text:
CONSOLIDATED BALANCE SHEETS (Parenthetical)
CONSOLIDATED STATEMENTS OF OPERATIONS (Parenthetical)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
CONSOLIDATED STATEMENTS OF EQUITY
CONSOLIDATED STATEMENTS OF EQUITY (Parenthetical)
Business and Organization
Loans and Preferred Equity Held for Investment, net and Loans Held for Sale
Investments in Unconsolidated Ventures
Real Estate Securities, Available for Sale
Real Estate, net and Real Estate Held for Sale
Deferred Leasing Costs and Other Intangibles
Restricted Cash, Other Assets and Accrued and Other Liabilities
Related Party Arrangements
Equity-Based Compensation
Noncontrolling Interests
Segment Reporting
Subsequent Events
Summary of Significant Accounting Policies (Tables)
Loans and Preferred Equity Held for Investment, net and Loans Held for Sale (Tables)
Investments in Unconsolidated Ventures (Tables)
Real Estate Securities, Available for Sale (Tables)
Real Estate, net and Real Estate Held for Sale (Tables)
Deferred Leasing Costs and Other Intangibles (Tables)
Restricted Cash, Other Assets and Accrued and Other Liabilities (Tables)
Debt (Tables)
Equity-Based Compensation (Tables)
Fair Value (Tables)
Derivatives (Tables)
Segment Reporting (Tables)
Earnings Per Share (Tables)
Business and Organization (Details)
Summary of Significant Accounting Policies - Narrative (Details)
Summary of Significant Accounting Policies - Classification, Carrying Value and Maximum Exposure of VIEs (Details)
Summary of Significant Accounting Policies - Operating Real Estate Estimated Useful Lives (Details)
Summary of Significant Accounting Policies - Schedule of Adoption of ASU 2016-13 (Details)
Loans and Preferred Equity Held for Investment, net and Loans Held for Sale - Summary of Loans Held for Investment, Net (Details)
Loans and Preferred Equity Held for Investment, net and Loans Held for Sale - Narrative (Details)
Loans and Preferred Equity Held for Investment, net and Loans Held for Sale - Activity in Loans Held for Investment, Net (Details)
Loans and Preferred Equity Held for Investment, net and Loans Held for Sale - Nonaccrual and Past Due Loans (Details)
Loans and Preferred Equity Held for Investment, net and Loans Held for Sale - Impaired Loans (Details)
Loans and Preferred Equity Held for Investment, net and Loans Held for Sale - Changes in Allowance for Loan Losses (Details)
Loans and Preferred Equity Held for Investment, net and Loans Held for Sale - Schedule of Assets Held for Sale (Details)
Loans and Preferred Equity Held for Investment, net and Loans Held for Sale - Summary of Loans and Preferred Equity Held for Investment by Year of Origination and Credit Quality Risk Ranking (Details)
Investments in Unconsolidated Ventures - Investments in Unconsolidated Ventures (Details)
Investments in Unconsolidated Ventures - Summary of Equity Method Investments (Details)
Investments in Unconsolidated Ventures - Narrative (Details)
Real Estate Securities, Available for Sale - Investments in CRE Securities (Details)
Real Estate Securities, Available for Sale - Narrative (Details)
Real Estate Securities, Available for Sale - Assets and Liabilities Related to Securitized Trust (Details)
Real Estate Securities, Available for Sale - Activity Reported in Statement of Operations Related to Securitized Trust (Details)
Real Estate, net and Real Estate Held for Sale - Real Estate Portfolios (Details)
Real Estate, net and Real Estate Held for Sale - Depreciation Expense (Details)
Real Estate, net and Real Estate Held for Sale - Property Operating Income (Details)
Real Estate, net and Real Estate Held for Sale - Minimum Future Rents (Details)
Real Estate, net and Real Estate Held for Sale - Commitments and Contractual Obligations (Details)
Real Estate, net and Real Estate Held for Sale - Real Estate Asset Acquisitions (Details)
Real Estate, net and Real Estate Held for Sale - Summary of Assets And Liabilities Held for Sale (Details)
Real Estate, net and Real Estate Held for Sale - Real Estate Sales (Details)
Deferred Leasing Costs and Other Intangibles - Schedule of Deferred Leasing Costs and Intangibles (Details)
Deferred Leasing Costs and Other Intangibles - Summary of the Amortization of Deferred Leasing Costs and Intangibles (Details)
Deferred Leasing Costs and Other Intangibles - Schedule of Amortization of Deferred Leasing Costs, Intangible Assets and Intangible Liabilities (Details)
Restricted Cash, Other Assets and Accrued and Other Liabilities - Summary of Restricted Cash (Details)
Restricted Cash, Other Assets and Accrued and Other Liabilities - Summary of Deferred Costs and Other Assets, Net (Details)
Restricted Cash, Other Assets and Accrued and Other Liabilities - Summary of Other Liabilities (Details)
Debt - Schedule of Debt (Details)
Debt - Future Minimum Principal Payments (Details)
Debt - Narrative (Details)
Related Party Arrangements - Management Agreement (Details)
Related Party Arrangements - Fees to the Manager (Details)
Related Party Arrangements - Reimbursements of Expenses (Details)
Related Party Arrangements - Equity Plan Grants and Investment Activity (Details)
Equity-Based Compensation - Narrative (Details)
Equity-Based Compensation - Summary of Awards Granted or Vested (Details)
Stockholders' Equity - Dividends (Details)
Stockholders' Equity - AOCI (Details)
Stockholders' Equity - Reclassification out of AOCI (Details)
Noncontrolling Interests (Details)
Fair Value - Financial Assets Measured on a Recurring Basis (Details)
Fair Value - Changes in Fair Value of Financial Assets Measured on a Recurring Basis (Details)
Fair Value - Narrative (Details)
Fair Value - Principal Amount, Carrying Value and Fair Value of Assets and Liabilities (Details)
Fair Value - Summary of Assets Carried at Fair Value on a Nonrecurring Basis (Details)
Fair Value - Summary of the Fair Value Write-downs to Assets Carried at nonrecurring Fair Values (Details)
Derivatives - Schedule of Derivatives Assets and Liabilities (Details)
Derivatives - Narrative (Details)
Derivatives - Summary of Derivative Contracts (Details)
Derivatives - Summary of Derivative Effects (Details)
Derivatives - Offsetting Assets and Liabilities (Details)
Commitments and Contingencies - Lending Commitments (Details)
Commitments and Contingencies - Ground Lease Obligation (Details)
Commitments and Contingencies - Summary of Lease Expense (Details)
Commitments and Contingencies - Future Minimum Rental Payments (Details)
Segment Reporting - Reportable Operating Segments (Details)
Segment Reporting - Total Income and Long-lived Assets by Geography (Details)
Earnings Per Share (Details)
Subsequent Events (Details)
Cover - shares
Document Period End Date Jun. 30, 2020
Entity Registrant Name COLONY CREDIT REAL ESTATE, INC.
Entity Incorporation, State or Country Code MD
Entity Address, Address Line One 515 S. Flower Street
Entity Address, Address Line Two 44th Floor
Entity Address, City or Town Los Angeles
Entity Address, State or Province CA
Title of 12(b) Security Class A common stock, par value $0.01 per share
Trading Symbol CLNC
Security Exchange Name NYSE
Entity Filer Category Large Accelerated Filer
Entity Small Business false
Entity Common Stock, Shares Outstanding 128,582,965
This is focus fiscal year of the document report in CCYY format. For a 2006 annual report, which may also provide financial information from prior periods, fiscal 2006 should be given as the fiscal year focus. Example: 2006.
-Subsection a-13
-Subsection a-1-
CONSOLIDATED BALANCE SHEETS - USD ($)
Cash and cash equivalents $ 437,951 $ 69,619
Restricted cash 84,011 126,065
Loans and preferred equity held for investment, net [1] 2,242,574 2,576,332
Real estate securities, available for sale, at fair value 60,010 252,824
Real estate, net 823,531 1,484,796
Investments in unconsolidated ventures 417,307 595,305
Receivables, net 46,325 46,456
Deferred leasing costs and intangible assets, net 79,780 112,762
Assets held for sale 760,290 189,470
Other assets 58,535 87,707
Mortgage loans held in securitization trusts, at fair value 1,839,953 1,872,970
Total assets 6,850,267 7,414,306
Securitization bonds payable, net 834,088 833,153
Mortgage and other notes payable, net 1,174,146 1,256,112
Credit facilities 900,173 1,099,233
Due to related party (Note 10) 9,639 11,016
Accrued and other liabilities 101,945 140,424
Intangible liabilities, net 8,378 22,149
Liabilities related to assets held for sale 12,131 294
Escrow deposits payable 50,605 74,497
Dividends payable 0 13,164
Mortgage obligations issued by securitization trusts, at fair value 1,758,325 1,762,914
Preferred stock, $0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively 0 0
Common stock, $0.01 par value per share; Class A, 950,000,000 shares authorized, 128,583,198 and 128,538,703 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively 1,286 1,285
Additional paid-in capital 2,840,134 2,909,181
Accumulated deficit (1,186,754) (819,738)
Accumulated other comprehensive income 25,241 28,294
Total stockholders' equity 1,679,907 2,119,022
Noncontrolling interests in investment entities 281,041 31,631
Noncontrolling interests in the Operating Partnership 39,889 50,697
Total equity 2,000,837 2,201,350
Total liabilities and equity 6,850,267 7,414,306
Primary beneficiary
Cash and cash equivalents 15,688 14,109
Restricted cash 20,055 25,646
Loans and preferred equity held for investment, net 996,148 1,016,781
Real estate, net 417,227 381,608
Investments in unconsolidated ventures 292,298 0
Deferred leasing costs and intangible assets, net 56,461 36,323
Mortgage and other notes payable, net 501,590 341,480
Credit facilities 7,106 23,882
Accrued and other liabilities 94,771 124,969
Escrow deposits payable 4,719 10,485
Total liabilities $ 3,219,819 $ 3,117,364
[1] Net of $52.5 million and $272.6 million of allowance for loan losses at June 30, 2020 and December 31, 2019, respectively. See Note 3, "Loans and Preferred Equity Held for Investments, net and Loans Held for Sale" for further details.
Borrower Escrow Deposits Payable
Name: clnc_BorrowerEscrowDepositsPayable
Namespace Prefix: clnc_
Finite-Lived Intangible Assets And Deferred Leasing Costs, Net
Name: clnc_FiniteLivedIntangibleAssetsAndDeferredLeasingCostsNet
Liabilities Related to Assets Held for Sale, Not Part of Disposal Group
Name: clnc_LiabilitiesRelatedtoAssetsHeldforSaleNotPartofDisposalGroup
Mortgage Loans, Held in Trust, at Fair Value
Name: clnc_MortgageLoansHeldinTrustatFairValue
Mortgage Loans on Real Estate, Held in Trust, at Fair Value
Name: clnc_MortgageLoansonRealEstateHeldinTrustatFairValue
Amount, after allowance for credit loss, of right to consideration from customer for product sold and service rendered in normal course of business.
-Subparagraph (SX 210.5-02(3))
Name: us-gaap_AccountsReceivableNet
Amount of expenses incurred but not yet paid nor invoiced, and liabilities classified as other.
Name: us-gaap_AccruedLiabilitiesAndOtherLiabilities
Accumulated change in equity from transactions and other events and circumstances from non-owner sources, net of tax effect, at period end. Excludes Net Income (Loss), and accumulated changes in equity from transactions resulting from investments by owners and distributions to owners. Includes foreign currency translation items, certain pension adjustments, unrealized gains and losses on certain investments in debt and equity securities, other than temporary impairment (OTTI) losses related to factors other than credit losses on available-for-sale and held-to-maturity debt securities that an entity does not intend to sell and it is not more likely than not that the entity will be required to sell before recovery of the amortized cost basis, as well as changes in the fair value of derivatives related to the effective portion of a designated cash flow hedge.
-Subparagraph (SX 210.5-02(30)(a)(4))
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-Subparagraph (SX 210.7-03(a)(23)(a)(3))
-Paragraph 14A
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-Subparagraph (g)(2)(ii)
Name: us-gaap_AccumulatedOtherComprehensiveIncomeLossNetOfTax
Value received from shareholders in common stock-related transactions that are in excess of par value or stated value and amounts received from other stock-related transactions. Includes only common stock transactions (excludes preferred stock transactions). May be called contributed capital, capital in excess of par, capital surplus, or paid-in capital.
Name: us-gaap_AdditionalPaidInCapitalCommonStock
Sum of the carrying amounts as of the balance sheet date of all assets that are recognized. Assets are probable future economic benefits obtained or controlled by an entity as a result of past transactions or events.
-Subparagraph (SX 210.9-03(11))
-Subparagraph (SX 210.4-08(g)(1)(ii))
-Subparagraph (bb)
-Subparagraph (SX 210.7-03(a)(12))
Name: us-gaap_Assets
Name: us-gaap_AssetsAbstract
Amount of assets held-for-sale that are not part of a disposal group.
-Subparagraph (b)(2)
Name: us-gaap_AssetsHeldForSaleNotPartOfDisposalGroup
Amount of investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale).
-Subparagraph (aa)
Name: us-gaap_AvailableForSaleSecuritiesDebtSecurities
Amount after amortization of leases acquired as part of a real property acquisition at below market lease rate with a finite life.
Name: us-gaap_BelowMarketLeaseNet
Amount of currency on hand as well as demand deposits with banks or financial institutions. Includes other kinds of accounts that have the general characteristics of demand deposits. Also includes short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Excludes cash and cash equivalents within disposal group and discontinued operation.
-Subparagraph (SX 210.5-02.1)
Name: us-gaap_CashAndCashEquivalentsAtCarryingValue
Represents the caption on the face of the balance sheet to indicate that the entity has entered into (1) purchase or supply arrangements that will require expending a portion of its resources to meet the terms thereof, and (2) is exposed to potential losses or, less frequently, gains, arising from (a) possible claims against a company's resources due to future performance under contract terms, and (b) possible losses or likely gains from uncertainties that will ultimately be resolved when one or more future events that are deemed likely to occur do occur or fail to occur.
-Subparagraph (SX 210.5-02.25)
-Subparagraph (SX 210.7-03.(a),19)
Name: us-gaap_CommitmentsAndContingencies
Aggregate par or stated value of issued nonredeemable common stock (or common stock redeemable solely at the option of the issuer). This item includes treasury stock repurchased by the entity. Note: elements for number of nonredeemable common shares, par value and other disclosure concepts are in another section within stockholders' equity.
Name: us-gaap_CommonStockValue
Carrying value as of the balance sheet date of dividends declared but unpaid on equity securities issued by the entity and outstanding.
-Subparagraph (SX 210.9-03(15)(5))
-Subparagraph (SX 210.7-03(a)(15)(5))
Name: us-gaap_DividendsPayableCurrentAndNoncurrent
Carrying amount as of the balance sheet date of obligations due all related parties.
-Subparagraph (SX 210.4-08.(k)(1))
-Subparagraph (SX 210.9-03.15(3),(4))
-URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39549-107864
Name: us-gaap_DueToRelatedPartiesCurrentAndNoncurrent
Amount of investment in equity method investee and investment in and advance to affiliate.
Name: us-gaap_InvestmentsInAffiliatesSubsidiariesAssociatesAndJointVentures
Sum of the carrying amounts as of the balance sheet date of all liabilities that are recognized. Liabilities are probable future sacrifices of economic benefits arising from present obligations of an entity to transfer assets or provide services to other entities in the future.
-Subparagraph (SX 210.5-02.19-26)
Name: us-gaap_Liabilities
Amount of liabilities and equity items, including the portion of equity attributable to noncontrolling interests, if any.
Name: us-gaap_LiabilitiesAndStockholdersEquity
Name: us-gaap_LiabilitiesAndStockholdersEquityAbstract
The carrying value as of the balance sheet date of the current and noncurrent portions of long-term obligations drawn from a line of credit, which is a bank's commitment to make loans up to a specific amount. Examples of items that might be included in the application of this element may consist of letters of credit, standby letters of credit, and revolving credit arrangements, under which borrowings can be made up to a maximum amount as of any point in time conditional on satisfaction of specified terms before, as of and after the date of drawdowns on the line. Includes short-term obligations that would normally be classified as current liabilities but for which (a) postbalance sheet date issuance of a long term obligation to refinance the short term obligation on a long term basis, or (b) the enterprise has entered into a financing agreement that clearly permits the enterprise to refinance the short-term obligation on a long term basis and the following conditions are met (1) the agreement does not expire within 1 year and is not cancelable by the lender except for violation of an objectively determinable provision, (2) no violation exists at the BS date, and (3) the lender has entered into the financing agreement is expected to be financially capable of honoring the agreement.
Name: us-gaap_LineOfCredit
Carrying amount of the equity interests owned by noncontrolling shareholders, partners, or other equity holders in joint ventures included in the entity's consolidated financial statements.
Name: us-gaap_MinorityInterestInJointVentures
Carrying amount of the equity interests owned by noncontrolling partners in an operating partnership included in the entity's consolidated financial statements.
Name: us-gaap_MinorityInterestInOperatingPartnerships
The balance represents the amount of loans that are secured by real estate mortgages, offset by the reserve to cover probable credit losses on the loan portfolio.
-Subparagraph (SX 210.7-03.1(c))
Name: us-gaap_MortgageLoansOnRealEstateCommercialAndConsumerNet
Including the current and noncurrent portions, aggregate carrying amount of all types of notes payable, as of the balance sheet date, with initial maturities beyond one year or beyond the normal operating cycle, if longer.
Name: us-gaap_NotesPayable
Amount of assets classified as other.
Name: us-gaap_OtherAssets
Aggregate par or stated value of issued nonredeemable preferred stock (or preferred stock redeemable solely at the option of the issuer). This item includes treasury stock repurchased by the entity. Note: elements for number of nonredeemable preferred shares, par value and other disclosure concepts are in another section within stockholders' equity.
Name: us-gaap_PreferredStockValue
Amount of real estate investment property, net of accumulated depreciation, which may include the following: (1) land available-for-sale; (2) land available-for-development; (3) investments in building and building improvements; (4) tenant allowances; (5) developments in-process; (6) rental properties; and (7) other real estate investments.
-Subparagraph (SX 210.7-03.1(d))
Name: us-gaap_RealEstateInvestmentPropertyNet
Amount of cash and cash equivalents restricted as to withdrawal or usage. Cash includes, but is not limited to, currency on hand, demand deposits with banks or financial institutions, and other accounts with general characteristics of demand deposits. Cash equivalents include, but are not limited to, short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates.
-Subparagraph (SX 210.7-03(a)(2))
-Subparagraph (SX 210.9-03(1)(a))
Name: us-gaap_RestrictedCashAndCashEquivalents
The cumulative amount of the reporting entity's undistributed earnings or deficit.
-Subparagraph (g)(2)
-Subparagraph (SX 210.3-04)
-Subparagraph (g)(2)(i)
Name: us-gaap_RetainedEarningsAccumulatedDeficit
Carrying value as of the balance sheet date, including the current and noncurrent portions, of collateralized debt obligations (with maturities initially due after one year or beyond the operating cycle, if longer). Such obligations include mortgage loans, chattel loans, and any other borrowings secured by assets of the borrower.
Name: us-gaap_SecuredDebt
Total of all stockholders' equity (deficit) items, net of receivables from officers, directors, owners, and affiliates of the entity which are attributable to the parent. The amount of the economic entity's stockholders' equity attributable to the parent excludes the amount of stockholders' equity which is allocable to that ownership interest in subsidiary equity which is not attributable to the parent (noncontrolling interest, minority interest). This excludes temporary equity and is sometimes called permanent equity.
-Subparagraph (SAB Topic 4.E)
Name: us-gaap_StockholdersEquity
Name: us-gaap_StockholdersEquityAbstract
Amount of stockholders' equity (deficit), net of receivables from officers, directors, owners, and affiliates of the entity, attributable to both the parent and noncontrolling interests. Amount excludes temporary equity. Alternate caption for the concept is permanent equity.
Reference 10: http://fasb.org/us-gaap/role/ref/legacyRef
-Paragraph 4I
Reference 12: http://www.xbrl.org/2009/role/commonPracticeRef
Name: us-gaap_StockholdersEquityIncludingPortionAttributableToNoncontrollingInterest
Name: srt_ConsolidatedEntitiesAxis=us-gaap_VariableInterestEntityPrimaryBeneficiaryMember
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
Investments under fair value option $ 7,093 $ 10,283
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock, shares authorized (in shares) 50,000,000 50,000,000
Preferred stock, shares issued (in shares) 0 0
Preferred stock, shares outstanding (in shares) 0 0
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Allowance for loan losses $ 52,521 $ 272,624
Common stock, shares authorized (in shares) 950,000,000 950,000,000
Common stock, shares issued (in shares) 128,583,198 128,538,703
Common stock, shares outstanding (in shares) 128,583,198 128,538,703
Name: clnc_AlternativeInvestments
Face amount or stated value per share of common stock.
Name: us-gaap_CommonStockParOrStatedValuePerShare
Data Type: num:perShareItemType
The maximum number of common shares permitted to be issued by an entity's charter and bylaws.
Name: us-gaap_CommonStockSharesAuthorized
Total number of common shares of an entity that have been sold or granted to shareholders (includes common shares that were issued, repurchased and remain in the treasury). These shares represent capital invested by the firm's shareholders and owners, and may be all or only a portion of the number of shares authorized. Shares issued include shares outstanding and shares held in the treasury.
Name: us-gaap_CommonStockSharesIssued
Number of shares of common stock outstanding. Common stock represent the ownership interest in a corporation.
Name: us-gaap_CommonStockSharesOutstanding
Amount of allowance for credit loss on financing receivable. Excludes allowance for financing receivable covered under loss sharing agreement.
-Paragraph 11B
-Subparagraph (SX 210.9-03(7)(2))
Name: us-gaap_FinancingReceivableAllowanceForCreditLosses
Face amount or stated value per share of preferred stock nonredeemable or redeemable solely at the option of the issuer.
Name: us-gaap_PreferredStockParOrStatedValuePerShare
The maximum number of nonredeemable preferred shares (or preferred stock redeemable solely at the option of the issuer) permitted to be issued by an entity's charter and bylaws.
Name: us-gaap_PreferredStockSharesAuthorized
Total number of nonredeemable preferred shares (or preferred stock redeemable solely at the option of the issuer) issued to shareholders (includes related preferred shares that were issued, repurchased, and remain in the treasury). May be all or portion of the number of preferred shares authorized. Excludes preferred shares that are classified as debt.
Name: us-gaap_PreferredStockSharesIssued
Aggregate share number for all nonredeemable preferred stock (or preferred stock redeemable solely at the option of the issuer) held by stockholders. Does not include preferred shares that have been repurchased.
Name: us-gaap_PreferredStockSharesOutstanding
Name: us-gaap_StatementClassOfStockAxis=us-gaap_CommonClassAMember
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
shares in Thousands, $ in Thousands
Interest income $ 39,508 $ 42,073 $ 85,612 $ 80,482
Interest expense (16,745) (21,046) (37,489) (40,338)
Interest income on mortgage loans held in securitization trusts 20,539 38,656 41,094 77,132
Interest expense on mortgage obligations issued by securitization trusts (18,364) (35,756) (36,423) (71,391)
Net interest income 24,938 23,927 52,794 45,885
Property and other income
Property operating income 43,722 64,767 96,235 127,901
Other income (loss) (8,360) 434 1,049 611
Total property and other income 35,362 65,201 97,284 128,512
Management fee expense 7,206 11,357 15,152 22,715
Property operating expense 16,311 28,140 38,842 56,320
Transaction, investment and servicing expense 2,907 1,051 6,041 1,580
Interest expense on real estate 11,818 13,898 24,896 27,505
Depreciation and amortization 14,020 29,257 31,996 56,919
Provision for loan losses (51) 110,258 69,881 110,258
Impairment of operating real estate 25,935 10,124 30,061 10,124
Administrative expense (including $1,549, $2,713, $1,891 and $4,556 of equity-based compensation expense, respectively) 6,751 8,010 13,789 14,663
Total expenses 84,897 212,095 230,658 300,084
Other income (loss)
Unrealized (gain) loss on mortgage loans and obligations held in securitization trusts, net (8,975) 5,549 (28,427) 6,578
Realized gain on mortgage loans and obligations held in securitization trusts, net 0 0 0 48
Other loss, net (119,633) (6,062) (139,795) (11,141)
Loss before equity in earnings of unconsolidated ventures and income taxes (153,205) (123,480) (248,802) (130,202)
Equity in earnings (loss) of unconsolidated ventures (85,277) 12,557 (68,110) 33,867
Income tax benefit (expense) (2,102) 133 (3,813) 502
Net loss (240,584) (110,790) (320,725) (95,833)
Net loss attributable to noncontrolling interests:
Investment entities 8,107 880 7,584 1,178
Operating Partnership 5,418 2,569 7,310 2,222
Net loss attributable to Colony Credit Real Estate, Inc. common stockholders $ (227,059) $ (107,341) $ (305,831) $ (92,433)
Net loss per common share - basic and diluted (Note 18) (in dollars per share) $ (1.77) $ (0.84) $ (2.38) $ (0.73)
Weighted average shares of common stock outstanding - basic and diluted (Note 18) (in shares) 128,539 128,534 128,513 128,240
Asset Management Fee Expense, Related Party
Name: clnc_AssetManagementFeeExpenseRelatedParty
Interest Income (Expense), Operating and Nonoperating, Net
Name: clnc_InterestIncomeExpenseOperatingandNonoperatingNet
Property Operating Expense
Name: clnc_PropertyOperatingExpense
Property Operating Income
Name: clnc_PropertyOperatingIncome
Name: clnc_PropertyandOtherIncome
Transaction, Investment And Servicing Expense
Name: clnc_TransactionInvestmentAndServicingExpense
Total costs of sales and operating expenses for the period.
Name: us-gaap_CostsAndExpenses
Name: us-gaap_CostsAndExpensesAbstract
The current period expense charged against earnings on long-lived, physical assets not used in production, and which are not intended for resale, to allocate or recognize the cost of such assets over their useful lives; or to record the reduction in book value of an intangible asset over the benefit period of such asset; or to reflect consumption during the period of an asset that is not used in production.
Name: us-gaap_DepreciationAndAmortization
The amount of net income or loss for the period per each share in instances when basic and diluted earnings per share are the same amount and reported as a single line item on the face of the financial statements. Basic earnings per share is the amount of net income or loss for the period per each share of common stock or unit outstanding during the reporting period. Diluted earnings per share includes the amount of net income or loss for the period available to each share of common stock or common unit outstanding during the reporting period and to each share or unit that would have been outstanding assuming the issuance of common shares or units for all dilutive potential common shares or units outstanding during the reporting period.
Name: us-gaap_EarningsPerShareBasicAndDiluted
For each line item in the statement of financial position, the amounts of gains and losses from fair value changes included in earnings.
Name: us-gaap_FairValueOptionChangesInFairValueGainLoss1
The aggregate total of expenses of managing and administering the affairs of an entity, including affiliates of the reporting entity, which are not directly or indirectly associated with the manufacture, sale or creation of a product or product line.
Name: us-gaap_GeneralAndAdministrativeExpense
The charge against earnings in the period to reduce the carrying amount of real property to fair value.
Name: us-gaap_ImpairmentOfRealEstate
Amount of income (loss) from continuing operations before deduction of income tax expense (benefit) and income (loss) attributable to noncontrolling interest, and addition of income (loss) from equity method investments.
-Subparagraph (SX 210.4-08.(h)(1)(i))
Name: us-gaap_IncomeLossFromContinuingOperationsBeforeIncomeTaxesMinorityInterestAndIncomeLossFromEquityMethodInvestments
Amount of income (loss) for proportionate share of equity method investee's income (loss).
-Subparagraph (SX 210.9-04(13)(f))
-Subparagraph (g)
Name: us-gaap_IncomeLossFromEquityMethodInvestments
Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations.
-Subparagraph (SAB TOPIC 6.I.7)
-Subparagraph (h)
-Subparagraph (SX 210.4-08(h))
Name: us-gaap_IncomeTaxExpenseBenefit
Amount of the cost of borrowed funds accounted for as interest expense.
-Subparagraph (210.5-03(11))
Name: us-gaap_InterestExpense
Amount of the cost of borrowed funds accounted for as interest expense for debt.
Name: us-gaap_InterestExpenseDebt
Name: us-gaap_InterestIncomeExpenseNetAbstract
Amount of operating interest income, including, but not limited to, amortization and accretion of premiums and discounts on securities.
-Subparagraph (SX 210.5-03.1(e))
Name: us-gaap_InterestIncomeOperating
Amount before accretion (amortization) of purchase discount (premium) of interest income on nonoperating securities.
-Subparagraph (SX 210.5-03.7(b))
Name: us-gaap_InvestmentIncomeInterest
Amount of expenses related to the generation of investment income.
Name: us-gaap_InvestmentIncomeInvestmentExpense
Name: us-gaap_MinorityInterestInNetIncomeLossOfConsolidatedEntitiesAbstract
The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.
-Paragraph 1B
Name: us-gaap_NetIncomeLoss
Amount after tax of income (loss) attributable to nonredeemable noncontrolling shareholder, unit holder, partner, or other equity holder of a joint venture.
Name: us-gaap_NoncontrollingInterestInNetIncomeLossJointVenturePartnersNonredeemable
Amount after tax of income (loss) attributable to nonredeemable noncontrolling partner in an operating partnership.
Name: us-gaap_NoncontrollingInterestInNetIncomeLossOperatingPartnershipsNonredeemable
Amount of revenue and income classified as other.
Name: us-gaap_OtherIncome
Name: us-gaap_OtherIncomeAndExpensesAbstract
Name: us-gaap_OtherIncomeTaxExpenseBenefitContinuingOperationsAbstract
Amount of gain (loss) related to nonoperating activities, classified as other.
-Subparagraph (SX 210.5-03.7,9)
Name: us-gaap_OtherNonoperatingGainsLosses
The consolidated profit or loss for the period, net of income taxes, including the portion attributable to the noncontrolling interest.
-Subparagraph (a)(1)
-Subparagraph (SX 210.9-05(b)(2))
Reference 14: http://www.xbrl.org/2003/role/exampleRef
-Paragraph 4J
-Paragraph 4K
Name: us-gaap_ProfitLoss
Amount of credit loss expense (reversal of expense) for financing receivable.
Name: us-gaap_ProvisionForLoanLossesExpensed
Amount of realized gain (loss) on investment.
-Subparagraph (SX 210.7-04.3(a))
Name: us-gaap_RealizedInvestmentGainsLosses
Average number of shares or units issued and outstanding that are used in calculating basic and diluted earnings per share (EPS).
Name: us-gaap_WeightedAverageNumberOfShareOutstandingBasicAndDiluted
CONSOLIDATED STATEMENTS OF OPERATIONS (Parenthetical) - USD ($)
Income Statement [Abstract]
Share-based compensation expense $ 1,549 $ 2,713 $ 1,891 $ 4,556
Amount of expense for award under share-based payment arrangement. Excludes amount capitalized.
-Subparagraph (h)(1)(i)
Name: us-gaap_AllocatedShareBasedCompensationExpense
Name: us-gaap_IncomeStatementAbstract
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($)
Net income (loss) $ (240,584) $ (110,790) $ (320,725) $ (95,833)
Other comprehensive income (loss)
Unrealized gain (loss) on real estate securities, available for sale 58,510 7,863 (16,519) 17,621
Change in fair value of net investment hedges 0 938 21,764 8,333
Foreign currency translation gain (loss) 11,097 3,923 (8,339) 613
Total other comprehensive income (loss) 69,607 12,724 (3,094) 26,567
Comprehensive income (loss) (170,977) (98,066) (323,819) (69,266)
Comprehensive (income) loss attributable to noncontrolling interests:
Comprehensive income (loss) attributable to common stockholders (159,113) (94,914) (308,884) (66,487)
Investment entities
Net income (loss) (8,107) (880)
Total other comprehensive income (loss) 257
Comprehensive (income) loss attributable to noncontrolling interests 7,850 880 7,327 1,178
Operating Partnership
Net income (loss) (5,418) (2,569)
Total other comprehensive income (loss) 1,404 297
Comprehensive (income) loss attributable to noncontrolling interests $ 4,014 $ 2,272 $ 7,608 $ 1,601
Gain (loss), net on both outstanding and matured derivatives instruments that have been or were designated and have or were qualified as hedges of foreign currency exposures related to net investments in foreign operations, net of tax.
Name: clnc_OtherComprehensiveIncomeLossNetForeignInvestmentHedgesGainLossNetofTax
Amount after tax of increase (decrease) in equity from transactions and other events and circumstances from net income and other comprehensive income, attributable to parent entity. Excludes changes in equity resulting from investments by owners and distributions to owners.
Name: us-gaap_ComprehensiveIncomeNetOfTax
Amount after tax of increase (decrease) in equity from transactions and other events and circumstances from net income (loss) and other comprehensive income (loss), attributable to noncontrolling interests. Excludes changes in equity resulting from investments by owners and distributions to owners.
Name: us-gaap_ComprehensiveIncomeNetOfTaxAttributableToNoncontrollingInterest
Name: us-gaap_ComprehensiveIncomeNetOfTaxAttributableToNoncontrollingInterestAbstract
Amount after tax of increase (decrease) in equity from transactions and other events and circumstances from net income and other comprehensive income. Excludes changes in equity resulting from investments by owners and distributions to owners.
Name: us-gaap_ComprehensiveIncomeNetOfTaxIncludingPortionAttributableToNoncontrollingInterest
Name: us-gaap_OtherComprehensiveIncomeAvailableForSaleSecuritiesAdjustmentNetOfTaxPeriodIncreaseDecreaseAbstract
Amount, after tax and adjustment, of unrealized gain (loss) on investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale) and unrealized gain (loss) on investment in debt security measured at amortized cost (held-to-maturity) from transfer to available-for-sale.
Name: us-gaap_OtherComprehensiveIncomeLossAvailableForSaleSecuritiesAdjustmentNetOfTax
Amount after tax and reclassification adjustments of gain (loss) on foreign currency translation adjustments, foreign currency transactions designated and effective as economic hedges of a net investment in a foreign entity and intra-entity foreign currency transactions that are of a long-term-investment nature.
Name: us-gaap_OtherComprehensiveIncomeLossForeignCurrencyTransactionAndTranslationAdjustmentNetOfTax
Amount after tax and reclassification adjustments of other comprehensive income (loss).
Name: us-gaap_OtherComprehensiveIncomeLossNetOfTax
Name: us-gaap_StatementEquityComponentsAxis=clnc_NoncontrollingInterestsinInvestmentEntitiesMember
Name: us-gaap_StatementEquityComponentsAxis=clnc_NoncontrollingInterestsinOperatingCompanyMember
CONSOLIDATED STATEMENTS OF EQUITY - USD ($)
Cumulative Effect, Period of Adoption, Adjustment
Total Company's Stockholders' Equity
Class B-3
Retained Earnings (Accumulated Deficit)
Noncontrolling Interests in Investment Entities
Noncontrolling Interests in the Operating Partnership
Beginning balance (in shares) at Dec. 31, 2018 83,410,000 44,399,000
Beginning balance at Dec. 31, 2018 $ 2,845,202 $ 2,706,905 $ 834 $ 444 $ 2,899,353 $ (193,327) $ (399) $ 72,683 $ 65,614
Increase (Decrease) in Stockholders' Equity
Contributions 24 24
Distributions (394) (394)
Conversion of Class B-3 common stock to Class A common stock (in shares) 44,399,000 (44,399,000)
Conversion of Class B-3 common stock to Class A common stock $ 444 $ (444)
Issuance and amortization of equity-based compensation (in shares) 800,000
Issuance and amortization of equity-based compensation 1,843 1,843 $ 8 1,835
Other comprehensive income (loss) 13,843 13,519 13,519 324
Dividends and distributions declared (57,066) (55,726) (55,726) (1,340)
Shares canceled for tax withholding on vested stock awards (in shares) (96,000)
Shares canceled for tax withholding on vested stock awards (1,497) (1,497) $ (1) (1,496)
Reallocation of equity (23) (23) 23
Net income (loss) 14,957 14,908 14,908 (298) 347
Ending balance (in shares) at Mar. 31, 2019 128,513,000 0
Ending balance at Mar. 31, 2019 2,816,912 2,679,929 $ 1,285 $ 0 2,899,669 (234,145) 13,120 72,015 64,968
Beginning balance at Dec. 31, 2018 2,845,202 2,706,905 $ 834 $ 444 2,899,353 (193,327) (399) 72,683 65,614
Conversion of Class B-3 common stock to Class A common stock 444
Other comprehensive income (loss) 26,567
Net income (loss) (95,833)
Ending balance (in shares) at Jun. 30, 2019 128,545,000 0
Ending balance at Jun. 30, 2019 2,663,118 2,532,560 $ 1,285 $ 0 2,903,126 (397,398) 25,547 69,948 60,610
Beginning balance (in shares) at Mar. 31, 2019 128,513,000 0
Beginning balance at Mar. 31, 2019 2,816,912 2,679,929 $ 1,285 $ 0 2,899,669 (234,145) 13,120 72,015 64,968
Distributions (1,198) (1,198)
Issuance and amortization of equity-based compensation (in shares) 32,000
Issuance and amortization of equity-based compensation 2,713 2,713 2,713
Reallocation of equity 744 744 (744)
Net income (loss) (110,790) (107,341) (107,341) (880) (2,569)
Beginning balance (in shares) at Dec. 31, 2019 128,539,000 0
Beginning balance at Dec. 31, 2019 2,201,350 $ (23,186) 2,119,022 $ (22,644) $ 1,285 $ 0 2,909,181 (819,738) $ (22,644) 28,294 31,631 50,697 $ (542)
Distributions (11,013) (11,013)
Issuance and amortization of equity-based compensation 342 342 342
Other comprehensive income (loss) (72,701) (70,999) (70,999) (1,702)
Dividends and distributions declared (39,463) (38,541) (38,541) (922)
Shares canceled for tax withholding on vested stock awards (in shares) (173,000)
Net income (loss) (80,141) (78,772) (78,772) 523 (1,892)
Ending balance at Mar. 31, 2020 1,973,501 1,906,680 $ 1,284 $ 0 2,907,796 (959,695) (42,705) 21,141 45,680
Conversion of Class B-3 common stock to Class A common stock 0
Other comprehensive income (loss) (3,094)
Net income (loss) (320,725)
Ending balance at Jun. 30, 2020 2,000,837 1,679,907 $ 1,286 $ 0 2,840,134 (1,186,754) 25,241 281,041 39,889
Beginning balance at Mar. 31, 2020 1,973,501 1,906,680 $ 1,284 $ 0 2,907,796 (959,695) (42,705) 21,141 45,680
Contributions 200,467 200,467
Other comprehensive income (loss) 69,607 67,946 67,946 257 1,404
Shares canceled for tax withholding on vested stock awards (81) (81) (81)
Reallocation of equity 1,777 1,777 (1,777)
Costs of noncontrolling equity (466) (466) (466)
Investment by JV partner in consolidated JV and equity reallocation related to that partner's return (see Note 2) (70,439) (70,439) 70,439
Net income (loss) (240,584) (227,059) (227,059) (8,107) (5,418)
Ending balance at Jun. 30, 2020 $ 2,000,837 $ 1,679,907 $ 1,286 $ 0 $ 2,840,134 $ (1,186,754) $ 25,241 $ 281,041 $ 39,889
Adjustments To Additional Paid-In-Capital, Investment In Joint Venture And Equity Reallocation
Name: clnc_AdjustmentsToAdditionalPaidInCapitalInvestmentInJointVentureAndEquityReallocation
Noncontrolling Interest Cost Of New Capital
Name: clnc_NoncontrollingInterestCostOfNewCapital
Reallocation of Equity
Name: clnc_ReallocationofEquity
Stock Issued During Period, Value, Share-based Compensation, Including Share-based Compensation, Requisite Service Period Recognition
Name: clnc_StockIssuedDuringPeriodValueSharebasedCompensationIncludingSharebasedCompensationRequisiteServicePeriodRecognition
Stockholders' Equity, Contributions
Name: clnc_StockholdersEquityContributions
Stockholders' Equity, Distributions
Name: clnc_StockholdersEquityDistributions
Amount of decrease to equity for grantee's tax withholding obligation for award under share-based payment arrangement.
Name: us-gaap_AdjustmentsRelatedToTaxWithholdingForShareBasedCompensation
The value of the financial instrument issued [noncash or part noncash] in the conversion of stock. Noncash is defined as transactions during a period that do not result in cash receipts or cash payments in the period. "Part noncash" refers to that portion of the transaction not resulting in cash receipts or cash payments in the period.
Name: us-gaap_ConversionOfStockAmountIssued1
The number of new shares issued in the conversion of stock in a noncash (or part noncash) transaction. Noncash is defined as transactions during a period that do not result in cash receipts or cash payments in the period. "Part noncash" refers to that portion of the transaction not resulting in cash receipts or cash payments in the period.
Name: us-gaap_ConversionOfStockSharesIssued1
Amount of paid and unpaid cash, stock, and paid-in-kind (PIK) dividends declared, for example, but not limited to, common and preferred stock.
Name: us-gaap_Dividends
A roll forward is a reconciliation of a concept from the beginning of a period to the end of a period.
Name: us-gaap_IncreaseDecreaseInStockholdersEquityRollForward
Number of shares issued which are neither cancelled nor held in the treasury.
Name: us-gaap_SharesOutstanding
Number of shares used to settle grantee's tax withholding obligation for award under share-based payment arrangement.
Name: us-gaap_SharesPaidForTaxWithholdingForShareBasedCompensation
Number, after forfeiture, of shares or units issued under share-based payment arrangement. Excludes shares or units issued under employee stock ownership plan (ESOP).
Name: us-gaap_StockIssuedDuringPeriodSharesShareBasedCompensation
$ / shares
Dividends declared per share of common stock (in dollars per share) $ 0.44
Aggregate dividends declared during the period for each share of common stock outstanding.
Name: us-gaap_CommonStockDividendsPerShareDeclared
Name: us-gaap_StatementClassOfStockAxis=clnc_CommonClassB3Member
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
12 Months Ended
Net income (loss) $ (240,584) $ (80,141) $ (110,790) $ 14,957 $ (320,725) $ (95,833)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Equity in (earnings) losses of unconsolidated ventures 85,277 (12,557) 68,110 (33,867)
Straight-line rental income (1,818) (3,552)
Amortization of above/below market lease values, net (565) (1,737)
Amortization of premium/accretion of discount and fees on investments and borrowings, net (6,066) (5,701)
Amortization of deferred financing costs 6,290 4,252
Amortization of right-of-use lease assets and operating lease liabilities 49 48
Paid-in-kind interest added to loan principal, net of interest received (6,382) (3,738)
Distributions of cumulative earnings from unconsolidated ventures 13,429 30,879
Unrealized (gain) loss on mortgage loans and obligations held in securitization trusts, net 8,975 (5,549) 28,427 (6,578)
Realized (gain) loss on mortgage loans and obligations held in securitization trusts, net 0 0 0 (48)
Realized loss on securities from write-down to fair value 29,240 0
Realized loss on sale of real estate securities, available for sale 57,045 0
Amortization of equity-based compensation 1,891 4,556
Mortgage notes above/below market value amortization (817) 164
Deferred income tax (benefit) expense 719 (3,589)
Other (gain) loss, net 23,531 0
Receivables, net 2,159 (8,113)
Deferred costs and other assets 20,432 5,890
Due to related party (1,377) (2,672)
Other liabilities (15,943) 5,483
Net cash provided by operating activities 29,567 63,145
Acquisition, origination and funding of loans and preferred equity held for investment, net (66,722) (886,397)
Repayment on loans and preferred equity held for investment 160,069 287,437
Repayment on loans held for sale 32,576 0
Proceeds from sale of real estate 161,817 0
Acquisition of and additions to real estate, related intangibles and leasing commissions (15,196) (9,281)
Investments in unconsolidated ventures (47,541) (7,801)
Proceeds from sale of investments in unconsolidated ventures 99,985 76,861
Distributions in excess of cumulative earnings from unconsolidated ventures 24,170 119,472
Repayment of real estate securities, available for sale, from sales 89,680 0
Repayment of real estate securities, available for sale, from cost recovery 2,106 0
Repayment of principal in mortgage loans held in securitization trusts 13,138 0
Net receipts on settlement of derivative instruments 19,637 1,638
Deposit on investments 0 (372)
Change in escrow deposits (23,892) (2,848)
Net cash provided (used in) by investing activities 449,827 (421,291)
Distributions paid on common stock (51,705) (111,536)
Distributions paid on common stock to noncontrolling interests (922) (2,682)
Shares canceled for tax withholding on vested stock awards (1,769) 0
Borrowings from mortgage notes 13,338 85,481
Repayment of mortgage notes (77,893) (2,948)
Borrowings from credit facilities 255,128 1,420,569
Repayment of credit facilities (454,188) (977,697)
Repayment of securitization bonds 0 (57,995)
Repayment of mortgage obligations issued by securitization trusts (13,138) 0
Payment of deferred financing costs (6,842) (6,972)
Contributions from noncontrolling interests 200,001 35
Distributions to noncontrolling interests (14,169) (1,592)
Net cash provided by (used in) financing activities (152,159) 344,663
Effect of exchange rates on cash, cash equivalents and restricted cash (957) (15)
Net increase (decrease) in cash, cash equivalents and restricted cash 326,278 (13,498)
Cash, cash equivalents and restricted cash - beginning of period 195,684 187,463 195,684 187,463 $ 187,463
Cash, cash equivalents and restricted cash - end of period 521,962 173,965 521,962 173,965 195,684
Reconciliation of cash, cash equivalents, and restricted cash to consolidated balance sheets
Cash and cash equivalents $ 437,951 $ 69,619 $ 59,838 $ 77,317
Restricted cash 84,011 126,065 114,127 110,146
Total cash, cash equivalents and restricted cash $ 521,962 $ 195,684 $ 173,965 $ 187,463 521,962 173,965 $ 187,463 $ 521,962 $ 195,684 $ 173,965 $ 187,463
Supplemental disclosure of non-cash investing and financing activities:
Consolidation of securitization trust (VIE asset/liability additions) 0 52,346
Accrual of distribution payable (13,164) 19,088
Foreclosure of loans held for investment, net of provision for loan losses 0 127,356
Right-of-use lease assets and operating lease liabilities (730) 26,348
Conversion of Class B-3 common stock to Class A common stock $ 0 $ 444
Accrued Dividends Payable
Name: clnc_AccruedDividendsPayable
Amount of noncash expense for amortization and accretion of premium, discount and fees on investments and borrowings, net.
Name: clnc_AmortizationAccretionOfPremiumDiscountAndFeesOnInvestmentsAndBorrowingsNet
Amortization of Mortgage Notes Above and Below Market Value
Name: clnc_AmortizationofMortgageNotesAboveandBelowMarketValue
Increase (Decrease) in Escrow Deposits
Name: clnc_IncreaseDecreaseinEscrowDeposits
Noncash or Part Noncash Acquisition, Consolidation of Securitization Trust
Name: clnc_NoncashorPartNoncashAcquisitionConsolidationofSecuritizationTrust
Noncash or Part Noncash Transaction, Foreclosures on Collateral Assets of Originated or Acquired Loans Held for Investment
Name: clnc_NoncashorPartNoncashTransactionForeclosuresonCollateralAssetsofOriginatedorAcquiredLoansHeldforInvestment
Operating and Finance Lease, Right-of-Use Asset, Liability
Name: clnc_OperatingandFinanceLeaseRightofUseAssetLiability
Operating and Finance Lease, Right-of-Use Asset, Liability, Amortization
Name: clnc_OperatingandFinanceLeaseRightofUseAssetLiabilityAmortization
Paid-in-kind interest added to loan principal.
Name: clnc_PaidInKindInterestAddedToLoanPrincipalNetofInterestReceived
Payments For Investment Deposits
Name: clnc_PaymentsForInvestmentDeposits
This item represents disclosure of the amount of dividends or other distributions received from real estate private equity funds; these investments are accounted for under the fair value method of investment. This element excludes distributions that constitute a return of investment, which are classified as investing activities.
Name: clnc_RealEstatePrivateEquityFundsInvestmentsDistributions
Repayment Of Mortgage Obligations Issued By Securitization Trusts
Name: clnc_RepaymentOfMortgageObligationsIssuedBySecuritizationTrusts
Repayment Of Principal In Mortgage Loans Held In Securitization Trusts
Name: clnc_RepaymentOfPrincipalInMortgageLoansHeldInSecuritizationTrusts
Repayment of Loans and Preferred Equity Held for Investment
Name: clnc_RepaymentofLoansandPreferredEquityHeldforInvestment
Name: us-gaap_AdjustmentsToReconcileNetIncomeLossToCashProvidedByUsedInOperatingActivitiesAbstract
Amount of non-cash amortization of intangible asset (liability) for above and below market leases.
Name: us-gaap_AmortizationOfAboveAndBelowMarketLeases
Amount of amortization expense attributable to debt issuance costs.
Name: us-gaap_AmortizationOfFinancingCosts
Amount of cash and cash equivalents, and cash and cash equivalents restricted to withdrawal or usage. Excludes amount for disposal group and discontinued operations. Cash includes, but is not limited to, currency on hand, demand deposits with banks or financial institutions, and other accounts with general characteristics of demand deposits. Cash equivalents include, but are not limited to, short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates.
Name: us-gaap_CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalents
Amount of increase (decrease) in cash, cash equivalents, and cash and cash equivalents restricted to withdrawal or usage; including effect from exchange rate change. Cash includes, but is not limited to, currency on hand, demand deposits with banks or financial institutions, and other accounts with general characteristics of demand deposits. Cash equivalents include, but are not limited to, short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates.
Name: us-gaap_CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalentsPeriodIncreaseDecreaseIncludingExchangeRateEffect
Name: us-gaap_CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalentsPeriodIncreaseDecreaseIncludingExchangeRateEffectAbstract
Amount of realized loss on investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale).
Name: us-gaap_DebtSecuritiesAvailableForSaleRealizedLoss
Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations.
-Subparagraph (SAB Topic 6.I.Fact.1)
Name: us-gaap_DeferredIncomeTaxExpenseBenefit
Amount of increase (decrease) from effect of exchange rate changes on cash and cash equivalents, and cash and cash equivalents restricted to withdrawal or usage; held in foreign currencies. Excludes amounts for disposal group and discontinued operations. Cash includes, but is not limited to, currency on hand, demand deposits with banks or financial institutions, and other accounts with general characteristics of demand deposits. Cash equivalents include, but are not limited to, short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates.
Name: us-gaap_EffectOfExchangeRateOnCashCashEquivalentsRestrictedCashAndRestrictedCashEquivalents
The increase (decrease) during the reporting period in the aggregate amount of obligations to be paid to the following types of related parties: a parent company and its subsidiaries; subsidiaries of a common parent; an entity and trust for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of the entities' management; an entity and its principal owners, management, or member of their immediate families; affiliates; or other parties with the ability to exert significant influence.
Name: us-gaap_IncreaseDecreaseInDueToRelatedParties
Name: us-gaap_IncreaseDecreaseInOperatingCapitalAbstract
Amount of increase (decrease) in operating liabilities classified as other.
Name: us-gaap_IncreaseDecreaseInOtherOperatingLiabilities
Amount of increase (decrease) in prepaid expenses, and assets classified as other.
Name: us-gaap_IncreaseDecreaseInPrepaidDeferredExpenseAndOtherAssets
The increase (decrease) during the reporting period in the total amount due within one year (or one operating cycle) from all parties, associated with underlying transactions that are classified as operating activities.
Name: us-gaap_IncreaseDecreaseInReceivables
Amount of cash inflow (outflow) from financing activities, including discontinued operations. Financing activity cash flows include obtaining resources from owners and providing them with a return on, and a return of, their investment; borrowing money and repaying amounts borrowed, or settling the obligation; and obtaining and paying for other resources obtained from creditors on long-term credit.
Name: us-gaap_NetCashProvidedByUsedInFinancingActivities
Name: us-gaap_NetCashProvidedByUsedInFinancingActivitiesContinuingOperationsAbstract
Amount of cash inflow (outflow) from investing activities, including discontinued operations. Investing activity cash flows include making and collecting loans and acquiring and disposing of debt or equity instruments and property, plant, and equipment and other productive assets.
Name: us-gaap_NetCashProvidedByUsedInInvestingActivities
Name: us-gaap_NetCashProvidedByUsedInInvestingActivitiesContinuingOperationsAbstract
Amount of cash inflow (outflow) from operating activities, including discontinued operations. Operating activity cash flows include transactions, adjustments, and changes in value not defined as investing or financing activities.
Name: us-gaap_NetCashProvidedByUsedInOperatingActivities
Name: us-gaap_NetCashProvidedByUsedInOperatingActivitiesContinuingOperationsAbstract
Amount of expense or loss included in net income that result in no cash flow, classified as other.
Name: us-gaap_OtherNoncashExpense
Amount of other-than-temporary impairment (OTTI) on investment in debt security, recognized in earnings.
Name: us-gaap_OtherThanTemporaryImpairmentLossDebtSecuritiesPortionRecognizedInEarnings
The cash outflow for acquisition of or capital improvements to properties held for investment (operating, managed, leased) or for use.
Name: us-gaap_PaymentsForCapitalImprovements
Amount of cash outflow in the form of ordinary dividends to common shareholders of the parent entity.
Name: us-gaap_PaymentsOfDividendsCommonStock
Amount of cash outflow in the form of ordinary dividends provided by the non-wholly owned subsidiary to noncontrolling interests.
Name: us-gaap_PaymentsOfDividendsMinorityInterest
The cash outflow for loan and debt issuance costs.
Name: us-gaap_PaymentsOfFinancingCosts
Amount of cash outflow to satisfy grantee's tax withholding obligation for award under share-based payment arrangement.
Name: us-gaap_PaymentsRelatedToTaxWithholdingForShareBasedCompensation
The cash outflow associated with the acquisition of or advances to an entity that is related to it but not strictly controlled (for example, an unconsolidated subsidiary, affiliate, and joint venture or equity method investment) or the acquisition of an additional interest in a subsidiary (controlled entity).
Name: us-gaap_PaymentsToAcquireInterestInSubsidiariesAndAffiliates
The cash outflow to acquire an agreement for an unconditional promise by the maker to pay the entity (holder) a definite sum of money at a future date. Such amount may include accrued interest receivable in accordance with the terms of the note. The note also may contain provisions including a discount or premium, payable on demand, secured, or unsecured, interest bearing or noninterest bearing, among myriad other features and characteristics.
Name: us-gaap_PaymentsToAcquireNotesReceivable
Amount of cash outflow to a noncontrolling interest. Includes, but not limited to, reduction of noncontrolling interest ownership. Excludes dividends paid to the noncontrolling interest.
Name: us-gaap_PaymentsToMinorityShareholders
Amount of cash inflow from recovery of investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale), previously written off.
Name: us-gaap_ProceedsDebtSecuritiesAvailableForSalePreviouslyWrittenOffRecovery
The cash inflow from collection of repayments from borrowers on loans that are held with the intention to resell in the near future; includes mortgages and other types of loans.
Name: us-gaap_ProceedsFromCollectionOfLoansHeldForSale
The cash inflow provided by derivative instruments during the period, which are classified as investing activities, excluding those designated as hedging instruments.
Name: us-gaap_ProceedsFromDerivativeInstrumentInvestingActivities
The cash inflow from the sale of an investment interest in a joint venture that the reporting entity has not previously accounted for using consolidation or the equity method of accounting.
Name: us-gaap_ProceedsFromDivestitureOfInterestInJointVenture
Amount of distribution received from equity method investee for return of investment, classified as investing activities. Excludes distribution for return on investment, classified as operating activities.
-Paragraph 21D
Name: us-gaap_ProceedsFromEquityMethodInvestmentDividendsOrDistributionsReturnOfCapital
Amount of cash inflow from contractual arrangement with the lender, including but not limited to, letter of credit, standby letter of credit and revolving credit arrangements.
-Subparagraph (SX 210.4-08.(f))
Name: us-gaap_ProceedsFromLinesOfCredit
Amount of cash inflow from a noncontrolling interest. Includes, but is not limited to, purchase of additional shares or other increase in noncontrolling interest ownership.
Name: us-gaap_ProceedsFromMinorityShareholders
The cash inflow from a borrowing supported by a written promise to pay an obligation.
Name: us-gaap_ProceedsFromNotesPayable
Amount of cash inflow from sale of investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale).
Name: us-gaap_ProceedsFromSaleOfAvailableForSaleSecuritiesDebt
Cash received from the sale of real estate that is held for investment, that is, it is part of an investing activity during the period.
Name: us-gaap_ProceedsFromSaleOfRealEstateHeldforinvestment
Amount of expense related to estimated loss from loan and lease transactions.
Name: us-gaap_ProvisionForLoanAndLeaseLosses
Amount of cash outflow for payment of an obligation from a lender, including but not limited to, letter of credit, standby letter of credit and revolving credit arrangements.
Name: us-gaap_RepaymentsOfLinesOfCredit
The cash outflow for a borrowing supported by a written promise to pay an obligation.
Name: us-gaap_RepaymentsOfNotesPayable
The cash outflow to repay long-term debt that is wholly or partially secured by collateral. Excludes repayments of tax exempt secured debt.
Name: us-gaap_RepaymentsOfSecuredDebt
Amount of noncash expense for share-based payment arrangement.
Name: us-gaap_ShareBasedCompensation
Difference between actual rental income due and rental income recognized on a straight-line basis.
Name: us-gaap_StraightLineRent
Name: us-gaap_SupplementalCashFlowInformationAbstract
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Business and Organization 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).
The Company was organized in the state of Maryland on August 23, 2017. On January 31, 2018, the Company completed the transactions contemplated by that certain Master Combination Agreement, dated as of August 25, 2017, as amended and restated on November 20, 2017 (the "Combination Agreement," as further discussed below). The Company elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"), beginning with its taxable year ended December 31, 2018. Effective June 25, 2018, the Company changed its name from Colony NorthStar Credit Real Estate, Inc. to Colony Credit Real Estate, Inc. Also on June 25, 2018, Colony NorthStar, Inc. changed its name to Colony Capital, Inc. The Company conducts all of its activities and holds substantially all of its assets and liabilities through its operating subsidiary, Credit RE Operating Company, LLC (the "Operating Partnership" or "OP"). At June 30, 2020, the Company owned 97.7% of the OP, as its sole managing member. The remaining 2.3% is owned by an affiliate of the Company as noncontrolling interests.
The Company is externally managed and has no employees. The Company is managed by CLNC Manager, LLC (the "Manager"), a Delaware limited liability company and a wholly-owned and indirect subsidiary of Colony Capital Operating Company, LLC ("CLNY OP"), a Delaware limited liability company and the operating company of Colony Capital. Colony Capital manages capital on behalf of its stockholders, as well as institutional and retail investors in private funds, non-traded and traded REITs and registered investment companies.
The Combination
Pursuant to the Combination Agreement, (i) CLNY OP contributed and conveyed to the Company a select portfolio of assets and liabilities (the "CLNY OP Contributed Portfolio") of CLNY OP (the "CLNY OP Contribution"), (ii) NRF RED REIT Corp., a Maryland corporation and indirect subsidiary of CLNY OP ("RED REIT") contributed and conveyed to the OP a select portfolio of assets and liabilities (the "RED REIT Contributed Portfolio" and, together with the CLNY OP Contributed Portfolio, the "CLNY Contributed Portfolio") of RED REIT (the "RED REIT Contribution" and, together with the CLNY OP Contribution, the "CLNY Contributions"), (iii) NorthStar Real Estate Income Trust, Inc. ("NorthStar I"), a publicly registered non-traded REIT sponsored and managed by a subsidiary of Colony Capital, merged with and into the Company, with the Company surviving the merger (the "NorthStar I Merger"), (iv) NorthStar Real Estate Income II, Inc. ("NorthStar II"), a publicly registered non-traded REIT sponsored and managed by a subsidiary of Colony Capital, merged with and into the Company, with the Company surviving the merger (the "NorthStar II Merger" and, together with the NorthStar I Merger, the "Mergers"), and (v) immediately following the Mergers, the Company contributed and conveyed to the OP the CLNY OP Contributed Portfolio and the equity interests of each of NorthStar Real Estate Income Trust Operating Partnership, LP, a Delaware limited partnership and the operating partnership of NorthStar I, and NorthStar Real Estate Income Operating Partnership II, LP, a Delaware limited partnership and the operating partnership of NorthStar II, then-owned by the Company in exchange for units of membership interest in the OP (the "Company Contribution" and, collectively with the Mergers and the CLNY Contributions, the "Combination").
On January 18, 2018, the Combination was approved by the stockholders of NorthStar I and NorthStar II. The Combination closed on January 31, 2018 (the "Closing Date") and the Company's Class A common stock, par value $0.01 per share (the "Class A common stock"), began trading on the New York Stock Exchange ("NYSE") on February 1, 2018 under the symbol "CLNC."
The Combination is accounted for under the acquisition method for business combinations pursuant to Accounting Standards Codification ("ASC") Topic 805, Business Combinations, with the Company as the accounting acquirer.
Segment Realignment
During the third quarter of 2019, 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.
Through the second quarter of 2020, 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 sharp decline and volatility in equity and debt markets, and the economic fallout from COVID-19 have affected the valuation of the Company's financial assets, carried at fair value, and also resulted in impairment on CRE debt securities and real estate investments at the end of the second quarter of 2020. The Company's consideration and assessment of impairment is discussed further in Note 3, "Loans and Preferred Equity Held for Investment, net and Loans Held for Sale," 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.
The entire disclosure for the nature of an entity's business, major products or services, principal markets including location, and the relative importance of its operations in each business and the basis for the determination, including but not limited to, assets, revenues, or earnings. For an entity that has not commenced principal operations, disclosures about the risks and uncertainties related to the activities in which the entity is currently engaged and an understanding of what those activities are being directed toward.
-URI http://asc.fasb.org/extlink&oid=99393423&loc=d3e5967-108592
Name: us-gaap_NatureOfOperations
Summary of Significant Accounting Policies 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.
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 accounting principles generally accepted in the United States of America ("U.S. 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, 2020, or for 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 fiscal year ended December 31, 2019.
The Combination is accounted for under the acquisition method for business combinations pursuant to ASC Topic 805, Business Combinations. In the Combination, the Company was considered to be the accounting acquirer so all of its assets and liabilities immediately prior to the closing of the Combination are reflected at their historical carrying values. The consideration
transferred by the Company established a new accounting basis for the assets acquired, liabilities assumed and noncontrolling interests of NorthStar I and NorthStar II, which were measured at their respective fair values on the Closing Date.
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.
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 June 30, 2020, 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 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. The noncontrolling interests in the operating real estate properties represent third party joint venture partners with ownership ranging from 3.5% to 20.0%. 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 June 30, 2020, the Company held subordinate tranches of securitization trusts in two 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. Refer to Note 5, "Real Estate Securities, Available for Sale" 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.
Unconsolidated VIEs
As of June 30, 2020, 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 June 30, 2020.
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 June 30, 2020 (dollars in thousands):
Carrying Value Maximum Exposure to Loss
Real estate securities, available for sale $ 60,010 $ 60,010
Loans and preferred equity held for investment, net 17,719 17,719
Total assets $ 419,963 $ 459,247
The Company did not provide financial support to the unconsolidated VIEs during the six months ended June 30, 2020. As of June 30, 2020, 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 June 30, 2020. 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 Loans Held for Sale" and Note 16, "Commitments and Contingencies" for further discussion.
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 the Combination, 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 RED REIT. 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 one-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.
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.
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.
Short-term, highly liquid investments with original maturities of three months or less are considered to be cash equivalents. The Company did not have any cash equivalents at June 30, 2020 or December 31, 2019. The Company's cash is held with major financial institutions and may at times exceed federally insured limits.
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 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. 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 June 30, 2020, the Company classified one loan in its Core Portfolio as held for sale. See Note 3, "Loans and Preferred Equity Held for Investment, net and Loans Held for Sale" for further detail.
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 Assets Term
Building (fee interest)
Building leasehold interests Lesser of remaining term of the lease or remaining life of the building
Building improvements Lesser of the useful life or remaining life of the building
Land improvements
Tenant improvements Lesser of the useful life or remaining term of the lease
Furniture, fixtures and equipment
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
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. During the three months ending June 30, 2020, the company recorded impairment of $25.9 million related to its operating real estate. See Note 6, "Real Estate, net and Real Estate Held for Sale," 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 June 30, 2020, the Company classified several of its properties in both its Core Portfolio and Legacy, Non-Strategic Portfolio as held for sale. See Note 6, "Real Estate, net and Real Estate Held for Sale," Note 17, "Segment Reporting" and Note 19, "Subsequent Events" 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 June 30, 2020, the Company held subordinate tranches of two 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.
CRE securities for which the fair value option is elected are not evaluated for other-than-temporary impairment ("OTTI") 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 OTTI quarterly. Impairment of a security is considered to be other-than-temporary 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 to be other-than-temporarily impaired due to (i) or (ii), the security is written down to its fair value and an OTTI is recognized in the consolidated statements of operations. In the case of (iii), the security is bifurcated into: (a) the amount related to expected credit losses; and (b) the amount related to fair value adjustments in excess of
expected credit losses. The portion of OTTI related to expected credit losses is recognized as an allowance for credit losses. The remaining OTTI related to the valuation adjustment 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 OTTI if the security has an unrealized loss and there has been an adverse change in expected cash flow. The amount of OTTI is then bifurcated as discussed above.
During the three and six months ended June 30, 2020, the Company recorded an impairment loss of $29.2 million related to its CRE securities. The impairment loss is included in other loss, net in the Company's consolidated statements of operations. Refer to Note 5, "Real Estate Securities, Available for Sale" for further discussion.
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 June 30, 2020 and December 31, 2019, 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.
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 enterprise value of the investee or fair value of the investee's underlying net assets, including net cash flows to be generated by the investee as applicable.
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, or a significant and prolonged decline in traded price of the investee's equity security. 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.
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
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.
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.
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.
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 has placed its investment grade and non-investment grade rated CRE securities 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 securities carrying value. Refer to Note 5, "Real Estate Securities, Available for Sale" for further discussion.
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.
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.
The compensation expense is adjusted for actual forfeitures upon occurrence. Equity-based compensation is classified within administrative expense in the consolidated statement of operations.
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.
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 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.
The Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was passed on March 27, 2020. Among other things, the CARES Act temporarily removed the 80% limitation on the amount of taxable income that can be offset with a net operating loss ("NOL") for 2019 and 2020 and allowed for a carryback of net operating losses generated in years 2018 through 2020 to each of the preceding five years. The Company is still evaluating the impact of the CARES Act on its NOLs and did not book any adjustments related to the CARES Act for the quarter ended June 30, 2020.
For the three months ended June 30, 2020 and June 30, 2019, the Company recorded income tax expense of $2.1 million and income tax benefit of $0.1 million, respectively. For the six months ended June 30, 2020 and 2019, the Company recorded income tax expense of $3.8 million and income tax benefit of $0.5 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 existing 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
CECL reserve on Loans and preferred equity held for investment, net $ 21,093
CECL reserve on Accrued and other liabilities 2,093
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 June 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.
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 rating of each loan and preferred equity as a key credit quality indicator. The risk ratings 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 and Loans Held for Sale" 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 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.
Future Application of Accounting Standards
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 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 is currently evaluating the impact of this new guidance.
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 and vice versa, an equity method investment is transitioned into measurement alternative, 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 is currently evaluating the impact of this new guidance.
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 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity's own equity.
With respect to convertible instruments, under the new guidance, a convertible debt instrument will be accounted for wholly as debt, and convertible preferred stock wholly as preferred stock, that is, as a single unit of account, except for (1) a convertible instrument that contains features requiring bifurcation as a derivative under Topic 815 or (2) a convertible debt instrument that was issued at a substantial premium. Expanded disclosures are required, including, but not limited to, the terms and features of convertible instruments, and information about events, conditions, and circumstances that could affect assessment of the amount or timing of future cash flows related to those instruments.
With respect to contracts on an entity's own equity, one of the requirements prescribed by the new guidance is to account for freestanding contracts on an entity's own equity that do not qualify as equity under Subtopic ASC 815-40 at fair value, with changes in fair value recognized in earnings, irrespective of whether such contracts meet the definition of a derivative in Topic 815.
The ASU also amends certain guidance on the computation of earnings per share for convertible instruments and contracts on an entity's own equity. In calculating diluted earnings per share, the new guidance (1) requires the if-converted method to be applied for all convertible instruments (the treasury stock method is no longer available), and (2) removes the ability to rebut the presumption of share settlement for contracts that may be settled in cash or stock.
Upon adoption, a one-time election may be made to apply the fair value option for any liability-classified financial instrument that is a convertible security. In the period of adoption, disclosure is required of (1) the nature of and reason for the change in accounting principle in both the interim and annual period of change, and (2) earnings per share transition information about the effect of the change on affected per-share amounts.
Adoption of the new standard may be made either on a full or modified retrospective approach, with cumulative effect adjustment recorded to beginning retained earnings under the latter. ASU No. 2020-06 is effective January 1, 2022, with early adoption permitted in interim periods beginning January 1, 2021. The Company is currently evaluating the impact of this new guidance.
The entire disclosure for all significant accounting policies of the reporting entity.
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Receivables [Abstract]
Loans and Preferred Equity Held for Investment, net and Loans Held for Sale Loans and Preferred Equity Held for Investment, net and Loans Held for Sale
The following table provides a summary of the Company's loans and preferred equity held for investment, net (dollars in thousands):
Unpaid Principal Balance
Weighted Average Coupon(1)
Weighted Average Maturity in Years Unpaid Principal Balance
Weighted Average Maturity in Years
Mezzanine loans $ 135,389 $ 134,654 12.8 % 4.5 $ 223,395 $ 222,503 12.8 % 4.2
Preferred equity interests 118,715 118,696 12.5 % 6.4 115,384 115,313 12.5 % 6.9
Other loans(2)
13,898 13,800 15.0 % 3.9 12,572 12,448 15.0 % 4.4
Senior loans 1,011,334 1,008,062 5.4 % 3.6 1,462,467 1,457,738 6.0 % 3.8
Securitized loans(3)
1,007,152 1,004,301 5.1 % 3.8 1,006,495 1,002,696 5.2 % 4.2
Mezzanine loans 15,462 15,582 10.1 % 2.2 38,110 38,258 11.4 % 2.0
Allowance for loan losses NA (52,521) NA (272,624)
Loans and preferred equity held for investment, net $ 2,301,950 $ 2,242,574 $ 2,858,423 $ 2,576,332
(1)Calculated based on contractual interest rate.
(2)Includes one corporate term loan secured by the borrower's limited partnership interests in a fund at June 30, 2020 and December 31, 2019.
(3)Represents loans transferred into securitization trusts that are consolidated by the Company.
As of June 30, 2020, the weighted average maturity, including extensions, of loans and preferred equity investments was 3.9 years.
The Company had $8.3 million and $9.8 million of interest receivable related to its loans and preferred equity held for investment, net as of June 30, 2020 and December 31, 2019, 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, 2020 $ 2,576,332
Acquisitions/originations/additional funding 66,722
Loan maturities/principal repayments (176,021)
Transfer to loans held for sale (154,370)
Discount accretion/premium amortization 4,289
Capitalized interest 6,382
Provision for loan losses(1)
Effect of CECL adoption(2)
Charge-off 15,533
Balance at June 30, 2020 $ 2,242,574
(1)Provision for loan losses includes $5.2 million for a loan that was subsequently transferred to held for sale during the second quarter. Provision for loan losses excludes a reversal of $0.1 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.
(2)Calculated by the Company's PD/LGD model upon CECL adoption on January 1, 2020. See Note 2, "Summary of Significant Accounting Polices" for further details.
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. At June 30, 2020, other than the Midwest Hospitality loan discussed below, all other loans and preferred equity held for investment remained current on interest payments.
In March 2018, the borrower on the Company's four NY hospitality loans in its Legacy, Non-Strategic Portfolio failed to make all required interest payments and the loans were placed on nonaccrual status. These four loans are secured by the same collateral. During 2018, the Company recorded $53.8 million of provision for loan losses to reflect the estimated value to be recovered from the borrower following a sale. During 2019, the Company recorded an additional provision for loan loss of $154.3 million based on significant deterioration in the NY hospitality market, feedback from the sales process and the estimated value to be recovered from the borrower following a potential sale. During the three months ended March 31, 2020, the significant detrimental impact of COVID-19 on the U.S. hospitality industry further contributed to the deterioration of the Company's four NY hospitality loans and as such the Company recorded an additional provision for loan losses of $36.8 million. During the three months ending June 30, 2020, the Company completed a discounted payoff of the NY hospitality loans and related investment interests.
Within its Legacy, Non-Strategic Portfolio, the Company previously held other loans secured by regional malls that were sold during the six months ended June 30, 2020:
•The Company placed one loan secured by a regional mall ("Midwest Regional Mall") on nonaccrual status during 2019 as collectability of the principal was uncertain; as such, interest collected is recognized using the cost recovery method by applying interest collected as a reduction to loan carrying value. The Company recorded $10.6 million of impairment related to Midwest Regional Mall and transferred the loan to held for sale during 2019. During the three months ending June 30, 2020 the Midwest Regional Mall was sold. The Company received $8.3 million in gross proceeds and recognized a gain of $3.7 million.
•During 2018, the Company recorded $8.8 million of provision for loan losses on one loan secured by a regional mall ("Northeast Regional Mall B") to reflect the estimated fair value of the collateral. During 2019, the Company recognized additional provision for loan losses of $10.5 million on Northeast Regional Mall B. The additional provisions were based on then-current and prospective leasing activity to reflect the estimated fair value of the collateral. During the three months ended March 31, 2020, the Northeast Regional Mall was sold. The Company received $9.2 million in gross proceeds and recognized a gain of $1.8 million.
•Also, during 2019, the Company separately recognized provision for loan losses of $18.5 million on two loans secured by one regional mall ("West Regional Mall") to reflect the estimated fair value of the collateral. During the three months ended June 30, 2020 the West Regional Mall loan was sold. The Company received $23.5 million in gross proceeds and recognized a gain of $6.5 million.
•Furthermore, during 2019, the Company recognized a $26.7 million provision for loan losses on three loans to two separate borrowers ("South Regional Mall A" and "South Regional Mall B") to reflect the estimated fair value of the collateral. During the three months ended March 31, 2020, the Company accepted a discounted payoff of South Regional Mall A. The Company received $22.0 million in gross proceeds and recognized a loss of $1.6 million. Additionally, during the three months ended March 31, 2020, South Regional Mall B was sold. The Company received $13.5 million in gross proceeds and recognized a gain of $8.7 million.
Within its Core Portfolio:
•The Company placed one loan secured by a hotel in Bloomington, Minnesota ("Midwest Hospitality") on nonaccrual status due to a borrower default during the fourth quarter of 2019. During the three months ended March 31, 2020 the Company recognized a $2.3 million provision for loan loss on the Midwest Hospitality loan to reflect the estimated fair value of the collateral, which was based on feedback from the sales process and the estimated value to be recovered from the borrower following a potential sale. The Company had been sweeping cash from the hotel to amortize the unpaid principal balance of the loan. Subsequent to June 30, 2020 the hotel property securing this loan was sold and the Company received $24.5 million in gross proceeds and concurrently provided a bridge loan in the amount of$19.5 million to a new borrower, secured by Midwest Hospitality.
•Additionally, the Company had a total $20.9 million allowance for loan losses recorded as of March 31, 2020, which included an $8.8 million allowance for loan losses resulting from CECL adoption and an additional $12.1 million
provision for loan losses recognition during the three months ended March 31, 2020, on one loan secured by six suburban office buildings ("Northeast Office Portfolio"). Subsequent to June 30, 2020 the Company received gross proceeds of $80.7 million in a discounted payoff of the Northeast Office Portfolio which was equal to the carrying value of the loan, net of current provision for loan losses. As such, no additional provision for loan losses were required at June 30, 2020.
•Also, during the three months ended June 30, 2020 the Company classified one loan secured by a hospitality asset in San Diego, California ("West Hospitality") as held for sale and recognized a net loss of $32.8 million to reflect the expected proceeds to be collected in a sale of the loan. The Company had recorded a $5.2 million allowance for loan losses as of March 31, 2020, which included a $2.6 million allowance for loan losses resulting from CECL adoption and an additional $2.6 million provision for loan losses recognized for West Hospitality during the three months ended March 31, 2020. In connection with transferring the loan to held for sale during the current quarter, the Company reversed out the $5.2 million from provision for loan losses line item and recorded a $38.0 million in other loss, net. Subsequent to June 30, 2020 the West Hospitality loan was sold. The Company received $105.2 million in gross proceeds and will recognize an additional loss of $0.3 million.
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
30-59 Days Past Due(1)
60-89 Days Past Due
90 Days or More Past Due(1)(2)
Total Loans
June 30, 2020 $ 2,265,249 $ — $ — $ 29,846 $ 2,295,095
December 31, 2019 2,558,505 32,322 — 258,129 2,848,956
(1)At December 31, 2019, 30-59 days past due includes one loan (Midwest Hospitality) that was placed on nonaccrual status during the fourth quarter of 2019 following a borrower default. At June 30, 2020, the Midwest Hospitality loan was 90 days or more past due. Subsequent to June 30, 2020, Midwest Hospitality was repaid in a discounted payoff at which time the Company provided a bridge loan totaling $19.5 million to a new borrower.
(2)At December 31, 2019, 90 days or more past due loans includes four NY hospitality loans to the same borrower and secured by the same collateral with combined carrying value before allowance for loan losses of $258.1 million on nonaccrual status. All other loans in this table remain current on interest payments. The Company completed a discounted payoff of the four NY hospitality loans in April 2020.
Impaired Loans - 2019
Loans are identified as impaired when it is no longer probable that interest or principal will be collected according to the contractual terms of the original loan agreement. Impaired loans include predominantly loans under nonaccrual, performing and nonperforming TDRs, as well as loans in maturity default. The following table presents impaired loans at December 31, 2019 (dollars in thousands):
Unpaid Principal Balance(1)
Gross Carrying Value
With Allowance for Loan Losses(2)
Without Allowance for Loan Losses
Total(2)
Allowance for Loan Losses
December 31, 2019 $ 408,058 $ 377,421 $ 32,322 $ 409,743 $ 272,624
(1)Includes four NY hospitality loans to the same borrower and secured by the same collateral with combined unpaid principal balance of $257.2 million and gross carrying value of $258.1 million on nonaccrual status. All other loans included in this table remain current on interest payments. The Company completed a discounted payoff of the four NY hospitality loans in April 2020.
(2)Includes unpaid principal balance plus any applicable exit fees less net deferred loan fees.
Upon adoption of ASU 2016-13 the incurred loss model has been replaced with a lifetime current expected credit loss model for the Company's loans carried at amortized cost, and as such all loans in the Company's portfolio maintain an allowance for loan losses at June 30, 2020. See Note 2 "Summary of Significant Accounting Policies—Accounting Standards Adopted in 2020—Credit Losses" for further details.
The average carrying value and interest income recognized on impaired loans for the three and six months ended June 30, 2019 were as follows (dollars in thousands):
Three Months Ended June 30, Six Months Ended June 30,
Average carrying value before allowance for loan losses $ 320,934 $ 389,500
Interest income 1,305 2,651
As of December 31, 2019, the allowance for loan losses was $272.6 million related to $409.7 million in carrying value of loans.
Changes in allowance for loan losses on loans are presented below (dollars in thousands):
Six Months Ended June 30,
Allowance for loan losses at beginning of period $ 272,624 $ 109,328
Charge-off (15,533) (46,692)
Transfer to loans held for sale (300,863) —
Allowance for loan losses at end of period(3)
$ 52,521 $ 172,894
(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 includes $5.2 million for a loan that was subsequently transferred to held for sale during the second quarter of 2020. Provision for loan losses excludes a reversal of $0.1 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.
(3)At June 30, 2020, includes $29.3 million related to the Company's PD/LGD model, $20.9 million relating to the Northeast Office Portfolio and $2.3 million related to the Midwest Hospitality loan, both of which were evaluated individually. See further discussion in "Nonaccrual and Past Due Loans and Preferred Equity."
Loans and Preferred Equity Held for Sale
The following table summarizes the Company's assets held for sale related to loans and preferred equity (dollars in thousands):
Loans and preferred equity held for investment, net $ 104,900 $ 5,016
Total assets held for sale $ 104,900 $ 5,016
At June 30, 2020, the Company classified one loan, West Hospitality, in its Core Portfolio as held for sale. Subsequent to June 30, 2020 the West Hospitality loan was sold. The Company received $105.2 million in gross proceeds and will recognize a loss of $0.3 million.
There were no assets held for sale that constituted discontinued operations as of June 30, 2020 and December 31, 2019.
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.
As of June 30, 2020, there was one loan to one borrower with contractual payments past due, which was the Midwest Hospitality loan in the Core Portfolio, as previously discussed. The remaining loans and preferred equity investments were
performing in accordance with the contractual terms of their governing documents and were categorized as performing loans. There were five loans held for investment with contractual payments past due as of December 31, 2019. For the six months ended June 30, 2020, no 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.
2020 2019 2018 2017 2016 Prior Total
Senior loans
Risk Rankings:
3 $ — $ 265,249 $ 296,631 $ 33,581 $ — $ — $ 595,461
4 — 924,265 462,795 — — — 1,387,060
5 — — — — — 29,846 29,846
Total Senior loans — 1,189,514 759,426 33,581 — 29,846 2,012,367
Mezzanine loans

redpajama_set_name: RedPajamaCommonCrawl