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BRSP BrightSpire Capital

Filed: 6 May 21, 4:46pm
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
For the quarterly period ended March 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-38377
COLONY CREDIT REAL ESTATE, INC.
(Exact Name of Registrant as Specified in Its Charter)
Maryland38-4046290
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
515 S. Flower Street, 44th Floor
Los Angeles, CA 90071
(Address of Principal Executive Offices, Including Zip Code)
(310) 282-8820
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A common stock, par value $0.01 per shareCLNCNew 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes    No   
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 filerAccelerated filerNon-accelerated filerSmaller 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  
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:
As of May 5, 2021, Colony Credit Real Estate, Inc. had 129,762,484 shares of Class A common stock, par value $0.01 per share, outstanding


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COLONY CREDIT REAL ESTATE, INC.
FORM 10-Q
TABLE OF CONTENTS










Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and contingencies, many of which are beyond our control, and may cause actual results to differ significantly from those expressed in any forward-looking statement.
Currently, one of the most significant factors that could cause actual outcomes to differ materially from our forward-looking statements is the adverse effect of the current pandemic of the novel coronavirus, or COVID-19, on the financial condition, results of operations, cash flows and performance of the Company, its borrowers and tenants, the real estate market and the global economy and financial markets. The extent to which the COVID-19 pandemic impacts us, our borrowers and our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, the availability of effective vaccines, and the direct and indirect economic effects of the pandemic and containment measures, among others.
Among others, the following uncertainties and other factors could cause actual results to differ from those set forth in the forward-looking statements:
operating costs and business disruption may be greater than expected;
the novel coronavirus pandemic, measures intended to prevent its spread and government actions to mitigate its economic impact have had and may continue to have a material adverse effect on our business, results of operations and financial condition;
we depend on borrowers and tenants for a substantial portion of our revenue and, accordingly, our revenue and our ability to make distributions to stockholders will be dependent upon the success and economic viability of such borrowers and tenants;
deterioration in the performance of the properties securing our investments (including depletion of interest and other reserves or payment-in-kind concessions in lieu of current interest payment obligations) that may cause deterioration in the performance of our investments and, potentially, principal losses to us (including, but not limited to, the Los Angeles mixed-use development loan, other hospitality loans and Dublin development financings);
the fair value of our investments may be subject to uncertainties or decrease;
our ability to realize the anticipated benefits from the internalization of management following the termination of our relationship with our former external manager;
the ability to realize substantial efficiencies as well as anticipated strategic and financial benefits, including, but not limited to expected returns on equity and/or yields on investments;
adverse impacts on our corporate revolver, including covenant compliance and borrowing base capacity;
adverse impacts on our liquidity, including margin calls on master repurchase facilities, debt service or lease payment defaults or deferrals, demands for protective advances and capital expenditures;
our real estate investments are relatively illiquid and we may not be able to vary our portfolio in response to changes in economic and other conditions, which may result in losses to us;
the timing of and ability to deploy available capital;
we have not established a minimum distribution payment level, and we cannot assure you of our ability to pay distributions in the future;
the timing of and ability to complete repurchases of our stock;
we are subject to risks associated with obtaining mortgage financing on our real estate, which could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to stockholders;
the impact of legislative, regulatory and competitive changes and the actions of governmental authorities, and in particular those affecting the commercial real estate finance and mortgage industry or our business.
The foregoing list of factors is not exhaustive. We urge you to carefully review the disclosures we make concerning risks in the sections entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, the section entitled “Risk Factors” in our Form 10-Q for the quarter ended March 31, 2021 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein.
We caution investors not to unduly rely on any forward-looking statements. The forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. The Company is under no duty to update any of these forward-looking
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statements after the date of this Quarterly Report on Form 10-Q, nor to conform prior statements to actual results or revised expectations, and the Company does not intend to do so.

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PART I
Item 1 . Financial Statements
COLONY CREDIT REAL ESTATE, INC.
CONSOLIDATED BALANCE SHEETS
(in Thousands, Except Share and Per Share Data)
March 31, 2021 (Unaudited)December 31, 2020
Assets
Cash and cash equivalents$430,312 $474,817 
Restricted cash58,031 65,213 
Loans and preferred equity held for investment2,616,308 2,220,688 
Allowance for loan losses(40,791)(37,191)
Loans and preferred equity held for investment, net2,575,517 2,183,497 
Real estate securities, available for sale, at fair value4,137 10,389 
Real estate, net844,470 839,257 
Investments in unconsolidated ventures ($6,522 and $6,883 at fair value, respectively)355,907 373,364 
Receivables, net39,195 37,375 
Deferred leasing costs and intangible assets, net73,544 75,700 
Assets held for sale323,356 
Other assets58,096 60,900 
Mortgage loans held in securitization trusts, at fair value1,742,141 1,768,069 
Total assets$6,181,350 $6,211,937 
Liabilities
Securitization bonds payable, net$835,688 $835,153 
Mortgage and other notes payable, net773,709 1,022,757 
Credit facilities787,923 535,224 
Due to related party (Note 10)112,015 10,060 
Accrued and other liabilities100,984 96,578 
Intangible liabilities, net7,404 7,657 
Liabilities related to assets held for sale323 
Escrow deposits payable40,664 36,973 
Dividends payable13,295 
Mortgage obligations issued by securitization trusts, at fair value1,673,969 1,708,534 
Total liabilities4,345,651 4,253,259 
Commitments and contingencies (Note 16)00
Equity
Stockholders’ equity
Preferred stock, $0.01 par value, 50,000,000 shares authorized, 0 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively
Common stock, $0.01 par value per share
Class A, 950,000,000 shares authorized, 129,849,135 and 128,564,930 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively1,298 1,286 
Additional paid-in capital2,847,485 2,844,023 
Accumulated deficit(1,339,526)(1,234,224)
Accumulated other comprehensive income46,846 54,588 
Total stockholders’ equity1,556,103 1,665,673 
Noncontrolling interests in investment entities242,813 253,225 
Noncontrolling interests in the Operating Partnership36,783 39,780 
Total equity1,835,699 1,958,678 
Total liabilities and equity$6,181,350 $6,211,937 

The accompanying notes are an integral part of these consolidated financial statements.
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COLONY CREDIT REAL ESTATE, INC.
CONSOLIDATED BALANCE SHEETS
(in Thousands)

The following table presents assets and liabilities of securitization trusts and certain real estate properties that have noncontrolling interests as variable interest entities for which the Company is determined to be the primary beneficiary.
March 31, 2021 (Unaudited)December 31, 2020
Assets
Cash and cash equivalents$5,799 $19,248 
Restricted cash14,780 15,397 
Loans and preferred equity held for investment, net981,859 919,681 
Real estate, net410,546 413,057 
Investments in unconsolidated ventures235,312 252,384 
Receivables, net26,546 25,127 
Deferred leasing costs and intangible assets, net50,179 52,240 
Other assets21,846 21,984 
Mortgage loans held in securitization trusts, at fair value1,742,141 1,768,069 
Total assets$3,489,008 $3,487,187 
Liabilities
Securitization bonds payable, net$835,688 $835,153 
Mortgage and other notes payable, net378,766 399,337 
Accrued and other liabilities118,984 98,576 
Intangible liabilities, net7,404 7,657 
Escrow deposits payable3,743 3,591 
Mortgage obligations issued by securitization trusts, at fair value1,673,969 1,708,534 
Total liabilities$3,018,554 $3,052,848 

The accompanying notes are an integral part of these consolidated financial statements.
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COLONY CREDIT REAL ESTATE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended March 31,
20212020
Net interest income
Interest income$34,374 $46,104 
Interest expense(12,495)(20,744)
Interest income on mortgage loans held in securitization trusts19,689 20,555 
Interest expense on mortgage obligations issued by securitization trusts(17,336)(18,059)
Net interest income24,232 27,856 
Property and other income
Property operating income25,722 52,513 
Other income45 9,409 
Total property and other income25,767 61,922 
Expenses
Management fee expense7,258 7,946 
Property operating expense8,111 22,531 
Transaction, investment and servicing expense2,288 3,134 
Interest expense on real estate8,633 13,078 
Depreciation and amortization9,539 17,976 
Provision for loan losses3,225 69,932 
Impairment of operating real estate4,126 
Administrative expense (including $4,262 and $342 of equity-based compensation expense, respectively)12,595 7,038 
Restructuring charges109,171 
Total expenses160,820 145,761 
Other income (loss)
Unrealized gain (loss) on mortgage loans and obligations held in securitization trusts, net8,638 (19,452)
Other gain (loss), net8,367 (20,162)
Loss before equity in earnings of unconsolidated ventures and income taxes(93,816)(95,597)
Equity in earnings (loss) of unconsolidated ventures(2,478)17,167 
Income tax benefit (expense)1,801 (1,711)
Net loss(94,493)(80,141)
Net (income) loss attributable to noncontrolling interests:
Investment entities226 (523)
Operating Partnership1,953 1,892 
Net loss attributable to Colony Credit Real Estate, Inc. common stockholders$(92,314)$(78,772)
Net loss per common share - basic and diluted (Note 18)
$(0.71)$(0.62)
Weighted average shares of common stock outstanding - basic and diluted (Note 18)
129,781 128,487 
The accompanying notes are an integral part of these consolidated financial statements.


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COLONY CREDIT REAL ESTATE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in Thousands)
(Unaudited)
Three Months Ended March 31,
20212020
Net loss$(94,493)$(80,141)
Other comprehensive income (loss)
Unrealized loss on real estate securities, available for sale(200)(75,029)
Change in fair value of net investment hedges21,764 
Foreign currency translation loss(8,533)(19,436)
Total other comprehensive loss(8,733)(72,701)
Comprehensive loss(103,226)(152,842)
Comprehensive (income) loss attributable to noncontrolling interests:
Investment entities1,002 (523)
Operating Partnership2,168 3,594 
Comprehensive loss attributable to common stockholders$(100,056)$(149,771)

























The accompanying notes are an integral part of these consolidated financial statements.
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COLONY CREDIT REAL ESTATE, INC.
CONSOLIDATED STATEMENTS OF EQUITY (Continued)
(in Thousands)
(Unaudited)
Common StockAdditional
Paid-in
Capital
Retained
Earnings
(Accumulated
Deficit)
Accumulated
Other
Comprehensive
Income
Total
Stockholders’
Equity
Noncontrolling Interests in Investment EntitiesNoncontrolling Interests in the Operating PartnershipTotal
Equity
Class AClass B-3
SharesAmountSharesAmount
Balance as of December 31, 2019128,539 $1,285 $$2,909,181 $(819,738)$28,294 $2,119,022 $31,631 $50,697 $2,201,350 
Distributions— — — — — — — — (11,013)— (11,013)
Issuance and amortization of equity-based compensation— — 342 — — 342 — — 342 
Other comprehensive income— — — — — — (70,999)(70,999)— (1,702)(72,701)
Dividends and distributions declared ($0.30 per share)— — — — — (38,541)— (38,541)— (922)(39,463)
Shares canceled for tax withholding on vested stock awards(173)(1)— — (1,686)— — (1,687)— — (1,687)
Reallocation of equity— — — — (41)— — (41)— 41 — 
Effect of CECL Adoption (see Note 2)
— — — — — (22,644)— (22,644)— (542)(23,186)
Net income (loss)— — — — — (78,772)— (78,772)523 (1,892)(80,141)
Balance as of March 31, 2020128,366 $1,284 $$2,907,796 $(959,695)$(42,705)$1,906,680 $21,141 $45,680 $1,973,501 
Balance as of December 31, 2020128,565 $1,286 $$2,844,023 $(1,234,224)$54,588 $1,665,673 $253,225 $39,780 $1,958,678 
Contributions— — — — — — — — 1,384 — 1,384 
Distributions— — — — — — — — (10,794)— (10,794)
Issuance and amortization of equity-based compensation1,420 14 — — 4,248 — — 4,262 — — 4,262 
Other comprehensive income— — — — — — (7,742)(7,742)(776)(215)(8,733)
Dividends and distributions declared ($0.10 per share)— — — — — (12,988)— (12,988)— (308)(13,296)
Shares canceled for tax withholding on vested stock awards(136)(2)— — (1,307)— — (1,309)— — (1,309)
Reallocation of equity— — — — 521 — — 521 — (521)— 
Net income (loss)— — — — — (92,314)— (92,314)(226)(1,953)(94,493)
Balance as of March 31, 2021129,849 $1,298 $$2,847,485 $(1,339,526)$46,846 $1,556,103 $242,813 $36,783 $1,835,699 

The accompanying notes are an integral part of these consolidated financial statements.
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COLONY CREDIT REAL ESTATE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in Thousands)
(Unaudited)
Three Months Ended March 31,
20212020
Cash flows from operating activities:
Net loss$(94,493)$(80,141)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Equity in (earnings) losses of unconsolidated ventures2,478 (17,167)
Depreciation and amortization9,539 17,976 
Straight-line rental income(1,082)(1,426)
Amortization of above/below market lease values, net182 (404)
Amortization of premium/accretion of discount and fees on investments and borrowings, net(1,490)(3,992)
Amortization of deferred financing costs3,016 3,582 
Amortization of right-of-use lease assets and operating lease liabilities26 24 
Paid-in-kind interest added to loan principal, net of interest received(2,547)(3,171)
Distributions of cumulative earnings from unconsolidated ventures9,326 
Unrealized (gain) loss on mortgage loans and obligations held in securitization trusts, net(8,638)19,452 
Realized loss on securities from write-down to fair value990 
Realized gain on sale of real estate securities, available for sale(131)
Realized gain on sale of real estate(11,911)
Provision for loan losses3,225 69,932 
Impairment of operating real estate4,126 
Amortization of equity-based compensation4,262 342 
Mortgage notes above/below market value amortization27 (255)
Deferred income tax (benefit) expense(768)(788)
Other (gain) loss, net1,369 20,452 
Changes in assets and liabilities:
Receivables, net(3,992)6,511 
Deferred costs and other assets1,439 16,680 
Due to related party101,956 (250)
Other liabilities(1,797)(3,605)
Net cash provided by operating activities1,660 57,204 
Cash flows from investing activities:
Acquisition, origination and funding of loans and preferred equity held for investment, net(432,918)(37,452)
Repayment on loans and preferred equity held for investment41,337 160,069 
Repayment on loans held for sale450 
Proceeds from sale of real estate332,003 160,830 
Acquisition of and additions to real estate, related intangibles and leasing commissions(1,760)(11,325)
Investments in unconsolidated ventures(1,795)(16,748)
Proceeds from sale of investments in unconsolidated ventures1,795 
Distributions in excess of cumulative earnings from unconsolidated ventures8,784 16,528 
Repayment of real estate securities, available for sale, from sales5,079 
Repayment of real estate securities, available for sale, from cost recovery118 
Repayment of principal in mortgage loans held in securitization trusts7,128 6,577 
Net receipts on settlement of derivative instruments19,637 
Change in escrow deposits3,690 (24,998)
Net cash provided (used in) by investing activities(38,334)275,363 
Cash flows from financing activities:
Distributions paid on common stock(38,558)
Distributions paid on common stock to noncontrolling interests(922)
Shares canceled for tax withholding on vested stock awards(1,309)(1,688)
Borrowings from mortgage notes37 2,280 
Repayment of mortgage notes(251,804)(76,585)
Borrowings from credit facilities329,336 249,991 
Repayment of credit facilities(76,765)(88,804)
Repayment of mortgage obligations issued by securitization trusts(7,128)(6,577)
Payment of deferred financing costs(1,490)(1,600)
Contributions from noncontrolling interests1,384 
Distributions to noncontrolling interests(10,794)(11,013)
Net cash provided by (used in) financing activities(18,533)26,524 
Effect of exchange rates on cash, cash equivalents and restricted cash3,520 (1,409)
Net increase (decrease) in cash, cash equivalents and restricted cash(51,687)357,682 
Cash, cash equivalents and restricted cash - beginning of period540,030 195,684 
Cash, cash equivalents and restricted cash - end of period$488,343 $553,366 




The accompanying notes are an integral part of these consolidated financial statements.

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COLONY CREDIT REAL ESTATE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in Thousands)
(Unaudited)
Three Months Ended March 31,
20212020
Reconciliation of cash, cash equivalents, and restricted cash to consolidated balance sheets
Beginning of the period
Cash and cash equivalents$474,817 $69,619 
Restricted cash65,213 126,065 
Total cash, cash equivalents and restricted cash, beginning of period$540,030 $195,684 
End of the period
Cash and cash equivalents$430,312 $393,845 
Restricted cash58,031 159,521 
Total cash, cash equivalents and restricted cash, end of period$488,343 $553,366 
Three Months Ended March 31,
20212020
Supplemental disclosure of non-cash investing and financing activities:
Accrual of distribution payable$13,295 $(17)
Right-of-use lease assets and operating lease liabilities(730)



































The accompanying notes are an integral part of these consolidated financial statements.
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COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Business and Organization
Colony Credit Real Estate, Inc. (together with its consolidated subsidiaries, the “Company”) is a commercial real estate (“CRE”) credit real estate investment trust (“REIT”) focused on originating, acquiring, financing and managing a diversified portfolio consisting primarily of CRE debt investments and net leased properties predominantly in the United States. CRE debt investments primarily consist of first mortgage loans, which the Company expects to be its primary investment strategy. Additionally, the Company may selectively originate mezzanine loans and make preferred equity investments, which may include profit participations. The mezzanine loans and preferred investments equity may be in conjunction with the Company’s origination of corresponding first mortgages on the same properties. Net leased properties consist of CRE properties with long-term leases to tenants on a net-lease basis, where such tenants generally will be responsible for property operating expenses such as insurance, utilities, maintenance capital expenditures and real estate taxes. The Company will continue to target net leased equity investments on a selective basis. The Company also currently has investments in CRE debt securities primarily consisting of commercial mortgage-backed securities (“CMBS”) (including “B-pieces” of a CMBS securitization pool) or CRE collateralized loan obligations (“CLOs”) (including the junior tranches thereof, collateralized by pools of CRE debt investments). Any future investments in more highly rated investment grade CRE debt securities would be selective and opportunistic.
The Company was organized in the state of Maryland on August 23, 2017 and maintains key offices in New York, New York and Los Angeles, California. The Company elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, beginning with the taxable year ended December 31, 2018. The Company conducts all activities and holds substantially all assets and liabilities through the Company’s operating subsidiary, Credit RE Operating Company, LLC (the “OP”). At March 31, 2021, the Company owned 97.7% of the OP, as its sole managing member. The remaining 2.3% is owned as noncontrolling interests.
The Internalization
On April 30, 2021, the Company completed the internalization of the Company’s management and operating functions and terminated its relationship with CLNC Manager, LLC (the “Manager”), a subsidiary of Colony Capital, Inc. (“Colony Capital”), in accordance with that termination agreement dated April 4, 2021 between the Company, the OP, the Manager and Colony Capital Investment Advisors, LLC (the “Termination Agreement,” and the transactions contemplated thereunder, the “Internalization”). Pursuant to the Termination Agreement, the Company paid the Manager a one-time termination fee of $102.3 million. Therefore, the Company will no longer pay management or incentive fees to the Manager for any post-closing period and the Company will assume general and administrative expenses directly. The Company anticipates a savings in operating costs as a result of the Internalization. Further, in connection with the Internalization, certain affiliates of each of the Company and the Manager entered into a transition services agreement to facilitate an orderly internalization transition of the Company’s management of its operations and, in addition, the Company will provide affiliates of the Manager with certain limited transition services.
The Company’s executive team remains unchanged, including Michael J. Mazzei, Chief Executive Officer and President; Andrew E. Witt, Chief Operating Officer; Frank V. Saracino, Chief Financial Officer, Chief Accounting Officer and Treasurer; and David A. Palamé, General Counsel and Secretary. As a result of the stockholders’ vote at the Company’s 2021 Annual Meeting of Stockholders (the “Annual Meeting”), Colony Capital no longer has affiliated representatives on the Company’s board of directors. The Company’s board of directors is comprised of five members, including four incumbent independent directors, led by Catherine D. Rice, the Company’s Independent Chairperson, Vernon Schwartz, John Westerfield and Winston W. Wilson, and Michael J. Mazzei, the Company’s Chief Executive Officer and President. Additionally, certain employees that have contributed substantially to the Company’s investment, underwriting, portfolio and asset management, loan servicing, financial reporting, treasury, legal, tax, credit, risk and compliance responsibilities are seamlessly moving forward with the Company.
Segment Realignment
During the first quarter of 2021, the Company realigned the business and reportable segment information to reflect how the Chief Operating Decision Makers (“CODM”) regularly review and manage the business. Refer to Note 17, “Segment Reporting” for further detail.
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COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Impact of COVID-19
Throughout 2020, continuing into the first quarter of 2021, countries around the world continue to face healthcare and economic challenges arising from the coronavirus disease 2019, or COVID-19. Efforts to address the pandemic, such as social distancing, closures or reduced capacity of retail and service outlets, hotels, factories and public venues, often mandated by governments, are having a significant impact on the global economy and financial markets across major industries, including many sectors of real estate. In particular, the Company’s loans and preferred equity held for investment and real estate investments in the hospitality and retail sectors have experienced or anticipate a myriad of challenges, including, but not limited to: significant declines in operating cash flows of the Company’s investments which in turn affect their ability to meet debt service and covenant requirements on investment-level debt (non-recourse to the Company); flexible lease payment terms sought by tenants; increased property operating costs such as labor and supplies as a result of COVID-19; potential payment defaults on the Company's loans and preferred equity held for investment; and a distressed market affecting real estate values in general. The COVID-19 crisis may also lead to heightened risk of litigation at the investment and corporate level, with an ensuing increase in litigation and related costs.
The volatility in equity and debt markets, and the economic fallout from COVID-19 continue to affect the valuation of the Company’s financial assets, carried at fair value. The Company’s consideration and assessment of impairment is discussed further in Note 3, “Loans and Preferred Equity Held for Investment, net,” Note 5, “Real Estate Securities, Available for Sale,” Note 6, “Real Estate, net and Real Estate Held for Sale” and Note 14, “Fair Value.”
A prolonged economic downturn as a result of efforts to contain COVID-19 may continue to negatively affect the Company’s financial condition and results of operations. While the extent and duration of the broad effects of COVID-19 on the global economy and the Company remain unclear, the Company believes it has materially addressed overall recoverability in value across its assets based upon external factors known to date and assumptions using the Company’s best estimate at this time. The Company will continue to monitor the progress of the COVID-19 crisis and reassess its effects on the Company’s results of operations and recoverability in value across its assets as conditions change.
2. Summary of Significant Accounting Policies
The significant accounting policies of the Company are described below. The accounting policies of the Company’s unconsolidated ventures are substantially similar to those of the Company.
Basis of Presentation
The accompanying unaudited interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by generally accepted accounting principles in the United States of America (“GAAP”) for complete financial statements. These statements reflect all normal and recurring adjustments which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim periods presented. However, the results of operations for the interim period presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2021, or any other future period. These interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in, or presented as exhibits to, the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
The accompanying consolidated financial statements include the accounts of the Company and its controlled subsidiaries. All significant intercompany accounts and transactions have been eliminated. The portions of equity, net income and other comprehensive income of consolidated subsidiaries that are not attributable to the parent are presented separately as amounts attributable to noncontrolling interests in the consolidated financial statements.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates and assumptions.
Restructuring Charges
On April 4, 2021, the Company entered into the Termination Agreement with the Manager whereby its management agreement terminated on April 30, 2021. The termination of the management agreement will be a material change in the management structure of the Company, and is accounted for under ASC 420, Exit or disposal cost obligations. The one-time payment made
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(Unaudited)
to the Manager under the Termination Agreement, and other associated costs, are recorded within restructuring charges with a corresponding liability within due to related party. See Note 19, “Restructuring Charges” and Note 20, “Subsequent Events” for additional discussion of the Company’s internalization.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its controlled subsidiaries. The portions of the equity, net income and other comprehensive income of consolidated subsidiaries that are not attributable to the parent are presented separately as amounts attributable to noncontrolling interests in the consolidated financial statements.
The Company consolidates entities in which it has a controlling financial interest by first considering if an entity meets the definition of a variable interest entity (“VIE”) for which the Company is deemed to be the primary beneficiary, or if the Company has the power to control an entity through a majority of voting interest or through other arrangements.
Variable Interest Entities
Variable Interest Entities—A VIE is an entity that either (i) lacks sufficient equity to finance its activities without additional subordinated financial support from other parties; (ii) whose equity holders lack the characteristics of a controlling financial interest; or (iii) is established with non-substantive voting rights. A VIE is consolidated by its primary beneficiary, which is defined as the party who has a controlling financial interest in the VIE through (a) power to direct the activities of the VIE that most significantly affect the VIE’s economic performance, and (b) obligation to absorb losses or right to receive benefits of the VIE that could be significant to the VIE. The Company also considers interests held by its related parties, including de facto agents. The Company assesses whether it is a member of a related party group that collectively meets the power and benefits criteria and, if so, whether the Company is most closely associated with the VIE. In performing the related party analysis, the Company considers both qualitative and quantitative factors, including, but not limited to: the amount and characteristics of its investment relative to the related party; the Company’s and the related party’s ability to control or significantly influence key decisions of the VIE including consideration of involvement by de facto agents; the obligation or likelihood for the Company or the related party to fund operating losses of the VIE; and the similarity and significance of the VIE’s business activities to those of the Company and the related party. The determination of whether an entity is a VIE, and whether the Company is the primary beneficiary, may involve significant judgment, including the determination of which activities most significantly affect the entities’ performance, and estimates about the current and future fair values and performance of assets held by the VIE.
Voting Interest Entities—Unlike VIEs, voting interest entities have sufficient equity to finance their activities and equity investors exhibit the characteristics of a controlling financial interest through their voting rights. The Company consolidates such entities when it has the power to control these entities through ownership of a majority of the entities’ voting interests or through other arrangements.
At each reporting period, the Company reassesses whether changes in facts and circumstances cause a change in the status of an entity as a VIE or voting interest entity, and/or a change in the Company’s consolidation assessment.
Changes in consolidation status are applied prospectively. An entity may be consolidated as a result of this reassessment, in which case, the assets, liabilities and noncontrolling interest in the entity are recorded at fair value upon initial consolidation. Any existing equity interest held by the Company in the entity prior to the Company obtaining control will be remeasured at fair value, which may result in a gain or loss recognized upon initial consolidation. However, if the consolidation represents an asset acquisition of a voting interest entity, the Company’s existing interest in the acquired assets, if any, is not remeasured to fair value but continues to be carried at historical cost. The Company may also deconsolidate a subsidiary as a result of this reassessment, which may result in a gain or loss recognized upon deconsolidation depending on the carrying values of deconsolidated assets and liabilities compared to the fair value of any interests retained.
As of March 31, 2021, the Company has identified certain consolidated and unconsolidated VIEs. Assets of each of the VIEs, other than the OP, may only be used to settle obligations of the respective VIE. Creditors of each of the VIEs have no recourse to the general credit of the Company.
Consolidated VIEs
The Company’s operating subsidiary, the OP, is a limited liability company that has governing provisions that are the functional equivalent of a limited partnership. The Company holds the majority of membership interest in the OP, is the managing member of the OP and exercises full responsibility, discretion and control over the day-to-day management of the OP. The noncontrolling interests in the OP do not have substantive liquidation rights, substantive kick-out rights without cause, or substantive participating rights that could be exercised by a simple majority of noncontrolling interest members (including by
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(Unaudited)
such a member unilaterally). The absence of such rights, which represent voting rights in a limited partnership equivalent structure, would render the OP to be a VIE. The Company, as managing member, has the power to direct the core activities of the OP that most significantly affect the OP’s performance, and through its majority interest in the OP, has both the right to receive benefits from and the obligation to absorb losses of the OP. Accordingly, the Company is the primary beneficiary of the OP and consolidates the OP. As the Company conducts its business and holds its assets and liabilities through the OP, the total assets and liabilities of the OP represent substantially all of the total consolidated assets and liabilities of the Company.
Other consolidated VIEs include the Investing VIEs (as defined and discussed below) and certain operating real estate properties that have noncontrolling interests. At March 31, 2021, the noncontrolling interests in the operating real estate properties represent third party joint venture partners with ownership ranging from 5.0% to 11.0%. These noncontrolling interests do not have substantive kick-out nor participating rights.
Investing VIEs
The Company’s investments in securitization financing entities (“Investing VIEs”) include subordinate first-loss tranches of securitization trusts, which represent interests in such VIEs. Investing VIEs are structured as pass through entities that receive principal and interest payments from the underlying debt collateral assets and distribute those payments to the securitization trust’s certificate holders, including the most subordinate tranches of the securitization trust. Generally, a securitization trust designates the most junior subordinate tranche outstanding as the controlling class, which entitles the holder of the controlling class to unilaterally appoint and remove the special servicer for the trust, and as such may qualify as the primary beneficiary of the trust.
If it is determined that the Company is the primary beneficiary of an Investing VIE as a result of acquiring the subordinate first-loss tranches of the securitization trust, the Company would consolidate the assets, liabilities, income and expenses of the entire Investing VIE. The assets held by an Investing VIE are restricted and can only be used to fulfill its own obligations. The obligations of an Investing VIE have neither any recourse to the general credit of the Company as the consolidating parent entity of an Investing VIE, nor to any of the Company’s other consolidated entities.
As of March 31, 2021, the Company held subordinate tranches of securitization trusts in 2 Investing VIEs for which the Company has determined it is the primary beneficiary because it has the power to direct the activities that most significantly impact the economic performance of the securitization trusts. The Company’s subordinate tranches of the securitization trusts, which represent the retained interest and related interest income, are eliminated in consolidation. As a result, all of the assets, liabilities (obligations to the certificate holders of the securitization trusts, less the Company’s retained interest from the subordinate tranches of the securitization trusts), income and expenses of the Investing VIEs are presented in the consolidated financial statements of the Company although the Company legally owns the subordinate tranches of the securitization trusts only. Regardless of the presentation, the Company’s consolidated financial statements of operations ultimately reflect the net income attributable to its retained interest in the subordinate tranches of the securitization trusts. Subsequent to March 31, 2021, the Company sold its retained investments in the subordinate tranches of one securitization trust for $28.7 million in total proceeds. The Company will realize a gain of approximately $8.8 million in connection with the sale during the second quarter of 2021 and deconsolidate the securitization trust with gross assets and liabilities of approximately $0.8 billion and $0.8 billion, respectively. Refer to Note 5, “Real Estate Securities, Available for Sale” and Note 20, “Subsequent Events” for further discussion.
The Company elected the fair value option for the initial recognition of the assets and liabilities of its consolidated Investing VIEs. Interest income and interest expense associated with the Investing VIEs are presented separately on the consolidated statements of operations, and the assets and liabilities of the Investing VIEs are separately presented as “Mortgage loans held in securitization trusts, at fair value” and “Mortgage obligations issued by securitization trusts, at fair value,” respectively, on the consolidated balance sheets. Refer to Note 14, “Fair Value” for further discussion.
The Company has adopted guidance issued by the Financial Accounting Standards Board (“FASB”), allowing the Company to measure both the financial assets and liabilities of a qualifying collateralized financing entity (“CFE”), such as its Investing VIEs, using the fair value of either the CFE’s financial assets or financial liabilities, whichever is more observable. A CFE is a VIE that holds financial assets, issues beneficial interests in those assets and has no more than nominal equity, and the beneficial interests have contractual recourse only to the related assets of the CFE. As the liabilities of the Company’s Investing VIEs are marketable securities with observable trade data, their fair value is more observable and is referenced to determine fair value of the assets of its Investing VIEs. Refer to Note 14, “Fair Value” for further discussion.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Unconsolidated VIEs
As of March 31, 2021, the Company identified unconsolidated VIEs related to its securities investments, indirect interests in real estate through real estate private equity funds (“PE Investments”) and CRE debt investments. Based on management’s analysis, the Company determined that it is not the primary beneficiary of the above VIEs. Accordingly, the VIEs are not consolidated in the Company’s financial statements as of March 31, 2021.
Assets of each of the VIEs may only be used to settle obligations of the respective VIE. Creditors of each of the VIEs have no recourse to the general credit of the Company.
The following table presents the Company’s classification, carrying value and maximum exposure of unconsolidated VIEs as of March 31, 2021 (dollars in thousands):
Carrying ValueMaximum Exposure to Loss
Real estate securities, available for sale$4,137 $4,137 
Investments in unconsolidated ventures293,366 303,352 
Loans and preferred equity held for investment, net18,842 18,842 
Total assets$316,345 $326,331 
The Company did not provide financial support to the unconsolidated VIEs during the three months ended March 31, 2021. As of March 31, 2021, there were no explicit arrangements or implicit variable interests that could require the Company to provide financial support to the unconsolidated VIEs. The maximum exposure to loss of real estate securities, available for sale was determined as the amortized cost as of March 31, 2021. See Note 5, “Real Estate Securities, Available for Sale” for further discussion on fair value of the real estate securities. The maximum exposure to loss of investments in unconsolidated ventures and loans and preferred equity held for investment, net was determined as the carrying value plus any future funding commitments. Refer to Note 3, “Loans and Preferred Equity Held for Investment, net” and Note 16, “Commitments and Contingencies” for further discussion.
Noncontrolling Interests
Noncontrolling Interests in Investment Entities—This represents interests in consolidated investment entities held by third party joint venture partners and prior to the closing of our formation transactions (the “Combination”) on January 31, 2018, such interests held by private funds managed by Colony Capital. Allocation of net income or loss is generally based upon relative ownership interests held by equity owners in each investment entity, or based upon contractual arrangements that may provide for disproportionate allocation of economic returns among equity interests, including using a hypothetical liquidation at book value (“HLBV”) basis, where applicable and substantive. HLBV uses a balance sheet approach, which measures each party’s capital account at the end of a period assuming that the subsidiary was liquidated or sold at book value. Each party’s share of the subsidiary’s earnings or loss is calculated by measuring the change in the party’s capital account from the beginning of the period in question to the end of period, adjusting for effects of distributions and new investments.
Noncontrolling Interests in the Operating Partnership—This represents membership interests in the OP held by an affiliate of Colony Capital. Noncontrolling interests in the OP are allocated a share of net income or loss in the OP based on their weighted average ownership interest in the OP during the period. Noncontrolling interests in the OP have the right to require the OP to redeem part or all of the membership units in the OP for cash based on the market value of an equivalent number of shares of Class A common stock at the time of redemption, or at the Company’s election as managing member of the OP, through the issuance of shares of Class A common stock on a 1-for-one basis. At the end of each reporting period, noncontrolling interests in the OP is adjusted to reflect their ownership percentage in the OP at the end of the period, through a reallocation between controlling and noncontrolling interests in the OP, as applicable.
Comprehensive Income (Loss)
The Company reports consolidated comprehensive income (loss) in separate statements following the consolidated statements of operations. Comprehensive income (loss) is defined as the change in equity resulting from net income (loss) and other comprehensive income (“OCI”). The components of OCI include unrealized gain (loss) on CRE debt securities available for sale for which the fair value option was not elected, gain (loss) on derivative instruments used in the Company’s risk management activities used for economic hedging purposes (“designated hedges”), and gain (loss) on foreign currency translation.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Fair Value Measurement
Fair value is based on an exit price, defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Where appropriate, the Company makes adjustments to estimated fair values to appropriately reflect counterparty credit risk as well as the Company’s own credit-worthiness.
The estimated fair value of financial assets and financial liabilities are categorized into a three-tier hierarchy, prioritized based on the level of transparency in inputs used in the valuation techniques, as follows:
Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in non-active markets, or valuation techniques utilizing inputs that are derived principally from or corroborated by observable data directly or indirectly for substantially the full term of the financial instrument.
Level 3—At least one assumption or input is unobservable and it is significant to the fair value measurement, requiring significant management judgment or estimate.
Where the inputs used to measure the fair value of a financial instrument fall into different levels of the fair value hierarchy, the financial instrument is categorized within the hierarchy based on the lowest level of input that is significant to its fair value measurement.
Fair Value Option
The fair value option provides an option to elect fair value as an alternative measurement for selected financial instruments. Gains and losses on items for which the fair value option has been elected are reported in earnings. The fair value option may be elected only upon the occurrence of certain specified events, including when the Company enters into an eligible firm commitment, at initial recognition of the financial instrument, as well as upon a business combination or consolidation of a subsidiary. The election is irrevocable unless a new election event occurs.
The Company has elected the fair value option for PE Investments. The Company has also elected the fair value option to account for the eligible financial assets and liabilities of its consolidated Investing VIEs in order to mitigate potential accounting mismatches between the carrying value of the instruments and the related assets and liabilities to be consolidated. The Company has adopted the measurement alternative allowing the Company to measure both the financial assets and financial liabilities of a qualifying CFE it consolidates using the fair value of either the CFE’s financial assets or financial liabilities, whichever is more observable.
Business Combinations
Definition of a Business—The Company evaluates each purchase transaction to determine whether the acquired assets meet the definition of a business. If substantially all of the fair value of gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, then the set of transferred assets and activities is not a business. If not, for an acquisition to be considered a business, it would have to include an input and a substantive process that together significantly contribute to the ability to create outputs (i.e., there is a continuation of revenue before and after the transaction). A substantive process is not ancillary or minor, cannot be replaced without significant costs, effort or delay or is otherwise considered unique or scarce. To qualify as a business without outputs, the acquired assets would require an organized workforce with the necessary skills, knowledge and experience that performs a substantive process.
Asset Acquisitions—For acquisitions that are not deemed to be businesses, the assets acquired are recognized based on their cost to the Company as the acquirer and no gain or loss is recognized. The cost of assets acquired in a group is allocated to individual assets within the group based on their relative fair values and does not give rise to goodwill. Transaction costs related to the acquisition of assets are included in the cost basis of the assets acquired.
Business Combinations—The Company accounts for acquisitions that qualify as business combinations by applying the acquisition method. Transaction costs related to the acquisition of a business are expensed as incurred and excluded from the fair value of consideration transferred. The identifiable assets acquired, liabilities assumed and noncontrolling interests in an acquired entity are recognized and measured at their estimated fair values. The excess of the fair value of consideration transferred over the fair values of identifiable assets acquired, liabilities assumed and noncontrolling interests in an acquired entity, net of fair value of any previously held interest in the acquired entity, is recorded as goodwill. Such valuations require management to make significant estimates and assumptions.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Cash and Cash Equivalents
Short-term, highly liquid investments with original maturities of three months or less are considered to be cash equivalents. The Company did 0t have any cash equivalents at March 31, 2021 or December 31, 2020. The Company’s cash is held with major financial institutions and may at times exceed federally insured limits.
Restricted Cash
Restricted cash consists primarily of borrower escrow deposits, tenant escrow deposits and real estate capital expenditure reserves.
Loans and Preferred Equity Held for Investment
The Company originates and purchases loans and preferred equity held for investment. The accounting framework for loans and preferred equity held for investment depends on the Company’s strategy whether to hold or sell the loan, whether the loan was credit-impaired at the time of acquisition, or if the lending arrangement is an acquisition, development and construction loan.
Loans and Preferred Equity Held for Investment
Loans and preferred equity that the Company has the intent and ability to hold for the foreseeable future are classified as held for investment. Originated loans and preferred equity are recorded at amortized cost, or outstanding unpaid principal balance plus exit fees less net deferred loan fees. Net deferred loan fees include unamortized origination and other fees charged to the borrower less direct incremental loan origination costs incurred by the Company. Purchased loans and preferred equity are recorded at amortized cost, or unpaid principal balance plus purchase premium or less unamortized discount. Costs to purchase loans and preferred equity are expensed as incurred.
Interest Income—Interest income is recognized based upon contractual interest rate and unpaid principal balance of the loans and preferred equity investments. Net deferred loan fees on originated loans and preferred equity investments are deferred and amortized as adjustments to interest income over the expected life of the loans and preferred equity investments using the effective yield method. Premium or discount on purchased loans and preferred equity investments are amortized as adjustments to interest income over the expected life of the loans and preferred equity investments using the effective yield method. When a loan or preferred equity investment is prepaid, prepayment fees and any excess of proceeds over the carrying amount of the loan or preferred equity investment is recognized as additional interest income.
The Company has debt investments in its portfolio that contain a payment-in-kind (“PIK”) provision. Contractual PIK interest, which represents contractually deferred interest added to the loan balance that is due at the end of the loan term, is generally recorded on an accrual basis to the extent such amounts are expected to be collected. The Company will generally cease accruing PIK interest if there is insufficient value to support the accrual or management does not expect the borrower to be able to pay all principal and interest due.
Nonaccrual—Accrual of interest income is suspended on nonaccrual loans and preferred equity investments. Loans and preferred equity investments that are past due 90 days or more as to principal or interest, or where reasonable doubt exists as to timely collection, are generally considered nonperforming and placed on nonaccrual status. Interest receivable is reversed against interest income when loans and preferred equity investments are placed on nonaccrual status. Interest collected is recognized on a cash basis by crediting income when received; or if ultimate collectability of loan and preferred equity principal is uncertain, interest collected is recognized using a cost recovery method by applying interest collected as a reduction to loan and preferred equity carrying value. Loans and preferred equity investments may be restored to accrual status when all principal and interest are current and full repayment of the remaining contractual principal and interest are reasonably assured.
Loans Held for Sale
Loans that the Company intends to sell or liquidate in the foreseeable future are classified as held for sale. Loans held for sale are carried at the lower of amortized cost or fair value less disposal cost, with valuation changes recognized as impairment loss. Loans held for sale are not subject to allowance for loan losses. Net deferred loan origination fees and loan purchase premiums or discounts are deferred and capitalized as part of the carrying value of the held for sale loan until the loan is sold, therefore included in the periodic valuation adjustments based on lower of cost or fair value less disposal cost.
At March 31, 2021, the Company had 0 loans classified as held for sale.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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Acquisition, Development and Construction (“ADC”) Arrangements
The Company provides loans to third party developers for the acquisition, development and construction of real estate. Under an ADC arrangement, the Company participates in the expected residual profits of the project through the sale, refinancing or other use of the property. The Company evaluates the characteristics of each ADC arrangement, including its risks and rewards, to determine whether they are more similar to those associated with a loan or an investment in real estate. ADC arrangements with characteristics implying loan classification are presented as loans held for investment and result in the recognition of interest income. ADC arrangements with characteristics implying real estate joint ventures are presented as investments in unconsolidated joint ventures and are accounted for using the equity method. The classification of each ADC arrangement as either loan receivable or real estate joint venture involves significant judgment and relies on various factors, including market conditions, amount and timing of expected residual profits, credit enhancements in the form of guaranties, estimated fair value of the collateral, and significance of borrower equity in the project, among others. The classification of ADC arrangements is performed at inception, and periodically reassessed when significant changes occur in the circumstances or conditions described above.
Operating Real Estate
Real Estate Acquisitions—Real estate acquired in acquisitions that are deemed to be business combinations is recorded at the fair values of the acquired components at the time of acquisition, allocated among land, buildings, improvements, equipment and lease-related tangible and identifiable intangible assets and liabilities, including forgone leasing costs, in-place lease values and above- or below-market lease values. Real estate acquired in acquisitions that are deemed to be asset acquisitions is recorded at the total value of consideration transferred, including transaction costs, and allocated to the acquired components based upon relative fair value. The estimated fair value of acquired land is derived from recent comparable sales of land and listings within the same local region based on available market data. The estimated fair value of acquired buildings and building improvements is derived from comparable sales, discounted cash flow analysis using market-based assumptions, or replacement cost, as appropriate. The fair value of site and tenant improvements is estimated based upon current market replacement costs and other relevant market rate information.
Real Estate Held for Investment
Real estate held for investment is carried at cost less accumulated depreciation.
Costs Capitalized or Expensed—Expenditures for ordinary repairs and maintenance are expensed as incurred, while expenditures for significant renovations that improve or extend the useful life of the asset are capitalized and depreciated over their estimated useful lives.
Depreciation—Real estate held for investment, other than land, is depreciated on a straight-line basis over the estimated useful lives of the assets, as follows:
Real Estate AssetsTerm
Building (fee interest)7 to 48 years
Building leasehold interestsLesser of remaining term of the lease or remaining life of the building
Building improvementsLesser of the useful life or remaining life of the building
Land improvements1 to 15 years
Tenant improvementsLesser of the useful life or remaining term of the lease
Furniture, fixtures and equipment2 to 8 years
Impairment—The Company evaluates its real estate held for investment for impairment periodically or whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The Company evaluates real estate for impairment generally on an individual property basis. If an impairment indicator exists, the Company evaluates the undiscounted future net cash flows that are expected to be generated by the property, including any estimated proceeds from the eventual disposition of the property. If multiple outcomes are under consideration, the Company may apply a probability-weighted approach to the impairment analysis. Based upon the analysis, if the carrying value of a property exceeds its undiscounted future net cash flows, an impairment loss is recognized for the excess of the carrying value of the property over the estimated fair value of the property. In evaluating and/or measuring impairment, the Company considers, among other things, current and estimated future cash flows associated with each property, market information for each sub-market, including, where applicable, competition levels, foreclosure levels, leasing trends, occupancy trends, lease or room rates, and the market prices of similar properties recently sold or currently being offered for sale, and other quantitative and qualitative
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
factors. Another key consideration in this assessment is the Company’s assumptions about the highest and best use of its real estate investments and its intent and ability to hold them for a reasonable period that would allow for the recovery of their carrying values. If such assumptions change and the Company shortens its expected hold period, this may result in the recognition of impairment losses. See Note 6, “Real Estate, net and Real Estate Held for Sale” and Note 14, “Fair Value” for further detail.
Real Estate Held for Sale
Real estate is classified as held for sale in the period when (i) management approves a plan to sell the asset, (ii) the asset is available for immediate sale in its present condition, subject only to usual and customary terms, (iii) a program is initiated to locate a buyer and actively market the asset for sale at a reasonable price, and (iv) completion of the sale is probable within one year. Real estate held for sale is stated at the lower of its carrying amount or estimated fair value less disposal cost, with any write-down to fair value less disposal cost recorded as an impairment loss. For any increase in fair value less disposal cost subsequent to classification as held for sale, the impairment loss may be reversed, but only up to the amount of cumulative loss previously recognized. Depreciation is not recorded on assets classified as held for sale. At the time a sale is consummated, the excess, if any, of sale price less selling costs over carrying value of the real estate is recognized as a gain.
If circumstances arise that were previously considered unlikely and, as a result, the Company decides not to sell the real estate asset previously classified as held for sale, the real estate asset is reclassified as held for investment. Upon reclassification, the real estate asset is measured at the lower of (i) its carrying amount prior to classification as held for sale, adjusted for depreciation expense that would have been recognized had the real estate been continuously classified as held for investment, and (ii) its estimated fair value at the time the Company decides not to sell.
At March 31, 2021, there were no properties held for sale. See Note 6, “Real Estate, net and Real Estate Held for Sale” and Note 17, “Segment Reporting” for further detail.
Foreclosed Properties
The Company receives foreclosed properties in full or partial settlement of loans held for investment by taking legal title or physical possession of the properties. Foreclosed properties are generally recognized at the time the real estate is received at foreclosure sale or upon execution of a deed in lieu of foreclosure. Foreclosed properties are initially measured at fair value. If the fair value of the property is lower than the carrying value of the loan, the difference is recognized as provision for loan loss and the cumulative loss allowance on the loan is charged off. The Company periodically evaluates foreclosed properties for subsequent decrease in fair value, which is recorded as an additional impairment loss. Fair value of foreclosed properties is generally based on third party appraisals, broker price opinions, comparable sales or a combination thereof.
Real Estate Securities
The Company classifies its CRE securities investments as available for sale on the acquisition date, which are carried at fair value. Unrealized gains (losses) are recorded as a component of accumulated OCI in the consolidated statements of equity. However, the Company has elected the fair value option for the assets and liabilities of its consolidated Investing VIEs, and as a result, any unrealized gains (losses) on the consolidated Investing VIEs are recorded in unrealized gain (loss) on mortgage loans and obligations held in securitization trusts, net in the consolidated statements of operations. As of March 31, 2021, the Company held subordinate tranches of 2 securitization trusts, which represent the Company’s retained interest in the securitization trusts, which the Company consolidates under U.S. GAAP. Refer to Note 5, “Real Estate Securities, Available for Sale” for further discussion.
Impairment
CRE securities for which the fair value option is elected are not evaluated for impairment as any change in fair value is recorded in the consolidated statements of operations. Realized losses on such securities are reclassified to realized loss on mortgage loans and obligations held in securitization trust, net as losses occur.
CRE securities for which the fair value option is not elected are evaluated for impairment quarterly. Impairment of a security is considered when the fair value is below the amortized cost basis, which is then further analyzed when: (i) the holder has the intent to sell the impaired security; (ii) it is more likely than not the holder will be required to sell the security; or (iii) the holder does not expect to recover the entire amortized cost of the security. When a CRE security has been deemed impaired due to (i) or (ii) or (iii), the security is written down to its fair value and an impairment is recognized in the consolidated statements of operations. In all other situations, the unrealized loss is bifurcated into: (a) the amount related to expected credit losses; and (b) the amount related to other factors in excess of expected credit losses. The portion of impairment related to expected credit
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(Unaudited)
losses is recognized as an allowance for credit losses. The remaining impairment related to other factors is recognized as a component of accumulated OCI in the consolidated statements of equity. CRE securities which are not high-credit quality are considered to have an impairment if the security has an unrealized loss and there has been an adverse change in expected cash flow. The amount of impairment is then bifurcated as discussed above.
During the three months ended March 31, 2021, the Company recorded an impairment loss of $1.0 million related to its CRE securities. The impairment loss is included in other gain, net in the Company’s consolidated statements of operations. Refer to Note 5, “Real Estate Securities, Available for Sale” for further discussion.
Investments in Unconsolidated Ventures
A noncontrolling, unconsolidated ownership interest in an entity may be accounted for using one of (i) equity method where applicable; (ii) fair value option if elected; (iii) fair value through earnings if fair value is readily determinable, including election of net asset value (“NAV”) practical expedient where applicable; or (iv) for equity investments without readily determinable fair values, the measurement alternative to measure at cost adjusted for any impairment and observable price changes, as applicable.
Fair value changes of equity method investments under the fair value option are recorded in earnings from investments in unconsolidated ventures. Fair value changes of other equity investments, including adjustments for observable price changes under the measurement alternative, are recorded in other gain (loss).
Equity Method Investments
The Company accounts for investments under the equity method of accounting if it has the ability to exercise significant influence over the operating and financial policies of an entity, but does not have a controlling financial interest. The equity method investment is initially recorded at cost and adjusted each period for capital contributions, distributions and the Company’s share of the entity’s net income or loss as well as other comprehensive income or loss. The Company’s share of net income or loss may differ from the stated ownership percentage interest in an entity if the governing documents prescribe a substantive non-proportionate earnings allocation formula or a preferred return to certain investors. For certain equity method investments, the Company records its proportionate share of income on a one to three month lag. Distributions of operating profits from equity method investments are reported as operating activities, while distributions in excess of operating profits are reported as investing activities in the statement of cash flows under the cumulative earnings approach.
At March 31, 2021 and December 31, 2020, the Company’s investments in unconsolidated joint ventures consisted of investments in PE Investments, senior loans, mezzanine loans and preferred equity held in joint ventures, as well as ADC arrangements accounted for as equity method investments.
Impairment
Evaluation of impairment applies to equity method investments and equity investments under the measurement alternative. If indicators of impairment exist, the Company will first estimate the fair value of its investment. In assessing fair value, the Company generally considers, among others, the estimated fair value of the investee, which is based on significant assumptions including the estimated timing and probabilities of the future cash flows of the unconsolidated joint venture, utilizing discount rates and capitalization rates.
For investments under the measurement alternative, if carrying value of the investment exceeds its fair value, an impairment is deemed to have occurred.
For equity method investments, further consideration is made if a decrease in value of the investment is other-than-temporary to determine if impairment loss should be recognized. Assessment of OTTI involves management judgment, including, but not limited to, consideration of the investee’s financial condition, operating results, business prospects and creditworthiness, the Company’s ability and intent to hold the investment until recovery of its carrying value. If management is unable to reasonably assert that an impairment is temporary or believes that the Company may not fully recover the carrying value of its investment, then the impairment is considered to be other-than-temporary.
Investments that are other-than-temporarily impaired are written down to their estimated fair value. Impairment loss is recorded in earnings from investments in unconsolidated ventures for equity method investments and in other gain (loss) for investments under the measurement alternative.
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(Unaudited)
Identifiable Intangibles
In a business combination or asset acquisition, the Company may recognize identifiable intangibles that meet either or both the contractual-legal criterion or the separability criterion. An indefinite-lived intangible is not subject to amortization until such time that its useful life is determined to no longer be indefinite, at which point, it will be assessed for impairment and its adjusted carrying amount amortized over its remaining useful life. Finite-lived intangibles are amortized over their useful life in a manner that reflects the pattern in which the intangible is being consumed if readily determinable, such as based upon expected cash flows; otherwise they are amortized on a straight line basis. The useful life of all identified intangibles will be periodically reassessed and if useful life changes, the carrying amount of the intangible will be amortized prospectively over the revised useful life.
Lease Intangibles—Identifiable intangibles recognized in acquisitions of operating real estate properties generally include in-place leases, above- or below-market leases and deferred leasing costs, all of which have finite lives. In-place leases generate value over and above the tangible real estate because a property that is occupied with leased space is typically worth more than a vacant building without an operating lease contract in place. The estimated fair value of acquired in-place leases is derived based on management’s assessment of costs avoided from having tenants in place, including lost rental income, rent concessions and tenant allowances or reimbursements, that hypothetically would be incurred to lease a vacant building to its actual existing occupancy level on the valuation date. The net amount recorded for acquired in-place leases is included in intangible assets and amortized on a straight-line basis as an increase to depreciation and amortization expense over the remaining term of the applicable leases. If an in-place lease is terminated, the unamortized portion is charged to depreciation and amortization expense.
The estimated fair value of the above- or below-market component of acquired leases represents the present value of the difference between contractual rents of acquired leases and market rents at the time of the acquisition for the remaining lease term, discounted for tenant credit risks. Above- or below-market operating lease values are amortized on a straight-line basis as a decrease or increase to rental income, respectively, over the applicable lease terms. This includes fixed rate renewal options in acquired leases that are below-market, which are amortized to decrease rental income over the renewal period. Above- or below-market ground lease obligations are amortized on a straight-line basis as a decrease or increase to rent expense, respectively, over the applicable lease terms. If the above- or below-market operating lease values or above- or below-market ground lease obligations are terminated, the unamortized portion of the lease intangibles are recorded in rental income or rent expense, respectively.
Deferred leasing costs represent management’s estimate of the avoided leasing commissions and legal fees associated with an existing in-place lease. The net amount is included in intangible assets and amortized on a straight-line basis as an increase to depreciation and amortization expense over the remaining term of the applicable lease.
Transfers of Financial Assets
Sale accounting for transfers of financial assets requires the transfer of an entire financial asset, a group of financial assets in its entirety or if a component of the financial asset is transferred, that the component meets the definition of a participating interest with characteristics that mirror the original financial asset.
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. If the Company has any continuing involvement, rights or obligations with the transferred financial asset (outside of standard representations and warranties), sale accounting requires that the transfer meets the following sale conditions: (1) the transferred asset has been legally isolated; (2) the transferee has the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred asset; and (3) the Company does not maintain effective control over the transferred asset through an agreement that provides for (a) both an entitlement and an obligation by the Company to repurchase or redeem the asset before its maturity, (b) the unilateral ability by the Company to reclaim the asset and a more than trivial benefit attributable to that ability, or (c) the transferee requiring the Company to repurchase the asset at a price so favorable to the transferee that it is probable the repurchase will occur.
If sale accounting is met, the transferred financial asset is removed from the balance sheet and a net gain or loss is recognized upon sale, taking into account any retained interests. Transfers of financial assets that do not meet the criteria for sale are accounted for as financing transactions, or secured borrowing.
Derivative Instruments and Hedging Activities
The Company uses derivative instruments to manage its foreign currency risk and interest rate risk. The Company does not use derivative instruments for speculative or trading purposes. All derivative instruments are recorded at fair value and included in
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(Unaudited)
other assets or other liabilities on a gross basis on the balance sheet. The accounting for changes in fair value of derivatives depends upon whether or not the Company has elected to designate the derivative in a hedging relationship and the derivative qualifies for hedge accounting. The Company has economic hedges that have not been designated for hedge accounting.
Changes in fair value of derivatives not designated as accounting hedges are recorded in the statement of operations in other gain (loss), net.
For designated accounting hedges, the relationships between hedging instruments and hedged items, risk management objectives and strategies for undertaking the accounting hedges as well as the methods to assess the effectiveness of the derivative prospectively and retrospectively, are formally documented at inception. Hedge effectiveness relates to the amount by which the gain or loss on the designated derivative instrument exactly offsets the change in the hedged item attributable to the hedged risk. If it is determined that a derivative is not expected to be or has ceased to be highly effective at hedging the designated exposure, hedge accounting is discontinued.
Cash Flow Hedges—The Company uses interest rate caps and swaps to hedge its exposure to interest rate fluctuations in forecasted interest payments on floating rate debt. The effective portion of the change in fair value of the derivative is recorded in accumulated other comprehensive income, while hedge ineffectiveness is recorded in earnings. If the derivative in a cash flow hedge is terminated or the hedge designation is removed, related amounts in accumulated other comprehensive income (loss) are reclassified into earnings.
Net Investment Hedges—The Company uses foreign currency hedges to protect the value of its net investments in foreign subsidiaries or equity method investees whose functional currencies are not U.S. dollars. Changes in the fair value of derivatives used as hedges of net investment in foreign operations, to the extent effective, are recorded in the cumulative translation adjustment account within accumulated other comprehensive income (loss).
At the end of each quarter, the Company reassesses the effectiveness of its net investment hedges and as appropriate, dedesignates the portion of the derivative notional amount that is in excess of the beginning balance of its net investments as undesignated hedges.
Release of accumulated other comprehensive income related to net investment hedges occurs upon losing a controlling financial interest in an investment or obtaining control over an equity method investment. Upon sale, complete or substantially complete liquidation of an investment in a foreign subsidiary, or partial sale of an equity method investment, the gain or loss on the related net investment hedge is reclassified from accumulated other comprehensive income to earnings. Refer to Note 15, “Derivatives” for further discussion on the Company’s derivative and hedging activity.
Financing Costs
Financing costs primarily include debt discounts and premiums as well as deferred financing costs. Deferred financing costs represent commitment fees, legal and other third-party costs associated with obtaining financing. Costs related to revolving credit facilities are recorded in other assets and are amortized to interest expense using the straight-line basis over the term of the facility. Costs related to other borrowings are recorded net against the carrying value of such borrowings and are amortized to interest expense using the effective interest method. Unamortized deferred financing costs are expensed to realized gain (loss) when the associated facility is repaid before maturity. Costs incurred in seeking financing transactions, which do not close, are expensed in the period in which it is determined that the financing will not occur.
Revenue Recognition
Property Operating Income
Property operating income includes the following:
Rental Income—Rental income is recognized on a straight-line basis over the non-cancellable term of the related lease which includes the effects of minimum rent increases and rent abatements under the lease. Rents received in advance are deferred.
When it is determined that the Company is the owner of tenant improvements, the cost to construct the tenant improvements, including costs paid for or reimbursed by the tenants, is capitalized. For tenant improvements owned by the Company, the amount funded by or reimbursed by the tenants are recorded as deferred revenue, which is amortized on a straight-line basis as additional rental income over the term of the related lease. Rental income recognition commences when the leased space is substantially ready for its intended use and the tenant takes possession of the leased space.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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When it is determined that the tenant is the owner of tenant improvements, the Company’s contribution towards those improvements is recorded as a lease incentive, included in deferred leasing costs and intangible assets on the balance sheet, and amortized as a reduction to rental income on a straight-line basis over the term of the lease. Rental income recognition commences when the tenant takes possession of the lease space.
Tenant Reimbursements—In net lease arrangements, the tenant is generally responsible for operating expenses related to the property, including real estate taxes, property insurance, maintenance, repairs and improvements. Costs reimbursable from tenants and other recoverable costs are recognized as revenue in the period the recoverable costs are incurred. When the Company is the primary obligor with respect to purchasing goods and services for property operations and has discretion in selecting the supplier and retains credit risk, tenant reimbursement revenue and property operating expenses are presented on a gross basis in the statements of operations. For certain triple net leases where the lessee self-manages the property, hires its own service providers and retains credit risk for routine maintenance contracts, no reimbursement revenue and expense are recognized.
Hotel Operating Income—Hotel operating income includes room revenue, food and beverage sales and other ancillary services. Revenue is recognized upon occupancy of rooms, consummation of sales and provision of services.
Real Estate Securities
Interest income is recognized using the effective interest method with any premium or discount amortized or accreted through earnings based on expected cash flow through the expected maturity date of the security. On a quarterly basis, the Company reviews, and if appropriate, adjusts its cash flow projections based on inputs and analyses received from external sources, internal models, and the Company’s judgment about prepayment rates, the timing and amount of credit losses and other factors. Changes in the amount or timing of cash flows from those originally projected, or from those estimated at the last evaluation date, are considered to be either favorable changes or adverse changes.
Adverse changes in the timing or amount of cash flows on CRE securities could result in the Company recording an increase in the allowance for credit losses. The allowance for credit losses are calculated using a discounted cash flow approach and is measured as the difference between the amortized cost of a CRE security and estimate of cash flows expected to be collected discounted at the effective interest rate used to accrete the CRE security. The allowance for credit losses is recorded as a contra-asset and a reduction in earnings. The allowance for credit losses will be limited to the amount of the unrealized losses on the CRE securities. Any allowance for credit losses in excess of the unrealized losses on the CRE securities are accounted for as a prospective reduction of the effective interest rate. No allowance is recorded for CRE securities in an unrealized gain position. Favorable changes in the discounted cash flow will result in a reduction in the allowance for credit losses, if any. Any reduction in allowance for credit losses is recorded in earnings. If the allowance for credit losses has been reduced to zero, the remaining favorable changes are reflected as a prospective increase to the effective interest rate.
As of April 1, 2020, the Company placed its investment grade and non-investment grade rated CRE securities on cost recovery and as a result, ceased accretion of any discounts to expected maturity and applied any cash interest received against the CRE securities amortized cost basis. Refer to Note 5, “Real Estate Securities, Available for Sale” for further discussion.
Foreign Currency
Assets and liabilities denominated in a foreign currency for which the functional currency is a foreign currency are translated using the exchange rate in effect at the balance sheet date and the corresponding results of operations for such entities are translated using the average exchange rate in effect during the period. The resulting foreign currency translation adjustments are recorded as a component of accumulated other comprehensive income or loss in stockholders’ equity. Upon sale, complete or substantially complete liquidation of a foreign subsidiary, or upon partial sale of a foreign equity method investment, the translation adjustment associated with the investment, or a proportionate share related to the portion of equity method investment sold, is reclassified from accumulated other comprehensive income or loss into earnings.
Assets and liabilities denominated in a foreign currency for which the functional currency is the U.S. dollar are remeasured using the exchange rate in effect at the balance sheet date and the corresponding results of operations for such entities are remeasured using the average exchange rate in effect during the period. The resulting foreign currency remeasurement adjustments are recorded in other gain (loss), net on the consolidated statements of operations.
Disclosures of non-U.S. dollar amounts to be recorded in the future are translated using exchange rates in effect at the date of the most recent balance sheet presented.
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COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Equity-Based Compensation
Equity-classified stock awards granted to executive officers and both independent and non-independent directors are based on the closing price of the Class A common stock on the grant date and recognized on a straight-line basis over the requisite service period of the awards for restricted stock awards. For performance stock units (“PSUs”) the fair value is based on a Monte Carlo simulation as of the grant date and expense is recognized on a straight-line basis over their measurement period. See Note 11, “Equity-Based Compensation” for further discussion.
The compensation expense is adjusted for actual forfeitures upon occurrence. Equity-based compensation is classified within administrative expense in the consolidated statement of operations.
Earnings Per Share
The Company presents both basic and diluted earnings per share (“EPS”) using the two-class method. Basic EPS is calculated by dividing earnings allocated to common shareholders, as adjusted for unallocated earnings attributable to certain participating securities, if any, by the weighted-average number of common shares outstanding during the period. Diluted EPS is based on the weighted-average number of common shares and the effect of potentially dilutive common share equivalents outstanding during the period. The two-class method is an allocation formula that determines earnings per share for each share of common stock and participating securities according to dividends declared and participation rights in undistributed earnings. Under this method, all earnings (distributed and undistributed) are allocated to common shares and participating securities based on their respective rights to receive dividends. The Company has certain share-based payment awards that contain nonforfeitable rights to dividends, which are considered participating securities for the purposes of computing EPS pursuant to the two-class method.
Income Taxes
For U.S. federal income tax purposes, the Company elected to be taxed as a REIT beginning with its taxable year ended December 31, 2018. To qualify as a REIT, the Company must continually satisfy tests concerning, among other things, the real estate qualification of sources of its income, the real estate composition and values of its assets, the amounts it distributes to stockholders and the diversity of ownership of its stock.
To the extent that the Company qualifies as a REIT, it generally will not be subject to U.S. federal income tax to the extent of its distributions to stockholders. The Company believes that all of the criteria to maintain the Company’s REIT qualification have been met for the applicable periods, but there can be no assurance that these criteria will continue to be met in subsequent periods. If the Company were to fail to meet these requirements, it would be subject to U.S. federal income tax and potential interest and penalties, which could have a material adverse impact on its results of operations and amounts available for distributions to its stockholders. The Company’s accounting policy with respect to interest and penalties is to classify these amounts as a component of income tax expense, where applicable.
The Company may also be subject to certain state, local and franchise taxes. Under certain circumstances, U.S. federal income and excise taxes may be due on its undistributed taxable income. The Company also holds investments in Europe which are subject to tax in each local jurisdiction.
The Company made joint elections to treat certain subsidiaries as taxable REIT subsidiaries (“TRSs”) which may be subject to taxation by U.S. federal, state and local authorities. In general, a TRS of the Company may perform non-customary services for tenants, hold assets that the Company cannot hold directly and engage in most real estate or non-real estate-related business.
Certain subsidiaries of the Company are subject to taxation by U.S. federal, state and local authorities for the periods presented. Income taxes are accounted for by the asset/liability approach in accordance with U.S. GAAP. Deferred taxes, if any, represent the expected future tax consequences when the reported amounts of assets and liabilities are recovered or paid. Such amounts arise from differences between the financial reporting and tax bases of assets and liabilities and are adjusted for changes in tax laws and tax rates in the period during which such changes are enacted. A provision for income tax represents the total of income taxes paid or payable for the current period, plus the change in deferred taxes. Current and deferred taxes are recorded on the portion of earnings (losses) recognized by the Company with respect to its interest in TRSs. Deferred income tax assets and liabilities are calculated based on temporary differences between the Company’s U.S. GAAP consolidated financial statements and the U.S. federal, state and local tax basis of assets and liabilities as of the consolidated balance sheet date. The Company evaluates the realizability of its deferred tax assets (e.g., net operating loss and capital loss carryforwards) and recognizes a valuation allowance if, based on the available evidence, it is more likely than not that some portion or all of its deferred tax assets will not be realized. When evaluating the realizability of its deferred tax assets, the Company considers estimates of expected future taxable income, existing and projected book/tax differences, tax planning strategies available and the general and industry-specific economic outlook. This realizability analysis is inherently subjective, as it requires the
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(Unaudited)
Company to forecast its business and general economic environment in future periods. Changes in estimate of deferred tax asset realizability, if any, are included in income tax benefit (expense) in the consolidated statements of operations.
For the three months ended March 31, 2021 and 2020, the Company recorded income tax benefit and expense of $1.8 million and $1.7 million, respectively.
Accounting Standards adopted in 2020
Credit Losses - In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses, which amends the credit impairment model for financial instruments. The Company adopted ASU 2016-13 using the modified retrospective method on January 1, 2020.
The prior incurred loss model has been replaced with a lifetime current expected credit loss (“CECL”) model for financial instruments carried at amortized cost and off-balance sheet credit exposures, such as loans, loan commitments, held-to-maturity (“HTM”) debt securities, financial guarantees, net investment in leases, reinsurance and trade receivables, which will generally result in earlier recognition of allowance for losses. For available-for-sale (“AFS”) debt securities, unrealized credit losses are recognized as allowances rather than reductions in amortized cost basis and elimination of the OTTI concept will result in more frequent estimation of credit losses. The accounting model for purchased credit impaired loans and debt securities has been simplified, including elimination of some of the asymmetrical treatment between credit losses and credit recoveries, to be consistent with the CECL model for originated and purchased non-credit impaired assets. The existing model for beneficial interests that are not of high credit quality was amended to conform to the new impairment models for HTM and AFS debt securities.
Upon adoption of ASU 2016-13 on January 1, 2020 the Company recorded the following (dollars in thousands):
Impact of ASU 2016-13 Adoption
Assets:
CECL reserve on Loans and preferred equity held for investment, net$21,093 
Liabilities:
CECL reserve on Accrued and other liabilities2,093 
Total Impact of ASU 2016-13 adoption on Accumulated deficit$23,186 
The following discussion highlights changes to the Company’s accounting policies as a result of this adoption.
CECL reserve
The CECL reserve for the Company’s financial instruments carried at amortized cost and off-balance sheet credit exposures, such as loans, loan commitments and trade receivables represents a lifetime estimate of expected credit losses. Factors considered by the Company when determining the CECL reserve include loan-specific characteristics such as loan-to-value (“LTV”) ratio, vintage year, loan term, property type, occupancy and geographic location, financial performance of the borrower, expected payments of principal and interest, as well as internal or external information relating to past events, current conditions and reasonable and supportable forecasts.
The CECL reserve is measured on a collective (pool) basis when similar risk characteristics exist for multiple financial instruments. If similar risk characteristics do not exist, the Company measures the CECL reserve on an individual instrument basis. The determination of whether a particular financial instrument should be included in a pool can change over time. If a financial asset’s risk characteristics change, the Company evaluates whether it is appropriate to continue to keep the financial instrument in its existing pool or evaluate it individually.
In measuring the CECL reserve for financial instruments that share similar risk characteristics, the Company primarily applies a probability of default (“PD”)/loss given default (“LGD”) model for instruments that are collectively assessed, whereby the CECL reserve is calculated as the product of PD, LGD and exposure at default (“EAD”). The Company’s model principally utilizes historical loss rates derived from a commercial mortgage backed securities database with historical losses from 1998 through December 2020 provided by a third party, Trepp LLC, forecasting the loss parameters using a scenario-based statistical approach over a reasonable and supportable forecast period of twelve months, followed by a straight-line reversion period of twelve-months back to average historical losses.
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COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
For financial instruments assessed outside of the PD/LGD model on an individual basis, including when it is probable that the Company will be unable to collect the full payment of principal and interest on the instrument, the Company applies a discounted cash flow (“DCF”) methodology. For financial instruments where the borrower is experiencing financial difficulty based on the Company’s assessment at the reporting date and the repayment is expected to be provided substantially through the operation or sale of the collateral, the Company may elect to use as a practical expedient the fair value of the collateral at the reporting date when determining the provision for loan losses.
In developing the CECL reserve for its loans and preferred equity held for investment, the Company considers the risk ranking of each loan and preferred equity as a key credit quality indicator. The risk rankings are based on a variety of factors, including, without limitation, underlying real estate performance and asset value, values of comparable properties, durability and quality of property cash flows, sponsor experience and financial wherewithal, and the existence of a risk-mitigating loan structure. Additional key considerations include loan-to-value ratios, debt service coverage ratios, loan structure, real estate and credit market dynamics, and risk of default or principal loss. Based on a five-point scale, the Company’s loans and preferred equity held for investment are rated “1” through “5,” from less risk to greater risk, and the ratings are updated quarterly. At the time of origination or purchase, loans and preferred equity held for investment are ranked as a “3” and will move accordingly going forward based on the ratings which are defined as follows:
1.Very Low Risk-The loan is performing as agreed. The underlying property performance has exceeded underwritten expectations with very strong net operating income (”NOI”), debt service coverage ratio, debt yield and occupancy metrics. Sponsor is investment grade, very well capitalized, and employs very experienced management team.
2.Low Risk-The loan is performing as agreed. The underlying property performance has met or exceeds underwritten expectations with high occupancy at market rents, resulting in consistent cash flow to service the debt. Strong sponsor that is well capitalized with experienced management team.
3.Average Risk-The loan is performing as agreed. The underlying property performance is consistent with underwriting expectations. The property generates adequate cash flow to service the debt, and/or there is enough reserve or loan structure to provide time for sponsor to execute the business plan. Sponsor has routinely met its obligations and has experience owning/operating similar real estate.
4.High Risk/Delinquent/Potential for Loss-The loan is in excess of 30 days delinquent and/or has a risk of a principal loss. The underlying property performance is behind underwritten expectations. Loan covenants may require occasional waivers/modifications. Sponsor has been unable to execute its business plan and local market fundamentals have deteriorated. Operating cash flow is not sufficient to service the debt and debt service payments may be coming from sponsor equity/loan reserves.
5.Impaired/Defaulted/Loss Likely-The loan is in default or a default is imminent, and has a high risk of a principal loss, or has incurred a principal loss. The underlying property performance is significantly worse than underwritten expectation and sponsor has failed to execute its business plan. The property has significant vacancy and current cash flow does not support debt service. Local market fundamentals have significantly deteriorated resulting in depressed comparable property valuations versus underwriting.
The Company also considers qualitative and environmental factors, including, but not limited to, economic and business conditions, nature and volume of the loan portfolio, lending terms, volume and severity of past due loans, concentration of credit and changes in the level of such concentrations in its determination of the CECL reserve.
The Company has elected to not measure a CECL reserve for accrued interest receivable as it is reversed against interest income when a loan or preferred equity investment is placed on nonaccrual status. Loans and preferred equity investments are charged off against the provision for loan losses when all or a portion of the principal amount is determined to be uncollectible.
Changes in the CECL reserve for the Company’s financial instruments are recorded in provision for loan losses on the Statement of Operations with a corresponding offset to the loans and preferred equity held for investment or as a component of other liabilities for future loan fundings recorded on the Company’s consolidated balance sheets. See Note 3, “Loans and Preferred Equity Held for Investment, net” for further detail.
Troubled Debt Restructuring (“TDR”)—The Company classifies an individual financial instrument as a TDR when it has a reasonable expectation that the financial instrument’s contractual terms will be modified in a manner that grants concession to the borrower who is experiencing financial difficulty. Concessions could include term extensions, payment deferrals, interest
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COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
rate reductions, principal forgiveness, forbearance, or other actions designed to maximize the Company’s collection on the financial instrument. The Company determines the CECL reserve for financial instruments that are TDRs individually.
Fair Value Disclosures—In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurements. The ASU requires new disclosures of changes in unrealized gains and losses in other comprehensive income for recurring Level 3 fair value measurements of instruments held at the balance sheet date, as well as the range and weighted average or other quantitative information, if more relevant, of significant unobservable inputs for recurring and nonrecurring Level 3 fair values. Certain previously required disclosures are eliminated, specifically around the valuation process required for Level 3 fair values, policy for timing of transfers between levels of the fair value hierarchy, as well as amounts and reason for transfers between Levels 1 and 2. Additionally, the new guidance clarifies or modifies certain existing disclosures, including clarifying that information about measurement uncertainty of Level 3 fair values should be as of the reporting date and requiring disclosures of the timing of liquidity events for investments measured under the NAV practical expedient, but only if the investee has communicated this information or has announced it publicly. The provisions on new disclosures and modification to disclosure of Level 3 measurement uncertainty are to be applied prospectively, while all other provisions are to be applied retrospectively. The Company adopted ASU No. 2018-13 on January 1, 2020.
Related Party Guidance for VIEs—In November 2018, the FASB issued ASU No. 2018-17, Targeted Improvements to Related Party Guidance for Variable Interest Entities. The ASU amends the VIE guidance to align, throughout the VIE model, the evaluation of a decision maker's or service provider's fee held by a related party whether or not they are under common control, in both the assessment of whether a fee qualifies as a variable interest and the determination of a primary beneficiary. Specifically, a decision maker or service provider considers interests in a VIE held by a related party under common control only if it has a direct interest in the related party under common control and considers such indirect interest in the VIE held by the related party under common control on a proportionate basis, rather than its entirety. Transition is generally on a modified retrospective basis, with the cumulative effect adjusted to retained earnings at the beginning of the earliest period presented. The Company adopted ASU No. 2018-17 on January 1, 2020, with no transitional impact upon adoption.
Reference Rate Reform-In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The guidance in Topic 848 is optional, the election of which provides temporary relief for the accounting effects on contracts, hedging relationships and other transactions impacted by the transition from interbank offered rates (such as London Interbank Offered Rate, or LIBOR) that are expected to be discontinued by the end of 2021 to alternative reference rates (such as Secured Overnight Financing Rate, or SOFR). Modification of contractual terms to effect the reference rate reform transition on debt, leases, derivatives and other contracts is eligible for relief from modification accounting and accounted for as a continuation of the existing contract. Topic 848 is effective upon issuance through December 31, 2022, and may be applied retrospectively to January 1, 2020. The Company has elected to apply the hedge accounting expedients related to probability and assessment of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives, which preserves existing derivative treatment and presentation. The Company may elect other practical expedients or exceptions as applicable over time as reference rate reform activities occur.
Revised Significance Tests-In May 2020, the SEC issued a new rule regarding the financial statement requirements for acquisitions and dispositions of a business, which included, among other things, amending (i) certain criteria in the significance tests for acquired or to-be-acquired businesses, (ii) related pro forma financial information requirements, including its form and content, and (iii) related disclosure requirements, including the number of acquiree financial statement periods to be presented in SEC filings. The final rule is effective for fiscal years beginning after December 31, 2020, with early application permitted. The Company adopted this SEC final rule, effective October 1, 2020.
Accounting Standards adopted in 2021
Income Tax Accounting—In December 2019, the FASB issued ASU No. 2019-12, Simplifying Accounting for Income Taxes. The ASU simplifies accounting for income taxes by eliminating certain exceptions to the general approach in ASC 740, Income Taxes, and clarifies certain aspects of the guidance for more consistent application. The simplifications relate to intraperiod tax allocations when there is a loss in continuing operations and a gain outside of continuing operations, accounting for tax law or tax rate changes and year-to-date losses in interim periods, recognition of deferred tax liability for outside basis difference when investment ownership changes, and accounting for franchise taxes that are partially based on income. The ASU also provides new guidance that clarifies the accounting for transactions resulting in a step-up in tax basis of goodwill, among other changes. Transition is generally prospective, other than the provision related to outside basis difference which is on a modified retrospective basis with the cumulative effect adjusted to retained earnings at the beginning of the period adopted, and franchise
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
tax provision which is on either full or modified retrospective. ASU No. 2019-12 is effective January 1, 2021, with early adoption permitted in an interim period, to be applied to all provisions. The Company adopted this on January 1, 2021, and the impact was not material.
Accounting for Certain Equity Investments—In January 2020, the FASB issued ASU No. 2020-01, Clarifying the Interactions between Topic 321 Investments-Equity Securities, Topic 323-Investments Equity Method and Joint Ventures, and Topic 815-Derivatives and Hedging. The ASU clarifies, that if as a result of an observable transaction, an equity investment under the measurement alternative is transitioned into equity method or an equity method investment is transitioned into measurement alternative, then the investment is to be remeasured immediately before and after the transaction, respectively. The ASU also clarifies that certain forward contracts or purchased options to acquire equity securities that are not deemed to be derivatives or in-substance common stock will generally be measured using the fair value principles of ASC 321 before settlement or exercise, and that an entity should not be considering how it will account for the resulting investments upon eventual settlement or exercise. ASU No. 2020-01 is to be applied prospectively, effective January 1, 2021, with early adoption permitted in an interim period. The Company adopted this on January 1, 2021, and the impact was not material.
Future Application of Accounting Standards
Accounting for Convertible Instruments and Contracts on Entity's Own Equity— In August 2020, the FASB issued ASU No. 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): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The ASU (1) simplifies an issuer’s accounting for convertible instruments as a single unit of account; (2) allows more contracts on an entity’s own equity to qualify for equity classification and more embedded derivatives to meet the derivative scope exception; and (3) simplifies diluted earnings per share (“EPS”) computation.
The guidance eliminates the requirement to separate embedded conversion features in convertible instruments, except for (1) a convertible instrument that contains features requiring bifurcation as a derivative under ASC 815 or (2) a convertible debt instrument that was issued at a substantial premium.
Under the new guidance, certain conditions under Subtopic ASC 815-40 that may result in contracts being settled in cash rather than shares and therefore preclude (1) equity classification for contracts on an entity’s own equity; and (2) embedded derivatives from qualifying for the derivative scope exception, have been removed; for example, the requirement that equity contracts permit settlement in unregistered shares unless such contracts explicitly require settlement in cash if registered shares are unavailable. The guidance also clarifies that freestanding contracts on an entity’s own equity that do not qualify for equity classification under the indexation criteria (ASC 815-4015) or settlement criteria (ASC 815-40-25) are to be measured at fair value through earnings, even if they do not meet the definition of a derivative under ASC 815.
The ASU also amends certain guidance on computation of diluted EPS for convertible instruments and contracts on an entity’s own equity that results in a more dilutive EPS, including (1) requiring the if converted method to be applied for all convertible instruments (the treasury stock method is no longer available), and (2) removing the ability to rebut the presumption of share settlement for contracts that may be settled in cash or stock and that are not liability classified share based payments.
Expanded disclosures are required, including but not limited to, (1) terms and features of convertible instruments and contracts on entity’s own equity; and (2) information about events, conditions, and circumstances that could affect amount or timing of future cash flows related to these instruments or contracts; and in the period of adoption (3) nature of and reason for the change in accounting principle; and (4) effects of the change on EPS.
Upon adoption, a one-time election may be made to apply the fair value option for any liability-classified convertible securities.
Adoption of the new standard may be made either on a full retrospective approach or a modified retrospective approach, with cumulative effect adjustment recorded to beginning retained earnings. ASU No. 2020-06 is effective January 1, 2022, with early adoption permitted beginning January 1, 2021. The Company is currently evaluating the effects of this new guidance.
28


COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
3. Loans and Preferred Equity Held for Investment, net
The following table provides a summary of the Company’s loans and preferred equity held for investment, net (dollars in thousands):
March 31, 2021December 31, 2020
Unpaid Principal Balance
Carrying
Value
Weighted Average Coupon(1)
Weighted Average Maturity in YearsUnpaid Principal Balance
Carrying
Value
Weighted Average Coupon(1)
Weighted Average Maturity in Years
Fixed rate
Mezzanine loans$158,826 $158,325 12.8 %3.7$155,803 $155,225 12.8 %4.0
Preferred equity interests19,010 19,010 15.0 %2.418,680 18,681 15.0 %2.7
177,836 177,335 174,483 173,906 
Variable rate
Senior loans1,425,267 1,416,873 4.7 %3.61,029,760 1,026,846 5.4 %3.4
Securitized loans(2)
1,006,495 1,005,294 4.6 %3.31,006,495 1,004,698 5.1 %3.4
Mezzanine loans12,000 12,120 11.5 %1.412,000 12,120 11.5 %1.7
Preferred equity interests4,686 4,686 5.3 %1.03,118 3,118 5.3 %0.0
2,448,448 2,438,973 2,051,373 2,046,782 
Loans and preferred equity held for investment2,626,284 2,616,308 2,225,856 2,220,688 
Allowance for loan lossesNA(40,791)NA(37,191)
Loans and preferred equity held for investment, net$2,626,284 $2,575,517 $2,225,856 $2,183,497 
_________________________________________
(1)Calculated based on contractual interest rate.
(2)Represents loans transferred into securitization trusts that are consolidated by the Company.
As of March 31, 2021, the weighted average maturity, including extensions, of loans and preferred equity investments was 3.5 years.
The Company had $6.8 million and $7.0 million of interest receivable related to its loans and preferred equity held for investment, net as of March 31, 2021 and December 31, 2020, respectively. This is included in receivables, net on the Company’s consolidated balance sheets.
Activity relating to the Company’s loans and preferred equity held for investment, net was as follows (dollars in thousands):
Carrying Value
Balance at January 1, 2021$2,183,497 
Acquisitions/originations/additional funding432,918 
Loan maturities/principal repayments(41,335)
Discount accretion/premium amortization1,490 
Capitalized interest2,547 
Provision for loan losses(1)
(3,602)
Charge-off
Balance at March 31, 2021$2,575,517 
_________________________________________
(1)Provision for loan losses excludes $0.4 million determined by the Company’s PD/LGD model for unfunded commitments reported on the consolidated statement of operations, with a corresponding offset to other liabilities recorded on the Company’s consolidated balance sheets.

29


COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Nonaccrual and Past Due Loans and Preferred Equity
Loans and preferred equity that are 90 days or more past due as to principal or interest, or where reasonable doubt exists as to timely collection, are generally considered nonperforming and placed on nonaccrual status.
During the three months ended March 31, 2021, the Company placed one senior loan and preferred equity investment in a hotel located in San Jose, California (“the San Jose Hotel”) on nonaccrual status. The onset of the COVID-19 pandemic in the spring of 2020 created challenges across the hospitality industry. The global reduction in business travel directly impacted operations at the San Jose Hotel. Low occupancy led to weaker financial performance, which led to the borrower closing the hotel and filing for Chapter 11 bankruptcy in March 2021. The borrower has obtained bankruptcy court orders authorizing it to reject the existing hotel management agreement, and to solicit proposals for (a) subordinate financing to support the asset, and (b) a new contract with a new hotel manager to re-brand the hotel as a business-travel destination. The borrower is also seeking immediate determination of the amount of any damages owing to the former manager. The Company has entered into a restructuring support agreement with the borrower regarding the bankruptcy process, in the Company’s capacity as the sole senior secured creditor. In connection with the restructuring support agreement, the Company has not provided any concessions which would be considered a troubled debt restructuring. The bankruptcy proceeding and rulings, the continued impact of COVID-19 on business travel, and other risks associated with a new hotel manager may negatively impact the value of our investment interest.
The following table provides an aging summary of loans and preferred equity held for investment at carrying values before allowance for loan losses, if any (dollars in thousands):
Current or Less Than 30 Days Past Due (1)
30-59 Days Past Due60-89 Days Past Due90 Days or More Past DueTotal Loans
March 31, 2021$2,616,308 $$$$2,616,308 
December 31, 20202,220,688 2,220,688 
_________________________________________
(1) At March 31, 2020, includes the San Jose Hotel.
Allowance for Loan Losses
Changes in allowance for loan losses on loans are presented below (dollars in thousands):
Three Months Ended March 31,
20212020
Allowance for loan losses at beginning of period$37,191 $272,624 
Effect of CECL adoption(1)
21,093 
Provision for loan losses(2)
3,602 69,686 
Charge-off(2)(15,533)
Transfer to loans held for sale(295,676)
Allowance for loan losses at end of period(3)
$40,791 $52,194 
_________________________________________
(1)Calculated by the Company’s PD/LGD model upon CECL adoption on January 1, 2020. See Note 2, “Summary of Significant Accounting Policies” for further details.
(2)Provision for loan losses excludes $0.4 million and $0.2 million for the periods ended March 31, 2021 and March 31, 2020, respectively. These amounts were determined by the Company’s PD/LGD model for unfunded commitments reported on the consolidated statement of operations, with a corresponding offset to other liabilities recorded on the Company’s consolidated balance sheets.
(3)At March 31, 2021, includes $40.8 million related to the Company’s PD/LGD model. At March 31, 2020, includes $28.8 million related to the Company’s PG/LGD model, $36.8 million recorded on 4 NY hospitality loans and $2.3 million related to the Midwest hospitality loan, both of which were evaluated individually, and $1.8 million related to discounted payoff of loans during the quarter ended March 31, 2020.
Credit Quality Monitoring
Loan and preferred equity investments are typically loans secured by direct senior priority liens on real estate properties or by interests in entities that directly own real estate properties, which serve as the primary source of cash for the payment of principal and interest. The Company evaluates its loan and preferred equity investments at least quarterly and differentiates the relative credit quality principally based on: (i) whether the borrower is currently paying contractual debt service in accordance with its contractual terms; and (ii) whether the Company believes the borrower will be able to perform under its contractual terms in the future, as well as the Company’s expectations as to the ultimate recovery of principal at maturity.
30


COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
As of March 31, 2021, there was 1 senior loan and preferred equity investment past due and all remaining loans were performing in accordance with the contractual terms of their governing documents and were categorized as performing loans. There were 0 loans held for investment with contractual payments past due as of December 31, 2020. For the three months ended March 31, 2021, 0 debt investment contributed more than 10.0% of interest income.
The following table provides a summary by carrying values before any allowance for loan losses of the Company’s loans and preferred equity held for investment by year of origination and credit quality risk ranking (dollars in thousands). Refer to Note 2, “Summary of Significant Accounting Policies—Accounting Standards Adopted in 2020—Credit Losses” for loans risk ranking definitions.
20212020201920182017PriorTotal
Senior loans
  Risk Rankings:
3$421,071 $177,935 $406,777 $187,694 $33,774 $$1,227,251 
4717,682 303,749 01,021,431 
5173,485 173,485 
Total Senior loans421,071 177,935 1,124,459 664,928 33,774 2,422,167 
Mezzanine loans
Risk Rankings:
365,087 59,440 124,527 
429,289 4,509 12,120 45,918 
Total Mezzanine loans94,376 63,949 12,120 170,445 
Preferred equity interests and other
Risk Rankings:
4019,010 19,010 
54,686 4,686 
Total Preferred equity interests and other4,686 19,010 23,696 
Total Loans and preferred equity held for investment$421,071 $182,621 $1,218,835 $747,887 $45,894 $$2,616,308 

The Company considers several risk factors when assigning its risk ranking each quarter. For the three months ended March 31, 2021, the Company believes the extended impact of the COVID-19 pandemic remains uncertain, and therefore continues to represent a significant risk to the Company’s portfolio. As such, the quarter-end average rating is 3.6, which is consistent with the Company’s average risk ranking throughout 2020.
Lending Commitments
The Company has lending commitments to borrowers pursuant to certain loan agreements in which the borrower may submit a request for funding contingent on achieving certain criteria, which must be approved by the Company as lender, such as leasing, performance of capital expenditures and construction in progress with an approved budget. At March 31, 2021, assuming the terms to qualify for future advances, if any, had been met, total gross unfunded lending commitments were $209.4 million. Refer to Note 16, “Commitments and Contingencies” for further details. At March 31, 2021, the Company recorded a $0.9 million allowance for lending commitments in accrued and other liabilities on its consolidated balance sheets in accordance with the credit losses accounting standard No. 2016-13. See Note 2, “Summary of Significant Accounting Policies” for further details.

31


COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
4. Investments in Unconsolidated Ventures
Summary
The Company’s investments in unconsolidated ventures represent noncontrolling equity interests in various entities, as follows (dollars in thousands):
March 31, 2021December 31, 2020
Equity method investments$349,385 $366,481 
Investments under fair value option6,522 6,883 
Investments in Unconsolidated Ventures$355,907 $373,364 
Equity Method Investments
Investment Ventures
Certain of the Company’s equity method investments are structured as joint ventures with one or more private funds or other investment vehicles managed by Colony Capital with third party joint venture partners. These investment entities are generally capitalized through equity contributions from the members, although certain investments are leveraged through various financing arrangements.
The assets of the equity method investment entities may only be used to settle the liabilities of these entities and there is no recourse to the general credit of the Company nor the other investors for the obligations of these investment entities. Neither the Company nor the other investors are required to provide financial or other support in excess of their capital commitments. The Company’s exposure to the investment entities is limited to its equity method investment balance as of March 31, 2021 and December 31, 2020, respectively.
The Company’s investments accounted for under the equity method are summarized below (dollars in thousands):
Carrying Value
InvestmentsDescriptionMarch 31, 2021December 31, 2020
ADC investments(1)(2)(3)
Interests in 3 acquisition, development and construction loans in which the Company participates in residual profits from the projects, and the risk and rewards of the arrangements are more similar to those associated with investments in joint ventures$48,997 $57,481 
Other investment ventures(1)(4)
Interests in 6 investments, each with less than $127.9 million carrying value at March 31, 2021300,388 309,000 
_________________________________________
(1)The Company’s ownership interest in ADC investments and other investment ventures varies and represents capital contributed to date and may not be reflective of the Company’s economic interest in the entity because of provisions in operating agreements governing various matters, such as classes of partner or member interests, allocations of profits and losses, preferential returns and guaranty of debt. Each equity method investment has been determined to be a VIE for which the Company was not deemed to be the primary beneficiary or a voting interest entity in which the Company does not have the power to control through a majority of voting interest or through other arrangements.
(2)The Company owns varying levels of stated equity interests in certain ADC investments, as well as profit participation interests in real estate ventures without a stated ownership interest in other ADC investments.
(3)Includes 2 investments with a carrying value of $49.0 million that were contributed to a preferred financing arrangement. See Note 13, “Noncontrolling Interests,” for further information.
(4)Includes 4 investments with a carrying value of $186.3 million that were contributed to a preferred financing arrangement. See Note 13, “Noncontrolling Interests,” for further information.
32


COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Fair Value Measurement
Under the fair value option, loans and preferred equity investments are measured each reporting period based on their exit values in an orderly transaction. Fair value adjustments recorded on each of these investments is included in equity in earnings of unconsolidated ventures on the Company’s consolidated statements of operations.
The Company’s mezzanine loan and preferred equity investment in a development project in Los Angeles County, which includes a hospitality and retail renovation and a new condominium tower construction (the “Mixed-use Project”), was converted into a mezzanine participation during the three months ended September 30, 2020. The Company’s investment was made through a joint venture with affiliates of the Company’s Manager (the “Colony Mezzanine Lender”) in the form of a $574.0 million commitment to the Mixed-use Project, of which the Company’s proportionate share of the commitment is $189.0 million.
In April 2020, the senior mortgage lender notified the borrower developer that the Mixed-use Project loan funding was over budget, due to cost overruns from certain hard and soft costs and senior loan interest reserve shortfalls projected through completion. As a result, during the second quarter of 2020, the Company and its affiliates made two protective advances to the senior mortgage lender totaling $69.1 million, of which the Company’s proportionate share was $28.5 million. During the three months ended June 30, 2020, the Company placed the mezzanine loan and preferred equity investment on nonaccrual status.
In June 2020, the senior mortgage lender sought a third protective advance of $15.5 million of which the Company’s proportionate share would have been $7.0 million. While the Company and its affiliates did not fund its proportionate share, the senior mortgage lender funded the full amount of the required June advances. The senior mortgage lenders funding did not relieve the Company and its affiliates from its commitment to fund. As a result during the three months ended June 30, 2020, the Mixed-use Project’s recorded fair value losses totaling $250.0 million. The Company recognized its proportionate share of fair value losses equaling $89.3 million. The Mixed-use Project’s fair value was based on a weighted average probability analysis of potential resolutions based on a number of factors which included the maturity default of the loan, cost overruns, COVID-19 related delays, lack of funding by the borrower and recent negotiations with the senior lender, the borrower and potential sources of additional mezzanine financing.
In September 2020, in cooperation with the borrower and the EB-5 lender, the Colony Mezzanine Lender and senior mortgage lender secured $275 million of additional mezzanine financing from a third-party mezzanine lender (the “Senior Mezzanine Lender”). To consummate the new mezzanine financing, the Colony Mezzanine Lender simplified its investment interest by converting its existing preferred equity principal and accrued interest into the existing mezzanine loan, transferred the mezzanine loan to the Senior Mezzanine Lender, who subsequently increased the mezzanine loan amount by $275 million to a $821 million total mezzanine loan (the “Upsized Mezzanine Loan”). The Senior Mezzanine Lender holds a $275 million A-participation and the Colony Mezzanine Lender (including the Company’s interest) continues to hold a $546 million B-participation interest in the Upsized Mezzanine Loan at the Mixed-use Project.
Having completed the Upsized Mezzanine Loan refinancing, among other factors, for the remainder of 2020, the Company continued to maintain the nonaccrual status and fair value loss adjustment on the proportionate share of the Colony Mezzanine Lender’s B-participation investment. During the three months ended March 31, 2021, there was no change in accrual status or fair value.
Also, during the three months ended June 30, 2020, the Company recognized its proportionate share of fair value losses totaling $7.0 million on 1 mezzanine loan secured by a mixed-use development project (“West Mixed-use”). West Mixed-use’s decrease in fair value is a result of revised sale expectations. During the three months ended March 31, 2021, we recognized the Company’s proportionate share of an additional fair value loss adjustment totaling $3.8 million, which was based on a recent purchase and sale agreement which was executed in April 2021.
Additionally, the Company holds a $189.2 million co-lender interest (61%) in a senior mortgage loan in the amount of $310.2 million. The Company’s investment interests are held through a joint venture that includes private investment vehicles managed by Colony Capital (the “Colony Senior Lenders”). The senior mortgage is Euro-denominated and is for a fully entitled land acquisition for a mixed-use development project in Dublin, Ireland (Project Dockland).
The land has planning permission for 420 apartments and approximately 380,000 square feet of offices, but the project borrower has applied for planning permission to increase these numbers to approximately 1,000 total residential units across 2 towers of 40 and 44 stories and 540,000 square feet of offices. These applications are currently under review by the planning authorities. Pre-letting discussions are ongoing in respect to the office building.
33


COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
While the Project Dockland schedule had been extended by approximately six to nine months, as previously disclosed, the majority of enabling works commenced in July 2020 and were on track to be completed in January 2021. The enabling works are currently on hold due to new restrictions (closure of construction sites) imposed by the Irish government in early January 2021. While such restrictions have lasted until April 2021, construction sites are gradually reopening, starting with residential sites first. The aforementioned delay and/or further delays may limit the ability of the borrower to obtain a senior secured development construction facility within the expected timeline as initially underwritten. The Company and its senior mortgage co-lenders regularly engage in discussions with the borrower to address continuing developments at the project.
The combination of project delays, the permitting process and uncertain market conditions as a result of COVID-19 (including adverse impacts on demand for office and residential space), continue to negatively impact the Colony Senior Lenders’ investment interest and elevated concerns regarding the ability to secure an anchor tenant and realize the full amount of the existing senior mortgage loan. During the three months ended September 30, 2020, the Company placed the senior mortgage loan on nonaccrual status. During the three months ended December 31, 2020, the Company continued to maintain nonaccrual status and recorded its proportionate share of a fair value loss adjustment totaling $64.0 million, of which $57.7 million was allocated to the Company and $6.4 million was allocated to the Company’s partner. During the three months ended March 31, 2021, there was no change in accrual status or fair value.
Project Dockland’s fair value is based on a weighted average probability analysis of potential resolutions based on a number of factors which included the inability to secure an anchor tenant in a timely manner or at all, the lack of clarity around the timing of entitlements and continuing uncertain market conditions as a result of COVID-19. The loan’s initial maturity date was December 31, 2020, and the Company has extended the loan to June 2021. The Company is working with the borrower and evaluating options, however uncertainties regarding development, permitting, leasing, and exit strategies may continue to impact the investment.
Investments under Fair Value Option
Private Funds
The Company elected to account for its limited partnership interests, which range from 1.0% to 17.4%, in PE Investments under the fair value option. The Company records equity in earnings for these investments based on a change in fair value of its share of projected future cash flows.
5. Real Estate Securities, Available for Sale
Investments in CRE Securities
CRE securities are composed of CMBS backed by a pool of CRE loans which are typically well-diversified by type and geography. The following table presents CMBS investments as of March 31, 2021 and December 31, 2020 (dollars in thousands):
Weighted Average
Principal AmountTotal DiscountAmortized
Cost
Cumulative Unrealized
on Investments
Fair
Value
Coupon(1)
Unleveraged
Current
Yield(2)
As of Date:CountGain(Loss)
March 31, 20211$11,820 $(7,683)$4,137 $$$4,137 3.25 %%
December 31, 2020219,560 (9,371)10,189 200 10,389 3.35 %%
_________________________________________
(1)All CMBS are fixed rate.
(2)The Company placed all of its CRE securities on cost recovery status as of April 1, 2020.
Consistent with the overall market, the Company’s CRE securities, which it marks to fair value, lost significant value since the onset of the COVID-19 pandemic. While the Company will evaluate selling its non-investment grade rated CRE security over the next twelve months, it is more likely than not that the Company will sell before recovery. During the three months ended March 31, 2021, the Company wrote down through earnings the amortized cost basis for securities in which the fair value dropped below the amortized cost basis, realizing a loss of $1.0 million. The loss was recorded in other gain, net on the Company’s consolidated statements of operations.
34


COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
During the three months ended March 31, 2021, the Company sold one CRE security for a total gross sales price of $5.1 million and realized a gain of $0.1 million. The gain was recorded in other gain (loss), net on the Company’s consolidated statements of operations. At March 31, 2021 the Company had 1 remaining CRE security, which is on cost recovery, and as a result has ceased accretion of any discounts to expected maturity and applied any cash interest received against the CRE security’s carrying value. This decision was made given the inability to project future cash flows. CRE securities serve as collateral for financing transactions for the CMBS Credit Facilities (refer to Note 9, “Debt,” for further detail). As of March 31, 2021, the Company has fully repaid its CMBS Credit Facilities.
During the three months ended March 31, 2021 and 2020, the Company recorded an unrealized loss in OCI of $0.2 million and $75.0 million, respectively. As of March 31, 2021, the Company did 0t hold any securities in an unrealized loss position.
As of March 31, 2021, the weighted average contractual maturity of CRE securities was 28.1 years with an expected maturity of 5.5 years.
Investments in Investing VIEs
The Company is the directing certificate holder of 2 securitization trusts and has the ability to appoint and replace the special servicer on all mortgage loans. As such, U.S. GAAP requires the Company to consolidate the assets, liabilities, income and expenses of the securitization trusts as Investing VIEs. Refer to Note 2, “Summary of Significant Accounting Policies” for further discussion on Investing VIEs.
Other than the securities represented by the Company’s subordinate tranches of the securitization trusts, the Company does not have any claim to the assets or exposure to the liabilities of the securitization trusts. The original issuers, who are unrelated third parties, guarantee the interest and principal payments related to the investment grade securitization bonds in the securitization trusts, therefore these obligations do not have any recourse to the general credit of the Company as the consolidator of the securitization trusts. The Company’s maximum exposure to loss would not exceed the carrying value of its retained investments in the securitization trusts, or the subordinate tranches of the securitization trusts.
As of March 31, 2021, the mortgage loans and the related mortgage obligations held in the securitization trusts had an unpaid principal balance of $1.7 billion and $1.7 billion, respectively. As of December 31, 2020, the mortgage loans and the related mortgage obligations held in the securitization trusts had an unpaid principal balance of $1.7 billion and $1.6 billion, respectively. As of March 31, 2021, across the 2 consolidated securitization trusts, the underlying collateral consisted of 114 underlying commercial mortgage loans, with a weighted average coupon of 4.5% and a weighted average loan to value ratio of 59.8%.
The following table presents the assets and liabilities recorded on the consolidated balance sheets attributable to the securitization trust as of March 31, 2021 and December 31, 2020 (dollars in thousands):
March 31, 2021December 31, 2020
Assets
Mortgage loans held in a securitization trust, at fair value$1,742,141 $1,768,069 
Receivables, net6,413 6,644 
Total assets$1,748,554 $1,774,713 
Liabilities
Mortgage obligations issued by a securitization trust, at fair value$1,673,969 $1,708,534 
Accrued and other liabilities5,948 6,119 
Total liabilities$1,679,917 $1,714,653 
The Company elected the fair value option to measure the assets and liabilities of the securitization trusts, which requires that changes in valuations of the securitization trusts be reflected in the Company’s consolidated statements of operations.
The difference between the carrying values of the mortgage loans held in securitization trusts and the carrying value of the mortgage obligations issued by securitization trusts was $68.2 million and $59.5 million as of March 31, 2021 and December 31, 2020, respectively, and approximates the fair value of the Company’s retained investments in the subordinate tranches of the securitization trusts, which are eliminated in consolidation. Refer to Note 14, “Fair Value” for a description of the valuation techniques used to measure fair value of assets and liabilities of the Investing VIEs.
35


COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The below table presents net income attributable to the Company’s common stockholders for the three months ended March 31, 2021 and 2020 generated from the Company’s investments in the subordinate tranches of the securitization trusts (dollars in thousands):
Three Months Ended March 31,
20212020
Statement of Operations
Interest expense$$(185)
Interest income on mortgage loans held in securitization trusts19,689 20,555 
Interest expense on mortgage obligations issued by securitization trusts(17,336)(18,059)
Net interest income2,353 2,311 
Administrative expense(766)(515)
Unrealized gain (loss) on mortgage loans and obligations held in securitization trusts, net8,638 (19,452)
Net income (loss) attributable to Colony Credit Real Estate, Inc. common stockholders$10,225 $(17,656)

6. Real Estate, net and Real Estate Held for Sale
The following table presents the Company’s net lease portfolio, net, as of March 31, 2021, and December 31, 2020 (dollars in thousands):
March 31, 2021December 31, 2020
Land and improvements$140,242 $136,184 
Buildings, building leaseholds, and improvements586,115 569,610 
Tenant improvements17,419 16,311 
Construction-in-progress661 3,804 
Subtotal$744,437 $725,909 
Less: Accumulated depreciation(59,306)(52,201)
Less: Impairment(1)
(39,169)(34,104)
Net lease portfolio, net(2)
$645,962 $639,604 
_________________________________________
(1)See Note 14, “Fair Value,” for discussion of impairment of real estate.
(2)Prior period amounts have been revised to conform to the current year presentation. See Note 17, “Segment Reporting” for further discussion.
The following table presents the Company’s portfolio of other real estate, including foreclosed properties, as of March 31, 2021 and December 31, 2020 (dollars in thousands):
March 31, 2021December 31, 2020
Land and improvements$53,523 $53,523 
Buildings, building leaseholds, and improvements263,015 262,874 
Tenant improvements24,995 24,931 
Furniture, fixtures and equipment4,245 4,245 
Construction-in-progress913 738 
Subtotal$346,691 $346,311 
Less: Accumulated depreciation(31,480)(29,955)
Less: Impairment(1)
(116,703)(116,703)
Other portfolio, net(2)
$198,508 $199,653 
_________________________________________
(1)See Note 14, “Fair Value,” for discussion of impairment of real estate.
(2)Prior period amounts have been revised to conform to the current year presentation. See Note 17, “Segment Reporting” for further discussion.
For the three months ended March 31, 2021, the Company had 0 properties with rental and other income equal to or greater than 10.0% of total revenue.
At March 31, 2021 and December 31, 2020, the Company held foreclosed properties which are included in real estate, net with a carrying value of $25.8 million and $26.2 million, respectively.
36


COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Depreciation Expense
Depreciation expense on real estate was $6.9 million and $12.0 million for the three months ended March 31, 2021 and 2020, respectively.
Property Operating Income
For the three months ended March 31, 2021 and 2020, the components of property operating income were as follows (dollars in thousands):
Three Months Ended 
 March 31,
20212020
Lease revenues(1)
Minimum lease revenue$22,409 $41,958 
Variable lease revenue2,780 6,649 
$25,189 $48,607 
Hotel operating income701 3,501 
$25,890 $52,108 
_________________________________________
(1)Excludes net amortization expense related to above and below-market leases of $0.2 million and income of $0.4 million for the three months ended March 31, 2021 and 2020, respectively.

Minimum Future Rents
Minimum rental amounts due under leases are generally either subject to scheduled fixed increases or adjustments. The following table presents approximate future minimum rental income under noncancellable operating leases, excluding variable lease revenue of tenant reimbursements, to be received over the next five years and thereafter as of March 31, 2021 (dollars in thousands):
Remainder of 2021$61,211 
202275,456 
202367,563 
202462,250 
202556,363 
2026 and thereafter409,564 
Total$732,407 
The following table presents approximate future minimum rental income under noncancellable operating leases, excluding variable lease revenue of tenant reimbursements, to be received over the next five years and thereafter as of December 31, 2020 (dollars in thousands):
2021$77,716 
202273,760 
202366,137 
202460,657 
202555,152 
2026 and thereafter393,964 
Total(1)
$727,386 
________________________________________
(1)Excludes minimum future rents that is classified as held for sale totaling $103.6 million through 2050.
The rental properties owned at March 31, 2021 are leased under noncancellable operating leases with current expirations ranging from 2022 to 2038, with certain tenant renewal rights. For certain properties, the tenants pay the Company, in addition to the contractual base rent, their pro rata share of real estate taxes and operating expenses. Certain lease agreements provide for periodic rental increases and others provide for increases based on the consumer price index.
37


COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Lease Concessions
As a result of the COVID-19 crisis, some tenants sought and others may seek more flexible payment terms and the Company is currently engaged with affected tenants on a case-by-case basis to evaluate and respond to the current environment. For lease concessions resulting directly from the impact of COVID-19 that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee, for example, where total payments required by the modified contract will be substantially the same as or less than the original contract, the Company made a policy election to account for the concessions as though the enforceable rights and obligations for those concessions existed in the lease contracts, under a relief provided by the FASB. Under the relief, the concessions will not be treated as lease modifications that are accounted for over the remaining term of the respective leases, as the Company believes this would not accurately reflect the temporary economic effect of the concessions. Instead, (i) rent deferrals that meet the criteria will be treated as if no changes were made to the lease contract, with continued recognition of lease income and receivables under the original terms of the contract; and (ii) rent forgiveness that meets the criteria will be accounted for as variable lease payments in the affected periods.
Commitments and Contractual Obligations
Ground Lease Obligation
In connection with real estate acquisitions, the Company assumed certain noncancellable operating ground leases as lessee or sublessee with expiration dates through 2055. Rents on certain ground leases are paid directly by the tenants. Ground rent expense for the three months ended March 31, 2021 and 2020 was $0.8 million.
Refer to Note 16, “Commitments and Contingencies” for the details of future minimum rental payments on noncancellable ground lease on real estate as of March 31, 2021.
Real Estate Asset Acquisition
The Company did not have any real estate acquisitions in 2020 or 2021.
Real Estate Held for Sale
The following table summarizes the Company’s assets and related liabilities held for sale related to real estate (dollars in thousands):
December 31, 2020
Assets
Real estate, net$314,817 
Deferred leasing costs and intangible assets, net8,539 
Total assets held for sale$323,356 
Liabilities
Intangible liabilities, net$323 
Total liabilities related to assets held for sale$323 
At March 31, 2021, the Company held 0 assets as held for sale.
There were 0 assets held for sale that constituted discontinued operations as of December 31, 2020.
Real Estate Sales
During the three months ended March 31, 2021, the Company completed the sale of an industrial portfolio for a total gross sales price of $335.0 million and a total gain on sale of $11.8 million.
The real estate sold during the three months ended March 31, 2021 did not constitute discontinued operations.

38


COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. Deferred Leasing Costs and Other Intangibles
The Company’s deferred leasing costs, other intangible assets and intangible liabilities at March 31, 2021 and December 31, 2020 are as follows (dollars in thousands):
March 31, 2021
Carrying AmountAccumulated AmortizationNet Carrying Amount
Deferred Leasing Costs and Intangible Assets
In-place lease values$83,884 $(30,795)$53,089 
Deferred leasing costs29,775 (12,724)17,051 
Above-market lease values10,446 (7,042)3,404 
$124,105 $(50,561)$73,544 
Intangible Liabilities
Below-market lease values$16,198 $(8,794)$7,404 
December 31, 2020
Carrying AmountAccumulated Amortization
Net Carrying Amount(1)
Deferred Leasing Costs and Intangible Assets
In-place lease values$83,239 $(28,558)$54,681 
Deferred leasing costs29,052 (11,860)17,192 
Above-market lease values10,468 (6,641)3,827 
$122,759 $(47,059)$75,700 
Intangible Liabilities
Below-market lease values$16,149 $(8,492)$7,657 
_________________________________________
(1)Excludes deferred leasing costs and intangible assets and intangible liabilities related to assets held for sale at December 31, 2020.
The following table summarizes the amortization of deferred leasing costs, intangible assets and intangible liabilities for the three months ended March 31, 2021 and 2020 (dollars in thousands):
Three Months Ended March 31,
20212020
Above-market lease values$(404)$(832)
Below-market lease values222 1,236 
Net increase (decrease) to property operating income$(182)$404 
In-place lease values$1,765 $4,350 
Deferred leasing costs620 1,647 
Other intangibles43 (24)
Amortization expense$2,428 $5,973 

39


COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The following table presents the amortization of deferred leasing costs, intangible assets and intangible liabilities, for each of the next five years and thereafter as of March 31, 2021 (dollars in thousands):
202120222023202420252026 and thereafterTotal
Above-market lease values$1,251 $1,009 $519 $391 $213 $21 $3,404 
Below-market lease values(1,203)(1,382)(1,375)(1,375)(1,373)(696)(7,404)
Net increase (decrease) to property operating income$48 $(373)$(856)$(984)$(1,160)$(675)$(4,000)
In-place lease values$5,657 $6,146 $5,245 $4,945 $4,259 $26,837 $53,089 
Deferred leasing costs2,919 2,779 2,216 1,908 1,521 5,708 17,051 
Amortization expense$8,576 $8,925 $7,461 $6,853 $5,780 $32,545 $70,140 

8. Restricted Cash, Other Assets and Accrued and Other Liabilities
The following table presents a summary of restricted cash as of March 31, 2021 and December 31, 2020 (dollars in thousands):
March 31, 2021December 31, 2020
Restricted cash:
Borrower escrow deposits$40,663 $36,973 
Capital expenditure reserves7,116 6,949 
Tenant lockboxes5,018 4,633 
Real estate escrow reserves2,938 13,807 
Working capital and other reserves2,107 2,561 
Margin pledged as collateral189 290 
Total$58,031 $65,213 
The following table presents a summary of other assets as of March 31, 2021 and December 31, 2020 (dollars in thousands):
March 31, 2021December 31, 2020
Other assets:
Prepaid taxes, tax receivable and deferred tax assets$24,966 $26,294 
Right-of-use lease asset21,550 22,056 
Deferred financing costs, net - credit facilities5,494 6,440 
Prepaid expenses2,962 4,272 
Other assets2,216 651 
Investment deposits and pending deal costs801 801 
Derivative asset107 386 
Total$58,096 $60,900 
40


COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The following table presents a summary of accrued and other liabilities as of March 31, 2021 and December 31, 2020 (dollars in thousands):
March 31, 2021December 31, 2020
Accrued and other liabilities:
Current and deferred tax liability$30,545 $32,569 
Operating lease liability21,706 22,186 
Interest payable15,739 14,970 
Prepaid rent and unearned revenue12,842 9,082 
Accounts payable, accrued expenses and other liabilities12,461 15,083 
Restructuring charges6,322 
Unfunded CECL loan allowance935 1,313 
Tenant security deposits410 1,338 
Derivative liability24 37 
Total$100,984 $96,578 

41


COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
9. Debt
The following table presents debt as of March 31, 2021 and December 31, 2020 (dollars in thousands):
March 31, 2021December 31, 2020
Capacity ($)
Recourse vs. Non-Recourse(1)
Final
Maturity
Contractual
Interest Rate
Principal
Amount(2)
Carrying Value(2)
Principal Amount(2)
Carrying Value(2)
Securitization bonds payable, net
CLNC 2019-FL1(3)
Non-recourseAug-35 LIBOR + 1.59%$840,423 $835,688 $840,423 $835,153 
Subtotal securitization bonds payable, net840,423 835,688 840,423 835,153 
Mortgage and other notes payable, net
Net lease 6Non-recourseOct-274.45%23,515 23,515 23,608 23,608 
Net lease 5Non-recourseNov-264.45%3,339 3,263 3,351 3,272 
Net lease 4Non-recourseNov-264.45%7,204 7,040 7,230 7,059 
Net lease 3Non-recourseJun-214.00%12,130 12,111 12,191 12,163 
Net lease 6Non-recourseJul-23LIBOR + 2.15%1,214 1,187 1,364 1,333 
Net lease 5Non-recourseAug-264.08%31,139 30,909 31,244 31,004 
Net lease 1(4)
Non-recourseNov-264.45%18,131 17,719 18,196 17,765 
Net lease 1(5)
Non-recourseMar-284.38%11,943 11,506 12,021 11,584 
Net lease 1Non-recourseJul-254.31%250,000 247,939 
Net lease 2(6)
Non-recourseJun-253.91%187,328 189,985 187,151 189,806 
Net lease 3Non-recourseSep-334.77%200,000 198,624 200,000 198,604 
Other real estate 1Non-recourseOct-244.47%106,601 107,121 107,029 107,596 
Other real estate 3Non-recourseJan-254.30%73,562 73,021 73,905 73,341 
Other real estate 6(7)
Non-recourseApr-24LIBOR + 2.95%22,788 22,330 22,788 22,306 
Loan 9(8)
Non-recourseJun-24LIBOR + 3.00%75,377 75,378 75,377 75,377 
Subtotal mortgage and other notes payable, net774,271 773,709 1,025,455 1,022,757 
Bank credit facility
Bank credit facility$450,000 Recourse
Feb-23 (9)
 LIBOR + 2.25%
Subtotal bank credit facility
Master repurchase facilities
Bank 1 facility 3$400,000 
Limited Recourse(10)
Apr-23(11)
 LIBOR + 1.97%(12)122,333 122,333 112,509 112,509 
Bank 2 facility 321,353 
Limited Recourse(10)
Oct-22(13)
 LIBOR + 2.50%(12)19,353 19,353 19,353 19,353 
Bank 3 facility 3600,000 
Limited Recourse(10)
Apr-23(14)
 LIBOR + 2.12%(12)231,058 231,058 196,738 196,738 
Bank 7 facility 1500,000 
Limited Recourse(10)
Apr-25(15)
 LIBOR + 2.09%(12)199,700 199,700 89,912 89,912 
Bank 8 facility 1250,000 
Limited Recourse(10)
Jun-21 (16)
 LIBOR + 1.96%(12)127,480 127,480 116,712 116,712 
Bank 9 facility 1300,000 (17)
Nov-23(18)
 LIBOR + 1.94%(12)87,999 87,999 
Subtotal master repurchase facilities$2,071,353 787,923 787,923 535,224 535,224 
Subtotal credit facilities787,923 787,923 535,224 535,224 
Total$2,402,617 $2,397,320 $2,401,102 $2,393,134 
_________________________________________
(1)Subject to customary non-recourse carveouts.
(2)Difference between principal amount and carrying value of securitization bonds payable, net and mortgage and other notes payable, net is attributable to deferred financing costs, net and premium/discount on mortgage notes payable.
42


COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(3)The Company, through indirect Cayman subsidiaries, securitized commercial mortgage loans originated by the Company. Senior notes issued by the securitization trusts were generally sold to third parties and subordinated notes retained by the Company. These securitizations are accounted for as secured financing with the underlying mortgage loans pledged as collateral. Principal payments from underlying collateral loans must be applied to repay the notes until fully paid off, irrespective of the contractual maturities on the notes. Underlying collateral loans have initial terms of two to three years.
(4)Payment terms are periodic payment of principal and interest for debt on 2 properties and periodic payment of interest only with principal at maturity (except for principal repayments to release collateral properties disposed) for debt on 1 property.
(5)Represents a mortgage note collateralized by 3 properties.
(6)As of March 31, 2021, the outstanding principal of the mortgage payable was NOK 1.6 billion, which translated to $187.3 million.
(7)The current maturity of the mortgage payable is April 2022, with 2 one-year extensions available at the Company’s option, which may be subject to the satisfaction of certain customary conditions set forth in the governing documents.
(8)The current maturity of the note payable is June 2021, with 3 one-year extensions available at the Company’s option, which may be subject to the satisfaction of certain customary conditions set forth in the governing documents.
(9)The ability to borrow additional amounts terminates on February 1, 2022 at which time the Company may, at its election, extend the termination date for 2 additional six-month terms.
(10)Recourse solely with respect to 25.0% of the financed amount.
(11)The current maturity date was April 2021. In April 2021, the Company entered into an agreement to extend the maturity date to April 2023 with 3 one-year extensions available at the option of the Company, which may be exercised upon the satisfaction of certain customary conditions set forth in the governing documents.
(12)Represents the weighted average spread as of March 31, 2021. The contractual interest rate depends upon asset type and characteristics and ranges from one-month London Interbank Offered Rates (“LIBOR”) plus 1.50% to 2.60%.
(13)The current maturity date is October 2021.
(14)The current maturity date is April 2022, with 2 one-year extensions available at the option of the Company, which may be exercised upon the satisfaction of certain customary conditions set forth in the governing documents.
(15)The current maturity date is April 2024, with a one-year extension available at the option of the Company, which may be exercised upon the satisfaction of certain customary conditions set forth in the governing documents.
(16)The current maturity date is June 2021. In April 2021, the Company entered into an amended agreement which provides for 2 one-year extension options, which may be subject to the satisfaction of certain customary conditions set forth in the governing documents.
(17)Recourse is either 25.0% or 50.0% depending on loan metrics.
(18)The current maturity date is November 2021. In May 2021, the Company entered into an agreement to extend the maturity date to May 2024 with 2 one-year extensions available at the option of the Company, which may be exercised upon the satisfaction of certain customary conditions set forth in the governing documents.

Future Minimum Principal Payments
The following table summarizes future scheduled minimum principal payments at March 31, 2021 based on initial maturity dates or extended maturity dates to the extent criteria are met and the extension option is at the borrower’s discretion (dollars in thousands):
TotalSecuritization Bonds Payable, NetMortgage Notes Payable, NetCredit Facilities
Remainder of 2021$141,415 $$13,935 $127,480 
202221,873 2,520 19,353 
2023443,917 2,527 441,390 
2024206,985 206,985 
2025462,866 263,166 199,700 
2026 and thereafter1,125,561 840,423 285,138 
Total$2,402,617 $840,423 $774,271 $787,923 
Bank Credit Facility
On February 1, 2018, the Company, through subsidiaries, including the OP, entered into a credit agreement with several lenders to provide a revolving credit facility in the aggregate principal amount of up to $400.0 million (the “Bank Credit Facility”). On December 17, 2018, the aggregate amount of revolving commitments was increased to $525.0 million and on February 4, 2019, the aggregate amount of revolving commitments was increased to $560.0 million. On May 6, 2020 these commitments were reduced to $450.0 million. The Bank Credit Facility will mature on February 1, 2022, unless the OP elects to extend the maturity date for up to 2 additional six-month terms.
The maximum amount available for borrowing at any time under the Bank Credit Facility is limited to a borrowing base valuation of certain investment assets, with the valuation of such investment assets generally determined according to a percentage of adjusted net book value. At March 31, 2021, the borrowing base valuation was sufficient to support the borrowing of up to $101.7 million.
43


COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Advances under the Bank Credit Facility accrue interest at a per annum rate equal to, at the applicable borrower’s election, either a LIBOR rate plus a margin of 2.25%, or a base rate determined according to a prime rate or federal funds rate plus a margin of 1.25%. The Company pays a commitment fee of 0.25% or 0.35% per annum of the unused amount (0.35%) at March 31, 2021, depending upon the amount of facility utilization.
Substantially all material wholly owned subsidiaries of the Company guarantee the obligations of the Company and any other borrowers under the Bank Credit Facility. As security for the advances under the Bank Credit Facility, the Company pledged substantially all equity interests it owns and granted a security interest in deposit accounts in which the proceeds of investment asset distributions are maintained.
The Bank Credit Facility contains various affirmative and negative covenants including financial covenants that require the Company to maintain minimum tangible net worth, liquidity levels and financial ratios, as specified in the Bank Credit Facility.

On April 5, 2021, the Company entered into a fourth amendment to its Bank Credit Facility to: (i) permit the OP to consummate the Internalization; (ii) reduce the minimum tangible net worth covenant requirement from $1.5 billion to $1.35 billion upon consummation of the Internalization; (iii) increase the Company’s ability to make restricted payments including additional dividends and stock buybacks and remove all material restrictions on new investments, in each case, so long as no default exists and the OP is in compliance with the financial covenants; (iv) increase the maximum amount available for borrowing from 90% to 100% of borrowing base value; and (v) reduce the aggregate amount of lender commitments from $450.0 million to $300.0 million. At March 31, 2021, the Company was in compliance with all of the financial covenants.
Securitization Financing Transactions
Securitization bonds payable, net represent debt issued by securitization vehicles consolidated by the Company. Senior notes issued by these securitization trusts were generally sold to third parties and subordinated notes retained by the Company. Payments from underlying collateral loans must be applied to repay the notes until fully paid off, irrespective of the contractual maturities of the loans.
In October 2019, the Company executed a securitization transaction, through wholly-owned subsidiaries, CLNC 2019-FL1, Ltd. and CLNC 2019-FL1, LLC (collectively, “CLNC 2019-FL1”), which resulted in the sale of $840.4 million of investment grade notes. The securitization reflects an advance rate of 83.5% at a weighted average cost of funds of LIBOR plus 1.59%, and is collateralized by a pool of 20 senior loans originated by the Company.
CLNC 2019-FL1 includes a two-year reinvestment feature that allows us to contribute existing or newly originated loan investments in exchange for proceeds from repayments or repurchases of loans held in CLNC 2019-FL1, subject to the satisfaction of certain conditions set forth in the indenture. In addition to existing eligible loans available for reinvestment, the continued origination of securitization eligible loans is required to ensure that the Company reinvests the available proceeds within CLNC 2019-FL1.
Additionally, CLNC 2019-FL1 contains note protection tests that can be triggered as a result of contributed loan defaults, losses, and certain other events outlined in the indenture, beyond established thresholds. A note protection test failure that is not remedied can result in the redirection of interest proceeds from the below investment grade tranches to amortize the most senior outstanding tranche. While the Company continues to closely monitor all loan investments contributed to CLNC 2019-FL1, a deterioration in the performance of an underlying loan could negatively impact its liquidity position.
As of March 31, 2021, the Company had $1.0 billion carrying value of CRE debt investments financed with $840.4 million of securitization bonds payable, net.
Master Repurchase Facilities
As of March 31, 2021, the Company, through subsidiaries, had entered into repurchase agreements with multiple global financial institutions to provide an aggregate principal amount of up to $2.1 billion to finance the origination of first mortgage loans and senior loan participations secured by CRE debt investments (“Master Repurchase Facilities”). The Company agreed to guarantee certain obligations under the Master Repurchase Facilities, which contain representations, warranties, covenants, conditions precedent to funding, events of default and indemnities that are customary for agreements of this type. The Master Repurchase Facilities act as revolving loan facilities that can be paid down as assets are repaid or sold and re-drawn upon for new investments. As of March 31, 2021, the Company was in compliance with all of its financial covenants under the Master Repurchase Facilities.
44


COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
As of March 31, 2021, the Company had $1.1 billion carrying value of CRE debt investments financed with $787.9 million under the master repurchase facilities.
On May 7, 2020, the Company amended all 6 of its Master Repurchase Facilities to reduce the minimum tangible net worth covenant consistent with the Bank Credit Facility. During the first quarter of 2020, the Company received and timely paid a margin call on a hospitality loan and made voluntarily paydowns on 2 other hospitality and 1 retail loan. The lender granted the Company a holiday from future margin calls for four months, and it obtained broader discretion to enter into permitted modifications with the borrowers on these 3 specific loans, if necessary.
In May 2020, the Company amended 2 of its Master Repurchase Facilities pursuant to which the Company reduced facility advances corresponding to 10 senior mortgage loans financed under such facilities. The Company and its lender counterparties agreed to temporary modifications providing for margin holidays from future margin calls or buffers before further margin calls are possible, as well as providing additional protections before certain repurchase obligations may be triggered. The Company was also provided broader discretion to negotiate with its borrowers to implement certain modifications to the underlying loans during such period. These holiday periods expired in the fourth quarter of 2020. Additionally, during the third quarter and fourth quarter of 2020, the Company made voluntarily paydowns on a hospitality loan and a self-storage loan, respectively. In exchange for the paydown on the self-storage loan, the lender granted the Company a holiday from future margin calls for four months, and the Company obtained broader approval to enter into a permitted modification with the borrower.
During the first quarter of 2021, the Company entered into an amendment under its Master Repurchase Facility with Bank 3 and Bank 7 to extend the maturity date by two years and three years, respectively.
In April 2021, the Company entered into an amendment under its Master Repurchase Facility with Bank 1 and Bank 8 to extend the maturity date by three years and two years, respectively.
In May 2021, the Company entered into an amendment under its Master Repurchase Facility with Bank 9 to extend the maturity date by three years.
Additionally, in April 2021, the Company entered into amendments under its 6 Master Repurchase Facilities to: (i) permit the guarantor and the OP to consummate the Internalization; and (ii) reduce the minimum tangible net worth covenant requirement from $1.5 billion to $1.35 billion upon consummation of the Internalization.
CMBS Credit Facilities
As of March 31, 2021 the Company had entered into 8 master repurchase agreements (collectively the “CMBS Credit Facilities”) to finance CMBS investments. The CMBS Credit Facilities are on a recourse basis and contain representations, warranties, covenants, conditions precedent to funding, events of default and indemnities that are customary for agreements of this type. The CMBS Credit Facilities were undrawn at March 31, 2021 and December 31, 2020.
10. Related Party Arrangements
Management Agreement
On January 31, 2018, the Company and the OP entered into a management agreement (the “Management Agreement”) with the Manager, pursuant to which the Manager managed the Company’s assets and its day-to-day operations. The Manager was responsible for, among other matters, (1) the selection, origination, acquisition, management and sale of the Company’s portfolio investments, (2) the Company’s financing activities and (3) providing the Company with investment advisory services. The Manager was also responsible for the Company’s day-to-day operations and performed (or would cause to be performed) such services and activities relating to the Company’s investments and business and affairs as may be appropriate. The Management Agreement required the Manager to manage the Company’s business affairs in conformity with the investment guidelines and other policies that are approved and monitored by the Board of Directors. Each of the Company’s executive officers was also an employee of the Manager or its affiliates. The Manager’s role as Manager was under the supervision and direction of the Company’s Board of Directors.
The initial term of the Management Agreement expired on the third anniversary of the closing date of the Combination, January 31, 2018 (the “Closing Date”), and would be automatically renewed for a one-year term each anniversary date thereafter unless earlier terminated as described below. The Company’s independent directors reviewed the Manager’s performance and the fees that may be payable to the Manager annually and, following the initial term, the Management Agreement could be terminated if there was an affirmative vote of at least two-thirds of the Company’s independent directors determining that (1) there had been unsatisfactory performance by the Manager that is materially detrimental to the Company or (2) the compensation payable to
45


COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
the Manager, in the form of base management fees and incentive fees taken as a whole, or the amount thereof, was not fair to the Company, subject to the Manager’s right to prevent such termination due to unfair fees by accepting reduced compensation as agreed to by at least two-thirds of the Company’s independent directors. The Company was required to provide the Manager 180 days’ prior written notice of any such termination.
The Company could also terminate the Management Agreement for cause (as defined in the Management Agreement) at any time, including during the initial term, without the payment of any termination fee, with at least 30 days’ prior written notice from the Company’s Board of Directors. Unless terminated for cause, the Manager would be paid a termination fee as described below. The Manager could terminate the Management Agreement if the Company was required to register as an investment company under the Investment Company Act with such termination deemed to occur immediately before such event, in which case the Company would not be required to pay a termination fee. The Manager could have declined to renew the Management Agreement by providing the Company with 180 days’ prior written notice, in which case the Company would not be required to pay a termination fee. The Manager could also terminate the Management Agreement with at least 60 days’ prior written notice if the Company breached the Management Agreement in any material respect or otherwise was unable to perform its obligations thereunder and the breach continued for a period of 30 days after written notice to the Company, in which case the Manager would be paid a termination fee as described below.
In November 2019, the Manager, the Company and the OP amended and restated the Management Agreement to modify the “Core Earnings” definition, providing that “unrealized provisions for loan losses and real estate impairments” shall only be applied as exclusions from the definition of Core Earnings if approved by a majority of the independent directors of the Company. Such change became effective during the fourth quarter of 2019 and resulted in a reduction to Core Earnings which thereby reduced the annual management fee and any incentive fee paid by the Company due to accumulated unrealized provisions for loan losses and real estate impairments to date.
Internalization
On April 30, 2021, the Company completed the Internalization, including the internalization of the Company’s management and operating functions and terminated its relationship with its Manager, a subsidiary of Colony Capital, in accordance with the Termination Agreement. The Company paid the Manager a one-time termination fee of $102.3 million and additional closing costs of $0.3 million. As of March 31, 2021, $102.6 million of unpaid fees related to the Internalization were included in due to related party in the Company’s consolidated balance sheet. The Company will no longer pay management or incentive fees to the Manager for any post-closing period. Refer to Note 1, “Business and Organization,” for further details.
Fees to Manager
Base Management Fee
The base management fee payable to the Manager under the Management Agreement was equal to 1.5% of the Company’s stockholders’ equity (as defined in the Management Agreement), per annum (0.375% per quarter), payable quarterly in arrears in cash. For purposes of calculating the base management fee, the Company’s stockholders’ equity means: (a) the sum of (1) the net proceeds received by the Company (or, without duplication, the Company’s direct subsidiaries, such as the OP) from all issuances of the Company’s or such subsidiaries’ common and preferred equity securities since inception (allocated on a pro rata basis for such issuances during the calendar quarter of any such issuance), plus (2) the Company’s cumulative Core Earnings (as defined in the Management Agreement) from and after the Closing Date to the end of the most recently completed calendar quarter, less (b)(1) any distributions to the Company’s common stockholders (or owners of common equity of the Company’s direct subsidiaries, such as the OP, other than the Company or any of such subsidiaries), (2) any amount that the Company or any of the Company’s direct subsidiaries, such as the OP, have paid to (x) repurchase for cash the Company’s common stock or common equity securities of such subsidiaries or (y) repurchase or redeem for cash the Company’s preferred equity securities or preferred equity securities of such subsidiaries, in each case since the Closing Date and (3) any incentive fee (as described below) paid to the Manager since the Closing Date.
For the three months ended March 31, 2021 and 2020, the total management fee expense incurred was $7.3 million, and $7.9 million, respectively. As of March 31, 2021 and December 31, 2020, $7.5 million and $7.4 million, respectively, of unpaid management fee were included in due to related party in the Company’s consolidated balance sheets.
Following the Internalization on April 30, 2021, the Company will no longer pay a base management fee to the Manager.
46


COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Incentive Fee
The incentive fee payable to the Manager under the Management Agreement was equal to the difference between (i) the product of (a) 20% and (b) the difference between (1) Core Earnings (as defined in the Management Agreement) for the most recent 12-month period (or the Closing Date if it has been less than 12 months since the Closing Date), including the current quarter, and (2) the product of (A) common equity (as defined in the Management Agreement) in the most recent 12-month period (or the Closing Date if it has been less than 12 months since the Closing Date), and (B) 7% per annum and (ii) the sum of any incentive fee paid to the Manager with respect to the first three calendar quarters of the most recent 12-month period (or the Closing Date if it has been less than 12 months since the Closing Date), provided, however, that no incentive fee is payable with respect to any calendar quarter unless Core Earnings (as defined in the Management Agreement) is greater than zero for the most recently completed 12 calendar quarters (or the Closing Date if it has been less than 12 calendar quarters since the Closing Date).
The Company did 0t incur any incentive fees during the three months ended March 31, 2021 and 2020.
Following the Internalization on April 30, 2021, the Company will no longer pay an incentive fee to the Manager.
Reimbursements of Expenses
Reimbursement of expenses related to the Company incurred by the Manager, including legal, accounting, financial, due diligence and other services were paid on the Company’s behalf by the OP or its designee(s). The Company reimbursed the Manager for the Company’s allocable share of the salaries and other compensation of the Company’s chief financial officer and certain of its affiliates’ non-investment personnel who spent all or a portion of their time managing the Company’s affairs, and the Company’s share of such costs were based upon the percentage of such time devoted by personnel of the Manager (or its affiliates) to the Company’s affairs. The Company may have been required to pay the Company’s pro rata portion of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses of the Manager and its affiliates required for the Company’s operations.
For the three months ended March 31, 2021 and 2020, the total reimbursements of expenses incurred by the Manager on behalf of the Company and reimbursable in accordance with the Management Agreement was $2.0 million and $2.7 million, respectively, and are included in administrative expense on the consolidated statements of operations. As of March 31, 2021 and December 31, 2020, there were $2.0 million and $2.7 million of unpaid expenses included in due to related party in the Company’s consolidated balance sheets.
Following the Internalization on April 30, 2021, the Company will no longer reimburse expenses incurred by the CLNC Manager.
Equity Plan Grants
In January 2021, the Company granted 1,420,000 shares of restricted stock and 276,000 PSUs to certain employees of the Manager under the 2018 Equity Incentive Plan (the “2018 Plan”). Following the Internalization, these employees became employees of the Company. In April 2020, the Company granted 143,000 shares to its chief executive officer. In March 2019, the Company granted 800,000 shares to the Manager and/or employees thereof under the 2018 Plan. In March 2018, the Company granted 978,946 shares to its non-independent directors, officers and the Manager and/or employees thereof under the 2018 Plan. 1,924,568 shares remain granted and unvested as of March 31, 2021. See Note 11, “Equity-Based Compensation” for further discussion on the 2018 Plan including shares issued to independent directors of the Company. During the three months ended March 31, 2021 and 2020, the Company recognized share-based compensation expense of $4.2 million and $0.2 million, respectively. Both amounts were included within administrative expense in the consolidated statement of operations.
Investment Activity
All investment acquisitions are approved in accordance with the Company’s investment and related party guidelines, which may include approval by either the audit committee or disinterested members of the Company’s Board of Directors. No investment by the Company will require approval under the related party transaction policy solely because such investment constitutes a co-investment made by and between the Company and any of its subsidiaries, on the one hand, and one or more investment vehicles formed, sponsored, or managed by an affiliate of the Manager on the other hand.
In July 2017, NorthStar Real Estate Income II, Inc., a Maryland corporation which merged with and into the Company as part of the Company’s formation transactions (“NorthStar II”), entered into a joint venture with an affiliate of the Manager to make a $60.0 million investment in a $180.0 million mezzanine loan which was originated by such affiliate of the Manager. The
47


COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
transaction was approved by NorthStar II’s board of directors, including all of its independent directors. The investment was purchased by the Company in connection with the Combination. In June 2018, the Company increased its commitment to $101.8 million in connection with the joint venture bifurcating the mezzanine loan into a mezzanine loan and a preferred equity investment. The Company’s interest in both the underlying mezzanine loan and preferred equity investment is 31.8%, and the affiliate entities own the remaining 68.2%. Both the underlying mezzanine loan and preferred equity investment carry a fixed 13.0% interest rate. This investment is recorded in investments in unconsolidated ventures in the Company’s consolidated balance sheets. In July 2019, the Company increased its commitment in the mezzanine loan from $101.8 million to $189.0 million. The Company’s interest in the upsized mezzanine loan is 45.2% and it carries a fixed 13.0% interest rate. During the three months ended June 30, 2020, the Company made its pro-rata share of two protective advances to the senior mortgage lender totaling $28.5 million. The Company placed this investment on nonaccrual status as of April 1, 2020. In September 2020 the Company’s mezzanine loan and preferred equity investment was converted into a mezzanine participation. See Note 4, “Investments in Unconsolidated Ventures,” for further information.
In July 2018, the Company acquired a $326.8 million Class A office campus located in Norway from an affiliate of the Company’s Manager. In connection with the purchase, the Company assumed senior mortgage financing from a private bond issuance of $197.7 million. The bonds have a five-year term remaining, and carry a fixed interest rate of 3.91%.
In July 2018, the Company entered into a joint venture to invest in a development project for land and a Grade A office building in Ireland. The Company agreed to invest up to $69.9 million of the $139.7 million total commitment. The Company co-invested along with two affiliates of the Manager, with the Company owning 50.0% of the joint venture and the affiliate entities owning the remaining 50.0%. The joint venture invested in a senior mortgage loan of $66.7 million with a fixed interest rate of 12.5% and a maturity date of 3.5 years from origination and common equity.
In October 2018, the Company entered into a joint venture to invest in a mixed-use development project in Ireland. The Company agreed to invest up to $162.4 million of the $266.5 million total commitment. The Company co-invested along with two affiliates of the Manager, with the Company owning 61.0% of the joint venture and the affiliate entities owning the remaining 39.0%. The joint venture invested in a senior mortgage loan with a fixed interest rate of 15.0% and a maturity date of two years from origination. The Company placed this investment on nonaccrual status as of July 1, 2020. See Note 4, “Investments in Unconsolidated Ventures,” for further information.
11. Equity-Based Compensation
On January 29, 2018 the Company’s Board of Directors adopted the 2018 Plan. The 2018 Plan permits the grant of awards with respect to 4.0 million shares of the Class A common stock, subject to adjustment pursuant to the terms of the 2018 Plan. Awards may be granted under the 2018 Plan to (x) the Manager or any employee, officer, director, consultant or advisor (who is a natural person) providing services to the Company, the Manager or their affiliates and (y) any other individual whose participation in the 2018 Plan is determined to be in the best interests of the Company. The following types of awards may be made under the 2018 Plan, subject to the limitations set forth in the plan: (i) stock options (which may be either incentive stock options or non-qualified stock options); (ii) stock appreciation rights; (iii) restricted stock awards; (iv) stock units; (v) unrestricted stock awards; (vi) dividend equivalent rights; (vii) performance awards; (viii) annual cash incentive awards; (ix) long-term incentive units; and (x) other equity-based awards.
Shares subject to an award granted under the 2018 Plan will be counted against the maximum number of shares of Class A common stock available for issuance thereunder as one share of Class A common stock for every one share of Class A common stock subject to such an award. Shares subject to an award granted under the 2018 Plan will again become available for issuance under the 2018 Plan if the award terminates by expiration, forfeiture, cancellation, or otherwise without the issuance of such shares (except as set forth in the following sentence). The number of shares of Class A common stock available for issuance under the 2018 Plan will not be increased by (i) any shares tendered or withheld in connection with the purchase of shares upon exercise of a stock option, (ii) any shares deducted or delivered in connection with the Company’s tax withholding obligations, or (iii) any shares purchased by the Company with proceeds from stock option exercises. The shares granted in May 2020 to the independent directors of the Company under the 2018 Plan vest in May 2021. Shares granted to non-independent directors, officers and the Manager under the 2018 Plan vest ratably in three annual installments.
Restricted Stock—Restricted stock awards relating to the Company’s class A common stock are granted to certain employees of the Manager and independent directors of the Company, with a service condition only and are generally subject to annual time-based vesting in equal tranches over a three-year period. Restricted stock is entitled to dividends declared and paid on the Company’s class A common stock and such dividends are not forfeitable prior to vesting of the award. Restricted stock awards are valued based on the Company’s class A common stock price on grant date and equity-based compensation expense is recognized on a straight-line basis over the requisite three-year service period. Some employees of the Manager who were
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COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
granted restricted stock under the 2018 Plan became employees of the Company following the Internalization on April 30, 2021. The shares held by substantially all remaining employees of the Manager will vest following the Internalization.
Performance Stock Units (“PSU”)—PSUs are granted to certain employees of the Manager and are subject to both a service condition and a performance condition. Following the end of the measurement period for the PSUs, the recipients of PSUs may be eligible to vest in all or a portion of PSUs granted, and be issued a number of shares of the Company’s class A common stock, ranging from 0% to 200% of the number of PSUs granted and eligible to vest, to be determined based upon the performance of the Company's class A common stock relative to the Company’s GAAP book value at the end of a two-year measurement period. PSUs also contain dividend equivalent rights which entitle the recipients to a payment equal to the amount of dividends that would have been paid on the shares that are ultimately issued at the end of the measurement period. Employees of the Manager who were granted PSUs became employees of the Company following the Internalization on April 30, 2021.
Fair value of PSUs, including dividend equivalent rights, was determined using a Monte Carlo simulation, with the following assumptions:
2021 Grant
Expected volatility(1)
86.6 %
Risk free rate(2)
0.1 %
Expected dividend yield(3)
_________________________________________
(1)Based upon the Company’s historical stock volatility.
(2)Based upon the continuously compounded zero-coupon U.S. Treasury yield for the term coinciding with the remaining measurement period of the award as of valuation date.
(3)Based upon the dividend yield in place as of the grant date.

Fair value of PSU awards, excluding dividend equivalent rights, is recognized on a straight-line basis over their measurement period as compensation expense, and is subject to reversal if the performance condition is not achieved.
The table below summarizes the Company’s awards granted, forfeited or vested under the 2018 Plan during the three months ended March 31, 2021:
Number of SharesWeighted Average Grant Date Fair Value
Restricted StockPSUsTotalRestricted StockPSUs
Unvested shares at December 31, 2020885,070 885,070 $16.16 $
Granted1,420,000 276,000 1,696,000 8.28 11.96 
Vested(244,707)(244,707)17.46 
Forfeited(135,795)(135,795)17.47 
Unvested shares at March 31, 20211,924,568 276,000 2,200,568 12.18 11.96 
Fair value of equity awards that vested during the three months ended March 31, 2021 and March 31, 2020, determined based on their respective fair values at vesting date, was $2.3 million and $2.6 million, respectively. Fair value of granted awards is determined based on the closing price of the Class A common stock on the date of grant of the awards. Equity-based compensation is classified within administrative expense in the consolidated statement of operations.
At March 31, 2021, aggregate unrecognized compensation cost for all unvested equity awards was $14.2 million, which is expected to be recognized over a weighted-average period of 2.57 years.
12. Stockholders’ Equity
Authorized Capital
As of March 31, 2021, the Company had the authority to issue up to 1.0 billion shares of stock, at $0.01 par value per share, consisting of 950.0 million shares of Class A common stock and 50.0 million shares of preferred stock.
The Company had 0 shares of preferred stock issued and outstanding as of March 31, 2021.
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COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Dividends
During the three months ended March 31, 2021, the Company declared the following dividends on its common stock:
Declaration DateRecord DatePayment DatePer Share
February 24, 2021March 31, 2021April 15, 2021$0.10
Subsequent to March 31, 2021, the Board of Directors approved a $0.14 quarterly dividend for the second quarter of 2021, payable on July 15, 2021 to stockholders of record as of June 30, 2021.
Accumulated Other Comprehensive Income (Loss)
The following tables present the changes in each component of Accumulated Other Comprehensive Income (Loss) (“AOCI”) attributable to stockholders and noncontrolling interests in the OP, net of immaterial tax effect.
Changes in Components of AOCI - Stockholders
(in thousands)Unrealized gain (loss) on real estate securities, available for saleUnrealized gain on net investment hedgesForeign currency translation gain (loss)Total
AOCI at December 31, 2020$275 $47,127 $7,186 $54,588 
Other comprehensive income (loss) before reclassification(1,035)(7,547)(8,582)
Amounts reclassified from AOCI760 760 
Net current period OCI(275)(7,547)(7,822)
AOCI at March 31, 2021$$47,127 $(361)$46,766 

(in thousands)Unrealized gain (loss) on real estate securities, available for saleUnrealized gain on net investment hedgesForeign currency translation lossTotal
AOCI at December 31, 2019$15,909 $25,872 $(13,487)$28,294 
Other comprehensive income (loss)(73,273)21,255 (18,981)(70,999)
AOCI at March 31, 2020$(57,364)$47,127 $(32,468)$(42,705)


Changes in Components of AOCI - Noncontrolling Interests in the OP
(in thousands)Unrealized gain (loss) on real estate securities, available for saleUnrealized gain (loss) on net investment hedgesForeign currency translation gain (loss)Total
AOCI at December 31, 2020$(73)$1,403 $(272)$1,058 
Other comprehensive income (loss) before reclassification98 (210)(112)
Amounts reclassified from AOCI(25)(25)
Net current period OCI73 (210)(137)
AOCI at March 31, 2021$$1,403 $(482)$921 

(in thousands)Unrealized gain (loss) on real estate securities, available for saleUnrealized gain on net investment hedgesForeign currency translation lossTotal
AOCI at December 31, 2019$612 $893 $(801)$704 
Other comprehensive income (loss)(1,756)509 (455)(1,702)
AOCI at March 31, 2020$(1,144)$1,402 $(1,256)$(998)

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COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Changes in Components of AOCI - Noncontrolling Interests in investment entities

(in thousands)Unrealized gain (loss) on real estate securities, available for saleUnrealized gain (loss) on net investment hedgesForeign currency translation gain (loss)Total
AOCI at December 31, 2020$$$2,193 $2,193 
Other comprehensive income(776)(776)
AOCI at March 31, 2021$$$1,417 $1,417 

There was no accumulated other comprehensive income for noncontrolling interests in investment entities for the three months ended March 31, 2020.

The following table presents the details of the reclassifications from AOCI for the three months ended March 31, 2021:

(in thousands)
Component of AOCI reclassified into earningsThree Months Ended March 31, 2021Affected Line Item in the Consolidated Statements of Operations
Realized gain on sale of real estate securities$104 Other gain (loss), net
Impairment of real estate securities$(967)Other gain (loss), net
The Company had no reclassifications from accumulated other comprehensive income for the three months ended March 31, 2020.
13. Noncontrolling Interests
Operating Partnership
Noncontrolling interests include the aggregate limited partnership interests in the OP held by an affiliate of Colony Capital Operating Company, LLC, the operating partnership of Colony Capital. Net income (loss) attributable to the noncontrolling interests is based on the limited partners’ ownership percentage of the OP. Net loss attributable to the noncontrolling interests of the OP was $2.0 million and $1.9 million for the three months ended March 31, 2021 and 2020, respectively.
Investment Entities
Noncontrolling interests in investment entities represent third-party equity interests in ventures that are consolidated with the Company’s financial statements. Net loss attributable to noncontrolling interests in the investment entities was $0.2 million and net income of $0.5 million for the three months ended March 31, 2021, and 2020, respectively.
5-Investment Preferred Financing
On June 5, 2020, subsidiaries of the Company entered into a preferred financing arrangement (on a portfolio of five underlying Company investment interests) (the “5-Investment Preferred Financing”) from investment vehicles managed by Goldman Sachs (“GS”). The preferred financing provided $200 million of proceeds at closing.
The preferred financing is limited to (i) the Company’s interests in 4 co-investments alongside investment funds managed by affiliates of the Company’s Manager, each of which are financings on underlying development projects (including residential, office and/or mixed-use components), and (ii) a wholly-owned triple-net industrial distribution center investment leased to a national grocery chain. The preferred financing provides GS a 10% preferred return and certain other minimum returns, as well as a minority interest in future cash flows.
The preferred financing resulted in a reallocation of a portion of stockholders equity to noncontrolling interest, resulting in a $69 million day-one reduction in stockholders equity. The transaction resulted in the Company receiving net liquidity of approximately $170 million, net of approximately $30 million in paydowns under the Company’s Bank Credit Facility. The preferred financing provides the ability to draw down up to $29 million additional commitments from GS for future advances to the portfolio, if any, at the Company’s same advance rate.
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COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The Company and its affiliates control the continuing investment and portfolio management of such investments and thus continues to consolidate these investments on the Consolidated Balance Sheet at March 31, 2021. The preferred financing provides for a disproportionate allocation of profits and losses, and thus each party’s share of earnings or loss is determined using a balance sheet approach known as the HLBV method. Under the HLBV method, earnings and losses are recognized based on the change in each party’s capital account from the beginning of the period in question to the end of the period, adjusting for the effects of distributions and new investments. The entity measures each party’s capital account assuming that the subsidiary was liquidated or sold at book value.
For the three months ended March 31, 2021, the Company has drawn-down additional funds of $1.9 million from GS and completed $10.7 million in cash distributions to GS. The noncontrolling interest in investment entities on the Company’s consolidated balance sheet includes $248.9 million representing GS’s investment at March 31, 2021 under the HLBV method.
14. Fair Value
Determination of Fair Value
The following is a description of the valuation techniques used to measure fair value of assets accounted for at fair value on a recurring basis and the general classification of these instruments pursuant to the fair value hierarchy.
PE Investments
The Company accounts for PE Investments at fair value which is determined based on either a valuation model using assumptions for the timing and amount of expected future cash flow for income and realization events for the underlying assets in the funds and discount rate, or pending sales prices, if applicable. This fair value measurement is generally based on unobservable inputs and, as such, is classified as Level 3 of the fair value hierarchy, unless the PE Investments are valued based on pending sales prices, which are classified as Level 2 of the fair value hierarchy. The Company considers cash flow and NAV information provided by general partners of the underlying funds (“GP NAV”) and the implied yields of those funds in valuing its PE Investments. The Company also considers the values derived from the valuation model as a percentage of GP NAV, and compares the resulting percentage of GP NAV to precedent transactions, independent research, industry reports as well as pricing from executed purchase and sale agreements related to the disposition of its PE Investments. The Company may, as a result of that comparison, apply a mark-to-market adjustment. The Company has not elected the practical expedient to measure the fair value of its PE Investments using the NAV of the underlying funds.
Real Estate Securities
CRE securities are generally valued using a third-party pricing service or broker quotations. These quotations are not adjusted and are based on observable inputs that can be validated, and as such, are classified as Level 2 of the fair value hierarchy. Certain CRE securities may be valued based on a single broker quote, dealer bid or an internal price. Situations where management applies adjustments based on or using unobservable inputs and would be classified as Level 3 of the fair value hierarchy. Management determines the prices are representative of fair value through a review of available data, including observable inputs, recent transactions as well as its knowledge of and experience in the market.
Investing VIEs
As discussed in Note 5, “Real Estate Securities, Available for Sale,” the Company has elected the fair value option for the financial assets and liabilities of the consolidated Investing VIEs. The Investing VIEs are “static,” that is no reinvestment is permitted and there is very limited active management of the underlying assets. The Company is required to determine whether the fair value of the financial assets or the fair value of the financial liabilities of the Investing VIEs are more observable, but in either case, the methodology results in the fair value of the assets of the securitization trusts being equal to the fair value of their liabilities. The Company has determined that the fair value of the liabilities of the securitization trusts are more observable, since market prices for the liabilities are available from a third-party pricing service or are based on quoted prices provided by dealers who make markets in similar financial instruments. The financial assets of the securitization trusts are not readily marketable and their fair value measurement requires information that may be limited in availability.
In determining the fair value of the trusts’ financial liabilities, the dealers will consider contractual cash payments and yields expected by market participants. Dealers also incorporate common market pricing methods, including a spread measurement to the treasury curve or interest rate swap curve as well as underlying characteristics of the particular security including coupon, periodic and life caps, collateral type, rate reset period and seasoning or age of the security. The Company’s collateralized mortgage obligations are classified as Level 2 of the fair value hierarchy, where a third-party pricing service or broker quotations are available and are based on observable valuation inputs, and as Level 3 of the fair value hierarchy, where internal
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COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
price is utilized based on or using unobservable inputs. In accordance with ASC 810, Consolidation, the assets of the securitization trusts are an aggregate value derived from the fair value of the trust’s liabilities, and the Company has determined that the valuation of the trust’s assets in their entirety including its retained interests from the securitizations (eliminated in consolidation in accordance with U.S. GAAP) should be classified as Level 3 of the fair value hierarchy.
Derivatives
Derivative instruments consist of interest rate contracts and foreign exchange contracts that are generally traded over-the-counter, and are valued using a third-party service provider. Quotations on over-the counter derivatives are not adjusted and are generally valued using observable inputs such as contractual cash flows, yield curve, foreign currency rates and credit spreads, and are classified as Level 2 of the fair value hierarchy. Although credit valuation adjustments, such as the risk of default, rely on Level 3 inputs, these inputs are not significant to the overall valuation of its derivatives. As a result, derivative valuations in their entirety are classified as Level 2 of the fair value hierarchy.
Fair Value Hierarchy
Financial assets recorded at fair value on a recurring basis are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following table presents financial assets that were accounted for at fair value on a recurring basis as of March 31, 2021 and December 31, 2020 by level within the fair value hierarchy (dollars in thousands):
March 31, 2021December 31, 2020
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Assets:
Investments in unconsolidated ventures - PE Investments$$$6,522 $6,522 $$$6,878 $6,883 
Real estate securities, available for sale4,137 4,137 10,389 10,389 
Mortgage loans held in securitization trusts, at fair value1,742,141 1,742,141 1,768,069 1,768,069 
Other assets - derivative assets107 0107 386 386 
Liabilities:
Mortgage obligations issued by securitization trusts, at fair value$$1,673,969 $$1,673,969 $$1,708,534 $$1,708,534 
Other liabilities - derivative liabilities24 24 37 37 
The following table presents the changes in fair value of financial assets which are measured at fair value on a recurring basis using Level 3 inputs to determine fair value for the three months ended March 31, 2021 and year ended December 31, 2020 (dollars in thousands):
Three Months Ended March 31, 2021Year Ended December 31, 2020
Investments in unconsolidated ventures - PE Investments
Mortgage loans held in securitization trusts(1)
Investments in unconsolidated ventures - PE Investments
Mortgage loans held in securitization trusts(1)
Beginning balance$6,878 $1,768,069 $8,858 $1,872,970 
Distributions/paydowns(278)(7,128)(2,649)(76,719)
Equity in earnings(78)669 
Unrealized gain (loss) in earnings(18,800)(28,182)
Ending balance$6,522 $1,742,141 $6,878 $1,768,069 
_________________________________________
(1)For the three months ended March 31, 2021, the Company recorded an unrealized loss of $18.8 million related to mortgage loans held in securitization trusts, at fair value and an unrealized gain of $27.4 million related to mortgage obligations issued by securitization trusts, at fair value.
As of March 31, 2021 and December 31, 2020, the Company utilized a discounted cash flow model, comparable precedent transactions and other market information to quantify Level 3 fair value measurements on a recurring basis. As of March 31, 2021 and December 31, 2020, the key unobservable inputs used in the analysis of PE Investments included discount rates with a range of 11.0% to 12.0% and timing and amount of expected future cash flows. As of March 31, 2021 and December 31, 2020,
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COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
the key unobservable inputs used in the valuation of mortgage obligations issued by securitization trusts included yields ranging from 21.2% to 46.8% and 21.1% to 53.7%, respectively, and a weighted average life of 4.4 years and 5.0 years, respectively. Significant increases or decreases in any one of the inputs described above in isolation may result in significantly different fair value of the financial assets and liabilities using such Level 3 inputs.
For the three months ended March 31, 2021 and March 31, 2020, the Company recorded a net unrealized gain of $8.6 million and a net unrealized loss of $19.5 million related to mortgage loans held in and mortgage obligations issued by securitization trusts, at fair value. These amounts, when incurred, are recorded as unrealized gain (loss) on mortgage loans and obligations held in securitization trusts, net in the consolidated statements of operations.
Fair Value Option
The Company may elect to apply the fair value option of accounting for certain of its financial assets or liabilities due to the nature of the instrument at the time of the initial recognition of the investment. The Company elected the fair value option for PE Investments and eligible financial assets and liabilities of its consolidated Investing VIEs because management believes it is a more useful presentation for such investments. The Company determined recording the PE Investments based on the change in fair value of projected future cash flow from one period to another better represents the underlying economics of the respective investment. As of March 31, 2021 and December 31, 2020, the Company has elected not to apply the fair value option for any other eligible financial assets or liabilities.
Fair Value of Financial Instruments
In addition to the above disclosures regarding financial assets or liabilities which are recorded at fair value, U.S. GAAP requires disclosure of fair value about all financial instruments. The following disclosure of estimated fair value of financial instruments was determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on estimated fair value.
The following table presents the principal amount, carrying value and fair value of certain financial assets and liabilities as of March 31, 2021 and December 31, 2020 (dollars in thousands):
March 31, 2021December 31, 2020
Principal AmountCarrying ValueFair ValuePrincipal AmountCarrying ValueFair Value
Financial assets:(1)
Loans and preferred equity held for investment, net$2,626,284 $2,575,517 (2)$2,586,091 $2,225,856 (2)$2,183,497 $2,189,006 
Financial liabilities:(1)
Securitization bonds payable, net$840,423 $835,688 $840,423 $840,423 $835,153 $840,423 
Mortgage and other notes payable, net774,271 773,709 774,271 1,025,455 1,022,757 1,025,455 
Master repurchase facilities787,923 787,923 787,923 535,224 535,224 535,224 
_________________________________________
(1)The fair value of other financial instruments not included in this table is estimated to approximate their carrying value.
(2)Excludes future funding commitments of $209.4 million and $163.0 million as of March 31, 2021 and December 31, 2020, respectively.
Disclosure about fair value of financial instruments is based on pertinent information available to management as of March 31, 2021. Although management is not aware of any factors that would significantly affect fair value, such amounts have not been comprehensively revalued for purposes of these consolidated financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.
Loans and Preferred Equity Held for Investment, Net
For loans and preferred equity held for investment, net, fair values were determined: (i) by comparing the current yield to the estimated yield for newly originated loans with similar credit risk or the market yield at which a third party might expect to purchase such investment; or (ii) based on discounted cash flow projections of principal and interest expected to be collected, which includes consideration of the financial standing of the borrower or sponsor as well as operating results of the underlying collateral. These fair value measurements of CRE debt are generally based on unobservable inputs and, as such, are classified as Level 3 of the fair value hierarchy. Carrying values of loans and preferred equity held for investment are presented net of allowance for loan losses, where applicable.
54


COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Securitization Bonds Payable, Net
The Company’s securitization bonds payable, net bear floating rates of interest. As of March 31, 2021, the Company believes the carrying value approximates fair value. These fair value measurements are based on observable inputs, and as such, are classified as Level 2 of the fair value hierarchy.
Mortgage and Other Notes Payable, Net
For mortgage and other notes payable, net, the Company primarily uses rates currently available with similar terms and remaining maturities to estimate fair value. These measurements are determined using comparable U.S. Treasury rates as of the end of the reporting period. These fair value measurements are based on observable inputs, and as such, are classified as Level 2 of the fair value hierarchy.
Master Repurchase Facilities
The Company has amounts outstanding under Master Repurchase Facilities. The Master Repurchase Facilities bear floating rates of interest. As of March 31, 2021, the Company believes the carrying value approximates fair value. These fair value measurements are based on observable inputs, and as such, are classified as Level 2 of the fair value hierarchy.
Other
The carrying values of cash and cash equivalents, receivables, and accrued and other liabilities approximate fair value due to their short term nature and credit risk, if any, are negligible.
Nonrecurring Fair Values
The Company measures fair value of certain assets on a nonrecurring basis when events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Adjustments to fair value generally result from the application of lower of amortized cost or fair value accounting for assets held for sale or write-down of asset values due to impairment.
The Company holds no assets carried at fair value on a nonrecurring basis at March 31, 2021 and December 31, 2020.
The following table summarizes the fair value write-downs to assets carried at nonrecurring fair values during the periods presented (dollars in thousands):
Three Months Ended March 31,
2020
Loans:
Loans and preferred equity held for investment, net(1)
$2,346 
Loans held for sale(1)
36,783 
Total$39,129 
_________________________________________
(1)See Note 3 “Loans and Preferred Equity Held for Investment, net” for further details.
The Company did not record any fair value write-downs to assets carried at nonrecurring fair values during the three months ended March 31, 2021.
15. Derivatives
The Company uses derivative instruments to manage the risk of changes in interest rates and foreign exchange rates, arising from both its business operations and economic conditions. Specifically, the Company enters into derivative instruments to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and cash payments, the values of which are driven by interest rates, principally relating to the Company’s investments. Additionally, the Company’s foreign operations expose the Company to fluctuations in foreign exchange rates. The Company enters into derivative instruments to protect the value or fix certain of these foreign-denominated amounts in terms of its functional currency, the U.S. dollar. Derivative instruments used in the Company’s risk management activities may be designated as qualifying hedge accounting relationships designated hedges or non-designated hedges.
55


COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
As of March 31, 2021 and December 31, 2020, fair value of derivative assets and derivative liabilities were as follows (dollars in thousands):
Non-Designated Hedges
March 31, 2021December 31, 2020
Derivative Assets
Foreign exchange contracts$107 $386 
Included in other assets$107 $386 
Derivative Liabilities
Interest rate contracts$(24)$(37)
Included in accrued and other liabilities$(24)$(37)
As of March 31, 2021, the Company’s counterparties held $0.1 million in cash collateral.
The following table summarizes the Company’s interest rate contracts as of March 31, 2021:
Type of DerivativesNotional CurrencyNotional Amount (in thousands)Range of Maturity Dates
Non-Designated
Put OptionNOK928,000 July 2021
Interest Rate SwapUSD$109,302 April 2021 - July 2023
The table below represents the effect of the derivative financial instruments on the consolidated statements of operations and of comprehensive income (loss) for the three months ended March 31, 2021 and 2020 (dollars in thousands):
Three Months Ended March 31,
20212020
Other gain (loss), net
Non-designated foreign exchange contracts$(279)$(4,084)
Non-designated interest rate contracts13 (16,370)
$(266)$(20,454)
Other income
Non-designated foreign exchange contracts8,738 
$$8,738 
Accumulated other comprehensive income (loss)
Designated foreign exchange contracts21,764 
$$21,764 
At the end of each quarter, the Company reassesses the effectiveness of its net investment hedges and as appropriate, dedesignates the portion of the derivative notional that is in excess of the beginning balance of its net investments as non-designated hedges. Any unrealized gain or loss on the dedesignated portion of net investment hedges is transferred into earnings, recorded in other gain (loss), net. During the three months ended March 31, 2021 and 2020, 0 gain (loss) was transferred from accumulated other comprehensive income (loss).
Offsetting Assets and Liabilities
The Company enters into agreements subject to enforceable netting arrangements with its derivative counterparties that allow the Company to offset the settlement of derivative assets and liabilities in the same currency by derivative instrument type or, in the event of default by the counterparty, to offset all derivative assets and liabilities with the same counterparty. The Company has elected not to net derivative asset and liability positions, notwithstanding the conditions for right of offset may have been met. The Company presents derivative assets and liabilities with the same counterparty on a gross basis on the consolidated balance sheets.
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COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The following table sets forth derivative positions where the Company has a right of offset under netting arrangements with the same counterparty as of March 31, 2021 and December 31, 2020 (dollars in thousands):
Gross Amounts of Assets (Liabilities) Included on Consolidated Balance SheetsNet Amounts of Assets (Liabilities)
March 31, 2021
Derivative Assets
Foreign exchange contracts$107 $107 
$107 $107 
Derivative Liabilities
Interest rate contracts$(24)$(24)
$(24)$(24)
December 31, 2020
Derivative Assets
Foreign exchange contracts$386 $386 
$386 $386 
Derivative Liabilities
Interest rate contracts$(37)$(37)
$(37)$(37)
The Company did not offset any of its derivatives positions as of March 31, 2021 and December 31, 2020
16. Commitments and Contingencies
Lending Commitments
The Company has lending commitments to borrowers pursuant to certain loan agreements in which the borrower may submit a request for funding contingent on achieving certain criteria, which must be approved by the Company as lender, such as leasing, performance of capital expenditures and construction in progress with an approved budget. At March 31, 2021, assuming the terms to qualify for future fundings, if any, had been met, total unfunded lending commitments for loans and preferred equity held for investment was $203.0 million for senior loans and $6.5 million for mezzanine loans. Total unfunded commitments for equity method investments was $10.0 million.
Ground Lease Obligation
The Company’s operating leases are ground leases acquired with real estate.
At March 31, 2021, the weighted average remaining lease term was 14.2 years for ground leases.
The following table presents lease expense, included in property operating expense, for the three months ended March 31, 2021 and 2020 (dollars in thousands):
Three Months Ended March 31,
20212020
Operating lease expense:
Minimum lease expense$768 $804 
$768 $804 
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COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The operating lease liability was determined using a weighted average discount rate of 5.3%. The following table presents future minimum rental payments, excluding contingent rents, on noncancellable ground leases on real estate as of March 31, 2021 (dollars in thousands):
Remainder of 2021$2,304 
20223,099 
20233,110 
20242,213 
20252,148 
2026 and thereafter19,327 
Total lease payments32,201 
Less: Present value discount10,495 
Operating lease liability (Note 8)$21,706 
The following table presents future minimum rental payments, excluding contingent rents, on noncancellable ground leases on real estate as of December 31, 2020 (dollars in thousands):
2021$3,071 
20223,099 
20233,110 
20242,213 
20252,148 
2026 and thereafter19,327 
Total lease payments32,968 
Less: Present value discount10,782 
Operating lease liability (Note 8)$22,186 
Litigation and Claims
The Company may be involved in litigation and claims in the ordinary course of the business. As of March 31, 2021, the Company was not involved in any legal proceedings that are expected to have a material adverse effect on the Company’s results of operations, financial position or liquidity.
Internalization
Subsequent to March 31, 2021, the Company entered into the Termination Agreement with its Manager pursuant to which the Management Agreement terminated effective April 30, 2021, and the Company will no longer pay base management fees or incentive fees with respect to any period thereafter and made a one-time cash payment of $102.3 million to the Manager. This amount is included in due to related party on the Company’s consolidated balance sheet as of March 31, 2021. See Note 20, “Subsequent Events,” for further discussion of the Internalization.
Employment contracts
At March 31, 2021, the Company did not employ any personnel. Instead, the Company relied on the resources of its Manager and affiliates to conduct the Company’s operations. Subsequent to March 31, 2021, the Company entered into employment agreements with the Company’s senior management team, and in accordance with the terms of the Termination Agreement, the Company has extended offers of employment to certain employees that have contributed substantially to the Company’s investment, underwriting, portfolio and asset management, loan servicing, financial reporting, treasury, legal, tax, credit, risk and compliance responsibilities employment, which have been accepted. See Note 20, “Subsequent Events,” for further discussion of the Internalization.
58


COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
17. Segment Reporting
Since the third quarter of 2019, the Company conducted its business through the following 2 portfolios and accompanying operating segments: the Core Portfolio, which consisted of the loan portfolio, CRE debt securities, net leased real estate and corporate; and the Legacy, Non-Strategic Portfolio segment, which consisted of direct investments in operating real estate, private equity investments, certain retail and other loans, as well as corporate-level asset management and other fees. Since then, the Company has resolved 56 investments in the Legacy, Non-Strategic Portfolio and the remaining Legacy, Non-Strategic Portfolio net asset value represented less than 1% of the total net book value at the end of 2020. As such, the Company has dissolved the separate segment reporting of the Legacy, Non-Strategic Portfolio segment as of the beginning of the first quarter of 2021. Prior periods have been recast to reflect these reportable segments for all periods presented.
During the first quarter of 2021, the Company realigned the business and reportable segment information to reflect how the CODM regularly review and manage the business. As a result, the Company presents its business as one portfolio and the following business segments:
Senior and Mezzanine Loans and Preferred EquityCRE debt investments including senior mortgage loans, mezzanine loans, and preferred equity interests as well as participations in such loans. The segment also includes ADC loan arrangements accounted for as equity method investments.
Net Leased and Other Real Estatedirect investments in CRE with long-term leases to tenants on a net lease basis, where such tenants generally will be responsible for property operating expenses such as insurance, utilities, maintenance, capital expenditures and real estate taxes. It also includes other real estate, currently consisting of three investments with direct ownership in commercial real estate with an emphasis on properties with stable cash flow.
CRE Debt Securitiesinvestments currently consisting of BBB and some BB rated CMBS (including Non-Investment Grade “B-pieces” of a CMBS securitization pool), or CRE CLOs (including the junior tranches thereof, collateralized by pools of CRE debt investments). It also includes two sub-portfolios of private equity funds.
Corporateincludes corporate-level asset management and other fees including expenses related to the Bank Credit Facility, related party and general and administrative expenses.
There were no changes in the structure of the Company’s internal organization that prompted the change in reportable segments. Prior period amounts have been revised to conform to the current year presentation. Accordingly, the Company realigned the discussion and analysis of its portfolio and results of operations to reflect these reportable segments.
The Company primarily generates revenue from net interest income on the loan, preferred equity and securities portfolios, rental and other income from its net leased, hotel, multi-tenant office, and multifamily real estate assets, as well as equity in earnings of unconsolidated ventures. CRE debt securities include the Company’s investment in the subordinate tranches of the securitization trusts which are eliminated in consolidation. The Company’s income is primarily derived through the difference between revenue and the cost at which the Company is able to finance its investments. The Company may also acquire investments which generate attractive returns without any leverage.
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COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The following tables present segment reporting for the three months ended March 31, 2021 and 2020 (dollars in thousands):
Senior and Mezzanine Loans and Preferred EquityCRE Debt SecuritiesNet Leased and Other Real Estate
Corporate(1)
Total
Three Months Ended March 31, 2021
Net interest income (expense)$22,919 $2,353 $$(1,040)$24,232 
Property and other income (expense)(1)53 25,796 (81)25,767 
Management fee expense(7,258)(7,258)
Property operating expense(8,111)(8,111)
Transaction, investment and servicing expense(689)(167)(114)(1,318)(2,288)
Interest expense on real estate(8,633)(8,633)
Depreciation and amortization(9,539)(9,539)
Provision for loan losses(3,225)(3,225)
Administrative expense(248)(780)(31)(11,536)(12,595)
Restructuring charges(109,171)(109,171)
Unrealized gain on mortgage loans and obligations held in securitization trusts, net8,638 8,638 
Other gain (loss), net(859)9,226 8,367 
Income (loss) before equity in earnings of unconsolidated ventures and income taxes18,756 9,238 8,594 (130,404)(93,816)
Equity in earnings (loss) of unconsolidated ventures(2,400)(78)(2,478)
Income tax benefit1,777 24 1,801 
Net income (loss)$16,356 $10,937 $8,618 $(130,404)$(94,493)

Senior and Mezzanine Loans and Preferred EquityCRE Debt SecuritiesNet Leased and Other Real Estate
Corporate(1)
Total
Three Months Ended March 31, 2020
Net interest income (expense)$24,850 $5,543 $$(2,546)$27,856 
Property and other income52 72 61,793 61,922 
Management fee expense(7,946)(7,946)
Property operating expense(1)(22,530)(22,531)
Transaction, investment and servicing expense(873)(7)(200)(2,054)(3,134)
Interest expense on real estate(13,078)(13,078)
Depreciation and amortization(17,976)(17,976)
Provision for loan losses(69,932)(69,932)
Impairment of operating real estate(4,126)(4,126)
Administrative expense(337)(535)(91)(6,075)(7,038)
Unrealized gain (loss) on mortgage loans and obligations held in securitization trusts, net(19,906)454 (19,452)
Other loss, net(16,336)(3,734)(92)(20,162)
Income (loss) before equity in earnings of unconsolidated ventures and income taxes(46,241)(31,169)67 (18,254)(95,597)
Equity in earnings (losses) of unconsolidated ventures15,954 1,213 17,167 
Income tax benefit (expense)(361)(1,548)198 (1,711)
Net income (loss)$(30,648)$(31,504)$265 $(18,254)$(80,141)
_________________________________________
(1)Includes income earned from the CRE securities purchased at a discount, recognized using the effective interest method had the transaction been recorded as an available for sale security, at amortized cost. During the three months ended March 31, 2020, $0.5 million, was attributable to discount accretion income and was eliminated in consolidation in the corporate segment. The corresponding interest expense is recorded in net interest income in the Corporate column.
60


COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The following table presents total assets by segment as of March 31, 2021 and December 31, 2020 (dollars in thousands):
Total Assets
Senior and Mezzanine Loans and Preferred Equity(1)
CRE Debt Securities(2)
Net Leased and Other Real Estate
Corporate(3)
Total
March 31, 2021$2,163,316 $1,694,228 $917,496 $1,406,310 $6,181,350 
December 31, 20201,929,937 1,720,624 1,261,137 1,300,239 6,211,937 
_________________________________________
(1)Includes investments in unconsolidated ventures totaling $349.4 million and $366.5 million as of March 31, 2021 and December 31, 2020, respectively.
(2)Includes PE Investments totaling $6.5 million and $6.9 million as of March 31, 2021 and December 31, 2020, respectively.
(3)Includes cash, unallocated receivables, deferred costs and other assets, net and the elimination of the subordinate tranches of the securitization trusts in consolidation.
Geography
Geography is generally defined as the location in which the income producing assets reside or the location in which income generating services are performed. Geography information on total income includes equity in earnings of unconsolidated ventures. Geography information on total income and long lived assets are presented as follows (dollars in thousands):
Three Months Ended March 31,
20212020
Total income by geography:
United States$70,951 $124,953 
Europe6,401 20,795 
Total(1)
$77,352 $145,748 
March 31, 2021December 31, 2020
Long-lived assets by geography:
United States$606,079 $600,767 
Europe311,935 314,190 
Total(2)
$918,014 $914,957 
_________________________________________
(1)Includes interest income, interest income on mortgage loans held in securitization trusts, property and other income and equity in earnings of unconsolidated ventures.
(2)Long-lived assets are comprised of real estate and real estate related intangible assets, and excludes financial instruments and assets held for sale.
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COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
18. Earnings Per Share
The Company’s net income (loss) and weighted average shares outstanding for the three months ended March 31, 2021 and 2020 consist of the following (dollars in thousands, except per share data):
Three Months Ended March 31,
20212020
Net loss$(94,493)$(80,141)
Net (income) loss attributable to noncontrolling interests:
Investment Entities226 (523)
Operating Partnership1,953 1,892 
Net income (loss) attributable to Colony Credit Real Estate, Inc. common stockholders$(92,314)$(78,772)
Numerator:
Net income allocated to participating securities (non-vested shares)$(192)$(322)
Net Loss attributable to common stockholders$(92,506)$(79,094)
Denominator:
Weighted average shares outstanding129,781 128,487 
Net loss per common share - basic and diluted$(0.71)$(0.62)

19. Restructuring Charges
Subsequent to March 31, 2021, the Company entered into the Termination Agreement with its Manager pursuant to which the Company internalized its management function effective as of, and the Company will no longer pay base management fees or incentive fees with respect to any period after April 30, 2021, and the Company made a one-time cash payment of $102.3 million to the Manager. The Company incurred a total of $109.2 million of restructuring costs for the three months ended March 31, 2021, which was paid by the Company in April 2021. The additional restructuring costs of $6.9 million consist primarily of fees paid for legal and investment banking advisory services. The one-time payment of $102.3 million to the Manager is recorded in due to related party on the Company’s consolidated balance sheet as of March 31, 2021, as negotiations were substantially complete and the termination was agreed to thereafter on April 5, 2021. Refer to Note 1, “Business and Organization,” for further detail.
20. Subsequent Events
Internalization
On April 30, 2021, the Company completed the Internalization of the Company’s management and operating functions and terminated its relationship with its Manager, a subsidiary of Colony Capital, in accordance with the Termination Agreement. The Company paid the Manager a one-time termination fee of $102.3 million and the Company will no longer pay management or incentive fees to the Manager for any post-closing period. Refer to Note 1, “Business and Organization,” and Note 19, “Restructuring Charges,” for further detail.
Dividends
On April 15, 2021, the Company paid a quarterly cash dividend of $0.10 per share of Class A common stock for the quarter ending March 31, 2021, to stockholders of record on March 31, 2021.
On April 30, 2021, the Board of Directors approved a $0.14 quarterly dividend for the second quarter of 2021, payable on July 15, 2021 to stockholders of record as of June 30, 2021.
Investment Sales
Subsequent to March 31, 2021, the Company sold its retained investments in the subordinate tranches of one securitization trust for $28.7 million in total proceeds. The Company will realize a gain of approximately $8.8 million in connection with the sale during the second quarter of 2021 and deconsolidate the securitization trust with gross assets and liabilities of approximately $0.8 billion and $0.8 billion, respectively. During the first quarter of 2021, the company recorded a fair value adjustment for the
62


COLONY CREDIT REAL ESTATE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
unrealized gain of $8.8 million, which is presented in unrealized gain (loss) on mortgage loans and obligations held in securitization trusts, net, reported on the consolidated statement of operations.
Subsequent to March 31, 2021, the Company executed a purchase and sale agreement to sell a portion of its ownership interest in “West Mixed-use” and received $3.5 million in gross proceeds. Refer to Note 4, “Investments in Unconsolidated Ventures,” for more detail.
Loan Originations
Subsequent to March 31, 2021, the Company originated 4 senior loans with a total commitment of $108.9 million.
Bank Credit Facility
In April 2021, the Company entered into a fourth amendment to the Company’s Bank Credit Facility to, among other things, reduce the aggregate amount of lender commitments from $450 million to $300 million. Refer to Note 9, “Debt,” for further details.
Master Repurchase Facilities
In April 2021, the Company entered into an amendment under the Company’s Master Repurchase Facility with Bank 1 and Bank 8 to extend the maturity date by three years and two years, respectively.
In May 2021, the Company entered into an amendment under its Master Repurchase Facility with Bank 9 to extend the maturity date by three years.
Additionally, in April 2021, the Company entered into amendments under six of the Company’s Master Repurchase Facilities to: (i) permit the guarantor and the OP to consummate the Internalization; and (ii) reduce the minimum tangible net worth covenant requirement from $1.5 billion to $1.35 billion upon consummation of the Internalization. Refer to Note 9, “Debt,” for further details.
Hedging Activity
In April 2021, the Company entered into a series of USD-NOK forward swaps for the total notional amount of 274 million NOK in order to minimize foreign currency cash flow risk on the Stavenger, Norway Net Lease. These quarterly forward swaps are over the next three years through May 2024, where the Company has agreed to sell NOK and buy USD at a locked in forward curve rate.
63


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our unaudited consolidated financial statements and the accompanying notes thereto, which are included in Item 1 of this Quarterly Report, as well as the information contained in our Form 10-K for the year ended December 31, 2020, which is accessible on the SEC’s website at www.sec.gov.
Introduction
We are a commercial real estate (“CRE”) credit real estate investment trust (“REIT”) focused on originating, acquiring, financing and managing a diversified portfolio consisting primarily of CRE debt investments and net leased properties predominantly in the United States. CRE debt investments primarily consist of first mortgage loans, which we expect to be our primary investment strategy. Additionally, we may also selectively originate mezzanine loans and preferred equity investments, which may include profit participations. The mezzanine loans and preferred equity investments may be in conjunction with our origination of corresponding first mortgages on the same properties. Net leased properties consist of CRE properties with long-term leases to tenants on a net-lease basis, where such tenants generally will be responsible for property operating expenses such as insurance, utilities, maintenance capital expenditures and real estate taxes. We will continue to target net leased equity investments on a selective basis. Additionally, we currently have investments in CRE debt securities primarily consisting of commercial mortgage-backed securities (“CMBS”) (including “B-pieces” of a CMBS securitization pool) or CRE collateralized loan obligations (“CLOs”) (including the junior tranches collateralized by pools of CRE debt investments). We have continued to reduce our CMBS holdings since the second quarter of 2020, and have one CMBS security available for sale in addition to our “B-pieces” of a CMBS securitization pool at March 31, 2021. Any future investments in CRE debt securities would be selective and opportunistic.
We were organized in the state of Maryland on August 23, 2017 and maintain key offices in New York, New York and Los Angeles, California. We elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, beginning with our taxable year ended December 31, 2018. We conduct all our activities and hold substantially all our assets and liabilities through our operating subsidiary, Credit RE Operating Company, LLC (the “OP”). At March 31, 2021, we owned 97.7% of the OP, as its sole managing member. The remaining 2.3% is owned as noncontrolling interests.
The Internalization
On April 30, 2021, we completed the internalization of the Company’s management and operating functions and terminated our relationship with CLNC Manager, LLC (the “Manager”), a subsidiary of Colony Capital, Inc. (“Colony Capital”), in accordance with that termination agreement dated April 4, 2021 between the Company, the OP, the Manager and Colony Capital Investment Advisors, LLC (the “Termination Agreement,” and the transactions contemplated thereunder, the “Internalization”). We have paid the Manager a one-time termination fee of $102.3 million. Therefore, we will no longer pay management or incentive fees to the Manager for any post-closing period and we will assume general and administrative expenses directly. We anticipate a savings in operating costs as a result of the Internalization. Further, in connection with the Internalization, certain affiliates of ours and the Manager entered into a transition services agreement to facilitate an orderly internalization transition of the management of our operations and, in addition, we will provide affiliates of the Manager with certain limited transition services.
The Company’s executive team remains unchanged, including Michael J. Mazzei, Chief Executive Officer and President; Andrew E. Witt, Chief Operating Officer; Frank V. Saracino, Chief Financial Officer, Chief Accounting Officer and Treasurer; and David A. Palamé, General Counsel and Secretary. As a result of the Company’s 2021 Annual Meeting of Stockholders, Colony Capital no longer has affiliated representatives on our board of directors. The Company’s board of directors is comprised of five members, including our four incumbent independent directors, led by Catherine D. Rice, our Independent Chairperson, Vernon Schwartz, John Westerfield and Winston W. Wilson, and Michael J. Mazzei, the Company’s Chief Executive Officer and President. Additionally, certain professionals that have contributed substantially to our investment, underwriting, portfolio and asset management, loan servicing, financial reporting, treasury, legal, tax, credit, risk and compliance responsibilities are seamlessly moving forward as direct employees of the Company.
Our senior management team has extensive experience managing and investing in our target assets and other real estate-related investments through a variety of credit cycles and market conditions. The clarity in organizational structure and dedicated management and employee base achieved through the Internalization solidifies the footprint and corresponding network developed by our investment and asset management teams, with proprietary market knowledge, sourcing capabilities and the local presence required to identify, execute and manage new originations and existing investments on behalf of the Company. Our real estate investment platform and relationships allow us to source, underwrite, structure and manage investment opportunities as well as to access debt and equity capital to fund our operations. We have fully integrated investment and portfolio management, finance and administration functions, including legal, compliance, human resources, investor relations, asset valuation, credit and risk management and information technology services. The Company has a captive, fully functional,
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asset management company that engages primarily in loan servicing for performing, sub-performing and non-performing commercial loans, including senior secured loans, revolving lines of credit, loan participations, subordinated loans, unsecured loans and mezzanine debt. Our asset management company is a commercial special servicer rated by both Standard & Poor’s and Fitch’s rating services.
Our Target Assets
As we entered the first quarter of 2021 and started to see some COVID-19 related uncertainties dissipate and market conditions improve, we have selectively pursued new investments. These new investments are first mortgage loans eligible for collateralized loan obligation securitizations.
Our investment strategy is to originate and selectively acquire our target assets, which consist of the following:
CRE Debt Investments:
Senior Mortgage Loans. Our primary focus is originating and selectively acquiring senior mortgage loans that are backed by CRE assets. These loans are secured by a first mortgage lien on a commercial property and provide mortgage financing to a commercial property developer or owner. Going forward, we expect to increase our exposure to senior mortgage loans as a percentage of our overall portfolio. The loans may vary in duration, bear interest at a fixed or floating rate and amortize, if at all, over varying periods, often with a balloon payment of principal at maturity. Senior mortgage loans may include junior participations in our originated senior loans for which we have syndicated the senior participations to other investors and retained the junior participations for our portfolio. We believe these junior participations are more like the senior mortgage loans we originate than other loan types given their credit quality and risk profile.
Mezzanine Loans and Preferred Equity:
Mezzanine Loans. We may originate or acquire mezzanine loans, which are structurally subordinate to senior loans, but senior to the borrower’s equity position. Mezzanine loans may be structured such that our return accrues and is added to the principal amount rather than paid on a current basis. We may also pursue equity participation opportunities in instances when the risk-reward characteristics of the investment warrant additional upside participation in the possible appreciation in value of the underlying assets securing the investment.
Preferred Equity. We may make investments that are subordinate to senior and mezzanine loans, but senior to the common equity in the mortgage borrower. Preferred equity investments may be structured such that our return accrues and is added to the principal amount rather than paid on a current basis. We also may pursue equity participation opportunities in preferred equity investments, like such participations in mezzanine loans.
Net Leased and Other Real Estate. We may also invest directly in well-located commercial real estate with long-term leases to tenants on a net lease basis, where such tenants generally will be responsible for property operating expenses such as insurance, utilities, maintenance capital expenditures and real estate taxes. In addition, tenants of our properties typically pay rent increases based on: (1) increases in the consumer price index (typically subject to ceilings), (2) fixed increases, or (3) additional rent calculated as a percentage of the tenants’ gross sales above a specified level. We believe that a portfolio of properties under long-term, net lease agreements generally produces a more predictable income stream than many other types of real estate portfolios, while continuing to offer the potential for growth in rental income.
CRE Debt Securities. Our investments consist of bonds comprising certain tranches of CRE securitization pools, such as CMBS (including Non-Investment Grade “B-pieces” of a CMBS securitization pool). These bonds have been investment grade or below investment grade and are collateralized by CRE debt, typically secured by senior mortgage loans and may be fixed rate or floating rate securities. Due to their first-loss position, CMBS B-pieces are typically offered at a discount to par. These investments typically carry a 10-year weighted average life due to prepayment restrictions. We will continue to manage and monitor our remaining CMBS investments and since the second quarter of 2020 we have substantially reduced the number of CMBS investments. In addition, we have also fully paid down amounts under our CMBS repurchase agreements. Any future investments in CRE Debt Securities would be selective and opportunistic.
The allocation of our capital among our target assets will depend on prevailing market conditions at the time we invest and may change over time in response to different prevailing market conditions. In addition, in the future, we may invest in assets other than our target assets or change our target assets. With respect to all our investments, we invest so as to maintain our qualification as a REIT for U.S. federal income tax purposes and our exclusion or exemption from regulation under the Investment Company Act of 1940, as amended (the “Investment Company Act”).
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We believe that events in the financial markets from time to time, including the current and potential impacts of the COVID-19 pandemic, have created and will create significant dislocation between price and intrinsic value in certain asset classes as well as a supply and demand imbalance of available credit to finance these assets. We believe that our in-depth understanding of CRE and real estate-related investments, in-house underwriting, asset management and resolution capabilities, provides an extensive platform to regularly evaluate our investments and determine primary, secondary or alternative disposition strategies. This includes intermediate servicing and negotiating, restructuring of non-performing investments, foreclosure considerations, management or development of owned real estate, in each case to reposition and achieve optimal value realization for the Company and its stockholders. Depending on the nature of the underlying investment, we may pursue repositioning strategies through judicious capital investment in order to extract maximum value from the investment or recognize unanticipated losses to reinvest resulting liquidity in higher-yielding performing investments.
Our Business Segments
Since the third quarter of 2019, we conducted our business through the following two portfolios and accompanying operating segments: the Core Portfolio which consisted of the loan portfolio, CRE debt securities, net leased real estate and corporate; and the Legacy, Non-Strategic Portfolio segment which consisted of direct investments in operating real estate, private equity investments, certain retail and other loans, as well as corporate-level asset management and other fees. Since then, we have resolved 56 investments in our Legacy, Non-Strategic Portfolio and our remaining Legacy, Non-Strategic Portfolio net asset value represents less than 1% of our total net book value at the end of 2020. As such, we have dissolved the separate segment reporting of the Legacy, Non-Strategic Portfolio as of the beginning of the first quarter of 2021.
During the first quarter of 2021, the Company realigned the business and reportable segment information to reflect how the Chief Operating Decision Makers (“CODM”) regularly review and manage the business. As a result, we present our business as one portfolio and the following business segments:
Senior and Mezzanine Loans and Preferred EquityCRE debt investments including senior mortgage loans, mezzanine loans, and preferred equity interests as well as participations in such loans. The segment also includes acquisition, development and construction (“ADC”) arrangements accounted for as equity method investments.
Net Leased and Other Real Estatedirect investments in commercial real estate with long-term leases to tenants on a net lease basis, where such tenants generally will be responsible for property operating expenses such as insurance, utilities, maintenance, capital expenditures and real estate taxes. It also includes other real estate, currently consisting of three investments with direct ownership in commercial real estate, with an emphasis on properties with stable cash flow.
CRE Debt Securities securities investments currently consisting of BBB and some BB rated CMBS (including Non-Investment Grade “B-pieces” of a CMBS securitization pool) or CRE CLOs (including the junior tranches thereof, collateralized by pools of CRE debt investments). It also includes two sub-portfolios of private equity funds.
Corporateincludes corporate-level asset management and other fees including expenses related to our secured revolving credit facility (the “Bank Credit Facility”), related party and general and administrative expenses.
There were no changes in the structure of our internal organization that prompted the change in reportable segments. Prior year amounts have been revised to conform to the current year presentation. Accordingly, we realigned the discussion and analysis of our portfolio and results of operations to reflect these reportable segments.
Significant Developments
During the three months ended March 31, 2021 and through May 5, 2021, significant developments affecting our business and results of operations of our portfolio included the following:
Capital Resources
On April 30, 2021, we completed the Internalization, consisting of the internalization of our management and operating functions and terminated our relationship with the Manager, a subsidiary of Colony Capital, in accordance with the Termination Agreement. We paid the Manager a one-time termination fee of $102.3 million, and we will no longer pay management or incentive fees to the Manager for any post-closing period;
As of the date of this report, we have approximately $443 million of liquidity, consisting of $330 million cash on hand and $113 million available on our Bank Credit Facility;
Amended our Bank Credit Facility to permit the Internalization and reduced the minimum tangible net worth covenant, increased our ability to make restricted payments such as dividends and stock buybacks and removed material restrictions on new investments, subject to covenant compliance, increased the maximum amount available for
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borrowing to 100% of the borrowing base value and reduced the aggregate amount of lender commitments from $450 million to $300 million. See “Liquidity and Capital Resources” below for further discussion;
Additionally, amended our six Master Repurchase Facilities to permit the Internalization and reduce the minimum tangible net worth covenants, along with extending the maturity date on five Master Repurchase Facilities. See “Liquidity and Capital Resources” below for further discussion;
Declared and paid a first quarter $0.10 per share dividend on April 15, 2021;
In April 2021, declared a second quarter dividend of $0.14, payable on July 15, 2021 to stockholders of record as of June 30, 2021.
Our Portfolio
Originated 19 senior mortgage loans with a total commitment of $583.9 million;
Sold one industrial portfolio that generated gross and net proceeds of $335.0 million and $81.8 million, respectively. We recognized a gain on sale of $11.8 million;
In April 2021, we sold our retained investments in the subordinate tranches of one securitization trust for $28.7 million in total proceeds. We will realize a gain of approximately $8.8 million in connection with the sale during the second quarter of 2021 and deconsolidate the securitization trust with gross assets and liabilities of approximately $0.8 billion and $0.8 billion, respectively;
Sold a portion of our ownership interest in a mezzanine loan held in a joint venture and received $3.5 million in gross proceeds; in connection with the sale we recognized a fair value loss adjustment totaling $3.8 million;
Placed a senior loan and preferred equity investment secured by a hotel in San Jose, California (“San Jose Hotel”) on nonaccrual status in March 2021. See “San Jose, California Hotel Senior Loan and Preferred Equity” in “Our Portfolio” below.
Results of Operations
Our Portfolio
Generated U.S. GAAP net loss of $92.3 million, or $(0.71) per share and Distributable Earnings of $13.8 million, or $0.10 per share during the three months ended March 31, 2021.
Impact of COVID-19
Considerable uncertainty still surrounds COVID-19 and its potential effects, and the extent of and effectiveness of any responses taken on a national and local level. Accordingly, the COVID-19 pandemic has negatively impacted CRE credit REITs across the industry, as well as other companies that own and operate commercial real estate investments, including our company. As we manage the impact and uncertainties of the COVID-19 pandemic, cash preservation, liquidity and investment and portfolio management are our key priorities.
We continue to work closely with our borrowers and tenants to address the impact of COVID-19 on their business. To the extent that certain borrowers are experiencing significant financial dislocation we have and may continue to consider the use of interest and other reserves and/or replenishment obligations of the borrower and/or guarantors to meet current interest payment obligations, for a limited period. Similarly, we have and may in the future evaluate converting certain current interest payment obligations to payment-in-kind as a potential bridge period solution. We have in limited cases allowed some portions of current interest to convert to payment-in-kind.
The COVID-19 pandemic has created uncertainties that have and may continue to negatively impact our future operating results, liquidity and financial condition. However, we believe there are too many uncertainties to predict and quantify the continuing impact. The potential concerns and risks include, but are not limited to, mortgage borrowers ability to make monthly payments, lessees’ capacity to pay their rent, and the resulting impact on us to meet our obligations. Therefore, there can be no assurances that we will not need to take impairment charges in future quarters or experience further declines in revenues and net income, which could be material.
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Our Portfolio
As of March 31, 2021, our portfolio consisted of 86 investments representing approximately $3.5 billion in book value (excluding cash, cash equivalents and certain other assets). Our senior and mezzanine loans and preferred equity consisted of 64 senior mortgage loans, mezzanine loans, preferred equity investments and other loans and had a weighted average cash coupon of 4.5% and a weighted average all-in unlevered yield of 5.3%. Our net leased real estate consisted of approximately 4.5 million total square feet of space and total first quarter 2021 net operating income (“NOI”) of that portfolio was approximately $12.2 million.
As of March 31, 2021, our portfolio consisted of the following investments (dollars in thousands):
Count(1)
Book value
(Consolidated)
Book value
(at CLNC share)(2)
Net book value (Consolidated)(3)
Net book value (at CLNC share)(4)
Our Portfolio
Senior mortgage loans(5)
48 $2,514,258 $2,409,380 $810,532 $705,654 
Mezzanine loans(5)
10 364,950 280,801 364,950 280,801 
Preferred equity(5)(6)
44,778 40,630 44,778 40,630 
  Subtotal64 2,923,986 2,730,811 1,220,260 1,027,085 
Net leased real estate700,637 502,949 204,697 155,725 
Other real estate209,973 196,023 7,022 6,493 
CRE debt securities72,309 72,309 72,309 72,309 
Private equity interests6,522 6,522 6,522 6,522 
Total/Weighted average Our Portfolio86 $3,913,427 $3,508,614 $1,510,810 $1,268,134 
________________________________________
(1)Count for net leased real estate represents number of investments.
(2)Book value at our share represents the proportionate book value based on ownership by asset as of March 31, 2021.
(3)Net book value represents book value less any associated financing as of March 31, 2021.
(4)Net book value at our share represents the proportionate book value based on asset ownership less any associated financing based on ownership as of March 31, 2021.
(5)Senior mortgage loans, mezzanine loans, and preferred equity include investments in joint ventures whose underlying interest is in a loan or preferred equity.
(6)Preferred equity balances include $17.0 million of book value at our share attributable to related equity participation interests.
The following charts illustrate the diversification of our portfolio (not including CRE debt securities) based on investment type, underlying property type, and geography, as of March 31, 2021 (percentages based on book value at our share, which represents the proportionate book value based on our ownership by asset):

Investment TypeProperty Type
clnc-20210331_g1.jpg
clnc-20210331_g2.jpg
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Geography
clnc-20210331_g3.jpg
_________________________________________
(1)Senior mortgage loans include junior participations in our originated senior mortgage loans for which we have syndicated the senior participations to other investors and retained the junior participations for our portfolio and contiguous mezzanine loans where we own both the senior and junior loan positions. We believe these investments are more similar to the senior mortgage loans we originate than other loan types given their credit quality and risk profile.
(2)Mezzanine loans include other subordinated loans.
(3)Preferred equity balances include $17.0 million of book value at our share attributable to related equity participation interests.
(4)Other includes commercial and residential development and predevelopment assets.
Underwriting Process
We use an investment and underwriting process that has been developed by our senior management team leveraging their extensive commercial real estate expertise over many years and real estate cycles. The underwriting process focuses on some or all of the following factors designed to ensure each investment is evaluated appropriately: (i) macroeconomic conditions that may influence operating performance; (ii) fundamental analysis of underlying real estate, including tenant rosters, lease terms, zoning, necessary licensing, operating costs and the asset’s overall competitive position in its market; (iii) real estate market factors that may influence the economic performance of the investment, including leasing conditions and overall competition; (iv) the operating expertise and financial strength and reputation of a tenant, operator, partner or borrower; (v) the cash flow in place and projected to be in place over the term of the investment and potential return; (vi) the appropriateness of the business plan and estimated costs associated with tenant buildout, repositioning or capital improvements; (vii) an internal and third-party valuation of a property, investment basis relative to the competitive set and the ability to liquidate an investment through a sale or refinancing; (viii) review of third-party reports including appraisals, engineering and environmental reports; (ix) physical inspections of properties and markets; (x) the overall legal structure of the investment, contractual implications and the lenders’ rights; and (xi) the tax and accounting impact.
Loan Risk Rankings
In addition to reviewing loans and preferred equity held for investment for impairment quarterly, we evaluate loans and preferred equity held for investment to determine if an allowance for loan loss should be established. In conjunction with this review, we assess the risk factors of each senior and mezzanine loans and preferred equity and assign a risk ranking based on a variety of factors, including, without limitation, underlying real estate performance and asset value, values of comparable properties, durability and quality of property cash flows, sponsor experience and financial wherewithal, and the existence of a risk-mitigating loan structure. Additional key considerations include loan-to-value ratios, debt service coverage ratios, loan structure, real estate and credit market dynamics, and risk of default or principal loss. Based on a five-point scale, our loans and preferred equity held for investment are rated “1” through “5,” from less risk to greater risk. At the time of origination or purchase, loans and preferred equity held for investment are ranked as a “3” and will move accordingly going forward based on the ratings which are defined as follows:
1.Very Low Risk—The loan is performing as agreed. The underlying property performance has exceeded underwritten expectations with very strong NOI, debt service coverage ratio, debt yield and occupancy metrics. Sponsor is investment grade, very well capitalized, and employs a very experienced management team.
2.Low Risk—The loan is performing as agreed. The underlying property performance has met or exceeds underwritten expectations with high occupancy at market rents, resulting in consistent cash flow to service the debt. Strong sponsor that is well capitalized with experienced management team.
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3.Average Risk—The loan is performing as agreed. The underlying property performance is consistent with underwriting expectations. The property generates adequate cash flow to service the debt, and/or there is enough reserve or loan structure to provide time for sponsor to execute the business plan. Sponsor has routinely met its obligations and has experience owning/operating similar real estate.
4.High Risk/Delinquent/Potential for Loss—The loan is in excess of 30 days delinquent and/or has a risk of a principal loss. The underlying property performance is behind underwritten expectations. Loan covenants may require occasional waivers/modifications. Sponsor has been unable to execute its business plan and local market fundamentals have deteriorated. Operating cash flow is not sufficient to service the debt and debt service payments may be coming from sponsor equity/loan reserves.
5.Impaired/Defaulted/Loss Likely—The loan is in default or a default is imminent, and has a high risk of a principal loss, or has incurred a principal loss. The underlying property performance is significantly worse than underwritten expectation and sponsor has failed to execute its business plan. The property has significant vacancy and current cash flow does not support debt service. Local market fundamentals have significantly deteriorated resulting in depressed comparable property valuations versus underwriting.
As mentioned above, management considers several risk factors when assigning our risk ranking each quarter. For the quarter ended March 31, 2021, management believes the extended impact of the COVID-19 pandemic remains uncertain, and therefore continues to represent a significant risk to our portfolio. As such, the quarter-end average rating is 3.6, which is consistent with the year ended December 31, 2020.
Senior and Mezzanine Loans and Preferred Equity
Our senior and mezzanine loans and preferred equity consists of senior mortgage loans, mezzanine loans and preferred equity interests, some of which have equity participation interests.
The following table provides a summary of our senior and mezzanine loans and preferred equity based on our internal risk rankings as of March 31, 2021 (dollars in thousands):
Carrying Value (at CLNC share)(1)
Risk Ranking
Count(2)
Senior mortgage loans(3)
Mezzanine loansPreferred equityTotal% of Our Portfolio
337 $1,222,002 $129,889 $19,623 $1,371,514 50.3 %
418 1,031,389 15,504 16,200 1,063,093 38.9 %
5183,568 107,829 4,807 296,204 10.8 %
63 $2,436,959 $253,222 $40,630 $2,730,811 100.0 %
Weighted average risk ranking3.6 
_________________________________________
(1)Carrying value at our share represents the proportionate book value based on ownership by asset as of March 31, 2021.
(2)Count excludes one equity method participation held in a joint venture with a de minimis carry value (at CLNC share) which was not assigned a risk ranking.
(3)Includes one mezzanine loan totaling $27.6 million where we are also the senior lender.










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The following table provides asset level detail for our senior and mezzanine loans and preferred equity as of March 31, 2021 (dollars in thousands):
Collateral typeOrigination DateCity, State
Carrying value(1)
Principal balanceCoupon type
Cash Coupon(2)
Unlevered all-in yield(3)
Extended maturity date
Loan-to-value(4)
Q1 Risk ranking(5)
Senior loans
Loan 1Multifamily6/21/2019Milpitas, CA$179,909 $180,293 Floating3.1%5.5%7/9/202472%3
Loan 2(7)
Hotel1/2/2018San Jose, CA160,700 173,485 
n/a (7)
n/a (7)
n/a (7)
1/9/202362%5
Loan 3Office12/7/2018Carlsbad, CA115,736 116,000 Floating3.7%6.0%12/9/202373%3
Loan 4Industrial9/19/2019New York, NY115,621 116,000 Floating3.1%5.8%9/19/202476%4
Loan 5Hotel6/28/2018Berkeley, CA114,889 120,000 Floating3.2%5.2%7/9/202566%4
Loan 6(6)
Multifamily6/18/2019Santa Clara, CA104,729 105,918 Floating4.4%7.3%6/18/202464%4
Loan 7Office5/31/2019Stamford, CT102,064 102,998 Floating3.5%5.8%6/9/202571%4
Loan 8Multifamily4/11/2019Various - U.S.87,832 92,000 Floating3.0%5.8%4/9/202465%4
Loan 9Office6/27/2018Burlingame, CA73,209 73,254 Floating2.8%4.7%7/9/202361%4
Loan 10Hotel6/25/2018Englewood, CO72,178 74,400 Floating3.5%5.3%7/9/202369%4
Loan 11Office8/28/2018San Jose, CA71,661 71,694 Floating2.5%4.3%8/28/202575%3
Loan 12Office1/19/2021Phoenix, AZ71,427 72,460 Floating3.6%4.4%2/9/202670%3
Loan 13Other (Mixed-use)10/24/2019Brooklyn, NY70,568 72,459 Floating3.4%5.9%11/9/202466%3
Loan 14Office4/5/2019Long Island City, NY62,523 63,202 Floating3.3%5.7%4/9/202458%4
Loan 15Office5/29/2019Long Island City, NY60,269 64,380 Floating3.5%6.0%6/9/202459%4
Loan 16Office2/13/2019Baltimore, MD55,939 56,199 Floating3.5%6.2%2/9/202474%4
Loan 17Office7/12/2019Washington, D.C.55,840 56,081 Floating2.8%5.7%8/9/202468%4
Loan 18Multifamily12/23/2020Salt Lake City, UT50,531 51,100 Floating3.2%4.0%1/9/202668%3
Loan 19Multifamily7/1/2019Phoenix, AZ45,872 45,817 Floating2.7%5.0%7/9/202476%3
Loan 20Multifamily3/1/2021Richardson, TX42,599 43,227 Floating3.4%3.8%3/9/202675%3
Loan 21Multifamily12/21/2020Austin, TX40,453 41,073 Floating3.7%5.0%1/9/202654%3
Loan 22Multifamily2/8/2019Las Vegas, NV40,053 40,086 Floating3.2%5.7%2/9/202471%4
Loan 23Multifamily2/3/2021Arlington, TX38,860 39,220 Floating3.6%4.9%2/9/202681%3
Loan 24Multifamily3/22/2021Fort Worth, TX37,234 37,650 Floating3.5%4.1%4/9/202683%3
Loan 25Multifamily4/26/2018Oxnard, CA36,516 36,500 Floating5.2%6.5%5/9/202171%4
Loan 26Multifamily3/25/2021Fort Worth, TX35,906 36,300 Floating3.3%3.9%4/9/202682%3
Loan 27Multifamily12/29/2020Fullerton, CA34,402 34,860 Floating3.8%4.8%1/9/202670%3
Loan 28Office6/16/2017Miami, FL33,726 33,434 Floating4.9%5.6%7/9/202268%3
Loan 29Multifamily3/16/2021Fremont, CA30,897 31,312 Floating3.5%4.3%4/9/202676%3
Loan 30Office3/28/2019San Jose, CA30,580 30,596 Floating3.0%5.7%4/9/202464%3
Loan 31Multifamily3/31/2021Mesa, AZ28,818 29,240 Floating3.7%4.4%4/9/202683%3
Loan 32Multifamily1/29/2021Charlotte, NC23,085 23,500 Floating3.5%4.1%2/9/202676%3
Loan 33(6)(7)
Other (Mixed-use)10/17/2018Dublin, Ireland22,868 34,282 
n/a (7)
n/a (7)
n/a (7)
12/31/202394%5
Loan 34Office9/16/2019San Francisco, CA22,863 22,951 Floating3.2%5.9%10/9/202472%3
Loan 35Multifamily3/25/2021San Jose, CA22,198 22,650 Floating3.7%4.1%4/9/202670%3
Loan 36Office9/26/2019Salt Lake City, UT22,148 22,381 Floating2.7%5.0%10/9/202472%4
Loan 37Office2/26/2019Charlotte, NC20,623 20,709 Floating3.4%6.0%3/9/202456%3
Loan 38Office8/27/2019San Francisco, CA20,567 20,623 Floating2.8%5.6%9/9/202473%3
Loan 39Multifamily2/25/2021Raleigh, NC20,357 20,683 Floating3.3%4.0%3/9/202676%3
Loan 40Hotel7/30/2020Bloomington, MN19,059 19,500 Floating3.0%4.8%11/9/202164%3
Loan 41Office10/29/2020Denver, CO18,444 18,708 Floating3.6%4.7%11/9/202564%3
Loan 42Multifamily3/31/2021San Antonio, TX18,366 18,600 Floating3.1%3.6%4/9/202677%3
Loan 43Multifamily11/24/2020Tucson, AZ13,888 14,032 Floating3.6%4.7%12/9/202575%3
Loan 44Multifamily2/8/2019Las Vegas, NV13,871 13,884 Floating3.2%5.7%2/9/202471%3
Loan 45Multifamily3/31/2021Albuquerque, NM13,504 13,725 Floating3.4%3.9%4/9/202676%3
Loan 46Multifamily3/5/2021Tucson, AZ12,946 13,100 Floating3.7%4.3%3/9/202672%3
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Collateral typeOrigination DateCity, State
Carrying value(1)
Principal balanceCoupon type
Cash Coupon(2)
Unlevered all-in yield(3)
Extended maturity date
Loan-to-value(4)
Q1 Risk ranking(5)
Loan 47Multifamily2/11/2021Provo, UT11,842 12,003 Floating3.8%4.6%3/9/202671%3
Loan 48Multifamily2/25/2021Louisville, KY11,210 11,386 Floating3.9%4.4%3/9/202674%3
Total/Weighted average senior loans$2,409,380 $2,463,955 4.9%9/20/202469%3.6
Mezzanine loans
Loan 49(6)(7)
Other (Mixed-use)9/1/2020Los Angeles, CA$97,881 $162,243 
n/a (7)
n/a (7)
n/a (7)
7/9/202362% - 88%5
Loan 50(6)
Multifamily12/26/2018Santa Clarita, CA57,499 59,677 Fixed7.0%13.8%12/26/202456% - 84%3
Loan 51(6)
Multifamily12/3/2019Milpitas, CA34,744 35,253 Fixed8.0%13.3%12/3/202449% - 71%3
Loan 52Multifamily7/11/2019Placentia, CA29,236 30,097 Fixed8.0%13.3%7/11/202451% - 84%3
Loan 53(6)
Hotel9/23/2019Berkeley, CA27,578 29,290 Fixed9.0%11.5%7/9/202566% - 81%4
Loan 54Hotel1/9/2017New York, NY11,182 12,000 Floating11.0%11.5%9/9/202263% - 76%4
Loan 55(7)
Other (Mixed-use)6/29/2015Rolling Hills Estates, CA8,691 9,607 
n/a (7)
n/a (7)
n/a (7)
6/29/2021n/a5
Loan 56(6)
Office7/20/2018Dublin, Ireland8,412 7,931 Fixedn/a12.5%12/20/202145% - 68%3
Loan 57Multifamily7/30/2014Various - TX4,321 4,509 Fixed9.5%9.5%8/11/202471% - 83%4
Loan 58(7)
Other (Mixed-use)3/19/2013San Rafael, CA1,257 — 
n/a (7)
n/a (7)
n/a (7)
3/31/202132% - 86%5
Total/Weighted average mezzanine loans$280,801 $350,607 8.0%2/27/2024 57% - 81%3.9
Preferred equity & other loans
Loan 59(6)(8)
Office8/22/2018Las Vegas, NV$18,842 $19,010 Fixed8.0%15.3%9/9/2023n/a3
Loan 60(6)
Industrial9/1/2016Various - U.S.16,200 — n/an/an/a9/2/2027n/a4
Loan 61(7)
Hotel8/17/2020San Jose, CA4,686 4,686 
n/a (7)
n/a (7)
n/a (7)
4/9/2022n/a5
Loan 62Office7/20/2018Dublin, Ireland781 — n/an/an/a12/20/2021n/a3
Loan 63(7)
Other (Mixed-use)6/29/2015Rolling Hills Estates, CA121 — 
n/a (7)
n/a (7)
n/a (7)
6/29/2021n/an/a
Loan 64(8)
Hotel10/24/2014Austin, TX— — n/an/an/an/an/an/a
Total/Weighted average preferred equity & other loans(9)
$40,630 $23,696 7.1%1/26/2025n/a3.6
Total/Weighted average senior and mezzanine loans and preferred equity - Our Portfolio$2,730,811 $2,838,258 5.3%9/1/2024n/a3.6
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(1)Represents carrying values at our share as of March 31, 2021.
(2)Represents the stated coupon rate for loans; for floating rate loans, does not include USD 1-month London Interbank Offered Rate (“LIBOR”) which was 0.11% as of March 31, 2021.
(3)In addition to the stated cash coupon rate, unlevered all-in yield includes non-cash payment in-kind interest income and the accrual of origination, extension and exit fees. Unlevered all-in yield for the loan portfolio assumes the applicable floating benchmark rate as of March 31, 2021 for weighted average calculations.
(4)Except for construction loans, senior loans reflect the initial loan amount divided by the as-is value as of the date the loan was originated, or the principal amount divided by the appraised value as of the date of the most recent as-is appraisal. Mezzanine loans include attachment loan-to-value and detachment loan-to-value, respectively. Attachment loan-to-value reflects initial funding of loans senior to our position divided by the as-is value as of the date the loan was originated, or the principal amount divided by the appraised value as of the date of the most recent appraisal. Detachment loan-to-value reflects the cumulative initial funding of our loan and the loans senior to our position divided by the as-is value as of the date the loan was originated, or the cumulative principal amount divided by the appraised value as of the date of the most recent appraisal.
(5)On a quarterly basis, the Company’s senior and mezzanine loans and preferred equity are rated “1” through “5,” from less risk to greater risk. Represents risk ranking as of March 31, 2021.
(6)Construction senior loans’ loan-to-value reflect the total commitment amount of the loan divided by the as completed appraised value, or the total commitment amount of the loan divided by the projected total cost basis. Construction mezzanine loans include attachment loan-to-value and detachment loan-to-value, respectively. Attachment loan-to-value reflects the total commitment amount of loans senior to our position divided by as-completed appraised value, or the total commitment amount of loans senior to our position divided by projected total cost basis. Detachment loan-to-value reflect the cumulative commitment amount of our loan and the loans senior to our position divided by as-completed appraised value, or the cumulative commitment amount of our loan and loans senior to our position divided by projected total cost basis.
(7)Loans 2, 33, 49, 55, 58, 61 and 63 are on nonaccrual status as of March 31, 2021; as such, no income is being recognized.
(8)Represents equity participation interests related to senior loans, mezzanine loans and/or preferred equity investments.
(9)Weighted average calculation for preferred equity excludes equity participation interests.
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The following table details the types of properties securing our senior and mezzanine loans and preferred equity and geographic distribution as of March 31, 2021 (dollars in thousands):
Book value (at CLNC share)
Collateral property typeCountSenior mortgage loansMezzanine loans and preferred equityTotal% of Total
Multifamily29 $995,879 $125,798 $1,121,677 41.1 %
Office19 837,594 28,059 865,653 31.7 %
Hotel366,825 43,447 410,272 15.0 %
Other(1)
93,461 107,927 201,388 7.4 %
Industrial / Self Storage115,621 16,200 131,821 4.8 %
Total64 $2,409,380 $321,431 $2,730,811 100.0 %
Book value (at CLNC share)
RegionCountSenior mortgage loansMezzanine loans and preferred equityTotal% of Total
US West28 $1,163,400 $280,535 $1,443,935 52.9 %
US Southwest18 572,226 4,321 576,547 21.1 %
US Northeast522,825 11,182 534,007 19.5 %
US Southeast109,002 — 109,002 4.0 %
US Midwest19,059 16,200 35,259 1.3 %
Europe22,868 9,193 32,061 1.2 %
Total64 $2,409,380 $321,431 $2,730,811 100.0 %
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(1)Other includes commercial and residential development and predevelopment assets.
The following charts illustrate the diversification of our senior and mezzanine loans and preferred equity based on interest rate category, property type, and geography as of March 31, 2021 (percentages based on book value at our share, which represents the proportionate book value based on our ownership by asset):

Interest Rate CategoryProperty Type
clnc-20210331_g4.jpg
clnc-20210331_g5.jpg
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Geography
clnc-20210331_g6.jpg
_________________________________________
(1)Other includes commercial and residential development and predevelopment assets.

Due to the continued impact of COVID-19, we expect some borrowers may continue to experience difficulties making their loan payments over the next several quarters. We are particularly concerned with and focused on loans collateralized by hotels as well as mezzanine loans and preferred equity investments that are subordinate to senior loans provided by other lenders such as our Los Angeles Construction Loan and Preferred Equity Investment discussed below. Failure of our borrowers to meet their loan obligations will not only impact our financial results but may also trigger repayments under our master repurchase facilities. Our asset management team speaks with borrowers on a reasonably current basis, and seeks to identify issues and address potential value preserving solutions, which may include a loan modification.
We have five loans on nonaccrual status as of March 31, 2021, of which we received cash interest payments from these loans of $1.4 million and applied the cash interest collected as a reduction to the loan’s carrying value. Refer to loan 2, loan 33, loan 49, loan 55, loan 58, loan 61 and loan 63 in the asset level detail table above for further details.
At March 31, 2021 our current expected credit loss reserve (“CECL”) calculated by our probability of default (“PD”)/loss given default (“LGD”) model for our outstanding loans and future loan funding commitments is $41.7 million, which is 1.5% of the aggregate commitment amount of our loan portfolio. This represents an increase of $3.2 million from $38.5 million at December 31, 2020, which is primarily driven by new loan originations during the first quarter of 2021.
Asset Specific Summaries: Senior and Mezzanine Loans and Preferred Equity
Los Angeles, California Mixed-Use Project—Third Party $275 Million Construction Mezzanine Loan Upsize and Retained B-Participation Investment
Loan TypeCollateral typeOrigination DateCarrying valuePrincipal balanceCoupon typeCash CouponUnlevered all-in yieldExtended maturity dateLoan-to-valueQ1 Risk ranking
Loan 49MezzanineOther (Mixed-use)9/1/2020$97,881 $162,243 n/an/an/a7/9/202362% – 88%5
In July 2017, we originated a $189.0 million commitment to an approximately $574 million mezzanine loan and preferred equity investment in a development project in Los Angeles County, which includes a hospitality and retail renovation and a new condominium tower construction (the “Mixed-use Project”). Our investment interests are held through a joint venture (the “Colony Mezzanine Lender”) with affiliates of Colony Capital.
In April 2020, the senior mortgage lender notified the borrower developer that the Mixed-use Project loan funding was out of balance, due to cost overruns from certain hard and soft costs and senior loan interest reserve shortfalls projected through completion. To address the out of balance circumstance during the second quarter of 2020, the Colony Mezzanine Lender made two protective advances to the senior mortgage lender totaling $69.1 million, of which our share was $28.5 million. The Colony Mezzanine Lender placed this investment on nonaccrual status.
In June 2020, the senior mortgage lender funded a third protective advance of $15.5 million. Additionally, the loans held by the senior mortgage lender and Colony Mezzanine Lender, respectively, matured on July 9, 2020.
On September 1, 2020, in cooperation with the borrower and the EB-5 lender, the Colony Mezzanine Lender and senior mortgage lender secured $275 million of additional mezzanine financing from a third-party mezzanine lender (the “Senior Mezzanine Lender”). To consummate the new mezzanine financing, the Colony Mezzanine Lender simplified its investment
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interest by converting its existing preferred equity principal and accrued interest into the existing mezzanine loan, transferred the mezzanine loan to the Senior Mezzanine Lender, who subsequently increased the mezzanine loan amount by $275 million to an approximately $821 million total mezzanine loan (the “Upsized Mezzanine Loan”). The Senior Mezzanine Lender holds a $275 million A-participation and the Colony Mezzanine Lender (including our interest) continues to hold an approximately $546 million B-participation interest in the Upsized Mezzanine Loan at the Mixed-use Project. The Senior Mezzanine Lender is the sole administrative agent and Upsized Mezzanine Loan owner. The Upsized Mezzanine Loan closing and revised budget addressed certain amendments to maturity dates to complete and sell the hotel by July 2021 and modifications to certain borrower extension tests to facilitate completion of the Mixed-use Project. The Colony Mezzanine Lender’s B-participation investment continues to carry an interest rate of 12.90% per annum, consistent with our interest rate prior to this mezzanine refinancing event. The B-participation investment is a subordinate interest to the A-participation interest in respect to payments of principal and interest. The new $275 million financing commitment covers current capital requirements at the Mixed-use Project and includes both $65 million of interest reserves to cover A-participation interest payments and $100 million reserved for future funding obligations, in furtherance of a revised construction budget to be made by the Senior Mezzanine Lender and senior mortgage lender only. The Colony Mezzanine Lender is no longer subject to future funding commitments in accordance with the revised budget. As previously reported, the Colony Mezzanine Lender had a remaining unfunded commitment of $39.3 million, of which our share was $14.5 million.
During the three months ended June 30, 2020, we placed the mezzanine loans and preferred equity investment on nonaccrual status and recorded our proportionate share of a fair value loss adjustment totaling $89.3 million. Having completed the Upsized Mezzanine Loan refinancing, among other factors, for the remainder of 2020 we continued to maintain the nonaccrual status and fair value loss adjustment on our proportionate share of the Colony Mezzanine Lender’s B-participation investment. During the three months ended March 31, 2021, there was no change in accrual status or fair value.
The hotel portion of the development has been completed and the temporary certificate of occupancy was granted in October 2020. Recently, the borrower initiated a sales process for the hotel component of the mixed-use project. In addition, certain hotel and tower condominium sales have closed since December 2020, with $24 million in aggregate proceeds used to pay down the senior mortgage construction loan.
Notwithstanding the Upsized Mezzanine Loan closing, including a revised budget, amendments to maturity dates and extension tests and reserves for future funding, and a potential targeted hotel sale in the third quarter of 2021, it is possible that additional cost overruns, actual and potential construction delays, delays in the hotel opening, the provision of full services and/or diminished hotel and conference facility demand, delays in selling the hotel and/or slower pace of condominium sales, greater negative carry costs than currently projected or other factors, individually or together, may occur and be further impacted by COVID-19 and could negatively impact the overall value of the Mixed-use Project, including our continuing interest in the B-participation investment.
Dublin, Ireland Senior Predevelopment Loan