-controlling interests |
| — | | | — | | | — | | — | | | — | | | — | | | — | | | — | | | 9,406 | | | 9,406 |
Distributions to non-controlling interests |
| — | | | — | | | — | | — | | | — | | | — | | | — | | | — | | | (66,476) | |
| (66,476) |
Balance, March 31, 2020 |
| 289,349,439 | | $ | 2,894 | | $ | 5,159,069 |
| 7,105,561 | | $ | (133,024) | | $ | (616,765) | | $ | 35,884 | | $ | 4,448,058 | | $ | 369,293 | | $ | 4,817,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
| For the Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Net income |
| $ | 92,799 |
| $ | 105,813 |
| $ | 318,886 |
| $ | 244,930 |
Other comprehensive income (net change by component): |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges |
|
| (22) |
|
| 185 |
|
| 56 |
|
| (136) |
Available-for-sale securities |
|
| 3,975 |
|
| 6,105 |
|
| 10,728 |
|
| 8,656 |
Foreign currency translation |
|
| 5,337 |
|
| 1,331 |
|
| 18,349 |
|
| 1,999 |
Other comprehensive income |
|
| 9,290 |
|
| 7,621 |
|
| 29,133 |
|
| 10,519 |
Comprehensive income |
|
| 102,089 |
|
| 113,434 |
|
| 348,019 |
|
| 255,449 |
Less: Comprehensive income attributable to non-controlling interests |
|
| (4,371) |
|
| (47) |
|
| (10,720) |
|
| (1,034) |
Comprehensive income attributable to Starwood Property Trust, Inc. |
| $ | 97,718 |
| $ | 113,387 |
| $ | 337,299 |
| $ | 254,415 |
See notes to condensed consolidated financial statements.
6
8
Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of EquityCash Flows
(Unaudited, amounts in thousands, except share data)thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Starwood |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
| Property |
|
|
|
|
|
|
| |||
|
| Common stock |
| Additional |
|
|
|
|
|
|
|
| Other |
| Trust, Inc. |
| Non- |
|
|
|
| ||||||||
|
|
|
| Par |
| Paid-in |
| Treasury Stock |
| Accumulated |
| Comprehensive |
| Stockholders’ |
| Controlling |
| Total |
| ||||||||||
|
| Shares |
| Value |
| Capital |
| Shares |
| Amount |
| Deficit |
| Income |
| Equity |
| Interests |
| Equity |
| ||||||||
Balance, January 1, 2017 |
| 263,893,806 |
| $ | 2,639 |
| $ | 4,691,180 |
| 4,606,885 |
| $ | (92,104) |
| $ | (115,579) |
| $ | 36,138 |
| $ | 4,522,274 |
| $ | 37,799 |
| $ | 4,560,073 |
|
Proceeds from DRIP Plan |
| 24,217 |
|
| — |
|
| 541 |
| — |
|
| — |
|
| — |
|
| — |
|
| 541 |
|
| — |
|
| 541 |
|
Equity offering costs |
| — |
|
| — |
|
| (12) |
| — |
|
| — |
|
| — |
|
| — |
|
| (12) |
|
| — |
|
| (12) |
|
Equity component of 2023 Convertible Senior Notes issuance |
| — |
|
| — |
|
| 3,755 |
| — |
|
| — |
|
| — |
|
| — |
|
| 3,755 |
|
| — |
|
| 3,755 |
|
Equity component of 2018 Convertible Senior Notes repurchase |
| — |
|
| — |
|
| (18,105) |
| — |
|
| — |
|
| — |
|
| — |
|
| (18,105) |
|
| — |
|
| (18,105) |
|
Share-based compensation |
| 849,045 |
|
| 9 |
|
| 13,281 |
| — |
|
| — |
|
| — |
|
| — |
|
| 13,290 |
|
| — |
|
| 13,290 |
|
Manager incentive fee paid in stock |
| 639,555 |
|
| 6 |
|
| 14,404 |
| — |
|
| — |
|
| — |
|
| — |
|
| 14,410 |
|
| — |
|
| 14,410 |
|
Net income |
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| 308,166 |
|
| — |
|
| 308,166 |
|
| 10,720 |
|
| 318,886 |
|
Dividends declared, $1.44 per share |
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| (376,660) |
|
| — |
|
| (376,660) |
|
| — |
|
| (376,660) |
|
Other comprehensive income, net |
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| 29,133 |
|
| 29,133 |
|
| — |
|
| 29,133 |
|
VIE non-controlling interests |
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1,837 |
|
| 1,837 |
|
Contributions from non-controlling interests |
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 105 |
|
| 105 |
|
Distributions to non-controlling interests |
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (7,519) |
|
| (7,519) |
|
Balance, September 30, 2017 |
| 265,406,623 |
| $ | 2,654 |
| $ | 4,705,044 |
| 4,606,885 |
| $ | (92,104) |
| $ | (184,073) |
| $ | 65,271 |
| $ | 4,496,792 |
| $ | 42,942 |
| $ | 4,539,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2016 |
| 241,044,775 |
| $ | 2,410 |
| $ | 4,192,844 |
| 3,553,996 |
| $ | (72,381) |
| $ | (12,286) |
| $ | 29,729 |
| $ | 4,140,316 |
| $ | 30,627 |
| $ | 4,170,943 |
|
Proceeds from DRIP Plan |
| 14,707 |
|
| — |
|
| 299 |
| — |
|
| — |
|
| — |
|
| — |
|
| 299 |
|
| — |
|
| 299 |
|
Common stock repurchased |
| — |
|
| — |
|
| — |
| 1,052,889 |
|
| (19,723) |
|
| — |
|
| — |
|
| (19,723) |
|
| — |
|
| (19,723) |
|
Share-based compensation |
| 1,147,975 |
|
| 12 |
|
| 22,785 |
| — |
|
| — |
|
| — |
|
| — |
|
| 22,797 |
|
| — |
|
| 22,797 |
|
Manager incentive fee paid in stock |
| 788,460 |
|
| 8 |
|
| 14,649 |
| — |
|
| — |
|
| — |
|
| — |
|
| 14,657 |
|
| — |
|
| 14,657 |
|
Net income |
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| 243,896 |
|
| — |
|
| 243,896 |
|
| 1,034 |
|
| 244,930 |
|
Dividends declared, $1.44 per share |
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| (343,913) |
|
| — |
|
| (343,913) |
|
| — |
|
| (343,913) |
|
Other comprehensive income, net |
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| 10,519 |
|
| 10,519 |
|
| — |
|
| 10,519 |
|
VIE non-controlling interests |
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (144) |
|
| (144) |
|
Contributions from non-controlling interests |
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 10,417 |
|
| 10,417 |
|
Distributions to non-controlling interests |
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (5,400) |
|
| (5,400) |
|
Balance, September 30, 2016 |
| 242,995,917 |
| $ | 2,430 |
| $ | 4,230,577 |
| 4,606,885 |
| $ | (92,104) |
| $ | (112,303) |
| $ | 40,248 |
| $ | 4,068,848 |
| $ | 36,534 |
| $ | 4,105,382 |
|
| | | | | | |
| | For the Three Months Ended | ||||
| | March 31, | ||||
|
| 2021 |
| 2020 | ||
Cash Flows from Operating Activities: | | | | | | |
Net income (loss) | | $ | 122,526 | | $ | (66,269) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | |
Amortization of deferred financing costs, premiums and discounts on secured borrowings | |
| 10,515 | |
| 9,634 |
Amortization of discounts and deferred financing costs on unsecured senior notes | |
| 1,726 | |
| 1,962 |
Accretion of net discount on investment securities | |
| (3,476) | |
| (2,783) |
Accretion of net deferred loan fees and discounts | |
| (16,745) | |
| (12,080) |
Share-based compensation | |
| 10,310 | |
| 8,800 |
Manager fees paid in stock | |
| 7,486 | |
| 9,080 |
Change in fair value of investment securities | |
| 306 | |
| (2,504) |
Change in fair value of consolidated VIEs | |
| (7,042) | |
| 80,683 |
Change in fair value of servicing rights | |
| 796 | |
| 393 |
Change in fair value of loans | |
| 9,478 | |
| 16,134 |
Change in fair value of derivatives | |
| (34,768) | |
| (7,617) |
Foreign currency loss, net | |
| 11,681 | |
| 34,486 |
Gain on sale of investments and other assets | |
| (17,693) | |
| (296) |
Credit loss provision, net | |
| 44 | |
| 48,669 |
Depreciation and amortization | |
| 22,528 | |
| 23,864 |
Earnings from unconsolidated entities | |
| (1,734) | |
| (97) |
Distributions of earnings from unconsolidated entities | |
| 17 | |
| 27 |
Loss on extinguishment of debt | | | 516 | | | 170 |
Origination and purchase of loans held-for-sale, net of principal collections | |
| (327,352) | |
| (621,832) |
Proceeds from sale of loans held-for-sale | |
| 571,927 | |
| 751,140 |
Changes in operating assets and liabilities: | | | | | | |
Related-party payable, net | |
| (3,035) | |
| (1,659) |
Accrued and capitalized interest receivable, less purchased interest | |
| (41,833) | |
| (31,465) |
Other assets | |
| (19,467) | |
| (40,944) |
Accounts payable, accrued expenses and other liabilities | |
| (25,945) | |
| (6,764) |
Net cash provided by operating activities | |
| 270,766 | |
| 190,732 |
Cash Flows from Investing Activities: | | | | | | |
Origination, purchase and funding of loans held-for-investment | |
| (2,296,124) | |
| (1,252,745) |
Proceeds from principal collections on loans | |
| 1,051,695 | |
| 812,187 |
Proceeds from loans sold | |
| — | |
| 39,019 |
Purchase and funding of investment securities | |
| — | |
| (5,729) |
Proceeds from sales of investment securities | |
| — | |
| 7,940 |
Proceeds from principal collections on investment securities | |
| 59,514 | |
| 13,559 |
Proceeds from sales of real estate | |
| 30,566 | |
| — |
Purchases and additions to properties and other assets | | | (3,512) | | | (7,056) |
Investment in unconsolidated entities | | | — | | | (3,100) |
Distribution of capital from unconsolidated entities | |
| 15,980 | |
| 153 |
Payments for purchase or termination of derivatives | |
| (851) | |
| (67,323) |
Proceeds from termination of derivatives | |
| 23,527 | |
| 8,912 |
Net cash used in investing activities | |
| (1,119,205) | |
| (454,183) |
See notes to condensed consolidated financial statements.
7
9
Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited, amounts in thousands)
|
|
|
|
|
|
|
|
| For the Nine Months Ended | ||||
|
| September 30, | ||||
|
| 2017 |
| 2016 | ||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
Net income |
| $ | 318,886 |
| $ | 244,930 |
Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
Amortization of deferred financing costs, premiums and discounts on secured financing agreements and secured borrowings on transferred loans |
|
| 14,131 |
|
| 12,061 |
Amortization of discounts and deferred financing costs on senior notes |
|
| 17,514 |
|
| 16,058 |
Accretion of net discount on investment securities |
|
| (11,669) |
|
| (11,967) |
Accretion of net deferred loan fees and discounts |
|
| (27,014) |
|
| (38,809) |
Share-based compensation |
|
| 13,290 |
|
| 22,797 |
Share-based component of incentive fees |
|
| 14,410 |
|
| 14,657 |
Change in fair value of fair value option investment securities |
|
| 4,061 |
|
| 714 |
Change in fair value of consolidated VIEs |
|
| (59,160) |
|
| 42,371 |
Change in fair value of servicing rights |
|
| 21,301 |
|
| 33,213 |
Change in fair value of loans held-for-sale |
|
| (45,484) |
|
| (70,122) |
Change in fair value of derivatives |
|
| 62,463 |
|
| 3,360 |
Foreign currency (gain) loss, net |
|
| (28,211) |
|
| 20,367 |
Gain on sale of investments and other assets |
|
| (17,004) |
|
| (165) |
Impairment charges |
|
| 1,099 |
|
| 711 |
Loan loss allowance, net |
|
| (3,170) |
|
| 3,395 |
Depreciation and amortization |
|
| 64,937 |
|
| 49,081 |
Earnings from unconsolidated entities |
|
| (27,763) |
|
| (12,849) |
Distributions of earnings from unconsolidated entities |
|
| 4,716 |
|
| 15,151 |
Bargain purchase gain |
|
| — |
|
| (8,406) |
Loss on extinguishment of debt |
|
| 5,916 |
|
| — |
Origination and purchase of loans held-for-sale, net of principal collections |
|
| (1,487,813) |
|
| (1,186,080) |
Proceeds from sale of loans held-for-sale |
|
| 987,828 |
|
| 1,123,512 |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
Related-party payable, net |
|
| (7,829) |
|
| (17,166) |
Accrued and capitalized interest receivable, less purchased interest |
|
| (63,032) |
|
| (58,275) |
Other assets |
|
| (12,198) |
|
| 6,168 |
Accounts payable, accrued expenses and other liabilities |
|
| 37,367 |
|
| (3,537) |
Net cash (used in) provided by operating activities |
|
| (222,428) |
|
| 201,170 |
Cash Flows from Investing Activities: |
|
|
|
|
|
|
Origination and purchase of loans held-for-investment |
|
| (2,195,258) |
|
| (1,583,628) |
Proceeds from principal collections on loans |
|
| 1,670,159 |
|
| 2,187,844 |
Proceeds from loans sold |
|
| 37,079 |
|
| 236,433 |
Purchase of investment securities |
|
| (69,231) |
|
| (359,510) |
Proceeds from sales of investment securities |
|
| 11,134 |
|
| 3,799 |
Proceeds from principal collections on investment securities |
|
| 209,903 |
|
| 70,316 |
Real estate business combinations, net of cash and restricted cash acquired |
|
| (18,194) |
|
| (91,186) |
Proceeds from sale of properties |
|
| 44,219 |
|
| — |
Purchases and additions to properties and other assets |
|
| (564,755) |
|
| (10,209) |
Investment in unconsolidated entities |
|
| (20,544) |
|
| (3,870) |
Distribution of capital from unconsolidated entities |
|
| 3,858 |
|
| 15,026 |
Payments for purchase or termination of derivatives |
|
| (41,208) |
|
| (24,954) |
Proceeds from termination of derivatives |
|
| 23,686 |
|
| 37,652 |
Return of investment basis in purchased derivative asset |
|
| 151 |
|
| 206 |
Net cash (used in) provided by investing activities |
|
| (909,001) |
|
| 477,919 |
| | | | | | |
| | For the Three Months Ended | ||||
| | March 31, | ||||
|
| 2021 |
| 2020 | ||
Cash Flows from Financing Activities: | | | | | | |
Proceeds from borrowings | | $ | 2,748,317 | | $ | 2,756,915 |
Principal repayments on and repurchases of borrowings | |
| (2,001,336) | |
| (1,923,754) |
Payment of deferred financing costs | |
| (5,052) | |
| (3,577) |
Proceeds from common stock issuances | |
| 262 | |
| 153 |
Payment of equity offering costs | | | (22) | | | (14) |
Payment of dividends | |
| (137,667) | |
| (135,889) |
Contributions from non-controlling interests | | | 2,969 | | | 9,406 |
Distributions to non-controlling interests | |
| (8,833) | |
| (66,476) |
Purchase of treasury stock | |
| — | |
| (28,830) |
Issuance of debt of consolidated VIEs | |
| 11,604 | |
| 24,376 |
Repayment of debt of consolidated VIEs | |
| (27,490) | |
| (36,953) |
Distributions of cash from consolidated VIEs | |
| 14,481 | |
| 24,723 |
Net cash provided by financing activities | |
| 597,233 | |
| 620,080 |
Net (decrease) increase in cash, cash equivalents and restricted cash | |
| (251,206) | |
| 356,629 |
Cash, cash equivalents and restricted cash, beginning of period | |
| 722,162 | |
| 574,031 |
Effect of exchange rate changes on cash | |
| (1,042) | |
| 733 |
Cash, cash equivalents and restricted cash, end of period | | $ | 469,914 | | $ | 931,393 |
Supplemental disclosure of cash flow information: | | | | | | |
Cash paid for interest | | $ | 80,624 | | $ | 109,341 |
Income taxes paid | |
| 425 | |
| 569 |
Supplemental disclosure of non-cash investing and financing activities: | | | | | | |
Dividends declared, but not yet paid | | $ | 139,113 | | $ | 135,994 |
Consolidation of VIEs (VIE asset/liability additions) | |
| 393,373 | |
| 2,477,422 |
Reclassification of loans held-for-investment to loans held-for-sale | | | 166,901 | | | 422,691 |
Reclassification of loans held-for-sale to loans held-for-investment | | | 124,935 | | | — |
Loan principal collections temporarily held at master servicer | | | 31,965 | | | 9,779 |
Net assets acquired through conversion to equity interest | | | 7,320 | | | — |
Redemption of Class A Units for common stock | | | 1,039 | | | 8,538 |
See notes to condensed consolidated financial statements.
810
Starwood Property Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited, amounts in thousands)
|
|
|
|
|
|
|
|
| For the Nine Months Ended | ||||
|
| September 30, | ||||
|
| 2017 |
| 2016 | ||
Cash Flows from Financing Activities: |
|
|
|
|
|
|
Proceeds from borrowings |
| $ | 4,090,163 |
| $ | 3,158,920 |
Principal repayments on and repurchases of borrowings |
|
| (2,724,179) |
|
| (3,138,534) |
Payment of deferred financing costs |
|
| (17,038) |
|
| (17,799) |
Proceeds from common stock issuances |
|
| 541 |
|
| 299 |
Payment of equity offering costs |
|
| (647) |
|
| — |
Payment of dividends |
|
| (376,061) |
|
| (343,670) |
Contributions from non-controlling interests |
|
| 105 |
|
| 10,417 |
Distributions to non-controlling interests |
|
| (7,519) |
|
| (5,400) |
Purchase of treasury stock |
|
| — |
|
| (19,723) |
Issuance of debt of consolidated VIEs |
|
| 11,657 |
|
| 596 |
Repayment of debt of consolidated VIEs |
|
| (92,383) |
|
| (202,892) |
Distributions of cash from consolidated VIEs |
|
| 62,797 |
|
| 40,731 |
Net cash provided by (used in) financing activities |
|
| 947,436 |
|
| (517,055) |
Net (decrease) increase in cash, cash equivalents and restricted cash |
|
| (183,993) |
|
| 162,034 |
Cash, cash equivalents and restricted cash, beginning of period |
|
| 650,755 |
|
| 391,884 |
Effect of exchange rate changes on cash |
|
| 1,674 |
|
| (626) |
Cash, cash equivalents and restricted cash, end of period |
| $ | 468,436 |
| $ | 553,292 |
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
Cash paid for interest |
| $ | 177,604 |
| $ | 146,011 |
Income taxes paid |
|
| 7,722 |
|
| 3,038 |
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
Dividends declared, but not yet paid |
| $ | 125,638 |
| $ | 115,190 |
Consolidation of VIEs (VIE asset/liability additions) |
|
| 2,092,516 |
|
| 19,118,645 |
Deconsolidation of VIEs (VIE asset/liability reductions) |
|
| 2,244,267 |
|
| 5,404,305 |
Net assets acquired from consolidated VIEs |
|
| 19,652 |
|
| 133,177 |
Fair value of assets acquired, net of cash and restricted cash |
|
| 18,956 |
|
| 270,021 |
Fair value of liabilities assumed |
|
| 762 |
|
| 170,429 |
Unsettled investment securities sold |
|
| — |
|
| 14,926 |
See notes to condensed consolidated financial statements.
9
Starwood Property Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
As of September 30, 2017March 31, 2021
(Unaudited)
1. Business and Organization
Starwood Property Trust, Inc. (“STWD” and, together with its subsidiaries, “we” or the “Company”) is a Maryland corporation that commenced operations in August 2009, upon the completion of our initial public offering. We are focused primarily on originating, acquiring, financing and managing commercial mortgage loans and other commercial real estate debt investments, commercial mortgage-backed securities (“CMBS”), and other commercial real estate investments in both the United States (“U.S.”) and Europe. We refer to the following as our target assets: commercial real estate mortgage loans, preferred equity interests, CMBS and other commercial real estate-related debt investments. Our target assets may also include residential mortgage-backed securities (“RMBS”), certain residential mortgage loans, distressed or non-performing commercial loans, commercial properties subject to net leases and equity interests in commercial real estate. As market conditions change over time, we may adjust our strategy to take advantage of changes in interest rates and credit spreads as well as economic and credit conditions.
We have three4 reportable business segments as of September 30, 2017:March 31, 2021 and we refer to the investments within these segments as our target assets:
| Real estate commercial and residential lending (the |
| Infrastructure lending (the “Infrastructure Lending Segment”)—engages primarily in originating, acquiring, financing and managing infrastructure debt investments. |
● | Real estate property (the “Property Segment”)—engages primarily in acquiring and managing equity interests in stabilized commercial real estate properties, including |
| Real estate investing and servicing (the “Investing and Servicing Segment”)—includes (i) a servicing business in the U.S. that manages and works out problem assets, (ii) an investment business that selectively acquires and manages unrated, investment grade and non-investment grade rated CMBS, including subordinated interests of securitization and resecuritization transactions, (iii) a mortgage loan business which originates conduit loans for the primary purpose of selling these loans into securitization transactions and (iv) an investment business that selectively acquires commercial real estate assets, including properties acquired from CMBS trusts. |
Our segments exclude the consolidation of securitization variable interest entities (“VIEs”).
We are organized and conduct our operations to qualify as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). As such, we will generally not be subject to U.S. federal corporate income tax on that portion of our net income that is distributed to stockholders if we distribute at least 90% of our taxable income to our stockholders by prescribed dates and comply with various other requirements.
We are organized as a holding company and conduct our business primarily through our various wholly-owned subsidiaries. We are externally managed and advised by SPT Management, LLC (our “Manager”) pursuant to the terms of a management agreement. Our Manager is controlled by Barry Sternlicht, our Chairman and Chief Executive Officer. Our Manager is an affiliate of Starwood Capital Group, a privately-held private equity firm founded and controlled by Mr. Sternlicht.
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11
2. Summary of Significant Accounting Policies
Balance Sheet Presentation of the Investing and Servicing Segment’sSecuritization Variable Interest Entities
As noted above, the Investing and Servicing Segment operates anWe operate investment businessbusinesses that acquiresacquire unrated, investment grade and non-investment grade rated CMBS.CMBS and RMBS. These securities represent interests in securitization structures (commonly referred to as special purpose entities, or “SPEs”). These SPEs are structured as pass through entities that receive principal and interest on the underlying collateral and distribute those payments to the certificate holders. Under accounting principles generally accepted in the United States of America (“GAAP”), SPEs typically qualify as VIEs. These are entities that, by design, either (1) lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties, or (2) have equity investors that do not have the ability to make significant decisions relating to the entity’s operations through voting rights, or do not have the obligation to absorb the expected losses, or do not have the right to receive the residual returns of the entity.
Because the Investing and Servicing Segmentwe often servesserve as the special servicer or servicing administrator of the trusts in which it invests,we invest, or we have the ability to remove and replace the special servicer without cause, consolidation of these structures is required pursuant to GAAP as outlined in detail below. This results in a consolidated balance sheet which presents the gross assets and liabilities of the VIEs. The assets and other instruments held by these VIEs are restricted and can only be used to fulfill the obligations of the entity. Additionally, the obligations of the VIEs do not have any recourse to the general credit of any other consolidated entities, nor to us as the consolidator of these VIEs.
The VIE liabilities initially represent investment securities on our balance sheet (pre-consolidation). Upon consolidation of these VIEs, our associated investment securities are eliminated, as is the interest income related to those securities. Similarly, the fees we earn in our roles as special servicer of the bonds issued by the consolidated VIEs or as collateral administrator of the consolidated VIEs are also eliminated. Finally, an allocablea portion of the identified servicing intangible associated with the eliminated fee streams is eliminated in consolidation.
Refer to the segment data in Note 22 for a presentation of the Investing and Servicing Segmentour business segments without consolidation of these VIEs.
Basis of Accounting and Principles of Consolidation
The accompanying condensed consolidated financial statements include our accounts and those of our consolidated subsidiaries and VIEs. Intercompany amounts have been eliminated in consolidation. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows have been included.
These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (the2020 (our “Form 10-K”), as filed with the Securities and Exchange Commission (“SEC”). The results of operations for the three and nine months ended September 30, 2017March 31, 2021 are not necessarily indicative of the operating results for the full year.
Refer to our Form 10-K for a description of our recurring accounting policies. We have included disclosure in this Note 2 regarding principles of consolidation and other accounting policies that (i) are required to be disclosed quarterly, (ii) we view as critical, or (iii) became significant since December 31, 20162020 due to a corporate action or increase in the significance of the underlying business activity.activity or (iv) changed upon adoption of an Accounting Standards Update (“ASU”) issued by the Financial Accounting Standards Board (“FASB”).
Variable Interest Entities
In addition to the Investing and Servicing Segment’ssecuritization VIEs, we have financed a pool of our loans through a collateralized loan obligation (“CLO”) which is considered a VIE. We also hold interests in certain other entities in which we hold interests are considered VIEs as the limited partners of thesethose entities with equity at risk do not collectively possess (i) the right to remove the general partner or dissolve the partnership without cause or (ii) the right to participate in significant decisions made by the partnership.
11
12
We evaluate all of our interests in VIEs for consolidation. When our interests are determined to be variable interests, we assess whether we are deemed to be the primary beneficiary of the VIE. The primary beneficiary of a VIE is required to consolidate the VIE. Accounting Standards Codification (“ASC”) 810, Consolidation, defines the primary beneficiary as the party that has both (i) the power to direct the activities of the VIE that most significantly impact its economic performance, and (ii) the obligation to absorb losses and the right to receive benefits from the VIE which could be potentially significant. We consider our variable interests as well as any variable interests of our related parties in making this determination. Where both of these factors are present, we are deemed to be the primary beneficiary and we consolidate the VIE. Where either one of these factors is not present, we are not the primary beneficiary and do not consolidate the VIE.
To assess whether we have the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, we consider all facts and circumstances, including our role in establishing the VIE and our ongoing rights and responsibilities. This assessment includes,includes: (i) identifying the activities that most significantly impact the VIE’s economic performance; and (ii) identifying which party, if any, has power over those activities. In general, the parties that make the most significant decisions affecting the VIE or have the right to unilaterally remove those decision makers are deemed to have the power to direct the activities of a VIE. The right to remove the decision maker in a VIE must be exercisable without cause for the decision maker to not be deemed the party that has the power to direct the activities of a VIE.
To assess whether we have the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, we consider all of our economic interests, including debt and equity investments, servicing fees and other arrangements deemed to be variable interests in the VIE. This assessment requires that we apply judgment in determining whether these interests, in the aggregate, are considered potentially significant to the VIE. Factors considered in assessing significance include: the design of the VIE, including its capitalization structure; subordination of interests; payment priority; relative share of interests held across various classes within the VIE’s capital structure; and the reasons why the interests are held by us.
Our purchased investment securities include CMBS which are unrated and non-investment grade rated securities issued by CMBSsecuritization trusts. In certain cases, we may contract to provide special servicing activities for these CMBS trusts, or, as holder of the controlling class, we may have the right to name and remove the special servicer for these trusts. In our role as special servicer, we provide services on defaulted loans within the trusts, such as foreclosure or work-out procedures, as permitted by the underlying contractual agreements. In exchange for these services, we receive a fee. These rights give us the ability to direct activities that could significantly impact the trust’s economic performance. However, in those instances where an unrelated third party has the right to unilaterally remove us as special servicer without cause, we do not have the power to direct activities that most significantly impact the trust’s economic performance. We evaluated all of our positions in such investments for consolidation.
For securitization VIEs in which we are determined to be the primary beneficiary, all of the underlying assets, liabilities and equity of the structures are recorded on our books, and the initial investment, along with any associated unrealized holding gains and losses, are eliminated in consolidation. Similarly, the interest income earned from these structures, as well as the fees paid by these trusts to us in our capacity as special servicer, are eliminated in consolidation. Further, an allocablea portion of the identified servicing intangible asset associated with the servicing fee streams, and the corresponding allocable amortization or change in fair value of the servicing intangible asset, are also eliminated in consolidation.
We perform ongoing reassessments of: (i) whether any entities previously evaluated under the majority voting interest framework have become VIEs, based on certain events, and therefore subject to the VIE consolidation framework, and (ii) whether changes in the facts and circumstances regarding our involvement with a VIE causes our consolidation conclusion regarding the VIE to change.
We elect the fair value option for initial and subsequent recognition of the assets and liabilities of our consolidated securitization VIEs. Interest income and interest expense associated with these VIEs are no longer relevant on a standalone basis because these amounts are already reflected in the fair value changes. We have elected to present these items in a single line on our condensed consolidated statements of operations. The residual difference shown on
12
our condensed consolidated statements of operations in the line item “Change in net assets related to consolidated VIEs” represents our beneficial interest in the VIEs.
13
We separately present the assets and liabilities of our consolidated securitization VIEs as individual line items on our condensed consolidated balance sheets. The liabilities of our consolidated securitization VIEs consist solely of obligations to the bondholders of the related CMBS trusts, and are thus presented as a single line item entitled “VIE liabilities.” The assets of our consolidated securitization VIEs consist principally of loans, but at times, also include foreclosed loans which have been temporarily converted into real estate owned (“REO”). These assets in the aggregate are likewise presented as a single line item entitled “VIE assets.”
Loans comprise the vast majority of our securitization VIE assets and are carried at fair value due to the election of the fair value option. When an asset becomes REO, it is due to nonperformancenon-performance of the loan. Because the loan is already at fair value, the carrying value of an REO asset is also initially at fair value. Furthermore, when we consolidate a CMBS trust, any existing REO would be consolidated at fair value. Once an asset becomes REO, its disposition time is relatively short. As a result, the carrying value of an REO generally approximates fair value under GAAP.
In addition to sharing a similar measurement method as the loans in a CMBS trust, the securitization VIE assets as a whole can only be used to settle the obligations of the consolidated VIE. The assets of our securitization VIEs are not individually accessible by the bondholders, which creates inherent limitations from a valuation perspective. Also creating limitations from a valuation perspective is our role as special servicer, which provides us very limited visibility, if any, into the performing loans of a CMBS trust.
REO assets generally represent a very small percentage of the overall asset pool of a CMBS trust. In a new issue CMBS trusttrusts there are no REO assets. We estimate that REO assets constitute approximately 4%1% of our consolidated securitization VIE assets, with the remaining 96%99% representing loans. However, it is important to note that the fair value of our securitization VIE assets is determined by reference to our securitization VIE liabilities as permitted under Accounting Standards Update (“ASU”)ASU 2014-13, Consolidation (Topic 810): Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity. In other words, our VIE liabilities are more reliably measurable than the VIE assets, resulting in our current measurement methodology which utilizes this value to determine the fair value of our securitization VIE assets as a whole. As a result, these percentages are not necessarily indicative of the relative fair values of each of these asset categories if the assets were to be valued individually.
Due to our accounting policy election under ASU 2014-13, separately presenting two different asset categories would result in an arbitrary assignment of value to each, with one asset category representing a residual amount, as opposed to its fair value. However, as a pool, the fair value of the assets in total is equal to the fair value of the liabilities.
For these reasons, the assets of our securitization VIEs are presented in the aggregate.
Fair Value Option
The guidance in ASC 825, Financial Instruments, provides a fair value option election that allows entities to make an irrevocable election of fair value as the initial and subsequent measurement attribute for certain eligible financial assets and liabilities. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. The decision to elect the fair value option is determined on an instrument by instrument basis and must be applied to an entire instrument and is irrevocable once elected. Assets and liabilities measured at fair value pursuant to this guidance are required to be reported separately in our consolidated balance sheets from those instruments using another accounting method.
We have elected the fair value option for certain eligible financial assets and liabilities of our consolidated securitization VIEs, residential loans held-for-investment, loans held-for-sale originated or acquired for future securitization and purchased CMBS issued by VIEs we could consolidate in the future and certain investments in marketable equity securities.future. The fair value elections for VIE and securitization related items were made in order to mitigate accounting mismatches between the carrying value of the instruments and the related assets and liabilities that we consolidate at fair value. The fair value elections for
13
residential loans held-for-investment were made in order to maintain consistency across all our residential loans. The fair value elections for mortgage loans held-for-sale were made due to the expected short-term natureholding period of these instruments. The fair value elections for investments in marketable equity securities were made because the shares are listed on an exchange, which allows us to determine the fair value using a quoted price from an active market.
14
Fair Value Measurements
We measure our mortgage‑backedmortgage-backed securities, derivative assets and liabilities, domestic servicing rights intangible asset and any assets or liabilities where we have elected the fair value option at fair value. When actively quoted observable prices are not available, we either use implied pricing from similar assets and liabilities or valuation models based on net present values of estimated future cash flows, adjusted as appropriate for liquidity, credit, market and/or other risk factors.
As discussed above, we measure the assets and liabilities of consolidated securitization VIEs at fair value pursuant to our election of the fair value option. The securitization VIEs in which we invest are “static”; that is, no0 reinvestment is permitted, and there is no active management of the underlying assets. In determining the fair value of the assets and liabilities of the securitization VIE,VIEs, we maximize the use of observable inputs over unobservable inputs. We also acknowledge that our principal market for selling CMBS assets is the securitization market where the market participant is considered to be a CMBS trust or a collateralized debt obligation (“CDO”). This methodology results in the fair value of the assets of a static CMBS trust being equal to the fair value of its liabilities. Refer to Note 19 for further discussion regarding our fair value measurements.
Business Combinations
Under ASC 805, Business Combinations, the acquirer in a business combination must recognize, with certain exceptions, the fair values of assets acquired, liabilities assumed, and non-controlling interests when the acquisition constitutes a change in control of the acquired entity. As goodwill is calculated as a residual, all goodwill of the acquired business, not just the acquirer’s share, is recognized under this “full goodwill” approach.
We apply the business combination provisions of ASC 805 in accounting for most acquisitions of real estate assets with in-place leases. In doing so, we record provisional amounts for certain items as of the date of acquisition. During the measurement period, a period which shall not exceed one year, we prospectively adjust the provisional amounts recognized to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized. We do not apply the business combination provisions of ASC 805 for acquired real estate assets where a lease is entered into concurrently with the acquisition of the asset, such as in sale leaseback transactions. We account for sale leaseback transactions as asset acquisitions.
Lease Classification
In accordance with ASC 840, Leases, we evaluate all new or amended leases to determine if the lease (1) provides for a transfer of ownership to the lessee at the conclusion of the lease, (2) provides the lessee with a bargain purchase option, (3) has a term of 75% or more of the leased asset’s remaining useful life, or (4) has minimum lease payments with a present value of 90% or more of the leased asset’s fair value. If any of these conditions exist, we account for the lease as a capital lease, otherwise, the lease is considered an operating lease.
Loans Held-for-Investment and Provision for Loan Losses
Loans that are held for investment (“HFI”) are carried at cost, net of unamortized acquisition premiums or discounts, loan fees and origination costs, as applicable, and net of credit loss allowances as discussed below, unless the loans are deemed impaired. credit deteriorated or we have elected to apply the fair value option at purchase.
Loans Held-For-Sale
Our loans that we intend to sell or liquidate in the short-term are classified as held-for-sale and are carried at the lower of amortized cost or fair value, unless we have elected to apply the fair value option at origination or purchase.
Investment Securities
We designate our debt investment securities as held-to-maturity (“HTM”), available-for-sale (“AFS”), or trading depending on our investment strategy and ability to hold such securities to maturity. HTM debt securities where we have not elected to apply the fair value option are stated at cost plus any premiums or discounts, which are amortized or accreted through the condensed consolidated statements of operations using the effective interest method. Debt securities we (i) do not hold for the purpose of selling in the near-term, or (ii) may dispose of prior to maturity, are classified as AFS and are carried at fair value in the accompanying financial statements. Unrealized gains or losses on AFS debt securities where we have not elected the fair value option are reported as a component of accumulated other comprehensive income (“AOCI”) in stockholders’ equity. Our HTM and AFS debt securities are also subject to credit loss allowances as discussed below.
Our only equity investment security is carried at fair value, with unrealized holding gains and losses recorded in earnings.
Credit Losses
Loans and Debt Securities Measured at Amortized Cost
ASC 326, Financial Instruments – Credit Losses, became effective for the Company on January 1, 2020. ASC 326 mandates the use of a current expected credit loss model (“CECL”) for estimating future credit losses of certain financial instruments measured at amortized cost, instead of the “incurred loss” credit model previously required under GAAP. The CECL model requires the consideration of possible credit losses over the life of an instrument as opposed to only estimating credit losses upon the occurrence of a discrete loss event under the previous “incurred loss” methodology. The CECL model applies to our HFI loans and our HTM debt securities which are carried at amortized cost, including future funding commitments and accrued interest receivable related to those loans and securities. However, as permitted by ASC 326, we have elected not to measure an allowance for credit losses on accrued interest receivable (which is classified separately on our condensed consolidated balance sheet), but rather write off in a timely manner by reversing interest income and/or cease accruing interest that would likely be uncollectible. Our adoption of the CECL model resulted in a $32.3 million increase to our total allowance for credit losses, which was recognized as a cumulative-effect adjustment to accumulated deficit as of January 1, 2020.
15
As we do not have a history of realized credit losses on our HFI loans and HTM securities, we have subscribed to third party database services to provide us with historical industry losses for both commercial real estateand infrastructure loans. Using these losses as a benchmark, we determine expected credit losses for our loans and securities on a collective basis within our commercial real estate and infrastructure portfolios. See Note 4 for further discussion of our methodologies.
We also evaluate each loan classified as held-for-investmentand security measured at amortized cost for impairmentcredit deterioration at least quarterly. In connection with this evaluation, we assess the performance of each loan and assign a risk rating based on several factors, including risk of loss, loan-to-collateral value ratio (“LTV”), collateral performance, structure, exit plan, and sponsorship. Loans are rated “1” through “5”, from less risk to greater risk, in connection with this review.
14
ImpairmentCredit deterioration occurs when it is deemed probable that we will not be able to collect all amounts due according to the contractual terms of the loan.loan or security. If a loan or security is considered to be impaired,credit deteriorated, we record andepart from the industry loss rate approach described above and determine the credit loss allowance throughas any excess of the provision for loan losses to reduce the carrying valueamortized cost basis of the loan toor security over (i) the present value of expected future cash flows discounted at the loan’s contractual effective interest rate or (ii) the fair value of the collateral, if repayment is expected solely from the collateral. Actual
Available-for-Sale Debt Securities
Separate provisions of ASC 326 apply to our AFS debt securities, which are carried at fair value with unrealized gains and losses reported as a component of AOCI. We are required to establish an initial credit loss allowance for those securities that are purchased with credit deterioration (“PCD”) by grossing up the amortized cost basis of each security and providing an offsetting credit loss allowance for the difference between expected cash flows and contractual cash flows, both on a present value basis. As of the January 1, 2020 effective date, no such credit loss allowance gross-up was required on our AFS debt securities with PCD due to their individual unrealized gain positions as of that date.
Subsequently, cumulative adverse changes in expected cash flows on our AFS debt securities are recognized currently as an increase to the allowance for credit losses. However, the allowance is limited to the amount by which the AFS debt security’s amortized cost exceeds its fair value. Favorable changes in expected cash flows are first recognized as a decrease to the allowance for credit losses (recognized currently in earnings). Such changes would be recognized as a prospective yield adjustment only when the allowance for credit losses is reduced to zero. A change in expected cash flows that is attributable solely to a change in a variable interest reference rate does not result in a credit loss and is accounted for as a prospective yield adjustment.
Convertible Senior Notes
Effective January 1, 2021, the Company early adopted ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40), which removes certain separation models for convertible debt instruments and convertible preferred stock that require the separation into a debt component and an equity or derivative component. Consequently, our convertible senior notes (the “Convertible Notes”), which were previously accounted for as having separate liability and equity components, are now accounted for as a single liability measured at amortized cost. The standard was adopted using the modified restrospective method of transition, which resulted in a cumulative decrease to additional paid-in capital of $3.7 million, partially offset by a cumulative decrease to accumulated deficit of $2.2 million as of January 1, 2021.
Revenue Recognition
Interest Income
Interest income on performing loans and financial instruments is accrued based on the outstanding principal amount and contractual terms of the instrument. For loans where we do not elect the fair value option, origination fees and direct loan origination costs are also recognized in interest income over the loan term as a yield adjustment using the effective interest method. When we elect the fair value option, origination fees and direct loan costs are recorded directly in income and are not deferred. Discounts or premiums associated with the purchase of non-performing loans and investment securities are amortized or accreted into interest income as a yield adjustment on the effective interest method, based on expected cash flows through the expected maturity date of the investment. On at least a quarterly basis, we review and, if appropriate, make adjustments to our cash flow projections.
16
We cease accruing interest on non-performing loans at the earlier of (i) the loan becoming significantly past due or (ii) management concluding that a full recovery of all interest and principal is doubtful. Interest income on non-accrual loans in which management expects a full recovery of the loan’s outstanding principal balance is only recognized when received in cash. If a full recovery of principal is doubtful, the cost recovery method is applied whereby any cash received is applied to the outstanding principal balance of the loan. A non-accrual loan is returned to accrual status at such time as the loan becomes contractually current and management believes all future principal and interest will be received according to the contractual loan terms.
For loans acquired with deteriorated credit quality, interest income is only recognized to the extent that our estimate of undiscounted expected principal and interest exceeds our investment in the loan. Such excess, if any, could ultimately differis recognized as interest income on a level-yield basis over the life of the loan.
Upon the sale of loans or securities which are not accounted for pursuant to the fair value option, the excess (or deficiency) of net proceeds over the net carrying value of such loans or securities is recognized as a realized gain (loss).
Servicing Fees
We typically seek to be the special servicer on CMBS transactions in which we invest. When we are appointed to serve in this capacity, we earn special servicing fees from these estimates.the related activities performed, which consist primarily of overseeing the workout of under-performing and non-performing loans underlying the CMBS transactions. These fees are recognized in income in the period in which the services are performed and the revenue recognition criteria have been met.
Rental Income
Rental income is recognized when earned from tenants. For leases that provide rent concessions or fixed escalations over the lease term, rental income is recognized on a straight-line basis over the noncancelable term of the lease. In net lease arrangements, costs reimbursable from tenants are recognized in rental income in the period in which the related expenses are incurred as we are generally the primary obligor with respect to purchasing goods and services for property operations. In instances where the tenant is responsible for property maintenance and repairs and contracts and settles such costs directly with third party service providers, we do not reflect those expenses in our consolidated statement of operations as the tenant is the primary obligor.
Earnings Per Share
We present both basic and diluted earnings per share (“EPS”) amounts in our financial statements. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted EPS reflects the maximum potential dilution that could occur from (i) our share-based compensation, consisting of unvested restricted stock (“RSAs”) and restricted stock units (“RSUs”), (ii) shares contingently issuable to our Manager, and (iii) the “in-the-money” conversion options associated with our outstanding convertible senior notesConvertible Notes (see further discussion in Notes 10 and 17) and (iv) non-controlling interests that are redeemable with our common stock (see Note 16). Potential dilutive shares are excluded from the calculation if they have an anti-dilutive effect in the period.
Nearly all of the Company’s unvested RSUs and RSAs contain rights to receive non-forfeitable dividends and thus are participating securities. In addition, the non-controlling interests that are redeemable with our common stock are considered participating securities because they earn a preferred return indexed to the dividend rate on our common stock (see Note 16). Due to the existence of these participating securities, the two-class method of computing EPS is required, unless another method is determined to be more dilutive. Under the two-class method, undistributed earnings are reallocated between shares of common stock and participating securities. For the three and nine months ended September 30, 2017March 31, 2021 and 2016,2020, the two-class method resulted in the most dilutive EPS calculation.
Restricted Cash
17
Restricted cash includes cash and cash equivalents that are legally or contractually restricted as to withdrawal or usage and primarily includes cash collateral associated with derivative financial instruments and funds held on behalfTable of borrowers and tenants. Effective January 1, 2017, we early adopted ASU 2016-18, Statement of Cash Flows (Topic 230) – Restricted Cash, which requires that restricted cash be included with cash and cash equivalents when reconciling the beginning and end-of-period total amounts shown on the statement of cash flows. As required by this ASU, we applied this change retrospectively to our prior period condensed consolidated statement of cash flows for the nine months ended September 30, 2016.Contents
Use of Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The most significant and subjective estimate that we make is the projection of cash flows we expect to receive on our loans, investment securities and intangible assets,investments, which has a significant impact on the amountsamount of interest income credit losses (if any), and fair values that we record and/or disclose. In addition, the fair value of financial assets and liabilities that are estimated using a discounted cash flows method is significantly impacted by the rates at which we estimate market participants would discount the expected cash flows.
Reclassifications
Certain priorThe outbreak of COVID-19 beginning in the first quarter of 2020 has had, and is expected to continue to have, an adverse impact on economic and market conditions and trigger a period amounts have been reclassifiedof global economic slowdown. The rapid development and fluidity of this situation precludes any prediction as to conform to our current period presentation. In that regard, we have reclassified $0.7 millionthe ultimate adverse impact of impairment of lease intangible assets from OTTI to other expense inCOVID-19 on economic and market conditions. We believe the estimates and assumptions underlying our consolidated financial statements are reasonable and supportable based on the information available as of operations forMarch 31, 2021. However, uncertainty over the threeultimate impact COVID-19 will have on the global economy generally, and nine months ended September 30, 2016.our business in particular, makes any estimates and assumptions as of March 31, 2021 inherently less certain than they would be absent the current and potential impacts of COVID-19. Actual results may ultimately differ from those estimates.
Recent Accounting Developments
On May 28, 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers, which establishes key principles by which an entity determines the amount and timing of revenue recognized from customer contracts. At issuance, the ASU was effective for the first interim or annual period
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beginning after December 15, 2016. On AugustMarch 12, 2015,2020, the FASB issued ASU 2015-14, Revenue from Contracts with Customers2020-04, Reference Rate Reform (Topic 848) – DeferralFacilitation of the Effective Date,Effects of Reference Rate Reform on Financial Reporting,and on January 11, 2021, issued ASU 2021-01, Reference Rate Reform (Topic 848) – Scope, both of which delayedprovide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference LIBOR or other reference rates expected to be discontinued because of reference rate reform. These ASUs are effective through December 31, 2022. The Company has not adopted any of the optional expedients or exceptions through March 31, 2021, but will continue to evaluate the possible adoption of any such expedients or exceptions during the effective date of ASU 2014-09 by one year, resulting in the ASU becoming effective for the first interim or annual period beginning after December 15, 2017. We do not expect the application of this ASU to materially impact the Company as our material revenue sources are not within the scope of the ASU.circumstances evolve.
On January 5, 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities, which impacts the accounting for equity investments, financial liabilities under the fair value option, and disclosure requirements for financial instruments. The ASU shall be applied prospectively and is effective for annual periods, and interim periods therein, beginning after December 15, 2017. Early application is not permitted. We do not expect the application of this ASU to materially impact the Company.
On February 25, 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which establishes a right-of-use model for lessee accounting which results in the recognition of most leased assets and lease liabilities on the balance sheet of the lessee. Lessor accounting was not significantly changed by the ASU. The ASU is effective for annual periods, and interim periods therein, beginning after December 15, 2018 by applying a modified retrospective approach. Early application is permitted. We are in the process of assessing the impact this ASU will have on the Company.
On March 17, 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606) – Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which amends the principal-versus-agent implementation guidance and illustrations in the FASB’s revenue recognition standard issued in ASU 2014-09. The ASU provides further guidance to assist an entity in determining whether the nature of its promise to its customer is to provide the underlying goods or services, meaning the entity is a principal, or to arrange for a third party to provide the underlying goods or services, meaning the entity is an agent. The ASU is effective for the first interim or annual period beginning after December 15, 2017. Early application is permitted though no earlier than the first interim or annual period beginning after December 15, 2016. We do not expect the application of this ASU to materially impact the Company.
On April 14, 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606) – Identifying Performance Obligations and Licensing, which amends guidance and illustrations in the FASB’s revenue recognition standard issued in ASU 2014-09 regarding the identification of performance obligations and the implementation guidance on licensing arrangements. The ASU is effective for the first interim or annual period beginning after December 15, 2017. Early application is permitted. We do not expect the application of this ASU to materially impact the Company.
On June 16, 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments, which mandates use of an “expected loss” credit model for estimating future credit losses of certain financial instruments instead of the “incurred loss” credit model that current GAAP requires. The “expected loss” model requires the consideration of possible credit losses over the life of an instrument as opposed to only estimating credit losses upon the occurrence of a discrete loss event in accordance with the current “incurred loss” methodology. The ASU is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2019. Early application is permitted though no earlier than the first interim or annual period beginning after December 15, 2018. Though we have not completed our assessment of this ASU, we expect the ASU to result in our recognition of higher levels of allowances for loan losses. Our assessment of the estimated amount of such increases remains in process.
On August 26, 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments, which seeks to reduce diversity in practice regarding how various cash receipts and payments are reported within the statement of cash flows. The ASU is effective for annual periods, and interim periods therein, beginning after December 15, 2017. Early application is permitted in any interim or annual period. We do not expect the application of this ASU to materially impact the Company.
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On October 24, 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740) – Intra-Entity Transfers of Assets Other Than Inventory, which requires that an entity recognize the income tax consequences of intra-entity transfers of assets other than inventory at the time of the transfer instead of deferring the tax consequences until the asset has been sold to an outside party, as current GAAP requires. The ASU is effective for annual periods, and interim periods therein, beginning after December 15, 2017. Early application is permitted in any interim or annual period. We do not expect the application of this ASU to materially impact the Company.
On January 5, 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) – Clarifying the Definition of a Business, which amends the definition of a business to exclude acquisitions of groups of assets where substantially all of the fair value of the assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. The ASU is effective for annual periods, and interim periods therein, beginning after December 15, 2017 and is applied prospectively. Early application is permitted. We expect that most real estate acquired by the Company subsequent to the ASU’s effective date will be accounted for as asset acquisitions.
On January 26, 2017, the FASB issued ASU 2017-04, Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment, which simplifies the method applied for measuring impairment in cases where goodwill is impaired. The ASU specifies that goodwill impairment will be measured as the excess of the reporting unit’s carrying value (inclusive of goodwill) over its fair value, eliminating the requirement that all assets and liabilities of the reporting unit be remeasured individually in connection with measurement of goodwill impairment. The ASU is effective for annual periods, and interim periods therein, beginning after December 15, 2019 and is applied prospectively. Early application is permitted though no earlier than January 1, 2017. We do not expect the application of this ASU to materially impact the Company.
On February 22, 2017, the FASB issued ASU 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Topic 610-20), which clarifies what constitutes an in substance nonfinancial asset and changes the accounting for partial sales of nonfinancial assets to be more consistent with the accounting for a sale of a business. The ASU is effective for annual periods, and interim periods therein, beginning after December 15, 2017. Early application is permitted. We do not expect the application of this ASU to materially impact the Company.
On August 28, 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities, which amends and simplifies existing guidance regarding the designation and measurement of designated hedging relationships. The ASU is effective for annual periods, and interim periods therein, beginning after December 15, 2018. Early application is permitted. We do not expect the application of this ASU to materially impact the Company.
3. Acquisitions and Dispositions
Master Lease Portfolio
On September 25, 2017, we acquired 20 retail properties and three industrial properties (the “Master Lease Portfolio”) for a purchase price of $553.3 million, inclusive of $3.7 million of related transaction costs. Concurrently with the acquisition, we leased the properties back to the seller under corporate guaranteed master net lease agreements with initial terms of 24.6 years and periodic rent escalations. These properties, which collectively comprise 5.3 million square feet, are geographically dispersed throughout the U.S., with more than 50% of the portfolio, by carrying value, located in Utah, Florida, Texas and Minnesota. We utilized $265.9 million in new financing in order to fund the acquisition (as set forth in Note 9). The acquisition was accounted for as an asset acquisition.
Investing and Servicing Segment Property Portfolio
During the three and nine months ended September 30, 2017, our Investing and Servicing Segment acquired the net equity of one and two commercial real estate properties from CMBS trusts, respectively, for $18.2 million and $37.2 million, respectively. These properties, aggregated with the controlling interests in 24 commercial real estate properties acquired from CMBS trusts during the years ended DecemberMarch 31, 2015 and 2016 for an aggregate acquisition price of $268.5 million, comprise the Investing and Servicing Segment Property Portfolio (the “REIS Equity Portfolio”). When
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the properties are acquired from CMBS trusts that are consolidated as VIEs on our balance sheet, the acquisitions are reflected as repayment of debt of consolidated VIEs in our condensed consolidated statements of cash flows.
We applied the business combination provisions of ASC 805, Business Combinations, in accounting for the REIS Equity Portfolio acquisitions. No goodwill was recognized in connection with the REIS Equity Portfolio acquisitions as the purchase prices did not exceed the fair values of the net assets acquired. A bargain purchase gain of $0.6 million was recognized within change in net assets related to consolidated VIEs in our condensed consolidated statement of operations for the nine months ended September 30, 2017 and $8.8 million for the year ended December 31, 2016 as the fair value of the net assets acquired for certain properties exceeded the purchase price.
During the nine months ended September 30, 2017, in accordance with ASU 2015-16, Business Combinations (Topic 805) – Simplifying the Accounting for Measurement-Period Adjustments, we adjusted our initial provisional estimates of the acquisition date fair values of the identified assets acquired and liabilities assumed for a certain property acquired within the REIS Equity Portfolio during the year ended December 31, 2016 to reflect new information obtained regarding facts and circumstances that existed at the acquisition date. The following table summarizes the measurement period adjustment applied to the initial provisional acquisition date balance sheet (amounts in thousands):
|
|
|
|
|
|
|
|
|
| 2016 Acquisition Adjustment | |||||||
|
|
| Measurement |
|
| |||
| Initial |
| Period |
| Adjusted | |||
Assets acquired: | Amounts |
| Adjustment |
| Amounts | |||
Properties | $ | 12,087 |
| $ | 660 |
| $ | 12,747 |
Intangible assets |
| 4,270 |
|
| (802) |
|
| 3,468 |
Other assets |
| 97 |
|
| — |
|
| 97 |
Total assets acquired |
| 16,454 |
|
| (142) |
|
| 16,312 |
Liabilities assumed: |
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other liabilities |
| 1,539 |
|
| (142) |
|
| 1,397 |
Total liabilities assumed |
| 1,539 |
|
| (142) |
|
| 1,397 |
Non-controlling interests |
| 3,084 |
|
| — |
|
| 3,084 |
Net assets acquired | $ | 11,831 |
| $ | — |
| $ | 11,831 |
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The net income effect associated with the measurement period adjustment during the nine months ended September 30, 2017 was immaterial.
During the three and nine months ended September 30, 2017,2021, we sold two and four properties within the Investing and Servicing Segment for $26.0 million and $40.7 million, respectively, recognizing gain on sale of $11.2 million and $16.3 million, respectively, within gain on sale of investments and other assets in our condensed consolidated statements of operations. During both the three and nine months ended September 30, 2017, $2.4 million of such gains were attributable to non-controlling interests.
Medical Office Portfolio
The Medical Office Portfolio is comprised of 34 medical office buildings acquired for a purchase price of $758.8 million during the year ended December 31, 2016. These properties, which collectively comprise 1.9 million square feet, are geographically dispersed throughout the U.S. and primarily affiliated with major hospitals or located on or adjacent to major hospital campuses. No goodwill or bargain purchase gains were recognized in connection with the Medical Office Portfolio acquisition as the purchase price equaled the fair value of the net assets acquired.
Woodstar Portfolio
The Woodstar Portfolio is comprised of 32 affordable housing communities with 8,948 units concentrated primarily in the Tampa, Orlando and West Palm Beach metropolitan areas. During the year ended December 31, 2015, we acquired 18 of the 32 affordable housing communities of the Woodstar Portfolio with the final 14 communities acquired during the year ended December 31, 2016 for an aggregate acquisition price of $421.5 million. We assumed federal, state and county sponsored financing and other debt in connection with this acquisition.
No goodwill was recognized in connection with the Woodstar Portfolio acquisition as the purchase price did not exceed the fair value of the net assets acquired. A bargain purchase gain of $8.4 million was recognized within other income, net in our consolidated statement of operations for the year ended December 31, 2016 as the fair value of the net assets acquired exceeded the purchase price due to favorable changes in net asset fair values occurring between the date the purchase price was negotiated and the closing date.
Ireland Portfolio
The Ireland Portfolio was initially comprised of 12 net leased fully occupied office properties and one multi-family property all located in Dublin, Ireland, which the Company acquired during the year ended December 31, 2015. The Ireland Portfolio, which collectively is comprised of approximately 600,000 square feet, included total assets of $518.2 million and assumed debt of $283.0 million at acquisition. Following our acquisition, all assumed debt was immediately extinguished and replaced with new financing of $328.6 million from the Ireland Portfolio Mortgage (as set forth in Note 9). No goodwill or bargain purchase gain was recognized in connection with the Ireland Portfolio acquisition as the purchase price equaled the fair value of the net assets acquired.
During the nine months ended September 30, 2017, we sold one officeoperating property within the Ireland PortfolioCommercial and Residential Lending Segment relating to a grocery distribution facility located in Montgomery, Alabama that was previously acquired in March 2019 through foreclosure of a loan with a carrying value of $9.0 million ($20.9 million unpaid principal balance net of an $8.3 million allowance and $3.6 million of unamortized discount) at the foreclosure date. The operating property was sold for $3.9$30.6 million recognizing an immaterialand we recognized a gain on saleof $17.7 million within gain on sale of investments and other assets in our condensed consolidated statement of operations.
During the three months ended March 31, 2021 and 2020, we had no significant acquisitions of properties or businesses.
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18
Purchase Price Allocations of Business Combinations
We applied the business combination provisions of ASC 805, Business Combinations, in accounting for the 2017 REIS Equity Portfolio acquisitions. In doing so, we have recorded all identifiable assets acquired and liabilities assumed as of the acquisition date. These amounts are provisional and may be adjusted during the measurement period, which expires no later than one year from the acquisition date, if new information is obtained that, if known, would have affected the amounts recognized as of the acquisition date.
The following table summarizes the identified assets acquired and liabilities assumed as of the acquisition date (amounts in thousands):
|
|
|
|
|
| 2017 | |
|
| REIS Equity | |
Assets acquired: |
| Portfolio | |
Properties |
| $ | 34,902 |
Intangible assets |
|
| 4,272 |
Other assets |
|
| 1 |
Total assets acquired |
|
| 39,175 |
Liabilities assumed: |
|
|
|
Accounts payable, accrued expenses and other liabilities |
|
| 1,329 |
Total liabilities assumed |
|
| 1,329 |
Net assets acquired |
| $ | 37,846 |
Our loans held-for-investment are accounted for at amortized cost and our loans held-for-sale are accounted for at the lower of cost or fair value, unless we have elected the fair value option.option for either. The following tables summarize our investments in mortgages and loans by subordination class as of September 30, 2017March 31, 2021 and December 31, 20162020 (dollars in thousands):
| | | | | | | | | | | |
|
| | |
| | |
| |
| Weighted |
|
| | | | | | | | Weighted | | Average Life |
|
| | Carrying | | Face | | Average | | (“WAL”) |
| ||
March 31, 2021 | | Value | | Amount | | Coupon (1) | | (years)(2) | | ||
Loans held-for-investment: | | | | | | | | | | | |
Commercial loans: | | | | | | | | | | | |
First mortgages (3), (8) | | $ | 9,955,674 | | $ | 10,003,057 | | 5.1 | % | 1.7 | |
Subordinated mortgages (4) | |
| 70,457 | | | 71,428 | | 8.8 | % | 2.5 | |
Mezzanine loans (3) | |
| 603,119 | | | 601,080 | | 10.1 | % | 1.4 | |
Other | | | 18,200 | | | 20,267 | | 8.2 | % | 2.6 | |
Total commercial loans | | | 10,647,450 | | | 10,695,832 | | | | | |
Infrastructure first priority loans (5) | | | 1,595,615 | | | 1,616,716 | | 4.3 | % | 4.1 | |
Residential loans, fair value option (6) | | | 150,712 | | | 149,404 | | 6.2 | % | N/A | (7) |
Total loans held-for-investment | |
| 12,393,777 | | | 12,461,952 | | | | | |
Loans held-for-sale: | | | | | | | | | | | |
Residential, fair value option (6) | | | 444,835 | | | 435,025 | | 5.7 | % | N/A | (7) |
Commercial, $168,226 under fair value option (8) | | | 310,428 | | | 314,917 | | 4.3 | % | 5.7 | |
Infrastructure, lower of cost or fair value (5) | | | 89,368 | | | 89,601 | | 2.9 | % | 2.6 | |
Total loans held-for-sale | | | 844,631 | | | 839,543 | | | | | |
Total gross loans | |
| 13,238,408 | | $ | 13,301,495 | | | | | |
Credit loss allowances: | | | | | | | | | | | |
Commercial loans held-for-investment | | | (63,477) | | | | | | | | |
Infrastructure loans held-for-investment | | | (8,807) | | | | | | | | |
Total allowances | | | (72,284) | | | | | | | | |
Total net loans | | $ | 13,166,124 | | | | | | | | |
| | | | | | | | | | | |
December 31, 2020 | | | | | | | | | | | |
Loans held-for-investment: | | | | | | | | | | | |
Commercial loans: | | | | | | | | | | | |
First mortgages (3) | | $ | 8,931,772 | | $ | 8,978,373 | | 5.3 | % | 1.5 | |
Subordinated mortgages (4) | |
| 71,185 | |
| 72,257 | | 8.8 | % | 2.8 | |
Mezzanine loans (3) | |
| 620,319 | |
| 619,352 | | 10.1 | % | 1.6 | |
Other | | | 30,284 | | | 33,626 | | 8.9 | % | 1.8 | |
Total commercial loans | | | 9,653,560 | | | 9,703,608 | | | | | |
Infrastructure first priority loans | | | 1,420,273 | |
| 1,439,940 | | 4.4 | % | 4.3 | |
Residential loans, fair value option | | | 90,684 | | | 86,796 | | 6.0 | % | N/A | (7) |
Total loans held-for-investment | |
| 11,164,517 | | | 11,230,344 | | | | | |
Loans held-for-sale: | | | | | | | | | | | |
Residential, fair value option | | | 841,963 | | | 820,807 | | 6.0 | % | N/A | (7) |
Commercial, fair value option | | | 90,332 | | | 90,789 | | 3.9 | % | 10.0 | |
Infrastructure, lower of cost or fair value | | | 120,540 | | | 120,900 | | 3.1 | % | 3.2 | |
Total loans held-for-sale | | | 1,052,835 | | | 1,032,496 | | | | | |
Total gross loans | |
| 12,217,352 | | $ | 12,262,840 | | | | | |
Credit loss allowances: | | | | | | | | | | | |
Commercial loans held-for-investment | | | (69,611) | | | | | | | | |
Infrastructure loans held-for-investment | | | (7,833) | | | | | | | | |
Total allowances | | | (77,444) | | | | | | | | |
Total net loans | | $ | 12,139,908 | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
|
|
|
|
| Weighted |
| Average Life |
|
| Carrying |
| Face |
| Average |
| (“WAL”) | ||
September 30, 2017 |
| Value |
| Amount |
| Coupon |
| (years)(1) | ||
First mortgages (2) |
| $ | 5,527,219 |
| $ | 5,549,909 |
| 6.1 | % | 2.4 |
Subordinated mortgages (3) |
|
| 222,990 |
|
| 224,088 |
| 10.3 | % | 2.1 |
Mezzanine loans (2) |
|
| 615,562 |
|
| 615,724 |
| 10.6 | % | 1.2 |
Other |
|
| 23,218 |
|
| 27,073 |
| 8.4 | % | 4.3 |
Total loans held-for-investment |
|
| 6,388,989 |
|
| 6,416,794 |
|
|
|
|
Loans held-for-sale, fair value option |
|
| 608,624 |
|
| 601,051 |
| 5.6 | % | 7.6 |
Loans transferred as secured borrowings |
|
| 74,339 |
|
| 75,000 |
| 5.8 | % | 2.5 |
Total gross loans |
|
| 7,071,952 |
|
| 7,092,845 |
|
|
|
|
Loan loss allowance (loans held-for-investment) |
|
| (6,618) |
|
| — |
|
|
|
|
Total net loans |
| $ | 7,065,334 |
| $ | 7,092,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
First mortgages (2) |
| $ | 4,865,994 |
| $ | 4,881,656 |
| 5.7 | % | 2.2 |
Subordinated mortgages (3) |
|
| 278,032 |
|
| 293,925 |
| 8.9 | % | 3.3 |
Mezzanine loans (2) |
|
| 713,757 |
|
| 714,608 |
| 9.6 | % | 1.8 |
Total loans held-for-investment |
|
| 5,857,783 |
|
| 5,890,189 |
|
|
|
|
Loans held-for-sale, fair value option |
|
| 63,279 |
|
| 63,065 |
| 5.3 | % | 10.0 |
Loans transferred as secured borrowings |
|
| 35,000 |
|
| 35,000 |
| 6.2 | % | 0.4 |
Total gross loans |
|
| 5,956,062 |
|
| 5,988,254 |
|
|
|
|
Loan loss allowance (loans held-for-investment) |
|
| (9,788) |
|
| — |
|
|
|
|
Total net loans |
| $ | 5,946,274 |
| $ | 5,988,254 |
|
|
|
|
19
| (1) |
|
| (2) | Represents the WAL of each respective group of loans as of the respective balance sheet date. The WAL of each individual loan is calculated using amounts and timing of future principal payments, as projected at origination or acquisition. |
| (3) |
| First mortgages include first mortgage loans and any contiguous mezzanine loan components because as a whole, the expected credit quality of these loans is more similar to that of a first mortgage loan. The application of this methodology resulted in mezzanine loans with carrying values of |
| (4) |
| Subordinated mortgages include B-Notes and junior participation in first mortgages where we do not own the senior A-Note or senior participation. If we own both the A-Note and B-Note, we categorize the loan as a first mortgage loan. |
| (5) | During the three months ended March 31, 2021, $30.7 million of infrastructure loans held-for-sale were reclassified into loans held-for-investment. |
| (6) | During the three months ended March 31, 2021, a net amount of $69.5 million of residential loans held-for-sale were reclassified into loans held-for-investment. |
| (7) | Residential loans have a weighted average remaining contractual life of 28.9 years and 27.9 years as of March 31, 2021 and December 31, 2020, respectively. |
21
| (8) | During the three months ended March 31, 2021, $142.2 million of commercial loans held-for-investment were reclassified into loans held-for-sale. |
As of September 30, 2017, approximately $5.9 billion, or 92.6%, ofMarch 31, 2021, our variable rate loans held-for-investment were variable rate and paid interest principally at LIBOR plus a weighted-average spread of 5.2%. The following table summarizes our investments in floating rate loansas follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
| December 31, 2016 |
| ||||||
|
|
|
| Carrying |
|
|
| Carrying |
| ||
Index |
| Base Rate |
| Value |
| Base Rate |
| Value |
| ||
One-month LIBOR USD |
| 1.2322 | % | $ | 612,994 |
| 0.7717 | % | $ | 880,357 |
|
LIBOR floor |
| 0.15 - 1.24 | % (1) |
| 5,301,987 |
| 0.15 - 3.00 | % (1) |
| 4,449,861 |
|
Total |
|
|
| $ | 5,914,981 |
|
|
| $ | 5,330,218 |
|
| | | | | | |
| | Carrying | | Weighted-average | | |
March 31, 2021 | | Value | | Spread Above Index | | |
Commercial loans | | $ | 9,969,387 | | 4.3 | % |
Infrastructure loans | | | 1,595,615 | | 3.8 | % |
Total variable rate loans held-for-investment | | $ | 11,565,002 | | 4.2 | % |
Credit Loss Allowances
As discussed in Note 2, we do not have a history of realized credit losses on our HFI loans and HTM securities, so we have subscribed to third party database services to provide us with industry losses for both commercial real estate and infrastructure loans. Using these losses as a benchmark, we determine expected credit losses for our loans and securities on a collective basis within our commercial real estate and infrastructure portfolios.
For our commercial loans, we utilize a loan loss model that is widely used among banks and commercial mortgage REITs and is marketed by a leading CMBS data analytics provider. It employs logistic regression to forecast expected losses at the loan level based on a commercial real estate loan securitization database that contains activity dating back to 1998. We provide specific loan-level inputs which include loan-to-stabilized-value (“LTV”) and debt service coverage ratio (DSCR) metrics, as well as principal balances, property type, location, coupon, origination year, term, subordination, expected repayment dates and future fundings. We also select from a group of independent five-year macroeconomic forecasts included in the model that are updated regularly based on current economic trends. We categorize the results by LTV range, which we consider the most significant indicator of credit quality for our commercial loans, as set forth in the credit quality indicator table below. A lower LTV ratio typically indicates a lower credit loss risk.
The macroeconomic forecasts do not differentiate among property types or asset classes. Instead, these forecasts reference general macroeconomic growth factors which apply broadly across all assets. However, the COVID-19 pandemic has had a more negative impact on certain property types, principally retail and hospitality, which have
20
|
|
withstood extended government mandated closures, and more recently office, which is experiencing lower demand due to remote working arrangements. The broad macroeconomic forecasts do not account for such differentiation. Accordingly, we have selected a more adverse macroeconomic recovery forecast related to these property types in determining our credit loss allowance.
Our
For our infrastructure loans, are typically collateralizedwe utilize a database of historical infrastructure loan performance that is shared among a consortium of banks and other lenders and compiled by real estate. a major bond credit rating agency. The database is representative of industry-wide project finance activity dating back to 1983. We derive historical loss rates from the database filtered by industry, sub-industry, term and construction status for each of our infrastructure loans. Those historical loss rates reflect global economic cycles over a long period of time as well as average recovery rates. We categorize the results between the power and oil and gas industries, which we consider the most significant indicator of credit quality for our infrastructure loans, as set forth in the credit quality indicator table below.
As discussed in Note 2, we use a result, wediscounted cash flow or collateral value approach, rather than the industry loan loss approach described above, to determine credit loss allowances for any credit deteriorated loans.
We regularly evaluate the extent and impact of any credit deterioration associated with the performance and/or value of the underlying collateral, property, as well as the financial and operating capability of the borrower. Specifically, a property’sthe collateral’s operating results and any cash reserves are analyzed and used to assess (i) whether cash flow from operations is sufficient to cover the debt service requirements currently and into the future, (ii) the ability of the borrower to refinance the loan at maturity, and/or (iii) the property’scollateral’s liquidation value. We also evaluate the financial wherewithal of any loan guarantors as well as the borrower’s competency in managing and operating the properties.collateral. In addition, we consider the overall economic environment, real estate or industry sector, and geographic sub-market in which the borrower operates. Such impairment analyses are completed and reviewed by asset management and finance personnel who utilize various data sources, including (i) periodic financial data such as property operating statements, occupancy, tenant profile, rental rates, operating expenses, the borrower’s exit plan, and capitalization and discount rates, (ii) site inspections and (iii) current credit spreads and discussions with market participants.
Our evaluation process, as described above produces an internal risk rating between 1 and 5, which is a weighted average of the numerical ratings in the following categories: (i) sponsor capability and financial condition, (ii) loan and collateral performance relative to underwriting, (iii) quality and stability of collateral cash flows, and (iv) loan structure. We utilize the overall risk ratings as a concise means to monitor any credit migration on a loan as well as on the whole portfolio. While the overall risk rating is generally not the sole factor we use in determining whether a loan is impaired, a loan with a higher overall risk rating would tend to have more adverse indicators of impairment, and therefore would be more likely to experience a credit loss.
22
The rating categories generally include the characteristics described below, but these are utilized as guidelines and therefore not every loan will have all of the characteristics described in each category:
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23
As of September 30, 2017, the risk ratingssignificant credit quality indicators for our loans subject to our rating system,measured at amortized cost, which excludes loans for which the fair value option has been elected, by class of loanheld-for-sale, were as follows as of March 31, 2021 (dollars in thousands):
| | | | | | | | | | | | | | | | ��� | | | | | | | | | | | |
|
| Term Loans |
| Revolving Loans |
| Total |
| Credit | |||||||||||||||||||
| | Amortized Cost Basis by Origination Year | | Amortized Cost | | Amortized | | Loss | |||||||||||||||||||
As of March 31, 2021 | | 2021 |
| 2020 |
| 2019 |
| 2018 |
| 2017 |
| Prior | | Total | | Cost Basis | | Allowance | |||||||||
Commercial loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
LTV < 60% | | $ | 1,152,309 | | $ | 709,735 | | $ | 1,314,912 | | $ | 1,225,605 | | $ | 729,227 | | $ | 425,570 | | $ | — | | $ | 5,557,358 | | $ | 7,015 |
LTV 60% - 70% | | | 859,035 | | | 480,542 | | | 1,530,002 | | | 825,212 | | | 39,916 | | | 82,088 | | | — | | | 3,816,795 | | | 31,535 |
LTV > 70% | | | — | | | 240,217 | | | 599,518 | | | 312,972 | | | — | | | 61,426 | | | — | | | 1,214,133 | | | 16,661 |
Credit deteriorated | | | — | | | — | | | — | | | 28,986 | | | — | | | 11,977 | | | — | | | 40,963 | | | 8,266 |
Defeased and other | | | — | | | — | | | — | | | — | | | — | | | 18,201 | | | — | | | 18,201 | | | — |
Total commercial | | $ | 2,011,344 | | $ | 1,430,494 | | $ | 3,444,432 | | $ | 2,392,775 | | $ | 769,143 | | $ | 599,262 | | $ | — | | $ | 10,647,450 | | $ | 63,477 |
Infrastructure loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Credit quality indicator: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Power | | $ | — | | $ | 77,525 | | $ | 220,901 | | $ | 397,619 | | $ | 124,959 | | $ | 371,072 | | $ | 10,057 | | $ | 1,202,133 | | $ | 5,074 |
Oil and gas | | | — | | | 19,902 | | | 267,727 | | | 100,803 | | | — | | | — | | | 5,050 | | | 393,482 | | | 3,733 |
Total infrastructure | | $ | — | | $ | 97,427 | | $ | 488,628 | | $ | 498,422 | | $ | 124,959 | | $ | 371,072 | | $ | 15,107 | | $ | 1,595,615 | | $ | 8,807 |
Residential loans held-for-investment, fair value option | | | | | | | | | | | | | | | | | | | | | | | | 150,712 | | | — |
Loans held-for-sale | | | | | | | | | | | | | | | | | | | | | | | | 844,631 | | | — |
Total gross loans | | | | | | | | | | | | | | | | | | | | | | | $ | 13,238,408 | | $ | 72,284 |
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|
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|
|
|
|
|
|
|
|
|
|
|
|
| Balance Sheet Classification |
|
|
|
|
|
| ||||||||||||||||
|
| Loans Held-For-Investment |
|
|
|
| Loans |
|
|
|
| % of |
| |||||||||||
Risk Rating |
| First |
| Subordinated |
| Mezzanine |
|
|
| Loans Held- |
| As Secured |
|
|
| Total |
| |||||||
Category |
| Mortgages |
| Mortgages |
| Loans |
| Other |
| For-Sale |
| Borrowings |
| Total |
| Loans |
| |||||||
1 |
| $ | 2,205 |
| $ | — |
| $ | — |
| $ | 20,446 |
| $ | — |
| $ | — |
| $ | 22,651 |
| 0.3 | % |
2 |
|
| 2,109,411 |
|
| 4,424 |
|
| 132,843 |
|
| — |
|
| — |
|
| — |
|
| 2,246,678 |
| 31.8 | % |
3 |
|
| 3,164,497 |
|
| 218,566 |
|
| 423,779 |
|
| 2,772 |
|
| — |
|
| 74,339 |
|
| 3,883,953 |
| 54.9 | % |
4 |
|
| 194,916 |
|
| — |
|
| 58,940 |
|
| — |
|
| — |
|
| — |
|
| 253,856 |
| 3.6 | % |
5 |
|
| 56,190 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 56,190 |
| 0.8 | % |
N/A |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 608,624 |
|
| — |
|
| 608,624 |
| 8.6 | % |
|
| $ | 5,527,219 |
| $ | 222,990 |
| $ | 615,562 |
| $ | 23,218 |
| $ | 608,624 |
| $ | 74,339 |
| $ | 7,071,952 |
| 100.0 | % |
21
As of DecemberMarch 31, 2016, the risk ratings for2021, we had credit deteriorated commercial loans subject to our rating system,with an amortized cost basis of $41.0 million, of which excludes loans for which the fair value option has been elected, by class of loan were as follows (dollars in thousands):
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance Sheet Classification |
|
|
|
|
|
| |||||||||||||
|
| Loans Held-For-Investment |
|
|
|
| Loans |
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Transferred |
|
|
|
| % of |
| |
Risk Rating |
| First |
| Subordinated |
| Mezzanine |
| Loans Held- |
| As Secured |
|
|
|
| Total |
| |||||
Category |
| Mortgages |
| Mortgages |
| Loans |
| For-Sale |
| Borrowings |
| Total |
| Loans |
| ||||||
1 |
| $ | 921 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 921 |
| — | % |
2 |
|
| 1,092,731 |
|
| 27,069 |
|
| 194,803 |
|
| — |
|
| 35,000 |
|
| 1,349,603 |
| 22.6 | % |
3 |
|
| 3,348,874 |
|
| 250,963 |
|
| 425,972 |
|
| — |
|
| — |
|
| 4,025,809 |
| 67.6 | % |
4 |
|
| 365,151 |
|
| — |
|
| 92,982 |
|
| — |
|
| — |
|
| 458,133 |
| 7.7 | % |
5 |
|
| 58,317 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 58,317 |
| 1.0 | % |
N/A |
|
| — |
|
| — |
|
| — |
|
| 63,279 |
|
| — |
|
| 63,279 |
| 1.1 | % |
|
| $ | 4,865,994 |
| $ | 278,032 |
| $ | 713,757 |
| $ | 63,279 |
| $ | 35,000 |
| $ | 5,956,062 |
| 100.0 | % |
After completing our impairment evaluation process as of September 30, 2017, we concluded that none of our$29.0 million had no credit loss allowance. These loans were impairedon nonaccrual status, with the cost recovery method of interest income recognition applied. In addition to these credit deteriorated loans, we had a $187.6 million commercial loan and therefore no individual loan impairment charges were required on any individual$20.2 million of residential loans as we expect to collect all outstanding principal and interest. None of our loansthat were 90 days or greater past due at March 31, 2021. In March 2021, $7.3 million relating to the $187.6 million commercial loan that was 90 days or greater past due was converted to equity interests pursuant to a consensual transfer under pre-existing equity pledges of additional collateral (see Note 7). The $187.6 million commercial loan, along with a $14.8 million infrastructure loan in forbearance, were placed on nonaccrual status during the three months ended March 31, 2021, but are not considered credit deteriorated as we presently expect to recover all amounts due. Any loans which are modified to provide for the deferral of September 30, 2017.
24
Ininterest are not considered past due and are accounted for in accordance with our policies, we record an allowance for loan losses equal to (i) 1.5% of the aggregate carrying amount of loans rated as a “4,” plus (ii) 5% of the aggregate carrying amount of loans rated as a “5, ” plus (iii) impaired loan reserves, if any. revenue recognition policy on interest income.
The following table presentstables present the activity in our credit loss allowance for loan lossesfunded loans and unfunded commitments (amounts in thousands):
| | | | | | | | | |
| | Funded Commitments Credit Loss Allowance | |||||||
| | Loans Held-for-Investment | | Total | |||||
Three Months Ended March 31, 2021 | | Commercial | | Infrastructure | | Funded Loans | |||
Credit loss allowance at December 31, 2020 | | $ | 69,611 | | $ | 7,833 | | $ | 77,444 |
Credit loss provision (reversal), net | |
| 1,880 | |
| 717 | |
| 2,597 |
Charge-offs | | | (7,757) | (1) | | — | | | (7,757) |
Recoveries | |
| — | |
| — | |
| — |
Transfers | |
| (257) | |
| 257 | |
| — |
Credit loss allowance at March 31, 2021 | | $ | 63,477 | | $ | 8,807 | | $ | 72,284 |
| | | | | | | | | |
| | Unfunded Commitments Credit Loss Allowance (2) | |||||||
| | Loans Held-for-Investment | | | |||||
Three Months Ended March 31, 2021 |
| Commercial |
| Infrastructure |
| Total | |||
Credit loss allowance at December 31, 2020 | | $ | 5,258 | | $ | 812 | | $ | 6,070 |
Credit loss reversal, net | |
| (2,122) | |
| (143) | |
| (2,265) |
Credit loss allowance at March 31, 2021 | | $ | 3,136 | | $ | 669 | | $ | 3,805 |
Memo: Unfunded commitments as of March 31, 2021 (3) | | $ | 1,291,304 | | $ | 65,791 | | $ | 1,357,095 |
|
|
|
|
|
|
|
|
| For the Nine Months Ended | ||||
|
| September 30, | ||||
|
| 2017 |
| 2016 | ||
Allowance for loan losses at January 1 |
| $ | 9,788 |
| $ | 6,029 |
Provision for loan losses |
|
| (3,170) |
|
| 3,395 |
Charge-offs |
|
| — |
|
| — |
Recoveries |
|
| — |
|
| — |
Allowance for loan losses at September 30 |
| $ | 6,618 |
| $ | 9,424 |
Recorded investment in loans related to the allowance for loan loss |
| $ | 310,046 |
| $ | 488,576 |
| (1) | Relates to an unsecured promissory note deemed uncollectible in connection with a residential conversion project located in New York City. The note was previously considered credit deteriorated and was fully reserved. |
| (2) | Included in accounts payable, accrued expenses and other liabilities in our condensed consolidated balance sheets. |
| (3) | Represents amounts expected to be funded (see Note 21). |
22
Loan Portfolio Activity
The activity in our loan portfolio was as follows (amounts in thousands):
| | | | | | | | | | | | | | | |
| | Held-for-Investment Loans | | | | | | | |||||||
Three Months Ended March 31, 2021 | | Commercial | | Infrastructure | | Residential | | Held-for-Sale Loans | | Total Loans | |||||
Balance at December 31, 2020 | | $ | 9,583,949 | | $ | 1,412,440 | | $ | 90,684 | | $ | 1,052,835 | | $ | 12,139,908 |
Acquisitions/originations/additional funding | |
| 2,196,813 | |
| 99,311 | |
| — | |
| 375,270 | |
| 2,671,394 |
Capitalized interest (1) | |
| 36,646 | |
| — | |
| — | |
| — | |
| 36,646 |
Basis of loans sold (2) | |
| — | |
| — | |
| — | |
| (571,927) | |
| (571,927) |
Loan maturities/principal repayments | |
| (1,021,393) | |
| (18,055) | |
| (9,210) | |
| (44,326) | |
| (1,092,984) |
Discount accretion/premium amortization | |
| 15,824 | |
| 921 | |
| — | |
| — | |
| 16,745 |
Changes in fair value | |
| — | |
| — | |
| (290) | |
| (9,188) | |
| (9,478) |
Unrealized foreign currency translation loss | |
| (14,082) | |
| (181) | |
| — | |
| — | |
| (14,263) |
Credit loss provision, net | |
| (1,880) | |
| (717) | |
| — | |
| — | |
| (2,597) |
Transfer to/from other asset classifications or between segments | | | (211,904) | | | 93,089 | | | 69,528 | | | 41,967 | | | (7,320) |
Balance at March 31, 2021 | | $ | 10,583,973 | | $ | 1,586,808 | | $ | 150,712 | | $ | 844,631 | | $ | 13,166,124 |
| | | | | | | | | | | | | | | |
| | Held-for-Investment Loans | | | | | | | |||||||
Three Months Ended March 31, 2020 | | Commercial | | Infrastructure | | Residential | | Held-for-Sale Loans | | Total Loans | |||||
Balance at December 31, 2019 | | $ | 8,517,054 | | $ | 1,397,448 | | $ | 671,572 | | $ | 884,150 | | $ | 11,470,224 |
Cumulative effect of ASC 326 effective January 1, 2020 | | | (10,112) | | | (10,328) | | | — | | | — | | | (20,440) |
Acquisitions/originations/additional funding | |
| 1,089,096 | |
| 62,929 | |
| 100,720 | |
| 646,160 | |
| 1,898,905 |
Capitalized interest (1) | |
| 36,072 | |
| — | |
| — | |
| — | |
| 36,072 |
Basis of loans sold (2) | |
| — | |
| — | |
| (604) | |
| (789,259) | |
| (789,863) |
Loan maturities/principal repayments | |
| (689,972) | |
| (37,051) | |
| (48,620) | |
| (20,680) | |
| (796,323) |
Discount accretion/premium amortization | |
| 11,559 | |
| 411 | |
| — | |
| 110 | |
| 12,080 |
Changes in fair value | |
| — | |
| — | |
| (25,619) | |
| 9,485 | |
| (16,134) |
Unrealized foreign currency translation loss | |
| (83,263) | |
| — | |
| — | |
| (4,056) | |
| (87,319) |
Credit loss provision, net | |
| (37,527) | |
| (5,805) | |
| — | |
| — | |
| (43,332) |
Transfer to/from other asset classifications | | | — | | | (26,333) | | | (422,691) | | | 449,024 | | | — |
Balance at March 31, 2020 | | $ | 8,832,907 | | $ | 1,381,271 | | $ | 274,758 | | $ | 1,174,934 | | $ | 11,663,870 |
|
|
|
|
|
|
|
|
|
| For the Nine Months Ended |
| ||||
|
| September 30, |
| ||||
|
| 2017 |
| 2016 |
| ||
Balance at January 1 |
| $ | 5,946,274 |
| $ | 6,263,517 |
|
Acquisitions/originations/additional funding |
|
| 3,722,624 |
|
| 2,795,772 |
|
Capitalized interest (1) |
|
| 55,987 |
|
| 65,003 |
|
Basis of loans sold (2) |
|
| (1,024,964) |
|
| (1,359,780) |
|
Loan maturities/principal repayments |
|
| (1,742,494) |
|
| (2,188,583) |
|
Discount accretion/premium amortization |
|
| 27,014 |
|
| 38,809 |
|
Changes in fair value |
|
| 45,484 |
|
| 70,122 |
|
Unrealized foreign currency remeasurement gain (loss) |
|
| 31,395 |
|
| (37,332) |
|
Change in loan loss allowance, net |
|
| 3,170 |
|
| (3,395) |
|
Transfer to/from other asset classifications |
|
| 844 |
|
| 36,566 | (3) |
Balance at September 30 |
| $ | 7,065,334 |
| $ | 5,680,699 |
|
|
|
|
|
|
|
(1) Represents accrued interest income on loans whose terms do not require current payment of interest.
(2) See Note 11 for additional disclosure on these transactions.
25
23
Investment securities were comprised of the following as of September 30, 2017March 31, 2021 and December 31, 20162020 (amounts in thousands):
| | | | | | |
| | Carrying Value as of | ||||
| | March 31, 2021 |
| December 31, 2020 | ||
RMBS, available-for-sale | | $ | 160,301 | | $ | 167,349 |
RMBS, fair value option (1) | | | 249,005 | | | 235,997 |
CMBS, fair value option (1), (2) | |
| 1,202,883 | |
| 1,209,030 |
HTM debt securities, amortized cost net of credit loss allowance of $5,387 and $5,675 | |
| 488,075 | |
| 538,605 |
Equity security, fair value | |
| 10,655 | |
| 11,247 |
Subtotal—Investment securities | |
| 2,110,919 | |
| 2,162,228 |
VIE eliminations (1) | |
| (1,432,632) | | | (1,425,570) |
Total investment securities | | $ | 678,287 | | $ | 736,658 |
|
|
|
|
|
|
|
|
| Carrying Value as of | ||||
|
| September 30, 2017 |
| December 31, 2016 | ||
RMBS, available-for-sale |
| $ | 253,252 |
| $ | 253,915 |
CMBS, fair value option (1) |
|
| 1,026,634 |
|
| 990,570 |
Held-to-maturity (“HTM”) securities |
|
| 411,196 |
|
| 509,980 |
Equity security, fair value option |
|
| 13,529 |
|
| 12,177 |
Subtotal—Investment securities |
|
| 1,704,611 |
|
| 1,766,642 |
VIE eliminations (1) |
|
| (1,002,793) |
|
| (959,024) |
Total investment securities |
| $ | 701,818 |
| $ | 807,618 |
| (1) |
| Certain fair value option CMBS and RMBS are eliminated in consolidation against VIE liabilities pursuant to ASC 810. |
| (2) | Includes $180.9 million and $179.5 million of non-controlling interests in the consolidated entities which hold certain of these CMBS as of March 31, 2021 and December 31, 2020, respectively. |
Purchases, sales and principal collections for all investment securities were as follows (amounts in thousands):
| | | | | | | | | | | | | | | | | | |
| | RMBS, | | RMBS, fair | | CMBS, fair | | HTM | | Securitization | | | | |||||
|
| available-for-sale |
| value option |
| value option |
| Securities |
| VIEs (1) |
| Total | ||||||
Three Months Ended March 31, 2021 | | | | | | | | | | | | | | | | |||
Purchases | | $ | — | | $ | 27,333 | | $ | — | | $ | — | | $ | (27,333) | | $ | — |
Sales | |
| — | |
| — | |
| 11,604 | |
| — | |
| (11,604) | |
| — |
Principal collections | |
| 7,251 | |
| 13,344 | |
| 1,710 | |
| 51,690 | |
| (14,481) | |
| 59,514 |
Three Months Ended March 31, 2020 | | | | | | | | | | | | | | | | |||
Purchases/fundings | | $ | — | | $ | 29,292 | | $ | 7,661 | | $ | 5,729 | | $ | (36,953) | | $ | 5,729 |
Sales | |
| — | |
| — | |
| 32,316 | |
| — | |
| (24,376) | |
| 7,940 |
Principal collections | |
| 6,549 | |
| 8,572 | |
| 16,523 | |
| 6,638 | |
| (24,723) | |
| 13,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| RMBS, |
| CMBS, fair |
| HTM |
| Equity |
|
|
| ||||
|
| available-for-sale |
| value option |
| Securities |
| Security |
| Total | |||||
Three Months Ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases (1) |
| $ | — |
| $ | 11,798 |
| $ | 50,000 |
| $ | — |
| $ | 61,798 |
Sales (2) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Principal collections |
|
| 10,307 |
|
| 1,666 |
|
| 111,671 |
|
| — |
|
| 123,644 |
Three Months Ended September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases (1) |
| $ | 8,868 |
| $ | — |
| $ | — |
| $ | — |
| $ | 8,868 |
Sales (2) |
|
| — |
|
| 17,456 | (5) |
| — |
|
| — |
|
| 17,456 |
Principal collections |
|
| 9,917 |
|
| 12,289 |
|
| 566 |
|
| — |
|
| 22,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| RMBS, |
| CMBS, fair |
| HTM |
| Equity |
|
|
| ||||
|
| available-for-sale |
| value option |
| Securities |
| Security |
| Total | |||||
Nine Months Ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases (3) |
| $ | 7,433 |
| $ | 11,798 |
| $ | 50,000 |
| $ | — |
| $ | 69,231 |
Sales (4) |
|
| — |
|
| 11,134 |
|
| — |
|
| — |
|
| 11,134 |
Principal collections |
|
| 29,090 |
|
| 8,754 |
|
| 172,059 |
|
| — |
|
| 209,903 |
Nine Months Ended September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases (3) |
| $ | 97,204 |
| $ | 57,576 |
| $ | 204,730 |
| $ | — |
| $ | 359,510 |
Sales (4) |
|
| — |
|
| 18,725 | (5) |
| — |
|
| — |
|
| 18,725 |
Principal collections |
|
| 32,925 |
|
| 31,734 |
|
| 5,657 |
|
| — |
|
| 70,316 |
| (1) |
|
|
|
|
26
|
|
|
|
|
|
RMBS, Available-for-Sale
The Company classified all of its RMBS not eliminated in consolidation as available-for-sale as of September 30, 2017March 31, 2021 and December 31, 2016.2020. These RMBS are reported at fair value in the balance sheet with changes in fair value recorded in accumulated other comprehensive income (“AOCI”).
24
The tables below summarize various attributes of our investments in available-for-sale RMBS as of September 30, 2017March 31, 2021 and December 31, 20162020 (amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Unrealized Gains or (Losses) | | | | |||||||
| | | | | | | | | | | Recognized in AOCI | | | | |||||||
|
| |
| Credit |
| |
| Gross |
| Gross |
| Net |
| | | ||||||
| | Amortized | | Loss | | Net | | Unrealized | | Unrealized | | Fair Value | | | | ||||||
| | Cost | | Allowance | | Basis | | Gains | | Losses | | Adjustment | | Fair Value | |||||||
March 31, 2021 | | | | | | | | | | | | | | | | | | | | | |
RMBS | | $ | 118,647 | | $ | — | | $ | 118,647 | | $ | 41,688 | | $ | (34) | | $ | 41,654 | | $ | 160,301 |
December 31, 2020 | | | | | | | | | | | | | | | | | | | | | |
RMBS | | $ | 123,292 | | $ | — | | $ | 123,292 | | $ | 44,123 | | $ | (66) | | $ | 44,057 | | $ | 167,349 |
| | | | |
|
| Weighted Average Coupon (1) |
| WAL |
March 31, 2021 | | | | |
RMBS |
| 1.2 | % | 5.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unrealized Gains or (Losses) |
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
| Recognized in AOCI |
|
|
| ||||||||||
|
| Purchase |
|
|
|
| Recorded |
|
|
|
| Gross |
| Gross |
| Net |
|
|
| |||||
|
| Amortized |
| Credit |
| Amortized |
| Non-Credit |
| Unrealized |
| Unrealized |
| Fair Value |
|
|
| |||||||
|
| Cost |
| OTTI |
| Cost |
| OTTI |
| Gains |
| Losses |
| Adjustment |
| Fair Value | ||||||||
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS |
| $ | 207,492 |
| $ | (9,897) |
| $ | 197,595 |
| $ | (95) |
| $ | 55,766 |
| $ | (14) |
| $ | 55,657 |
| $ | 253,252 |
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS |
| $ | 219,171 |
| $ | (10,185) |
| $ | 208,986 |
| $ | (94) |
| $ | 45,113 |
| $ | (90) |
| $ | 44,929 |
| $ | 253,915 |
|
|
|
|
|
|
|
|
| Weighted Average Coupon (1) |
| Weighted Average |
| WAL |
September 30, 2017 |
|
|
|
|
|
|
RMBS |
| 2.5 | % | B- |
| 6.4 |
December 31, 2016 |
|
|
|
|
|
|
RMBS |
| 2.1 | % | B |
| 6.1 |
| (1) |
| Calculated using the |
| (2) |
| Represents the remaining WAL of each respective group of securities as of the |
As of September 30, 2017,March 31, 2021, approximately $211.6$139.4 million, or 83.6%87.0%, of RMBS were variable rate and paid interest at LIBOR plus a weighted average spread of 1.21%. As of December 31, 2016, approximately $211.1 million, or 83.2%, of RMBS were variable rate and paid interest at LIBOR plus a weighted average spread of 1.22%.rate. We purchased all of the RMBS at a discount, that will bea portion of which is accreted into income over the expected remaining life of the security. The majority of the income from this strategy is earned from the accretion of these discounts.this accretable discount.
27
The following table contains a reconciliation of aggregate principal balance to amortized cost for our RMBS as of September 30, 2017 and December 31, 2016 (amounts in thousands):
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
| December 31, 2016 |
| ||
Principal balance |
| $ | 379,432 |
| $ | 399,883 |
|
Accretable yield |
|
| (58,763) |
|
| (64,290) |
|
Non-accretable difference |
|
| (123,074) |
|
| (126,607) |
|
Total discount |
|
| (181,837) |
|
| (190,897) |
|
Amortized cost |
| $ | 197,595 |
| $ | 208,986 |
|
The principal balance of credit deteriorated RMBS was $356.2 million and $371.5 million as of September 30, 2017 and December 31, 2016, respectively. Accretable yield related to these securities totaled $51.8 million and $55.9 million as of September 30, 2017 and December 31, 2016, respectively.
The following table discloses the changes to accretable yield and non-accretable difference for our RMBS during the three and nine months ended September 30, 2017 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
| Non-Accretable | ||
Three Months Ended September 30, 2017 |
| Accretable Yield |
| Difference | ||
Balance as of July 1, 2017 |
| $ | 59,777 |
| $ | 126,708 |
Accretion of discount |
|
| (3,187) |
|
| — |
Principal write-downs, net |
|
| — |
|
| (1,461) |
Purchases |
|
| — |
|
| — |
Sales |
|
| — |
|
| — |
OTTI |
|
| — |
|
| — |
Transfer to/from non-accretable difference |
|
| 2,173 |
|
| (2,173) |
Balance as of September 30, 2017 |
| $ | 58,763 |
| $ | 123,074 |
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017 |
|
|
|
|
|
|
Balance as of January 1, 2017 |
| $ | 64,290 |
| $ | 126,607 |
Accretion of discount |
|
| (10,375) |
|
| — |
Principal write-downs, net |
|
| — |
|
| (3,828) |
Purchases |
|
| 311 |
|
| 4,723 |
Sales |
|
| — |
|
| — |
OTTI |
|
| 109 |
|
| — |
Transfer to/from non-accretable difference |
|
| 4,428 |
|
| (4,428) |
Balance as of September 30, 2017 |
| $ | 58,763 |
| $ | 123,074 |
We have engaged a third party manager who specializes in RMBS to execute the trading of RMBS, the cost of which was $0.5$0.3 million and $0.4 million for the three months ended September 30, 2017March 31, 2021 and 2016 and $1.4 million and $1.2 million for the nine months ended September 30, 2017 and 2016,2020, respectively, which has been recorded as management fees in the accompanying condensed consolidated statements of operations.
28
The following table presents the gross unrealized losses and estimated fair value of any available-for-sale securities that were in an unrealized loss position as of September 30, 2017March 31, 2021 and December 31, 2016,2020, and for which OTTIs (full or partial) havean allowance for credit losses has not been recognized in earningsrecorded (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Estimated Fair Value |
| Unrealized Losses |
| |||||||||||||||||||||
|
| Securities with a |
| Securities with a |
| Securities with a |
| Securities with a |
| |||||||||||||||||
|
| loss less than |
| loss greater than |
| loss less than |
| loss greater than |
| |||||||||||||||||
|
| 12 months |
| 12 months |
| 12 months |
| 12 months |
| |||||||||||||||||
As of September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
| | | | | | | | | | | | | | |||||||||||||
| | Estimated Fair Value | | Unrealized Losses |
| |||||||||||||||||||||
|
| Securities with a |
| Securities with a |
| Securities with a |
| Securities with a |
| |||||||||||||||||
| | loss less than | | loss greater than | | loss less than | | loss greater than |
| |||||||||||||||||
| | 12 months | | 12 months | | 12 months | | 12 months |
| |||||||||||||||||
As of March 31, 2021 | | | | | | | | | | | | | | |||||||||||||
RMBS |
| $ | 10,463 |
| $ | 645 |
| $ | (80) |
| $ | (29) |
| | $ | — | | $ | 1,170 | | $ | — | | $ | (34) | |
As of December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
As of December 31, 2020 | | | | | | | | | | | | | | |||||||||||||
RMBS |
| $ | 8,819 |
| $ | 957 |
| $ | (90) |
| $ | (94) |
| | $ | 438 | | $ | 1,195 | | $ | (25) | | $ | (41) | |
As of both September 30, 2017March 31, 2021 and December 31, 2016,2020, there were three1 and 2 securities, respectively, with unrealized losses reflected in the table above. After evaluating thesethe securities and recording adjustments for credit-related OTTI,credit losses, we concluded that the remaining unrealized losses reflected above were noncredit-related and would be recovered from the securities’ estimated future cash flows. We considered a number of factors in reaching this conclusion, including that we did not intend to sell the securities, it was not considered more likely than not that we would be forced to sell the securities prior to recovering our amortized cost, and there were no material credit events that would have caused us to otherwise conclude that we would not recover our cost. Credit losses which represent most of the OTTI we record on securities, are calculated by comparing (i) the estimated future cash flows of each security discounted at the yield determined as of the initial acquisition date or, if since revised, as of the last date previously revised, to (ii) our net amortized cost basis. Significant judgment is used in projecting cash flows for our non-agency RMBS. As a result, actual income and/or impairmentscredit losses could be materially different from what is currently projected and/or reported.
25
CMBS and RMBS, Fair Value Option
As discussed in the “Fair Value Option” section of Note 2 herein, we elect the fair value option for the Investingcertain CMBS and Servicing Segment’s CMBSRMBS in an effort to eliminate accounting mismatches resulting from the current or potential consolidation of securitization VIEs. As of September 30, 2017,March 31, 2021, the fair value and unpaid principal balance of CMBS where we have elected the fair value option, excluding the notional value of interest-only securities and before consolidation of securitization VIEs, were $1.0$1.2 billion and $4.1$2.7 billion, respectively. The $1.0 billionAs of March 31, 2021, the fair value and unpaid principal balance of RMBS where we have elected the fair value option, excluding the notional value of interest-only securities and before consolidation of securitization VIEs, were $249.0 million and $160.1 million, respectively. The $1.5 billion total fair value balance of CMBS and RMBS represents our economic interests in these assets. However, as a result of our consolidation of securitization VIEs, the vast majority of this fair value (all except $23.8$19.3 million at September 30, 2017)March 31, 2021) is eliminated against VIE liabilities before arriving at our GAAP balance for fair value option CMBS.investment securities.
As of September 30, 2017, noneMarch 31, 2021, $96.9 million of our CMBS where we have elected the fair value optionwere variable rate and NaN of our RMBS were variable rate.
HTM Debt Securities, Amortized Cost
The table below summarizes unrealized gains and losses of our investments in HTM debt securities as of September 30, 2017March 31, 2021 and December 31, 20162020 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
|
| Net Carrying Amount |
| Gross Unrealized |
| Gross Unrealized |
|
|
|
| ||||||||||||||||||||||
|
| (Amortized Cost) |
| Holding Gains |
| Holding Losses |
| Fair Value |
| |||||||||||||||||||||||
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||
| | Amortized | | Credit Loss | | Net Carrying | | Gross Unrealized | | Gross Unrealized | | | |
| ||||||||||||||||||
| | Cost Basis | | Allowance | | Amount | | Holding Gains | | Holding Losses | | Fair Value |
| |||||||||||||||||||
March 31, 2021 |
| | | | | | | | | | | |
| | |
| | |
| |||||||||||||
CMBS |
| $ | 390,966 |
| $ | 2,446 |
| $ | (5,875) |
| $ | 387,537 |
| | $ | 339,120 | | $ | — | | $ | 339,120 | | $ | — | | $ | (25,169) | | $ | 313,951 | |
Preferred interests |
|
| 20,230 |
|
| 675 |
|
| — |
|
| 20,905 |
| | | 116,466 | | | (2,462) | | | 114,004 | | | 3,346 | | | — | | | 117,350 | |
Infrastructure bonds | | | 37,876 | | | (2,925) | | | 34,951 | | | 435 | | | — | | | 35,386 | | |||||||||||||
Total |
| $ | 411,196 |
| $ | 3,121 |
| $ | (5,875) |
| $ | 408,442 |
| | $ | 493,462 | | $ | (5,387) | | $ | 488,075 | | $ | 3,781 | | $ | (25,169) | | $ | 466,687 | |
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||
December 31, 2020 | | | | | | | | | | | | | | | | | | | | |||||||||||||
CMBS |
| $ | 490,107 |
| $ | 2,106 |
| $ | (8,648) |
| $ | 483,565 |
| | $ | 339,059 | | $ | — | | $ | 339,059 | | $ | — | | $ | (23,286) | | $ | 315,773 | |
Preferred interests |
|
| 19,873 |
|
| 727 |
|
| — |
|
| 20,600 |
| | | 166,614 | | | (2,749) | | | 163,865 | | | 432 | | | (913) | | | 163,384 | |
Infrastructure bonds | | | 38,607 | | | (2,926) | | | 35,681 | | | 415 | | | — | | | 36,096 | | |||||||||||||
Total |
| $ | 509,980 |
| $ | 2,833 |
| $ | (8,648) |
| $ | 504,165 |
| | $ | 544,280 | | $ | (5,675) | | $ | 538,605 | | $ | 847 | | $ | (24,199) | | $ | 515,253 | |
The following table presents the activity in our credit loss allowance for HTM debt securities (amounts in thousands):
| | | | | | | | | |
| | | | | | Total HTM | |||
| | Preferred | | Infrastructure | | Credit Loss | |||
| | Interests | | Bonds | | Allowance | |||
Three Months Ended March 31, 2021 | | | | | | | | | |
Credit loss allowance at December 31, 2020 | | $ | 2,749 | | $ | 2,926 | | $ | 5,675 |
Credit loss reversal, net | | | (287) | | | (1) | | | (288) |
Credit loss allowance at March 31, 2021 | | $ | 2,462 | | $ | 2,925 | | $ | 5,387 |
29
The table below summarizes the maturities of our HTM CMBS and our HTM preferred equity interests in limited liability companies that own commercial real estatedebt securities by type as of September 30, 2017March 31, 2021 (amounts in thousands):
| | | | | | | | | | | | |
| | | | Preferred | | Infrastructure | | | ||||
| | CMBS | | Interests | | Bonds | | Total | ||||
Less than one year |
| $ | 313,863 | | $ | — | | $ | — | | $ | 313,863 |
One to three years | | | 25,257 | | | 114,004 | | | — | | | 139,261 |
Three to five years | | | — | | | — | | | — | | | — |
Thereafter | |
| — | | | — | | | 34,951 | | | 34,951 |
Total | | $ | 339,120 | | $ | 114,004 | | $ | 34,951 | | $ | 488,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Preferred |
|
|
| ||
|
| CMBS |
| Interests |
| Total | |||
Less than one year |
| $ | 129,282 |
| $ | — |
| $ | 129,282 |
One to three years |
|
| 261,684 |
|
| — |
|
| 261,684 |
Three to five years |
|
| — |
|
| — |
|
| — |
Thereafter |
|
| — |
|
| 20,230 |
|
| 20,230 |
Total |
| $ | 390,966 |
| $ | 20,230 |
| $ | 411,196 |
26
Equity Security, Fair Value Option
During 2012, we acquired 9,140,000 ordinary shares from a related-party in Starwood European Real Estate Finance Limited (“SEREF”), a debt fund that is externally managed by an affiliate of our Manager and is listed on the London Stock Exchange. We have elected to report the investment using the fair value option because the shares are listed on an exchange, which allows us to determine the fair value using a quoted price from an active market, and also due to potential lags in reporting resulting from differences in the respective regulatory requirements. The fair value of the investment remeasured in USD was $13.5$10.7 million and $12.2$11.2 million as of September 30, 2017March 31, 2021 and December 31, 2016,2020, respectively. As of September 30, 2017,March 31, 2021, our shares represent an approximate 2% interest in SEREF.
6. Properties
Our properties includeare held within the following portfolios:
Woodstar I Portfolio
The Woodstar I Portfolio is comprised of 32 affordable housing communities with 8,948 units concentrated primarily in the Tampa, Orlando and West Palm Beach metropolitan areas. During the year ended December 31, 2015, we acquired 18 of the 32 affordable housing communities of the Woodstar I Portfolio with the final 14 communities acquired during the year ended December 31, 2016. The Woodstar I Portfolio includes total gross properties and lease intangibles of $636.7 million and debt of $572.8 million as of March 31, 2021.
Woodstar II Portfolio
The Woodstar II Portfolio is comprised of 27 affordable housing communities with 6,109 units concentrated primarily in Central and South Florida. We acquired 8 of the 27 affordable housing communities in December 2017, with the final 19 communities acquired during the year ended December 31, 2018. The Woodstar II Portfolio includes total gross properties and lease intangibles of $610.6 million and debt of $512.6 million as of March 31, 2021.
Medical Office Portfolio
The Medical Office Portfolio is comprised of 34 medical office buildings acquired during the year ended December 31, 2016. These properties, which collectively comprise 1.9 million square feet, are geographically dispersed throughout the U.S. and primarily affiliated with major hospitals or located on or adjacent to major hospital campuses. The Medical Office Portfolio includes total gross properties and lease intangibles of $760.3 million and debt of $592.9 million as of March 31, 2021.
Master Lease Portfolio
The Master Lease Portfolio Medical Officeis comprised of 16 retail properties geographically dispersed throughout the U.S., with more than 50% of the portfolio, by carrying value, located in Florida, Texas and Minnesota. These properties, which we acquired in September 2017, collectively comprise 1.9 million square feet and were leased back to the seller under corporate guaranteed master net lease agreements with initial terms of 24.6 years and periodic rent escalations. The Master Lease Portfolio Woodstarincludes total gross properties of $343.8 million and debt of $192.8 million as of March 31, 2021.
Investing and Servicing Segment Property Portfolio
The Investing and Servicing Segment Property Portfolio (“REIS Equity Portfolio”) is comprised of 15 commercial real estate properties and 1 equity interest in an unconsolidated commercial real estate property which were acquired from CMBS trusts during the previous five years. The REIS Equity Portfolio includes total gross properties and Ireland Portfoliolease intangibles of $270.4 million and debt of $192.6 million as discussed in Note 3. of March 31, 2021.
27
The table below summarizes our properties held as of September 30, 2017March 31, 2021 and December 31, 20162020 (dollars in thousands):
| | | | | | | | |
|
| Depreciable Life |
| March 31, 2021 |
| December 31, 2020 | ||
Property Segment | | | | | | | | |
Land and land improvements | | 0 – 15 years | | $ | 485,026 | | $ | 484,846 |
Buildings and building improvements | | 5 – 45 years | | | 1,691,423 | | | 1,690,701 |
Furniture & fixtures | | 3 – 7 years | | | 60,926 | | | 59,632 |
Investing and Servicing Segment | | | | | | | | |
Land and land improvements | | 0 – 15 years | | | 50,617 | | | 50,585 |
Buildings and building improvements | | 3 – 40 years | | | 179,813 | | | 179,014 |
Furniture & fixtures | | 2 – 5 years | | | 2,804 | | | 2,606 |
Commercial and Residential Lending Segment (1) | | | | | | | | |
Land and land improvements | | 0 – 7 years | | | 9,691 | | | 11,416 |
Buildings and building improvements | | 10 – 20 years | | | 9,927 | | | 19,251 |
Construction in progress | | N/A | | | 75,245 | | | 75,245 |
Properties, cost | | | | | 2,565,472 | | | 2,573,296 |
Less: accumulated depreciation | | | | | (320,724) | | | (302,143) |
Properties, net | | | | $ | 2,244,748 | | $ | 2,271,153 |
|
|
|
|
|
|
|
|
|
|
| Depreciable Life |
| September 30, 2017 |
| December 31, 2016 | ||
Property Segment |
|
|
|
|
|
|
|
|
Land and land improvements |
| 0 – 15 years |
| $ | 526,591 |
| $ | 385,860 |
Buildings and building improvements |
| 5 – 45 years |
|
| 1,755,511 |
|
| 1,291,531 |
Furniture & fixtures |
| 3 – 7 years |
|
| 26,038 |
|
| 23,035 |
Investing and Servicing Segment |
|
|
|
|
|
|
|
|
Land and land improvements |
| 0 – 15 years |
|
| 90,263 |
|
| 89,425 |
Buildings and building improvements |
| 3 – 40 years |
|
| 210,183 |
|
| 195,178 |
Furniture & fixtures |
| 2 – 5 years |
|
| 992 |
|
| 1,256 |
Properties, cost |
|
|
|
| 2,609,578 |
|
| 1,986,285 |
Less: accumulated depreciation |
|
|
|
| (88,236) |
|
| (41,565) |
Properties, net |
|
|
| $ | 2,521,342 |
| $ | 1,944,720 |
| (1) | Represents properties acquired through loan foreclosure or exercise of control over loan borrower pledged equity interests. |
During the three and nine months ended September 30, 2017,March 31, 2021, we sold twoan operating property within the Commercial and five operating propertiesResidential Lending Segment for $26.0$30.6 million and $44.6recognized a gain of $17.7 million respectively, which resulted in gains of $11.2 million and $16.4 million, respectively, recognized within gain on sale of investments and other assets in our condensed consolidated statement of operations. During both the three and nine months ended September 30, 2017, $2.4 million of such gainsRefer to Note 3 for further discussion. NaN operating properties were attributable to non-controlling interests. There were no properties sold during the ninethree months ended September 30, 2016.March 31, 2020.
30
28
7. Investment in Unconsolidated Entities
The table below summarizes our investments in unconsolidated entities as of September 30, 2017March 31, 2021 and December 31, 20162020 (dollars in thousands):
| | | | | | | | |
| | Participation / | | Carrying value as of | ||||
|
| Ownership % (1) |
| March 31, 2021 |
| December 31, 2020 | ||
Equity method investments: | | | | | | | | |
Equity interest in a natural gas power plant | | 10% | | $ | 24,840 | | $ | 25,095 |
Investor entity which owns equity in an online real estate company | | 50% | | | 9,573 | | | 9,397 |
Equity interests in commercial real estate | | 50% | | | 1,368 | | | 1,543 |
Equity interest in and advances to a residential mortgage originator (2) |
| N/A | |
| 18,458 | |
| 17,852 |
Various (3) |
| 15% - 50% | |
| 16,896 | |
| 8,831 |
| | | |
| 71,135 | |
| 62,718 |
Other equity investments: | | | | | | | | |
Equity interest in a servicing and advisory business | | 2% | | | 17,584 | |
| 17,584 |
Investment funds which own equity in a loan servicer and other real estate assets |
| 4% - 6% | |
| 7,267 | |
| 7,267 |
Various, including Federal Home Loan Bank stock |
| 0% - 2% | |
| 4,921 | |
| 20,485 |
| | | |
| 29,772 | |
| 45,336 |
| | | | $ | 100,907 | | $ | 108,054 |
|
|
|
|
|
|
|
|
|
|
| Participation / |
| Carrying value as of | ||||
|
| Ownership % (1) |
| September 30, 2017 |
| December 31, 2016 | ||
Equity method: |
|
|
|
|
|
|
|
|
Retail Fund (see Note 15) |
| 33% |
| $ | 109,607 | (2) | $ | 124,977 |
Investor entity which owns equity in an online real estate company |
| 50% |
|
| 75,249 |
|
| 21,677 |
Equity interests in commercial real estate |
| 16% - 50% |
|
| 23,310 |
|
| 23,297 |
Various |
| 25% - 50% |
|
| 7,015 |
|
| 6,640 |
|
|
|
|
| 215,181 |
|
| 176,591 |
Cost method: |
|
|
|
|
|
|
|
|
Equity interest in a servicing and advisory business |
| 6% |
|
| 12,234 |
|
| 12,234 |
Investment funds which own equity in a loan servicer and other real estate assets |
| 4% - 6% |
|
| 9,225 |
|
| 9,225 |
Various |
| 0% - 3% |
|
| 6,810 |
|
| 6,555 |
|
|
|
|
| 28,269 |
|
| 28,014 |
|
|
|
| $ | 243,450 |
| $ | 204,605 |
| (1) |
|
|
| (2) |
|
|
| (3) | In March 2021, we obtained 15% equity interests in 2 investor entities that own 49% equity interests in 2 entertainment and retail centers in satisfaction of $7.3 million principal amount of a commercial loan. As discussed in Note 4, the equity interests in the entertainment and retail centers were transferred under pre-existing equity pledges of additional collateral for the commercial loan. |
DuringAs of March 31, 2021, the three months ended September 30, 2017,carrying value of our equity investment in a residential mortgage originator exceeded the Retail Fund, anunderlying equity in net assets of such investee by $1.6 million. This difference is the result of the Company recording its investment company that measuresin the investee at its assets atacquisition date fair value, on a recurring basis, reported unrealized decreases in the fair value of its real estate properties as a result of lender appraisals obtainedwhich included certain non-amortizing intangible assets not recognized by the Retail Fund. We report our interest ininvestee. Should the Retail Fund at its liquidation value, which resulted in a $33.7 million decrease to our investment. This amount was recognized withinCompany determine these intangible assets held by the investee are impaired, the Company will recognize such impairment loss through earnings from unconsolidated entities in our condensed consolidated statementsstatement of operations, duringotherwise, such difference between the threecarrying value of our equity investment in the residential mortgage originator and nine months ended September 30, 2017.
In September 2017, the investor entity which ownsunderlying equity in an online real estate company sold approximately 88%the net assets of itsthe residential mortgage originator will continue to exist.
Other than our equity interest in the online real estate company. During the three and nine months ended September 30, 2017, we recognized $28.2 million and $53.9 million, respectively, of income from our investment in this investor entity as a result of the sale (see related income tax effect in Note 20)within earnings from unconsolidated entities in our condensed consolidated statements of operations. Subsequent to September 30, 2017, we received a pre-tax cash distribution of $66.0 million from the investor entity related to the sale.
Thereresidential mortgage originator, there were no differences between the carrying value of our equity method investments and the underlying equity in the net assets of the investees as of September 30, 2017.March 31, 2021.
During the three months ended March 31, 2021, we did not become aware of (i) any observable price changes in our other equity investments accounted for under the fair value practicability election or (ii) any indicators of impairment.
31
29
8. GoodwillGoodwill and Intangibles
Goodwill
Goodwill is tested for impairment annually in the fourth quarter, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Management considered the general economic decline and the impact of the COVID-19 pandemic, but did not identify any such event or circumstances. However, future changes in the expectations of the impact of COVID-19 on our operations, financial performance and cash flows could cause our goodwill to be impaired.
Infrastructure Lending Segment
The Infrastructure Lending Segment’s goodwill of $119.4 million at September 30, 2017both March 31, 2021 and December 31, 2016 represented2020 represents the excess of consideration transferred over the fair value of net assets acquired on September 19, 2018 and October 15, 2018. The goodwill recognized is attributable to value embedded in the acquired Infrastructure Lending Segment’s lending platform.
LNR Property LLC (“LNR”)
The Investing and Servicing Segment’s goodwill of $140.4 million at both March 31, 2021 and December 31, 2020 represents the excess of consideration transferred over the fair value of net assets of LNR Property LLC (“LNR”) acquired on April 19, 2013. The goodwill recognized is attributable to value embedded in LNR’s existing platform, which includes an internationala network of commercial real estate asset managers, work-out specialists, underwriters and administrative support professionals as well as proprietary historical performance data on commercial real estate assets.
Intangible Assets
Servicing Rights Intangibles
In connection with the LNR acquisition, we identified domestic and European servicing rights that existed at the purchase date, based upon the expected future cash flows of the associated servicing contracts. During the year ended DecemberAs of March 31, 2016, we contributed our European servicing and advisory business to an unrelated entity in exchange for a non-controlling equity interest in that entity and therefore no longer have any European servicing rights.
At September 30, 20172021 and December 31, 2016,2020, the balance of the domestic servicing intangible was net of $26.6$42.9 million and $34.2$41.4 million, respectively, which was eliminated in consolidation pursuant to ASC 810 against VIE assets in connection with our consolidation of securitization VIEs. Before VIE consolidation, as of September 30, 2017March 31, 2021 and December 31, 2016,2020, the domestic servicing intangible had a balance of $60.4$55.3 million and $89.3$54.6 million, respectively, which represents our economic interest in this asset.
Lease Intangibles
In connection with our acquisitions of commercial real estate, we recognized in-place lease intangible assets and favorable lease intangible assets associated with certain non-cancelable operating leases of the acquired properties.
The following table summarizes our intangible assets, which are comprised of servicing rights intangibles and lease intangibles, as of September 30, 2017March 31, 2021 and December 31, 20162020 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
| As of September 30, 2017 |
| As of December 31, 2016 | ||||||||||||||||||||||||||||||||
|
| Gross Carrying |
| Accumulated |
| Net Carrying |
| Gross Carrying |
| Accumulated |
| Net Carrying | ||||||||||||||||||||||||
|
| Value |
| Amortization |
| Value |
| Value |
| Amortization |
| Value | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||
| | As of March 31, 2021 | | As of December 31, 2020 | ||||||||||||||||||||||||||||||||
|
| Gross Carrying | | Accumulated |
| Net Carrying |
| Gross Carrying |
| Accumulated |
| Net Carrying | ||||||||||||||||||||||||
| | Value | | Amortization | | Value | | Value | | Amortization | | Value | ||||||||||||||||||||||||
Domestic servicing rights, at fair value |
| $ | 33,781 |
| $ | — |
| $ | 33,781 |
| $ | 55,082 |
| $ | — |
| $ | 55,082 | | $ | 12,406 | | $ | — | | $ | 12,406 | | $ | 13,202 | | $ | — | | $ | 13,202 |
In-place lease intangible assets |
|
| 181,636 |
|
| (59,308) |
|
| 122,328 |
|
| 175,409 |
|
| (38,532) |
|
| 136,877 | |
| 133,203 | |
| (94,726) | |
| 38,477 | |
| 133,203 | |
| (92,540) | |
| 40,663 |
Favorable lease intangible assets |
|
| 32,070 |
|
| (6,314) |
|
| 25,756 |
|
| 30,459 |
|
| (3,170) |
|
| 27,289 | | | 24,181 | | | (8,292) | | | 15,889 | | | 24,181 | | | (7,929) | | | 16,252 |
Total net intangible assets |
| $ | 247,487 |
| $ | (65,622) |
| $ | 181,865 |
| $ | 260,950 |
| $ | (41,702) |
| $ | 219,248 | | $ | 169,790 | | $ | (103,018) | | $ | 66,772 | | $ | 170,586 | | $ | (100,469) | | $ | 70,117 |
32
30
The following table summarizes the activity within intangible assets for the ninethree months ended September 30, 2017March 31, 2021 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Domestic |
| In-place Lease |
| Favorable Lease |
|
| ||||
|
| Servicing |
| Intangible |
| Intangible |
|
| ||||
|
| Rights |
| Assets |
| Assets |
| Total | ||||
Balance as of January 1, 2017 |
| $ | 55,082 |
| $ | 136,877 |
| $ | 27,289 |
| $ | 219,248 |
Acquisition of additional REIS Equity Portfolio properties |
|
| — |
|
| 3,810 |
|
| 462 |
|
| 4,272 |
Amortization |
|
| — |
|
| (20,098) |
|
| (2,940) |
|
| (23,038) |
Sales |
|
| — |
|
| (367) |
|
| (109) |
|
| (476) |
Foreign exchange gain |
|
| — |
|
| 3,908 |
|
| 1,044 |
|
| 4,952 |
Impairment (1) |
|
| — |
|
| (981) |
|
| (9) |
|
| (990) |
Changes in fair value due to changes in inputs and assumptions |
|
| (21,301) |
|
| — |
|
| — |
|
| (21,301) |
Measurement period adjustments |
|
| — |
|
| (821) |
|
| 19 |
|
| (802) |
Balance as of September 30, 2017 |
| $ | 33,781 |
| $ | 122,328 |
| $ | 25,756 |
| $ | 181,865 |
|
|
| | | | | | | | | | | | |
| | Domestic | | In-place Lease | | Favorable Lease | | | ||||
| | Servicing | | Intangible | | Intangible | | | ||||
|
| Rights |
| Assets |
| Assets |
| Total | ||||
Balance as of January 1, 2021 | | $ | 13,202 | | $ | 40,663 | | $ | 16,252 | | $ | 70,117 |
Amortization | | | — | | | (2,186) | | | (363) | | | (2,549) |
Changes in fair value due to changes in inputs and assumptions | | | (796) | | | — | | | — | | | (796) |
Balance as of March 31, 2021 | | $ | 12,406 | | $ | 38,477 | | $ | 15,889 | | $ | 66,772 |
The following table sets forth the estimated aggregate amortization of our in-place lease intangible assets and favorable lease intangible assets for the next five years and thereafter (amounts in thousands):
|
|
|
|
2017 (remainder of) |
| $ | 7,556 |
2018 |
|
| 27,711 |
2019 |
|
| 21,288 |
2020 |
|
| 15,908 |
2021 |
|
| 13,623 |
Thereafter |
|
| 61,998 |
Total |
| $ | 148,084 |
| | | |
2021 (remainder of) |
| $ | 7,094 |
2022 | |
| 7,862 |
2023 | |
| 6,115 |
2024 | |
| 4,722 |
2025 | |
| 3,846 |
Thereafter | |
| 24,727 |
Total | | $ | 54,366 |
33
31
9. Secured Borrowings
9.
The following table is a summary of our secured financing agreements in place as of September 30, 2017March 31, 2021 and December 31, 20162020 (dollars in thousands):
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Outstanding Balance at | ||||
| | Current | | Extended | | Weighted Average | | Pledged Asset | | Maximum | | March 31, | | December 31, | ||||
|
| Maturity |
| Maturity (a) |
| Pricing |
| Carrying Value |
| Facility Size |
| 2021 |
| 2020 | ||||
Repurchase Agreements: | | | | | | | | | | | | | | | | | | |
Commercial Loans | | May 2021 to Aug 2025 | (b) | May 2023 to Mar 2029 | (b) | (c) | | $ | 8,088,081 | | $ | 9,164,525 | (d) | $ | 5,592,652 | | $ | 4,878,939 |
Residential Loans | | Jan 2022 to Oct 2023 | | N/A | | LIBOR + 2.09% | | | 428,877 | | | 1,750,000 | | | 328,620 | | | 22,590 |
Infrastructure Loans | | Feb 2022 | | N/A | | LIBOR + 2.00% | | | 295,516 | | | 500,000 | | | 246,136 | | | 232,961 |
Conduit Loans | | Feb 2022 to Jun 2023 | | Feb 2023 to Jun 2024 | | LIBOR + 2.15% | | | 147,523 | | | 350,000 | | | 111,087 | | | 53,554 |
CMBS/RMBS | | Dec 2021 to Oct 2030 | (e) | Mar 2022 to Apr 2031 | (e) | (f) | | | 1,112,819 | | | 823,365 | | | 668,993 | (g) | | 620,763 |
Total Repurchase Agreements | | | | | | | | | 10,072,816 | | | 12,587,890 | | | 6,947,488 | | | 5,808,807 |
Other Secured Financing: | | | | | | | | | | | | | | | | | | |
Borrowing Base Facility | | Apr 2022 | | Apr 2024 | | LIBOR + 2.25% | | | 304,076 | | | 650,000 | (h) | | 223,302 | | | 43,014 |
Commercial Financing Facility | | Mar 2022 | | Mar 2029 | | GBP LIBOR + 1.75% | | | 101,559 | | | 81,847 | | | 81,847 | | | 81,218 |
Residential Financing Facility | | Sep 2022 | | Sep 2025 | | 3.50% | | | 163,545 | | | 250,000 | | | 1,515 | | | 215,024 |
Infrastructure Acquisition Facility | | Sep 2021 | | Sep 2022 | | (i) | | | 525,611 | | | 517,498 | | | 414,503 | | | 467,450 |
Infrastructure Financing Facilities | | Jul 2022 to Oct 2022 | | Oct 2024 to Jul 2027 | | LIBOR + 2.04% | | | 699,684 | | | 1,250,000 | | | 548,956 | | | 538,645 |
Property Mortgages - Fixed rate | | Nov 2024 to Aug 2052 | (j) | N/A | | 4.03% | | | 1,271,385 | | | 1,155,306 | | | 1,155,306 | | | 1,077,528 |
Property Mortgages - Variable rate | | Nov 2021 to Jul 2030 | | N/A | | (k) | | | 929,800 | | | 985,453 | | | 960,901 | | | 960,903 |
Term Loan and Revolver | | (l) | | N/A | | (l) | | | N/A | (l) | | 763,375 | | | 643,375 | | | 645,000 |
Federal Home Loan Bank | | N/A | | N/A | | N/A | | | — | | | — | | | — | | | 396,000 |
Total Other Secured Financing | | | | | | | | | 3,995,660 | | | 5,653,479 | | | 4,029,705 | | | 4,424,782 |
| | | | | | | | $ | 14,068,476 | | $ | 18,241,369 | | | 10,977,193 | | | 10,233,589 |
Unamortized net discount | | | | | | | | | | | | | | | (13,149) | | | (13,569) |
Unamortized deferred financing costs | | | | | | | | | | | | | | | (68,112) | | | (73,830) |
| | | | | | | | | | | | | | $ | 10,895,932 | | $ | 10,146,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Carrying Value at | ||||
|
| Current |
| Extended |
|
|
| Pledged Asset |
| Maximum |
| September 30, |
| December 31, | ||||
|
| Maturity |
| Maturity (a) |
| Pricing |
| Carrying Value |
| Facility Size |
| 2017 |
| 2016 | ||||
Lender 1 Repo 1 |
| (b) |
| (b) |
| LIBOR + 1.75% to 5.75% |
| $ | 1,534,069 |
| $ | 2,000,000 |
| $ | 1,170,141 |
| $ | 944,712 |
Lender 2 Repo 1 |
| Oct 2017 |
| Oct 2020 |
| LIBOR + 1.75% to 2.75% |
|
| 350,508 |
|
| 500,000 |
|
| 236,055 |
|
| 132,941 |
Lender 3 Repo 1 |
| May 2018 |
| May 2019 |
| LIBOR + 2.75% to 3.10% |
|
| 110,086 |
|
| 76,820 |
|
| 76,820 |
|
| 78,288 |
Lender 4 Repo 2 |
| Dec 2018 |
| Dec 2020 |
| LIBOR + 2.00% to 3.25% |
|
| 571,746 |
|
| 1,000,000 | (c) |
| 221,544 |
|
| 166,394 |
Lender 6 Repo 1 |
| Aug 2020 |
| N/A |
| LIBOR + 2.50% to 2.75% |
|
| 724,164 |
|
| 600,000 |
|
| 475,555 |
|
| 182,586 |
Lender 6 Repo 2 |
| Nov 2019 |
| Nov 2020 |
| GBP LIBOR + 2.75% |
|
| 173,516 |
|
| 121,280 |
|
| 121,280 |
|
| 121,509 |
Lender 9 Repo 1 |
| Dec 2017 |
| Dec 2018 |
| LIBOR + 1.65% |
|
| 340,620 |
|
| 254,447 |
|
| 254,447 |
|
| 283,575 |
Lender 10 Repo 1 |
| Mar 2020 |
| Mar 2022 |
| LIBOR + 2.00% to 2.75% |
|
| 169,733 |
|
| 140,000 |
|
| 136,800 |
|
| — |
Lender 11 Repo 1 |
| Jun 2019 |
| Jun 2020 |
| LIBOR + 2.75% |
|
| — |
|
| 200,000 |
|
| — |
|
| — |
Lender 11 Repo 2 |
| Sep 2018 |
| Sep 2022 |
| LIBOR + 2.25% to 2.75% |
|
| — |
|
| 250,000 |
|
| — |
|
| — |
Lender 7 Secured Financing |
| Jul 2018 |
| Jul 2019 |
| LIBOR + 2.75% | (d) |
| 46,800 |
|
| 650,000 | (e) |
| — |
|
| — |
Lender 8 Secured Financing |
| Aug 2019 |
| N/A |
| LIBOR + 4.00% |
|
| 30,147 |
|
| 75,000 |
|
| 18,226 |
|
| 43,555 |
Conduit Repo 2 |
| Nov 2017 |
| N/A |
| LIBOR + 2.25% |
|
| 53,751 |
|
| 150,000 |
|
| 40,842 |
|
| 14,944 |
Conduit Repo 3 |
| Feb 2018 |
| N/A |
| LIBOR + 2.10% |
|
| 136,254 |
|
| 150,000 |
|
| 103,678 |
|
| — |
Conduit Repo 4 |
| Oct 2017 |
| Oct 2020 |
| LIBOR + 2.25% |
|
| — |
|
| 100,000 |
|
| — |
|
| — |
MBS Repo 1 |
| (f) |
| (f) |
| LIBOR + 1.90% |
|
| 10,000 |
|
| 6,510 |
|
| 6,510 |
|
| 21,052 |
MBS Repo 2 |
| Jun 2020 |
| N/A |
| LIBOR/EURIBOR + 2.00% to 2.95% |
|
| 261,066 |
|
| 191,184 |
|
| 191,184 |
|
| 239,434 |
MBS Repo 3 |
| (g) |
| (g) |
| LIBOR + 1.32% to 1.95% |
|
| 384,546 |
|
| 254,668 |
|
| 254,668 |
|
| 285,209 |
MBS Repo 4 |
| (h) |
| N/A |
| LIBOR + 1.20% to 1.90% |
|
| 179,384 |
|
| 225,000 |
|
| 2,000 |
|
| 5,633 |
Investing and Servicing Segment Property Mortgages |
| Feb 2018 to Jun 2026 |
| N/A |
| Various |
|
| 245,094 |
|
| 201,238 |
|
| 177,217 |
|
| 164,611 |
Ireland Portfolio Mortgage |
| May 2020 |
| N/A |
| EURIBOR + 1.69% |
|
| 491,298 |
|
| 344,525 |
|
| 344,525 |
|
| 309,246 |
Woodstar Portfolio Mortgages |
| Nov 2025 to Oct 2026 |
| N/A |
| 3.72% to 3.97% |
|
| 369,519 |
|
| 276,748 |
|
| 276,748 |
|
| 276,748 |
Woodstar Portfolio Government Financing |
| Mar 2026 to Jun 2049 |
| N/A |
| 1.00% to 5.00% |
|
| 308,805 |
|
| 133,967 |
|
| 133,967 |
|
| 135,584 |
Medical Office Portfolio Mortgages |
| Dec 2021 to Feb 2022 |
| Dec 2023 to Feb 2024 |
| LIBOR + 2.50% | (i) |
| 741,304 |
|
| 527,124 |
|
| 497,613 |
|
| 491,197 |
Master Lease Portfolio Mortgages |
| Oct 2027 |
| N/A |
| 4.36% to 4.38% |
|
| 471,762 |
|
| 265,900 |
|
| 265,900 |
|
| — |
Term Loan A |
| Dec 2020 |
| Dec 2021 |
| LIBOR + 2.25% | (d) |
| 992,366 |
|
| 300,000 |
|
| 300,000 |
|
| 300,000 |
Revolving Secured Financing |
| Dec 2020 |
| Dec 2021 |
| LIBOR + 2.25% | (d) |
| — |
|
| 100,000 |
|
| — |
|
| — |
FHLB |
| Feb 2021 |
| N/A |
| LIBOR + 0.15% to 0.34% |
|
| 338,956 |
|
| 250,000 |
|
| 250,000 |
|
| — |
|
|
|
|
|
|
|
| $ | 9,035,494 |
| $ | 9,344,411 |
|
| 5,555,720 |
|
| 4,197,218 |
Unamortized net premium |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,579 |
|
| 2,640 |
Unamortized deferred financing costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (43,604) |
|
| (45,732) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 5,514,695 |
| $ | 4,154,126 |
(a) | Subject to certain conditions as defined in the respective facility agreement. |
(b) |
|
| (c) | Certain facilities with an outstanding balance of $1.9 billion as of March 31, 2021 are indexed to GBP LIBOR and |
| The aggregate initial maximum facility size |
|
|
34
| A facility with an outstanding balance of $212.0 million as of March 31, 2021 has a weighted average fixed annual interest rate of 3.29%. All other facilities are variable rate with a weighted average rate of LIBOR + 1.92%. |
(g) | Includes: (i) $212.0 million outstanding on a repurchase facility that is not subject to margin calls; and (ii) $38.3 million outstanding on one of our repurchase facilities that represents the 49% pro rata share owed by a non-controlling partner in a consolidated joint venture (see Note 14). |
| (h) | The initial maximum facility size of |
| (i) | Consists of an annual interest rate of the applicable currency benchmark index + 2.00%. |
| (j) | The weighted average maturity is 6.5 years as of March 31, 2021. |
32 |
|
|
|
|
|
|
|
|
In the normal course of business, the Company is in discussions with its lenders to extend, amend or amendreplace any financing facilities which contain near term expirations.
During the nine months ended September 30, 2017, we entered into two mortgage loans with maximum borrowings of $38.3 million to finance commercial real estate previously acquired by our Investing and Servicing Segment. As of September 30, 2017, these facilities carry a remaining weighted average term of 4.6 years with floating annual interest rates of LIBOR + 2.00%.
In February 2017,January 2021, we entered into a mortgage loan with maximum borrowings of $7.3 million as part of the Medical Office Portfolio Mortgages. This loanResidential Loans repurchase facility to finance residential loans. The facility carries a five year initialone-year term, with two 12 month extension optionswhich we intend to extend every three months, and an annual interest rate of LIBOR + 2.50%.
In March 2017, we entered into a $125.0 million repurchase facility (“Lender 10 Repo 1”) to finance certain loans held-for-investment. The facility carries a three year initial term with two one-year extension options and an annual interest rate ofone-month LIBOR + 2.00% to 2.75%. In May 2017, we upsized the2.50%, subject to a 25 bps LIBOR floor. The maximum facility size was initially $375.0 million and was increased to $140.0 million utilizing an available accordion feature.$1.0 billion in March 2021.
In March 2017, we amended the Lender 3 Repo 1 facility to extend the maturity from May 2017 to May 2018.
In June 2017,2021, we entered into a $200.0 million repurchase facility (“Lender 11 Repo 1”) to finance certain mortgage loans held-for-sale. The facility carries a two year initial term with a one-year extension option and an initial annual interest rate of LIBOR + 2.75%.
In July 2017, we acquired a captive insurance entity that is a member of the Federal Home Loan Bank (“FHLB”) of Chicago. This membership, which expires in February 2021, provides us additional financing capacity from the FHLB of Chicago on qualifying collateral. The facility has an annual interest rate of LIBOR + 0.15% to 0.34% and expires in February 2021. As of September 30, 2017, the facility had outstanding borrowings of $250.0 million.
In September 2017, we entered into a $250.0 million repurchase facility (“Lender 11 Repo 2”) to finance certain loans held-for-investment. The facility carries a one year initial term with four one-year extension options and an annual interest rate of LIBOR + 2.25% to 2.75%.
In September 2017, we entered into two mortgage loans with total borrowings of $265.9$82.9 million (“Master Lease Portfolio Mortgages”) to finance the acquisition of the Master Leaserefinance our Woodstar II Portfolio. The loans carry ten yearseven-year terms and a weighted average fixed annual interest ratesrate of 4.36% and 4.38%, respectively.. A portion of the net proceeds from the mortgage loans was used to repay $4.9 million of outstanding government sponsored mortgage loans.
In September 2017, we amended the Lender 6 Repo 1 facility to upsize available borrowings from $500.0 million to $600.0 million and extend the maturity from August 2019 to August 2020.
Our secured financing agreements contain certain financial tests and covenants. As of September 30, 2017,March 31, 2021, we were in compliance with all such covenants.
35
The following table sets forth our five‑year principal repayments schedule for secured financings assuming no defaults and excluding loans transferred as secured borrowings. Our credit facilities generally require principal to be paid down prior to the facilities’ respective maturities if and when we receive principal payments on, or sell, the investment collateral that we have pledged. The amount reflected in each period includes principal repayments on our credit facilities that would be required if (i) we received the repayments that we expect to receive on the investments that have been pledged as collateral under the credit facilities, as applicable, and (ii) the credit facilities that are expected to have amounts outstanding at their current maturity dates are extended where extension options are available to us (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
| Repurchase |
| Other Secured |
|
| |||
|
| Agreements |
| Financing |
| Total | |||
2017 (remainder of) |
| $ | 781,261 |
| $ | 14,461 |
| $ | 795,722 |
2018 |
|
| 988,168 |
|
| 76,952 |
|
| 1,065,120 |
2019 |
|
| 395,715 |
|
| 1,355 |
|
| 397,070 |
2020 |
|
| 1,041,480 |
|
| 358,102 |
|
| 1,399,582 |
2021 |
|
| 2,289 |
|
| 565,815 |
|
| 568,104 |
Thereafter |
|
| 82,611 |
|
| 1,247,511 |
|
| 1,330,122 |
Total |
| $ | 3,291,524 |
| $ | 2,264,196 |
| $ | 5,555,720 |
For the three and nine months ended September 30, 2017, approximately $5.0 million and $14.4 million, respectively, of amortization of deferred financing costs from secured financing agreements was included in interest expense on our condensed consolidated statements of operations. For the three and nine months ended September 30, 2016, approximately $3.9 million and $12.1 million, respectively, of amortization of deferred financing costs from secured financing agreements was included in interest expense on our condensed consolidated statements of operations.
The following table sets forth our outstanding balance of repurchase agreements related to the following asset collateral classes as of September 30, 2017 and December 31, 2016 (amounts in thousands):
|
|
|
|
|
|
|
Class of Collateral |
| September 30, 2017 |
| December 31, 2016 | ||
Loans held-for-investment |
| $ | 2,692,642 |
| $ | 1,890,925 |
Loans held-for-sale |
|
| 144,520 |
|
| 34,024 |
Investment securities |
|
| 454,362 |
|
| 551,328 |
|
| $ | 3,291,524 |
| $ | 2,476,277 |
We seek to mitigate risks associated with our repurchase agreements by managing risk related to the credit quality of our assets, interest rates, liquidity, prepayment speeds and market value. The margin call provisions under the majority of our repurchase facilities, consisting of 72% of these agreements, do not permit valuation adjustments based on capital markets activity. Instead, margin calls on these facilities are limited to collateral-specific credit marks. To monitor credit risk associated with the performance and value of our loans and investments, our asset management team regularly reviews our investment portfolios and is in regular contact with our borrowers, monitoring performance of the collateral and enforcing our rights as necessary. For the 28% of repurchase agreements containing margin call provisions for general capital markets activity, approximately 15% of these pertain to our loans held-for-sale, for which we manage credit risk through the purchase of credit index instruments. We further seek to manage risks associated with our repurchase agreements by matching the maturities and interest rate characteristics of our loans with the related repurchase agreements.agreement.
For the three months ended March 31, 2021 and 2020, approximately $9.5 million and $8.8 million, respectively, of amortization of deferred financing costs from secured financing agreements was included in interest expense on our condensed consolidated statements of operations.
36Collateralized Loan Obligations
In August 2019, we refinanced a pool of our commercial loans held-for-investment through a CLO, STWD 2019-FL1. On the closing date, the CLO issued $1.1 billion principal amount of notes, of which $936.4 million was purchased by third party investors. We retained $86.6 million of notes, along with preferred shares with a liquidation preference of $77.0 million. The CLO contains a reinvestment feature that, subject to certain eligibility criteria, allows us to contribute new loans or participation interests in loans to the CLO in exchange for cash. During the three months ended March 31, 2021, we utilized the reinvestment feature, contributing $98.6 million of additional interests into the CLO.
33
The following table is a summary of our CLO as of March 31, 2021 and December 31, 2020 (amounts in thousands):
| | | | | | | | | | | | | |
| | | | Face | | Carrying | | Weighted | | | | ||
March 31, 2021 | | Count | | Amount | | Value | | Average Spread | | Maturity | | ||
Collateral assets | | 25 | | $ | 1,099,693 | | $ | 1,099,639 | | LIBOR + 4.21% | (a) | May 2024 | (b) |
Financing | | 1 | |
| 936,375 | | | 931,178 | | LIBOR + 1.63% | (c) | July 2038 | (d) |
| | | | | | | | | | | | | |
December 31, 2020 | | | | | | | | | | | | | |
Collateral assets | | 23 | | $ | 1,002,445 | | $ | 1,099,439 | | LIBOR + 3.93% | (a) | Apr 2024 | (b) |
Financing | | 1 | |
| 936,375 | | | 930,554 | | LIBOR + 1.64% | (c) | July 2038 | (d) |
| (a) | Represents the weighted-average coupon earned on variable rate loans during the respective year-to-date period. There were no fixed-rate loans financed by the CLO as of March 31, 2021 and December 31, 2020. |
| (b) | Represents the weighted-average maturity, assuming the extended contractual maturity of the collateral assets. |
| (c) | Represents the weighted-average cost of financing incurred during the respective year-to-date period, inclusive of deferred issuance costs. |
| (d) | Repayments of the CLO are tied to timing of the related collateral asset repayments. The term of the CLO financing obligation represents the legal final maturity date. |
We incurred $9.2 million of issuance costs in connection with the CLO, which are amortized on an effective yield basis over the estimated life of the CLO. For both the three months ended March 31, 2021 and 2020, approximately $0.6 million of amortization of deferred financing costs was included in interest expense on our condensed consolidated statements of operations. As of March 31, 2021 and December 31, 2020, our unamortized issuance costs were $5.2 million and $5.8 million, respectively.
The CLO is considered a VIE, for which we are deemed the primary beneficiary. We therefore consolidate the CLO. Refer to Note 14 for further discussion.
Maturities
Our credit facilities generally require principal to be paid down prior to the facilities’ respective maturities if and when we receive principal payments on, or sell, the investment collateral that we have pledged. The following table sets forth our principal repayments schedule for secured financings based on the earlier of (i) the extended contractual maturity of each credit facility or (ii) the extended contractual maturity of each of the investments that have been pledged as collateral under the respective credit facility (amounts in thousands):
| | | | | | | | | | | | |
|
| Repurchase |
| Other Secured |
| | | | ||||
| | Agreements | | Financing | | CLO | | Total | ||||
2021 (remainder of) |
| $ | 302,200 |
| $ | 58,768 |
| $ | — | | $ | 360,968 |
2022 | |
| 1,548,791 | |
| 419,128 | | | — | |
| 1,967,919 |
2023 | |
| 1,450,262 | |
| 803,315 | | | — | |
| 2,253,577 |
2024 | |
| 1,480,044 | |
| 475,383 | | | — | |
| 1,955,427 |
2025 | |
| 1,510,607 | |
| 248,376 | | | — | |
| 1,758,983 |
Thereafter | |
| 655,584 | |
| 2,024,735 | | | 936,375 | (a) |
| 3,616,694 |
Total | | $ | 6,947,488 | | $ | 4,029,705 | | $ | 936,375 | | $ | 11,913,568 |
| (a) | Assumes utilization of the reinvestment feature. |
34
The following table is a summary of our unsecured senior notes outstanding as of September 30, 2017March 31, 2021 and December 31, 20162020 (dollars in thousands):
| | | | | | | | | | | | | | | | |
| | | | | | | | | Remaining | | | | | | | |
| | Coupon | | | Effective | | Maturity | | Period of | | Carrying Value at | |||||
| | Rate | | | Rate (1) | | Date | | Amortization | | March 31, 2021 | | December 31, 2020 | |||
2021 Senior Notes | | 5.00 | % | | 5.32 | % | 12/15/2021 | | 0.7 | years | | $ | 700,000 | | $ | 700,000 |
2023 Senior Notes | | 5.50 | % | | 5.71 | % | 11/1/2023 |
| 2.6 | years |
| | 300,000 |
| | 300,000 |
2023 Convertible Notes | | 4.38 | % | | 4.57 | % | 4/1/2023 | | 2.0 | years | | | 250,000 | | | 250,000 |
2025 Senior Notes | | 4.75 | % | (2) | 5.04 | % | 3/15/2025 | | 4.0 | years | | | 500,000 | | | 500,000 |
Total principal amount | | | | | | | | | | | | | 1,750,000 | | | 1,750,000 |
Unamortized discount—Convertible Notes | | | | | | | | | | | | | (910) | | | (2,559) |
Unamortized discount—Senior Notes | | | | | | | | | | | | | (8,356) | | | (9,332) |
Unamortized deferred financing costs | | | | | | | | | | | |
| (5,076) | |
| (5,589) |
Carrying amount of debt components | | | | | | | | | | | | $ | 1,735,658 | | $ | 1,732,520 |
Carrying amount of conversion option equity components recorded in additional paid-in capital for outstanding convertible notes | | | | | | | | | | | | | N/A | | $ | 3,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Remaining |
|
|
|
|
|
| |
|
| Coupon |
| Effective |
| Maturity |
| Period of |
| Carrying Value at | |||||
|
| Rate |
| Rate (1) |
| Date |
| Amortization |
| September 30, 2017 |
| December 31, 2016 | |||
2017 Convertible Notes |
| 3.75 | % | 5.87 | % | 10/15/2017 |
| 0.0 | years |
| $ | 411,885 |
| $ | 411,885 |
2018 Convertible Notes |
| 4.55 | % | 6.10 | % | 3/1/2018 |
| 0.4 | years |
|
| 369,981 |
|
| 599,981 |
2019 Convertible Notes |
| 4.00 | % | 5.35 | % | 1/15/2019 |
| 1.3 | years |
|
| 341,363 |
|
| 341,363 |
2021 Senior Notes |
| 5.00 | % | 5.32 | % | 12/15/2021 |
| 4.2 | years |
|
| 700,000 |
|
| 700,000 |
2023 Convertible Notes |
| 4.38 | % | 4.86 | % | 4/1/2023 |
| 5.5 | years |
|
| 250,000 |
|
| — |
Total principal amount |
|
|
|
|
|
|
|
|
|
|
| 2,073,229 |
|
| 2,053,229 |
Unamortized discount—Convertible Notes |
|
|
|
|
|
|
|
|
|
|
| (14,268) |
|
| (26,135) |
Unamortized discount—Senior Notes |
|
|
|
|
|
|
|
|
|
|
| (8,420) |
|
| (9,728) |
Unamortized deferred financing costs |
|
|
|
|
|
|
|
|
|
|
| (6,018) |
|
| (5,822) |
Carrying amount of debt components |
|
|
|
|
|
|
|
|
|
| $ | 2,044,523 |
| $ | 2,011,544 |
Carrying amount of conversion option equity components recorded in additional paid-in capital |
|
|
|
|
|
|
|
|
|
| $ | 31,638 |
| $ | 45,988 |
| (1) |
| Effective rate includes the effects of underwriter purchase |
| (2) | The coupon on the |
Senior Notes Due 2021
On December 16, 2016, we issued $700.0 millionOur unsecured senior notes contain certain financial tests and covenants. As of 5.00% Senior Notes due 2021 (the “2021 Notes”). The 2021 Notes mature on December 15, 2021. Prior to September 15,March 31, 2021, we may redeem some orwere in compliance with all of the 2021 Notes at a price equal to 100% of the principal amount thereof, plus the applicable “make-whole” premium as of the applicable date of redemption. On and after September 15, 2021, we may redeem some or all of the 2021 Notes at a price equal to 100% of the principal amount thereof. In addition, we may redeem up to 35% of the 2021 Notes at the applicable redemption prices using the proceeds of certain equity offerings. such covenants.
Convertible Senior Notes
On March 29, 2017, we issued $250.0 million of 4.375%4.375% Convertible Senior Notes due 2023 (the “2023 Convertible Notes”) resulting in gross proceedswhich remain outstanding at March 31, 2021 and mature on April 1, 2023.
We recognized interest expense of $247.5 million. At issuance, we allocated $243.7$2.9 million and $3.8$3.0 million of the carrying value of the 2023 Notes to its debt and equity components, respectively. Also on March 29, 2017, the proceeds from the issuance of the 2023 Notes were used to repurchase $230.0 million of the 4.55% Convertible Senior Notes due 2018 (the “2018 Notes”) for $250.7 million. The repurchase price was allocated between the fair value of the liability component and the fair value of the equity component of the 2018 Notes at the repurchase date. The portion of the repurchase price attributable to the equity component totaled $18.1 million and was recognized as a reduction of additional paid-in capital during the ninethree months ended September 30, 2017. The portion of the repurchase price attributable to the liability component exceeded the net carrying amount of the liability component by $5.9 million, which was recognized as a loss on extinguishment of debt inMarch 31, 2021 and 2020, respectively, from our condensed consolidated statement of operations during the nine months ended September 30, 2017. The repurchase of the 2018 Notes was not considered part of the repurchase program approved by our board of directors (refer to Note 16) and therefore does not reduce our available capacity for
37
future repurchases under the repurchase program. There were no repurchases of Convertible Notes during the nine months ended September 30, 2016.Notes.
On October 8, 2014, we issued $431.3 million of 3.75% Convertible Senior Notes due 2017 (the “2017 Notes”). On February 15, 2013, we issued $600.0 million of 4.55% Convertible Senior Notes due 2018 (the “2018 Notes”). On July 3, 2013, we issued $460.0 million of 4.00% Convertible Senior Notes due 2019 (the “2019 Notes”).
The following table details the conversion attributes of our Convertible Notes outstanding as of September 30, 2017March 31, 2021 (amounts in thousands, except rates):
| | | | | |
| | March 31, 2021 | |||
| | Conversion | | Conversion | |
| | Rate (1) | | Price (2) | |
2023 Convertible Notes | | 38.5959 |
| $ | 25.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
| Conversion Spread Value - Shares (3) | |||||||||
|
| Conversion |
| Conversion |
| For the Three Months Ended September 30, |
| For the Nine Months Ended September 30, | |||||
|
| Rate (1) |
| Price (2) |
| 2017 |
| 2016 |
| 2017 |
| 2016 | |
2017 Notes |
| 41.7397 |
| $ | 23.96 |
| — |
| — |
| — |
| — |
2018 Notes |
| 48.0666 |
| $ | 20.80 |
| 742 |
| 1,595 |
| 733 |
| 1,743 |
2019 Notes |
| 50.7031 |
| $ | 19.72 |
| 1,571 |
| 1,850 |
| 1,551 |
| 2,023 |
2023 Notes |
| 38.5959 |
| $ | 25.91 |
| — |
| — |
| — |
| — |
|
|
|
|
|
|
| 2,313 |
| 3,445 |
| 2,284 |
| 3,766 |
| (1) |
| The conversion rate represents the number of shares of common stock issuable per $1,000 principal amount of 2023 Convertible Notes converted, as adjusted in accordance with the |
| (2) |
| As of |
|
|
The if-converted valuesvalue of the 20182023 Convertible Notes and 2019 Notes exceededwas less than their principal amountsamount by $16.4$11.3 million and $34.6 million, respectively, at September 30, 2017March 31, 2021 as the closing market priceof the Company’s common stock of $21.72 per share exceeded the implicit conversion prices of $20.80 and $19.72 per share, respectively. However, the if‑converted values of the 2017 Notes and 2023 Notes were less than their principal amounts by $38.5 million and $40.4 million, respectively, at September 30, 2017 as the closing market price of the Company’s common stock$24.74 was less than the implicit conversion pricesprice of $23.96 and $25.91 per share, respectively.
share. The Company has asserted its intent and ability to settleif-converted value of the principal amount of the 2023 Convertible Notes was $238.7 million as of March 31, 2021. As of March 31, 2021, the net carrying amount and fair value of the 2023 Convertible Notes was $248.6 million and $255.8 million, respectively.
35
Upon conversion of the 2023 Convertible Notes, settlement may be made in cash. As such, onlycommon stock, cash or a combination of both, at the conversion spread value, if any, is included inoption of the computation of diluted EPS. Company.
Conditions for Conversion
Prior to July 15, 2018 for the 2019 Notes and October 1, 2022, for the 2023 Notes, those Convertible Notes will be convertible only upon satisfaction of one1 or more of the following conditions: (1) the closing market price of the Company’s common stock is at least 110%, in the case of the 2023 Notes, or 130%, in the case of the 2019 Notes, of the conversion price of the respective2023 Convertible Notes for at least 20 out of 30 trading days prior to the end of the preceding fiscal quarter, (2) the trading price of the 2023 Convertible Notes is less than 98% of the product of (i) the conversion rate and (ii) the closing price of the Company’s common stock during any five consecutive trading day period, (3) the Company issues certain equity instruments at less than the 10-day average closing market price of its common stock or the per-share value of certain distributions exceeds the market price of the Company’s common stock by more than 10% or (4) certain other specified corporate events (significant consolidation, sale, merger, share exchange, fundamental change, etc.) occur.
38
On or after July 15, 2018, in the case of the 2019 Notes, and October 1, 2022, in the caseholders of the 2023 Convertible Notes holders may convert each of their Convertible Notesnotes at the applicable conversion rate at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date. On September 1, 2017, the 2018 Notes entered the open conversion period and may be converted at any time through their maturity date of March 1, 2018.
In October 2017, we repaid the full principal amount of the 2017 Notes in cash upon their maturity.
11. Loan Securitization/Sale Activities
As described below, we regularly sell loans and notes under various strategies. We evaluate such sales as to whether they meet the criteria for treatment as a sale—legal isolation, ability of transferee to pledge or exchange the transferred assets without constraint and transfer of control.
Loan Securitizations
Within the Investing and Servicing Segment, we originate commercial mortgage loans with the intent to sell these mortgage loans to VIEs for the purposes of securitization. These VIEs then issue CMBS that are collateralized in part by these assets, as well as other assets transferred to the VIE. VIE by third parties. Within the Commercial and Residential Lending Segment, we acquire residential loans with the intent to sell these mortgage loans to VIEs for the purpose of securitization. These VIEs then issue RMBS that are collateralized by these assets.
In certain instances, we retain a subordinatedan interest in the CMBS or RMBS VIE and serve as special servicer or servicing administrator for the VIE. In these circumstances, we generally consolidate the VIE into which the loans were sold. The securitizations are subject to optional redemption after a certain period of time or when the pool balance falls below a specified threshold.
The following summarizes the fair valueface amount and par valueproceeds of commercial and residential loans sold from our conduit platform, as well as the amount of sale proceeds used in part to repay the outstanding balance of the repurchase agreements associated with these loanssecuritized for the three and nine months ended September 30, 2017March 31, 2021 and 20162020 (amounts in thousands):
| | | | | | | | | | | | |
| | Commercial Loans | | Residential Loans | ||||||||
|
| Face Amount |
| Proceeds |
| Face Amount |
| Proceeds | ||||
For the Three Months Ended March 31, | | | | | | | | | | | | |
2021 | | $ | 85,037 | | $ | 89,710 | | $ | 383,549 | | $ | 389,798 |
2020 | |
| 335,835 | | | 352,393 | |
| 381,279 | |
| 398,747 |
The securitization of these commercial and residential loans does not result in a discrete gain or loss since they are carried under the fair value option.
Our securitizations have each been structured as bankruptcy-remote entities whose assets are not intended to be available to the creditors of any other party.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
| For the Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Fair value of loans sold |
| $ | 517,351 |
| $ | 648,179 |
| $ | 987,828 |
| $ | 1,123,512 |
Par value of loans sold |
|
| 498,022 |
|
| 599,997 |
|
| 938,879 |
|
| 1,056,859 |
Repayment of repurchase agreements |
|
| 376,687 |
|
| 366,268 |
|
| 709,666 |
|
| 709,049 |
36
Commercial and Residential Loan Sales
Within the Commercial and Residential Lending Segment, we originate or acquire commercial mortgage loans, and then subsequently sellselling all or a portion which can be in various forms including first mortgages, A-Notes, senior participations and mezzanine loans.thereof. Typically, our motivation for entering into these transactions is to effectively create leverage on the subordinated position that we will retain and hold for investment. InWe also may sell certain instances, we continueof our previously-acquired residential loans to service the loan following its sale.third parties outside a securitization. The following table summarizes our loans sold and loans transferred as secured borrowings by the Commercial and Residential Lending Segment, net of expenses (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loan Transfers | ||||
|
| Loan Transfers Accounted |
| Accounted for as Secured | ||||||||
|
| for as Sales |
| Borrowings | ||||||||
|
| Face Amount |
| Proceeds |
| Face Amount |
| Proceeds | ||||
For the Three Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
|
2017 |
| $ | — |
| $ | — |
| $ | 75,000 |
| $ | 74,200 |
2016 |
|
| 116,000 |
|
| 115,157 |
|
| — |
|
| — |
For the Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
|
2017 |
| $ | 38,750 |
| $ | 37,079 |
| $ | 75,000 |
| $ | 74,200 |
2016 |
|
| 238,514 |
|
| 236,433 |
|
| — |
|
| — |
| | | | | | |
| | Residential | ||||
|
| Face Amount |
| Proceeds | ||
For the Three Months Ended March 31, | | | | | | |
2021 | | $ | 89,418 | | $ | 92,419 |
2020 | | | 550 | | | 604 |
There were no sales of commercial loans within the Commercial and Residential Lending Segment during the three months ended March 31, 2021 and 2020.
Infrastructure Loan Sales
During the three and nine months ended September 30, 2017 and 2016, gains (losses) recognized byMarch 31, 2020, the Infrastructure Lending Segment onsold loans held-for-sale with an aggregate face amount of $38.7 million for proceeds of $38.4 million, recognizing gains of $0.3 million. There were no sales of loans were not material.within the Infrastructure Lending Segment during the three months ended March 31, 2021.
39
12. Derivatives and Hedging Activity
Risk Management Objective of Using Derivatives
We are exposed to certain risks arising from both our business operations and economic conditions. Refer to Note 13 to the consolidated financial statements included in our Form 10-K for further discussion of our risk management objectives and policies.
Designated Hedges
In connection with our repurchase agreements, we have entered into four outstanding interest rate swaps that have been designated as cash flow hedges ofThe Company does not generally elect to apply the interest rate risk associated with forecasted interest payments.hedge accounting designation to its hedging instruments. As of September 30, 2017,March 31, 2021 and December 31, 2020, the aggregate notional amount of our interest rate swaps designated as cash flow hedges of interest rate risk totaled $40.0 million. Under these agreements, we will pay fixed monthly coupons at fixed rates ranging from 0.64% to 1.52% of the notional amount to the counterparty and receive floating rate LIBOR. Our interest rate swaps designated as cash flow hedges of interest rate risk have maturities ranging from November 2017 to May 2021.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in AOCI and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the three and nine months ended September 30, 2017 and 2016, weCompany did not recognizehave any hedge ineffectiveness in earnings.designated hedges.
Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made on the associated variable-rate debt. Over the next 12 months, we estimate that an immaterial amount will be reclassified as a decrease to interest expenses. We are hedging our exposure to the variability in future cash flows for forecasted transactions over a maximum period of 44 months.
We have entered into a seriesthe following types of forward contracts whereby we agreed to sell annon-designated hedges and derivatives:
| ● | Foreign exchange (“Fx”) forwards whereby we agree to buy or sell a specified amount of foreign currency for a specified amount of USD at a future date, economically fixing the USD amounts of foreign denominated cash flows we expect to receive or pay related to certain foreign denominated loan investments and properties; |
| ● | Interest rate contracts which hedge a portion of our exposure to changes in interest rates; |
| ● | Credit index instruments which hedge a portion of our exposure to the credit risk of our commercial loans held-for-sale; and |
| ● | Interest rate swap guarantees whereby we guarantee the interest rate swap obligations of certain Infrastructure Lending borrowers. Our interest rate swap guarantees were assumed in connection with the acquisition of the Infrastructure Lending Segment. |
37
The following table summarizes our non-designated foreign exchange (“Fx”) forwards, interest rate contracts, and credit index instrumentsderivatives as of September 30, 2017March 31, 2021 (notional amounts in thousands):
|
|
|
|
|
|
|
|
|
Type of Derivative |
| Number of Contracts |
| Aggregate Notional Amount |
| Notional Currency |
| Maturity |
Fx contracts – Sell Euros ("EUR") (1) |
| 44 |
| 283,394 |
| EUR |
| November 2017 – June 2020 |
Fx contracts – Sell Pounds Sterling ("GBP") |
| 129 |
| 263,925 |
| GBP |
| October 2017 – July 2020 |
Interest rate swaps – Paying fixed rates |
| 30 |
| 815,730 |
| USD |
| April 2019 – September 2027 |
Interest rate caps |
| 2 |
| 294,000 |
| EUR |
| May 2020 |
Interest rate caps |
| 8 |
| 68,194 |
| USD |
| June 2018 – October 2021 |
Credit index instruments |
| 10 |
| 59,000 |
| USD |
| September 2058 – November 2059 |
Total |
| 223 |
|
|
|
|
|
|
|
|
| | | | | | | | |
Type of Derivative |
| Number of Contracts |
| Aggregate Notional Amount |
| Notional Currency |
| Maturity |
Fx contracts – Buy Euros ("EUR") | | 2 | | 3,973 | | EUR | | November 2022 |
Fx contracts – Buy Pounds Sterling ("GBP") | | 8 | | 16,675 | | GBP | | April 2021 – July 2022 |
Fx contracts – Sell EUR | | 208 | | 252,796 | | EUR | | April 2021 – November 2025 |
Fx contracts – Sell GBP | | 156 | | 556,798 | | GBP | | April 2021 – May 2024 |
Fx contracts – Sell Australian dollar ("AUD") | | 19 | | 188,554 | | AUD | | August 2021 – June 2022 |
Interest rate swaps – Paying fixed rates | | 46 | | 1,791,332 | | USD | | May 2023 – April 2031 |
Interest rate swaps – Receiving fixed rates | | 1 | | 470,000 | | USD | | March 2025 |
Interest rate caps | | 22 | | 985,635 | | USD | | April 2021 – April 2025 |
Credit index instruments | | 3 | | 49,000 | | USD | | September 2058 – August 2061 |
Interest rate swap guarantees | | 6 | | 371,890 | | USD | | March 2022 – June 2025 |
Total | | 471 | | | | | | |
40
The table below presents the fair value of our derivative financial instruments as well as their classification on the condensed consolidated balance sheets as of September 30, 2017March 31, 2021 and December 31, 20162020 (amounts in thousands):
| | | | | | | | | | | | |
| | Fair Value of Derivatives | | Fair Value of Derivatives | ||||||||
| | in an Asset Position (1) as of | | in a Liability Position (2) as of | ||||||||
| | March 31, | | December 31, | | March 31, | | December 31, | ||||
|
| 2021 | | 2020 | | 2021 | | 2020 | ||||
Interest rate contracts | | $ | 25,331 | | $ | 33,841 | | $ | 4 | | $ | 4 |
Interest rate swap guarantees | | | — | | | — | | | 498 | | | 849 |
Foreign exchange contracts | |
| 12,617 | |
| 6,585 | |
| 34,002 | |
| 39,951 |
Credit index instruments | |
| 81 | |
| 129 | |
| 301 | |
| 520 |
Total derivatives | | $ | 38,029 | | $ | 40,555 | | $ | 34,805 | | $ | 41,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value of Derivatives |
| Fair Value of Derivatives | ||||||||
|
| in an Asset Position (1) as of |
| in a Liability Position (2) as of | ||||||||
|
| September 30, |
| December 31, |
| September 30, |
| December 31, | ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
| $ | 33 |
| $ | 30 |
| $ | 2 |
| $ | 56 |
Total derivatives designated as hedging instruments |
|
| 33 |
|
| 30 |
|
| 2 |
|
| 56 |
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
| 23,961 |
|
| 26,591 |
|
| — |
|
| 3,484 |
Foreign exchange contracts |
|
| 13,644 |
|
| 62,295 |
|
| 22,888 |
|
| 364 |
Credit index instruments |
|
| 655 |
|
| 445 |
|
| — |
|
| — |
Total derivatives not designated as hedging instruments |
|
| 38,260 |
|
| 89,331 |
|
| 22,888 |
|
| 3,848 |
Total derivatives |
| $ | 38,293 |
| $ | 89,361 |
| $ | 22,890 |
| $ | 3,904 |
| (1) |
| Classified as derivative assets in our condensed consolidated balance sheets. |
| (2) |
| Classified as derivative liabilities in our condensed consolidated balance sheets. |
The tablestable below presentpresents the effect of our derivative financial instruments on the condensed consolidated statements of operations and of comprehensive income for the three and nine months ended September 30, 2017March 31, 2021 and 20162020 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gain (Loss) |
|
|
|
|
| |
|
| Gain (Loss) |
| Reclassified |
| Gain (Loss) |
|
| |||
|
| Recognized |
| from AOCI |
| Recognized |
|
| |||
Derivatives Designated as Hedging Instruments |
| in OCI |
| into Income |
| in Income |
| Location of Gain (Loss) | |||
For the Three Months Ended September 30, |
| (effective portion) |
| (effective portion) |
| (ineffective portion) |
| Recognized in Income | |||
2017 |
| $ | (3) |
| $ | 19 |
| $ | — |
| Interest expense |
2016 |
| $ | 107 |
| $ | (78) |
| $ | — |
| Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
2017 |
| $ | 45 |
| $ | (11) |
| $ | — |
| Interest expense |
2016 |
| $ | (397) |
| $ | (261) |
| $ | — |
| Interest expense |
| | | | | | | | |
| | | | Amount of Gain (Loss) | ||||
| | | | Recognized in Income for the | ||||
Derivatives Not Designated | | Location of Gain (Loss) | | Three Months Ended March 31, | ||||
as Hedging Instruments |
| Recognized in Income |
| 2021 |
| 2020 | ||
Interest rate contracts |
| Gain on derivative financial instruments | | $ | 20,158 | | $ | (45,125) |
Interest rate swap guarantees | | Gain on derivative financial instruments | | | 351 | | | (675) |
Foreign exchange contracts |
| Gain on derivative financial instruments | |
| 13,602 | |
| 53,265 |
Credit index instruments |
| Gain on derivative financial instruments | |
| (122) | |
| 2,245 |
| | | | $ | 33,989 | | $ | 9,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amount of Gain (Loss) |
| Amount of Gain (Loss) | ||||||||
|
|
|
| Recognized in Income for the |
| Recognized in Income for the | ||||||||
Derivatives Not Designated |
| Location of Gain (Loss) |
| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
as Hedging Instruments |
| Recognized in Income |
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Interest rate contracts |
| Loss on derivative financial instruments |
| $ | (3,836) |
| $ | (626) |
| $ | (10,190) |
| $ | (25,899) |
Foreign exchange contracts |
| Loss on derivative financial instruments |
|
| (19,650) |
|
| (189) |
|
| (54,814) |
|
| 21,160 |
Credit index instruments |
| Loss on derivative financial instruments |
|
| (738) |
|
| (1,513) |
|
| (1,155) |
|
| (2,054) |
|
|
|
| $ | (24,224) |
| $ | (2,328) |
| $ | (66,159) |
| $ | (6,793) |
41
38
13. Offsetting Assets and Liabilities
The following tables present the potential effects of netting arrangements on our financial position for financial assets and liabilities within the scope of ASC 210-20, Balance Sheet—Offsetting, which for us are derivative assets and liabilities as well as repurchase agreement liabilities (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| (iv) |
|
|
| ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| Gross Amounts Not |
|
|
| ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| Offset in the Statement |
|
|
| ||||||||||||||||||||||
|
|
|
|
| (ii) |
| (iii) = (i) - (ii) |
| of Financial Position |
|
|
| ||||||||||||||||||||||||
|
|
|
|
| Gross Amounts |
| Net Amounts |
|
|
|
| Cash |
|
|
| |||||||||||||||||||||
|
| (i) |
| Offset in the |
| Presented in |
|
|
|
| Collateral |
|
|
| ||||||||||||||||||||||
|
| Gross Amounts |
| Statement of |
| the Statement of |
| Financial |
| Received / |
| (v) = (iii) - (iv) | ||||||||||||||||||||||||
|
| Recognized |
| Financial Position |
| Financial Position |
| Instruments |
| Pledged |
| Net Amount | ||||||||||||||||||||||||
As of September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||
| | | | | | | | | | | (iv) | | | | ||||||||||||||||||||||
| | | | | | | | | | | Gross Amounts Not | | | | ||||||||||||||||||||||
| | | | | | | | | | | Offset in the Statement | | | | ||||||||||||||||||||||
| | | | | (ii) | | (iii) = (i) - (ii) | | of Financial Position | | | | ||||||||||||||||||||||||
|
| | | | Gross Amounts |
| Net Amounts |
| | |
| Cash |
| | | |||||||||||||||||||||
| | (i) | | Offset in the | | Presented in | | | | | Collateral | | | | ||||||||||||||||||||||
| | Gross Amounts | | Statement of | | the Statement of | | Financial | | Received / | | (v) = (iii) - (iv) | ||||||||||||||||||||||||
| | Recognized | | Financial Position | | Financial Position | | Instruments | | Pledged | | Net Amount | ||||||||||||||||||||||||
As of March 31, 2021 | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Derivative assets |
| $ | 38,293 |
| $ | — |
| $ | 38,293 |
| $ | 13,677 |
| $ | — |
| $ | 24,616 | | $ | 38,029 | | $ | — | | $ | 38,029 | | $ | 11,491 | | $ | 24,235 | | $ | 2,303 |
Derivative liabilities |
| $ | 22,890 |
| $ | — |
| $ | 22,890 |
| $ | 13,677 |
| $ | 6,859 |
| $ | 2,354 | | $ | 34,805 | | $ | — | | $ | 34,805 | | $ | 11,491 | | $ | 22,618 | | $ | 696 |
Repurchase agreements |
|
| 3,291,524 |
|
| — |
|
| 3,291,524 |
|
| 3,291,524 |
|
| — |
|
| — | |
| 6,947,488 | |
| — | |
| 6,947,488 | |
| 6,947,488 | |
| — | |
| — |
|
| $ | 3,314,414 |
| $ | — |
| $ | 3,314,414 |
| $ | 3,305,201 |
| $ | 6,859 |
| $ | 2,354 | ||||||||||||||||||
As of December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
| | $ | 6,982,293 | | $ | — | | $ | 6,982,293 | | $ | 6,958,979 | | $ | 22,618 | | $ | 696 | ||||||||||||||||||
As of December 31, 2020 | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Derivative assets |
| $ | 89,361 |
| $ | — |
| $ | 89,361 |
| $ | 491 |
| $ | — |
| $ | 88,870 | | $ | 40,555 | | $ | — | | $ | 40,555 | | $ | 6,716 | | $ | 33,772 | | $ | 67 |
Derivative liabilities |
| $ | 3,904 |
| $ | — |
| $ | 3,904 |
| $ | 491 |
| $ | 3,413 |
| $ | — | | $ | 41,324 | | $ | — | | $ | 41,324 | | $ | 6,716 | | $ | 27,416 | | $ | 7,192 |
Repurchase agreements |
|
| 2,476,277 |
|
| — |
|
| 2,476,277 |
|
| 2,476,277 |
|
| — |
|
| — | |
| 5,808,807 | |
| — | |
| 5,808,807 | |
| 5,808,807 | |
| — | |
| — |
|
| $ | 2,480,181 |
| $ | — |
| $ | 2,480,181 |
| $ | 2,476,768 |
| $ | 3,413 |
| $ | — | ||||||||||||||||||
| | $ | 5,850,131 | | $ | — | | $ | 5,850,131 | | $ | 5,815,523 | | $ | 27,416 | | $ | 7,192 | ||||||||||||||||||
14. Variable Interest Entities
Investment Securities
As discussed in Note 2, we evaluate all of our investments and other interests in entities for consolidation, including our investments in CMBS, RMBS and our retained interests in securitization transactions we initiated, all of which are generally considered to be variable interests in VIEs.
Securitization VIEs consolidated in accordance with ASC 810 are structured as pass through entities that receive principal and interest on the underlying collateral and distribute those payments to the certificate holders. The assets and other instruments held by these securitization entities are restricted and can only be used to fulfill the obligations of the entity. Additionally, the obligations of the securitization entities do not have any recourse to the general credit of any other consolidated entities, nor to us as the primary beneficiary. The VIE liabilities initially represent investment securities on our balance sheet (pre-consolidation). Upon consolidation of these VIEs, our associated investment securities are eliminated, as is the interest income related to those securities. Similarly, the fees we earn in our roles as special servicer of the bonds issued by the consolidated VIEs or as collateral administrator of the consolidated VIEs are also eliminated. Finally, an allocablea portion of the identified servicing intangible associated with the eliminated fee streams is eliminated in consolidation.
VIEs in which we are the Primary Beneficiary
The inclusion of the assets and liabilities of securitization VIEs in which we are deemed the primary beneficiary has no economic effect on us. Our exposure to the obligations of securitization VIEs is generally limited to our investment in these entities. We are not obligated to provide, nor have we provided, any financial support for any of these consolidated structures.
During the year ended December 31, 2019, we refinanced a pool of our commercial loans held-for-investment through a CLO, which is considered to be a VIE. We are the primary beneficiary of, and therefore consolidate, the CLO in our financial statements as we have both (i) the power to direct the activities in our role as collateral manager that most significantly impact the CLO’s economic performance, and (ii) the obligation to absorb losses and the right to receive benefits from the CLO that could be potentially significant through the subordinate interests we own.
39
The following table details the assets and liabilities of our consolidated CLO as of March 31, 2021 and December 31, 2020 (amounts in thousands):
| | | | | | |
| | March 31, 2021 | | December 31, 2020 | ||
Assets: | | | | | | |
Cash and cash equivalents | | $ | — | | $ | 96,998 |
Loans held-for-investment | | | 1,099,639 | |
| 1,002,441 |
Accrued interest receivable | |
| 4,068 | | | 5,454 |
Other assets | | | 307 | |
| 557 |
Total Assets | | $ | 1,104,014 | | $ | 1,105,450 |
Liabilities | | | | | | |
Accounts payable, accrued expenses and other liabilities | | $ | 640 | | $ | 663 |
Collateralized loan obligations, net | |
| 931,178 | |
| 930,554 |
Total Liabilities | | $ | 931,818 | | $ | 931,217 |
Assets held by this CLO are restricted and can be used only to settle obligations of the CLO, including the subordinate interests owned by us. The liabilities of this CLO are non-recourse to us and can only be satisfied from the assets of the CLO.
We also hold controlling interests in certain other non-securitization entities that are considered VIEs,VIEs. SPT Dolphin Intermediate LLC (“SPT Dolphin”), the entity which were established to facilitateholds the purchase of certain properties acquired withWoodstar II Portfolio, is a VIE because the third party minority interest partners.holders do not carry kick-out rights or substantive participating rights. We arewere deemed to be the primary beneficiariesbeneficiary of these VIEs asthe VIE because we possess both the power to direct the activities of the VIEsVIE that most significantly
42
impact theirits economic performance and holda significant economic interests. These VIEsinterest in the entity. This VIE had total assets of $167.3$685.4 million and liabilities of $114.3$520.6 million as of September 30, 2017.March 31, 2021.
We also hold a 51% controlling interest in a joint venture (the “CMBS JV”) within our Investing and Servicing Segment, which is considered a VIE because the third party interest holder does not carry kick-out rights or substantive participating rights. We are deemed the primary beneficiary of the CMBS JV. This VIE had total assets of $335.4 million and liabilities of $78.9 million as of March 31, 2021. Refer to Note 16 for further discussion.
In addition to the above non-securitization entities, we have smaller VIEs with total assets of $98.7 million and liabilities of $53.8 million as of March 31, 2021.
VIEs in which we are not the Primary Beneficiary
In certain instances, we hold a variable interest in a VIE in the form of CMBS, but either (i) we are not appointed, or do not serve as, special servicer or servicing administrator or (ii) an unrelated third party has the rights to unilaterally remove us as special servicer without cause. In these instances, we do not have the power to direct activities that most significantly impact the VIE’s economic performance. In other cases, the variable interest we hold does not obligate us to absorb losses or provide us with the right to receive benefits from the VIE which could potentially be significant. For these structures, we are not deemed to be the primary beneficiary of the VIE, and we do not consolidate these VIEs.
As of September 30, 2017, twoMarch 31, 2021, 5 of our CDO6 collateralized debt obligation (“CDO”) structures within our Investing and Servicing Segment were in default one ofor imminent default, which, entered default during the nine months ended September 30, 2017. Pursuantpursuant to the underlying indentures, changes the rights of the variable interest holders change uponholders. NaN of the 5 CDOs defaulted during the year ended December 31, 2020. Upon default of a CDO, such that the trustee or senior note holders are allowed to exercise certain rights, including liquidation of the collateral, which at that time, is the activity which would most significantly impact the CDO’s economic performance. Further, when the CDO is in default, the collateral administrator no longer has the option to purchase securities from the CDO. In cases where the CDO is in default and we do not have the ability to exercise rights which would most significantly impact the CDO’s economic performance, we do not consolidate the VIE. During the nine months ended September 30, 2017, we deconsolidated the CDO that went into default, resulting in a reduction to each of VIE assets and VIE liabilities of $467.1 million. The carrying value of our investment in this CDO was zero at the time of deconsolidation and at September 30, 2017. As of September 30, 2017, neitherMarch 31, 2021, NaN of these 5 CDO structures were consolidated.
40
As noted above, we are not obligated to provide, nor have we provided, any financial support for any of our securitization VIEs, whether or not we are deemed to be the primary beneficiary. As such, the risk associated with our involvement in these VIEs is limited to the carrying value of our investment in the entity. As of September 30, 2017,March 31, 2021, our maximum risk of loss related to securitization VIEs in which we were not the primary beneficiary was $23.8$19.3 million on a fair value basis.
As of September 30, 2017,March 31, 2021, the securitization VIEs which we do not consolidate had debt obligations to beneficial interest holders with unpaid principal balances, excluding the notional value of $5.3interest-only securities, of $3.9 billion. The corresponding assets are comprised primarily of commercial mortgage loans with unpaid principal balances corresponding to the amounts of the outstanding debt obligations.
We also hold passive non-controlling interests in certain unconsolidated entities that are considered VIEs.We are not the primary beneficiaries of these VIEs as we do not possess the power to direct the activities of the VIEs that most significantly impact their economic performance and therefore report our interests, which totaled $118.8$25.7 million as of September 30, 2017,March 31, 2021, within investment in unconsolidated entities on our condensed consolidated balance sheet. Our maximum risk of loss is limited to our carrying value of the investments.
15. Related-Party Transactions
Management Agreement
We are party to a management agreement (the “Management Agreement”) with our Manager. Under the Management Agreement, our Manager, subject to the oversight of our board of directors, is required to manage our day to day activities, for which our Manager receives a base management fee and is eligible for an incentive fee and stock awards. Our Manager’s personnel perform certain due diligence, legal, management and other services that outside professionals or consultants would otherwise perform. As such, in accordance with the terms of our Management Agreement, our Manager is paid or reimbursed for the documented costs of performing such tasks, provided that such costs and reimbursements are in amounts no greater than those which would be payable to outside professionals or consultants engaged to perform such services pursuant to agreements negotiated on an arm’s-length basis. Refer to Note 16 to the consolidated financial statements included in our Form 10-K for further discussion of this agreement.
43
Base Management Fee. For the three months ended September 30, 2017March 31, 2021 and 2016,2020, approximately $16.9$19.2 million and $15.2 million, respectively, was incurred for base management fees. For the nine months ended September 30, 2017 and 2016, approximately $50.7 million and $45.4$19.1 million, respectively, was incurred for base management fees. As of September 30, 2017both March 31, 2021 and December 31, 2016,2020, there were $16.9$19.2 million and $15.7 million, respectively, of unpaid base management fees included in related-party payable in our condensed consolidated balance sheets.
Incentive Fee. For the three months ended September 30, 2017March 31, 2021 and 2016,2020, approximately $10.4$13.1 million and $6.3 million, respectively, was incurred for incentive fees. For the nine months ended September 30, 2017 and 2016, approximately $20.2 million and $13.8$15.8 million, respectively, was incurred for incentive fees. As of September 30, 2017March 31, 2021 and December 31, 2016, approximately $10.42020, there were $13.1 million and $19.0$15.0 million respectively, of unpaid incentive fees were included in related-party payable in our condensed consolidated balance sheets.
Expense Reimbursement. For the three months ended September 30, 2017March 31, 2021 and 2016,2020, approximately $1.7$1.5 million and $1.5$2.2 million, respectively, was incurred for executive compensation and other reimbursable expenses and recognized within general and administrative expenses in our condensed consolidated statements of operations. For the nine months ended September 30, 2017 and 2016, approximately $4.5 million and $4.1 million, respectively, was incurred for executive compensation and other reimbursable expenses. As of September 30, 2017March 31, 2021 and December 31, 2016, approximately $2.72020, there were $3.8 million and $3.0$5.0 million, respectively, of unpaid reimbursable executive compensation and other expenses were included in related-party payable in our condensed consolidated balance sheets.
Equity Awards. In certain instances, we issue RSAs to certain employees of affiliates of our Manager who perform services for us. During the three months ended September 30, 2017March 31, 2021 and 2016, there were no RSAs granted. Expenses related to the vesting of awards to employees of affiliates of our Manager were $0.7 million and $0.6 million during the three months ended September 30, 2017 and 2016, respectively, and are reflected in general and administrative expenses in our condensed consolidated statements of operations. During the nine months ended September 30, 2017 and 2016,2020, we granted 138,264981,951 and 169,104341,635 RSAs, respectively, at grant date fair values of $3.1$19.6 million and $3.3$3.9 million, respectively. Expenses related to the vesting of awards to employees of affiliates of our Manager were $2.1$2.4 million and $1.6$1.1 million during the ninethree months ended September 30, 2017March 31, 2021 and 2016, respectively.2020, respectively, and are reflected in general and administrative expenses in our condensed consolidated statements of operations. These shares generally vest over a three-year period.
41
Manager Equity Plan
In MarchMay 2017, we granted 1,000,000 RSUs to ourthe Company’s shareholders approved the Starwood Property Trust, Inc. 2017 Manager underEquity Plan (the “2017 Manager Equity Plan”), which replaced the Starwood Property Trust, Inc. Manager Equity Plan (“Manager Equity Plan”). In May 2015,November 2020, we granted 675,0001,800,000 RSUs to our Manager under the 2017 Manager Equity Plan. In September 2019, we granted 1,200,000 RSUs to our Manager under the 2017 Manager Equity Plan. In April 2018, we granted 775,000 RSUs to our Manager under the 2017 Manager Equity Plan. In March 2017, we granted 1,000,000 RSUs to our Manager under the Manager Equity Plan. In connection with these grants and prior similar grants, we recognized share-based compensation expense of $3.0$5.9 million and $5.7$5.2 million within management fees in our condensed consolidated statements of operations for the three months ended September 30, 2017March 31, 2021 and 2016,2020, respectively. For the nine months ended September 30, 2017 and 2016, we recognized $7.4 million and $15.8 million, respectively, related to these awards. Refer to Note 16 for further discussion of these grants.
In May 2017, the Company’s shareholders approved the Starwood Property Trust, Inc. 2017 Manager Equity Plan (the “2017 Manager Equity Plan”) which replaces the Manager Equity Plan. Refer to Note 16 for further discussion.
Investments in Loans and Securities
In March 2017, we were fully repaid $59.0 million upon the maturity of a subordinate single-borrower CMBS that we acquired in March 2015. The bond was secured by 85 U.S. hotel properties, and the borrower was an affiliate of Starwood Distressed Opportunity Fund IX, an affiliate of our Manager.
In May 2017, our conduit business acquired certain commercial real estate loans from an unaffiliated third party for an aggregate purchase price of $50.0 million. The underlying borrowers are affiliates of our Manager. During the three months ended September 30, 2017, $25.0March 31, 2021, the Company acquired $141.6 million of such loans were sold. The remaining $25.0 million of such
44
loans,from a residential mortgage originator in which were included within loans held-for-sale in our condensed consolidated balance sheetit holds an equity interest. Additionally, as of September 30, 2017, were sold subsequentMarch 31, 2021, the Company had outstanding residential mortgage loan purchase commitments of $27.4 million to September 30, 2017.this residential mortgage originator. Refer to Note 7 for further discussion.
Lease Arrangements
In June 2017,March 2020, we amendedentered into an office lease agreement with an entity which is controlled by our Chairman and CEO through majority equity ownership of the entity. The leased premises are currently under construction and will serve as our new Miami Beach office when our existing lease in Miami Beach expires on December 31, 2021. The lease will commence after delivery of the office space to us, but no earlier than July 30, 2021. The lease is for approximately 74,000 square feet of office space, has an initial term of 15 years and requires monthly lease payments starting in the tenth month after lease commencement. The lease payments are based on an annual base rate of $52.00 per square foot that increases by 3% each anniversary following commencement, plus our pro rata share of building operating expenses. In April 2020, we provided a £75.0$1.9 million first mortgagecash security deposit to the landlord. Prior to the execution of this lease, we engaged an independent third party leasing firm and external counsel to advise the independent directors of our board of directors on market terms for the developmentlease. The terms of a three-property mixed use portfolio located in Greater London, which we co-originated with SEREF,the lease were approved by our independent directors.
Other Related-Party Arrangements
Highmark Residential (“Highmark”), an affiliate of our Manager, in 2016. The amendment reduced the first mortgage’s total commitment to £69.3 million, of which our share is £55.4 million. The loan matures in June 2019.
In August 2017, we originated a $339.2 million first mortgage and mezzanine loan for the acquisition of an office campus located in Irvine, California. An affiliate of our Manager has a non-controlling equity interest in the borrower.
Investment in Unconsolidated Entities
In October 2014, we committed $150.0 million for a 33% equity interest in four regional shopping malls (the “Retail Fund”). In August 2017, we funded the remaining $15.5 million capital commitment associated with this investment (see Note 7). All leasingprovides property management services and asset management functions for the properties within our Woodstar I Portfolio. Fees paid to Highmark are conducted by an affiliatecalculated as a percentage of our Manager which specializes in redeveloping, managinggross receipts and repositioning retail real estate assets. In addition, another affiliateare at market terms. During the three months ended March 31, 2021 and 2020, property management fees to Highmark of our Manager serves as general partner of the Retail Fund.
Acquisitions from Consolidated CMBS Trusts
Our Investing$0.7 million and Servicing Segment acquires interests in properties for its REIS Equity Portfolio from CMBS trusts, some of which are consolidated as VIEs on our balance sheet. Acquisitions from consolidated VIEs are reflected as repayment of debt of consolidated VIEs$0.5 million, respectively, were recognized in our condensed consolidated statements of cash flows. During the three months ended September 30, 2016, we acquired $3.3 million of net real estate assets from consolidated CMBS trusts. No real estate assets were acquired from consolidated CMBS trusts during the three months ended September 30, 2017. During the nine months ended September 30, 2017 and 2016, we acquired $19.7 million and $88.4 million, respectively, of net real estate assets from consolidated CMBS trusts and subsequently issued non-controlling interests of $5.5 million on the 2016 acquisitions. No non-controlling interests were issued during the nine months ended September 30, 2017. Refer to Note 3 for further discussion of these acquisitions. operations.
Refer to Note 16 to the consolidated financial statements included in our Form 10-K for further discussion of related-party agreements.
42
16. Stockholders’ Equity and Non-Controlling Interests
During the ninethree months ended September 30, 2017,March 31, 2021, our board of directors declared the following dividends:
|
|
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|
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|
|
|
|
|
Declaration Date |
| Record Date |
| Ex-Dividend Date |
| Payment Date |
| Amount |
| Frequency | |
8/9/17 |
| 9/29/17 |
| 9/28/17 |
| 10/13/17 |
| $ | 0.48 |
| Quarterly |
5/9/17 |
| 6/30/17 |
| 6/28/17 |
| 7/14/17 |
| $ | 0.48 |
| Quarterly |
2/23/17 |
| 3/31/17 |
| 3/29/17 |
| 4/14/17 |
| $ | 0.48 |
| Quarterly |
| | | | | | | | | | | |
Declaration Date | Record Date | Ex-Dividend Date | Payment Date | Amount | Frequency | ||||||
3/11/21 |
| 3/31/21 | 3/30/21 | | 4/15/21 | | | 0.48 | Quarterly | ||
During the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, there were no0 shares issued under our At-The-Market Equity Offering Sales Agreement. During the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, shares issued under the Starwood Property Trust, Inc. Dividend Reinvestment and Direct Stock Purchase Plan (the “DRIP Plan”) were not material.
In February 2017, our board of directors extended the term of our $500.0 million common stock and Convertible Note repurchase program through January 2019. Refer to Note 17 to the consolidated financial statements included in our Form 10-K for further information regarding the repurchase program. During the nine months ended September 30, 2016, we repurchased 1,052,889 shares of common stock for $19.7 million and no Convertible Notes under our repurchase program. There were no share repurchases or Convertible Note repurchases under the repurchase
45
program during the nine months ended September 30, 2017. The repurchase of the 2018 Notes discussed in Note 10 was not considered part of the repurchase program and therefore does not reduce our available capacity for future repurchases under the repurchase program. As of September 30, 2017, we had $262.2 million of remaining capacity to repurchase common stock and/or Convertible Notes under the repurchase program through January 2019.
Equity Incentive Plans
In May 2017, the Company’s shareholders approved the 2017 Manager Equity Plan and the Starwood Property Trust, Inc. 2017 Equity Plan (the “2017 Equity Plan”), which allow for the issuance of up to 11,000,000 stock options, stock appreciation rights, RSAs, RSUs or other equity-based awards or any combination thereof to the Manager, directors, employees, consultants or any other party providing services to the Company. The 2017 Manager Equity Plan succeeds and replaces the Manager Equity Plan and the 2017 Equity Plan succeeds and replaces the Starwood Property Trust, Inc. Equity Plan (the “Equity Plan”) and the Starwood Property Trust, Inc. Non-Executive Director Stock Plan (the “Non-Executive Director Stock Plan”).
The table below summarizes our share awards granted or vested under the Manager Equity Plan and the 2017 Manager Equity Plan during the ninethree months ended September 30, 2017March 31, 2021 and 20162020 (dollar amounts in thousands):
| | | | | | | | | | |
Grant Date |
| Type |
| Amount Granted |
| Grant Date Fair Value |
| Vesting Period |
| |
November 2020 | | RSU | | 1,800,000 | | $ | 30,078 | | 3 years | |
September 2019 | | RSU | | 1,200,000 | | | 29,484 | | (1) | |
April 2018 | | RSU | | 775,000 | | | 16,329 | | 3 years | |
March 2017 | | RSU | | 1,000,000 | | | 22,240 | | 3 years | |
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|
|
Grant Date |
| Type |
| Amount Granted |
| Grant Date Fair Value |
| Vesting Period |
| |
March 2017 |
| RSU |
| 1,000,000 |
| $ | 22,240 |
| 3 years |
|
May 2015 |
| RSU |
| 675,000 |
|
| 16,511 |
| 3 years |
|
January 2014 |
| RSU |
| 489,281 |
|
| 14,776 |
| 3 years |
|
January 2014 |
| RSU |
| 2,000,000 |
|
| 55,420 |
| 3 years |
|
| (1) | Of the amount granted, 218,898 vested immediately on the grant date and the remaining amount vests over a three-year period. |
Schedule of Non-Vested Shares and Share Equivalents
| | | | | | | | | |
| | | | 2017 | | | | Weighted Average | |
| | 2017 | | Manager | | | | Grant Date Fair | |
| | Equity Plan | | Equity Plan | | Total | | Value (per share) | |
Balance as of January 1, 2021 |
| 1,594,605 |
| 2,286,896 |
| 3,881,501 |
| $ | 17.26 |
Granted | | 1,518,072 | | — |
| 1,518,072 | |
| 21.81 |
Vested |
| (633,893) | | (296,342) |
| (930,235) | |
| 17.48 |
Balance as of March 31, 2021 |
| 2,478,784 |
| 1,990,554 |
| 4,469,338 |
| | 18.76 |
As of September 30, 2017,March 31, 2021, there were 11.03.2 million shares of common stock available for future grants under the 2017 Manager Equity Plan and the 2017 Equity Plan.
Schedule of Non-Vested Shares and Share Equivalents (1)
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|
| 2017 |
|
|
| Weighted Average | |
|
| 2017 |
| Manager |
|
|
| Grant Date Fair | |
|
| Equity Plan |
| Equity Plan |
| Total |
| Value (per share) | |
Balance as of January 1, 2017 |
| 539,124 |
| 281,250 |
| 820,374 |
| $ | 22.34 |
Granted |
| 548,160 |
| 1,000,000 |
| 1,548,160 |
|
| 22.27 |
Vested |
| (337,192) |
| (335,416) |
| (672,608) |
|
| 22.69 |
Forfeited |
| (34,531) |
| — |
| (34,531) |
|
| 22.56 |
Balance as of September 30, 2017 |
| 715,561 |
| 945,834 |
| 1,661,395 |
|
| 22.09 |
|
|
46
43
Non-Controlling Interests in Consolidated Subsidiaries
In connection with our Woodstar II Portfolio acquisitions, we issued 10.2 million Class A Units in our consolidated subsidiary, SPT Dolphin, and rights to receive an additional 1.9 million Class A Units if certain contingent events occur. As of March 31, 2021, all of the 1.9 million contingent Class A Units were issued. The Class A Units are redeemable for consideration equal to the current share price of the Company’s common stock on a 1-for-one basis, with the consideration paid in either cash or the Company’s common stock, at the determination of the Company. During the three months ended March 31, 2021, redemptions of 0.1 million of the Class A Units were received and settled in common stock, leaving 10.6 million Class A Units outstanding as of March 31, 2021. In consolidation, the outstanding Class A Units are reflected as non-controlling interests in consolidated subsidiaries on our condensed consolidated balance sheets, the balance of which was $225.6 million and $226.7 million as of March 31, 2021 and December 31, 2020, respectively.
To the extent SPT Dolphin has sufficient cash available, the Class A Units earn a preferred return indexed to the dividend rate of the Company’s common stock. Any distributions made pursuant to this waterfall are recognized within net income attributable to non-controlling interests in our condensed consolidated statements of operations. During both the three months ended March 31, 2021 and 2020, we recognized net income attributable to non-controlling interests of $5.1 million associated with these Class A Units.
As discussed in Note 14, we hold a 51% controlling interest in the CMBS JV within our Investing and Servicing Segment. Because the CMBS JV is deemed a VIE for which we are the primary beneficiary, the 49% interest of our joint venture partner is reflected as a non-controlling interest in consolidated subsidiaries on our condensed consolidated balance sheets, and any net income attributable to this 49% joint venture interest is reflected within net income attributable to non-controlling interests in our consolidated statement of operations. The non-controlling interests in the CMBS JV were $132.4 million and $126.7 million as of March 31, 2021 and December 31, 2020, respectively. During the three months ended March 31, 2021 and 2020, net income (loss) attributable to non-controlling interests was $5.4 million and $(6.0) million, respectively.
44
The following table provides a reconciliation of net income (loss) and the number of shares of common stock used in the computation of basic EPS and diluted EPS (amounts in thousands, except per share amounts):
| | | | | | |
| | For the Three Months Ended | ||||
| | March 31, | ||||
|
| 2021 |
| 2020 | ||
Basic Earnings (Loss) | | | | | | |
Income (loss) attributable to STWD common stockholders | | $ | 111,378 | | $ | (66,769) |
Less: Income attributable to participating shares not already deducted as non-controlling interests | |
| (1,925) | |
| (1,222) |
Basic earnings (loss) | | $ | 109,453 | | $ | (67,991) |
| | | | | | |
Diluted Earnings (Loss) | | | | | | |
Income (loss) attributable to STWD common stockholders | | $ | 111,378 | | $ | (66,769) |
Less: Income attributable to participating shares not already deducted as non-controlling interests | |
| (1,925) | |
| (1,222) |
Add: Interest expense on Convertible Notes | | | 2,916 | | | * |
Diluted earnings (loss) | | $ | 112,369 | | $ | (67,991) |
| | | | | | |
Number of Shares: | | | | | | |
Basic — Average shares outstanding | |
| 283,319 | |
| 280,990 |
Effect of dilutive securities — Convertible Notes | |
| 9,649 | |
| * |
Effect of dilutive securities — Contingently issuable shares | |
| 263 | |
| — |
Diluted — Average shares outstanding | |
| 293,231 | |
| 280,990 |
| | | | | | |
Earnings (Loss) Per Share Attributable to STWD Common Stockholders: | | | | | | |
Basic | | $ | 0.39 | | $ | (0.24) |
Diluted | | $ | 0.38 | | $ | (0.24) |
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|
| For the Three Months Ended |
| For the Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Basic Earnings |
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|
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|
|
|
|
|
Income attributable to STWD common stockholders |
| $ | 88,428 |
| $ | 105,766 |
| $ | 308,166 |
| $ | 243,896 |
Less: Income attributable to participating shares |
|
| (761) |
|
| (456) |
|
| (2,489) |
|
| (1,743) |
Basic earnings |
| $ | 87,667 |
| $ | 105,310 |
| $ | 305,677 |
| $ | 242,153 |
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|
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|
|
Diluted Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
Basic — Income attributable to STWD common stockholders |
| $ | 88,428 |
| $ | 105,766 |
| $ | 308,166 |
| $ | 243,896 |
Less: Income attributable to participating shares |
|
| (761) |
|
| (456) |
|
| (2,489) |
|
| (1,743) |
Add: Undistributed earnings to participating shares |
|
| — |
|
| — |
|
| — |
|
| — |
Less: Undistributed earnings reallocated to participating shares |
|
| — |
|
| — |
|
| — |
|
| — |
Diluted earnings |
| $ | 87,667 |
| $ | 105,310 |
| $ | 305,677 |
| $ | 242,153 |
|
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|
|
|
|
|
|
Number of Shares: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic — Average shares outstanding |
|
| 259,759 |
|
| 237,429 |
|
| 259,412 |
|
| 237,017 |
Effect of dilutive securities — Convertible Notes |
|
| 2,313 |
|
| 3,445 |
|
| 2,284 |
|
| 3,766 |
Effect of dilutive securities — Contingently issuable shares |
|
| 236 |
|
| 138 |
|
| 236 |
|
| 138 |
Effect of dilutive securities — Unvested non-participating shares |
|
| 129 |
|
| 79 |
|
| 123 |
|
| 61 |
Diluted — Average shares outstanding |
|
| 262,437 |
|
| 241,091 |
|
| 262,055 |
|
| 240,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share Attributable to STWD Common Stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.34 |
| $ | 0.44 |
| $ | 1.18 |
| $ | 1.02 |
Diluted |
| $ | 0.33 |
| $ | 0.44 |
| $ | 1.17 |
| $ | 1.00 |
*Our Convertible Notes were not dilutive for the three months ended March 31, 2020.
As of September 30, 2017March 31, 2021 and 2016,2020, participating shares of 1.614.6 million and 0.913.2 million, respectively, were excluded from the computation of diluted shares as their effect was already considered under the more dilutive two-class method used above.
Additionally, as of September 30, 2017, there were 61.9 Such participating shares at both March 31, 2021 and 2020 included 10.6 million potential shares of our common stock contingently issuable upon the conversionredemption of the Convertible Notes. The Company has asserted its intent and ability to settle the principal amount of the Convertible NotesClass A Units in cash. As a result, this principal amount, representing 59.6 million shares at September 30, 2017, was not included in the computation of diluted EPS. However,SPT Dolphin, as discussed in Note 10, the conversion options associated with the 2018 Notes and 2019 Notes are “in-the-money” as the if-converted values of the 2018 Notes and 2019 Notes exceeded their principal amounts by $16.4 million and $34.6 million, respectively, at September 30, 2017. The dilutive effect to EPS is determined by dividing this “conversion spread value” by the average share price. The “conversion spread value” is the value that would be delivered to investors in shares based on the terms of the Convertible Notes, upon an assumed conversion. In calculating the dilutive effect of these shares, the treasury stock method was used and resulted in a dilution of 2.3 million shares for the three and nine months ended September 30, 2017. The conversion options associated with the 2017 Notes and 2023 Notes are “out-of-the-money” because the if-converted values of the 2017 Notes and 2023 Notes were less than their principal amounts by $38.5 million and $40.4 million, respectively, at September 30, 2017; therefore, there was no dilutive effect to EPS for the 2017 Notes and 2023 Notes.
47
16.
45
18. Accumulated Other Comprehensive Income
The changes in AOCI by component are as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
| Cumulative |
|
|
|
|
|
| ||||||||||
|
|
|
|
| Unrealized Gain |
|
|
|
|
|
| ||||||||||
|
| Effective Portion of |
| (Loss) on |
| Foreign |
|
|
| ||||||||||||
|
| Cumulative Loss on |
| Available-for- |
| Currency |
|
|
| ||||||||||||
|
| Cash Flow Hedges |
| Sale Securities |
| Translation |
| Total | |||||||||||||
Three Months Ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Balance at July 1, 2017 |
| $ | 52 |
| $ | 51,682 |
| $ | 4,247 |
| $ | 55,981 | |||||||||
| | | | | | | | | | ||||||||||||
|
| Cumulative |
| | |
| | | |||||||||||||
| | Unrealized Gain | | | | | | | |||||||||||||
| | (Loss) on | | Foreign | | | | ||||||||||||||
| | Available-for- | | Currency | | | | ||||||||||||||
| | Sale Securities | | Translation | | Total | |||||||||||||||
Three Months Ended March 31, 2021 | | | | | | | | | | ||||||||||||
Balance at January 1, 2021 | | $ | 44,057 | | $ | (64) | | $ | 43,993 | ||||||||||||
OCI before reclassifications |
|
| (3) |
|
| 3,975 |
|
| 5,337 |
|
| 9,309 | |
| (2,403) | |
| — | |
| (2,403) |
Amounts reclassified from AOCI |
|
| (19) |
|
| — |
|
| — |
|
| (19) | |
| — | |
| 64 | |
| 64 |
Net period OCI |
|
| (22) |
|
| 3,975 |
|
| 5,337 |
|
| 9,290 | |
| (2,403) | |
| 64 | |
| (2,339) |
Balance at September 30, 2017 |
| $ | 30 |
| $ | 55,657 |
| $ | 9,584 |
| $ | 65,271 | |||||||||
Three Months Ended September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Balance at July 1, 2016 |
| $ | (386) |
| $ | 39,858 |
| $ | (6,845) |
| $ | 32,627 | |||||||||
Balance at March 31, 2021 | | $ | 41,654 | | $ | — | | $ | 41,654 | ||||||||||||
Three Months Ended March 31, 2020 | | | | | | | | | | ||||||||||||
Balance at January 1, 2020 | | $ | 50,996 | | $ | (64) | | $ | 50,932 | ||||||||||||
OCI before reclassifications |
|
| 107 |
|
| 6,105 |
|
| 1,331 |
|
| 7,543 | |
| (15,048) | |
| — | |
| (15,048) |
Amounts reclassified from AOCI |
|
| 78 |
|
| — |
|
| — |
|
| 78 | |
| — | |
| — | |
| — |
Net period OCI |
|
| 185 |
|
| 6,105 |
|
| 1,331 |
|
| 7,621 | |
| (15,048) | |
| — | |
| (15,048) |
Balance at September 30, 2016 |
| $ | (201) |
| $ | 45,963 |
| $ | (5,514) |
| $ | 40,248 | |||||||||
Nine Months Ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Balance at January 1, 2017 |
| $ | (26) |
| $ | 44,929 |
| $ | (8,765) |
| $ | 36,138 | |||||||||
OCI before reclassifications |
|
| 45 |
|
| 10,823 |
|
| 18,349 |
|
| 29,217 | |||||||||
Amounts reclassified from AOCI |
|
| 11 |
|
| (95) |
|
| — |
|
| (84) | |||||||||
Net period OCI |
|
| 56 |
|
| 10,728 |
|
| 18,349 |
|
| 29,133 | |||||||||
Balance at September 30, 2017 |
| $ | 30 |
| $ | 55,657 |
| $ | 9,584 |
| $ | 65,271 | |||||||||
Nine Months Ended September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Balance at January 1, 2016 |
| $ | (65) |
| $ | 37,307 |
| $ | (7,513) |
| $ | 29,729 | |||||||||
OCI before reclassifications |
|
| (397) |
|
| 8,656 |
|
| 1,999 |
|
| 10,258 | |||||||||
Amounts reclassified from AOCI |
|
| 261 |
|
| — |
|
| — |
|
| 261 | |||||||||
Net period OCI |
|
| (136) |
|
| 8,656 |
|
| 1,999 |
|
| 10,519 | |||||||||
Balance at September 30, 2016 |
| $ | (201) |
| $ | 45,963 |
| $ | (5,514) |
| $ | 40,248 | |||||||||
Balance at March 31, 2020 | | $ | 35,948 | | $ | (64) | | $ | 35,884 | ||||||||||||
The reclassifications out of AOCI impacted the condensed consolidated statements of operations for the three and nine months ended September 30, 2017 and 2016 as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amounts Reclassified from |
| Amounts Reclassified from |
|
| ||||||||
|
| AOCI during the Three Months |
| AOCI during the Nine Months |
| Affected Line Item | ||||||||
|
| Ended September 30, |
| Ended September 30, |
| in the Statements | ||||||||
Details about AOCI Components |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| of Operations | ||||
Gain (loss) on cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| $ | 19 |
| $ | (78) |
| $ | (11) |
| $ | (261) |
| Interest expense |
Unrealized gains on available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest realized upon collection |
|
| — |
|
| — |
|
| 95 |
|
| — |
| Interest income from investment securities |
Total reclassifications for the period |
| $ | 19 |
| $ | (78) |
| $ | 84 |
| $ | (261) |
|
|
GAAP establishes a hierarchy of valuation techniques based on the observability of inputs utilized in measuring financial assets and liabilities at fair value. GAAP establishes market-based or observable inputs as the preferred source 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 I—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level II—Inputs (other than quoted prices included in Level I) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
Level III—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
Valuation Process
We have valuation control processes in place to validate the fair value of the Company’s financial assets and liabilities measured at fair value including those derived from pricing models. These control processes are designed to assure that the values used for financial reporting are based on observable inputs wherever possible. ReferIn the event that observable inputs are not available, the control processes are designed to Note 20assure that the valuation approach utilized is appropriate and consistently applied and the assumptions are reasonable.
Pricing Verification—We use recently executed transactions, other observable market data such as exchange data, broker/dealer quotes, third party pricing vendors and aggregation services for validating the fair values generated using valuation models. Pricing data provided by approved external sources is evaluated using a number of approaches; for example, by corroborating the external sources’ prices to executed trades, analyzing the methodology and assumptions used by the external source to generate a price and/or by evaluating how active the third party pricing source (or originating sources used by the third party pricing source) is in the market.
46
Unobservable Inputs—Where inputs are not observable, we review the appropriateness of the proposed valuation methodology to ensure it is consistent with how a market participant would arrive at the unobservable input. The valuation methodologies utilized in the absence of observable inputs may include extrapolation techniques and the use of comparable observable inputs.
Any changes to the consolidated financial statements included invaluation methodology will be reviewed by our Form 10-K for further discussionmanagement to ensure the changes are appropriate. The methods used may produce a fair value calculation that is not indicative of net realizable value or reflective of future fair values. Furthermore, while we anticipate that our valuation process.methods are appropriate and consistent with other market participants, the use of different methodologies, or assumptions, to determine the fair value could result in a different estimate of fair value at the reporting date.
Fair Value on a Recurring Basis
We determine the fair value of our financial assets and liabilities measured at fair value on a recurring basis as follows:
Loans held-for-sale, commercial
We measure the fair value of our commercial mortgage loans held-for-sale using a discounted cash flow analysis unless observable market data (i.e., securitized pricing) is available. A discounted cash flow analysis requires management to make estimates regarding future interest rates and nonrecurringcredit spreads. The most significant of these inputs relates to credit spreads and is unobservable. Thus, we have determined that the fair values of mortgage loans valued using a discounted cash flow analysis should be classified in Level III of the fair value hierarchy, while mortgage loans valued using securitized pricing should be classified in Level II of the fair value hierarchy. Mortgage loans classified in Level III are transferred to Level II if securitized pricing becomes available.
Loans held-for-sale and loans held-for-investment, residential
We measure the fair value of our residential loans held-for-sale and held-for-investment based on the net present value of expected future cash flows using a combination of observable and unobservable inputs. Observable market participant assumptions include pricing related to trades of residential loans with similar characteristics. Unobservable inputs include the expectation of future cash flows, which involves judgments about the underlying collateral, the creditworthiness of the borrower, estimated prepayment speeds, estimated future credit losses, forward interest rates, investor yield requirements and certain other factors. At each measurement date, we consider both the observable and unobservable valuation inputs in the determination of fair value. However, given the significance of the unobservable inputs, these loans have been classified within Level III.
RMBS
RMBS are valued utilizing observable and unobservable market inputs. The observable market inputs include recent transactions, broker quotes and vendor prices (“market data”). However, given the implied price dispersion amongst the market data, the fair value determination for RMBS has also utilized significant unobservable inputs in discounted cash flow models including prepayments, default and severity estimates based on the recent performance of the collateral, the underlying collateral characteristics, industry trends, as well as expectations of macroeconomic events (e.g., housing price curves, interest rate curves, etc.). At each measurement date, we consider both the observable and unobservable valuation inputs in the determination of fair value. However, given the significance of the unobservable inputs these securities have been classified within Level III.
CMBS
CMBS are valued utilizing both observable and unobservable market inputs. These factors include projected future cash flows, ratings, subordination levels, vintage, remaining lives, credit issues, recent trades of similar securities and the spreads used in the prior valuation. We obtain current market spread information where available and use this information in evaluating and validating the market price of all CMBS. Depending upon the significance of the fair value inputs used in determining these fair values, these securities are classified in either Level II or Level III of the fair value hierarchy. CMBS may shift between Level II and Level III of the fair value hierarchy if the significant fair value inputs used to price the CMBS become or cease to be observable.
47
Equity security
The equity security is publicly registered and traded in the U.S. and its market price is listed on the London Stock Exchange. The security has been classified within Level I.
Domestic servicing rights
The fair value of this intangible is determined using discounted cash flow modeling techniques which require management to make estimates regarding future net servicing cash flows, including forecasted loan defeasance, control migration, delinquency and anticipated maturity defaults which are calculated assuming a debt yield at which default occurs. Since the most significant of these inputs are unobservable, we have determined that the fair values of this intangible in its entirety should be classified in Level III of the fair value hierarchy.
Derivatives
The valuation of derivative contracts are determined using widely accepted valuation techniques including 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, and uses observable market based inputs, including interest rate curves, spot and market forward points and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.
We incorporate credit valuation adjustments to appropriately reflect both our own non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of non-performance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.
The valuation of over the counter derivatives are determined using discounted cash flows based on Overnight Index Swap (“OIS”) rates. Fully collateralized trades are discounted using OIS with no additional economic adjustments to arrive at fair value. Uncollateralized or partially collateralized trades are also discounted at OIS, but include appropriate economic adjustments for funding costs (i.e., a LIBOR OIS basis adjustment to approximate uncollateralized cost of funds) and credit risk. For credit index instruments, fair value is determined based on changes in accordancethe relevant indices from the date of initiation of the instrument to the reporting date, as these changes determine the amount of any future cash settlement between us and the counterparty. These indices are considered Level II inputs as they are directly observable.
Although we have determined that the majority of the inputs used to value our derivatives fall within Level II of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level III inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. However, as of March 31, 2021 and December 31, 2020, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level II of the fair value hierarchy.
Liabilities of consolidated VIEs
Our consolidated VIE liabilities generally represent bonds that are not owned by us. The majority of these are either traded in the marketplace or can be analogized to similar securities that are traded in the marketplace. For these liabilities, pricing is considered to be Level II, where the valuation is based upon quoted prices for similar instruments traded in active markets. We generally utilize third party pricing service providers for valuing these liabilities. In order to determine whether to utilize the valuations provided by third parties, we conduct an ongoing evaluation of their valuation methodologies and processes, as well as a review of the individual valuations themselves. In evaluating third party pricing for reasonableness, we consider a variety of factors, including market transaction information for the particular bond, market transaction information for bonds within the same trust, market transaction information for similar bonds, the bond’s ratings and the bond’s subordination levels.
48
For the minority portion of our consolidated VIE liabilities which consist of unrated or non-investment grade bonds that are not owned by us, pricing may be either Level II or Level III. If independent third party pricing similar to that noted above is available, we consider the valuation to be Level II. If such third party pricing is not available, the valuation is generated from model-based techniques that use significant unobservable assumptions, and we consider the valuation to be Level III. For VIE liabilities classified as Level III, valuation is determined based on discounted expected future cash flows which take into consideration expected duration and yields based on market transaction information, ratings, subordination levels, vintage and current market spread. VIE liabilities may shift between Level II and Level III of the fair value hierarchy if the significant fair value inputs used to price the VIE liabilities become or cease to be observable.
Assets of consolidated VIEs
The securitization VIEs in which we invest are “static”; that is, no reinvestment is permitted, and there is no active management of the underlying assets. In determining the fair value of the assets of the VIE, we maximize the use of observable inputs over unobservable inputs. The individual assets of a VIE are inherently incapable of precise measurement given their illiquid nature and the limitations on available information related to these assets. Because our methodology for valuing these assets does not value the individual assets of a VIE, but rather uses the value of the VIE liabilities as an indicator of the fair value of VIE assets as a whole, we have determined that our valuations of VIE assets in their entirety should be classified in Level III of the fair value hierarchy.
Fair Value Only Disclosed
We determine the fair value of our financial instruments and assets where fair value is disclosed as follows:
Loans held-for-investment and loans held-for-sale
We estimate the fair values of our loans not carried at fair value on a recurring basis by discounting their expected cash flows at a rate we estimate would be demanded by the market participants that are most likely to buy our loans. The expected cash flows used are generally the same as those used to calculate our level yield income in the financial statements. Since these inputs are unobservable, we have determined that the fair value of these loans in their entirety would be classified in Level III of the fair value hierarchy.
HTM debt securities
We estimate the fair value of our mandatorily redeemable preferred equity interests in commercial real estate companies and infrastructure bonds using the same methodology described for our loans held-for-investment. We estimate the fair value of our HTM CMBS using the same methodology described for our CMBS carried at fair value on a recurring basis.
Secured financing agreements and CLO
The fair value of the secured financing agreements and CLO are determined by discounting the contractual cash flows at the interest rate we estimate such arrangements would bear if executed in the current market. We have determined that our Form 10-K.valuation of these instruments should be classified in Level III of the fair value hierarchy.
Unsecured senior notes
The fair value of our unsecured senior notes is determined based on the last available bid price for the respective notes in the current market. As these prices represent observable market data, we have determined that the fair value of these instruments would be classified in Level II of the fair value hierarchy.
49
Fair Value Disclosures
The following tables present our financial assets and liabilities carried at fair value on a recurring basis in the condensed consolidated balance sheets by their level in the fair value hierarchy as of September 30, 2017March 31, 2021 and December 31, 20162020 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| September 30, 2017 | ||||||||||||||||||||||
|
| Total |
| Level I |
| Level II |
| Level III | ||||||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | March 31, 2021 | ||||||||||||||||||||||
|
| Total |
| Level I |
| Level II |
| Level III | ||||||||||||||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
Loans held-for-sale, fair value option |
| $ | 608,624 |
| $ | — |
| $ | — |
| $ | 608,624 | ||||||||||||
Loans under fair value option | | $ | 763,773 | | $ | — | | $ | — | | $ | 763,773 | ||||||||||||
RMBS |
|
| 253,252 |
|
| — |
|
| — |
|
| 253,252 | |
| 160,301 | |
| — | |
| — | |
| 160,301 |
CMBS |
|
| 23,841 |
|
| — |
|
| — |
|
| 23,841 | |
| 19,256 | |
| — | |
| — | |
| 19,256 |
Equity security |
|
| 13,529 |
|
| 13,529 |
|
| — |
|
| — | |
| 10,655 | |
| 10,655 | |
| — | |
| — |
Domestic servicing rights |
|
| 33,781 |
|
| — |
|
| — |
|
| 33,781 | |
| 12,406 | |
| — | |
| — | |
| 12,406 |
Derivative assets |
|
| 38,293 |
|
| — |
|
| 38,293 |
|
| — | |
| 38,029 | |
| — | |
| 38,029 | |
| — |
VIE assets |
|
| 51,197,981 |
|
| — |
|
| — |
|
| 51,197,981 | |
| 62,367,110 | |
| — | |
| — | |
| 62,367,110 |
Total |
| $ | 52,169,301 |
| $ | 13,529 |
| $ | 38,293 |
| $ | 52,117,479 | | $ | 63,371,530 | | $ | 10,655 | | $ | 38,029 | | $ | 63,322,846 |
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
Derivative liabilities |
| $ | 22,890 |
| $ | — |
| $ | 22,890 |
| $ | — | | $ | 34,805 | | $ | — | | $ | 34,805 | | $ | — |
VIE liabilities |
|
| 50,150,781 |
|
| — |
|
| 47,890,998 |
|
| 2,259,783 | |
| 60,896,709 | |
| — | |
| 58,669,281 | |
| 2,227,428 |
Total |
| $ | 50,173,671 |
| $ | — |
| $ | 47,913,888 |
| $ | 2,259,783 | | $ | 60,931,514 | | $ | — | | $ | 58,704,086 | | $ | 2,227,428 |
| | | | | | | | | | | | |
| | December 31, 2020 | ||||||||||
|
| Total |
| Level I |
| Level II |
| Level III | ||||
Financial Assets: | | | | | | | | | | | | |
Loans under fair value option | | $ | 1,022,979 | | $ | — | | $ | — | | $ | 1,022,979 |
RMBS | |
| 167,349 | |
| — | |
| — | |
| 167,349 |
CMBS | |
| 19,457 | |
| — | |
| — | |
| 19,457 |
Equity security | |
| 11,247 | |
| 11,247 | |
| — | |
| — |
Domestic servicing rights | |
| 13,202 | |
| — | |
| — | |
| 13,202 |
Derivative assets | |
| 40,555 | |
| — | |
| 40,555 | |
| — |
VIE assets | |
| 64,238,328 | |
| — | |
| — | |
| 64,238,328 |
Total | | $ | 65,513,117 | | $ | 11,247 | | $ | 40,555 | | $ | 65,461,315 |
Financial Liabilities: | | | | | | | | | | | | |
Derivative liabilities | | $ | 41,324 | | $ | — | | $ | 41,324 | | $ | — |
VIE liabilities | |
| 62,776,371 | |
| — | |
| 60,756,495 | |
| 2,019,876 |
Total | | $ | 62,817,695 | | $ | — | | $ | 60,797,819 | | $ | 2,019,876 |
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2016 | ||||||||||
|
| Total |
| Level I |
| Level II |
| Level III | ||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans held-for-sale, fair value option |
| $ | 63,279 |
| $ | — |
| $ | — |
| $ | 63,279 |
RMBS |
|
| 253,915 |
|
| — |
|
| — |
|
| 253,915 |
CMBS |
|
| 31,546 |
|
| — |
|
| — |
|
| 31,546 |
Equity security |
|
| 12,177 |
|
| 12,177 |
|
| — |
|
| — |
Domestic servicing rights |
|
| 55,082 |
|
| — |
|
| — |
|
| 55,082 |
Derivative assets |
|
| 89,361 |
|
| — |
|
| 89,361 |
|
| — |
VIE assets |
|
| 67,123,261 |
|
| — |
|
| — |
|
| 67,123,261 |
Total |
| $ | 67,628,621 |
| $ | 12,177 |
| $ | 89,361 |
| $ | 67,527,083 |
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities |
| $ | 3,904 |
| $ | — |
| $ | 3,904 |
| $ | — |
VIE liabilities |
|
| 66,130,592 |
|
| — |
|
| 63,545,223 |
|
| 2,585,369 |
Total |
| $ | 66,134,496 |
| $ | — |
| $ | 63,549,127 |
| $ | 2,585,369 |
50
The changes in financial assets and liabilities classified as Level III are as follows for the three and nine months ended September 30, 2017March 31, 2021 and 20162020 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| Domestic |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
|
| Loans |
|
|
|
|
|
|
| Servicing |
|
|
|
| VIE |
|
|
| ||||||||||||||||||||||||
Three Months Ended September 30, 2017 |
| Held‑for‑sale |
| RMBS |
| CMBS |
| Rights |
| VIE Assets |
| Liabilities |
| Total | ||||||||||||||||||||||||||||
July 1, 2017 balance |
| $ | 610,116 |
| $ | 256,397 |
| $ | 13,848 |
| $ | 38,648 |
| $ | 53,902,715 |
| $ | (2,164,593) |
| $ | 52,657,131 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
|
| | |
| | |
| | |
| Domestic |
| | |
| | |
| | | ||||||||||||||||||||||
| | Loans at | | | | | | | | Servicing | | | | | VIE | | | | ||||||||||||||||||||||||
Three Months Ended March 31, 2021 | | Fair Value | | RMBS | | CMBS | | Rights | | VIE Assets | | Liabilities | | Total | ||||||||||||||||||||||||||||
January 1, 2021 balance | | $ | 1,022,979 | | $ | 167,349 | | $ | 19,457 | | $ | 13,202 | | $ | 64,238,328 | | $ | (2,019,876) | | $ | 63,441,439 | |||||||||||||||||||||
Total realized and unrealized gains (losses): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | | |
Included in earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | | |
Change in fair value / gain on sale |
|
| 19,485 |
|
| — |
|
| (673) |
|
| (4,867) |
|
| (3,533,620) |
|
| 151,273 |
|
| (3,368,402) | |
| (9,478) | |
| — | |
| 372 | | | (796) | |
| (2,264,591) | |
| 65,681 | |
| (2,208,812) |
Net accretion |
|
| — |
|
| 3,187 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 3,187 | |
| — | |
| 2,606 | |
| — | |
| — | |
| — | |
| — | |
| 2,606 |
Included in OCI |
|
| — |
|
| 3,975 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 3,975 | |
| — | |
| (2,403) | |
| — | |
| — | |
| — | |
| — | |
| (2,403) |
Purchases / Originations |
|
| 524,409 |
|
| — |
|
| 11,798 |
|
| — |
|
| — |
|
| — |
|
| 536,207 | |
| 375,270 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 375,270 |
Sales |
|
| (517,350) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (517,350) | |
| (571,927) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (571,927) |
Issuances |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (1,469) |
|
| (1,469) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (11,604) | |
| (11,604) |
Cash repayments / receipts |
|
| (28,036) |
|
| (10,307) |
|
| (1,666) |
|
| — |
|
| — |
|
| (4,910) |
|
| (44,919) | |
| (53,071) | |
| (7,251) | |
| (573) | |
| — | |
| — | |
| (1,137) | |
| (62,032) |
Transfers into Level III |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (233,367) |
|
| (233,367) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (409,267) | |
| (409,267) |
Transfers out of Level III |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 67,272 |
|
| 67,272 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 148,775 | |
| 148,775 |
Consolidation of VIEs |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 964,564 |
|
| (75,585) |
|
| 888,979 | |
| — | |
| — | |
| — | |
| — | |
| 393,373 | |
| — | |
| 393,373 |
Deconsolidation of VIEs |
|
| — |
|
| — |
|
| 534 |
|
| — |
|
| (135,678) |
|
| 1,596 |
|
| (133,548) | |||||||||||||||||||||
September 30, 2017 balance |
| $ | 608,624 |
| $ | 253,252 |
| $ | 23,841 |
| $ | 33,781 |
| $ | 51,197,981 |
| $ | (2,259,783) |
| $ | 49,857,696 | |||||||||||||||||||||
Amount of total (losses) gains included in earnings attributable to assets still held at September 30, 2017 |
| $ | (2,597) |
| $ | 3,187 |
| $ | (230) |
| $ | (4,867) |
| $ | (3,533,620) |
| $ | 151,273 |
| $ | (3,386,854) | |||||||||||||||||||||
March 31, 2021 balance | | $ | 763,773 | | $ | 160,301 | | $ | 19,256 | | $ | 12,406 | | $ | 62,367,110 | | $ | (2,227,428) | | $ | 61,095,418 | |||||||||||||||||||||
Amount of unrealized gains (losses) attributable to assets still held at March 31, 2021: | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
Included in earnings | | $ | (7,708) | | $ | 2,606 | | $ | 372 | | $ | (796) | | $ | (2,264,591) | | $ | 65,681 | | $ | (2,204,436) | |||||||||||||||||||||
Included in OCI | | $ | — | | $ | (2,403) | | $ | — | | $ | — | | $ | — | | $ | — | | $ | (2,403) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| Domestic |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
|
| Loans |
|
|
|
|
|
|
| Servicing |
|
|
|
| VIE |
|
|
| ||||||||||||||||||||||||
Three Months Ended September 30, 2016 |
| Held‑for‑sale |
| RMBS |
| CMBS |
| Rights |
| VIE Assets |
| Liabilities |
| Total | ||||||||||||||||||||||||||||
July 1, 2016 balance |
| $ | 237,106 |
| $ | 251,260 |
| $ | 114,340 |
| $ | 83,301 |
| $ | 80,076,117 |
| $ | (3,540,652) |
| $ | 77,221,472 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
|
| | |
| | |
| | |
| Domestic |
| | |
| | |
| | | ||||||||||||||||||||||
| | Loans at | | | | | | | | Servicing | | | | | VIE | | | | ||||||||||||||||||||||||
Three Months Ended March 31, 2020 | | Fair Value | | RMBS | | CMBS | | Rights | | VIE Assets | | Liabilities | | Total | ||||||||||||||||||||||||||||
January 1, 2020 balance | | $ | 1,436,194 | | $ | 189,576 | | $ | 25,008 | | $ | 16,917 | | $ | 62,187,175 | | $ | (2,537,392) | | $ | 61,317,478 | |||||||||||||||||||||
Total realized and unrealized gains (losses): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | | |
Included in earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | | |
Change in fair value / gain on sale |
|
| 49,996 |
|
| — |
|
| (2,993) |
|
| (14,283) |
|
| (8,143,518) |
|
| 653,103 |
|
| (7,457,695) | |
| (16,134) | |
| — | |
| 5,738 | | | (393) | |
| (3,506,792) | |
| 146,282 | |
| (3,371,299) |
Net accretion |
|
| — |
|
| 4,197 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 4,197 | |
| — | |
| 2,661 | |
| — | |
| — | |
| — | |
| — | |
| 2,661 |
Included in OCI |
|
| — |
|
| 6,105 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 6,105 | |
| — | |
| (15,048) | |
| — | |
| — | |
| — | |
| — | |
| (15,048) |
Purchases / Originations |
|
| 709,045 |
|
| 8,868 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 717,913 | | | 746,880 | |
| — | |
| — | |
| — | |
| — | |
| — | | | 746,880 |
Sales |
|
| (648,179) |
|
| — |
|
| (17,456) |
|
| — |
|
| — |
|
| — |
|
| (665,635) | |
| (751,746) | |
| — | |
| (7,940) | |
| — | |
| — | |
| — | |
| (759,686) |
Issuances | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (24,376) | |
| (24,376) | |||||||||||||||||||||
Cash repayments / receipts |
|
| (478) |
|
| (9,917) |
|
| (12,289) |
|
| — |
|
| — |
|
| 7,819 |
|
| (14,865) | | | (67,397) | |
| (6,549) | |
| (371) | |
| — | |
| — | |
| (8,916) | |
| (83,233) |
Transfers into Level III |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (1) |
|
| (1) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (101,265) | |
| (101,265) |
Transfers out of Level III |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 40,959 |
|
| 40,959 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 1,090,325 | |
| 1,090,325 |
Consolidation of VIEs |
|
| — |
|
| — |
|
| (24,403) |
|
| — |
|
| 2,268,424 |
|
| (109,913) |
|
| 2,134,108 | |
| — | |
| — | |
| — | |
| — | |
| 2,477,422 | |
| (71,095) | |
| 2,406,327 |
Deconsolidation of VIEs |
|
| — |
|
| — |
|
| 1,586 |
|
| — |
|
| (277,324) |
|
| 37,188 |
|
| (238,550) | |||||||||||||||||||||
September 30, 2016 balance |
| $ | 347,490 |
| $ | 260,513 |
| $ | 58,785 |
| $ | 69,018 |
| $ | 73,923,699 |
| $ | (2,911,497) |
| $ | 71,748,008 | |||||||||||||||||||||
Amount of total gains (losses) included in earnings attributable to assets still held at September 30, 2016 |
| $ | 9,746 |
| $ | 4,197 |
| $ | (1,852) |
| $ | (14,283) |
| $ | (8,143,518) |
| $ | 653,103 |
| $ | (7,492,607) | |||||||||||||||||||||
March 31, 2020 balance | | $ | 1,347,797 | | $ | 170,640 | | $ | 22,435 | | $ | 16,524 | | $ | 61,157,805 | | $ | (1,506,437) | | $ | 61,208,764 | |||||||||||||||||||||
Amount of unrealized (losses) gains attributable to assets still held at March 31, 2020: | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
Included in earnings | | $ | (39,070) | | $ | 2,661 | | $ | (647) | | $ | (393) | | $ | (3,506,792) | | $ | 146,282 | | $ | (3,397,959) | |||||||||||||||||||||
Included in OCI | | $ | — | | $ | (15,048) | | $ | — | | $ | — | | $ | — | | $ | — | | $ | (15,048) | |||||||||||||||||||||
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Domestic |
|
|
|
|
|
|
|
|
| |
|
| Loans |
|
|
|
|
|
|
| Servicing |
|
|
|
| VIE |
|
|
| |||
Nine Months Ended September 30, 2017 |
| Held‑for‑sale |
| RMBS |
| CMBS |
| Rights |
| VIE Assets |
| Liabilities |
| Total | |||||||
January 1, 2017 balance |
| $ | 63,279 |
| $ | 253,915 |
| $ | 31,546 |
| $ | 55,082 |
| $ | 67,123,261 |
| $ | (2,585,369) |
| $ | 64,941,714 |
Total realized and unrealized gains (losses): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value / gain on sale |
|
| 45,484 |
|
| — |
|
| (4,359) |
|
| (21,301) |
|
| (15,773,529) |
|
| 749,757 |
|
| (15,003,948) |
OTTI |
|
| — |
|
| (109) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (109) |
Net accretion |
|
| — |
|
| 10,375 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 10,375 |
Included in OCI |
|
| — |
|
| 10,728 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 10,728 |
Purchases / Originations |
|
| 1,527,364 |
|
| 7,433 |
|
| 11,798 |
|
| — |
|
| — |
|
| — |
|
| 1,546,595 |
Sales |
|
| (987,828) |
|
| — |
|
| (11,134) |
|
| — |
|
| — |
|
| — |
|
| (998,962) |
Issuances |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (11,657) |
|
| (11,657) |
Cash repayments / receipts |
|
| (39,675) |
|
| (29,090) |
|
| (8,754) |
|
| — |
|
| — |
|
| (40,946) |
|
| (118,465) |
Transfers into Level III |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (616,794) |
|
| (616,794) |
Transfers out of Level III |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 231,012 |
|
| 231,012 |
Consolidation of VIEs |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 2,092,516 |
|
| (75,585) |
|
| 2,016,931 |
Deconsolidation of VIEs |
|
| — |
|
| — |
|
| 4,744 |
|
| — |
|
| (2,244,267) |
|
| 89,799 |
|
| (2,149,724) |
September 30, 2017 balance |
| $ | 608,624 |
| $ | 253,252 |
| $ | 23,841 |
| $ | 33,781 |
| $ | 51,197,981 |
| $ | (2,259,783) |
| $ | 49,857,696 |
Amount of total (losses) gains included in earnings attributable to assets still held at September 30, 2017 |
| $ | (2,621) |
| $ | 10,159 |
| $ | 56 |
| $ | (21,301) |
| $ | (15,773,529) |
| $ | 749,757 |
| $ | (15,037,479) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Domestic |
|
|
|
|
|
|
|
|
| |
|
| Loans |
|
|
|
|
|
|
| Servicing |
|
|
|
| VIE |
|
|
| |||
Nine Months Ended September 30, 2016 |
| Held‑for‑sale |
| RMBS |
| CMBS |
| Rights |
| VIE Assets |
| Liabilities |
| Total | |||||||
January 1, 2016 balance |
| $ | 203,865 |
| $ | 176,224 |
| $ | 212,981 |
| $ | 119,698 |
| $ | 76,675,689 |
| $ | (2,552,448) |
| $ | 74,836,009 |
Impact of ASU 2015-02 adoption (1) |
|
| — |
|
| — |
|
| — |
|
| (17,467) |
|
| 17,467 |
|
| — |
|
| — |
Total realized and unrealized gains (losses): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value / gain on sale |
|
| 70,122 |
|
| — |
|
| (677) |
|
| (33,213) |
|
| (16,483,798) |
|
| 946,703 |
|
| (15,500,863) |
Net accretion |
|
| — |
|
| 11,354 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 11,354 |
Included in OCI |
|
| — |
|
| 8,656 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 8,656 |
Purchases / Originations |
|
| 1,197,801 |
|
| 97,204 |
|
| 57,576 |
|
| — |
|
| — |
|
| — |
|
| 1,352,581 |
Sales |
|
| (1,123,512) |
|
| — |
|
| (18,725) |
|
| — |
|
| — |
|
| — |
|
| (1,142,237) |
Issuances |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (596) |
|
| (596) |
Cash repayments / receipts |
|
| (786) |
|
| (32,925) |
|
| (31,734) |
|
| — |
|
| — |
|
| 28,591 |
|
| (36,854) |
Transfers into Level III |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (972,588) |
|
| (972,588) |
Transfers out of Level III |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 187,683 |
|
| 187,683 |
Consolidation of VIEs |
|
| — |
|
| — |
|
| (162,745) |
|
| — |
|
| 19,118,645 |
|
| (593,818) |
|
| 18,362,082 |
Deconsolidation of VIEs |
|
| — |
|
| — |
|
| 2,109 |
|
| — |
|
| (5,404,304) |
|
| 44,976 |
|
| (5,357,219) |
September 30, 2016 balance |
| $ | 347,490 |
| $ | 260,513 |
| $ | 58,785 |
| $ | 69,018 |
| $ | 73,923,699 |
| $ | (2,911,497) |
| $ | 71,748,008 |
Amount of total gains (losses) included in earnings attributable to assets still held at September 30, 2016 |
| $ | 9,746 |
| $ | 11,354 |
| $ | 263 |
| $ | (33,213) |
| $ | (16,483,798) |
| $ | 946,703 |
| $ | (15,548,945) |
|
|
Amounts were transferred from Level II to Level III due to a decrease in the observable relevant market activity and amounts were transferred from Level III to Level II due to an increase in the observable relevant market activity.
52
The following table presents the fair values all of which are classified in Level III of the fair value hierarchy, of our financial instruments not carried at fair value on the condensed consolidated balance sheets (amounts in thousands):
| | | | | | | | | | | | |
| | March 31, 2021 | | December 31, 2020 | ||||||||
|
| Carrying |
| Fair | | Carrying |
| Fair | ||||
| | Value | | Value | | Value | | Value | ||||
Financial assets not carried at fair value: | | | | | | | | | | | | |
Loans held-for-investment and loans held-for-sale | | $ | 12,402,351 | | $ | 12,460,388 | | $ | 11,116,929 | | $ | 11,107,316 |
HTM debt securities | |
| 488,075 | |
| 466,687 | |
| 538,605 | |
| 515,253 |
Financial liabilities not carried at fair value: | | | | | | | | | | | | |
Secured financing agreements and CLO | | $ | 11,827,110 | | $ | 11,900,381 | | $ | 11,076,744 | | $ | 11,108,364 |
Unsecured senior notes | |
| 1,735,658 | |
| 1,803,224 | |
| 1,732,520 | |
| 1,786,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
| December 31, 2016 | ||||||||
|
| Carrying |
| Fair |
| Carrying |
| Fair | ||||
|
| Value |
| Value |
| Value |
| Value | ||||
Financial assets not carried at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans held-for-investment and loans transferred as secured borrowings |
| $ | 6,456,710 |
| $ | 6,539,259 |
| $ | 5,882,995 |
| $ | 5,934,219 |
HTM securities |
|
| 411,196 |
|
| 408,442 |
|
| 509,980 |
|
| 504,165 |
Financial liabilities not carried at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
Secured financing agreements and secured borrowings on transferred loans |
| $ | 5,588,895 |
| $ | 5,559,888 |
| $ | 4,189,126 |
| $ | 4,198,136 |
Unsecured senior notes |
|
| 2,044,523 |
|
| 2,097,835 |
|
| 2,011,544 |
|
| 2,088,374 |
51
The following is quantitative information about significant unobservable inputs in our Level III measurements for those assets and liabilities measured at fair value on a recurring basis (dollars in thousands):
| | | | | | | | | | | |
| | Carrying Value at | | Valuation | | Unobservable | | Range (Weighted Average) as of (1) | |||
|
| March 31, 2021 |
| Technique |
| Input | | March 31, 2021 | | December 31, 2020 | |
Loans under fair value option | | $ | 763,773 | | Discounted cash flow, market pricing | | Coupon (d) | | 3.4% - 9.5% (5.5%) | | 3.3% - 9.7% (5.9%) |
| | | | | | | Remaining contractual term (d) | | 7.0 - 39.0 years (24.7 years) | | 7.3 - 39.3 years (26.3 years) |
| | | | | | | FICO score (a) | | 519 - 823 (732) | | 519 - 823 (727) |
| | | | | | | LTV (b) | | 15% - 94% (66%) | | 5% - 94% (68%) |
| | | | | | | Purchase price (d) | | 85.6% - 104.8% (101.7%) | | 84.4% - 104.8% (99.8%) |
RMBS | |
| 160,301 | | Discounted cash flow | | Constant prepayment rate (a) | | 3.5% - 17.3% (7.4%) | | 3.6% - 19.4% (7.6%) |
| | | | | | | Constant default rate (b) | | 0.7% - 5.0% (2.2%) | | 0.7% - 5.4% (2.4%) |
| | | | | | | Loss severity (b) | | 0% - 84% (17%) (f) | | 0% - 85% (20%) (f) |
| | | | | | | Delinquency rate (c) | | 9% - 32% (18%) | | 10% - 32% (19%) |
| | | | | | | Servicer advances (a) | | 23% - 84% (53%) | | 23% - 82% (54%) |
| | | | | | | Annual coupon deterioration (b) | | 0.0% - 1.2% (0.1%) | | 0.0% - 0.9% (0.1%) |
| | | | | | | Putback amount per projected total collateral loss (e) | | 0% -17% (0.8%) | | 0% -17% (0.8%) |
CMBS | |
| 19,256 | | Discounted cash flow | | Yield (b) | | 0% - 298.5% (5.9%) | | 0% - 536.6% (7.1%) |
| | | | | | | Duration (c) | | 0 - 7.6 years (6.0 years) | | 0 - 7.6 years (5.3 years) |
Domestic servicing rights | |
| 12,406 | | Discounted cash flow | | Debt yield (a) | | 7.25% (7.25%) | | 7.50% (7.50%) |
| | | | | | | Discount rate (b) | | 15% (15%) | | 15% (15%) |
VIE assets | |
| 62,367,110 | | Discounted cash flow | | Yield (b) | | 0% - 752.4% (16.9%) | | 0% - 312.2% (14.3%) |
| | | | | | | Duration (c) | | 0 - 20.6 years (3.8 years) | | 0 - 16.3 years (3.8 years) |
VIE liabilities | |
| (2,227,428) | | Discounted cash flow | | Yield (b) | | 0% - 752.4% (17.3%) | | 0% - 312.2% (14.4%) |
| | | | | | | Duration (c) | | 0 - 11.0 years (3.7 years) | | 0 - 10.8 years (3.8 years) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Carrying Value at |
| Valuation |
| Unobservable |
| Range as of (1) | |||
|
| September 30, 2017 |
| Technique |
| Input |
| September 30, 2017 |
| December 31, 2016 | |
Loans held-for-sale, fair value option |
| $ | 608,624 |
| Discounted cash flow |
| Yield (b) |
| 4.3% - 5.9% |
| 5.0% - 5.7% |
|
|
|
|
|
|
| Duration (c) |
| 3.3 - 12.8 years |
| 10.0 years |
RMBS |
|
| 253,252 |
| Discounted cash flow |
| Constant prepayment rate (a) |
| 2.4% - 19.4% |
| 2.8% - 17.0% |
|
|
|
|
|
|
| Constant default rate (b) |
| 0.8% - 5.8% |
| 1.1% - 8.1% |
|
|
|
|
|
|
| Loss severity (b) |
| 16% - 79% (e) |
| 12% - 79% (e) |
|
|
|
|
|
|
| Delinquency rate (c) |
| 4% - 34% |
| 2% - 29% |
|
|
|
|
|
|
| Servicer advances (a) |
| 20% - 84% |
| 23% - 94% |
|
|
|
|
|
|
| Annual coupon deterioration (b) |
| 0% - 0.8% |
| 0% - 0.6% |
|
|
|
|
|
|
| Putback amount per projected total collateral loss (d) |
| 0% - 15% |
| 0% - 15% |
CMBS |
|
| 23,841 |
| Discounted cash flow |
| Yield (b) |
| 0% - 167.1% |
| 0% - 172.0% |
|
|
|
|
|
|
| Duration (c) |
| 0 - 9.9 years |
| 0 - 18.7 years |
Domestic servicing rights |
|
| 33,781 |
| Discounted cash flow |
| Debt yield (a) |
| 7.75% |
| 7.75% |
|
|
|
|
|
|
| Discount rate (b) |
| 15% |
| 15% |
|
|
|
|
|
|
| Control migration (b) |
| 0% - 80% |
| 0% - 80% |
VIE assets |
|
| 51,197,981 |
| Discounted cash flow |
| Yield (b) |
| 0% - 813.9% |
| 0% - 960.4% |
|
|
|
|
|
|
| Duration (c) |
| 0 - 11.6 years |
| 0 - 12.0 years |
VIE liabilities |
|
| 2,259,783 |
| Discounted cash flow |
| Yield (b) |
| 0% - 813.9% |
| 0% - 960.4% |
|
|
|
|
|
|
| Duration (c) |
| 0 - 11.6 years |
| 0 - 12.0 years |
| (1) |
|
|
SensitivityInformation about Uncertainty of the Fair Value to Changes in the Unobservable InputsMeasurements
| (a) |
| Significant increase (decrease) in the unobservable input in isolation would result in a significantly higher (lower) fair value measurement. |
| (b) |
| Significant increase (decrease) in the unobservable input in isolation would result in a significantly lower (higher) fair value measurement. |
| (c) |
| Significant increase (decrease) in the unobservable input in isolation would result in either a significantly lower or higher (higher or lower) fair value measurement depending on the structural features of the security in question. |
| (d) |
|
| (e) | Any delay in the putback recovery date leads to a decrease in fair value for the majority of securities in our RMBS portfolio. |
| (f) |
|
|
53
52
Certain of our domestic subsidiaries have elected to be treated as taxable REIT subsidiaries (“TRSs”). TRSs permit us to participate in certain activities from which REITs are generally precluded, as long as these activities meet specific criteria, are conducted within the parameters of certain limitations established by the Code and are conducted in entities which elect to be treated as taxable subsidiaries under the Code. To the extent these criteria are met, we will continue to maintain our qualification as a REIT.
Our TRSs engage in various real estate related operations, including special servicing of commercial real estate, originating and securitizing commercial mortgage loans, and investing in entities which engage in real estate relatedestate-related operations. The majority of our TRSs are held within the Investing and Servicing Segment. As of September 30, 2017March 31, 2021 and December 31, 2016,2020, approximately $779.8$959.6 million and $634.4 million,$1.4 billion, respectively, of assets including $139.4 million and $181.0 million in cash, respectively, were owned by TRS entities. Our TRSs are not consolidated for U.S. federal income tax purposes, but are instead taxed as corporations. For financial reporting purposes, a provision for current and deferred taxes is established for the portion of earnings recognized by us with respect to our interest in TRSs.
The following table is a reconciliation of our U.S. federal income tax provision (benefit) determined using our statutory federal tax rate to our reported income tax (benefit) provision for the three and nine months ended September 30, 2017March 31, 2021 and 20162020 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| For the Three Months Ended September 30, |
| For the Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
| 2016 | ||||||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||||||||||
|
| For the Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||
| | 2021 | | 2020 | ||||||||||||||||||||||||||||||||
Federal statutory tax rate |
| $ | 35,915 |
| 35.0 | % |
| $ | 37,968 |
| 35.0 | % |
| $ | 118,010 |
| 35.0 | % |
| $ | 86,939 |
| 35.0 | % | | $ | 26,199 |
| 21.0 | % |
| $ | (15,329) |
| 21.0 | % |
REIT and other non-taxable income |
|
| (26,242) |
| (25.5) | % |
|
| (35,541) |
| (32.7) | % |
|
| (99,668) |
| (29.6) | % |
|
| (83,676) |
| (33.7) | % | ||||||||||||
REIT and other non-taxable loss | |
| (24,501) | | (19.6) | % | |
| 9,914 | | (13.6) | % | ||||||||||||||||||||||||
State income taxes |
|
| 200 |
| 0.2 | % |
|
| 247 |
| 0.2 | % |
|
| 81 |
| — | % |
|
| 224 |
| 0.1 | % | |
| 558 | | 0.4 | % | |
| (1,779) | | 2.4 | % |
Federal benefit of state tax deduction |
|
| (70) |
| (0.1) | % |
|
| (86) |
| (0.1) | % |
|
| (28) |
| — | % |
|
| (78) |
| — | % | |
| (117) | | (0.1) | % | |
| 374 | | (0.5) | % |
Other |
|
| 13 |
| — | % |
|
| 79 |
| 0.1 | % |
|
| (110) |
| — | % |
|
| 58 |
| — | % | |
| 91 | | 0.1 | % | |
| 91 | | (0.1) | % |
Effective tax rate |
| $ | 9,816 |
| 9.6 | % |
| $ | 2,667 |
| 2.5 | % |
| $ | 18,285 |
| 5.4 | % |
| $ | 3,467 |
| 1.4 | % | | $ | 2,230 | | 1.8 | % | | $ | (6,729) | | 9.2 | % |
During
In response to the threeCOVID-19 pandemic, the U.S. and nine months ended September 30, 2017, we recognized $28.2 millionmany other governments have enacted, or are contemplating enacting, measures to provide aid and $53.9 million, respectively,economic stimulus. These measures included deferring the due dates of tax payments and other changes to their income and non-income-based tax laws. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020 in earnings from unconsolidated entities relatedthe U.S., included measures to our interestassist companies, including temporary changes to income and non-income-based tax laws, and allowed companies to carry back tax net operating losses (“NOLs”) generated in an investor entity2018 to 2020 to the five preceding tax years. The Company plans to carry back its NOL generated in 2020 to a year in which owns equity in an online real estate company (see Note 7). Our investment in this entity is held within a TRS. In calculating our effectivethe federal tax rate was 35%. We continue to monitor additional guidance issued by the U.S. Treasury Department, the Internal Revenue Service and others.
The Company used the discrete tax approach in calculating the tax benefit for the three and nine months ended September 30, 2017, these earnings were deemedMarch 31, 2020 due to be both unusualthe fact that a relatively small change in nature and infrequent in occurrence. As a result, pursuant to ASC 740, the income tax effect of these earnings,Company’s projected pre-tax net of the related Manager incentive fee, was excluded from ordinary income and discretely calculated. This calculationloss could have resulted in a volatile effective tax rate. Under the discrete incomemethod, the tax provisionbenefit was determined based upon actual results as if the interim period was an annual period.
53
21. Commitments and ContingenciesContingencies
As of September 30, 2017, weMarch 31, 2021, our Commercial and Residential Lending Segment had future commercial loan funding commitments on 51 loans totaling $1.5 billion, of which we expect to fund $1.3 billion. These future funding commitments primarily relate to construction projects, capital improvements, tenant improvements and leasing commissions. Additionally, as of March 31, 2021, our Commercial and Residential Lending Segment had outstanding residential mortgage loan purchase commitments of $82.7 million.
As of March 31, 2021, our Infrastructure Lending Segment had future infrastructure loan funding commitments totaling $192.5 million, including $126.7 million under revolvers and letters of credit (“LCs”), and $65.8 million under delayed draw term loans. As of March 31, 2021, $15.6 million of revolvers and LCs were outstanding.
In connection with the Infrastructure Lending Segment acquisition, we assumed guarantees of certain borrowers’ performance under existing interest rate swaps. As of March 31, 2021, we had 6 outstanding guarantees on interest rate swaps maturing between March 2022 and June 2025. Refer to Note 12 for further discussion.
Generally, funding commitments are subject to certain conditions that must be met, such as customary construction draw certifications, minimum debt service coverage ratios or executions of new leases before advances are made to the borrower.
Management is not aware of any other contractual obligations, legal proceedings, or any other contingent obligations incurred in the normal course of business that would have a material adverse effect on our condensed consolidated financial statements.
54
In its operation of the business, management, including our chief operating decision maker, who is our Chief Executive Officer, reviews certain financial information, including segmented internal profit and loss statements prepared on a basis prior to the impact of consolidating securitization VIEs under ASC 810. The segment information within this noteNote is reported on that basis.
55
The table below presents our results of operations for the three months ended September 30, 2017 by business segment (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investing |
|
|
|
|
| Investing |
|
| |||||||
|
| Lending |
| Property |
| and Servicing |
|
|
|
|
| and Servicing |
|
| |||||||
|
| Segment |
| Segment |
| Segment |
| Corporate |
| Subtotal |
| VIEs |
| Total | |||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income from loans |
| $ | 134,149 |
| $ | — |
| $ | 4,450 |
| $ | — |
| $ | 138,599 |
| $ | — |
| $ | 138,599 |
Interest income from investment securities |
|
| 11,540 |
|
| — |
|
| 31,740 |
|
| — |
|
| 43,280 |
|
| (30,829) |
|
| 12,451 |
Servicing fees |
|
| 142 |
|
| — |
|
| 23,093 |
|
| — |
|
| 23,235 |
|
| (8,393) |
|
| 14,842 |
Rental income |
|
| — |
|
| 47,663 |
|
| 12,490 |
|
| — |
|
| 60,153 |
|
| — |
|
| 60,153 |
Other revenues |
|
| 181 |
|
| 164 |
|
| 441 |
|
| — |
|
| 786 |
|
| (64) |
|
| 722 |
Total revenues |
|
| 146,012 |
|
| 47,827 |
|
| 72,214 |
|
| — |
|
| 266,053 |
|
| (39,286) |
|
| 226,767 |
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees |
|
| 482 |
|
| — |
|
| 18 |
|
| 30,370 |
|
| 30,870 |
|
| 110 |
|
| 30,980 |
Interest expense |
|
| 27,929 |
|
| 11,360 |
|
| 5,710 |
|
| 31,709 |
|
| 76,708 |
|
| (277) |
|
| 76,431 |
General and administrative |
|
| 5,302 |
|
| 1,090 |
|
| 24,167 |
|
| 2,251 |
|
| 32,810 |
|
| 82 |
|
| 32,892 |
Acquisition and investment pursuit costs |
|
| 807 |
|
| 245 |
|
| (28) |
|
| — |
|
| 1,024 |
|
| — |
|
| 1,024 |
Costs of rental operations |
|
| — |
|
| 18,660 |
|
| 5,139 |
|
| — |
|
| 23,799 |
|
| — |
|
| 23,799 |
Depreciation and amortization |
|
| 17 |
|
| 17,852 |
|
| 5,002 |
|
| — |
|
| 22,871 |
|
| — |
|
| 22,871 |
Loan loss allowance, net |
|
| (171) |
|
| — |
|
| — |
|
| — |
|
| (171) |
|
| — |
|
| (171) |
Other expense |
|
| 72 |
|
| 97 |
|
| 207 |
|
| — |
|
| 376 |
|
| — |
|
| 376 |
Total costs and expenses |
|
| 34,438 |
|
| 49,304 |
|
| 40,215 |
|
| 64,330 |
|
| 188,287 |
|
| (85) |
|
| 188,202 |
Income (loss) before other income (loss), income taxes and non-controlling interests |
|
| 111,574 |
|
| (1,477) |
|
| 31,999 |
|
| (64,330) |
|
| 77,766 |
|
| (39,201) |
|
| 38,565 |
Other income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net assets related to consolidated VIEs |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 56,177 |
|
| 56,177 |
Change in fair value of servicing rights |
|
| — |
|
| — |
|
| (5,652) |
|
| — |
|
| (5,652) |
|
| 785 |
|
| (4,867) |
Change in fair value of investment securities, net |
|
| 276 |
|
| — |
|
| 13,962 |
|
| — |
|
| 14,238 |
|
| (14,635) |
|
| (397) |
Change in fair value of mortgage loans held-for-sale, net |
|
| (397) |
|
| — |
|
| 19,882 |
|
| — |
|
| 19,485 |
|
| — |
|
| 19,485 |
Earnings (loss) from unconsolidated entities |
|
| 848 |
|
| (33,731) |
|
| 30,225 |
|
| — |
|
| (2,658) |
|
| (2,031) |
|
| (4,689) |
Gain on sale of investments and other assets, net |
|
| — |
|
| — |
|
| 11,877 |
|
| — |
|
| 11,877 |
|
| — |
|
| 11,877 |
Loss on derivative financial instruments, net |
|
| (10,813) |
|
| (11,276) |
|
| (2,135) |
|
| — |
|
| (24,224) |
|
| — |
|
| (24,224) |
Foreign currency gain (loss), net |
|
| 10,657 |
|
| (1) |
|
| 4 |
|
| — |
|
| 10,660 |
|
| — |
|
| 10,660 |
Other income, net |
|
| — |
|
| — |
|
| 28 |
|
| — |
|
| 28 |
|
| — |
|
| 28 |
Total other income (loss) |
|
| 571 |
|
| (45,008) |
|
| 68,191 |
|
| — |
|
| 23,754 |
|
| 40,296 |
|
| 64,050 |
Income (loss) before income taxes |
|
| 112,145 |
|
| (46,485) |
|
| 100,190 |
|
| (64,330) |
|
| 101,520 |
|
| 1,095 |
|
| 102,615 |
Income tax benefit (provision) |
|
| 11 |
|
| — |
|
| (9,827) |
|
| — |
|
| (9,816) |
|
| — |
|
| (9,816) |
Net income (loss) |
|
| 112,156 |
|
| (46,485) |
|
| 90,363 |
|
| (64,330) |
|
| 91,704 |
|
| 1,095 |
|
| 92,799 |
Net income attributable to non-controlling interests |
|
| (357) |
|
| — |
|
| (2,919) |
|
| — |
|
| (3,276) |
|
| (1,095) |
|
| (4,371) |
Net income (loss) attributable to Starwood Property Trust, Inc. |
| $ | 111,799 |
| $ | (46,485) |
| $ | 87,444 |
| $ | (64,330) |
| $ | 88,428 |
| $ | — |
| $ | 88,428 |
56
The table below presents our results of operations for the three months ended September 30, 2016March 31, 2021 by business segment (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
|
|
|
|
|
| Investing |
|
|
|
|
|
| Investing |
|
|
|
|
| |||||||||||||||||||||||||||||
|
| Lending |
| Property |
| and Servicing |
|
|
|
|
|
| and Servicing |
|
|
|
|
| |||||||||||||||||||||||||||||
|
| Segment |
| Segment |
| Segment |
| Corporate |
| Subtotal |
| VIEs |
| Total |
|
| |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||
| | Commercial and | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||
| | Residential | | Infrastructure | | | | Investing | | | | | | | | | |||||||||||||||||||||||||||||||
| | Lending | | Lending | | Property | | and Servicing | | | | | | Securitization | | | |||||||||||||||||||||||||||||||
| | Segment | | Segment | | Segment | | Segment | | Corporate | | Subtotal | | VIEs | | Total | |||||||||||||||||||||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Interest income from loans |
| $ | 114,506 |
| $ | — |
| $ | 6,719 |
| $ | — |
| $ | 121,225 |
| $ | — |
| $ | 121,225 |
|
| | $ | 170,593 | | $ | 18,808 | | $ | — | | $ | 1,174 | | $ | — | | $ | 190,575 | | $ | — | | $ | 190,575 |
Interest income from investment securities |
|
| 13,301 |
|
| — |
|
| 35,274 |
|
| — |
|
| 48,575 |
|
| (29,400) |
|
| 19,175 |
|
| |
| 18,385 | |
| 564 | |
| — | |
| 20,940 | | | — | |
| 39,889 | |
| (28,279) | |
| 11,610 |
Servicing fees |
|
| 195 |
|
| — |
|
| 37,678 |
|
| — |
|
| 37,873 |
|
| (14,955) |
|
| 22,918 |
|
| |
| 124 | |
| — | |
| — | |
| 12,456 | | | — | |
| 12,580 | |
| (4,178) | |
| 8,402 |
Rental income |
|
| — |
|
| 29,226 |
|
| 10,516 |
|
| — |
|
| 39,742 |
|
| — |
|
| 39,742 |
|
| | | 1,339 | | | — | | | 65,104 | | | 9,895 | | | — | | | 76,338 | | | — | | | 76,338 |
Other revenues |
|
| 99 |
|
| 11 |
|
| 1,692 |
|
| — |
|
| 1,802 |
|
| (157) |
|
| 1,645 |
|
| |
| 90 | |
| 93 | |
| 40 | |
| 82 | | | — | |
| 305 | |
| — | |
| 305 |
Total revenues |
|
| 128,101 |
|
| 29,237 |
|
| 91,879 |
|
| — |
|
| 249,217 |
|
| (44,512) |
|
| 204,705 |
|
| |
| 190,531 | |
| 19,465 | |
| 65,144 | |
| 44,547 | |
| — | |
| 319,687 | |
| (32,457) | |
| 287,230 |
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Management fees |
|
| 525 |
|
| — |
|
| 24 |
|
| 27,183 |
|
| 27,732 |
|
| 48 |
|
| 27,780 |
|
| |
| 315 | |
| — | |
| — | |
| 222 | |
| 38,188 | |
| 38,725 | |
| 11 | |
| 38,736 |
Interest expense |
|
| 22,678 |
|
| 5,536 |
|
| 4,877 |
|
| 26,181 |
|
| 59,272 |
|
| (190) |
|
| 59,082 |
|
| |
| 44,295 | |
| 8,841 | |
| 15,832 | |
| 5,449 | | | 29,148 | |
| 103,565 | |
| (191) | |
| 103,374 |
General and administrative |
|
| 5,067 |
|
| 867 |
|
| 43,711 |
|
| 1,651 |
|
| 51,296 |
|
| 174 |
|
| 51,470 |
|
| |
| 11,333 | |
| 3,442 | |
| 1,023 | |
| 18,440 | | | 4,311 | |
| 38,549 | |
| 87 | |
| 38,636 |
Acquisition and investment pursuit costs |
|
| 322 |
|
| 759 |
|
| 416 |
|
| 12 |
|
| 1,509 |
|
| — |
|
| 1,509 |
|
| |
| 185 | |
| — | |
| — | |
| — | | | — | |
| 185 | |
| — | |
| 185 |
Costs of rental operations |
|
| — |
|
| 13,139 |
|
| 4,872 |
|
| — |
|
| 18,011 |
|
| — |
|
| 18,011 |
|
| | | 477 | | | — | | | 23,960 | | | 4,308 | | | — | | | 28,745 | | | — | | | 28,745 |
Depreciation and amortization |
|
| — |
|
| 10,870 |
|
| 4,482 |
|
| — |
|
| 15,352 |
|
| — |
|
| 15,352 |
|
| |
| 307 | |
| 100 | |
| 18,100 | |
| 3,967 | | | — | |
| 22,474 | |
| — | |
| 22,474 |
Loan loss allowance, net |
|
| 2,127 |
|
| — |
|
| — |
|
| — |
|
| 2,127 |
|
| — |
|
| 2,127 |
|
| ||||||||||||||||||||||||
Credit loss (reversal) provision, net | |
| (529) | |
| 573 | |
| — | |
| — | | | — | |
| 44 | |
| — | |
| 44 | |||||||||||||||||||||||
Other expense |
|
| — |
|
| 513 |
|
| 198 |
|
| — |
|
| 711 |
|
| — |
|
| 711 |
|
| |
| 31 | |
| — | |
| 583 | |
| 71 | | | — | |
| 685 | |
| — | |
| 685 |
Total costs and expenses |
|
| 30,719 |
|
| 31,684 |
|
| 58,580 |
|
| 55,027 |
|
| 176,010 |
|
| 32 |
|
| 176,042 |
|
| |
| 56,414 | |
| 12,956 | |
| 59,498 | |
| 32,457 | | | 71,647 | |
| 232,972 | |
| (93) | |
| 232,879 |
Income (loss) before other income (loss), income taxes and non-controlling interests |
|
| 97,382 |
|
| (2,447) |
|
| 33,299 |
|
| (55,027) |
|
| 73,207 |
|
| (44,544) |
|
| 28,663 |
|
| ||||||||||||||||||||||||
Other income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Change in net assets related to consolidated VIEs |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 47,848 |
|
| 47,848 |
|
| |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 39,745 | |
| 39,745 |
Change in fair value of servicing rights |
|
| — |
|
| — |
|
| (14,006) |
|
| — |
|
| (14,006) |
|
| (277) |
|
| (14,283) |
|
| |
| — | |
| — | |
| — | |
| 745 | | | — | |
| 745 | |
| (1,541) | |
| (796) |
Change in fair value of investment securities, net |
|
| 207 |
|
| — |
|
| 620 |
|
| — |
|
| 827 |
|
| (3,613) |
|
| (2,786) |
|
| |
| (2,050) | |
| — | |
| — | |
| 7,170 | | | — | |
| 5,120 | |
| (5,426) | |
| (306) |
Change in fair value of mortgage loans held-for-sale, net |
|
| — |
|
| — |
|
| 49,996 |
|
| — |
|
| 49,996 |
|
| — |
|
| 49,996 |
|
| ||||||||||||||||||||||||
Earnings from unconsolidated entities |
|
| 852 |
|
| 2,455 |
|
| 617 |
|
| — |
|
| 3,924 |
|
| 381 |
|
| 4,305 |
|
| ||||||||||||||||||||||||
Change in fair value of mortgage loans, net | |
| (10,714) | |
| — | |
| — | |
| 1,236 | | | — | |
| (9,478) | |
| — | |
| (9,478) | |||||||||||||||||||||||
Earnings (loss) from unconsolidated entities | |
| 1,753 | |
| (254) | |
| — | |
| 589 | | | — | |
| 2,088 | |
| (354) | |
| 1,734 | |||||||||||||||||||||||
Gain on sale of investments and other assets, net |
|
| 10 |
|
| — |
|
| — |
|
| — |
|
| 10 |
|
| — |
|
| 10 |
|
| |
| 17,693 | |
| — | |
| — | |
| — | | | — | |
| 17,693 | |
| — | |
| 17,693 |
Gain (loss) on derivative financial instruments, net |
|
| 4,982 |
|
| (4,720) |
|
| (2,590) |
|
| — |
|
| (2,328) |
|
| — |
|
| (2,328) |
|
| |
| 26,141 | |
| 684 | |
| 4,724 | |
| 9,283 | | | (6,843) | |
| 33,989 | |
| — | |
| 33,989 |
Foreign currency (loss) gain, net |
|
| (3,839) |
|
| (7) |
|
| 632 |
|
| — |
|
| (3,214) |
|
| — |
|
| (3,214) |
|
| |
| (11,594) | |
| (49) | |
| 25 | |
| (63) | | | — | |
| (11,681) | |
| — | |
| (11,681) |
Loss on extinguishment of debt | | | (68) | | | (307) | | | (141) | | | — | | | — | | | (516) | | | — | | | (516) | |||||||||||||||||||||||
Other income, net |
|
| — |
|
| — |
|
| 35 |
|
| 234 |
|
| 269 |
|
| — |
|
| 269 |
|
| |
| — | |
| 21 | |
| — | |
| — | | | — | |
| 21 | |
| — | |
| 21 |
Total other income (loss) |
|
| 2,212 |
|
| (2,272) |
|
| 35,304 |
|
| 234 |
|
| 35,478 |
|
| 44,339 |
|
| 79,817 |
|
| |
| 21,161 | |
| 95 | |
| 4,608 | |
| 18,960 | | | (6,843) | |
| 37,981 | |
| 32,424 | |
| 70,405 |
Income (loss) before income taxes |
|
| 99,594 |
|
| (4,719) |
|
| 68,603 |
|
| (54,793) |
|
| 108,685 |
|
| (205) |
|
| 108,480 |
|
| |
| 155,278 | |
| 6,604 | |
| 10,254 | |
| 31,050 | | | (78,490) | |
| 124,696 | |
| 60 | |
| 124,756 |
Income tax provision |
|
| — |
|
| — |
|
| (2,667) |
|
| — |
|
| (2,667) |
|
| — |
|
| (2,667) |
|
| |
| (1,505) | |
| (92) | |
| — | |
| (633) | | | — | |
| (2,230) | |
| — | |
| (2,230) |
Net income (loss) |
|
| 99,594 |
|
| (4,719) |
|
| 65,936 |
|
| (54,793) |
|
| 106,018 |
|
| (205) |
|
| 105,813 |
|
| |
| 153,773 | |
| 6,512 | |
| 10,254 | |
| 30,417 | | | (78,490) | |
| 122,466 | |
| 60 | |
| 122,526 |
Net (income) loss attributable to non-controlling interests |
|
| (352) |
|
| — |
|
| 100 |
|
| — |
|
| (252) |
|
| 205 |
|
| (47) |
|
| ||||||||||||||||||||||||
Net income attributable to non-controlling interests | |
| (3) | |
| — | |
| (5,077) | |
| (6,008) | | | — | |
| (11,088) | |
| (60) | |
| (11,148) | |||||||||||||||||||||||
Net income (loss) attributable to Starwood Property Trust, Inc. |
| $ | 99,242 |
| $ | (4,719) |
| $ | 66,036 |
| $ | (54,793) |
| $ | 105,766 |
| $ | — |
| $ | 105,766 |
|
| | $ | 153,770 | | $ | 6,512 | | $ | 5,177 | | $ | 24,409 | | $ | (78,490) | | $ | 111,378 | | $ | — | | $ | 111,378 |
5755
The table below presents our results of operations for the ninethree months ended September 30, 2017March 31, 2020 by business segment (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
|
|
|
|
|
| Investing |
|
|
|
|
| Investing |
|
| |||||||||||||||||||||||||||||||
|
| Lending |
| Property |
| and Servicing |
|
|
|
|
| and Servicing |
|
| |||||||||||||||||||||||||||||||
|
| Segment |
| Segment |
| Segment |
| Corporate |
| Subtotal |
| VIEs |
| Total | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
| | Commercial and | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||
| | Residential | | Infrastructure | | | | Investing | | | | | | | | | |||||||||||||||||||||||||||||
| | Lending | | Lending | | Property | | and Servicing | | | | | | Securitization | | | |||||||||||||||||||||||||||||
| | Segment | | Segment | | Segment | | Segment | | Corporate | | Subtotal | | VIEs | | Total | |||||||||||||||||||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Interest income from loans |
| $ | 360,188 |
| $ | — |
| $ | 10,906 |
| $ | — |
| $ | 371,094 |
| $ | — |
| $ | 371,094 | | $ | 192,381 | | $ | 22,413 | | $ | — | | $ | 2,633 | | $ | — | | $ | 217,427 | | $ | — | | $ | 217,427 |
Interest income from investment securities |
|
| 35,870 |
|
| — |
|
| 104,768 |
|
| — |
|
| 140,638 |
|
| (100,593) |
|
| 40,045 | |
| 18,628 | | | 701 | |
| — | |
| 24,800 | | | — | |
| 44,129 | |
| (28,889) | |
| 15,240 |
Servicing fees |
|
| 568 |
|
| — |
|
| 86,837 |
|
| — |
|
| 87,405 |
|
| (39,833) |
|
| 47,572 | |
| 172 | | | — | |
| — | |
| 6,442 | | | — | |
| 6,614 | |
| (1,821) | |
| 4,793 |
Rental income |
|
| — |
|
| 138,795 |
|
| 37,366 |
|
| — |
|
| 176,161 |
|
| — |
|
| 176,161 | | | 78 | | | — | | | 63,961 | | | 10,107 | | | — | |
| 74,146 | |
| — | |
| 74,146 |
Other revenues |
|
| 553 |
|
| 430 |
|
| 1,450 |
|
| — |
|
| 2,433 |
|
| (249) |
|
| 2,184 | |
| 178 | | | 143 | |
| 122 | |
| 513 | | | — | |
| 956 | |
| (2) | |
| 954 |
Total revenues |
|
| 397,179 |
|
| 139,225 |
|
| 241,327 |
|
| — |
|
| 777,731 |
|
| (140,675) |
|
| 637,056 | |
| 211,437 | | | 23,257 | |
| 64,083 | |
| 44,495 | |
| — | |
| 343,272 | |
| (30,712) | |
| 312,560 |
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Management fees |
|
| 1,405 |
|
| — |
|
| 54 |
|
| 78,328 |
|
| 79,787 |
|
| 210 |
|
| 79,997 | |
| 351 | | | — | |
| — | |
| 239 | |
| 40,107 | |
| 40,697 | |
| 31 | |
| 40,728 |
Interest expense |
|
| 72,372 |
|
| 32,466 |
|
| 14,924 |
|
| 94,667 |
|
| 214,429 |
|
| (821) |
|
| 213,608 | |
| 53,950 | | | 13,117 | |
| 17,121 | |
| 7,194 | | | 28,805 | |
| 120,187 | |
| (162) | |
| 120,025 |
General and administrative |
|
| 14,872 |
|
| 3,471 |
|
| 69,536 |
|
| 7,719 |
|
| 95,598 |
|
| 243 |
|
| 95,841 | |
| 8,132 | | | 4,423 | |
| 1,078 | |
| 20,684 | | | 4,301 | |
| 38,618 | |
| 84 | |
| 38,702 |
Acquisition and investment pursuit costs |
|
| 1,707 |
|
| 516 |
|
| 9 |
|
| — |
|
| 2,232 |
|
| — |
|
| 2,232 | |
| 860 | | | 17 | |
| 12 | |
| 20 | | | — | |
| 909 | |
| — | |
| 909 |
Costs of rental operations |
|
| — |
|
| 51,843 |
|
| 15,858 |
|
| — |
|
| 67,701 |
|
| — |
|
| 67,701 | | | 778 | | | — | | | 22,852 | | | 4,584 | | | — | |
| 28,214 | |
| — | |
| 28,214 |
Depreciation and amortization |
|
| 50 |
|
| 52,288 |
|
| 14,793 |
|
| — |
|
| 67,131 |
|
| — |
|
| 67,131 | |
| 415 | | | 70 | |
| 19,288 | |
| 4,207 | | | — | |
| 23,980 | |
| — | |
| 23,980 |
Loan loss allowance, net |
|
| (3,170) |
|
| — |
|
| — |
|
| — |
|
| (3,170) |
|
| — |
|
| (3,170) | ||||||||||||||||||||||||
Credit loss provision, net | |
| 40,217 | | | 8,452 | |
| — | |
| — | | | — | |
| 48,669 | |
| — | |
| 48,669 | |||||||||||||||||||||
Other expense |
|
| 72 |
|
| 63 |
|
| 1,141 |
|
| — |
|
| 1,276 |
|
| — |
|
| 1,276 | |
| 77 | | | — | |
| 311 | |
| — | | | — | |
| 388 | |
| — | |
| 388 |
Total costs and expenses |
|
| 87,308 |
|
| 140,647 |
|
| 116,315 |
|
| 180,714 |
|
| 524,984 |
|
| (368) |
|
| 524,616 | |
| 104,780 | | | 26,079 | |
| 60,662 | |
| 36,928 | | | 73,213 | |
| 301,662 | |
| (47) | |
| 301,615 |
Income (loss) before other income (loss), income taxes and non-controlling interests |
|
| 309,871 |
|
| (1,422) |
|
| 125,012 |
|
| (180,714) |
|
| 252,747 |
|
| (140,307) |
|
| 112,440 | ||||||||||||||||||||||||
Other income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Change in net assets related to consolidated VIEs |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 203,108 |
|
| 203,108 | |
| — | | | — | |
| — | |
| — | |
| — | |
| — | |
| (45,493) | |
| (45,493) |
Change in fair value of servicing rights |
|
| — |
|
| — |
|
| (28,956) |
|
| — |
|
| (28,956) |
|
| 7,655 |
|
| (21,301) | |
| — | | | — | |
| — | |
| 318 | | | — | |
| 318 | |
| (711) | |
| (393) |
Change in fair value of investment securities, net |
|
| 299 |
|
| — |
|
| 45,263 |
|
| — |
|
| 45,562 |
|
| (49,623) |
|
| (4,061) | |
| (27,879) | | | — | |
| — | |
| (47,216) | | | — | |
| (75,095) | |
| 77,599 | |
| 2,504 |
Change in fair value of mortgage loans held-for-sale, net |
|
| (549) |
|
| — |
|
| 46,033 |
|
| — |
|
| 45,484 |
|
| — |
|
| 45,484 | ||||||||||||||||||||||||
Change in fair value of mortgage loans, net | |
| (35,517) | | | — | |
| — | |
| 19,383 | | | — | |
| (16,134) | |
| — | |
| (16,134) | |||||||||||||||||||||
Earnings (loss) from unconsolidated entities |
|
| 2,548 |
|
| (28,782) |
|
| 67,134 |
|
| — |
|
| 40,900 |
|
| (13,137) |
|
| 27,763 | |
| 51 | | | — | |
| — | |
| 620 | | | — | |
| 671 | |
| (574) | |
| 97 |
(Loss) gain on sale of investments and other assets, net |
|
| (59) |
|
| 77 |
|
| 16,986 |
|
| — |
|
| 17,004 |
|
| — |
|
| 17,004 | ||||||||||||||||||||||||
Loss on derivative financial instruments, net |
|
| (30,274) |
|
| (32,268) |
|
| (3,617) |
|
| — |
|
| (66,159) |
|
| — |
|
| (66,159) | ||||||||||||||||||||||||
Foreign currency gain, net |
|
| 28,402 |
|
| 16 |
|
| 16 |
|
| — |
|
| 28,434 |
|
| — |
|
| 28,434 | ||||||||||||||||||||||||
OTTI |
|
| (109) |
|
| — |
|
| — |
|
| — |
|
| (109) |
|
| — |
|
| (109) | ||||||||||||||||||||||||
Gain on sale of investments and other assets, net | |
| — | | | 296 | |
| — | |
| — | | | — | |
| 296 | |
| — | |
| 296 | |||||||||||||||||||||
Gain (loss) on derivative financial instruments, net | |
| 30,805 | | | (1,001) | |
| (30,223) | |
| (19,106) | | | 29,235 | |
| 9,710 | |
| — | |
| 9,710 | |||||||||||||||||||||
Foreign currency (loss) gain, net | |
| (34,001) | | | (473) | |
| (19) | |
| 7 | | | — | |
| (34,486) | |
| — | |
| (34,486) | |||||||||||||||||||||
Loss on extinguishment of debt |
|
| — |
|
| — |
|
| — |
|
| (5,916) |
|
| (5,916) |
|
| — |
|
| (5,916) | | | — | | | (170) | | | — | | | — | | | — | | | (170) | | | — | | | (170) |
Other income, net |
|
| — |
|
| — |
|
| 1,097 |
|
| — |
|
| 1,097 |
|
| (613) |
|
| 484 | |
| — | | | — | |
| 50 | |
| 76 | | | — | |
| 126 | |
| — | |
| 126 |
Total other income (loss) |
|
| 258 |
|
| (60,957) |
|
| 143,956 |
|
| (5,916) |
|
| 77,341 |
|
| 147,390 |
|
| 224,731 | |
| (66,541) | | | (1,348) | |
| (30,192) | |
| (45,918) | | | 29,235 | |
| (114,764) | |
| 30,821 | |
| (83,943) |
Income (loss) before income taxes |
|
| 310,129 |
|
| (62,379) |
|
| 268,968 |
|
| (186,630) |
|
| 330,088 |
|
| 7,083 |
|
| 337,171 | |
| 40,116 | | | (4,170) | |
| (26,771) | |
| (38,351) | | | (43,978) | | | (73,154) | |
| 156 | |
| (72,998) |
Income tax provision |
|
| (331) |
|
| — |
|
| (17,954) |
|
| — |
|
| (18,285) |
|
| — |
|
| (18,285) | ||||||||||||||||||||||||
Income tax benefit | |
| 4,422 | | | 145 | | | — | |
| 2,162 | | | — | |
| 6,729 | |
| — | |
| 6,729 | |||||||||||||||||||||
Net income (loss) |
|
| 309,798 |
|
| (62,379) |
|
| 251,014 |
|
| (186,630) |
|
| 311,803 |
|
| 7,083 |
|
| 318,886 | |
| 44,538 | | | (4,025) | |
| (26,771) | |
| (36,189) | | | (43,978) | |
| (66,425) | |
| 156 | |
| (66,269) |
Net income attributable to non-controlling interests |
|
| (1,064) |
|
| — |
|
| (2,573) |
|
| — |
|
| (3,637) |
|
| (7,083) |
|
| (10,720) | ||||||||||||||||||||||||
Net (income) loss attributable to non-controlling interests | |
| (3) | | | — | |
| (5,111) | |
| 4,770 | | | — | |
| (344) | |
| (156) | |
| (500) | |||||||||||||||||||||
Net income (loss) attributable to Starwood Property Trust, Inc. |
| $ | 308,734 |
| $ | (62,379) |
| $ | 248,441 |
| $ | (186,630) |
| $ | 308,166 |
| $ | — |
| $ | 308,166 | | $ | 44,535 | | $ | (4,025) | | $ | (31,882) | | $ | (31,419) | | $ | (43,978) | | $ | (66,769) | | $ | — | | $ | (66,769) |
5856
The table below presents our results of operations for the nine months ended September 30, 2016 by business segment (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investing |
|
|
|
|
|
| Investing |
|
|
|
|
|
|
| |||||
|
| Lending |
| Property |
| and Servicing |
|
|
|
|
|
| and Servicing |
|
|
|
|
|
|
| |||||
|
| Segment |
| Segment |
| Segment |
| Corporate |
| Subtotal |
| VIEs |
| Total |
|
|
|
| |||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income from loans |
| $ | 348,460 |
| $ | — |
| $ | 12,854 |
| $ | — |
| $ | 361,314 |
| $ | — |
| $ | 361,314 |
|
|
|
|
Interest income from investment securities |
|
| 33,975 |
|
| — |
|
| 115,335 |
|
| — |
|
| 149,310 |
|
| (95,431) |
|
| 53,879 |
|
|
|
|
Servicing fees |
|
| 560 |
|
| — |
|
| 111,145 |
|
| — |
|
| 111,705 |
|
| (40,784) |
|
| 70,921 |
|
|
|
|
Rental income |
|
| — |
|
| 85,048 |
|
| 25,214 |
|
| — |
|
| 110,262 |
|
| — |
|
| 110,262 |
|
|
|
|
Other revenues |
|
| 180 |
|
| 35 |
|
| 4,110 |
|
| — |
|
| 4,325 |
|
| (511) |
|
| 3,814 |
|
|
|
|
Total revenues |
|
| 383,175 |
|
| 85,083 |
|
| 268,658 |
|
| — |
|
| 736,916 |
|
| (136,726) |
|
| 600,190 |
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees |
|
| 1,295 |
|
| — |
|
| 54 |
|
| 75,015 |
|
| 76,364 |
|
| 146 |
|
| 76,510 |
|
|
|
|
Interest expense |
|
| 67,585 |
|
| 16,163 |
|
| 11,443 |
|
| 78,236 |
|
| 173,427 |
|
| (190) |
|
| 173,237 |
|
|
|
|
General and administrative |
|
| 13,529 |
|
| 2,259 |
|
| 95,726 |
|
| 7,631 |
|
| 119,145 |
|
| 532 |
|
| 119,677 |
|
|
|
|
Acquisition and investment pursuit costs |
|
| 1,602 |
|
| 1,517 |
|
| 1,551 |
|
| 1,012 |
|
| 5,682 |
|
| — |
|
| 5,682 |
|
|
|
|
Costs of rental operations |
|
| — |
|
| 34,923 |
|
| 11,595 |
|
| — |
|
| 46,518 |
|
| — |
|
| 46,518 |
|
|
|
|
Depreciation and amortization |
|
| — |
|
| 41,922 |
|
| 11,263 |
|
| — |
|
| 53,185 |
|
| — |
|
| 53,185 |
|
|
|
|
Loan loss allowance, net |
|
| 3,395 |
|
| — |
|
| — |
|
| — |
|
| 3,395 |
|
| — |
|
| 3,395 |
|
|
|
|
Other expense |
|
| — |
|
| 513 |
|
| 298 |
|
| — |
|
| 811 |
|
| — |
|
| 811 |
|
|
|
|
Total costs and expenses |
|
| 87,406 |
|
| 97,297 |
|
| 131,930 |
|
| 161,894 |
|
| 478,527 |
|
| 488 |
|
| 479,015 |
|
|
|
|
Income (loss) before other income (loss), income taxes and non-controlling interests |
|
| 295,769 |
|
| (12,214) |
|
| 136,728 |
|
| (161,894) |
|
| 258,389 |
|
| (137,214) |
|
| 121,175 |
|
|
|
|
Other income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net assets related to consolidated VIEs |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 94,388 |
|
| 94,388 |
|
|
|
|
Change in fair value of servicing rights |
|
| — |
|
| — |
|
| (33,710) |
|
| — |
|
| (33,710) |
|
| 497 |
|
| (33,213) |
|
|
|
|
Change in fair value of investment securities, net |
|
| (37) |
|
| — |
|
| (43,449) |
|
| — |
|
| (43,486) |
|
| 42,772 |
|
| (714) |
|
|
|
|
Change in fair value of mortgage loans held-for-sale, net |
|
| — |
|
| — |
|
| 70,122 |
|
| — |
|
| 70,122 |
|
| — |
|
| 70,122 |
|
|
|
|
Earnings from unconsolidated entities |
|
| 2,544 |
|
| 7,313 |
|
| 3,280 |
|
| — |
|
| 13,137 |
|
| (288) |
|
| 12,849 |
|
|
|
|
Gain on sale of investments and other assets, net |
|
| 165 |
|
| — |
|
| — |
|
| — |
|
| 165 |
|
| — |
|
| 165 |
|
|
|
|
Gain (loss) on derivative financial instruments, net |
|
| 17,824 |
|
| (6,837) |
|
| (17,780) |
|
| — |
|
| (6,793) |
|
| — |
|
| (6,793) |
|
|
|
|
Foreign currency (loss) gain, net |
|
| (23,501) |
|
| (41) |
|
| 2,962 |
|
| — |
|
| (20,580) |
|
| — |
|
| (20,580) |
|
|
|
|
Other income, net |
|
| — |
|
| 9,102 |
|
| 112 |
|
| 1,784 |
|
| 10,998 |
|
| — |
|
| 10,998 |
|
|
|
|
Total other income (loss) |
|
| (3,005) |
|
| 9,537 |
|
| (18,463) |
|
| 1,784 |
|
| (10,147) |
|
| 137,369 |
|
| 127,222 |
|
|
|
|
Income (loss) before income taxes |
|
| 292,764 |
|
| (2,677) |
|
| 118,265 |
|
| (160,110) |
|
| 248,242 |
|
| 155 |
|
| 248,397 |
|
|
|
|
Income tax provision |
|
| (75) |
|
| — |
|
| (3,392) |
|
| — |
|
| (3,467) |
|
| — |
|
| (3,467) |
|
|
|
|
Net income (loss) |
|
| 292,689 |
|
| (2,677) |
|
| 114,873 |
|
| (160,110) |
|
| 244,775 |
|
| 155 |
|
| 244,930 |
|
|
|
|
Net (income) loss attributable to non-controlling interests |
|
| (1,050) |
|
| — |
|
| 171 |
|
| — |
|
| (879) |
|
| (155) |
|
| (1,034) |
|
|
|
|
Net income (loss) attributable to Starwood Property Trust, Inc. |
| $ | 291,639 |
| $ | (2,677) |
| $ | 115,044 |
| $ | (160,110) |
| $ | 243,896 |
| $ | — |
| $ | 243,896 |
|
|
|
|
59
The table below presents our condensed consolidated balance sheet as of September 30, 2017March 31, 2021 by business segment (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
|
|
|
|
|
| Investing |
|
|
|
|
| Investing |
|
| |||||||||||||||||||||||||||||||
|
| Lending |
| Property |
| and Servicing |
|
|
|
|
| and Servicing |
|
| |||||||||||||||||||||||||||||||
|
| Segment |
| Segment |
| Segment |
| Corporate |
| Subtotal |
| VIEs |
| Total | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
| | Commercial and | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||
| | Residential | | Infrastructure | | | | Investing | | | | | | | | | |||||||||||||||||||||||||||||
| | Lending | | Lending | | Property | | and Servicing | | | | | | Securitization | | | |||||||||||||||||||||||||||||
| | Segment | | Segment | | Segment | | Segment | | Corporate | | Subtotal | | VIEs | | Total | |||||||||||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents |
| $ | 43,513 |
| $ | 8,581 |
| $ | 58,584 |
| $ | 298,006 |
| $ | 408,684 |
| $ | 5,161 |
| $ | 413,845 | | $ | 56,629 | | $ | 7,873 | | $ | 39,791 | | $ | 29,064 | | $ | 217,049 | | $ | 350,406 | | $ | 784 | | $ | 351,190 |
Restricted cash |
|
| 22,527 |
|
| 20,189 |
|
| 11,875 |
|
| — |
|
| 54,591 |
|
| — |
|
| 54,591 | |
| 69,882 | |
| 27,973 | |
| 6,672 | |
| 14,197 | |
| — | |
| 118,724 | |
| — | |
| 118,724 |
Loans held-for-investment, net |
|
| 6,378,468 |
|
| — |
|
| 3,903 |
|
| — |
|
| 6,382,371 |
|
| — |
|
| 6,382,371 | |
| 10,733,752 | |
| 1,586,808 | |
| — | |
| 933 | |
| — | |
| 12,321,493 | |
| — | |
| 12,321,493 |
Loans held-for-sale |
|
| 418,618 |
|
| — |
|
| 190,006 |
|
| — |
|
| 608,624 |
|
| — |
|
| 608,624 | |
| 587,037 | |
| 89,368 | |
| — | |
| 168,226 | |
| — | |
| 844,631 | |
| — | |
| 844,631 |
Loans transferred as secured borrowings |
|
| 74,339 |
|
| — |
|
| — |
|
| — |
|
| 74,339 |
|
| — |
|
| 74,339 | ||||||||||||||||||||||||
Investment securities |
|
| 677,977 |
|
| — |
|
| 1,026,634 |
|
| — |
|
| 1,704,611 |
|
| (1,002,793) |
|
| 701,818 | |
| 969,968 | |
| 34,951 | |
| — | |
| 1,106,000 | |
| — | |
| 2,110,919 | |
| (1,432,632) | |
| 678,287 |
Properties, net |
|
| — |
|
| 2,234,646 |
|
| 286,696 |
|
| — |
|
| 2,521,342 |
|
| — |
|
| 2,521,342 | | | 93,718 | | | — | | | 1,954,880 | | | 196,150 | | | — | | | 2,244,748 | | | — | | | 2,244,748 |
Intangible assets |
|
| — |
|
| 116,856 |
|
| 91,591 |
|
| — |
|
| 208,447 |
|
| (26,582) |
|
| 181,865 | |
| — | |
| — | |
| 38,833 | |
| 70,857 | |
| — | |
| 109,690 | |
| (42,918) | |
| 66,772 |
Investment in unconsolidated entities |
|
| 36,831 |
|
| 109,607 |
|
| 117,772 |
|
| — |
|
| 264,210 |
|
| (20,760) |
|
| 243,450 | |
| 47,514 | |
| 24,840 | |
| — | |
| 44,435 | |
| — | |
| 116,789 | |
| (15,882) | |
| 100,907 |
Goodwill |
|
| — |
|
| — |
|
| 140,437 |
|
| — |
|
| 140,437 |
|
| — |
|
| 140,437 | |
| — | |
| 119,409 | |
| — | |
| 140,437 | |
| — | |
| 259,846 | |
| — | |
| 259,846 |
Derivative assets |
|
| 13,513 |
|
| 22,480 |
|
| 2,300 |
|
| — |
|
| 38,293 |
|
| — |
|
| 38,293 | |
| 13,088 | |
| — | |
| 162 | |
| 320 | |
| 24,459 | |
| 38,029 | |
| — | |
| 38,029 |
Accrued interest receivable |
|
| 34,569 |
|
| — |
|
| 478 |
|
| — |
|
| 35,047 |
|
| — |
|
| 35,047 | |
| 97,853 | |
| 3,310 | |
| — | |
| 274 | |
| 408 | |
| 101,845 | |
| (132) | |
| 101,713 |
Other assets |
|
| 10,286 |
|
| 40,705 |
|
| 61,787 |
|
| 2,293 |
|
| 115,071 |
|
| (2,806) |
|
| 112,265 | |
| 61,677 | |
| 7,107 | |
| 85,740 | |
| 44,719 | |
| 9,646 | |
| 208,889 | |
| (16) | |
| 208,873 |
VIE assets, at fair value |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 51,197,981 |
|
| 51,197,981 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 62,367,110 | |
| 62,367,110 |
Total Assets |
| $ | 7,710,641 |
| $ | 2,553,064 |
| $ | 1,992,063 |
| $ | 300,299 |
| $ | 12,556,067 |
| $ | 50,150,201 |
| $ | 62,706,268 | | $ | 12,731,118 | | $ | 1,901,639 | | $ | 2,126,078 | | $ | 1,815,612 | | $ | 251,562 | | $ | 18,826,009 | | $ | 60,876,314 | | $ | 79,702,323 |
Liabilities and Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Accounts payable, accrued expenses and other liabilities |
| $ | 27,821 |
| $ | 71,726 |
| $ | 78,398 |
| $ | 24,739 |
| $ | 202,684 |
| $ | 1,098 |
| $ | 203,782 | | $ | 37,206 | | $ | 16,010 | | $ | 44,184 | | $ | 24,110 | | $ | 56,614 | | $ | 178,124 | | $ | 91 | | $ | 178,215 |
Related-party payable |
|
| — |
|
| — |
|
| 43 |
|
| 29,946 |
|
| 29,989 |
|
| — |
|
| 29,989 | |
| — | |
| — | |
| — | |
| — | |
| 36,135 | |
| 36,135 | |
| — | |
| 36,135 |
Dividends payable |
|
| — |
|
| — |
|
| — |
|
| 125,674 |
|
| 125,674 |
|
| — |
|
| 125,674 | |
| — | |
| — | |
| — | |
| — | |
| 138,906 | |
| 138,906 | |
| — | |
| 138,906 |
Derivative liabilities |
|
| 14,105 |
|
| 8,784 |
|
| 1 |
|
| — |
|
| 22,890 |
|
| — |
|
| 22,890 | |
| 33,190 | |
| 1,310 | |
| — | |
| 305 | |
| — | |
| 34,805 | |
| — | |
| 34,805 |
Secured financing agreements, net |
|
| 3,223,863 |
|
| 1,501,006 |
|
| 516,933 |
|
| 296,593 |
|
| 5,538,395 |
|
| (23,700) |
|
| 5,514,695 | |
| 6,502,059 | |
| 1,259,813 | |
| 1,871,026 | |
| 653,222 | |
| 631,655 | |
| 10,917,775 | |
| (21,843) | |
| 10,895,932 |
Collateralized loan obligations, net | | | 931,178 | | | — | | | — | |
| — | |
| — | |
| 931,178 | | | — | | | 931,178 | |||||||||||||||||||||
Unsecured senior notes, net |
|
| — |
|
| — |
|
| — |
|
| 2,044,523 |
|
| 2,044,523 |
|
| — |
|
| 2,044,523 | |
| — | |
| — | |
| — | |
| — | |
| 1,735,658 | |
| 1,735,658 | |
| — | |
| 1,735,658 |
Secured borrowings on transferred loans, net |
|
| 74,200 |
|
| — |
|
| — |
|
| — |
|
| 74,200 |
|
| — |
|
| 74,200 | ||||||||||||||||||||||||
VIE liabilities, at fair value |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 50,150,781 |
|
| 50,150,781 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 60,896,709 | |
| 60,896,709 |
Total Liabilities |
|
| 3,339,989 |
|
| 1,581,516 |
|
| 595,375 |
|
| 2,521,475 |
|
| 8,038,355 |
|
| 50,128,179 |
|
| 58,166,534 | |
| 7,503,633 | |
| 1,277,133 | |
| 1,915,210 | |
| 677,637 | |
| 2,598,968 | |
| 13,972,581 | |
| 60,874,957 | |
| 74,847,538 |
Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Starwood Property Trust, Inc. Stockholders’ Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Common stock |
|
| — |
|
| — |
|
| — |
|
| 2,654 |
|
| 2,654 |
|
| — |
|
| 2,654 | |
| — | |
| — | |
| — | |
| — | |
| 2,943 | |
| 2,943 | |
| — | |
| 2,943 |
Additional paid-in capital |
|
| 1,808,624 |
|
| 981,129 |
|
| 747,298 |
|
| 1,167,993 |
|
| 4,705,044 |
|
| — |
|
| 4,705,044 | |
| 1,074,553 | |
| 599,666 | |
| 25,905 | |
| (298,098) | |
| 3,823,011 | |
| 5,225,037 | |
| — | |
| 5,225,037 |
Treasury stock |
|
| — |
|
| — |
|
| — |
|
| (92,104) |
|
| (92,104) |
|
| — |
|
| (92,104) | |
| — | |
| — | |
| — | |
| — | |
| (138,022) | |
| (138,022) | |
| — | |
| (138,022) |
Accumulated other comprehensive income (loss) |
|
| 55,687 |
|
| 9,668 |
|
| (84) |
|
| — |
|
| 65,271 |
|
| — |
|
| 65,271 | ||||||||||||||||||||||||
Accumulated other comprehensive income | |
| 41,654 | |
| — | |
| — | |
| — | |
| — | |
| 41,654 | |
| — | |
| 41,654 | |||||||||||||||||||||
Retained earnings (accumulated deficit) |
|
| 2,495,536 |
|
| (19,249) |
|
| 639,359 |
|
| (3,299,719) |
|
| (184,073) |
|
| — |
|
| (184,073) | |
| 4,111,160 | |
| 24,840 | |
| (40,641) | |
| 1,285,229 | |
| (6,035,338) | |
| (654,750) | |
| — | |
| (654,750) |
Total Starwood Property Trust, Inc. Stockholders’ Equity |
|
| 4,359,847 |
|
| 971,548 |
|
| 1,386,573 |
|
| (2,221,176) |
|
| 4,496,792 |
|
| — |
|
| 4,496,792 | |
| 5,227,367 | |
| 624,506 | |
| (14,736) | |
| 987,131 | |
| (2,347,406) | |
| 4,476,862 | |
| — | |
| 4,476,862 |
Non-controlling interests in consolidated subsidiaries |
|
| 10,805 |
|
| — |
|
| 10,115 |
|
| — |
|
| 20,920 |
|
| 22,022 |
|
| 42,942 | |
| 118 | |
| — | |
| 225,604 | |
| 150,844 | |
| — | |
| 376,566 | |
| 1,357 | |
| 377,923 |
Total Equity |
|
| 4,370,652 |
|
| 971,548 |
|
| 1,396,688 |
|
| (2,221,176) |
|
| 4,517,712 |
|
| 22,022 |
|
| 4,539,734 | |
| 5,227,485 | |
| 624,506 | |
| 210,868 | |
| 1,137,975 | |
| (2,347,406) | |
| 4,853,428 | |
| 1,357 | |
| 4,854,785 |
Total Liabilities and Equity |
| $ | 7,710,641 |
| $ | 2,553,064 |
| $ | 1,992,063 |
| $ | 300,299 |
| $ | 12,556,067 |
| $ | 50,150,201 |
| $ | 62,706,268 | | $ | 12,731,118 | | $ | 1,901,639 | | $ | 2,126,078 | | $ | 1,815,612 | | $ | 251,562 | | $ | 18,826,009 | | $ | 60,876,314 | | $ | 79,702,323 |
6057
The table below presents our condensed consolidated balance sheet as of December 31, 20162020 by business segment (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
|
|
|
|
|
| Investing |
|
|
|
|
|
|
| Investing |
|
|
| ||||||||||||||||||||||||||||
|
| Lending |
| Property |
| and Servicing |
|
|
|
|
|
| and Servicing |
|
|
| |||||||||||||||||||||||||||||
|
| Segment |
| Segment |
| Segment |
| Corporate |
| Subtotal |
| VIEs |
| Total | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
| | Commercial and | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||
| | Residential | | Infrastructure | | | | Investing | | | | | | | | | |||||||||||||||||||||||||||||
|
| Lending | | Lending | | Property | | and Servicing | | | | | | Securitization | | | |||||||||||||||||||||||||||||
|
| Segment | | Segment | | Segment | | Segment | | Corporate | | Subtotal | | VIEs | | Total | |||||||||||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | |
| | | | | | | | |
| | |
| | |
| | |
| | |
Cash and cash equivalents |
| $ | 7,085 |
| $ | 7,701 |
| $ | 38,798 |
| $ | 560,790 |
| $ | 614,374 |
| $ | 1,148 |
| $ | 615,522 |
| $ | 160,007 |
| $ | 4,440 | | $ | 32,080 |
| $ | 19,546 |
| $ | 346,372 |
| $ | 562,445 |
| $ | 772 |
| $ | 563,217 |
Restricted cash |
|
| 17,885 |
|
| 9,146 |
|
| 8,202 |
|
| — |
|
| 35,233 |
|
| — |
|
| 35,233 | |
| 93,445 | | | 45,113 | |
| 7,192 | |
| 13,195 | |
| — | |
| 158,945 | |
| — | |
| 158,945 |
Loans held-for-investment, net |
|
| 5,827,553 |
|
| — |
|
| 20,442 |
|
| — |
|
| 5,847,995 |
|
| — |
|
| 5,847,995 | |
| 9,673,625 | | | 1,412,440 | |
| — | |
| 1,008 | |
| — | |
| 11,087,073 | |
| — | |
| 11,087,073 |
Loans held-for-sale |
|
| — |
|
| — |
|
| 63,279 |
|
| — |
|
| 63,279 |
|
| — |
|
| 63,279 | |
| 841,963 | | | 120,540 | |
| — | |
| 90,332 | |
| — | |
| 1,052,835 | |
| — | |
| 1,052,835 |
Loans transferred as secured borrowings |
|
| 35,000 |
|
| — |
|
| — |
|
| — |
|
| 35,000 |
|
| — |
|
| 35,000 | ||||||||||||||||||||||||
Investment securities |
|
| 776,072 |
|
| — |
|
| 990,570 |
|
| — |
|
| 1,766,642 |
|
| (959,024) |
|
| 807,618 | |
| 1,014,402 | | | 35,681 | |
| — | |
| 1,112,145 | |
| — | |
| 2,162,228 | |
| (1,425,570) | |
| 736,658 |
Properties, net |
|
| — |
|
| 1,667,108 |
|
| 277,612 |
|
| — |
|
| 1,944,720 |
|
| — |
|
| 1,944,720 | | | 103,896 | | | — | | | 1,969,414 | | | 197,843 | | | — | |
| 2,271,153 | |
| — | |
| 2,271,153 |
Intangible assets |
|
| — |
|
| 128,159 |
|
| 125,327 |
|
| — |
|
| 253,486 |
|
| (34,238) |
|
| 219,248 | |
| — | | | — | |
| 40,370 | |
| 71,123 | |
| — | |
| 111,493 | |
| (41,376) | |
| 70,117 |
Investment in unconsolidated entities |
|
| 30,874 |
|
| 124,977 |
|
| 56,376 |
|
| — |
|
| 212,227 |
|
| (7,622) |
|
| 204,605 | |
| 54,407 | | | 25,095 | |
| — | |
| 44,664 | |
| — | |
| 124,166 | |
| (16,112) | |
| 108,054 |
Goodwill |
|
| — |
|
| — |
|
| 140,437 |
|
| — |
|
| 140,437 |
|
| — |
|
| 140,437 | |
| — | | | 119,409 | |
| — | |
| 140,437 | |
| — | |
| 259,846 | |
| — | |
| 259,846 |
Derivative assets |
|
| 45,282 |
|
| 42,893 |
|
| 1,186 |
|
| — |
|
| 89,361 |
|
| — |
|
| 89,361 | |
| 6,595 | | | — | |
| 41 | |
| 147 | |
| 33,772 | |
| 40,555 | |
| — | |
| 40,555 |
Accrued interest receivable |
|
| 25,831 |
|
| — |
|
| 2,393 |
|
| — |
|
| 28,224 |
|
| — |
|
| 28,224 | |
| 87,922 | | | 2,091 | |
| — | |
| 123 | |
| 5,978 | |
| 96,114 | |
| (134) | |
| 95,980 |
Other assets |
|
| 13,470 |
|
| 29,569 |
|
| 59,503 |
|
| 1,866 |
|
| 104,408 |
|
| (2,645) |
|
| 101,763 | |
| 61,638 | | | 4,531 | |
| 69,859 | |
| 44,579 | |
| 10,148 | |
| 190,755 | |
| (7) | |
| 190,748 |
VIE assets, at fair value |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 67,123,261 |
|
| 67,123,261 | |
| — | | | — | |
| — | |
| — | |
| — | |
| — | |
| 64,238,328 | |
| 64,238,328 |
Total Assets |
| $ | 6,779,052 |
| $ | 2,009,553 |
| $ | 1,784,125 |
| $ | 562,656 |
| $ | 11,135,386 |
| $ | 66,120,880 |
| $ | 77,256,266 | | $ | 12,097,900 | | $ | 1,769,340 | | $ | 2,118,956 | | $ | 1,735,142 | | $ | 396,270 | | $ | 18,117,608 | | $ | 62,755,901 | | $ | 80,873,509 |
Liabilities and Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Accounts payable, accrued expenses and other liabilities |
| $ | 20,769 |
| $ | 81,873 |
| $ | 68,603 |
| $ | 26,003 |
| $ | 197,248 |
| $ | 886 |
| $ | 198,134 | | $ | 41,104 | | $ | 12,144 | | $ | 43,630 | | $ | 45,309 | | $ | 64,583 | | $ | 206,770 | | $ | 75 | | $ | 206,845 |
Related-party payable |
|
| — |
|
| — |
|
| 440 |
|
| 37,378 |
|
| 37,818 |
|
| — |
|
| 37,818 | |
| — | | | — | |
| — | |
| 5 | |
| 39,165 | |
| 39,170 | |
| — | |
| 39,170 |
Dividends payable |
|
| — |
|
| — |
|
| — |
|
| 125,075 |
|
| 125,075 |
|
| — |
|
| 125,075 | |
| — | | | — | |
| — | |
| — | |
| 137,959 | |
| 137,959 | |
| — | |
| 137,959 |
Derivative liabilities |
|
| 3,388 |
|
| — |
|
| 516 |
|
| — |
|
| 3,904 |
|
| — |
|
| 3,904 | |
| 39,082 | | | 1,718 | |
| — | |
| 524 | |
| — | |
| 41,324 | |
| — | |
| 41,324 |
Secured financing agreements, net |
|
| 2,258,462 |
|
| 1,196,830 |
|
| 426,683 |
|
| 295,851 |
|
| 4,177,826 |
|
| (23,700) |
|
| 4,154,126 | |
| 5,893,999 | | | 1,240,763 | |
| 1,794,609 | |
| 606,100 | |
| 632,719 | |
| 10,168,190 | |
| (22,000) | |
| 10,146,190 |
Collateralized loan obligations, net | | | 930,554 | | | — | |
| — | |
| — | |
| — | |
| 930,554 | |
| — | |
| 930,554 | |||||||||||||||||||||
Unsecured senior notes, net |
|
| — |
|
| — |
|
| — |
|
| 2,011,544 |
|
| 2,011,544 |
|
| — |
|
| 2,011,544 | |
| — | | | — | |
| — | |
| — | |
| 1,732,520 | |
| 1,732,520 | |
| — | |
| 1,732,520 |
Secured borrowings on transferred loans |
|
| 35,000 |
|
| — |
|
| — |
|
| — |
|
| 35,000 |
|
| — |
|
| 35,000 | ||||||||||||||||||||||||
VIE liabilities, at fair value |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 66,130,592 |
|
| 66,130,592 | |
| — | | | — | |
| — | |
| — | |
| — | |
| — | |
| 62,776,371 | |
| 62,776,371 |
Total Liabilities |
|
| 2,317,619 |
|
| 1,278,703 |
|
| 496,242 |
|
| 2,495,851 |
|
| 6,588,415 |
|
| 66,107,778 |
|
| 72,696,193 | |
| 6,904,739 | | | 1,254,625 | |
| 1,838,239 | |
| 651,938 | |
| 2,606,946 | |
| 13,256,487 | |
| 62,754,446 | |
| 76,010,933 |
Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Starwood Property Trust, Inc. Stockholders’ Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Common stock |
|
| — |
|
| — |
|
| — |
|
| 2,639 |
|
| 2,639 |
|
| — |
|
| 2,639 | |
| — | | | — | |
| — | |
| — | |
| 2,921 | |
| 2,921 | |
| — | |
| 2,921 |
Additional paid-in capital |
|
| 2,218,671 |
|
| 696,049 |
|
| 883,761 |
|
| 892,699 |
|
| 4,691,180 |
|
| — |
|
| 4,691,180 | |
| 1,192,584 | | | 496,387 | |
| 98,882 | |
| (322,992) | |
| 3,744,878 | |
| 5,209,739 | |
| — | |
| 5,209,739 |
Treasury stock |
|
| — |
|
| — |
|
| — |
|
| (92,104) |
|
| (92,104) |
|
| — |
|
| (92,104) | |
| — | | | — | |
| — | |
| — | |
| (138,022) | |
| (138,022) | |
| — | |
| (138,022) |
Accumulated other comprehensive income (loss) |
|
| 44,903 |
|
| (8,328) |
|
| (437) |
|
| — |
|
| 36,138 |
|
| — |
|
| 36,138 | |
| 44,057 | | | — | |
| — | |
| (64) | |
| — | |
| 43,993 | |
| — | |
| 43,993 |
Retained earnings (accumulated deficit) |
|
| 2,186,727 |
|
| 43,129 |
|
| 390,994 |
|
| (2,736,429) |
|
| (115,579) |
|
| — |
|
| (115,579) | |
| 3,956,405 | | | 18,328 | |
| (44,832) | |
| 1,260,819 | |
| (5,820,453) | |
| (629,733) | |
| — | |
| (629,733) |
Total Starwood Property Trust, Inc. Stockholders’ Equity |
|
| 4,450,301 |
|
| 730,850 |
|
| 1,274,318 |
|
| (1,933,195) |
|
| 4,522,274 |
|
| — |
|
| 4,522,274 | |
| 5,193,046 | | | 514,715 | |
| 54,050 | |
| 937,763 | |
| (2,210,676) | |
| 4,488,898 | |
| — | |
| 4,488,898 |
Non-controlling interests in consolidated subsidiaries |
|
| 11,132 |
|
| — |
|
| 13,565 |
|
| — |
|
| 24,697 |
|
| 13,102 |
|
| 37,799 | |
| 115 | | | — | |
| 226,667 | |
| 145,441 | |
| — | |
| 372,223 | |
| 1,455 | |
| 373,678 |
Total Equity |
|
| 4,461,433 |
|
| 730,850 |
|
| 1,287,883 |
|
| (1,933,195) |
|
| 4,546,971 |
|
| 13,102 |
|
| 4,560,073 | |
| 5,193,161 | | | 514,715 | |
| 280,717 | |
| 1,083,204 | |
| (2,210,676) | |
| 4,861,121 | |
| 1,455 | |
| 4,862,576 |
Total Liabilities and Equity |
| $ | 6,779,052 |
| $ | 2,009,553 |
| $ | 1,784,125 |
| $ | 562,656 |
| $ | 11,135,386 |
| $ | 66,120,880 |
| $ | 77,256,266 | | $ | 12,097,900 | | $ | 1,769,340 | | $ | 2,118,956 | | $ | 1,735,142 | | $ | 396,270 | | $ | 18,117,608 | | $ | 62,755,901 | | $ | 80,873,509 |
6158
Our significant events subsequent to September 30, 2017March 31, 2021 were as follows:
Convertible Senior Notes Due 2017Collateralized Loan Obligations
In October 2017,April 2021, we repaidrefinanced a pool of our infrastructure loans held-for-investment through a $500.0 million new issue CLO, STWD 2021-SIF1, with $410.0 million of third party financing at an average coupon of LIBOR + 181 bps. The CLO contains a reinvestment feature that, subject to certain eligibility criteria, allows us to contribute new loans or participation interests in loans to the full principal amountCLO for a period of three years.
In May 2021, we refinanced a pool of our commercial loans held-for-investment through a $1.3 billion CLO, STWD 2021-FL2, with $1.1 billion of third party financing at an average coupon of LIBOR + 150 bps. The CLO contains a reinvestment feature that, subject to certain eligibility criteria, allows us to contribute new loans or participation interests in loans to the 2017 Notes in cash upon their maturity.CLO for a period of two years.
Dividend Declaration
On November 8, 2017, our board of directors declared a dividend of $0.48 per share for the fourth quarter of 2017, which is payable on January 15, 2018 to common stockholders of record as of December 29, 2017.
6259
Item 2. Management’s Discussion and AnalysisAnalysis of Financial Condition and Results of Operations
This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with the information included elsewhere in this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (the2020 (our “Form 10-K”). This discussion contains forward-looking statements that involve risks and uncertainties. Actual results could differ significantly from the results discussed in the forward-looking statements. See “Special Note Regarding Forward-Looking Statements” at the beginning of this Quarterly Report on Form 10-Q.
Overview
Starwood Property Trust, Inc. (“STWD” and, together with its subsidiaries, “we” or the “Company”) is a Maryland corporation that commenced operations in August 2009, upon the completion of our initial public offering. We are focused primarily on originating, acquiring, financing and managing commercial mortgage loans and other commercial real estate debt investments, commercial mortgage-backed securities (“CMBS”), and other commercial real estate investments in both the United States (“U.S.”) and Europe. We refer to the following as our target assets: commercial real estate mortgage loans, preferred equity interests, CMBS and other commercial real estate-related debt investments. Our target assets may also include residential mortgage-backed securities (“RMBS”), certain residential mortgage loans, distressed or non-performing commercial loans, commercial properties subject to net leases and equity interests in commercial real estate. As market conditions change over time, we may adjust our strategy to take advantage of changes in interest rates and credit spreads as well as economic and credit conditions.
We have threefour reportable business segments as of September 30, 2017:March 31, 2021 and we refer to the investments within these segments as our target assets:
| Real estate commercial and residential lending (the |
| Infrastructure lending (the “Infrastructure Lending Segment”)—engages primarily in originating, acquiring, financing and managing infrastructure debt investments. |
● | Real estate property (the “Property Segment”)—engages primarily in acquiring and managing equity interests in stabilized commercial real estate properties, including |
| Real estate investing and servicing (the “Investing and Servicing Segment”)—includes (i) a servicing business in the U.S. that manages and works out problem assets, (ii) an investment business that selectively acquires and manages unrated, investment grade and non-investment grade rated CMBS, including subordinated interests of securitization and resecuritization transactions, (iii) a mortgage loan business which originates conduit loans for the primary purpose of selling these loans into securitization transactions and (iv) an investment business that selectively acquires commercial real estate assets, including properties acquired from CMBS trusts. |
Our segments exclude the consolidation of securitization variable interest entities (“VIEs”).
Refer to Note 1 of our condensed consolidated financial statements included herein (the “Condensed Consolidated Financial Statements”) for further discussion of our business and organization.
6360
COVID-19 Pandemic
The outbreak of the COVID-19 pandemic beginning in the first quarter of 2020 and its continuing impact on the financial, economic and capital markets environment, and future developments in these and other areas, present uncertainty and risk with respect to our financial condition, results of operations, liquidity, and ability to pay distributions. We expect that these impacts are likely to continue to some extent as the outbreak persists and potentially even longer. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions, and, as a result, present material uncertainty and risk with respect to us and the performance of our investments. The full extent of the impact and effects of COVID-19 will depend on future developments, including, among other factors, the duration and spread of the outbreak, along with related travel advisories, quarantines and restrictions, the recovery time of the disrupted supply chains and industries, the impact of labor market interruptions, the impact of government interventions, and uncertainty with respect to the duration of the global economic slowdown.
Further discussion of the potential impacts on our business, financial condition, results of operations, liquidity, the market price of our common stock and our ability to make distributions to our stockholders from the COVID-19 pandemic is provided in the section entitled “Risk Factors” in Part I, Item 1A of our Form 10-K.
Asset Performance and Collections
We maintain an in-house team of asset management professionals who oversee our commercial loans and are in regular communication with these borrowers. We have utilized these relationships to address the potential impacts of the COVID-19 pandemic on the assets which secure our loans, particularly hospitality assets. Some of our borrowers have indicated that due to the impact of the COVID-19 pandemic, they will be unable to timely execute their business plans, have had to temporarily close their businesses, or have experienced other negative business consequences which have led to cash flow pressures at the underlying properties. In some cases, these borrowers have requested temporary interest deferral or forbearance, or other modifications of their loans.
Since the outbreak of the COVID-19 pandemic, we have granted certain payment related loan modifications to our commercial borrowers, consisting principally of partial and temporary deferrals of interest and the repurposing of reserves, many of which were coupled with additional equity commitments from sponsors. We are generally encouraged by our borrowers’ response to the COVID-19 pandemic’s impacts on their properties. While we believe the principal amounts of our loans are generally adequately protected by underlying collateral value, there is a risk that we will not realize the entire principal value of certain investments. As of March 31, 2021, we had one commercial loan held-for-investment with an aggregate principal balance of $40.8 million which remained on its post-COVID partial interest deferral.
In response to the impact of COVID-19 on certain of our residential borrowers, we began offering short-term relief starting in the first quarter of 2020. Under the terms of these plans, borrowers were granted up to a three to six-month “zero pay” forbearance with payments required to resume at the conclusion of the plan. Since their peak last summer, we have seen the majority of these borrowers resume making payments, with some fully prepaying their loans. We continue to see loans in forbearance decrease, with strong home price appreciation keeping any estimated credit losses low. For those loans which have not yet resumed payments, we continue to evaluate loss mitigation options, including forbearance, repayment plans, loan modification and foreclosure. In accordance with our policies, we placed any residential loans that were more than 90 days delinquent on nonaccrual.
In our property segment, we collected 98% of rents due during the three months ended March 31, 2021. Collections were particularly strong in our Woodstar I and Woodstar II affordable housing portfolios, where 98% of rent due was collected. Given current demographic trends, which tend to favor flexible rental arrangements, we continue to see sustained demand in multifamily properties and decreased turnover.
61
In our infrastructure segment, during the three months ended March 31, 2021, we collected 100% of interest due and did not grant any payment related loan modifications.
Goodwill and Intangible Assets
Goodwill is tested for impairment annually in the fourth quarter, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Management considered the general economic decline and the impact of the COVID-19 pandemic, but did not identify any such event or circumstances. However, future changes in the expectations of the impact of COVID-19 on our operations, financial performance and cash flows could cause our goodwill to be impaired.
Developments During the ThirdFirst Quarter of 20172021
Master Lease Portfolio AcquisitionCommercial and Residential Lending Segment
On September 25, 2017, we acquired 20 retail properties and three industrial properties (the “Master Lease Portfolio”) for a purchase price of $553.3 million, inclusive of $3.7 million of related transaction costs. Concurrently with the acquisition, we leased the properties back to the seller under corporate guaranteed master net lease agreements with initial terms of 24.6 years and periodic rent escalations. These properties, which collectively comprise 5.3 million square feet, are geographically dispersed throughout the U.S., with more than 50% of the portfolio, by carrying value, located in Utah, Florida, Texas and Minnesota. We utilized $265.9 million in new financing in order to fund the acquisition.
Other Developments
|
|
o |
|
o |
|
o | $ |
|
|
o | $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
Developments During the Nine Months Ended September 30, 2017
|
|
|
|
|
|
o | $ |
|
|
o | $ |
o | $ |
o | $ |
|
|
|
|
| Funded |
| Received gross proceeds of |
| ● | Sold commercial real estate in Montgomery, Alabama that was previously acquired through foreclosure in March 2019 for gross proceeds of $30.6 million and recognized a gain of $17.7 million. At the foreclosure date, the loan had a carrying value of $9.0 million ($20.9 million unpaid principal balance net of an $8.3 million allowance and $3.6 million of unamortized discount). |
| ● | Acquired $208.8 million of residential loans. |
62
| Received proceeds of $389.8 million, including retained RMBS of $27.3 million, from the securitization of $383.5 million of residential loans. Also received proceeds of $92.4 million from the sale of $89.4 million of residential loans outside of securitization. |
Infrastructure Lending Segment
| ● | Acquired $86.3 million of infrastructure loans and funded $13.8 million of pre-existing infrastructure loan commitments. |
| ● | Received proceeds of $19.2 million from principal repayments on our infrastructure loans and bonds. |
Property Segment
| ● | Refinanced our Woodstar II Portfolio by entering into mortgage loans with total borrowings of $82.9 million. The loans carry seven-year terms and a weighted average fixed annual interest rate of 4.36%. A portion of the net proceeds from the mortgage loans was used to repay $4.9 million of outstanding government sponsored mortgage loans. |
Investing and Servicing Segment
| ● | Originated |
|
|
|
|
|
|
|
|
|
|
65
|
|
Subsequent Events
Refer to Note 23 to the Condensed Consolidated Financial Statements for disclosure regarding significant transactions that occurred subsequent to September 30, 2017.March 31, 2021.
63
Results of Operations
The discussion below is based on accounting principles generally accepted in the United States of America (“GAAP”) and therefore reflects the elimination of certain key financial statement line items related to the consolidation of securitization variable interest entities (“VIEs”), particularly within revenues and other income, as discussed in Note 2 to the Condensed Consolidated Financial Statements. For a discussion of our results of operations excluding the impact of Accounting Standards Codification (“ASC”) Topic 810 as it relates to the consolidation of securitization VIEs, refer to the Non-GAAPsection captioned “Non-GAAP Financial Measures section herein.Measures”.
66
our results of operations for the current quarter with that of the immediately preceding quarter, as permitted under the recently amended SEC disclosure guidelines. Because our business is not seasonal, we believe this results in a more meaningful comparison of quarterly results than a comparison to the same quarter of the prior year. We continue to present the required comparison of current year-to-date results with the same period of the prior year. The following table compares our summarized results of operations for the three and nine months ended September 30, 2017March 31, 2021, December 31, 2020 and 2016March 31, 2020 by business segment (amounts in thousands):
| | | | | | | | | | | | | | | |
| | | | | | | | | | | $ Change | | $ Change | ||
| | For the Three Months Ended | | March 31, 2021 vs. | | March 31, 2021 vs. | |||||||||
Revenues: | | March 31, 2021 | | December 31, 2020 | | March 31, 2020 | | December 31, 2020 | | March 31, 2020 | |||||
Commercial and Residential Lending Segment | | $ | 190,531 | | $ | 196,309 | | $ | 211,437 | | $ | (5,778) | | $ | (20,906) |
Infrastructure Lending Segment | | | 19,465 | | | 19,250 | | | 23,257 | | | 215 | | | (3,792) |
Property Segment | | | 65,144 | | | 64,065 | | | 64,083 | | | 1,079 | | | 1,061 |
Investing and Servicing Segment | |
| 44,547 | |
| 45,372 | |
| 44,495 | | | (825) | |
| 52 |
Corporate | | | — | | | — | |
| — | | | — | | | — |
Securitization VIE eliminations | |
| (32,457) | |
| (34,434) | |
| (30,712) | | | 1,977 | |
| (1,745) |
| |
| 287,230 | |
| 290,562 | |
| 312,560 | |
| (3,332) | |
| (25,330) |
Costs and expenses: | | | | | | | | | | | | | | | |
Commercial and Residential Lending Segment | |
| 56,414 | |
| 50,999 | |
| 104,780 | | | 5,415 | |
| (48,366) |
Infrastructure Lending Segment | | | 12,956 | | | 5,555 | | | 26,079 | | | 7,401 | | | (13,123) |
Property Segment | | | 59,498 | | | 61,289 | | | 60,662 | | | (1,791) | | | (1,164) |
Investing and Servicing Segment | |
| 32,457 | |
| 39,722 | |
| 36,928 | | | (7,265) | |
| (4,471) |
Corporate | | | 71,647 | | | 73,965 | |
| 73,213 | | | (2,318) | | | (1,566) |
Securitization VIE eliminations | |
| (93) | |
| (127) | |
| (47) | | | 34 | |
| (46) |
| |
| 232,879 | |
| 231,403 | |
| 301,615 | |
| 1,476 | |
| (68,736) |
Other income (loss): | | | | | | | | | | | | | | | |
Commercial and Residential Lending Segment | |
| 21,161 | |
| 13,318 | |
| (66,541) | | | 7,843 | |
| 87,702 |
Infrastructure Lending Segment | | | 95 | | | (259) | | | (1,348) | | | 354 | | | 1,443 |
Property Segment | | | 4,608 | | | 391 | | | (30,192) | | | 4,217 | | | 34,800 |
Investing and Servicing Segment | |
| 18,960 | |
| 22,349 | |
| (45,918) | | | (3,389) | |
| 64,878 |
Corporate | | | (6,843) | | | (1,239) | | | 29,235 | | | (5,604) | | | (36,078) |
Securitization VIE eliminations | |
| 32,424 | |
| 34,317 | |
| 30,821 | | | (1,893) | |
| 1,603 |
| |
| 70,405 | |
| 68,877 | |
| (83,943) | |
| 1,528 | |
| 154,348 |
Income (loss) before income taxes: | | | | | | | | | | | | | | | |
Commercial and Residential Lending Segment | |
| 155,278 | |
| 158,628 | |
| 40,116 | | | (3,350) | |
| 115,162 |
Infrastructure Lending Segment | | | 6,604 | | | 13,436 | | | (4,170) | | | (6,832) | | | 10,774 |
Property Segment | | | 10,254 | | | 3,167 | | | (26,771) | | | 7,087 | | | 37,025 |
Investing and Servicing Segment | |
| 31,050 | |
| 27,999 | |
| (38,351) | | | 3,051 | |
| 69,401 |
Corporate | | | (78,490) | | | (75,204) | | | (43,978) | | | (3,286) | | | (34,512) |
Securitization VIE eliminations | |
| 60 | |
| 10 | |
| 156 | | | 50 | |
| (96) |
| |
| 124,756 | |
| 128,036 | |
| (72,998) | |
| (3,280) | |
| 197,754 |
Income tax provision | |
| (2,230) | |
| (13,381) | |
| 6,729 | | | 11,151 | |
| (8,959) |
Net income attributable to non-controlling interests | |
| (11,148) | |
| (7,687) | |
| (500) | | | (3,461) | |
| (10,648) |
Net income attributable to Starwood Property Trust, Inc. | | $ | 111,378 | | $ | 106,968 | | $ | (66,769) | | $ | 4,410 | | $ | 178,147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
|
|
|
| For the Nine Months Ended |
|
|
| ||||||||
|
| September 30, |
|
|
|
| September 30, |
|
|
| ||||||||
|
| 2017 |
| 2016 |
| $ Change |
| 2017 |
| 2016 |
| $ Change | ||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending Segment |
| $ | 146,012 |
| $ | 128,101 |
| $ | 17,911 |
| $ | 397,179 |
| $ | 383,175 |
| $ | 14,004 |
Property Segment |
|
| 47,827 |
|
| 29,237 |
|
| 18,590 |
|
| 139,225 |
|
| 85,083 |
|
| 54,142 |
Investing and Servicing Segment |
|
| 72,214 |
|
| 91,879 |
|
| (19,665) |
|
| 241,327 |
|
| 268,658 |
|
| (27,331) |
Investing and Servicing VIEs |
|
| (39,286) |
|
| (44,512) |
|
| 5,226 |
|
| (140,675) |
|
| (136,726) |
|
| (3,949) |
|
|
| 226,767 |
|
| 204,705 |
|
| 22,062 |
|
| 637,056 |
|
| 600,190 |
|
| 36,866 |
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending Segment |
|
| 34,438 |
|
| 30,719 |
|
| 3,719 |
|
| 87,308 |
|
| 87,406 |
|
| (98) |
Property Segment |
|
| 49,304 |
|
| 31,684 |
|
| 17,620 |
|
| 140,647 |
|
| 97,297 |
|
| 43,350 |
Investing and Servicing Segment |
|
| 40,215 |
|
| 58,580 |
|
| (18,365) |
|
| 116,315 |
|
| 131,930 |
|
| (15,615) |
Corporate |
|
| 64,330 |
|
| 55,027 |
|
| 9,303 |
|
| 180,714 |
|
| 161,894 |
|
| 18,820 |
Investing and Servicing VIEs |
|
| (85) |
|
| 32 |
|
| (117) |
|
| (368) |
|
| 488 |
|
| (856) |
|
|
| 188,202 |
|
| 176,042 |
|
| 12,160 |
|
| 524,616 |
|
| 479,015 |
|
| 45,601 |
Other income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending Segment |
|
| 571 |
|
| 2,212 |
|
| (1,641) |
|
| 258 |
|
| (3,005) |
|
| 3,263 |
Property Segment |
|
| (45,008) |
|
| (2,272) |
|
| (42,736) |
|
| (60,957) |
|
| 9,537 |
|
| (70,494) |
Investing and Servicing Segment |
|
| 68,191 |
|
| 35,304 |
|
| 32,887 |
|
| 143,956 |
|
| (18,463) |
|
| 162,419 |
Corporate |
|
| — |
|
| 234 |
|
| (234) |
|
| (5,916) |
|
| 1,784 |
|
| (7,700) |
Investing and Servicing VIEs |
|
| 40,296 |
|
| 44,339 |
|
| (4,043) |
|
| 147,390 |
|
| 137,369 |
|
| 10,021 |
|
|
| 64,050 |
|
| 79,817 |
|
| (15,767) |
|
| 224,731 |
|
| 127,222 |
|
| 97,509 |
Income (loss) before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending Segment |
|
| 112,145 |
|
| 99,594 |
|
| 12,551 |
|
| 310,129 |
|
| 292,764 |
|
| 17,365 |
Property Segment |
|
| (46,485) |
|
| (4,719) |
|
| (41,766) |
|
| (62,379) |
|
| (2,677) |
|
| (59,702) |
Investing and Servicing Segment |
|
| 100,190 |
|
| 68,603 |
|
| 31,587 |
|
| 268,968 |
|
| 118,265 |
|
| 150,703 |
Corporate |
|
| (64,330) |
|
| (54,793) |
|
| (9,537) |
|
| (186,630) |
|
| (160,110) |
|
| (26,520) |
Investing and Servicing VIEs |
|
| 1,095 |
|
| (205) |
|
| 1,300 |
|
| 7,083 |
|
| 155 |
|
| 6,928 |
|
|
| 102,615 |
|
| 108,480 |
|
| (5,865) |
|
| 337,171 |
|
| 248,397 |
|
| 88,774 |
Income tax provision |
|
| (9,816) |
|
| (2,667) |
|
| (7,149) |
|
| (18,285) |
|
| (3,467) |
|
| (14,818) |
Net income attributable to non-controlling interests |
|
| (4,371) |
|
| (47) |
|
| (4,324) |
|
| (10,720) |
|
| (1,034) |
|
| (9,686) |
Net income attributable to Starwood Property Trust, Inc. |
| $ | 88,428 |
| $ | 105,766 |
| $ | (17,338) |
| $ | 308,166 |
| $ | 243,896 |
| $ | 64,270 |
64
Three Months Ended September 30, 2017March 31, 2021 Compared to the Three Months Ended September 30, 2016December 31, 2020
Commercial and Residential Lending Segment
Revenues
For the three months ended September 30, 2017,March 31, 2021, revenues of our Commercial and Residential Lending Segment increased $17.9decreased $5.8 million to $146.0$190.5 million, compared to $128.1$196.3 million for the three months ended September 30, 2016.December 31, 2020. This increasedecrease was primarily due to (i) a $19.6 million increasedecreases in interest income from loans principallyof $2.4 million and investment securities of $2.7 million and a decrease in rental income from foreclosed properties of $0.6 million due to higher average loan balances and LIBOR rates, partially offset by (ii)the sale of a $1.8 millionproperty in the first quarter of 2021. The decrease in interest income from loans was principally due to lower average balances of residential loans reflecting the timing of purchases and securitizations. The decrease in interest income from CMBS andinvestment securities was primarily due to lower average RMBS investments.investment balances reflecting sales of RMBS late in the fourth quarter of 2020.
67
Costs and Expenses
For the three months ended September 30, 2017,March 31, 2021, costs and expenses of our Commercial and Residential Lending Segment increased $3.7$5.4 million to $34.4$56.4 million, compared to $30.7$51.0 million for the three months ended September 30, 2016.December 31, 2020. This increase was primarily due to a $5.3$4.5 million decrease in credit loss reversal and a $2.3 million increase in interest expense associated with the various secured financing facilities used to fund a portion of ourthis segment’s investment portfolio, partially offset by a $2.3$1.4 million decrease in general and administrative expenses reflecting lower professional fees. The credit loss reversal decreased from $5.0 million in the fourth quarter of 2020 to $0.5 million in the first quarter of 2021. The larger reversal in the fourth quarter of 2020 was primarily due to an improvement in macroeconomic forecasts and the effect on our loan loss allowance. then estimate of current expected credit losses (“CECL”). The increase in interest expense was primarily due to higher average borrowings outstanding, partially offset by lower average LIBOR rates.
Net Interest Income (amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
|
|
| ||||
|
| September 30, |
|
|
| ||||
|
| 2017 |
| 2016 |
| Change | |||
Interest income from loans |
| $ | 134,149 |
| $ | 114,506 |
| $ | 19,643 |
Interest income from investment securities |
|
| 11,540 |
|
| 13,301 |
|
| (1,761) |
Interest expense |
|
| (27,929) |
|
| (22,678) |
|
| (5,251) |
Net interest income |
| $ | 117,760 |
| $ | 105,129 |
| $ | 12,631 |
| | | | | | | | | |
| | For the Three Months Ended | | | | ||||
|
| March 31, 2021 |
| December 31, 2020 |
| Change | |||
Interest income from loans | | $ | 170,593 | | $ | 173,014 | | $ | (2,421) |
Interest income from investment securities | |
| 18,385 | |
| 21,132 | |
| (2,747) |
Interest expense | |
| (44,295) | |
| (41,987) | |
| (2,308) |
Net interest income | | $ | 144,683 | | $ | 152,159 | | $ | (7,476) |
For the three months ended September 30, 2017,March 31, 2021, net interest income of our Commercial and Residential Lending Segment increased $12.6decreased $7.5 million to $117.8$144.7 million, compared to $105.1$152.2 million for the three months ended September 30, 2016.December 31, 2020. This increasedecrease reflects the net increasedecreases in interest income explained in the Revenues discussion above, partially offset byand the increase in interest expense on our secured financing facilities. facilities, both as discussed in the sections above.
During the three months ended September 30, 2017March 31, 2021 and 2016,December 31, 2020, the weighted average unlevered yieldyields on the Commercial and Residential Lending Segment’s loans and investment securities were as follows:
| | | | | |
| | For the Three Months Ended | | ||
| | March 31, 2021 | | December 31, 2020 | |
Commercial | | 5.9 | % | 6.3 | % |
Residential | | 7.5 | % | 7.2 | % |
Overall | | 6.1 | % | 6.4 | % |
The overall weighted average unlevered yield was 7.4% for each period. The effects of increases inlower primarily due to a $142.2 million commercial loan which was reclassified as held-for-sale, a $187.6 million commercial loan placed on nonaccrual and slightly lower LIBOR wererates affecting our commercial yields, partially offset by a declineshift in interest rate spreads over the last twelve months.relative mix of loans and investment securities toward higher-yielding RMBS affecting our residential yields.
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During the three months ended September 30, 2017March 31, 2021 and 2016,December 31, 2020, the Commercial and Residential Lending Segment’s weighted average secured borrowing rates, inclusive of interest rate hedging costs and the amortization of deferred financing fees, were 3.9%2.6% and 3.4%2.5%, respectively, and 3.9% and 3.3%, respectively, excluding the impact of bridge financing. The increases in borrowing rates primarily reflect increases in LIBOR.respectively.
Other Income
For the three months ended September 30, 2017,March 31, 2021, other income of our Commercial and Residential Lending Segment decreased $1.6increased $7.9 million to $0.6$21.2 million compared to $2.2$13.3 million for the three months ended September 30, 2016. The decreaseDecember 31, 2020. This increase was primarily due to (i) a $15.8$75.3 million unfavorablefavorable change in gain (loss) on derivatives and (ii) a $17.7 million gain on sale of a foreclosed property, partially offset by (iii) a $14.5$55.6 million favorableunfavorable change in foreign currency gain (loss). The and (iv) a $30.7 million unfavorable change fromin fair value of residential loans. The favorable change in gain (loss) on derivatives in the first quarter of 2021 reflects a $14.9$63.4 million unfavorablefavorable change in gain (loss) on foreign currency hedges and a $0.9an $11.9 million unfavorable changeincreased gain on interest rate swaps. The foreign currency hedges are used to fix the U.S. dollar amounts of cash flows (both interest and principal payments) we expect to receive from our foreign currency denominated loans and CMBS investments. The unfavorablefavorable change in gain (loss) on the foreign currency hedges and the favorableunfavorable change in foreign currency gain (loss) reflect the overallstrengthening of the U.S. dollar against the Euro (“EUR”) and Australian dollar (“AUD”), partially offset by a weakening against the pound sterling (“GBP”), in the first quarter of 2021 compared to a weakening of the U.S. dollar against the pound sterling (“GBP”)those currencies in the thirdfourth quarter of 2017 versus a strengthening of the U.S. dollar in the third quarter of 2016.2020. The interest rate swaps are used primarily to fix our interest rate payments on certain variable rate borrowings which fund fixed rate investments. investments and to hedge our interest rate risk on residential loans held-for-sale.
Infrastructure Lending Segment
68
Property SegmentRevenues
Change in Results by Portfolio (amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ Change from prior period | ||||||||||
|
| Revenues |
| Cost and expenses |
| Other income (loss) |
| Income (loss) before income taxes | ||||
Master Lease Portfolio |
| $ | 722 |
| $ | 655 |
| $ | (1,665) |
| $ | (1,598) |
Medical Office Portfolio |
|
| 16,961 |
|
| 18,719 |
|
| (586) |
|
| (2,344) |
Ireland Portfolio |
|
| 411 |
|
| (125) |
|
| (4,298) |
|
| (3,762) |
Woodstar Portfolio |
|
| 496 |
|
| (1,821) |
|
| — |
|
| 2,317 |
Investment in unconsolidated entities |
|
| — |
|
| — |
|
| (36,187) |
|
| (36,187) |
Other/Corporate |
|
| — |
|
| 192 |
|
| — |
|
| (192) |
Total |
| $ | 18,590 |
| $ | 17,620 |
| $ | (42,736) |
| $ | (41,766) |
See Note 3 to the Condensed Consolidated Financial Statements for a description of the above-referenced Property Segment portfolios.
Revenues
For the three months ended September 30, 2017,March 31, 2021, revenues of our PropertyInfrastructure Lending Segment increased $18.6$0.2 million to $47.8$19.5 million, compared to $29.2$19.3 million for the three months ended September 30, 2016. The increase in revenues in the third quarter of 2017December 31, 2020. This was primarily due to rentala slight increase in interest income from the Medical Office Portfolio, which was acquired in December 2016. The Master Lease Portfolio was acquired on September 25, 2017.loans.
Costs and ExpensesExpenses
For the three months ended September 30, 2017,March 31, 2021, costs and expenses of our PropertyInfrastructure Lending Segment increased $17.6$7.4 million to $49.3$13.0 million, compared to $31.7$5.6 million for the three months ended September 30, 2016. The increase in costs and expenses reflects increases of $7.0 million in depreciation and amortization, $5.5 million in other rental related costs and $5.8 million in interest expense, all primarily due to the inclusion of the Medical Office Portfolio acquired in December 2016, partially offset by lower amortization related to the Woodstar Portfolio’s in-place lease intangible asset, which is now fully amortized.
Other Loss
For the three months ended September 30, 2017, other loss of our Property Segment increased $42.7 million to $45.0 million, compared to $2.3 million for the three months ended September 30, 2016. The increase in other loss was primarily due to (i) a $36.2 million unfavorable change in earnings (loss) from unconsolidated entities principally due to unfavorable decreases in fair value of the properties in the Retail Fund, which is an investment company that measures its assets at fair value (see Note 7 to the Condensed Consolidated Financial Statements) and (ii) a $6.5 million increased loss on derivatives primarily related to foreign exchange contracts which economically hedge our Euro currency exposure with respect to the Ireland Portfolio and interest rate swaps which primarily hedge the variable interest rate risk on borrowings secured by our Medical Office Portfolio.
Investing and Servicing Segment and VIEs
Revenues
For the three months ended September 30, 2017, revenues of our Investing and Servicing Segment decreased $14.5 million to $32.9 million after consolidated VIE eliminations of $39.3 million, compared to $47.4 million after consolidated VIE eliminations of $44.5 million for the three months ended September 30, 2016. The VIE eliminations are merely a function of the number of CMBS trusts consolidated in any given period, and as such, are not a meaningful indicator of the operating results for this segment. The decrease in revenues in the third quarter of 2017 was primarily due to decreases of $8.0 million in servicing fees, $4.9 million in interest income from CMBS investments and $2.3
69
million in interest income from conduit loans, partially offset by a $2.0 million increase in rental income on our expanded REIS Equity Portfolio (see Note 3 to the Condensed Consolidated Financial Statements). The $8.0 million decrease in servicing fees is primarily due to the divestiture of our European servicing and advisory business in October 2016 and lower domestic workout and liquidation fees. The $4.9 million decrease in CMBS interest income reflects a $1.4 million increase in VIE eliminations related to the CMBS trusts we consolidate. Excluding the effect of these eliminations, CMBS interest income decreased by $3.5 million, primarily reflecting a lower level of CMBS interest recoveries from asset liquidations by CMBS trusts.
Costs and Expenses
For the three months ended September 30, 2017, costs and expenses of our Investing and Servicing Segment decreased $18.5 million to $40.1 million, compared to $58.6 million for the three months ended September 30, 2016, inclusive of VIE eliminations which were nominal for both periods. The decrease in costs and expenses was primarily due to a decrease in general and administrative expenses, principally reflecting lower incentive compensation and the divestiture of our European servicing and advisory business.
Other Income
For the three months ended September 30, 2017, other income of our Investing and Servicing Segment increased $28.9 million to $108.5 million including additive net VIE eliminations of $40.3 million, from $79.6 million including additive net VIE eliminations of $44.3 million for the three months ended September 30, 2016. The increase in other income in the third quarter of 2017 compared to the third quarter of 2016 was primarily due to (i) a $28.2 million increase in earnings from an unconsolidated investor entity which owns equity in an online real estate company (see Note 7 to the Condensed Consolidated Financial Statements), (ii) an $11.2 million gain on sale of two operating properties, (iii) a $9.4 million lesser decrease in fair value of servicing rights primarily reflecting the effect of VIE eliminations on the expected amortization of this deteriorating asset net of increases in fair value due to the attainment of new servicing contracts and (iv) an $8.3 million increase in the change in value of net assets related to consolidated VIEs, all partially offset by (v) a $30.1 million lesser increase in the fair value of our conduit loans held-for-sale. The change in net assets related to consolidated VIEs reflects amounts associated with the Investing and Servicing Segment’s variable interests in CMBS trusts it consolidates, including special servicing fees, interest income, and changes in fair value of CMBS and servicing rights. As noted above, this number is merely a function of the number of CMBS trusts consolidated in any given period, and as such, is not a meaningful indicator of the operating results for this segment. Before VIE eliminations, there was an increase in fair value of CMBS securities of $14.0 million and $0.6 million in the three months ended September 30, 2017 and 2016, respectively.
Income Tax Provision
Historically, our consolidated income tax provision principally relates to the taxable nature of the Investing and Servicing Segment’s loan servicing and loan conduit businesses which are housed in TRSs. For the three months ended September 30, 2017, we had a tax provision of $9.8 million compared to a tax provision of $2.7 million in the three months ended September 30, 2016. The change primarily reflects an increase in the taxable income of our TRSs associated with earnings from our interest in an investor entity which owns equity in an online real estate company and sold nearly all of its interest during the three months ended September 30, 2017 (see Notes 7 and 20 to the Condensed Consolidated Financial Statements).
Corporate
Costs and Expenses
For the three months ended September 30, 2017, corporate expenses increased $9.3 million to $64.3 million, compared to $55.0 million for the three months ended September 30, 2016.31, 2020. The increase was primarily due to (i) a $5.5$7.7 million increase in interest expense principally on our 2021 Senior Notes issued in December 2016,credit loss provision, partially offset by a decrease in interest expense on our reduced term loan borrowings, and (ii) a $3.2$0.4 million increase in management fees.
70
Nine Months Ended September 30, 2017 Compared to the Nine Months Ended September 30, 2016
Lending Segment
Revenues
For the nine months ended September 30, 2017, revenues of our Lending Segment increased $14.0 million to $397.2 million, compared to $383.2 million for the nine months ended September 30, 2016. This increase was primarily due to (i) an $11.7 million increase in interest income from loans principally due to higher average loan balances and LIBOR rates, partially offset by lower levels of prepayment related income and (ii) a $1.9 million increase in interest income principally from CMBS and RMBS investments.
Costs and Expenses
For the nine months ended September 30, 2017, costs and expenses of our Lending Segment decreased $0.1 million to $87.3 million, compared to $87.4 million for the nine months ended September 30, 2016. This decrease was primarily due to a $6.6 million decrease in our loan loss allowance, partially offset by (i) a $4.8 million increase in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio. The credit loss provision was $0.6 million in the first quarter of 2021 compared to a reversal of $7.1 million in the fourth quarter of 2020. The reversal in the fourth quarter of 2020 was primarily due to an improvement in macroeconomic forecasts and the effect on our investment portfolio and (ii) a $1.3 million increaseestimate of CECL allowances. The decrease in general, administrative and other expenses. interest expense was primarily due to lower average LIBOR rates.
Net Interest Income (amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
| For the Nine Months Ended |
|
|
| ||||
|
| September 30, |
|
|
| ||||
|
| 2017 |
| 2016 |
| Change | |||
Interest income from loans |
| $ | 360,188 |
| $ | 348,460 |
| $ | 11,728 |
Interest income from investment securities |
|
| 35,870 |
|
| 33,975 |
|
| 1,895 |
Interest expense |
|
| (72,372) |
|
| (67,585) |
|
| (4,787) |
Net interest income |
| $ | 323,686 |
| $ | 314,850 |
| $ | 8,836 |
| | | | | | | | | |
| | For the Three Months Ended | | | | ||||
|
| March 31, 2021 |
| December 31, 2020 |
| Change | |||
Interest income from loans | | $ | 18,808 | | $ | 18,477 | | $ | 331 |
Interest income from investment securities | |
| 564 | |
| 618 | |
| (54) |
Interest expense | |
| (8,841) | |
| (9,204) | |
| 363 |
Net interest income | | $ | 10,531 | | $ | 9,891 | | $ | 640 |
For the ninethree months ended September 30, 2017,March 31, 2021, net interest income of our Infrastructure Lending Segment increased $8.8$0.6 million to $323.7$10.5 million, compared to $314.9$9.9 million for the ninethree months ended September 30, 2016. ThisDecember 31, 2020. The increase reflects the net increase in interest income explainedand the decrease in interest expense on the secured financing facilities, both as discussed in the sections above.
66
During the three months ended March 31, 2021 and 2020, the weighted average unlevered yields on the Infrastructure Lending Segment’s investments were as follows:
| | | | | |
| | For the Three Months Ended | | ||
| | March 31, 2021 | | December 31, 2020 | |
Loans and investment securities held-for-investment | | 4.8 | % | 4.8 | % |
Loans held-for-sale | | 3.2 | % | 3.7 | % |
During the three months ended March 31, 2021 and December 31, 2020, the Infrastructure Lending Segment’s weighted average secured borrowing rate, inclusive of the amortization of deferred financing fees, was 2.9% and 3.0%, respectively.
Other Income (Loss)
For the three months ended March 31, 2021 and December 31, 2020, other income of our Infrastructure Lending Segment increased $0.4 million to $0.1 million, compared to a loss of $0.3 million for the three months ended December 31, 2020.
Property Segment
Change in Results by Portfolio (amounts in thousands)
| | | | | | | | | | | | | | | |
|
| $ Change from prior period | |||||||||||||
| | | | Costs and | | Gain (loss) on derivative | | | | Income (loss) before | |||||
| | Revenues |
| expenses |
| financial instruments |
| Other income (loss) |
| income taxes | |||||
Master Lease Portfolio | | $ | — | | $ | (13) | | $ | — | | $ | — | | $ | 13 |
Medical Office Portfolio | | | 125 | | | (61) | | | 3,833 | | | — | | | 4,019 |
Woodstar I Portfolio | | | 524 | | | (1,471) | | | 133 | | | — | | | 2,128 |
Woodstar II Portfolio | | | 449 | | | (287) | | | — | | | (141) | | | 595 |
Ireland Portfolio | | | — | | | — | | | — | | | — | | | — |
Investment in unconsolidated entities | |
| — | |
| — | |
| — | |
| — | |
| — |
Other/Corporate | | | (19) | | | 41 | | | — | | | 392 | | | 332 |
Total | | $ | 1,079 | | $ | (1,791) | | $ | 3,966 | | $ | 251 | | $ | 7,087 |
See Note 6 to the Condensed Consolidated Financial Statements for a description of the above-referenced Property Segment portfolios.
Revenues discussion above,
For the three months ended March 31, 2021, revenues of our Property Segment increased $1.0 million to $65.1 million, compared to $64.1 million for the three months ended December 31, 2020.
Costs and Expenses
For the three months ended March 31, 2021, costs and expenses of our Property Segment decreased $1.8 million to $59.5 million, compared to $61.3 million for the three months ended December 31, 2020.
Other Income
For the three months ended March 31, 2021, other income of our Property Segment increased $4.2 million to $4.6 million, compared to $0.4 million for the three months ended December 31, 2020. The improvement in other income was primarily due to a $4.0 million increased gain on derivatives which primarily hedge our interest rate risk on borrowings secured by our Medical Office Portfolio.
67
Investing and Servicing Segment
Revenues
For the three months ended March 31, 2021, revenues of our Investing and Servicing Segment decreased $0.8 million to $44.5 million, compared to $45.3 million for the three months ended December 31, 2020. The decrease primarily reflects a $1.3 million decrease in interest income from conduit loans, partially offset by a $0.4 million increase in interest income from CMBS.
Costs and Expenses
For the three months ended March 31, 2021, costs and expenses of our Investing and Servicing Segment decreased $7.2 million to $32.5 million, compared to $39.7 million for the three months ended December 31, 2020. The decrease in costs and expenses was primarily due to a decrease of $7.1 million in general and administrative expenses reflecting lower incentive compensation, principally due to lower securitization volume.
Other Income
For the three months ended March 31, 2021, other income of our Investing and Servicing Segment decreased $3.3 million to $19.0 million, compared to $22.3 million for the three months ended December 31, 2020. The decrease in other income was primarily due to (i) a $32.2 million lesser increase in fair value of conduit loans, partially offset by (ii) a $22.5 million favorable change in fair value of CMBS investments and (iii) a $7.7 million increased gain on derivatives which primarily hedge our interest rate risk on conduit loans.
Corporate and Other Items
Corporate Costs and Expenses
For the three months ended March 31, 2021, corporate expenses decreased $2.3 million to $71.6 million, compared to $73.9 million for the three months ended December 31, 2020. This was primarily due to a decrease of $1.9 million in incentive management fees.
Corporate Other Loss
For the three months ended March 31, 2021, corporate other loss increased $5.6 million to $6.8 million, compared to $1.2 million for the three months ended December 31, 2020. This was due to a $6.1 million increased loss on interest rate swaps which hedge a portion of our unsecured senior notes used to repay variable-rate secured financing, partially offset by the non-recurrence of a $0.5 million loss on extinguishment of debt in the fourth quarter of 2020.
Securitization VIE Eliminations
Securitization VIE eliminations primarily reclassify interest income and servicing fee revenues to other income (loss) for the CMBS and RMBS VIEs that we consolidate as primary beneficiary. Such eliminations have no overall effect on net income (loss) attributable to Starwood Property Trust. The reclassified revenues, along with applicable changes in fair value of investment securities and servicing rights, comprise the other income (loss) caption “Change in net assets related to consolidated VIEs,” which represents our beneficial interest in those consolidated VIEs. The magnitude of the securitization VIE eliminations is merely a function of the number of CMBS and RMBS trusts consolidated in any given period, and as such, is not a meaningful indicator of operating results. The eliminations primarily relate to CMBS trusts for which the Investing and Servicing Segment is deemed the primary beneficiary and, to a much lesser extent, some CMBS and RMBS trusts for which the Commercial and Residential Lending Segment is deemed the primary beneficiary.
68
Income Tax Provision
Our consolidated income taxes principally relate to the taxable nature of our loan servicing and loan securitization businesses which are housed in taxable REIT subsidiaries (“TRSs”). For the three months ended March 31, 2021, our income tax provision decreased $11.2 million to $2.2 million compared to $13.4 million for the three months ended December 31, 2020 due to a decrease in taxable income of our TRSs in the first quarter of 2021.
Net Income Attributable to Non-controlling Interests
During the three months ended March 31, 2021, net income attributable to non-controlling interests increased $3.4 million to $11.1 million, compared to $7.7 million during the three months ended December 31, 2020. The increase was primarily due to non-controlling interests in increased earnings of a consolidated CMBS joint venture in which we hold a 51% interest.
Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31, 2020
Commercial and Residential Lending Segment
Revenues
For the three months ended March 31, 2021, revenues of our Commercial and Residential Lending Segment decreased $20.9 million to $190.5 million, compared to $211.4 million for the three months ended March 31, 2020. This decrease was primarily due to decreases in interest income from loans of $21.8 million and investment securities of $0.2 million, partially offset by an increase in rental income from foreclosed properties of $1.2 million. The decrease in interest income from loans was principally due to lower prepayment related income, lower average balances of residential loans and lower average LIBOR rates (partially mitigated by the LIBOR floors on most of our commercial loans), partially offset by higher average balances of commercial loans. The slight decrease in interest income from investment securities was primarily due to lower average LIBOR rates and investment balances affecting interest income from our commercial investment securities, partially offset by higher average RMBS investment balances.
Costs and Expenses
For the three months ended March 31, 2021, costs and expenses of our Commercial and Residential Lending Segment decreased $48.4 million to $56.4 million, compared to $104.8 million for the three months ended March 31, 2020. This decrease was primarily due to a $40.7 million decrease in credit loss provision and a $9.7 million decrease in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio. The credit loss provision decreased from $40.2 million in the first quarter of 2020 to a $0.5 million reversal in the first quarter of 2021. The large provision in the first quarter of 2020 was due to the significant deterioration in macroeconomic forecasts due to the initial disruption caused by the COVID-19 pandemic and its effect on our then estimate of CECL. The decrease in interest expense was primarily due to lower average LIBOR rates partially offset by higher average borrowings outstanding.
Net Interest Income (amounts in thousands)
| | | | | | | | | |
| | For the Three Months Ended | | | | ||||
| | March 31, | | | | ||||
|
| 2021 |
| 2020 |
| Change | |||
Interest income from loans | | $ | 170,593 | | $ | 192,381 | | $ | (21,788) |
Interest income from investment securities | |
| 18,385 | |
| 18,628 | |
| (243) |
Interest expense | |
| (44,295) | |
| (53,950) | |
| 9,655 |
Net interest income | | $ | 144,683 | | $ | 157,059 | | $ | (12,376) |
For the three months ended March 31, 2021, net interest income of our Commercial and Residential Lending Segment decreased $12.4 million to $144.7 million, compared to $157.1 million for the three months ended March 31, 2020. This decrease reflects the decreases in interest income, partially offset by the decrease in interest expense on our secured financing facilities. facilities, both as discussed in the sections above.
69
During the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, the weighted average unlevered yields on the Commercial and Residential Lending Segment’s loans and investment securities were 7.4% and 7.9%, respectively. as follows:
| | | | | |
| | For the Three Months Ended | | ||
| | March 31, | | ||
| | 2021 | | 2020 | |
Commercial | | 5.9 | % | 6.8 | % |
Residential | | 7.5 | % | 6.8 | % |
Overall | | 6.1 | % | 6.8 | % |
The decrease in theoverall weighted average unlevered yield iswas lower primarily due to lower levels of prepayment related income and declinesLIBOR rates affecting our commercial yields, partially offset by the increased investment in interest rate spreads, which exceeded the benefits of increases in LIBOR for the nine months ended September 30, 2017.higher-yielding RMBS affecting our residential yields.
During the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, the Commercial and Residential Lending Segment’s weighted average secured borrowing rates, inclusive of interest rate hedging costs and the amortization of deferred financing fees, were 3.8%2.6% and 3.4%3.5%, respectively, and 3.7% and 3.2%, respectively, excluding the impact of bridge financing.respectively. The increasesdecrease in borrowing rates primarily reflect increasesreflects decreases in LIBOR.
Other Income (Loss)
For the ninethree months ended September 30, 2017,March 31, 2021, other income (loss) of our Commercial and Residential Lending Segment increased $3.3$87.7 million to income of $0.3$21.2 million compared to a loss of $3.0$66.5 million for the ninethree months ended September 30, 2016. TheMarch 31, 2020. This increase was primarily due to (i) a $51.9$25.8 million favorable changelesser decrease in fair value of investment securities, (ii) a $24.8 million lesser decrease in fair value of residential loans, (iii) a $22.4 million decrease in foreign currency loss and (iv) a $17.7 million gain (loss),on sale of a foreclosed property, all partially offset by (v) a $48.1$4.7 million unfavorable change inlower gain (loss) on derivatives. The unfavorable changegreater decreases in fair value of investment securities and residential loans in the first quarter of 2020 were primarily attributable to widening credit spreads resulting from market disruption and dislocation caused by the initial impacts of COVID-19. The lower gain on derivatives in the first quarter of 2021 reflects a $55.5$39.2 million unfavorable changelower gain on foreign currency hedges, partially offset by a $7.4$34.5 million decreased lossfavorable change in gain (loss) on interest rate swaps. The foreign currency hedges are used to fix the U.S. dollar amounts of cash flows (both interest and principal payments) we expect to receive from our foreign currency denominated loans and CMBS investments. The favorable changedecreases in foreign currency gain (loss)loss and the unfavorable change on the foreign currency hedgeshedge gains reflect the overall weakeningstrengthening of the U.S.
71
dollar against the EUR and AUD, partially offset by a weakening against the GBP, in the nine months ended September 30, 2017 versusfirst quarter of 2021 compared to a greater overall strengthening of the U.S. dollar against those currencies in the nine months ended September 30, 2016.first quarter of 2020. The interest rate swaps are used primarily to fix our interest rate payments on certain variable rate borrowings which fund fixed rate investments. investments and to hedge our interest rate risk on residential loans held-for-sale.
Infrastructure Lending Segment
Revenues
For the three months ended March 31, 2021, revenues of our Infrastructure Lending Segment decreased $3.8 million to $19.5 million, compared to $23.3 million for the three months ended March 31, 2020. This was primarily due to a decrease in interest income from loans of $3.6 million principally due to lower average LIBOR rates.
Costs and Expenses
For the three months ended March 31, 2021, costs and expenses of our Infrastructure Lending Segment decreased $13.1 million to $13.0 million, compared to $26.1 million for the three months ended March 31, 2020. The decrease was primarily due to a $7.9 million decrease in credit loss provision and a $4.3 million decrease in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio. The credit loss provision in the first quarter of 2020 was magnified by the significant deterioration of macroeconomic forecasts due to the initial economic disruption caused by the COVID-19 pandemic. The decrease in interest expense was primarily due to lower average LIBOR rates.
70
Net Interest Income (amounts in thousands)
| | | | | | | | | |
| | For the Three Months Ended | | | | ||||
| | March 31, | | | | ||||
|
| 2021 |
| 2020 |
| Change | |||
Interest income from loans | | $ | 18,808 | | $ | 22,413 | | $ | (3,605) |
Interest income from investment securities | |
| 564 | |
| 701 | |
| (137) |
Interest expense | |
| (8,841) | |
| (13,117) | |
| 4,276 |
Net interest income | | $ | 10,531 | | $ | 9,997 | | $ | 534 |
For the three months ended March 31, 2021, net interest income of our Infrastructure Lending Segment increased $0.5 million to $10.5 million, compared to $10.0 million for the three months ended March 31, 2020. The increase reflects the decrease in interest expense on the secured financing facilities, partially offset by the decrease in interest income, both as discussed in the sections above.
During the three months ended March 31, 2021 and 2020, the weighted average unlevered yields on the Infrastructure Lending Segment’s investments were as follows:
| | | | | |
| | For the Three Months Ended | | ||
| | March 31, | | ||
| | 2021 | | 2020 | |
Loans and investment securities held-for-investment | | 4.8 | % | 6.1 | % |
Loans held-for-sale | | 3.2 | % | 3.6 | % |
During the three months ended March 31, 2021 and 2020, the Infrastructure Lending Segment’s weighted average secured borrowing rate, inclusive of the amortization of deferred financing fees, was 2.9% and 4.4%, respectively.
Other Income (Loss)
For the three months ended March 31, 2021 and 2020, other income of our Infrastructure Lending Segment increased $1.4 million to $0.1 million, compared to a loss of $1.3 million for the three months ended March 31, 2020. The improvement in other income (loss) primarily reflects a $1.7 million favorable change in gain (loss) on derivatives consisting of a $2.2 million favorable change on interest rate swaps and swap guarantees, partially offset by a $0.5 million decrease in gains on foreign currency hedges.
Property Segment
Change in Results by Portfolio (amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ Change from prior period | ||||||||||
|
| Revenues |
| Cost and expenses |
| Other income (loss) |
| Income (loss) before income taxes | ||||
Master Lease Portfolio |
| $ | 722 |
| $ | 668 |
| $ | (2,354) |
| $ | (2,300) |
Medical Office Portfolio |
|
| 49,549 |
|
| 55,084 |
|
| (4,187) |
|
| (9,722) |
Ireland Portfolio |
|
| (378) |
|
| (1,227) |
|
| (18,756) |
|
| (17,907) |
Woodstar Portfolio |
|
| 4,249 |
|
| (11,898) |
|
| (9,102) |
|
| 7,045 |
Investment in unconsolidated entities |
|
| — |
|
| — |
|
| (36,095) |
|
| (36,095) |
Other/Corporate |
|
| — |
|
| 723 |
|
| — |
|
| (723) |
Total |
| $ | 54,142 |
| $ | 43,350 |
| $ | (70,494) |
| $ | (59,702) |
| | | | | | | | | | | | | | | |
|
| $ Change from prior period | |||||||||||||
| | | | Costs and | | Gain (loss) on derivative | | | | Income (loss) before | |||||
| | Revenues |
| expenses |
| financial instruments |
| Other income (loss) |
| income taxes | |||||
Master Lease Portfolio | | $ | — | | $ | (4) | | $ | — | | $ | — | | $ | 4 |
Medical Office Portfolio | | | 388 | | | (753) | | | 34,825 | | | — | | | 35,966 |
Woodstar I Portfolio | | | 305 | | | (139) | | | 122 | | | — | | | 566 |
Woodstar II Portfolio | | | 368 | | | 284 | | | — | | | (141) | | | (57) |
Ireland Portfolio | | | — | | | — | | | — | | | — | | | — |
Investment in unconsolidated entities | |
| — | |
| — | |
| — | |
| — | |
| — |
Other/Corporate | | | — | | | (552) | | | — | | | (6) | | | 546 |
Total | | $ | 1,061 | | $ | (1,164) | | $ | 34,947 | | $ | (147) | | $ | 37,025 |
Revenues
For the ninethree months ended September 30, 2017,March 31, 2021, revenues of our Property Segment increased $54.1$1.0 million to $139.2$65.1 million, compared to $85.1$64.1 million for the ninethree months ended September 30, 2016. The increase in revenues in the nine months ended September 30, 2017 was primarily due to the full period inclusionMarch 31, 2020.
71
Costs and Expenses
For the ninethree months ended September 30, 2017,March 31, 2021, costs and expenses of our Property Segment increased $43.3decreased $1.2 million to $140.6$59.5 million, compared to $97.3$60.7 million for the ninethree months ended September 30, 2016.March 31, 2020. The increasedecrease in costs and expenses primarily reflects increasesa $1.3 million decrease in interest expense.
Other Income (Loss)
For the three months ended March 31, 2021, other income of $10.4our Property Segment increased $34.8 million to $4.6 million, compared to a loss of $30.2 million for the three months ended March 31, 2020. The improvement in other income (loss) was primarily due to a $34.9 million favorable change in gain (loss) on derivatives which primarily hedge our interest rate risk on borrowings secured by our Medical Office Portfolio.
Investing and Servicing Segment
Revenues
For the three months ended March 31, 2021 and 2020, revenues of our Investing and Servicing Segment were level at $44.5 million. A $6.0 million increase in servicing fees was offset by decreases in interest income from CMBS and conduit loans and, to a lesser extent, other revenues.
Costs and Expenses
For the three months ended March 31, 2021, costs and expenses of our Investing and Servicing Segment decreased $4.4 million to $32.5 million, compared to $36.9 million for the three months ended March 31, 2020. The decrease in costs and expenses was primarily due to decreases of $2.2 million in depreciationgeneral and amortization, $16.9 million in other rental relatedadministrative expenses reflecting lower compensation costs and $16.3$1.7 million in interest expense all primarily due to the full period inclusion of the Medical Office Portfolio and Woodstar Portfolio, partially offset by lower amortizationon borrowings related to the Woodstar Portfolio’s in-place lease intangible asset, which is now fully amortized. conduit loans, CMBS and properties held.
Other Income (Loss)
For the ninethree months ended September 30, 2017,March 31, 2021, other income (loss) of our PropertyInvesting and Servicing Segment decreased $70.5increased $64.9 million to $19.0 million, compared to a loss of $61.0 million, compared to income of $9.5$45.9 million for the ninethree months ended September 30, 2016.March 31, 2020. The decreaseimprovement in other income (loss) was primarily due to (i) a $36.1$54.4 million unfavorablefavorable change in earnings (loss) from unconsolidated entities due to decreases in fair value of the properties in the Retail Fund,CMBS investments and (ii) a $25.4$28.4 million increased loss on derivatives primarily related to foreign exchange contracts which economically hedge our Euro currency exposure with respect to the Ireland Portfolio and interest rate swaps which primarily hedge the variable interest rate risk on borrowings secured by our Medical Office Portfolio and (iii) the non-recurrence of an $8.4 million bargain purchase gain recognized on the Woodstar Portfolio in the second quarter of 2016.
Investing and Servicing Segment and VIEs
Revenues
For the nine months ended September 30, 2017, revenues of our Investing and Servicing Segment decreased $31.3 million to $100.6 million after consolidated VIE eliminations of $140.7 million, compared to $131.9 million after consolidated VIE eliminations of $136.7 million for the nine months ended September 30, 2016. The VIE eliminations are merely a function of the number of CMBS trusts consolidated in any given period, and as such, are not a meaningful
72
indicator of the operating results for this segment. The decrease in revenues in the nine months of 2017 was primarily due to decreases of $23.4 million in servicing fees and $15.7 million in interest income from CMBS investments, partially offset by a $12.2 million increase in rental income on our expanded REIS Equity Portfolio. The $23.4 million decrease in servicing fees is primarily due to the divestiture of our European servicing and advisory business in October 2016 and lower domestic servicing fees. The $15.7 million decrease in CMBS interest income reflects a $5.2 million increase in VIE eliminations related to the CMBS trusts we consolidate. Excluding the effect of these eliminations, CMBS interest income decreased by $10.5 million, reflecting a lower level of CMBS interest recoveries from asset liquidations by CMBS trusts.
Costs and Expenses
For the nine months ended September 30, 2017, costs and expenses of our Investing and Servicing Segment decreased $16.5 million to $115.9 million, compared to $132.4 million for the nine months ended September 30, 2016, inclusive of VIE eliminations which were nominal for both periods. The decrease in costs and expenses was primarily due to a $26.5 million decrease in general and administrative expenses principally reflecting the divestiture of our European servicing and advisory business and lower incentive compensation, partially offset by increases of $4.3 million in costs of rental operations, $3.5 million in depreciation and amortization and $2.9 million in interest expense, all primarily related to our expanded REIS Equity Portfolio.
Other Income
For the nine months ended September 30, 2017, other income of our Investing and Servicing Segment increased $172.4 million to $291.3 million including additive net VIE eliminations of $147.4 million, from $118.9 million including additive net VIE eliminations of $137.4 million for the nine months ended September 30, 2016. The increase in other income in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 was primarily due to (i) a $108.7 million increase in thefavorable change in value of net assets related to consolidated VIEs, (ii) a $53.9 million increase in earnings from an unconsolidated investor entity which owns equity in an online real estate company (see Note 7 to the Condensed Consolidated Financial Statements), (iii) a $16.3 million gain on sale of four operating properties, (iv) a $14.2 million decrease in loss(loss) on derivatives which principallyprimarily hedge our interest rate risk on conduit loans, and (v) an $11.9 million lesser decrease in fair value of servicing rights primarily reflecting the effect of VIE eliminations on the expected amortization of this deteriorating asset net of increases in fair value due to the attainment of new servicing contracts, all partially offset by (vi) a $24.1(iii) an $18.1 million lesser increase in the fair value of our conduit loans held-for-sale. The change in net assets related to consolidated VIEs reflects amounts associated with the Investing and Servicing Segment’s variable interests in CMBS trusts it consolidates, including special servicing fees, interest income, and changes in fair value of CMBS and servicing rights. As noted above, this number is merely a function of the number of CMBS trusts consolidated in any given period, and as such, is not a meaningful indicator of the operating results for this segment. Before VIE eliminations, there was an increase in fair value of conduit loans. The fair value of our CMBS securitiesinvestments was adversely affected in the first quarter of $45.32020 by widening credit spreads resulting from market disruption and dislocation caused by the initial impacts of COVID-19.
Corporate and Other Items
Corporate Costs and Expenses
For the three months ended March 31, 2021, corporate expenses decreased $1.6 million andto $71.6 million, compared to $73.2 million for the three months ended March 31, 2020. This was primarily due to a decrease of $43.4$1.9 million in incentive management fees.
72
Corporate Other Income (Loss)
For the ninethree months ended September 30, 2017 and 2016, respectively.March 31, 2021, corporate other income decreased $36.0 million to a loss of $6.8 million, compared to income of $29.2 million for the three months ended March 31, 2020. This was due to an unfavorable change in gain (loss) on interest rate swaps which hedge a portion of our unsecured senior notes used to repay variable-rate secured financing.
Securitization VIE Eliminations
Refer to the preceding comparison of the three months ended March 31, 2021 to the three months ended December 31, 2020 for a discussion of the effect of securitization VIE eliminations.
Income Tax Provision
Historically, ourOur consolidated income tax provisiontaxes principally relatesrelate to the taxable nature of the Investing and Servicing Segment’sour loan servicing and loan conduitsecuritization businesses which are housed in TRSs. For the ninethree months ended September 30, 2017, we had a tax provision of $18.3March 31, 2021, our income taxes increased $8.9 million to $2.2 million compared to a tax provisionbenefit of $3.5$6.7 million infor the ninethree months ended September 30, 2016. The change primarily reflectsMarch 31, 2020 due to an increase in the taxable income of our TRSs associated with earnings from our interest in an investor entity which owns equity in an online real estate company and sold nearly allthe first quarter of its interest during2021.
Net Income Attributable to Non-controlling Interests
During the ninethree months ended September 30, 2017 (see Notes 7 and 20March 31, 2021, net income attributable to the Condensed Consolidated Financial Statements).
73
Corporate
Costs and Expenses
For the nine months ended September 30, 2017, corporate expensesnon-controlling interests increased $18.8$10.6 million to $180.7$11.1 million, compared to $161.9$0.5 million forduring the ninethree months ended September 30, 2016.March 31, 2020. The increase was primarily due to (i)non-controlling interests in increased earnings of a $16.4 million increaseconsolidated CMBS joint venture in interest expense principally on our 2021 Senior Notes issued in December 2016, partially offset bywhich we hold a decrease in interest expense on our reduced term loan borrowings, and (ii) a $3.3 million increase in management fees. 51% interest.
Other Income (Loss)
For the nine months ended September 30, 2017, corporate other loss was $5.9 million, compared to income of $1.8 million for the nine months ended September 30, 2016. Corporate other loss of $5.9 million in the nine months ended September 30, 2017 represents a loss on repurchase of $230.0 million of our 2018 Convertible Notes (see Note 10 to the Condensed Consolidated Financial Statements). Corporate other income of $1.8 million for the nine months ended September 30, 2016 principally represents a reimbursement received related to a partnership guarantee arrangement.
Non-GAAP Financial Measures
CoreDistributable Earnings is a non-GAAP financial measure. We calculate CoreDistributable Earnings as GAAP net income (loss) excluding the following:
(i) | non-cash equity compensation expense; |
(ii) | incentive fees due under our management agreement; |
(iii) | depreciation and amortization of real estate and associated intangibles; |
(iv) | acquisition costs associated with successful acquisitions; |
(v) | any unrealized gains, losses or other non-cash items recorded in net income (loss) for the period, regardless of whether such items are included in other comprehensive income or loss, or in net |
| (vi) | any deductions for distributions payable with respect to equity securities of subsidiaries issued in exchange for properties or interests therein. |
As previously disclosed, we excludeThe CECL reserve has been excluded from CoreDistributable Earnings any deferred income taxesconsistent with other unrealized gains (losses) pursuant to our existing policy for transactions whichreporting Distributable Earnings. We expect to only recognize such potential credit losses in Distributable Earnings if and when such amounts are deemed nonrecoverable upon a realization event. This is generally at the time a loan is repaid, or in the case of foreclosure, when the underlying asset is sold, but non-recoverability may also be determined if, in our determination, it is nearly certain that all amounts due will not be collected. The realized loss amount reflected in Distributable Earnings will equal the difference between the cash received, or expected to be either unusual in nature or infrequent in occurrence, as such terms are utilized in ASC 740, until such time asreceived, and the tax provision related tobook value of the discrete itemasset, and is realized. During the three months ended June 30, 2017, we reflected an adjustment to Core Earnings for a $9.9 million deferred income tax provision associated with unrealized earnings we recorded from our interest in an investor entity which owns equity in an online real estate company. During the three months ended September 30, 2017, 88%reflective of our interest in this entity was sold, and we recognized an additional $8.4 million income tax provision related to this discrete item, for a total income tax provision of $18.3 million during the nine months ended September 30, 2017 (see Notes 7 and 20 to the Condensed Consolidated Financial Statements). As a result, during the three months ended September 30, 2017, $9.4 million of the previously deferred $9.9 million income tax provision was recognized for Core Earnings purposes, and the incremental $8.4 million recorded during the quarter was unadjusted. The remaining deferred income tax amount of $0.5 millioneconomic experience as it relates to the 12% portionultimate realization of our investment which we retained and will continue to be deferred for Core Earnings purposes until the remaining investment is sold. loan.
The repurchase73
We believe that CoreDistributable Earnings provides an additional measuremeaningful information to consider in addition to our net income (loss) and cash flow from operating activities determined in accordance with GAAP. We believe Distributable Earnings is a useful financial metric for existing and potential future holders of our core operatingcommon stock as historically, over time, Distributable Earnings has been a strong indicator of our dividends per share. As a REIT, we generally must distribute annually at least 90% of our net taxable income, subject to certain adjustments, and therefore we believe our dividends are one of the principal reasons stockholders may invest in our common stock. Further, Distributable Earnings helps us to evaluate our performance by eliminatingexcluding the impacteffects of certain non-cash expensestransactions and facilitating a comparisonGAAP adjustments that we believe are not necessarily indicative of our financial results to those of
74
other comparable REITs with fewer or no non-cash adjustmentscurrent loan portfolio and comparison ofoperations, and is a performance metric we consider when declaring our own operating results from period to period. Our management uses Coredividends. We also use Distributable Earnings in this way, and also uses Core Earnings(previously defined as “Core Earnings”) to compute the incentive fee due under our management agreement. The Company believes that its investors also use Core Earnings or a comparable supplemental performance measure to evaluate and compare the performance of the Company and its peers, and as such, the Company believes that the disclosure of Core Earnings is useful to (and expected by) its investors.
However, the Company cautions that CoreDistributable Earnings does not represent net income (loss) or cash generated from operating activities in accordance with GAAP and should not be considered as an alternative to GAAP net income (determined in accordance with GAAP)(loss), or an indication of our GAAP cash flows from operating activities (determined in accordance with GAAP),operations, a measure of our liquidity, taxable income, or an indication of funds available to fundfor our cash needs, including our ability to make cash distributions.needs. In addition, our methodology for calculating CoreDistributable Earnings may differ from the methodologies employed by other REITscompanies to calculate the same or similar supplemental performance measures, and accordingly, our reported CoreDistributable Earnings may not be comparable to the CoreDistributable Earnings reported by other REITs.companies.
In assessing the appropriateThe weighted average diluted share count applied to apply to CoreDistributable Earnings for purposes of determining CoreDistributable Earnings per share (“EPS”), management considered is computed using the following attributes of our current GAAP diluted share methodology: (i) our unvested stock awards representing participating securities were determined to be anti-dilutive and were thus excluded fromcount, adjusted for the denominator of the EPS calculation; and (ii) the portion of the convertible senior notes that are “in-the-money” (referred to as the “conversion spread value”), representing the value that would be delivered to investors in shares upon an assumed conversion, is included in the denominator. Because compensation expense related to unvested stock awards is added back for Core Earnings purposes pursuant to the definition above, there is no dilution to Core Earnings resulting from the associated expense recognition. As a result, for purposes of determining Core EPS, our GAAP EPS methodology was adjusted to include (instead of exclude) such unvested awards. Further, conversion of the convertible senior notes is an event that is contingent upon numerous factors, none of which are in our control, and is an event that may or may not occur. Consistent with the treatment of other unrealized adjustments to Core Earnings, our GAAP EPS methodology was adjusted to exclude (instead of include) the conversion spread value in determining Core EPS until a conversion actually occurs. following:
| (i) | Unvested stock awards – Currently, unvested stock awards are excluded from the denominator of GAAP EPS. The related compensation expense is also excluded from Distributable Earnings. In order to effectuate dilution from these awards in the Distributable Earnings computation, we adjust the GAAP diluted share count to include these shares. |
| (ii) | Convertible Notes – Conversion of our Convertible Notes is an event that is contingent upon numerous factors, none of which are in our control, and is an event that may or may not occur. Consistent with the treatment of other unrealized adjustments to Distributable Earnings, we adjust the GAAP diluted share count to exclude the potential shares issuable upon conversion until a conversion occurs. |
| (iii) | Subsidiary equity – The intent of a February 2018 amendment to our management agreement (the “Amendment”) is to treat subsidiary equity in the same manner as if parent equity had been issued. The Class A Units issued in connection with the acquisition of assets in our Woodstar II Portfolio are currently excluded from our GAAP diluted share count, with the subsidiary equity represented as non-controlling interests in consolidated subsidiaries on our GAAP balance sheet. Consistent with the Amendment, we adjust GAAP diluted share count to include these subsidiary units. |
The following table presents our diluted weighted average shares used in our GAAP EPS calculation reconciled to our diluted weighted average shares used in our CoreDistributable EPS calculation (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
| For the Nine Months Ended | ||||
|
| September 30, |
| September 30, | ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
Diluted weighted average shares - GAAP |
| 262,437 |
| 241,091 |
| 262,055 |
| 240,982 |
Add: Unvested stock awards |
| 1,807 |
| 1,419 |
| 1,558 |
| 1,644 |
Less: Conversion spread value |
| (2,313) |
| (3,445) |
| (2,284) |
| (3,766) |
Diluted weighted average shares - Core |
| 261,931 |
| 239,065 |
| 261,329 |
| 238,860 |
| | | | | | |
| | For the Three Months Ended | ||||
| | March 31, 2021 | | December 31, 2020 | | March 31, 2020 |
Diluted weighted average shares - GAAP EPS | | 293,231 | | 292,900 | | 280,990 |
Add: Unvested stock awards | | 4,484 | | 3,361 | | 2,723 |
Add: Woodstar II Class A Units | | 10,622 | | 10,598 | | 10,738 |
Add: Other dilutive securities not included above | | — | | — | | 685 |
Less: Convertible Notes dilution | | (9,649) | | (9,649) | | — |
Diluted weighted average shares - Distributable EPS |
| 298,688 |
| 297,210 |
| 295,136 |
The definition of CoreDistributable Earnings allows management to make adjustments, subject to the approval of a majority of our independent directors, in situations where such adjustments are considered appropriate in order for CoreDistributable Earnings to be calculated in a manner consistent with its definition and objective. No adjustments to the definition of CoreDistributable Earnings occurredbecame effective during the ninethree months ended September 30, 2017.March 31, 2021.
7574
The following table summarizes our quarterly Core Earnings per weighted average diluted share for the nine months ended September 30, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
| Core Earnings For the Three-Month Periods Ended | |||||||
|
| March 31 |
| June 30 |
| September 30 | |||
2017 |
| $ | 0.51 |
| $ | 0.52 |
| $ | 0.65 |
2016 |
|
| 0.50 |
|
| 0.50 |
|
| 0.59 |
Three Months Ended September 30, 2017 Compared to the Three Months Ended September 30, 2016
The following table presents our summarized results of operations and reconciliation to CoreDistributable Earnings for the three months ended September 30, 2017,March 31, 2021, by business segment (amounts in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investing |
|
|
|
|
| ||||
|
| Lending |
| Property |
| and Servicing |
|
|
|
|
| ||||
|
| Segment |
| Segment |
| Segment |
| Corporate |
| Total | |||||
Revenues |
| $ | 146,012 |
| $ | 47,827 |
| $ | 72,214 |
| $ | — |
| $ | 266,053 |
Costs and expenses |
|
| (34,438) |
|
| (49,304) |
|
| (40,215) |
|
| (64,330) |
|
| (188,287) |
Other income (loss) |
|
| 571 |
|
| (45,008) |
|
| 68,191 |
|
| — |
|
| 23,754 |
Income (loss) before income taxes |
|
| 112,145 |
|
| (46,485) |
|
| 100,190 |
|
| (64,330) |
|
| 101,520 |
Income tax benefit (provision) |
|
| 11 |
|
| — |
|
| (9,827) |
|
| — |
|
| (9,816) |
Income attributable to non-controlling interests |
|
| (357) |
|
| — |
|
| (2,919) |
|
| — |
|
| (3,276) |
Net income (loss) attributable to Starwood Property Trust, Inc. |
|
| 111,799 |
|
| (46,485) |
|
| 87,444 |
|
| (64,330) |
|
| 88,428 |
Add / (Deduct): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash equity compensation expense |
|
| 783 |
|
| 33 |
|
| 1,015 |
|
| 3,379 |
|
| 5,210 |
Management incentive fee |
|
| — |
|
| — |
|
| — |
|
| 10,378 |
|
| 10,378 |
Acquisition and investment pursuit costs |
|
| 74 |
|
| 151 |
|
| 49 |
|
| — |
|
| 274 |
Depreciation and amortization |
|
| 17 |
|
| 18,102 |
|
| 4,600 |
|
| — |
|
| 22,719 |
Loan loss allowance, net |
|
| (171) |
|
| — |
|
| — |
|
| — |
|
| (171) |
Interest income adjustment for securities |
|
| (225) |
|
| — |
|
| 5,071 |
|
| — |
|
| 4,846 |
Income tax adjustment for discrete transactions |
|
| — |
|
| — |
|
| (9,356) |
|
| — |
|
| (9,356) |
Other non-cash items |
|
| — |
|
| (496) |
|
| 187 |
|
| — |
|
| (309) |
Reversal of unrealized (gains) / losses on: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held-for-sale |
|
| 397 |
|
| — |
|
| (19,882) |
|
| — |
|
| (19,485) |
Securities |
|
| (276) |
|
| — |
|
| (13,962) |
|
| — |
|
| (14,238) |
Derivatives |
|
| 10,394 |
|
| 11,291 |
|
| 1,555 |
|
| — |
|
| 23,240 |
Foreign currency |
|
| (10,657) |
|
| 1 |
|
| (4) |
|
| — |
|
| (10,660) |
Earnings from unconsolidated entities |
|
| (848) |
|
| 33,731 |
|
| (30,225) |
|
| — |
|
| 2,658 |
Purchases and sales of properties |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Recognition of realized gains / (losses) on: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held-for-sale |
|
| (397) |
|
| — |
|
| 19,330 |
|
| — |
|
| 18,933 |
Securities |
|
| — |
|
| — |
|
| (2,657) |
|
| — |
|
| (2,657) |
Derivatives |
|
| (290) |
|
| (140) |
|
| (500) |
|
| (247) |
|
| (1,177) |
Foreign currency |
|
| 549 |
|
| — |
|
| (240) |
|
| — |
|
| 309 |
Earnings from unconsolidated entities |
|
| 849 |
|
| — |
|
| 52,921 |
|
| — |
|
| 53,770 |
Purchases and sales of properties |
|
| — |
|
| — |
|
| (1,838) |
|
| — |
|
| (1,838) |
Core Earnings (Loss) |
| $ | 111,998 |
| $ | 16,188 |
| $ | 93,508 |
| $ | (50,820) |
| $ | 170,874 |
Core Earnings (Loss) per Weighted Average Diluted Share |
| $ | 0.43 |
| $ | 0.06 |
| $ | 0.36 |
| $ | (0.20) |
| $ | 0.65 |
| | | | | | | | | | | | | | | | | | |
|
| Commercial |
| |
| |
| |
| |
| | ||||||
| | and | | | | | | | | | | | | | | | | |
| | Residential | | Infrastructure | | | | Investing | | | | | ||||||
| | Lending | | Lending | | Property | | and Servicing | | | | | ||||||
| | Segment | | Segment | | Segment | | Segment | | Corporate | | Total | ||||||
Revenues | | $ | 190,531 | | $ | 19,465 | | $ | 65,144 | | $ | 44,547 | | $ | — | | $ | 319,687 |
Costs and expenses | |
| (56,414) | |
| (12,956) | |
| (59,498) | |
| (32,457) | | | (71,647) | |
| (232,972) |
Other income (loss) | |
| 21,161 | |
| 95 | |
| 4,608 | |
| 18,960 | |
| (6,843) | |
| 37,981 |
Income (loss) before income taxes | |
| 155,278 | |
| 6,604 | |
| 10,254 | |
| 31,050 | | | (78,490) | |
| 124,696 |
Income tax provision | |
| (1,505) | |
| (92) | |
| — | |
| (633) | | | — | |
| (2,230) |
Income attributable to non-controlling interests | |
| (3) | |
| — | |
| (5,077) | |
| (6,008) | |
| — | |
| (11,088) |
Net income (loss) attributable to Starwood Property Trust, Inc. | | | 153,770 | |
| 6,512 | |
| 5,177 | |
| 24,409 | | | (78,490) | |
| 111,378 |
Add / (Deduct): | | | | | | | | | | | | | | | | | | |
Non-controlling interests attributable to Woodstar II Class A Units | | | — | | | — | | | 5,077 | | | — | | | — | |
| 5,077 |
Non-cash equity compensation expense | | | 1,781 | | | 300 | | | 31 | | | 881 | | | 7,317 | |
| 10,310 |
Management incentive fee | | | — | | | — | | | — | | | — | | | 13,123 | |
| 13,123 |
Acquisition and investment pursuit costs | | | (164) | | | — | | | (89) | | | — | | | — | |
| (253) |
Depreciation and amortization | | | 247 | | | 91 | | | 18,161 | | | 3,603 | | | — | |
| 22,102 |
Credit loss (reversal) provision, net | | | (529) | | | 573 | | | — | | | — | | | — | |
| 44 |
Interest income adjustment for securities | | | (1,300) | | | — | | | — | | | 3,995 | | | — | |
| 2,695 |
Extinguishment of debt, net | | | — | | | — | | | — | | | — | | | (246) | | | (246) |
Income tax (provision) benefit associated with realized (gains) losses | | | (6,495) | | | — | | | — | | | 405 | | | — | | | (6,090) |
Other non-cash items | | | 3 | | | — | | | (337) | | | 207 | | | 415 | |
| 288 |
Reversal of GAAP unrealized (gains) / losses on: | | | | | | | | | | | | | | | | | | |
Loans | | | 10,714 | | | — | | | — | | | (1,236) | | | — | |
| 9,478 |
Securities | | | 2,050 | | | — | | | — | | | (7,170) | | | — | | | (5,120) |
Derivatives | | | (27,171) | | | (745) | | | (6,446) | | | (9,719) | | | 9,313 | |
| (34,768) |
Foreign currency | | | 11,594 | | | 49 | | | (25) | | | 63 | | | — | |
| 11,681 |
(Earnings) loss from unconsolidated entities | | | (1,753) | | | 254 | | | — | | | (589) | | | — | |
| (2,088) |
Sales of properties | | | (17,693) | | | — | | | — | | | — | | | — | |
| (17,693) |
Recognition of Distributable realized gains / (losses) on: | | | | | | | | | | | | | | | | | | |
Loans | | | 14,553 | | | — | | | — | | | 4,672 | | | — | | | 19,225 |
Realized credit loss | | | (7,757) | | | — | | | — | | | — | | | — | | | (7,757) |
Securities | | | (2,861) | | | — | | | — | | | 1,776 | | | — | |
| (1,085) |
Derivatives | | | 1,950 | | | — | | | (35) | | | 1,595 | | | — | |
| 3,510 |
Foreign currency | | | 4,784 | | | (10) | | | 25 | | | (63) | | | — | |
| 4,736 |
Earnings (loss) from unconsolidated entities | | | 3,218 | | | (254) | | | — | | | 964 | | | — | |
| 3,928 |
Sales of properties | | | 8,298 | | | — | | | — | | | — | | | — | |
| 8,298 |
Distributable Earnings (Loss) | | $ | 147,239 | | $ | 6,770 | | $ | 21,539 | | $ | 23,793 | | $ | (48,568) | | $ | 150,773 |
Distributable Earnings (Loss) per Weighted Average Diluted Share | | $ | 0.49 | | $ | 0.02 | | $ | 0.07 | | $ | 0.08 | | $ | (0.16) | | $ | 0.50 |
7675
The following table presents our summarized results of operations and reconciliation to CoreDistributable Earnings for the three months ended September 30, 2016,December 31, 2020, by business segment (amounts in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investing |
|
|
|
|
| ||||
|
| Lending |
| Property |
| and Servicing |
|
|
|
|
| ||||
|
| Segment |
| Segment |
| Segment |
| Corporate |
| Total | |||||
Revenues |
| $ | 128,101 |
| $ | 29,237 |
| $ | 91,879 |
| $ | — |
| $ | 249,217 |
Costs and expenses |
|
| (30,719) |
|
| (31,684) |
|
| (58,580) |
|
| (55,027) |
|
| (176,010) |
Other income (loss) |
|
| 2,212 |
|
| (2,272) |
|
| 35,304 |
|
| 234 |
|
| 35,478 |
Income (loss) before income taxes |
|
| 99,594 |
|
| (4,719) |
|
| 68,603 |
|
| (54,793) |
|
| 108,685 |
Income tax provision |
|
| — |
|
| — |
|
| (2,667) |
|
| — |
|
| (2,667) |
(Income) loss attributable to non-controlling interests |
|
| (352) |
|
| — |
|
| 100 |
|
| — |
|
| (252) |
Net income (loss) attributable to Starwood Property Trust, Inc. |
|
| 99,242 |
|
| (4,719) |
|
| 66,036 |
|
| (54,793) |
|
| 105,766 |
Add / (Deduct): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash equity compensation expense |
|
| 824 |
|
| 27 |
|
| 1,298 |
|
| 5,986 |
|
| 8,135 |
Management incentive fee |
|
| — |
|
| — |
|
| — |
|
| 6,303 |
|
| 6,303 |
Acquisition and investment pursuit costs |
|
| — |
|
| 727 |
|
| 89 |
|
| 12 |
|
| 828 |
Depreciation and amortization |
|
| — |
|
| 10,908 |
|
| 3,791 |
|
| — |
|
| 14,699 |
Loan loss allowance, net |
|
| 2,127 |
|
| — |
|
| — |
|
| — |
|
| 2,127 |
Interest income adjustment for securities |
|
| (236) |
|
| — |
|
| 3,874 |
|
| — |
|
| 3,638 |
Other non-cash items |
|
| — |
|
| (108) |
|
| 230 |
|
| — |
|
| 122 |
Reversal of unrealized (gains) / losses on: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held-for-sale |
|
| — |
|
| — |
|
| (49,996) |
|
| — |
|
| (49,996) |
Securities |
|
| (207) |
|
| — |
|
| (620) |
|
| — |
|
| (827) |
Derivatives |
|
| (5,624) |
|
| 4,720 |
|
| 1,932 |
|
| — |
|
| 1,028 |
Foreign currency |
|
| 3,839 |
|
| 7 |
|
| (632) |
|
| — |
|
| 3,214 |
Earnings from unconsolidated entities |
|
| (852) |
|
| (2,455) |
|
| (617) |
|
| — |
|
| (3,924) |
Recognition of realized gains / (losses) on: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held-for-sale |
|
| — |
|
| — |
|
| 52,919 |
|
| — |
|
| 52,919 |
Securities |
|
| — |
|
| — |
|
| (3,259) |
|
| — |
|
| (3,259) |
Derivatives |
|
| 7,436 |
|
| 44 |
|
| (6,042) |
|
| — |
|
| 1,438 |
Foreign currency |
|
| (6,145) |
|
| (7) |
|
| 632 |
|
| — |
|
| (5,520) |
Earnings from unconsolidated entities |
|
| 852 |
|
| 2,487 |
|
| 1,100 |
|
| — |
|
| 4,439 |
Core Earnings (Loss) |
| $ | 101,256 |
| $ | 11,631 |
| $ | 70,735 |
| $ | (42,492) |
| $ | 141,130 |
Core Earnings (Loss) per Weighted Average Diluted Share |
| $ | 0.42 |
| $ | 0.05 |
| $ | 0.30 |
| $ | (0.18) |
| $ | 0.59 |
Lending Segment
The Lending Segment’s Core Earnings increased by $10.7 million, from $101.3 million during the third quarter of 2016 to $112.0 million in the third quarter of 2017. After making adjustments for the calculation of Core Earnings, revenues were $145.8 million, costs and expenses were $33.7 million and other income was $0.3 million.
Core revenues, consisting principally of interest income on loans, increased by $17.9 million in the third quarter of 2017, primarily due to (i) a $19.6 million increase in interest income from loans principally due to higher average loan balances and LIBOR rates, partially offset by (ii) a $1.7 million decrease in interest income principally from CMBS and RMBS investments.
Core costs and expenses increased by $6.0 million in the third quarter of 2017, primarily due to an increase in interest expense associated with the various secured financing facilities used to fund a portion of our investment portfolio.
| | | | | | | | | | | | | | | | | | |
|
| Commercial |
| | |
| |
| |
| |
| | |||||
| | and | | | | | | | | | | | | | | | | |
| | Residential | | Infrastructure | | | | Investing | | | | | ||||||
| | Lending | | Lending | | Property | | and Servicing | | | | | ||||||
| | Segment | | Segment | | Segment | | Segment | | Corporate | | Total | ||||||
Revenues | | $ | 196,309 | | $ | 19,250 | | $ | 64,065 | | $ | 45,372 | | $ | — | | $ | 324,996 |
Costs and expenses | |
| (50,999) | | | (5,555) | | | (61,289) | | | (39,722) | | | (73,965) | | | (231,530) |
Other income (loss) | |
| 13,318 | | | (259) | | | 391 | | | 22,349 | | | (1,239) | | | 34,560 |
Income (loss) before income taxes | |
| 158,628 | | | 13,436 | | | 3,167 | | | 27,999 | | | (75,204) | | | 128,026 |
Income tax provision | |
| (5,556) | | | (120) | | | — | | | (7,705) | | | — | | | (13,381) |
(Income) loss attributable to non-controlling interests | |
| (4) | | | — | | | (5,100) | | | (2,573) | | | — | | | (7,677) |
Net income (loss) attributable to Starwood Property Trust, Inc. | | | 153,068 | | | 13,316 | | | (1,933) | | | 17,721 | | | (75,204) | | | 106,968 |
Add / (Deduct): | | | | | | | | | | | | | | | | | | |
Non-controlling interests attributable to Woodstar II Class A Units | | | — | | | — | | | 5,100 | | | — | | | — | | | 5,100 |
Non-cash equity compensation expense | | | 891 | | | 299 | | | 34 | | | 869 | | | 6,707 | | | 8,800 |
Management incentive fee | | | — | | | — | | | — | | | — | | | 14,974 | | | 14,974 |
Acquisition and investment pursuit costs | | | (278) | | | — | | | (89) | | | — | | | — | | | (367) |
Depreciation and amortization | | | 372 | | | 86 | | | 18,736 | | | 3,832 | | | — | | | 23,026 |
Credit loss reversal, net | | | (5,037) | | | (7,094) | | | — | | | — | | | — | | | (12,131) |
Interest income adjustment for securities | | | (1,102) | | | — | | | — | | | 5,245 | | | — | | | 4,143 |
Extinguishment of debt, net | | | — | | | — | | | — | | | — | | | (247) | | | (247) |
Income tax provision associated with fair value adjustments | | | 4,883 | | | — | | | — | | | 550 | | | — | | | 5,433 |
Other non-cash items | | | 4 | | | — | | | (374) | | | 239 | | | 161 | | | 30 |
Reversal of GAAP unrealized (gains) / losses on: | | | | | | | | | | | | | | | | | | |
Loans | | | (20,002) | | | — | | | — | | | (33,422) | | | — | | | (53,424) |
Securities | | | 6,294 | | | — | | | — | | | 15,377 | | | — | | | 21,671 |
Derivatives | | | 48,046 | | | 105 | | | (2,480) | | | (2,218) | | | 3,945 | | | 47,398 |
Foreign currency | | | (43,962) | | | (260) | | | (39) | | | 5 | | | — | | | (44,256) |
Earnings from unconsolidated entities | | | (4,804) | | | (431) | | | — | | | (341) | | | — | | | (5,576) |
Recognition of Distributable realized gains / (losses) on: | | | | | | | | | | | | | | | | | | |
Loans | | | 2,461 | | | — | | | — | | | 32,528 | | | — | | | 34,989 |
Securities | | | 398 | | | — | | | — | | | (9,389) | | | — | | | (8,991) |
Derivatives | | | (3,858) | | | — | | | (34) | | | 20 | | | — | | | (3,872) |
Foreign currency | | | 631 | | | 14 | | | 39 | | | (5) | | | — | | | 679 |
Earnings from unconsolidated entities | | | 2,914 | | | 431 | | | — | | | 745 | | | — | | | 4,090 |
Distributable Earnings (Loss) | | $ | 140,919 | | $ | 6,466 | | $ | 18,960 | | $ | 31,756 | | $ | (49,664) | | $ | 148,437 |
Distributable Earnings (Loss) per Weighted Average Diluted Share | | $ | 0.47 | | $ | 0.02 | | $ | 0.07 | | $ | 0.11 | | $ | (0.17) | | $ | 0.50 |
7776
Core other income decreased by $1.2 million, primarily due to an unfavorable change in gain (loss) on foreign currency derivatives partially offset by a favorable change in foreign currency gain (loss).
Property Segment
Core Earnings by Portfolio (amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
|
|
| ||||
|
| September 30, |
|
|
| ||||
|
| 2017 |
| 2016 |
| Change | |||
Master Lease Portfolio |
| $ | 334 |
| $ | — |
| $ | 334 |
Medical Office Portfolio |
|
| 6,651 |
|
| — |
|
| 6,651 |
Ireland Portfolio |
|
| 4,538 |
|
| 5,041 |
|
| (503) |
Woodstar Portfolio |
|
| 5,312 |
|
| 4,690 |
|
| 622 |
Investment in unconsolidated entities |
|
| — |
|
| 2,489 |
|
| (2,489) |
Other/Corporate |
|
| (647) |
|
| (589) |
|
| (58) |
Core Earnings |
| $ | 16,188 |
| $ | 11,631 |
| $ | 4,557 |
The Property Segment’s Core Earnings increased by $4.6 million, from $11.6 million during the third quarter of 2016 to $16.2 million in the third quarter of 2017. After making adjustments for the calculation of Core Earnings, revenues were $47.5 million, costs and expenses were $31.2 million and other loss was $0.1 million.
Core revenues increased by $18.8 million in the third quarter of 2017, primarily due to the inclusion of rental income for the Medical Office Portfolio acquired in December 2016.
Core costs and expenses increased by $11.6 million in the third quarter of 2017, primarily due to increases in rental related costs of $5.5 million and interest expense of $5.9 million primarily on the secured financing for the Medical Office Portfolio.
Core other income decreased by $2.6 million to a loss in the third quarter of 2017, primarily due to a decrease in equity in earnings recognized from our investment in the Retail Fund.
Investing and Servicing Segment
The Investing and Servicing Segment’s Core Earnings increased by $22.8 million, from $70.7 million during the third quarter of 2016 to $93.5 million in the third quarter of 2017. After making adjustments for the calculation of Core Earnings, revenues were $77.4 million, costs and expenses were $34.5 million, other income was $72.7 million, income tax provision was $19.2 million and the deduction of income attributable to non-controlling interests was $2.9 million.
Core revenues decreased by $18.5 million in the third quarter of 2017, primarily due to decreases of $14.6 million in servicing fees reflecting the divestiture of our European servicing and advisory business in October 2016 and lower domestic workout and liquidation fees, $2.3 million in interest income from our CMBS portfolio and $2.3 million in interest income from conduit loans, partially offset by a $2.0 million increase in rental income on our expanded REIS Equity Portfolio.
Core costs and expenses decreased by $18.8 million in the third quarter of 2017, primarily due to a decrease in general and administrative expenses reflecting lower incentive compensation and the divestiture of our European servicing and advisory business.
78
Core other income increased by $42.0 million principally due to (i) a $52.4 million realized gain from an unconsolidated investor entity which owns equity in an online real estate company and sold nearly all of its interest during the third quarter of 2017, (ii) a $10.9 million decrease in amortization of servicing rights, (iii) an $8.8 million increase in realized gains on sales of operating properties and CMBS and (iv) a $4.7 million decrease in realized losses on derivatives net of foreign currency gain (loss), all partially offset by (v) a $33.6 million decrease in realized gains on conduit loans.
Income taxes, which principally relate to the operating results of our servicing and conduit businesses which are held in TRSs, increased $16.5 million due to an increase in the taxable income of our TRSs primarily associated with realized gains from our interest in an investor entity which owns equity in an online real estate company and sold nearly all of its interest during the third quarter of 2017.
Income attributable to non-controlling interests increased $3.0 million primarily due to minority investors’ share of gains from two operating properties sold during the third quarter of 2017.
Corporate
Core corporate costs and expenses increased by $8.3 million, from $42.5 million in the third quarter of 2016 to $50.8 million in the third quarter of 2017, primarily due to increases in interest expense of $5.8 million and base management fees of $1.8 million.
79
Nine Months Ended September 30, 2017 Compared to the Nine Months Ended September 30, 2016
The following table presents our summarized results of operations and reconciliation to CoreDistributable Earnings for the ninethree months ended September 30, 2017,March 31, 2020, by business segment (amounts in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investing |
|
|
|
| |||||
|
| Lending |
| Property |
| and Servicing |
|
|
|
| |||||
|
| Segment |
| Segment |
| Segment |
| Corporate |
| Total | |||||
Revenues |
| $ | 397,179 |
| $ | 139,225 |
| $ | 241,327 |
| $ | — |
| $ | 777,731 |
Costs and expenses |
|
| (87,308) |
|
| (140,647) |
|
| (116,315) |
|
| (180,714) |
|
| (524,984) |
Other income (loss) |
|
| 258 |
|
| (60,957) |
|
| 143,956 |
|
| (5,916) |
|
| 77,341 |
Income (loss) before income taxes |
|
| 310,129 |
|
| (62,379) |
|
| 268,968 |
|
| (186,630) |
|
| 330,088 |
Income tax provision |
|
| (331) |
|
| — |
|
| (17,954) |
|
| — |
|
| (18,285) |
Income attributable to non-controlling interests |
|
| (1,064) |
|
| — |
|
| (2,573) |
|
| — |
|
| (3,637) |
Net income (loss) attributable to Starwood Property Trust, Inc. |
|
| 308,734 |
|
| (62,379) |
|
| 248,441 |
|
| (186,630) |
|
| 308,166 |
Add / (Deduct): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash equity compensation expense |
|
| 2,353 |
|
| 82 |
|
| 2,491 |
|
| 8,340 |
|
| 13,266 |
Management incentive fee |
|
| — |
|
| — |
|
| — |
|
| 20,183 |
|
| 20,183 |
Acquisition and investment pursuit costs |
|
| 74 |
|
| 162 |
|
| 91 |
|
| — |
|
| 327 |
Depreciation and amortization |
|
| 50 |
|
| 52,982 |
|
| 13,441 |
|
| — |
|
| 66,473 |
Loan loss allowance, net |
|
| (3,170) |
|
| — |
|
| — |
|
| — |
|
| (3,170) |
Interest income adjustment for securities |
|
| (697) |
|
| — |
|
| 9,436 |
|
| — |
|
| 8,739 |
Income tax adjustment for discrete transactions |
|
| — |
|
| — |
|
| 555 |
|
| — |
|
| 555 |
Other non-cash items |
|
| — |
|
| (1,665) |
|
| 1,005 |
|
| 5,916 |
|
| 5,256 |
Reversal of unrealized (gains) / losses on: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held-for-sale |
|
| 549 |
|
| — |
|
| (46,033) |
|
| — |
|
| (45,484) |
Securities |
|
| (189) |
|
| — |
|
| (45,263) |
|
| — |
|
| (45,452) |
Derivatives |
|
| 28,897 |
|
| 31,510 |
|
| 2,056 |
|
| — |
|
| 62,463 |
Foreign currency |
|
| (28,402) |
|
| (16) |
|
| (16) |
|
| — |
|
| (28,434) |
Earnings from unconsolidated entities |
|
| (2,548) |
|
| 28,782 |
|
| (67,134) |
|
| — |
|
| (40,900) |
Purchases and sales of properties |
|
| — |
|
| — |
|
| (613) |
|
| — |
|
| (613) |
Recognition of realized gains / (losses) on: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held-for-sale |
|
| (549) |
|
| — |
|
| 48,950 |
|
| — |
|
| 48,401 |
Securities |
|
| — |
|
| — |
|
| 8,332 |
|
| — |
|
| 8,332 |
Derivatives |
|
| 14,567 |
|
| (18) |
|
| (1,251) |
|
| (493) |
|
| 12,805 |
Foreign currency |
|
| (12,655) |
|
| 16 |
|
| (1,138) |
|
| — |
|
| (13,777) |
Earnings from unconsolidated entities |
|
| 2,529 |
|
| 3,563 |
|
| 55,774 |
|
| — |
|
| 61,866 |
Purchases and sales of properties |
|
| — |
|
| (153) |
|
| 611 |
|
| — |
|
| 458 |
Core Earnings (Loss) |
| $ | 309,543 |
| $ | 52,866 |
| $ | 229,735 |
| $ | (152,684) |
| $ | 439,460 |
Core Earnings (Loss) per Weighted Average Diluted Share |
| $ | 1.18 |
| $ | 0.20 |
| $ | 0.88 |
| $ | (0.58) |
| $ | 1.68 |
| | | | | | | | | | | | | | | | | | |
|
| Commercial |
| | |
| |
| |
| |
| | |||||
| | and | | | | | | | | | | | | | | | | |
| | Residential | | Infrastructure | | | | Investing | | | | | ||||||
| | Lending | | Lending | | Property | | and Servicing | | | | | ||||||
| | Segment | | Segment | | Segment | | Segment | | Corporate | | Total | ||||||
Revenues | | $ | 211,437 | | $ | 23,257 | | $ | 64,083 | | $ | 44,495 | | $ | — | | $ | 343,272 |
Costs and expenses | |
| (104,780) | | | (26,079) | | | (60,662) | | | (36,928) | | | (73,213) | | | (301,662) |
Other income (loss) | |
| (66,541) | | | (1,348) | | | (30,192) | | | (45,918) | | | 29,235 | | | (114,764) |
Income (loss) before income taxes | |
| 40,116 | | | (4,170) | | | (26,771) | | | (38,351) | | | (43,978) | | | (73,154) |
Income tax benefit | |
| 4,422 | | | 145 | | | — | | | 2,162 | | | — | | | 6,729 |
(Income) loss attributable to non-controlling interests | |
| (3) | | | — | | | (5,111) | | | 4,770 | | | — | | | (344) |
Net income (loss) attributable to Starwood Property Trust, Inc. | | | 44,535 | | | (4,025) | | | (31,882) | | | (31,419) | | | (43,978) | | | (66,769) |
Add / (Deduct): | | | | | | | | | | | | | | | | | | |
Non-controlling interests attributable to Woodstar II Class A Units | | | — | | | — | | | 5,111 | | | — | | | — | | | 5,111 |
Non-cash equity compensation expense | | | 1,112 | | | 466 | | | 73 | | | 1,263 | | | 5,886 | | | 8,800 |
Management incentive fee | | | — | | | — | | | — | | | — | | | 15,799 | | | 15,799 |
Acquisition and investment pursuit costs | | | 358 | | | — | | | (89) | | | — | | | — | | | 269 |
Depreciation and amortization | | | 355 | | | 51 | | | 19,381 | | | 3,807 | | | — | | | 23,594 |
Credit loss provision, net | | | 40,217 | | | 8,452 | | | — | | | — | | | — | | | 48,669 |
Interest income adjustment for securities | | | 124 | | | — | | | — | | | 6,315 | | | — | | | 6,439 |
Extinguishment of debt, net | | | — | | | — | | | — | | | — | | | (246) | | | (246) |
Income tax benefit associated with fair value adjustments | | | (5,821) | | | — | | | — | | | (1,442) | | | — | | | (7,263) |
Other non-cash items | | | 3 | | | — | | | (491) | | | 248 | | | 156 | | | (84) |
Reversal of GAAP unrealized (gains) / losses on: | | | | | | | | | | | | | | | | | | |
Loans | | | 35,517 | | | — | | | — | | | (19,383) | | | — | | | 16,134 |
Securities | | | 27,879 | | | — | | | — | | | 47,216 | | | — | | | 75,095 |
Derivatives | | | (30,563) | | | 1,013 | | | 30,569 | | | 19,013 | | | (27,649) | | | (7,617) |
Foreign currency | | | 34,001 | | | 473 | | | 19 | | | (7) | | | — | | | 34,486 |
Earnings from unconsolidated entities | | | (51) | | | — | | | — | | | (620) | | | — | | | (671) |
Recognition of Distributable realized gains / (losses) on: | | | | | | | | | | | | | | | | | | |
Loans | | | 2,164 | | | (62) | | | — | | | 16,559 | | | — | | | 18,661 |
Securities | | | — | | | — | | | — | | | (4,212) | | | — | | | (4,212) |
Derivatives | | | 3,250 | | | 118 | | | (35) | | | (6,087) | | | — | | | (2,754) |
Foreign currency | | | (4,271) | | | (194) | | | (19) | | | 7 | | | — | | | (4,477) |
(Loss) earnings from unconsolidated entities | | | (556) | | | — | | | — | | | 3,738 | | | — | | | 3,182 |
Distributable Earnings (Loss) | | $ | 148,253 | | $ | 6,292 | | $ | 22,637 | | $ | 34,996 | | $ | (50,032) | | $ | 162,146 |
Distributable Earnings (Loss) per Weighted Average Diluted Share | | $ | 0.50 | | $ | 0.02 | | $ | 0.08 | | $ | 0.12 | | $ | (0.17) | | $ | 0.55 |
8077
Three Months Ended March 31, 2021 Compared to the Three Months Ended December 31, 2020
Commercial and Residential Lending Segment
The following table presents our summarized results of operationsCommercial and reconciliation to Core Earnings for the nine months ended September 30, 2016, by business segment (amounts in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investing |
|
|
|
| |||||
|
| Lending |
| Property |
| and Servicing |
|
|
|
| |||||
|
| Segment |
| Segment |
| Segment |
| Corporate |
| Total | |||||
Revenues |
| $ | 383,175 |
| $ | 85,083 |
| $ | 268,658 |
| $ | — |
| $ | 736,916 |
Costs and expenses |
|
| (87,406) |
|
| (97,297) |
|
| (131,930) |
|
| (161,894) |
|
| (478,527) |
Other income (loss) |
|
| (3,005) |
|
| 9,537 |
|
| (18,463) |
|
| 1,784 |
|
| (10,147) |
Income (loss) before income taxes |
|
| 292,764 |
|
| (2,677) |
|
| 118,265 |
|
| (160,110) |
|
| 248,242 |
Income tax provision |
|
| (75) |
|
| — |
|
| (3,392) |
|
| — |
|
| (3,467) |
(Income) loss attributable to non-controlling interests |
|
| (1,050) |
|
| — |
|
| 171 |
|
| — |
|
| (879) |
Net income (loss) attributable to Starwood Property Trust, Inc. |
|
| 291,639 |
|
| (2,677) |
|
| 115,044 |
|
| (160,110) |
|
| 243,896 |
Add / (Deduct): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash equity compensation expense |
|
| 2,110 |
|
| 89 |
|
| 3,785 |
|
| 16,893 |
|
| 22,877 |
Management incentive fee |
|
| — |
|
| — |
|
| — |
|
| 13,770 |
|
| 13,770 |
Acquisition and investment pursuit costs |
|
| — |
|
| 1,421 |
|
| 904 |
|
| 12 |
|
| 2,337 |
Depreciation and amortization |
|
| — |
|
| 41,997 |
|
| 8,918 |
|
| — |
|
| 50,915 |
Loan loss allowance, net |
|
| 3,395 |
|
| — |
|
| — |
|
| — |
|
| 3,395 |
Interest income adjustment for securities |
|
| (740) |
|
| — |
|
| 10,620 |
|
| — |
|
| 9,880 |
Other non-cash items |
|
| — |
|
| (10,922) |
|
| 247 |
|
| — |
|
| (10,675) |
Reversal of unrealized (gains) / losses on: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held-for-sale |
|
| — |
|
| — |
|
| (70,122) |
|
| — |
|
| (70,122) |
Securities |
|
| 37 |
|
| — |
|
| 43,449 |
|
| — |
|
| 43,486 |
Derivatives |
|
| (19,807) |
|
| 6,837 |
|
| 16,330 |
|
| — |
|
| 3,360 |
Foreign currency |
|
| 23,501 |
|
| 41 |
|
| (2,962) |
|
| — |
|
| 20,580 |
Earnings from unconsolidated entities |
|
| (2,544) |
|
| (7,313) |
|
| (3,280) |
|
| — |
|
| (13,137) |
Recognition of realized gains / (losses) on: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held-for-sale |
|
| — |
|
| — |
|
| 71,390 |
|
| — |
|
| 71,390 |
Securities |
|
| — |
|
| — |
|
| (11,136) |
|
| — |
|
| (11,136) |
Derivatives |
|
| 33,311 |
|
| (26) |
|
| (15,858) |
|
| — |
|
| 17,427 |
Foreign currency |
|
| (31,916) |
|
| (41) |
|
| 2,825 |
|
| — |
|
| (29,132) |
Earnings from unconsolidated entities |
|
| 3,148 |
|
| 4,820 |
|
| 2,855 |
|
| — |
|
| 10,823 |
Core Earnings (Loss) |
| $ | 302,134 |
| $ | 34,226 |
| $ | 173,009 |
| $ | (129,435) |
| $ | 379,934 |
Core Earnings (Loss) per Weighted Average Diluted Share |
| $ | 1.26 |
| $ | 0.14 |
| $ | 0.73 |
| $ | (0.54) |
| $ | 1.59 |
Lending Segment
TheResidential Lending Segment’s CoreDistributable Earnings increased by $7.4$6.3 million, from $302.1$140.9 million during the nine months ended September 30, 2016fourth quarter of 2020 to $309.5$147.2 million duringin the nine months ended September 30, 2017.first quarter of 2021. After making adjustments for the calculation of CoreDistributable Earnings, revenues were $396.5$189.2 million, costs and expenses were $88.0$62.8 million, and other income was $2.5$28.8 million and income tax provision was $8.0 million.
Core revenues,Revenues, consisting principally of interest income on loans, increaseddecreased by $14.0$6.0 million duringin the nine months ended September 30, 2017,first quarter of 2021, primarily due to (i) an $11.7 million increasedecreases in interest income from loans of $2.4 million and investment securities of $2.9 million and a decrease in rental income from foreclosed properties of $0.6 million due to the sale of a property in the first quarter of 2021. The decrease in interest income from loans was principally due to higherlower average loan balances of residential loans reflecting the timing of purchases and LIBOR rates, partially offset by lower levels of prepayment related income, and (ii) a $1.9 million increasesecuritizations. The decrease in interest income principally from CMBS andinvestment securities was primarily due to lower average RMBS investments.investment balances reflecting sales of RMBS late in the fourth quarter of 2020.
81
Core costsCosts and expenses increased by $6.1$7.8 million duringin the nine months ended September 30, 2017,first quarter of 2021, primarily due to (i) a $4.8$7.8 million write-off of an unsecured commercial loan and a $2.3 million increase in interest expense associated with the various secured financing facilities used to fund a portion of ourthis segment’s investment portfolio, and (ii)partially offset by a $1.1$2.3 million increasedecrease in general and administrative expenses.expenses reflecting lower professional fees.
Core otherOther income decreased slightlyincreased by $0.3 million.$27.4 million in the first quarter of 2021, primarily due to a $12.1 million increase in residential loan securitization gains, an $8.3 million gain on sale of a foreclosed property in the first quarter of 2021 and a $5.9 million favorable change in realized gains (losses) on interest rate and foreign currency derivatives.
PropertyIncome taxes, which principally relate to the taxable nature of this segment’s residential loan securitization activities which are housed in TRSs, increased $7.3 million due to an increase in realized gains from the securitization and sale of residential loans. The majority of the GAAP income tax provision related to these loans was recorded in 2020 when the loans were marked to their fair values. Because the net fair value increases were unrealized, they along with their corresponding income tax provision were previously adjusted in our reconciliation to Distributable Earnings. Upon recognition of the realized gains this quarter for Distributable Earnings purposes, the corresponding income tax provision was likewise recognized.
Infrastructure Lending Segment
Core Earnings by Portfolio (amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
| For the Nine Months Ended |
|
|
| ||||
|
| September 30, |
|
|
| ||||
|
| 2017 |
| 2016 |
| Change | |||
Master Lease Portfolio |
| $ | 320 |
| $ | — |
| $ | 320 |
Medical Office Portfolio |
|
| 19,854 |
|
| — |
|
| 19,854 |
Ireland Portfolio |
|
| 14,248 |
|
| 15,130 |
|
| (882) |
Woodstar Portfolio |
|
| 16,957 |
|
| 15,771 |
|
| 1,186 |
Investment in unconsolidated entities |
|
| 3,563 |
|
| 4,821 |
|
| (1,258) |
Other/Corporate |
|
| (2,076) |
|
| (1,496) |
|
| (580) |
Core Earnings |
| $ | 52,866 |
| $ | 34,226 |
| $ | 18,640 |
The PropertyInfrastructure Lending Segment’s CoreDistributable Earnings increased by $18.7$0.3 million, from $34.2$6.5 million duringin the nine months ended September 30, 2016fourth quarter of 2020 to $52.9$6.8 million duringin the nine months ended September 30, 2017.first quarter of 2021. After making adjustments for the calculation of CoreDistributable Earnings, revenues were $138.1$19.5 million, costs and expenses were $88.0$12.0 million and other incomeloss was $2.8$0.6 million.
Core revenuesRevenues, consisting principally of interest income on loans, increased by $56.0$0.2 million duringin the nine months ended September 30, 2017, primarily due to the inclusionfirst quarter of a full period of rental income for the Medical Office Portfolio and the Woodstar Portfolio.
Core costs and expenses increased by $34.7 million during the nine months ended September 30, 2017, primarily due to increases in rental related costs of $16.8 million and interest expense of $16.4 million primarily on the secured financing for the Medical Office Portfolio.
Core other income decreased by $2.6 million during the nine months ended September 30, 2017,2021, primarily due to a slight increase in interest income from loans.
Costs and expenses decreased by $0.3 million in the first quarter of 2021, primarily due to a slight decrease in equity in earnings recognized from our investmentinterest expense on the secured debt facilities used to finance this segment’s investments.
Other loss increased by $0.2 million in the Retail Fund.first quarter of 2021.
Investing and Servicing
78
Property Segment
Distributable Earnings by Portfolio (amounts in thousands)
| | | | | | | | | |
| | For the Three Months Ended | | | | ||||
|
| March 31, 2021 |
| December 31, 2020 |
| Change | |||
Master Lease Portfolio | | $ | 4,312 | | $ | 4,300 | | $ | 12 |
Medical Office Portfolio | | | 5,513 | | | 5,339 | | | 174 |
Woodstar I Portfolio | | | 6,338 | | | 4,907 | | | 1,431 |
Woodstar II Portfolio | | | 6,100 | | | 5,470 | | | 630 |
Other/Corporate | | | (724) | | | (1,056) | | | 332 |
Distributable Earnings | | $ | 21,539 | | $ | 18,960 | | $ | 2,579 |
The Investing and ServicingProperty Segment’s CoreDistributable Earnings increased by $56.7$2.6 million, from $173.0$18.9 million during the nine months ended September 30, 2016fourth quarter of 2020 to $229.7$21.5 million duringin the nine months ended September 30, 2017.first quarter of 2021. After making adjustments for the calculation of CoreDistributable Earnings, revenues were $250.8$64.8 million, costs and expenses were $99.3$41.5 million and other loss was $1.8 million.
Revenues increased by $1.1 million in the first quarter of 2021.
Costs and expenses decreased by $1.2 million in the first quarter of 2021.
Other loss decreased by $0.3 million in the first quarter of 2021.
Investing and Servicing Segment
The Investing and Servicing Segment’s Distributable Earnings decreased by $8.0 million, from $31.8 million during the fourth quarter of 2020 to $23.8 million in the first quarter of 2021. After making adjustments for the calculation of Distributable Earnings, revenues were $48.8 million, costs and expenses were $28.0 million, other income was $98.2$6.8 million, income tax provision was $17.4$0.2 million and the deduction of income attributable to non-controlling interests was $2.6$3.6 million.
Core revenuesRevenues decreased by $28.7$2.1 million duringin the nine months ended September 30, 2017,first quarter of 2021, primarily due to decreases of $24.3 million in servicing fees reflecting the divestiture of our European servicing and advisory business and lower domestic servicing fees, $11.8 milliona decrease in interest income from CMBS and conduit loans. The treatment of CMBS interest income on a GAAP basis is complicated by our CMBSapplication of the ASC 810 consolidation rules. In an attempt to treat these securities similar to the trust’s other investment securities, we compute distributable interest income pursuant to an effective yield methodology. In doing so, we segregate the portfolio into various categories based on the components of the bonds’ cash flows and $1.9 millionthe volatility related to each of these components. We then accrete interest income on an effective yield basis using the components of cash flows that are reliably estimable. Other minor adjustments are made to reflect management’s expectations for other components of the projected cash flow stream. The decrease in interest income reflects decreases of $1.3 million from CMBS and $0.8 million from conduit loans partially offset by a $12.0 million increase in rental income on our expanded REIS Equity Portfolio. held-for-sale.
Core costsCosts and expenses decreased by $18.9$7.0 million duringin the nine months ended September 30, 2017,first quarter of 2021, primarily due to a decrease in general and administrative expenses reflecting the divestiture of our European servicing and advisory business and lower incentive compensation, partially offset by increases in costs of rental operations and interest expense on secured financings for CMBS and the REIS Equity Portfolio.
82
Core other income increased by $83.2 million principally due to (i) a $52.4 millionlower securitization volume.
Other income includes profit realized gain from an unconsolidated investor entity which owns equity in an online real estate company and sold nearly allupon securitization of its interest during the third quarter of 2017, (ii) a $34.5 million increase in realizedloans by our conduit business, gains on sales of CMBS and operating properties, gains and CMBS, (iii) a $10.5 million decrease in realized losses on derivatives that were either effectively terminated or novated, and earnings from unconsolidated entities. These items are typically offset by a decrease in the fair value of our domestic servicing rights intangible which reflects the expected amortization of this deteriorating asset, net of foreign currency gain (loss)increases in fair value due to the attainment of new servicing contracts. Derivatives include instruments which hedge interest rate risk and (iv)credit risk on our conduit loans. For GAAP purposes, the loans, CMBS and derivatives are accounted for at fair value, with all changes in fair value (realized or unrealized) recognized in earnings. The adjustments to Distributable Earnings outlined above are also applied to the GAAP earnings of our unconsolidated entities. Other income decreased by $19.7 million in the first quarter of 2021 primarily due to a $9.9 million decrease in amortization of servicing rights, all partially offset by (v) a $22.4 million decrease in realized gains on conduit loans.loans of $27.9 million, partially offset by a $10.2 million decrease in recognized losses on CMBS.
79
Income taxes, which principally relate to the taxable nature of this segment’s loan servicing and loan securitization businesses which are housed in TRSs, decreased $6.9 million due to lower taxable income of those TRSs in the first quarter of 2021.
Income attributable to non-controlling interests increased $0.1 million in the first quarter of 2021.
Corporate
Corporate costs and expenses decreased by $1.1 million, from $49.7 million during the fourth quarter of 2020 to $48.6 million in the first quarter of 2021.
Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31, 2020
Commercial and Residential Lending Segment
The Commercial and Residential Lending Segment’s Distributable Earnings decreased by $1.1 million, from $148.3 million during the first quarter of 2020 to $147.2 million in the first quarter of 2021. After making adjustments for the calculation of Distributable Earnings, revenues were $189.2 million, costs and expenses were $62.8 million, other income was $28.8 million and income tax provision was $8.0 million.
Revenues, consisting principally of interest income on loans, decreased by $22.4 million in the first quarter of 2021, primarily due to decreases in interest income from loans of $21.8 million and investment securities of $1.7 million, partially offset by an increase in rental income from foreclosed properties of $1.2 million. The decrease in interest income from loans was principally due to lower prepayment related income, lower average balances of residential loans and lower average LIBOR rates (partially mitigated by the LIBOR floors on most of our commercial loans), partially offset by higher average balances of commercial loans. The decrease in interest income from investment securities was primarily due to lower LIBOR rates and average investment balances affecting interest income from our commercial investment securities, partially offset by higher average RMBS investment balances.
Costs and expenses increased by $0.1 million in the first quarter of 2021, primarily due to a $7.8 million write-off of an unsecured commercial loan and a $2.5 million increase in general and administrative expenses, partially offset by a $9.7 million decrease in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio primarily due to lower average LIBOR rates partially offset by higher average borrowings outstanding.
Other income increased by $28.0 million in the first quarter of 2021, primarily due to residential loan securitization gains, including realized gains on related interest rate derivatives, and an $8.3 million gain on sale of a foreclosed property.
Income taxes, which principally relate to the operating resultstaxable nature of our servicing and conduit businessesthis segment’s residential loan securitization activities which are heldhoused in TRSs, increased $14.0$6.6 million due to an increase in realized gains from the securitization and sale of residential loans. In the first quarter of 2020, we recorded a GAAP net tax benefit related to unrealized fair value decreases in our residential loans. This benefit was deducted from GAAP earnings to arrive at Distributable Earnings until a gain or loss on these loans was ultimately realized. In the first quarter of 2021, we realized gains from the sale and securitization of loans which had been previously marked to their fair values, mostly in 2020. Upon recognition of the realized gains this quarter for Distributable Earnings purposes, the corresponding income tax provision was likewise recognized.
Infrastructure Lending Segment
The Infrastructure Lending Segment’s Distributable Earnings increased by $0.5 million, from $6.3 million in the first quarter of 2020 to $6.8 million in the first quarter of 2021. After making adjustments for the calculation of
80
Distributable Earnings, revenues were $19.5 million, costs and expenses were $12.0 million and other loss was $0.6 million.
Revenues, consisting principally of interest income on loans, decreased by $3.8 million in the first quarter of 2021, primarily due to a decrease in interest income from loans of $3.6 million principally due to lower average LIBOR rates.
Costs and expenses decreased by $5.1 million in the first quarter of 2021, primarily due to a $4.3 million decrease in interest expense on the secured debt facilities used to finance this segment’s investment portfolio principally due to lower average LIBOR rates.
Other loss increased by $0.6 million in the first quarter of 2021.
Property Segment
Distributable Earnings by Portfolio (amounts in thousands)
| | | | | | | | | |
| | For the Three Months Ended | | | | ||||
| | March 31, | | | | ||||
|
| 2021 |
| 2020 |
| Change | |||
Master Lease Portfolio | | $ | 4,312 | | $ | 4,308 | | $ | 4 |
Medical Office Portfolio | | | 5,513 | | | 6,765 | | | (1,252) |
Woodstar I Portfolio | | | 6,338 | | | 6,784 | | | (446) |
Woodstar II Portfolio | | | 6,100 | | | 6,009 | | | 91 |
Other/Corporate | | | (724) | | | (1,229) | | | 505 |
Distributable Earnings | | $ | 21,539 | | $ | 22,637 | | $ | (1,098) |
The Property Segment’s Distributable Earnings decreased by $1.1 million, from $22.6 million during the first quarter of 2020 to $21.5 million in the first quarter of 2021. After making adjustments for the calculation of Distributable Earnings, revenues were $64.8 million, costs and expenses were $41.5 million and other loss was $1.8 million.
Revenues increased by $1.2 million in the first quarter of 2021.
Costs and expenses increased by $0.1 million in the first quarter of 2021.
Other income decreased by $2.2 million to a loss in the first quarter of 2021 primarily due to an unfavorable change in realized gains (losses) on certain interest rate derivatives.
Investing and Servicing Segment
The Investing and Servicing Segment’s Distributable Earnings decreased by $11.2 million, from $35.0 million during the first quarter of 2020 to $23.8 million in the first quarter of 2021. After making adjustments for the calculation of Distributable Earnings, revenues were $48.8 million, costs and expenses were $28.0 million, other income was $6.8 million, income tax provision was $0.2 million and the deduction of income attributable to non-controlling interests was $3.6 million.
Revenues decreased by $2.3 million in the first quarter of 2021, primarily due to decreases of $7.6 million in interest income from CMBS and conduit loans, partially offset by a $6.0 million increase in servicing fees. The decrease in interest income reflects decreases of $6.2 million from CMBS and $1.4 million from conduit loans held-for-sale.
Costs and expenses decreased by $3.9 million in the first quarter of 2021, primarily due to decreases of $1.8 million in general and administrative expenses reflecting lower compensation costs and $1.7 million in interest expense on borrowings related to conduit loans, CMBS and properties held.
81
Other income decreased by $15.4 million in the first quarter of 2021 primarily due to decreases in realized gains of $11.9 million on conduit loans and $11.5 million on CMBS, partially offset by a $7.3 million favorable change in gain (loss) on derivatives mostly related to the conduit loans.
Income taxes, which principally relate to the taxable nature of this segment’s loan servicing and loan securitization businesses which are housed in TRSs, increased $0.9 million from a benefit of $0.7 million to a provision of $0.2 million due to taxable income of ourthose TRSs primarily associated with realized gains from our interest in an investor entity which owns equity in an online real estate company and sold nearly all of its interest during the thirdfirst quarter of 2017.2021.
Income attributable to non-controlling interests increased $2.7decreased $3.5 million primarily relating to lower distributable earnings of a consolidated CMBS joint venture in which we hold a 51% interest.
Corporate
Corporate costs and expenses decreased by $1.4 million, from $50.0 million during the first quarter of 2020 to $48.6 million in the first quarter of 2021 primarily due to minority investors’ share(i) a $0.9 million increase in realized gains on interest rate swaps which hedge a portion of gains from two operating properties sold during the third quarter of 2017.our unsecured senior notes used to repay variable-rate secured financing and (ii) a $0.7 million decrease in professional fees.
Corporate
Core corporate costs and expenses increased by $23.3 million, from $129.4 million during the nine months ended September 30, 2016 to $152.7 million during the nine months ended September 30, 2017, primarily due to increases in interest expense of $16.9 million and base management fees of $5.3 million.
83
Liquidity and Capital Resources
Liquidity is a measure of our ability to meet our cash requirements, including ongoing commitments to repay borrowings, fund and maintain our assets and operations, make new investments where appropriate, pay dividends to our stockholders, and other general business needs. We closely monitor our liquidity position and believe that we have sufficient current liquidity and access to additional liquidity to meet our financial obligations for at least the next 12 months. Our strategy for managing liquidity and capital resources has not changed since December 31, 2016.2020. Refer to our Form 10-K for a description of these strategies.
COVID-19 Pandemic
We are continuing to monitor the COVID-19 pandemic and its impact on us, the borrowers underlying our commercial and residential real estate-related loans and infrastructure loans (and their tenants), the tenants in the properties we own, our financing sources, and the economy as a whole. Because the severity, magnitude and duration of the COVID-19 pandemic and its economic consequences are uncertain, rapidly changing and difficult to predict, the pandemic’s impact on our operations and liquidity remains uncertain and difficult to predict. Further discussion of the potential impacts on us from the COVID-19 pandemic is provided in the section entitled “Risk Factors” in Part I, Item 1A of our Form 10-K.
Credit Facilities
Shortly after the initial outbreak of the COVID-19 pandemic, we entered into agreements with certain of our secured credit facility lenders in our commercial lending portfolio to temporarily suspend credit mark provisions on certain of their portfolio assets in exchange for: (i) cash repayments; (ii) pledges of additional collateral; and (iii) reductions of available borrowings.
We are in frequent, consistent dialogue with the providers of our secured credit facilities regarding our management of their collateral assets in light of the impacts of the COVID-19 pandemic, including the determination of whether any extensions to these agreements are necessary as these temporary suspensions expire. Our in-house asset management team, along with an experienced team of workout professionals within our special servicer, are skilled in managing loans throughout cycles, which we believe will assist us in achieving maximum resolution on any assets impacted by the COVID-19 pandemic.
No such modifications or agreements were made with lenders on credit facilities related to our property, residential lending or infrastructure lending portfolios.
82
Sources of Liquidity
Our primary sources of liquidity are as follows:
Cash Flows for the NineThree Months Ended September 30, 2017ended March 31, 2021 (amounts in thousands)
| | | | | | | | | |
|
| | |
| VIE |
| Excluding Investing | ||
| | GAAP | | Adjustments | | and Servicing VIEs | |||
Net cash provided by operating activities | | $ | 270,766 | | $ | (353) | | $ | 270,413 |
Cash Flows from Investing Activities: | | | | | | | | | |
Origination, purchase and funding of loans held-for-investment | |
| (2,296,124) | |
| — | |
| (2,296,124) |
Proceeds from principal collections and sale of loans | |
| 1,051,695 | |
| — | |
| 1,051,695 |
Purchase and funding of investment securities | |
| — | |
| (27,333) | |
| (27,333) |
Proceeds from sales and collections of investment securities | |
| 59,514 | |
| 26,085 | |
| 85,599 |
Proceeds from sales of real estate | | | 30,566 | | | — | | | 30,566 |
Purchases and additions to properties and other assets | | | (3,512) | | | — | | | (3,512) |
Net cash flows from other investments and assets | |
| 38,656 | |
| 183 | |
| 38,839 |
Net cash used in investing activities | |
| (1,119,205) | |
| (1,065) | |
| (1,120,270) |
Cash Flows from Financing Activities: | | | | | | | | | |
Proceeds from borrowings | |
| 2,748,317 | |
| — | |
| 2,748,317 |
Principal repayments on and repurchases of borrowings | |
| (2,001,336) | |
| (157) | |
| (2,001,493) |
Payment of deferred financing costs | |
| (5,052) | |
| — | |
| (5,052) |
Proceeds from common stock issuances, net of offering costs | |
| 240 | |
| — | |
| 240 |
Payment of dividends | |
| (137,667) | |
| — | |
| (137,667) |
Contributions from non-controlling interests | | | 2,969 | | | — | |
| 2,969 |
Distributions to non-controlling interests | |
| (8,833) | |
| 158 | |
| (8,675) |
Issuance of debt of consolidated VIEs | |
| 11,604 | |
| (11,604) | |
| — |
Repayment of debt of consolidated VIEs | |
| (27,490) | |
| 27,490 | |
| — |
Distributions of cash from consolidated VIEs | |
| 14,481 | |
| (14,481) | |
| — |
Net cash provided by financing activities | |
| 597,233 | |
| 1,406 | |
| 598,639 |
Net decrease in cash, cash equivalents and restricted cash | |
| (251,206) | |
| (12) | |
| (251,218) |
Cash, cash equivalents and restricted cash, beginning of period | |
| 722,162 | |
| (772) | |
| 721,390 |
Effect of exchange rate changes on cash | |
| (1,042) | |
| — | |
| (1,042) |
Cash, cash equivalents and restricted cash, end of period | | $ | 469,914 | | $ | (784) | | $ | 469,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| VIE |
| Excluding Investing | ||
|
| GAAP |
| Adjustments |
| and Servicing VIEs | |||
Net cash used in operating activities |
| $ | (222,428) |
| $ | (4,013) |
| $ | (226,441) |
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
Origination and purchase of loans held-for-investment |
|
| (2,195,258) |
|
| — |
|
| (2,195,258) |
Proceeds from principal collections and sale of loans |
|
| 1,707,238 |
|
| — |
|
| 1,707,238 |
Purchase of investment securities |
|
| (69,231) |
|
| (80,770) |
|
| (150,001) |
Proceeds from sales and collections of investment securities |
|
| 221,037 |
|
| 81,880 |
|
| 302,917 |
Real estate business combinations, net of cash and restricted cash acquired |
|
| (18,194) |
|
| (19,039) |
|
| (37,233) |
Proceeds from sale of properties |
|
| 44,219 |
|
| — |
|
| 44,219 |
Purchases and additions to properties and other assets |
|
| (564,755) |
|
| — |
|
| (564,755) |
Net cash flows from other investments and assets |
|
| (34,057) |
|
| — |
|
| (34,057) |
Net cash used in investing activities |
|
| (909,001) |
|
| (17,929) |
|
| (926,930) |
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
Proceeds from borrowings |
|
| 4,090,163 |
|
| — |
|
| 4,090,163 |
Principal repayments on and repurchases of borrowings |
|
| (2,724,179) |
|
| — |
|
| (2,724,179) |
Payment of deferred financing costs |
|
| (17,038) |
|
| — |
|
| (17,038) |
Proceeds from common stock issuances, net of offering costs |
|
| (106) |
|
| — |
|
| (106) |
Payment of dividends |
|
| (376,061) |
|
| — |
|
| (376,061) |
Contributions from non-controlling interests |
|
| 105 |
|
| — |
|
| 105 |
Distributions to non-controlling interests |
|
| (7,519) |
|
| — |
|
| (7,519) |
Issuance of debt of consolidated VIEs |
|
| 11,657 |
|
| (11,657) |
|
| — |
Repayment of debt of consolidated VIEs |
|
| (92,383) |
|
| 92,383 |
|
| — |
Distributions of cash from consolidated VIEs |
|
| 62,797 |
|
| (62,797) |
|
| — |
Net cash provided by financing activities |
|
| 947,436 |
|
| 17,929 |
|
| 965,365 |
Net decrease in cash, cash equivalents and restricted cash |
|
| (183,993) |
|
| (4,013) |
|
| (188,006) |
Cash, cash equivalents and restricted cash, beginning of period |
|
| 650,755 |
|
| (1,148) |
|
| 649,607 |
Effect of exchange rate changes on cash |
|
| 1,674 |
|
| — |
|
| 1,674 |
Cash, cash equivalents and restricted cash, end of period |
| $ | 468,436 |
| $ | (5,161) |
| $ | 463,275 |
The discussion below is on a non-GAAP basis, after removing adjustments principally resulting from the consolidation of the Investing and Servicing Segment’ssecuritization VIEs under ASC 810. These adjustments principally relate to (i) the purchase of CMBS, RMBS, loans and real estate from consolidated VIEs, which are reflected as repayments of VIE debt on a GAAP basis and (ii) sales and principal collections of CMBS and RMBS related to consolidated VIEs, which are reflected as VIE distributions on a GAAP basis. There is no significant net impact to cash flows from operations or to overall cash resulting from these consolidations. Refer to Note 2 of ourto the Condensed Consolidated Financial Statements for further discussion.
Cash and cash equivalents decreased by $188.0$251.2 million during the ninethree months ended September 30, 2017,March 31, 2021, reflecting net cash used in investing activities of $926.9 million and net cash used in operating activities of $226.5 million,$1.1 billion, partially offset by net cash provided by operating activities of $270.4 million and net cash provided by financing activities of $965.4$598.6 million.
84
Net cash used inprovided by operating activities of $226.5$270.4 million forduring the ninethree months ended September 30, 2017March 31, 2021 related primarily to $500.0 millionproceeds from sales of loans held-for-sale, net of originations and purchases, of $244.6 million and cash interest income of $131.9 million from our loans held-for-sale, netand $36.1 million from our investment securities. Net rental income provided cash of proceeds from principal collections$48.9 million and sales,servicing fees provided cash of $12.9 million. Offsetting these cash inflows was cash interest expense of $177.6$80.6 million, general and administrative expenses of $66.5$29.0 million, management fees of $65.3$27.4 million and a net change in operating assets and liabilities of $8.1$66.3 million. Offsetting these cash outflows were cash interest income
83
Net cash used in investing activities of $926.9 million$1.1 billion for the ninethree months ended September 30, 2017March 31, 2021 related primarily to the origination and acquisition of new loans held-for-investment of $2.2$2.3 billion and the purchase of commercial real estate and other assets of $602.0 million and the purchasefunding of investment securities of $150.0$27.3 million, partially offset by proceeds received from principal collections and sales of loans of $1.7$1.1 billion and investment securities of $302.9$85.6 million and sale of an operating property for $30.6 million.
Net cash provided by financing activities of $965.4$598.6 million for the ninethree months ended September 30, 2017March 31, 2021 related primarily to borrowings on our debt, net borrowings afterof repayments and deferred loan costs, of our secured and unsecured debt of $1.3 billion,$741.8 million, partially offset by dividend distributions of $376.1$137.7 million.
8584
Our Investment Portfolio
The following is a review of our investment portfolio by segment.
Commercial and Residential Lending Segment
The following table sets forth the amount of each category of investments we owned across various property types within our Commercial and Residential Lending Segment as of September 30, 2017March 31, 2021 and December 31, 20162020 (dollars in thousands):
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Unlevered | |
|
| Face |
| Carrying |
| Asset Specific |
| Net |
| Return on | | ||||
| | Amount | | Value | | Financing | | Investment | | Asset | | ||||
March 31, 2021 | | | | | | | | | | | | | | | |
First mortgages (1) | | $ | 10,002,124 | | $ | 9,954,741 | | $ | 6,665,879 | | $ | 3,288,862 |
| 6.1 | % |
Subordinated mortgages | |
| 71,428 | |
| 70,457 | |
| — | |
| 70,457 |
| 8.7 | % |
Mezzanine loans (1) | |
| 601,080 | |
| 603,119 | |
| — | |
| 603,119 |
| 11.6 | % |
Residential loans, fair value option | | | 149,404 | |
| 150,712 | |
| 58,656 | |
| 92,056 | | 6.1 | % |
Other loans | | | 20,267 | |
| 18,200 | |
| — | |
| 18,200 |
| 13.3 | % |
Loans held-for-sale, fair value option, residential | | | 435,025 | |
| 444,835 | |
| 270,096 | |
| 174,739 |
| 5.6 | % |
Loans held-for-sale, commercial | | | 142,798 | |
| 142,202 | |
| 80,500 | |
| 61,702 |
| 5.9 | % |
RMBS, available-for-sale | |
| 245,472 | |
| 160,301 | |
| 106,447 | |
| 53,854 |
| 10.9 | % |
RMBS, fair value option | | | 160,124 | | | 249,005 | (2) | | 39,700 | | | 209,305 | | 9.2 | % |
CMBS, fair value option | | | 102,900 | | | 96,883 | (2) | | 49,798 | | | 47,085 | | 5.5 | % |
HTM debt securities (3) | |
| 454,283 | |
| 455,586 | |
| 113,143 | |
| 342,443 |
| 6.6 | % |
Credit loss allowance | |
| — | |
| (65,939) | |
| — | |
| (65,939) |
| | |
Equity security | |
| 12,594 | |
| 10,655 | |
| — | |
| 10,655 |
| | |
Investment in unconsolidated entities | |
| N/A | |
| 47,514 | |
| — | |
| 47,514 |
| | |
Properties, net | | | N/A | |
| 93,718 | |
| 49,018 | |
| 44,700 | | | |
| | $ | 12,397,499 | | $ | 12,431,989 | | $ | 7,433,237 | | $ | 4,998,752 | | | |
| | | | | | | | | | | | | | | |
December 31, 2020 | | | | | | | | | | | | | | | |
First mortgages (1) | | $ | 8,977,365 | | $ | 8,930,764 | | $ | 5,892,684 | | $ | 3,038,080 |
| 6.4 | % |
Subordinated mortgages | |
| 72,257 | |
| 71,185 | |
| — | |
| 71,185 |
| 8.7 | % |
Mezzanine loans (1) | |
| 619,352 | |
| 620,319 | |
| — | |
| 620,319 |
| 11.5 | % |
Residential loans, fair value option | | | 86,796 | |
| 90,684 | |
| 58,885 | |
| 31,799 | | 5.9 | % |
Other loans | | | 33,626 | |
| 30,284 | |
| — | |
| 30,284 | | 9.8 | % |
Loans held-for-sale, fair value option, residential | | | 820,807 | |
| 841,963 | |
| 573,584 | |
| 268,379 |
| 6.1 | % |
RMBS, available-for-sale | | | 252,738 | |
| 167,349 | |
| 110,724 | |
| 56,625 | | 11. 0 | % |
RMBS, fair value option | |
| 142,288 | | | 235,997 | (2) | | 30,267 | | | 205,730 |
| 6.3 | % |
CMBS, fair value option | |
| 102,900 | | | 96,885 | (2) | | 25,313 | | | 71,572 |
| 5.6 | % |
HTM debt securities (3) | |
| 505,247 | |
| 505,673 | |
| 84,233 | |
| 421,440 |
| 6.8 | % |
Credit loss allowance | |
| — | |
| (72,360) | |
| — | |
| (72,360) |
| | |
Equity security | |
| 12,497 | |
| 11,247 | |
| — | |
| 11,247 |
| | |
Investment in unconsolidated entities | |
| N/A | |
| 54,407 | |
| — | |
| 54,407 |
| | |
Properties, net | | | N/A | |
| 103,896 | |
| 48,863 | |
| 55,033 | | | |
| | $ | 11,625,873 | | $ | 11,688,293 | | $ | 6,824,553 | | $ | 4,863,740 | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unlevered |
|
|
|
| Face |
| Carrying |
| Asset Specific |
| Net |
|
|
| Return on |
|
| ||||
|
| Amount |
| Value |
| Financing |
| Investment |
| Vintage |
| Asset |
|
| ||||
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages (1) |
| $ | 5,546,006 |
| $ | 5,523,316 |
| $ | 2,693,742 |
| $ | 2,829,574 |
| 1989-2017 |
| 6.7 | % |
|
Subordinated mortgages |
|
| 224,088 |
|
| 222,990 |
|
| — |
|
| 222,990 |
| 1998-2015 |
| 11.4 | % |
|
Mezzanine loans (1) |
|
| 615,724 |
|
| 615,562 |
|
| — |
|
| 615,562 |
| 2005-2017 |
| 11.2 | % |
|
Other loans |
|
| 27,073 |
|
| 23,218 |
|
| — |
|
| 23,218 |
| 1999-2017 |
| 12.8 | % |
|
Loans held-for-sale, fair value option |
|
| 408,346 |
|
| 418,618 |
|
| 249,473 |
|
| 169,145 |
| 2013-2017 |
| 5.9 | % |
|
Loans transferred as secured borrowings |
|
| 75,000 |
|
| 74,339 |
|
| 74,200 |
|
| 139 |
| N/A |
|
|
|
|
Loan loss allowance |
|
| — |
|
| (6,618) |
|
| — |
|
| (6,618) |
| N/A |
|
|
|
|
RMBS |
|
| 379,432 |
|
| 253,252 |
|
| 42,216 |
|
| 211,036 |
| 2003-2007 |
| 9.9 | % |
|
HTM securities (2) |
|
| 415,679 |
|
| 411,196 |
|
| 238,432 |
|
| 172,764 |
| 2013-2017 |
| 5.4 | % |
|
Equity security |
|
| 12,244 |
|
| 13,529 |
|
| — |
|
| 13,529 |
| N/A |
|
|
|
|
Investments in unconsolidated entities |
|
| N/A |
|
| 36,831 |
|
| — |
|
| 36,831 |
| N/A |
|
|
|
|
|
| $ | 7,703,592 |
| $ | 7,586,233 |
| $ | 3,298,063 |
| $ | 4,288,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgages (1) |
| $ | 4,861,214 |
| $ | 4,845,552 |
| $ | 1,910,078 |
| $ | 2,935,474 |
| 1989-2016 |
| 6.4 | % |
|
Subordinated mortgages |
|
| 293,925 |
|
| 278,032 |
|
| 4,021 |
|
| 274,011 |
| 1998-2015 |
| 11.5 | % |
|
Mezzanine loans (1) |
|
| 714,608 |
|
| 713,757 |
|
| — |
|
| 713,757 |
| 2006-2016 |
| 10.7 | % |
|
Loans transferred as secured borrowings |
|
| 35,000 |
|
| 35,000 |
|
| 35,000 |
|
| — |
| N/A |
|
|
|
|
Loan loss allowance |
|
| — |
|
| (9,788) |
|
| — |
|
| (9,788) |
| N/A |
|
|
|
|
RMBS |
|
| 399,883 |
|
| 253,915 |
|
| 38,832 |
|
| 215,083 |
| 2003-2007 |
| 10.3 | % |
|
HTM securities (2) |
|
| 515,027 |
|
| 509,980 |
|
| 305,531 |
|
| 204,449 |
| 2013-2015 |
| 6.0 | % |
|
Equity security |
|
| 11,275 |
|
| 12,177 |
|
| — |
|
| 12,177 |
| N/A |
|
|
|
|
Investments in unconsolidated entities |
|
| N/A |
|
| 30,874 |
|
| — |
|
| 30,874 |
| N/A |
|
|
|
|
|
| $ | 6,830,932 |
| $ | 6,669,499 |
| $ | 2,293,462 |
| $ | 4,376,037 |
|
|
|
|
|
|
| (1) |
| First mortgages include first mortgage loans and any contiguous mezzanine loan components because as a whole, the expected credit quality of these loans is more similar to that of a first mortgage loan. The application of this methodology resulted in mezzanine loans with carrying values of |
| (2) | Eliminated in consolidation against VIE liabilities pursuant to ASC 810. |
85
| (3) |
| CMBS held-to-maturity (“HTM”) and mandatorily redeemable preferred equity interests in commercial real estate entities. |
86
As of September 30, 2017March 31, 2021 and December 31, 2016,2020, our Commercial and Residential Lending Segment’s investment portfolio, excluding residential loans, held-for-sale, RMBS, properties and other investments, had the following characteristics based on carrying values:
|
|
|
|
|
| |||||
| | | | | | |||||
Collateral Property Type |
| September 30, 2017 |
| December 31, 2016 |
|
| March 31, 2021 |
| December 31, 2020 | |
Office |
| 40.1 | % | 35.8 | % |
| 32.1 | % | 35.2 | % |
Hotel |
| 19.6 | % | 21.6 | % | |||||
Multifamily |
| 19.1 | % | 16.1 | % | |||||
Mixed Use |
| 20.8 | % | 15.1 | % | | 12.2 | % | 8.2 | % |
Hospitality |
| 17.0 | % | 22.9 | % | |||||
Multi-family |
| 10.5 | % | 15.3 | % | |||||
Residential |
| 5.7 | % | 6.7 | % | |||||
Retail |
| 6.7 | % | 7.0 | % |
| 2.6 | % | 2.8 | % |
Residential |
| 3.3 | % | 1.9 | % | |||||
Industrial |
| 1.6 | % | 2.0 | % |
| 2.5 | % | 3.0 | % |
|
| 100.0 | % | 100.0 | % | |||||
Other | | 6.2 | % | 6.4 | % | |||||
|
| 100.0 | % | 100.0 | % | |||||
|
|
|
|
|
| |||||
| | | | | | |||||
Geographic Location |
| September 30, 2017 |
| December 31, 2016 |
|
| March 31, 2021 |
| December 31, 2020 | |
U.S. Regions: |
| | | | | |||||
North East |
| 35.8 | % | 37.7 | % |
| 20.5 | % | 22.7 | % |
West |
| 22.0 | % | 21.5 | % |
| 20.0 | % | 19.0 | % |
South West |
| 11.4 | % | 8.9 | % |
| 10.3 | % | 11.1 | % |
Mid Atlantic |
| 9.7 | % | 9.5 | % | |||||
South East |
| 10.6 | % | 11.6 | % |
| 6.9 | % | 7.3 | % |
International |
| 9.5 | % | 9.5 | % | |||||
Midwest |
| 5.8 | % | 7.3 | % |
| 4.5 | % | 4.4 | % |
Mid Atlantic |
| 4.9 | % | 3.5 | % | |||||
|
| 100.0 | % | 100.0 | % | |||||
International: |
| | | | | |||||
Europe/Australia |
| 25.5 | % | 23.3 | % | |||||
Bahamas/Bermuda |
| 2.6 | % | 2.7 | % | |||||
|
| 100.0 | % | 100.0 | % | |||||
86
Infrastructure Lending Segment
Property Segment
The following table sets forth the amount of each category of investments which are comprisedwe owned within our Infrastructure Lending Segment as of properties, intangible lease assetsMarch 31, 2021 and liabilitiesDecember 31, 2020 (dollars in thousands):
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Unlevered | |
|
| Face |
| Carrying |
| Asset Specific |
| Net |
| Return on | | ||||
| | Amount | | Value | | Financing | | Investment | | Asset | | ||||
March 31, 2021 | | | | | | | | | | | | | | | |
First priority infrastructure loans and HTM securities | | $ | 1,664,665 | | $ | 1,633,491 | | $ | 1,186,526 | | $ | 446,965 |
| 4.8 | % |
Loans held-for-sale, infrastructure | | | 89,601 | |
| 89,368 | |
| 73,287 | |
| 16,081 |
| 3.2 | % |
Credit loss allowance | | | N/A | | | (11,732) | | | — | | | (11,732) | | | |
Investment in unconsolidated entities | | | N/A | | | 24,840 | | | — | | | 24,840 | | | |
| | $ | 1,754,266 | | $ | 1,735,967 | | $ | 1,259,813 | | $ | 476,154 | | | |
| | | | | | | | | | | | | | | |
December 31, 2020 | | | | | | | | | | | | | | | |
First priority infrastructure loans and HTM securities | | $ | 1,488,614 | | $ | 1,458,880 | | $ | 1,140,608 | | $ | 318,272 |
| 5.2 | % |
Loans held-for-sale, infrastructure | |
| 120,900 | |
| 120,540 | |
| 100,155 | |
| 20,385 |
| 3.5 | % |
Credit loss allowance | | | N/A | | | (10,759) | | | — | | | (10,759) | | | |
Investment in unconsolidated entities | | | N/A | | | 25,095 | | | — | | | 25,095 | | | |
| | $ | 1,609,514 | | $ | 1,593,756 | | $ | 1,240,763 | | $ | 352,993 | | | |
As of March 31, 2021 and December 31, 2020, our equityInfrastructure Lending Segment’s investment in four regional shopping malls (the “Retail Fund”)portfolio had the following characteristics based on carrying values:
| | | | | |
Collateral Type |
| March 31, 2021 |
| December 31, 2020 | |
Natural gas power |
| 62.7 | % | 65.8 | % |
Midstream |
| 20.8 | % | 21.9 | % |
Renewable power |
| 9.4 | % | 9.0 | % |
Other thermal power | | 6.6 | % | 3.3 | % |
Downstream | | 0.5 | % | — | % |
|
| 100.0 | % | 100.0 | % |
| | | | | |
Geographic Location | | March 31, 2021 | | December 31, 2020 | |
U.S. Regions: | | | | | |
North East |
| 41.4 | % | 43.1 | % |
Midwest |
| 22.5 | % | 20.8 | % |
South West |
| 14.5 | % | 15.3 | % |
South East | | 9.5 | % | 9.6 | % |
West | | 5.9 | % | 4.3 | % |
Mid-Atlantic | | 2.8 | % | 3.2 | % |
International: |
| | | | |
Mexico |
| 2.5 | % | 2.7 | % |
Other |
| 0.9 | % | 1.0 | % |
|
| 100.0 | % | 100.0 | % |
87
Property Segment
The following table sets forth the amount of each category of investments held within our Property Segment as of September 30, 2017March 31, 2021 and December 31, 20162020 (amounts in thousands):
|
|
|
|
|
|
| ||||||
|
| September 30, 2017 |
| December 31, 2016 | ||||||||
| | | | | | | ||||||
|
| March 31, 2021 |
| December 31, 2020 | ||||||||
Properties, net |
| $ | 2,234,646 |
| $ | 1,667,108 | | $ | 1,954,880 | | $ | 1,969,414 |
Lease intangibles, net |
|
| 111,997 |
|
| 122,124 | |
| 37,080 | |
| 38,511 |
Investment in unconsolidated entities |
|
| 109,607 |
|
| 124,977 | ||||||
|
| $ | 2,456,250 |
| $ | 1,914,209 | ||||||
| | $ | 1,991,960 | | $ | 2,007,925 | ||||||
The following table sets forth our net investment and other information regarding the Property Segment’s properties and intangible lease assets and liabilitiesintangibles as of September 30, 2017March 31, 2021 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
|
|
| Asset |
|
|
|
|
| Weighted Average | ||||||||||||||||||
|
| Carrying |
| Specific |
| Net |
| Occupancy |
| Remaining | ||||||||||||||||||
|
| Value |
| Financing |
| Investment |
| Rate |
| Lease Term | ||||||||||||||||||
| | | | | | | | | | | | | | | ||||||||||||||
|
| |
| Asset |
| |
| |
| Weighted Average | ||||||||||||||||||
| | Carrying | | Specific | | Net | | Occupancy | | Remaining | ||||||||||||||||||
| | Value | | Financing | | Investment | | Rate | | Lease Term | ||||||||||||||||||
Office—Medical Office Portfolio |
| $ | 768,132 |
| $ | 488,030 |
| $ | 280,102 |
| 94.1 | % |
| 6.0 years | | $ | 760,266 | | $ | 592,853 | | $ | 167,413 | | 93.6 | % | | 5.8 years |
Office—Ireland Portfolio |
|
| 513,953 |
|
| 329,350 |
|
| 184,603 |
| 89.9 | % |
| 8.9 years | ||||||||||||||
Multi-family residential—Ireland Portfolio |
|
| 18,567 |
|
| 12,026 |
|
| 6,541 |
| 92.0 | % |
| 0.3 years | ||||||||||||||
Multi-family residential—Woodstar Portfolio |
|
| 613,685 |
|
| 409,596 |
|
| 204,089 |
| 98.1 | % |
| 0.5 years | ||||||||||||||
Multifamily residential—Woodstar I Portfolio | | | 636,740 | | | 572,784 | | | 63,956 | | 98.8 | % | | 0.5 years | ||||||||||||||
Multifamily residential—Woodstar II Portfolio | | | 610,558 | | | 512,588 | | | 97,970 | | 99.1 | % | | 0.5 years | ||||||||||||||
Retail—Master Lease Portfolio |
|
| 425,190 |
|
| 191,914 |
|
| 233,276 |
| 100.0 | % |
| 24.6 years | | | 343,790 | |
| 192,801 | |
| 150,989 | | 100.0 | % | | 21.1 years |
Industrial—Master Lease Portfolio |
|
| 128,134 |
|
| 70,090 |
|
| 58,044 |
| 100.0 | % |
| 24.6 years | ||||||||||||||
Subtotal—undepreciated carrying value |
|
| 2,467,661 |
|
| 1,501,006 |
|
| 966,655 |
|
|
|
|
| | | 2,351,354 | | | 1,871,026 | | | 480,328 | | | | | |
Accumulated depreciation and amortization |
|
| (121,018) |
|
| — |
|
| (121,018) |
|
|
|
|
| | | (359,394) | | | — | | | (359,394) | | | | | |
Net carrying value |
| $ | 2,346,643 |
| $ | 1,501,006 |
| $ | 845,637 |
|
|
|
|
| | $ | 1,991,960 | | $ | 1,871,026 | | $ | 120,934 | | | | | |
87
As of September 30, 2017March 31, 2021 and December 31, 2016,2020, our Property Segment’s investment portfolio had the following geographic characteristics based on carrying values:
|
|
|
|
|
| |||||
| | | | | | |||||
Geographic Location |
| September 30, 2017 |
| December 31, 2016 |
| | March 31, 2021 | | December 31, 2020 | |
Ireland |
| 20.9 | % | 25.2 | % | |||||
U.S. Regions: |
|
|
|
|
| |||||
South East |
| 34.5 | % | 39.7 | % | | 62.1 | % | 62.1 | % |
South West |
| 10.3 | % | 10.3 | % | |||||
Midwest |
| 13.1 | % | 6.2 | % |
| 10.1 | % | 10.1 | % |
South West |
| 10.0 | % | 8.7 | % | |||||
North East |
| 9.6 | % | 9.6 | % | |||||
West |
| 9.9 | % | 7.2 | % |
| 7.9 | % | 7.9 | % |
North East |
| 9.6 | % | 13.0 | % | |||||
Mid-Atlantic |
| 2.0 | % | — | % | |||||
|
| 100.0 | % | 100.0 | % | |||||
|
| 100.0 | % | 100.0 | % | |||||
88
Investing and Servicing Segment
The following table sets forth the amount of each category of investments we owned within our Investing and Servicing Segment as of September 30, 2017March 31, 2021 and December 31, 20162020 (amounts in thousands):
| | | | | | | | | | | | | |
|
| | |
| | |
| Asset |
| | |
| |
| | Face | | Carrying | | Specific | | Net |
| ||||
| | Amount | | Value | | Financing | | Investment |
| ||||
March 31, 2021 | | | | | | | | | | | | | |
CMBS, fair value option | | $ | 2,632,996 | | $ | 1,106,000 | (1) | $ | 350,187 | (2) | $ | 755,813 | |
Intangible assets - servicing rights | |
| N/A | |
| 55,324 | (3) |
| — | |
| 55,324 | |
Lease intangibles, net | | | N/A | | | 14,583 | | | — | | | 14,583 | |
Loans held-for-sale, fair value option, commercial | |
| 172,119 | |
| 168,226 | |
| 110,424 | |
| 57,802 | |
Loans held-for-investment | | | 933 | | | 933 | | | — | | | 933 | |
Investment in unconsolidated entities | | | N/A | | | 44,435 | (4) | | — | | | 44,435 | |
Properties, net | |
| N/A | |
| 196,150 | |
| 192,611 | |
| 3,539 | |
| | $ | 2,806,048 | | $ | 1,585,651 | | $ | 653,222 | | $ | 932,429 | |
December 31, 2020 | | | | | | | | | | | | | |
CMBS, fair value option | | $ | 2,652,459 | | $ | 1,112,145 | (1) | $ | 360,221 | (2) | $ | 751,924 | |
Intangible assets - servicing rights | |
| N/A | |
| 54,578 | (3) |
| — | |
| 54,578 | |
Lease intangibles, net | | | N/A | | | 15,548 | | | — | |
| 15,548 | |
Loans held-for-sale, fair value option, commercial | |
| 90,789 | |
| 90,332 | |
| 53,040 | |
| 37,292 | |
Loans held-for-investment | | | 1,008 | | | 1,008 | | | — | | | 1,008 | |
Investment in unconsolidated entities | | | N/A | | | 44,664 | (4) | | — | | | 44,664 | |
Properties, net | |
| N/A | |
| 197,843 | |
| 192,839 | |
| 5,004 | |
| | $ | 2,744,256 | | $ | 1,516,118 | | $ | 606,100 | | $ | 910,018 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Asset |
|
|
|
| |
|
| Face |
| Carrying |
| Specific |
| Net |
| ||||
|
| Amount |
| Value |
| Financing |
| Investment |
| ||||
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS, fair value option |
| $ | 4,075,324 |
| $ | 1,026,634 | (1) | $ | 173,563 |
| $ | 853,071 |
|
Intangible assets - servicing rights |
|
| N/A |
|
| 60,363 | (2) |
| — |
|
| 60,363 |
|
Lease intangibles, net |
|
| N/A |
|
| 25,722 |
|
| — |
|
| 25,722 |
|
Loans held-for-sale, fair value option |
|
| 192,705 |
|
| 190,006 |
|
| 144,052 |
|
| 45,954 |
|
Loans held-for-investment |
|
| 3,903 |
|
| 3,903 |
|
| — |
|
| 3,903 |
|
Investment in unconsolidated entities |
|
| N/A |
|
| 117,772 |
|
| — |
|
| 117,772 |
|
Properties, net |
|
| N/A |
|
| 286,696 |
|
| 199,318 |
|
| 87,378 |
|
|
| $ | 4,271,932 |
| $ | 1,711,096 |
| $ | 516,933 |
| $ | 1,194,163 |
|
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS, fair value option |
| $ | 4,459,655 |
| $ | 990,570 | (1) | $ | 206,651 |
| $ | 783,919 |
|
Intangible assets - servicing rights |
|
| N/A |
|
| 89,320 | (2) |
| — |
|
| 89,320 |
|
Lease intangibles, net |
|
| N/A |
|
| 29,676 |
|
| — |
|
| 29,676 |
|
Loans held-for-sale, fair value option |
|
| 63,065 |
|
| 63,279 |
|
| 33,131 |
|
| 30,148 |
|
Loans held-for-investment |
|
| 20,442 |
|
| 20,442 |
|
| — |
|
| 20,442 |
|
Investment in unconsolidated entities |
|
| N/A |
|
| 56,376 |
|
| — |
|
| 56,376 |
|
Properties, net |
|
| N/A |
|
| 277,612 |
|
| 186,901 |
|
| 90,711 |
|
|
| $ | 4,543,162 |
| $ | 1,527,275 |
| $ | 426,683 |
| $ | 1,100,592 |
|
| (1) |
| Includes |
|
|
| (2) | Includes $38.3 million and $41.3 million of non-controlling interests in the consolidated entities which hold certain debt balances as of March 31, 2021 and December 31, 2020, respectively. |
| (3) | Includes $42.9 million and $41.4 million of servicing rights intangibles |
| (4) | Includes $15.9 million and $16.1 million of investment in unconsolidated entities eliminated in consolidation against VIE assets pursuant to ASC 810 as of March 31, 2021 and December 31, 2020, respectively. |
8889
Our Investing and Servicing Segment’s REIS Equity Portfolio, as defineddescribed in Note 36 to the Condensed Consolidated Financial Statements, had the following characteristics based on carrying values of $291.4$195.6 million and $283.5$198.2 million as of September 30, 2017March 31, 2021 and December 31, 2016,2020, respectively:
|
|
|
|
|
| |||||
| | | | | | |||||
Property Type |
| September 30, 2017 |
| December 31, 2016 |
| | March 31, 2021 | | December 31, 2020 | |
Office | | 50.5 | % | 50.6 | % | |||||
Retail |
| 40.6 | % | 45.8 | % |
| 29.9 | % | 29.9 | % |
Office |
| 35.1 | % | 23.9 | % | |||||
Multi-family |
| 12.7 | % | 18.1 | % | |||||
Mixed Use |
| 7.1 | % | 7.5 | % |
| 7.0 | % | 6.9 | % |
Self-storage |
| 4.5 | % | 4.7 | % |
| 6.2 | % | 6.2 | % |
|
| 100.0 | % | 100.0 | % | |||||
Multifamily |
| 4.3 | % | 4.2 | % | |||||
Hotel | | 2.1 | % | 2.2 | % | |||||
|
| 100.0 | % | 100.0 | % | |||||
|
|
|
|
|
| |||||
| | | | | | |||||
Geographic Location |
| September 30, 2017 |
| December 31, 2016 |
| | March 31, 2021 | | December 31, 2020 | |
South West |
| 24.9 | % | 25.1 | % | |||||
North East |
| 25.4 | % | 24.8 | % | |||||
South East |
| 49.6 | % | 51.0 | % |
| 15.2 | % | 15.4 | % |
North East |
| 14.2 | % | 17.3 | % | |||||
South West |
| 12.9 | % | 7.0 | % | |||||
West |
| 14.8 | % | 14.8 | % | |||||
Mid Atlantic |
| 8.8 | % | 9.4 | % |
| 11.4 | % | 11.5 | % |
Midwest |
| 7.6 | % | 8.0 | % |
| 8.3 | % | 8.4 | % |
West |
| 6.9 | % | 7.3 | % | |||||
|
| 100.0 | % | 100.0 | % | |||||
|
| 100.0 | % | 100.0 | % | |||||
90
New Credit Facilities and Amendments
Refer to NotesNote 9 and 10 of our Condensed Consolidated Financial Statements for a detailed discussion of new credit facilities and amendments to existing credit facilities executed since December 31, 2016.2020.
89
Secured Borrowings
Borrowings under Various Secured Financing Arrangements
The following table is a summary of our secured financing facilitiesborrowings as of September 30, 2017March 31, 2021 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Pledged | | | | | | | Approved | | | ||||
| | | | | | Weighted | | Asset | | Maximum | | | | but | | Unallocated | |||||
| | Current | | Extended | | Average | | Carrying | | Facility | | Outstanding | | Undrawn | | Financing | |||||
|
| Maturity |
| Maturity (a) |
| Pricing |
| Value |
| Size |
| Balance |
| Capacity (b) |
| Amount (c) | |||||
Repurchase Agreements: | | | | | | | | | | | | | | | | | | | | | |
Commercial Loans | | May 2021 to Aug 2025 | (d) | May 2023 to Mar 2029 | (d) | (e) | | $ | 8,088,081 | | $ | 9,164,525 | (f) | $ | 5,592,652 | | $ | 144,018 | | $ | 3,427,855 |
Residential Loans | | Jan 2022 to Oct 2023 | | N/A | | LIBOR + 2.09% | | | 428,877 | | | 1,750,000 | | | 328,620 | | | — | | | 1,421,380 |
Infrastructure Loans | | Feb 2022 | | N/A | | LIBOR + 2.00% | | | 295,516 | | | 500,000 | | | 246,136 | | | — | | | 253,864 |
Conduit Loans | | Feb 2022 to Jun 2023 | | Feb 2023 to Jun 2024 | | LIBOR + 2.15% | | | 147,523 | | | 350,000 | | | 111,087 | | | — | | | 238,913 |
CMBS/RMBS | | Dec 2021 to Oct 2030 | (g) | Mar 2022 to Apr 2031 | (g) | (h) | | | 1,112,819 | | | 823,365 | | | 668,993 | (i) | | — | | | 154,372 |
Total Repurchase Agreements | | | | | | | | | 10,072,816 | | | 12,587,890 | | | 6,947,488 | | | 144,018 | | | 5,496,384 |
Other Secured Financing: | | | | | | | | | | | | | | | | | | | | | |
Borrowing Base Facility | | Apr 2022 | | Apr 2024 | | LIBOR + 2.25% | | | 304,076 | | | 650,000 | (j) | | 223,302 | | | — | | | 426,698 |
Commercial Financing Facility | | Mar 2022 | | Mar 2029 | | GBP LIBOR + 1.75% | | | 101,559 | | | 81,847 | | | 81,847 | | | — | | | — |
Residential Financing Facility | | Sep 2022 | | Sep 2025 | | 3.50% | | | 163,545 | | | 250,000 | | | 1,515 | | | 120,129 | | | 128,356 |
Infrastructure Acquisition Facility | | Sep 2021 | | Sep 2022 | | (k) | | | 525,611 | | | 517,498 | | | 414,503 | | | — | | | 102,995 |
Infrastructure Financing Facilities | | Jul 2022 to Oct 2022 | | Oct 2024 to Jul 2027 | | LIBOR + 2.04% | | | 699,684 | | | 1,250,000 | | | 548,956 | | | — | | | 701,044 |
Property Mortgages - Fixed rate | | Nov 2024 to Aug 2052 | (l) | N/A | | 4.03% | | | 1,271,385 | | | 1,155,306 | | | 1,155,306 | | | — | | | — |
Property Mortgages - Variable rate | | Nov 2021 to Jul 2030 | | N/A | | (m) | | | 929,800 | | | 985,453 | | | 960,901 | | | — | | | 24,552 |
Term Loan and Revolver | | (n) | | N/A | | (n) | | | N/A | (n) | | 763,375 | | | 643,375 | | | 120,000 | | | — |
Collateralized Loan Obligation | | Jul 2038 | | N/A | | LIBOR + 1.34% | | | 1,099,639 | | | 936,375 | | | 936,375 | | | — | | | — |
Total Other Secured Financing | | | | | | | | | 5,095,299 | | | 6,589,854 | | | 4,966,080 | | | 240,129 | | | 1,383,645 |
| | | | | | | | $ | 15,168,115 | | $ | 19,177,744 | | $ | 11,913,568 | | $ | 384,147 | | $ | 6,880,029 |
Unamortized net discount | | | | | | | | | | | | | | | (13,149) | | | | | | |
Unamortized deferred financing costs | | | | | | | | | | | | | | | (73,309) | | | | | | |
| | | | | | | | | | | | | | $ | 11,827,110 | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pledged |
|
|
|
|
|
|
| Approved |
|
|
| ||
|
|
|
|
|
|
|
| Asset |
| Maximum |
|
|
|
| but |
| Unallocated | ||||
|
| Current |
| Extended |
|
|
| Carrying |
| Facility |
| Outstanding |
| Undrawn |
| Financing | |||||
|
| Maturity |
| Maturity (a) |
| Pricing |
| Value |
| Size |
| Balance |
| Capacity (b) |
| Amount (c) | |||||
Lender 1 Repo 1 |
| (d) |
| (d) |
| LIBOR + 1.75% to 5.75% |
| $ | 1,534,069 |
| $ | 2,000,000 |
| $ | 1,170,141 |
| $ | — |
| $ | 829,859 |
Lender 2 Repo 1 |
| Oct 2017 |
| Oct 2020 |
| LIBOR + 1.75% to 2.75% |
|
| 350,508 |
|
| 500,000 |
|
| 236,055 |
|
| 25,000 |
|
| 238,945 |
Lender 3 Repo 1 |
| May 2018 |
| May 2019 |
| LIBOR + 2.75% to 3.10% |
|
| 110,086 |
|
| 76,820 |
|
| 76,820 |
|
| — |
|
| — |
Lender 4 Repo 2 |
| Dec 2018 |
| Dec 2020 |
| LIBOR + 2.00% to 3.25% |
|
| 571,746 |
|
| 1,000,000 | (e) |
| 221,544 |
|
| 130,213 |
|
| 648,243 |
Lender 6 Repo 1 |
| Aug 2020 |
| N/A |
| LIBOR + 2.50% to 2.75% |
|
| 724,164 |
|
| 600,000 |
|
| 475,555 |
|
| — |
|
| 124,445 |
Lender 6 Repo 2 |
| Nov 2019 |
| Nov 2020 |
| GBP LIBOR + 2.75% |
|
| 173,516 |
|
| 121,280 |
|
| 121,280 |
|
| — |
|
| — |
Lender 9 Repo 1 |
| Dec 2017 |
| Dec 2018 |
| LIBOR + 1.65% |
|
| 340,620 |
|
| 254,447 |
|
| 254,447 |
|
| — |
|
| — |
Lender 10 Repo 1 |
| Mar 2020 |
| Mar 2022 |
| LIBOR + 2.00% to 2.75% |
|
| 169,733 |
|
| 140,000 |
|
| 136,800 |
|
| — |
|
| 3,200 |
Lender 11 Repo 1 |
| Jun 2019 |
| Jun 2020 |
| LIBOR + 2.75% |
|
| — |
|
| 200,000 |
|
| — |
|
| — |
|
| 200,000 |
Lender 11 Repo 2 |
| Sep 2018 |
| Sep 2022 |
| LIBOR + 2.25% to 2.75% |
|
| — |
|
| 250,000 |
|
| — |
|
| — |
|
| 250,000 |
Lender 7 Secured Financing |
| Jul 2018 |
| Jul 2019 |
| LIBOR + 2.75% | (f) |
| 46,800 |
|
| 650,000 | (g) |
| — |
|
| — |
|
| 650,000 |
Lender 8 Secured Financing |
| Aug 2019 |
| N/A |
| LIBOR + 4.00% |
|
| 30,147 |
|
| 75,000 |
|
| 18,226 |
|
| — |
|
| 56,774 |
Conduit Repo 2 |
| Nov 2017 |
| N/A |
| LIBOR + 2.25% |
|
| 53,751 |
|
| 150,000 |
|
| 40,842 |
|
| — |
|
| 109,158 |
Conduit Repo 3 |
| Feb 2018 |
| N/A |
| LIBOR + 2.10% |
|
| 136,254 |
|
| 150,000 |
|
| 103,678 |
|
| — |
|
| 46,322 |
Conduit Repo 4 |
| Oct 2017 |
| Oct 2020 |
| LIBOR + 2.25% |
|
| — |
|
| 100,000 |
|
| — |
|
| — |
|
| 100,000 |
MBS Repo 1 |
| (h) |
| (h) |
| LIBOR + 1.90% |
|
| 10,000 |
|
| 6,510 |
|
| 6,510 |
|
| — |
|
| — |
MBS Repo 2 |
| Jun 2020 |
| N/A |
| LIBOR/EURIBOR + 2.00% to 2.95% |
|
| 261,066 |
|
| 191,184 |
|
| 191,184 |
|
| — |
|
| — |
MBS Repo 3 |
| (i) |
| (i) |
| LIBOR + 1.32% to 1.95% |
|
| 384,546 |
|
| 254,668 |
|
| 254,668 |
|
| — |
|
| — |
MBS Repo 4 |
| (j) |
| N/A |
| LIBOR + 1.20% to 1.90% |
|
| 179,384 |
|
| 225,000 |
|
| 2,000 |
|
| 98,226 |
|
| 124,774 |
Investing and Servicing Segment Property Mortgages |
| Feb 2018 to Jun 2026 |
| N/A |
| Various |
|
| 245,094 |
|
| 201,238 |
|
| 177,217 |
|
| — |
|
| 24,021 |
Ireland Portfolio Mortgage |
| May 2020 |
| N/A |
| EURIBOR + 1.69% |
|
| 491,298 |
|
| 344,525 |
|
| 344,525 |
|
| — |
|
| — |
Woodstar Portfolio Mortgages |
| Nov 2025 to Oct 2026 |
| N/A |
| 3.72% to 3.97% |
|
| 369,519 |
|
| 276,748 |
|
| 276,748 |
|
| — |
|
| — |
Woodstar Portfolio Government Financing |
| Mar 2026 to Jun 2049 |
| N/A |
| 1.00% to 5.00% |
|
| 308,805 |
|
| 133,967 |
|
| 133,967 |
|
| — |
|
| — |
Medical Office Portfolio Mortgages |
| Dec 2021 to Feb 2022 |
| Dec 2023 to Feb 2024 |
| LIBOR + 2.50% | (k) |
| 741,304 |
|
| 527,124 |
|
| 497,613 |
|
| — |
|
| 29,511 |
Master Lease Portfolio Mortgages |
| Oct 2027 |
| N/A |
| 4.36% to 4.38% |
|
| 471,762 |
|
| 265,900 |
|
| 265,900 |
|
| — |
|
| — |
Term Loan A |
| Dec 2020 |
| Dec 2021 |
| LIBOR + 2.25% | (f) |
| 992,366 |
|
| 300,000 |
|
| 300,000 |
|
| — |
|
| — |
Revolving Secured Financing |
| Dec 2020 |
| Dec 2021 |
| LIBOR + 2.25% | (f) |
| — |
|
| 100,000 |
|
| — |
|
| 100,000 |
|
| — |
FHLB |
| Feb 2021 |
| N/A |
| LIBOR + 0.15% to 0.34% |
|
| 338,956 |
|
| 250,000 |
|
| 250,000 |
|
| — |
|
| — |
|
|
|
|
|
|
|
| $ | 9,035,494 |
| $ | 9,344,411 |
|
| 5,555,720 |
| $ | 353,439 |
| $ | 3,435,252 |
Unamortized net premium |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,579 |
|
|
|
|
|
|
Unamortized deferred financing costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (43,604) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 5,514,695 |
|
|
|
|
|
|
| (a) |
| Subject to certain conditions as defined in the respective facility agreement. |
| (b) |
| Approved but undrawn capacity represents the total draw amount that has been approved by the |
| (c) |
| Unallocated financing amount represents the maximum facility size less the total draw capacity that has been approved by the |
| (d) |
|
|
| (e) | Certain facilities with an outstanding balance of $1.9 billion as of March 31, 2021 are indexed to GBP LIBOR and |
| (f) |
| The aggregate initial maximum facility size |
| (g) | Certain facilities with an outstanding balance of $280.3 million as of March 31, 2021 carry a rolling 11-month or 12-month term which may reset monthly or quarterly with the lender's consent. These facilities carry no maximum facility size. |
| (h) | A facility with an outstanding balance of $212.0 million as of March 31, 2021 has a weighted average fixed annual interest rate of 3.29%. All other facilities are variable rate with a weighted average rate of LIBOR + 1.92%. |
91
| (i) |
|
|
| (j) |
| The initial maximum facility size of |
| (k) |
|
| (l) |
|
| (m) |
|
|
| (n) |
|
|
|
|
90
As of September 30, 2017, Wells Fargo Bank, N.A. is our largest creditor through two repurchase facilities (Lender 1 Repo 1 facility and mortgage-backed securities (“MBS”) Repo 4 facility).
Refer to Note 9 of ourthe Condensed Consolidated Financial Statements for further disclosure regarding the terms of our secured financing arrangements.
Variance between Average and Quarter-End Credit Facility Borrowings Outstanding
The following table compares the average amount outstanding under our secured financing agreements during each quarter and the amount outstanding as of the end of each quarter, together with an explanation of significant variances (amounts in thousands):
| | | | | | | | | | | |
| | | | Weighted-Average | | | | | Explanations | ||
| | Quarter-End | | Balance During | | | | for Significant | |||
Quarter Ended |
| Balance |
| Quarter |
| Variance |
| Variances | |||
December 31, 2020 | | | 11,169,964 | | | 10,945,199 | | | 224,765 | | (a) |
March 31, 2021 | | | 11,913,568 | | | 11,274,970 | | | 638,598 | | (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted-Average |
|
|
|
| Explanations | ||
|
| Quarter-End |
| Balance During |
|
|
| for Significant | |||
Quarter Ended |
| Balance |
| Quarter |
| Variance |
| Variances | |||
December 31, 2016 |
|
| 4,197,218 |
|
| 4,073,485 |
|
| 123,733 |
| (a) |
March 31, 2017 |
|
| 4,456,347 |
|
| 4,154,497 |
|
| 301,850 |
| (b) |
June 30, 2017 |
|
| 4,788,996 |
|
| 4,591,428 |
|
| 197,568 |
| (c) |
September 30, 2017 |
|
| 5,555,720 |
|
| 5,020,575 |
|
| 535,145 |
| (d) |
| (a) |
| Variance primarily due to the following: (i) |
| (b) |
| Variance primarily due to late quarter timing of fundings on commercial loan facilities and the |
|
|
|
|
Borrowings under Unsecured Senior Notes
During the three months ended September 30, 2017March 31, 2021 and 2016,2020, the weighted average effective borrowing rate on our unsecured senior notes was 5.6%5.4% and 5.7%, respectively. During the nine months ended September 30, 2017 and 2016, the weighted average effective borrowing rate on our unsecured senior notes was 5.6% and 5.7%5.0%, respectively. The effective borrowing rate includes the effects of underwriter purchase discount and, during the 2020 period, the adjustment for the conversion option on the convertible notes,Convertible Notes, the initial value of which reduced the balance of the notes.
Refer to Note 10 of our Condensed Consolidated Financial Statements for further disclosure regarding the terms of our unsecured senior notes.
9192
Scheduled Principal Repayments on Investments and Overhang on Financing Facilities
The following scheduled and/or projected principal repayments on our investments were based upon theon amounts outstanding and extended contractual termsmaturities of those investments as of March 31, 2021. The projected and/or required repayments of financing were based on the earlier of (i) the extended contractual maturity of each credit facility or (ii) the extended contractual maturity of each of the financing facilities in effectinvestments that have been pledged as of September 30, 2017collateral under the respective credit facility (amounts in thousands):
| | | | | | | | | | | | | |
|
| Scheduled Principal |
| Scheduled/Projected |
| Projected/Required |
| Scheduled Principal |
| ||||
| | Repayments on Loans | | Principal Repayments | | Repayments of | | Inflows Net of |
| ||||
| | and HTM Securities | | on RMBS and CMBS | | Financing | | Financing Outflows |
| ||||
Second Quarter 2021 |
| $ | 731,009 |
| $ | 10,927 |
| $ | (91,314) | | $ | 650,622 | |
Third Quarter 2021 |
| | 55,560 |
| | 9,598 |
| | (15,264) | | | 49,894 | |
Fourth Quarter 2021 | | | 295,918 | | | 7,085 | | | (954,390) | | | (651,386) | (1) |
First Quarter 2022 | | | 631,041 | | | 5,965 | | | (1,000,898) | | | (363,892) | (2) |
Total | | $ | 1,713,528 | | $ | 33,575 | | $ | (2,061,866) | | $ | (314,762) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Scheduled Principal |
| Scheduled/Projected |
| Projected/Required |
| Scheduled Principal |
| ||||
|
| Repayments on Loans |
| Principal Repayments |
| Repayments of |
| Inflows Net of |
| ||||
|
| and HTM Securities |
| on RMBS and CMBS |
| Financing |
| Financing Outflows |
| ||||
Fourth Quarter 2017 |
| $ | 1,140,742 |
| $ | 41,295 |
| $ | (1,207,607) |
| $ | (25,570) |
|
First Quarter 2018 |
|
| 379,506 |
|
| 26,500 |
|
| (731,374) |
|
| (325,368) |
|
Second Quarter 2018 |
|
| 340,371 |
|
| 48,904 |
|
| (241,849) |
|
| 147,426 |
|
Third Quarter 2018 |
|
| 681,058 |
|
| 35,277 |
|
| (275,477) |
|
| 440,858 |
|
Total |
| $ | 2,541,677 |
| $ | 151,976 |
| $ | (2,456,307) |
| $ | 237,346 |
|
| (1) | Shortfall primarily relates to $700.0 million on the maturity of our Senior Notes due December 2021, which we expect to fund using a combination of available cash on hand, approved but undrawn capacity under our secured financing agreements and/or other potential sources of financing, as discussed below. |
| (2) | Shortfall primarily relates to: (i) $275.6 million of repayments under a Residential Loans repurchase facility that carries a one-year term which we can extend every three months, the current balance of which will be repaid with securitization proceeds; and (ii) $277.5 million of repayments under a securities facility which carries a rolling 12-month term that we have historically extended, and intend to continue to extend with lender’s consent. |
In the normal course of business, the Company is in discussions with its lenders to extend, amend or amendreplace any financing facilities which contain near term expirations.
Issuances of Equity Securities
We may raise funds through capital market transactions by issuing capital stock. There can be no assurance, however, that we will be able to access the capital markets at any particular time or on any particular terms. We have authorized 100,000,000 shares of preferred stock and 500,000,000 shares of common stock. At September 30, 2017,March 31, 2021, we had 100,000,000 shares of preferred stock available for issuance and 239,200,262213,148,440 shares of common stock available for issuance.
Other Potential Sources of Financing
In the future, we may also use other sources of financing to fund the acquisition of our target assets and maturities of our unsecured senior notes, including other secured as well as unsecured forms of borrowing and sale of certain investment securities which no longer meetsenior loan interests and other assets.
Leverage Policies
Our strategies with regards to use of leverage have not changed significantly since December 31, 2020. Refer to our return requirements.
Repurchases of Equity Securities and Convertible Senior Notes
In September 2014, our board of directors authorized and announced the repurchase of up to $250.0 millionForm 10-K for a description of our outstanding common stock over a periodstrategies regarding use of one year. Subsequent amendments to the repurchase program approved by our board of directors in December 2014, June 2015, January 2016 and February 2017 resulted in the program being (i) amended to increase maximum repurchases to $500.0 million, (ii) expanded to allow for the repurchase of our outstanding convertible senior notes under the program and (iii) extended through January 2019. Purchases made pursuant to the program are made in either the open market or in privately negotiated transactions from time to time as permitted by federal securities laws and other legal requirements. The timing, manner, price and amount of any repurchases are discretionary and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors. The program may be suspended or discontinued at any time. During the nine months ended September 30, 2017, we repurchased $230.0 million aggregate principal amount of our 2018 Notes for $250.7 million, however, this repurchase was not considered part of the repurchase program and therefore does not reduce our available capacity for future repurchases under the repurchase program. During the nine months ended September 30, 2017, we did not repurchase any common stock under the repurchase program. As of September 30, 2017, we have $262.2 million of remaining capacity to repurchase common stock and/or convertible senior notes under the repurchase program. leverage.
92
Cash Requirements
Off-Balance Sheet Arrangements
Dividends
We have relationships with unconsolidated entities and financial partnerships, such as entities often referred to as VIEs. Our maximum risk of loss associated with our involvement in VIEs is limited to the carrying value of our investment in the entity and any unfunded capital commitments. Refer to Note 14 of our Condensed Consolidated Financial Statements for further discussion.
Dividends
We intend to continue to make regular quarterly distributions to holders of our common stock. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular
93
corporate rates to the extent that it annually distributes less than 100% of its net taxable income. We generally intend to continue to pay regular quarterly dividendsdistribute substantially all of our taxable income (which does not necessarily equal our GAAP net income) to our stockholders in an amount approximating our net taxable income,each year, if and to the extent authorized by our board of directors. Before we pay any dividend, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating and debt service requirements. If our cash available for distribution is less than our net taxable income, we could be required to sell assets or borrow funds to make cash distributions or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities. Refer to our Form 10-K for a detailed dividend history.
The Company’s board of directors declared the following dividends during the ninethree months ended September 30, 2017:March 31, 2021:
|
|
|
|
|
|
|
|
|
|
Declare Date |
| Record Date |
| Payment Date |
| Amount |
| Frequency | |
8/9/17 |
| 9/29/17 |
| 10/13/17 |
| $ | 0.48 |
| Quarterly |
5/9/17 |
| 6/30/17 |
| 7/14/17 |
| $ | 0.48 |
| Quarterly |
2/23/17 |
| 3/31/17 |
| 4/14/17 |
| $ | 0.48 |
| Quarterly |
| | | | | | | | | |
Declare Date |
| Record Date |
| Payment Date |
| Amount |
| Frequency | |
3/11/21 | | 3/31/21 | | 4/15/21 | | $ | 0.48 | | Quarterly |
On November 8, 2017, our board of directors declared a dividend of $0.48 per share for the fourth quarter of 2017, which is payable on January 15, 2018 to common stockholders of record as of December 29, 2017.
Leverage Policies
Our strategies with regards to use of leverage have not changed significantly since December 31, 2016. Refer to our Form 10-K for a description of our strategies regarding use of leverage.
93
Contractual Obligations and Commitments
ContractualOur material contractual obligations and commitments as of September 30, 2017March 31, 2021 are as follows (amounts in thousands):
| | | | | | | | | | | | | | | | |
|
| | |
| Less than |
| | |
| | |
| More than |
| ||
| | Total | | 1 year | | 1 to 3 years | | 3 to 5 years | | 5 years |
| |||||
Secured financings (a) | | $ | 10,977,193 | | $ | 675,327 | | $ | 1,960,570 | | $ | 5,355,964 | | $ | 2,985,332 | |
Collateralized loan obligations | | | 936,375 | | | — | | | — | | | — | | | 936,375 | |
Unsecured senior notes | |
| 1,750,000 | |
| 700,000 | |
| 550,000 | |
| 500,000 | |
| — | |
Future loan funding commitments: | | | | | | | | | | | | | | | | |
Commercial Lending (b) | |
| 1,291,304 | |
| 928,429 | |
| 336,975 | |
| 25,900 | |
| — | |
Infrastructure Lending (c) | | | 192,515 | | | 163,211 | | | 29,304 | | | — | | | — | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Less than |
|
|
|
|
|
|
| More than |
| ||
|
| Total |
| 1 year |
| 1 to 3 years |
| 3 to 5 years |
| 5 years |
| |||||
Secured financings (a) |
| $ | 5,555,720 |
| $ | 434,166 |
| $ | 1,411,460 |
| $ | 1,312,237 |
| $ | 2,397,857 |
|
Unsecured senior notes |
|
| 2,073,229 |
|
| 781,866 |
|
| 341,363 |
|
| 700,000 |
|
| 250,000 |
|
Secured borrowings on transferred loans (b) |
|
| 75,000 |
|
| — |
|
| 75,000 |
|
| — |
|
| — |
|
Loan funding commitments (c) |
|
| 1,282,952 |
|
| 633,146 |
|
| 628,186 |
|
| 21,620 |
|
| — |
|
Future lease commitments |
|
| 28,895 |
|
| 6,425 |
|
| 11,726 |
|
| 4,236 |
|
| 6,508 |
|
Total |
| $ | 9,015,796 |
| $ | 1,855,603 |
| $ | 2,467,735 |
| $ | 2,038,093 |
| $ | 2,654,365 |
|
| (a) |
| Represents the contractual maturity of the respective credit facility, inclusive of available extension options. If investments that have been pledged as collateral repay earlier than the contractual maturity of the debt, the related portion of the debt would likewise require earlier repayment. Refer to Note 9 to the Condensed Consolidated Financial Statements for the expected maturities by year. |
| (b) |
|
|
| Excludes |
| (c) | Represents contractual commitments of $126.7 million under revolvers and letters of credit and $65.8 million under delayed draw term loans. |
The table above does not include interest payable, amounts due under our management agreement, or amounts due under our derivative agreements or amounts due under guarantees as those contracts do not have fixed and determinable payments.
Our secured financings and collateralized loan obligations consist primarily of matched-term funding for our loans and investment securities and long-term mortgages on our owned properties. Repayments of such facilities are generally made from proceeds from maturities, prepayments or sales of such investments and operating cash flows from owned properties. In the normal course of business, the Company is in discussions with its lenders to extend, amend or replace any financing facilities which contain near term expirations.
Our unsecured senior notes are expected to be repaid from a combination of available cash on hand, approved but undrawn capacity under our secured financing agreements, and/or equity issuances or other potential sources of financing, as discussed above.
Our future funding commitments are expected to be primarily matched-term funded under secured financing agreements with any difference funded from available cash on hand or other potential sources of financing discussed above.
94
Critical Accounting Estimates
Our financial statements are prepared in accordance with GAAP, which requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We believe that all of the decisions and assessments upon which our financial statements are based were reasonable at the time made, based upon information available to us at that time. The following discussion describes the critical accounting estimates that apply to our operations and require complex management judgment. This summary should be read in conjunction with a more complete discussion of our accounting policies included in Note 2 to the Condensed Consolidated Financial Statements.
Credit Losses
Loans and Debt Securities Measured at Amortized Cost
As discussed in Note 2 to the Condensed Consolidated Financial Statements, ASC 326, Financial Instruments – Credit Losses, became effective for the Company on January 1, 2020. ASC 326 mandates the use of a current expected credit loss model (“CECL”) for estimating future credit losses of certain financial instruments measured at amortized cost, instead of the “incurred loss” credit model previously required under GAAP. The CECL model requires the consideration of possible credit losses over the life of an instrument as opposed to only estimating credit losses upon the occurrence of a discrete loss event under the previous “incurred loss” methodology. The CECL model applies to our loans held-for-investment (“HFI”) and our held-to-maturity (“HTM”) debt securities which are carried at amortized cost, including future funding commitments and accrued interest receivable related to those loans and securities.
As we do not have a history of realized credit losses on our HFI loans and HTM securities, we have subscribed to third party database services to provide us with historical industry losses for both commercial real estateand infrastructure loans. Using these losses as a benchmark, we determine expected credit losses for our loans and securities on a collective basis within our commercial real estate and infrastructure portfolios. Such determination also incorporates significant assumptions and estimates regarding, among other things, prepayments, future fundings and economic forecasts. See Note 4 to the Condensed Consolidated Financial Statements for further discussion of our methodologies.
We also evaluate each loan and security measured at amortized cost for credit deterioration at least quarterly. Credit deterioration occurs when it is deemed probable that we will not be able to collect all amounts due according to the contractual terms of the loan or security. If a loan or security is considered to be credit deteriorated, we depart from the industry loss rate approach described above and determine the credit loss allowance as any excess of the amortized cost basis of the loan or security over (i) the present value of expected future cash flows discounted at the contractual effective interest rate or (ii) the fair value of the collateral, if repayment is expected solely from the collateral.
Significant judgment is required when estimating future credit losses; therefore, actual results over time could be materially different. As of March 31, 2021, we held $12.7 billion of loans and HTM securities measured at amortized cost with expected future funding commitments of $1.4 billion. During the three months ended March 31, 2021, we recognized an immaterial credit loss provision and the related credit loss allowance was $81.5 million as of March 31, 2021. During the year ended December 31, 2020, we recognized a credit loss provision of $43.2 million and the related credit loss allowance was $89.2 million as of December 31, 2020.
95
Available-for-Sale Debt Securities
Separate provisions of ASC 326 apply to our available-for-sale (“AFS”) debt securities which are carried at fair value with unrealized gains and losses reported as a component of accumulated other comprehensive income (“AOCI”). We are required to establish an initial credit loss allowance for those securities that are purchased with credit deterioration by grossing up the amortized cost basis of each security and providing an offsetting credit loss allowance for the difference between expected cash flows and contractual cash flows, both on a present value basis.
Subsequently, cumulative adverse changes in expected cash flows on our available-for-sale debt securities are recognized currently as an increase to the credit loss allowance. However, the allowance is limited to the amount by which the AFS debt security’s amortized cost exceeds its fair value. Favorable changes in expected cash flows are first recognized as a decrease to the allowance for credit losses (recognized currently in earnings). Such changes would be recognized as a prospective yield adjustment only when the allowance for credit losses is reduced to zero. A change in expected cash flows that is attributable solely to a change in a variable interest reference rate does not result in a credit loss and is accounted for as a prospective yield adjustment.
Significant judgment is required when estimating expected cash flows used in determining the credit loss allowance for AFS debt securities; therefore, actual results over time could be materially different. As of March 31, 2021, we held $160.3 million of AFS debt securities. We did not recognize any provision for credit losses with respect to our AFS debt securities during the three months ended March 31, 2021 or during the year ended December 31, 2020. There was no related credit loss allowance as of March 31, 2021 and December 31, 2020.
Valuation of Financial Assets and Liabilities Carried at Fair Value
We measure our VIE assets and liabilities, mortgage-backed securities, derivative assets and liabilities, domestic servicing rights intangible asset and any assets or liabilities where we have elected the fair value option at fair value. When actively quoted observable prices are not available, we either use implied pricing from similar assets and liabilities or valuation models based on net present values of estimated future cash flows, adjusted as appropriate for liquidity, credit, market and/or other risk factors. See Note 19 to the Condensed Consolidated Financial Statements for details regarding the various methods and inputs we use in measuring the fair value of our financial assets and liabilities. As of March 31, 2021, we had $63.4 billion and $60.9 billion of financial assets and liabilities, respectively, that are measured at fair value, including $62.4 billion of VIE assets and $60.9 billion of VIE liabilities we consolidate pursuant to ASC 810.
We measure the assets and liabilities of consolidated securitization VIEs at fair value pursuant to our election of the fair value option. The securitization VIEs in which we invest are “static”; that is, no reinvestment is permitted, and there is no active management of the underlying assets. In determining the fair value of the assets and liabilities of the VIE, we maximize the use of observable inputs over unobservable inputs. As a result, the methods and inputs we use in measuring the fair value of the assets and liabilities of our VIEs affect our earnings only to the extent of their impact on our direct investment in the VIEs.
Goodwill Impairment
Our goodwill at March 31, 2021 of $259.8 million represents the excess of consideration transferred over the fair value of net assets acquired in connection with the acquisitions of LNR in April 2013 and the Infrastructure Lending Segment in September 2018 and October 2018. In testing goodwill for impairment, we follow ASC 350, Intangibles—Goodwill and Other, which permits a qualitative assessment of whether it is more likely than not that the fair value of a reporting unit is less than its carrying value including goodwill. If the qualitative assessment determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying value including goodwill, then no impairment is determined to exist for the reporting unit. However, if the qualitative assessment determines that it is more likely than not that the fair value of the reporting unit is less than its carrying value including goodwill, or we choose not to perform the qualitative assessment, then we compare the fair value of that reporting unit with its carrying value, including goodwill, in a quantitative assessment. If the carrying value of a reporting unit exceeds its fair value, goodwill is considered impaired with the impairment loss measured as the excess of the reporting unit’s carrying value (inclusive of goodwill) over its fair value.
96
Based on our qualitative assessment during the fourth quarter of 2020, we believe that the Investing and Servicing Segment reporting unit to which the LNR acquisition goodwill was attributed is not currently at risk of failing a quantitative assessment. This qualitative assessment required judgment to be applied in evaluating the effects of multiple factors, including actual and projected financial performance of the reporting unit, macroeconomic conditions, industry and market conditions, and relevant entity specific events in determining whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount, including goodwill.
Based on our quantitative assessment during the fourth quarter of 2020, we determined that the fair value of the Infrastructure Lending Segment reporting unit to which goodwill is attributed exceeded its carrying value including goodwill. This quantitative assessment required judgment to be applied in determining the fair value of our equity in the Infrastructure Lending Segment, which included estimates of future cash flows, terminal equity multiple and market discount rate.
Recent Accounting Developments
Refer to Note 2 to the section of our Form 10-K entitled “Management’s Discussion and Analysis ofCondensed Consolidated Financial Condition and Results of Operations—Critical Accounting Estimates”Statements for a full discussion of our criticalrecent accounting estimates. Our critical accounting estimates have not materially changed since December 31, 2016.developments and the expected impact to the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We seek to manage our risks related to the credit quality of our assets, interest rates, liquidity, prepayment speeds and market value while, at the same time, seeking to provide an opportunity to stockholders to realize attractive risk-adjusted returns through ownership of our capital stock. While we do not seek to avoid risk completely, we believe the risk can be quantified from historical experience and seek to actively manage that risk, to earn sufficient compensation to justify taking those risks and to maintain capital levels consistent with the risks we undertake. Our strategies for managing risk and our exposure to such risks, as described in Item 7A of our Form 10-K, have not changed materially since December 31, 2016. Refer to our Form 10-K, Item 7A for further discussion.2020 except as described below.
Credit Risk
Our loans and investments are subject to credit risk. The performance and value of our loans and investments depend upon the owners’ ability to operate the properties that serve as our collateral so that they produce cash flows adequate to pay interest and principal due to us. To monitor this risk, our Manager’s asset management team reviews our investment portfolios and is in regular contact with our borrowers, monitoring performance of the collateral and enforcing our rights as necessary.
94
We seek to further manage credit risk associated with our Investing and Servicing Segment loans held-for-sale through the purchase of credit index instruments. The following table presents our credit index instruments as of September 30, 2017March 31, 2021 and December 31, 20162020 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
| Face Value of |
| Aggregate Notional Value of |
| Number of |
| ||
|
| Loans Held-for-Sale |
| Credit Index Instruments |
| Credit Index Instruments |
| ||
September 30, 2017 |
| $ | 192,705 |
| $ | 59,000 |
| 10 |
|
December 31, 2016 |
| $ | 63,065 |
| $ | 14,000 |
| 4 |
|
| | | | | | | | |
|
| Face Value of |
| Aggregate Notional Value of |
| Number of | ||
| | Loans Held-for-Sale | | Credit Index Instruments | | Credit Index Instruments | ||
March 31, 2021 | | $ | 172,119 | | $ | 49,000 |
| 3 |
December 31, 2020 | | $ | 90,789 | | $ | 69,000 |
| 4 |
Refer to Note 5 of our Condensed Consolidated Financial Statements for a discussion of weighted average ratings of our investment securities.
Capital Market Risk
We are exposed to risks related to the equity capital markets, and our related ability to raise capital through the issuance of our common stock or other equity instruments. We are also exposed to risks related to the debt capital markets, and our related ability to finance our business through borrowings under repurchase obligations or other debt instruments. As a REIT, we are required to distribute a significant portion of our taxable income annually, which constrains our ability to accumulate operating cash flow and therefore requires us to utilize debt or equity capital to finance our business. We seek to mitigate these risks by monitoring the debt and equity capital markets to inform our decisions on the amount, timing, and terms of capital we raise.
Interest Rate Risk
Interest rates are highly sensitive to many factors, including fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond our control. We are subject to interest rate risk in connection with our investments and the related financing obligations. In general, we seek to match the interest rate characteristics of our investments with the interest rate characteristics of any related financing obligations such as repurchase agreements, bank credit facilities, term loans, revolving facilities and securitizations. In instances where the interest rate characteristics of an investment and the related financing obligation are not matched, we mitigate such interest rate risk through the utilization of interest rate derivatives of the same duration. The following
97
table presents financial instruments where we have utilized interest rate derivatives to hedge interest rate risk and the related interest rate derivatives as of September 30, 2017March 31, 2021 and December 31, 20162020 (dollars in thousands):
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| |||||||||
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|
| Aggregate Notional |
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| |||||||||||
|
| Face Value of |
| Value of Interest |
| Number of Interest |
| |||||||||||
|
| Hedged Instruments |
| Rate Derivatives |
| Rate Derivatives |
| |||||||||||
Instrument hedged as of September 30, 2017 |
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| | | | | | | | | | |||||||||
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| |
| Aggregate Notional |
| |
| |||||||||||
| | Face Value of | | Value of Interest | | Number of Interest |
| |||||||||||
| | Hedged Instruments | | Rate Derivatives | | Rate Derivatives |
| |||||||||||
Instrument hedged as of March 31, 2021 | | | | | | | | | | |||||||||
Loans held-for-sale |
| $ | 192,705 |
| $ | 163,490 |
| 24 |
| | $ | 607,144 | | $ | 977,600 |
| 39 | |
RMBS, available-for-sale |
|
| 379,432 |
|
| 69,000 |
| 2 |
| |
| 245,472 | |
| 85,000 |
| 2 | |
CMBS, fair value option | | | 115,867 | | | 71,000 | | 2 | | |||||||||
HTM debt securities | | | 16,015 | | | 16,015 | | 1 | | |||||||||
Secured financing agreements |
|
| 1,051,497 |
|
| 1,038,859 |
| 18 |
| |
| 992,927 | | | 1,627,352 |
| 24 | |
|
| $ | 1,623,634 |
| $ | 1,271,349 |
| 44 |
| |||||||||
Instrument hedged as of December 31, 2016 |
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|
|
| |||||||||
Loans held-for-investment |
| $ | 8,000 |
| $ | 8,000 |
| 1 |
| |||||||||
Unsecured senior notes | |
| 500,000 | | | 470,000 |
| 1 | | |||||||||
| | $ | 2,477,425 | | $ | 3,246,967 |
| 69 | | |||||||||
Instrument hedged as of December 31, 2020 | | | | | | | | | | |||||||||
Loans held-for-sale |
|
| 63,065 |
|
| 50,900 |
| 18 |
| | $ | 911,596 | | $ | 557,000 |
| 25 | |
RMBS, available-for-sale |
|
| 399,883 |
|
| 69,000 |
| 2 |
| |
| 252,738 | |
| 421,000 |
| 4 | |
CMBS, fair value option | | | 125,985 | | | 71,000 | | 2 | | |||||||||
HTM debt securities | | | 16,554 | | | 16,554 | | 1 | | |||||||||
Secured financing agreements |
|
| 1,011,067 |
|
| 1,003,064 |
| 18 |
| |
| 1,008,909 | | | 1,633,357 |
| 24 | |
|
| $ | 1,482,015 |
| $ | 1,130,964 |
| 39 |
| |||||||||
Unsecured senior notes | |
| 500,000 | | | 470,000 |
| 1 | | |||||||||
| | $ | 2,815,782 | | $ | 3,168,911 |
| 57 | | |||||||||
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The following table summarizes the estimated annual change in net investment income for our LIBOR-basedvariable rate investments and our LIBOR-basedvariable rate debt assuming increases or decreases in LIBOR or other applicable index rates and adjusted for the effects of our interest rate hedging activities (amounts in thousands, except per share data):
| | | | | | | | | | | | | | | |
|
| Variable rate |
| | |
| | |
| | |
| | | |
| | investments and | | 1.0% | | 0.5% | | 0.5% | | 1.0% | |||||
Income (Expense) Subject to Interest Rate Sensitivity | | indebtedness (1) | | Increase | | Increase | | Decrease | | Decrease | |||||
Investment income from variable rate investments | | $ | 11,974,667 | | $ | 57,992 | | $ | 24,502 | | $ | (4,237) | | $ | (4,364) |
Interest expense from variable rate debt, net of interest rate derivatives | |
| (8,276,358) | |
| (86,390) | |
| (41,759) | |
| 6,817 | |
| 5,184 |
Net investment income from variable rate instruments | | $ | 3,698,309 | | $ | (28,398) | | $ | (17,257) | | $ | 2,580 | | $ | 820 |
Impact per diluted shares outstanding | | | | | $ | (0.10) | �� | $ | (0.06) | | $ | 0.01 | | $ | 0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Variable-rate |
|
|
|
|
|
|
|
|
|
|
|
| |
|
| investments and |
| 3.0% |
| 2.0% |
| 1.0% |
| 1.0% | |||||
Income (Expense) Subject to Interest Rate Sensitivity |
| indebtedness (1) |
| Increase |
| Increase |
| Increase |
| Decrease (2) | |||||
Investment income from variable-rate investments |
| $ | 6,341,167 |
| $ | 184,401 |
| $ | 122,181 |
| $ | 59,962 |
| $ | (41,292) |
Interest expense from variable-rate debt, net of interest rate derivatives |
|
| (3,515,498) |
|
| (112,112) |
|
| (76,615) |
|
| (39,534) |
|
| 39,504 |
Net investment income from variable rate instruments |
| $ | 2,825,669 |
| $ | 72,289 |
| $ | 45,566 |
| $ | 20,428 |
| $ | (1,788) |
Impact per diluted shares outstanding |
|
|
|
| $ | 0.27 |
| $ | 0.17 |
| $ | 0.08 |
| $ | (0.01) |
| (1)Includes the notional value of interest rate derivatives. |
|
|
Foreign Currency Risk
We intend to hedge our currency exposures in a prudent manner. However, our currency hedging strategies may not eliminate all of our currency risk due to, among other things, uncertainties in the timing and/or amount of payments received on the related investments, and/or unequal, inaccurate, or unavailable hedges to perfectly offset changes in future exchange rates. Additionally, we may be required under certain circumstances to collateralize our currency hedges for the benefit of the hedge counterparty, which could adversely affect our liquidity.
Consistent with our strategy of hedging foreign currency exposure on certain investments, we typically enter into a series of forwards to fix the U.S. dollar amount of foreign currency denominated cash flows (interest income, rental income and principal payments) we expect to receive from our foreign currency denominated investments. Accordingly, the notional values and expiration dates of our foreign currency hedges approximate the amounts and timing of future payments we expect to receive on the related investments.
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The following table represents our current currency hedge exposure as it relates to our investments denominated in foreign currencies, along with the aggregate notional amount of the hedges in place (amounts in thousands except for number of contracts,contracts) using the September 30, 2017March 31, 2021 GBP closing rate of 1.3396 and Euro (“EUR”)1.3779, EUR closing rate of 1.1816):1.1732 and AUD closing rate of 0.7596.
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|
Carrying Value of Net Investment |
| Local Currency |
| Number of |
| Aggregate Notional Value of Hedges Applied |
| Expiration Range of Contracts | ||
$ | 220,657 |
| GBP |
| 34 |
| $ | 227,339 |
| January 2018 – February 2018 |
| 37,324 |
| GBP |
| 73 |
|
| 40,750 |
| October 2017 – June 2019 |
| 30,133 |
| EUR |
| 5 |
|
| 35,901 |
| December 2017 – December 2018 |
| 1,115 |
| EUR |
| 1 |
|
| 1,992 |
| April 2018 |
| 20,145 |
| EUR |
| 5 |
|
| 23,922 |
| November 2017 – November 2018 |
| 52,237 |
| GBP |
| 13 |
|
| 70,591 |
| November 2017 – July 2020 |
| 695 |
| GBP |
| 1 |
|
| 1,206 |
| March 2018 |
| 146,773 |
| EUR |
| 33 | (1) |
| 273,048 |
| December 2017 – June 2020 |
| 13,530 |
| GBP |
| 8 |
|
| 13,667 |
| October 2017 – April 2019 |
$ | 522,609 |
|
|
| 173 |
| $ | 688,416 |
|
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|
|
| | | | | | | | | | |
Carrying Value of Net Investment | | Local Currency | | Number of | | Aggregate Notional Value of Hedges Applied | | Expiration Range of Contracts | ||
$ | 19,711 | | GBP | | 7 | | $ | 27,815 | | April 2021 – December 2023 |
| 92,555 | | GBP | | 21 | | | 90,654 | | April 2021 – August 2022 |
| 28,028 | | EUR | | 60 | | | 23,894 | | April 2021 – April 2022 |
| 33,842 | | GBP | | 1 | | | 39,181 | | July 2023 |
| 63,112 | | EUR | | 38 | | | 66,784 | | May 2021 – March 2023 |
| 52,105 | | GBP | | 21 | | | 66,054 | | May 2021 – May 2024 |
| 29,268 | | GBP | | 12 | | | 39,214 | | April 2021 – January 2024 |
| 3,742 | | GBP | | 5 | | | 7,991 | | April 2021 – October 2021 |
| 28,394 | | EUR | | 36 | | | 29,689 | | May 2021 – August 2022 |
| 117,487 | | GBP | | 39 | | | 163,832 | | April 2021 – January 2024 |
| 60,286 | | GBP | | 19 | | | 84,765 | | April 2021 – August 2021 |
| 5,249 | | EUR | | 6 | | | 6,836 | | May 2021 – July 2022 |
| 4,126 | | GBP | | 12 | | | 23,430 | | May 2021 – July 2022 |
| 119,154 | | GBP | | 10 | | | 165,834 | | August 2021 – November 2023 |
| 3,981 | | AUD | | 1 | | | 4,301 | | August 2021 |
| 24,876 | | EUR | | 20 | | | 30,283 | | May 2021 – June 2023 |
| 34,983 | | EUR | | 10 | | | 60,459 | | May 2021 – November 2022 |
| 40,898 | | EUR | | 22 | | | 49,445 | | June 2021 – November 2025 |
| 11,633 | | EUR | | 5 | | | 14,745 | | May 2021 – November 2023 |
| 62,708 | | GBP | | 12 | | | 68,007 | | May 2021 – November 2021 |
| 131,211 | | AUD | | 18 | | | 138,925 | | November 2021 – June 2022 |
| 17,218 | | EUR | | 13 | | | 19,097 | | June 2022 – April 2023 |
| 10,655 | | GBP | | 5 | | | 13,413 | | June 2021 – April 2022 |
$ | 995,222 | | | | 393 | | $ | 1,234,648 | | |
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Disclosure Controls and Procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate, to allow timely decisions regarding required disclosures.
As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control Over Financial Reporting. No change in internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the quarter ended September 30, 2017March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
9799
PART II—OTHER INFORMATIONINFORMATION
Currently, no material legal proceedings are pending or, to our knowledge, threatened or contemplated against us, that could have a material adverse effect on our business, financial position or results of operations.
Except as set forth below, thereThere have been no material changes to the risk factors previously disclosed in theour Form 10-K.
Risks Related to Sources of Financing
Amendments to the Federal Home Loan Bank (“FHLB”) membership regulations could adversely affect us.
In July 2017, we acquired a captive insurance company that is a member of the FHLB of Chicago (the “FHLBC”). Our subsidiary’s membership in the FHLBC provides us with access to attractive long-term collateralized financing for residential mortgage loans. As of September 30, 2017, our subsidiary had $250.0 million of borrowings from the FHLBC to finance its portfolio of residential mortgage loans. In January 2016, the Federal Housing Finance Agency (“FHFA”) amended its regulations governing FHLB membership, providing that captive insurance companies will no longer be eligible for membership in the FHLB system. Our subsidiary was admitted as a member of the FHLBC prior to September 2014 and, as a result, is eligible under the amended regulations to remain a member through February 2021. There can be no assurance that, following the termination of our subsidiary’s membership in the FHLBC in February 2021, we will be able to replace the borrowing capacity provided by the FHLBC on terms as favorable as those received from such institution or at all, which could adversely affect us.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
There were no unregistered sales of securities during the three months ended September 30, 2017.March 31, 2021.
Issuer Purchases of Equity Securities
There were no purchases of common stock during the three months ended September 30, 2017.March 31, 2021.
None.
Not applicable.
None.
98100
(a) | Index to Exhibits |
(a)Index to Exhibits
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Exhibit No. | | Description |
| |
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31.1 | | Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 |
| | |
31.2 | | Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 |
| | |
32.1 | | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | |
32.2 | | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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101.INS | | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH | | Inline XBRL Taxonomy Extension Schema Document |
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101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
99101
SIGNATURES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | |
| STARWOOD PROPERTY TRUST, INC. | |
| | |
Date: | By: | /s/ BARRY S. STERNLICHT |
| | Barry S. Sternlicht |
| | |
Date: | By: | /s/ RINA PANIRY |
| | Rina Paniry |
100102