Goodwill and Intangibles

12 Months Ended

Dec. 31, 2016

9. Goodwill and Intangibles

Goodwill

Goodwill at December 31, 2016 and 2015 represents the excess of consideration transferred over the fair value of net assets of LNR acquired on April 19, 2013. The goodwill recognized is attributable to value embedded in LNR’s existing platform, which includes an international network of commercial real estate asset managers, work‑out specialists, underwriters and administrative support professionals as well as proprietary historical performance data on commercial real estate assets. The tax deductible component of our goodwill as of April 19, 2013 was $149.9 million and is deductible over 15 years. As discussed in Note 2, goodwill is tested for impairment at least annually. Based on our qualitative assessment during the fourth quarter of 2016, we determined that it is not more likely than not that the fair value of the Investing and Servicing Segment reporting unit to which the goodwill is attributed is less than its carrying value including goodwill. Therefore, we concluded goodwill was not impaired.

Intangible Assets

Servicing Rights Intangibles

In connection with the LNR acquisition, we identified domestic and European servicing rights that existed at the purchase date, based upon the expected future cash flows of the associated servicing contracts. All of our servicing fees are specified by these Pooling and Servicing Agreements. At December 31, 2016 and 2015, the balance of the domestic servicing intangible was net of $34.2 million and $11.8 million, respectively, that was eliminated in consolidation pursuant to ASC 810 against VIE assets in connection with our consolidation of securitization VIEs. Before VIE consolidation, as of December 31, 2016 and 2015, the domestic servicing intangible had a balance of $89.3 million and $131.5 million, respectively, which represents our economic interest in this asset.

Lease Intangibles

In connection with our acquisitions of commercial real estate, we recognized in-place lease intangible assets and favorable lease intangible assets associated with certain noncancelable operating leases of the acquired properties. The following table summarizes our intangible assets, which are comprised of servicing rights intangibles and lease intangibles, as of December 31, 2016 and 2015 (amounts in thousands):


	As of December 31, 2016						As of December 31, 2015
	Gross Carrying		Accumulated		Net Carrying		Gross Carrying		Accumulated		Net Carrying
	Value		Amortization		Value		Value		Amortization		Value
Domestic servicing rights, at fair value	$	55,082	$	—	$	55,082	$	119,698	$	—	$	119,698
European servicing rights (1)		—		—		—		31,593		(28,967)		2,626
In-place lease intangible assets		175,409		(38,532)		136,877		74,983		(8,898)		66,085
Favorable lease intangible assets		30,459		(3,170)		27,289		14,103		(942)		13,161
Total net intangible assets	$	260,950	$	(41,702)	$	219,248	$	240,377	$	(38,807)	$	201,570

(1)

During the year ended December 31, 2016, we contributed our European servicing and advisory business to Situs in exchange for a non-controlling equity interest in Situs. Refer to Note 3 for further discussion. The fair value of our European servicing rights as of December 31, 2015 was $5.3 million.

The following table summarizes the activity within intangible assets for the years ended December 31, 2016 and 2015 (amounts in thousands):


	Domestic		European		In-place Lease		Favorable Lease
	Servicing		Servicing		Intangible		Intangible
	Rights		Rights		Assets		Assets		Total
Balance as of January 1, 2015	$	132,303	$	11,849	$	—	$	—	$	144,152
Acquisition of Ireland Portfolio properties		—		—		47,999		11,530		59,529
Acquisition of Woodstar Portfolio properties		—		—		11,337		—		11,337
Acquisition of REO Portfolio properties		—		—		16,610		2,771		19,381
Amortization		—		(8,893)		(9,027)		(960)		(18,880)
Foreign exchange loss		—		(330)		(834)		(180)		(1,344)
Changes in fair value due to changes in inputs and assumptions		(12,605)		—		—		—		(12,605)
Balance as of December 31, 2015		119,698		2,626		66,085		13,161		201,570
Impact of ASU 2015-02 adoption (1)		(17,467)		—		—		—		(17,467)
Acquisition of Medical Office Portfolio properties		—		—		71,486		14,110		85,596
Acquisition of additional Woodstar Portfolio properties		—		—		8,174		—		8,174
Acquisition of additional REO Portfolio properties		—		—		22,946		2,692		25,638
Contribution of European servicing and advisory business (2)		—		(989)		—		—		(989)
Amortization		—		(1,337)		(30,227)		(2,334)		(33,898)
Foreign exchange loss		—		(300)		(933)		(266)		(1,499)
Impairment		—		—		(654)		(74)		(728)
Changes in fair value due to changes in inputs and assumptions		(47,149)		—		—		—		(47,149)
Balance as of December 31, 2016	$	55,082	$	—	$	136,877	$	27,289	$	219,248

(1)

As discussed in Notes 2 and 15, our implementation of ASU 2015-02 resulted in the consolidation of certain CMBS trusts effective January 1, 2016, which required the elimination of $17.5 million of domestic servicing rights associated with these newly consolidated trusts.

(2)

The following table sets forth the estimated aggregate amortization of our in-place lease intangible assets and favorable lease intangible assets for the next five years and thereafter (amounts in thousands):


2017	$	30,069
2018		26,532
2019		20,186
2020		15,189
2021		12,816
Thereafter		59,374
Total	$	164,166

Lease Liabilities

In connection with our acquisition of certain properties within our Medical Office Portfolio, we recognized aggregate unfavorable lease liabilities of $4.8 million with weighted average lives of 9.7 years at acquisition.

In connection with our acquisition of LNR in 2013, we recognized an unfavorable lease liability of $15.3 million related to an assumed operating lease for our offices in Miami Beach, Florida, which expires in 2021. This liability is being amortized over the remaining five years of the underlying lease term at a rate of approximately $1.9 million per year. The liability balance was $8.4 million and $10.2 million as of December 31, 2016 and 2015, respectively.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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