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REAL ESTATE SECURITIES
 6 Months Ended
Jun. 30, 2019
Investments, Debt and Equity Securities [Abstract]  
REAL ESTATE SECURITIES
5. REAL ESTATE SECURITIES
 
Commercial mortgage backed securities (“CMBS”), CMBS interest-only securities, Agency securities, Government National Mortgage Association (“GNMA”) construction securities, GNMA permanent securities and corporate bonds are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income. GNMA and Federal Home Loan Mortgage Corp (“FHLMC”) securities (collectively, “Agency interest-only securities”) are recorded at fair value with changes in fair value recorded in current period earnings. Equity securities are classified as available-for-sale and reported at fair value with changes in fair value recorded in current period earnings. The following is a summary of the Company’s securities at June 30, 2019 and December 31, 2018 ($ in thousands):

June 30, 2019
 
 
 
 
 
 
 
Gross Unrealized
 
 
 
 
 
Weighted Average
Asset Type
 
Outstanding
Face Amount
 
Amortized Cost Basis/Purchase Price

 
Gains
 
Losses
 
Carrying
Value
 
# of
Securities
 
Rating (1)
 
Coupon %
 
Yield %
 
Remaining
Duration
(years)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CMBS(2)
 
$
1,642,160

 
$
1,643,149

 
$
11,108

 
$
(554
)
 
$
1,653,703

(3)
145

 
AAA
 
3.47
%
 
3.31
%
 
2.26
CMBS interest-only(2)(4)
 
2,166,640

 
42,689

 
1,370

 
(7
)
 
44,052

(5)
18

 
AAA
 
0.50
%
 
3.63
%
 
2.67
GNMA interest-only(4)(6)
 
118,858

 
2,483

 
124

 
(316
)
 
2,291

 
12

 
AA+
 
0.52
%
 
9.13
%
 
2.72
Agency securities(2)
 
652

 
664

 
1

 
(2
)
 
663

 
2

 
AA+
 
2.70
%
 
1.78
%
 
2.11
GNMA permanent securities(2)
 
32,055

 
32,291

 
793

 
—

 
33,084

 
6

 
AA+
 
3.93
%
 
3.74
%
 
4.72
Corporate bonds(2)
 
41,205

 
40,581

 
837

 
—

 
41,418

 
2

 
BB-
 
3.80
%
 
4.82
%
 
1.64
Total debt securities
 
$
4,001,570

 
$
1,761,857

 
$
14,233

 
$
(879
)
 
$
1,775,211

 
185

 
 
 
1.78
%
 
3.34
%
 
2.29
Equity securities(7)
 
N/A

 
13,720

 
63

 
(579
)
 
13,204

 
3

 
N/A
 
N/A

 
N/A

 
N/A
Total real estate securities
 
$
4,001,570

 
$
1,775,577

 
$
14,296

 
$
(1,458
)
 
$
1,788,415

 
188

 
 
 
 
 
 
 
 
 
(1)
Represents the weighted average of the ratings of all securities in each asset type, expressed as an S&P equivalent rating. For each security rated by multiple rating agencies, the highest rating is used. Ratings provided were determined by third-party rating agencies as of a particular date, may not be current and are subject to change (including the assignment of a “negative outlook” or “credit watch”) at any time.
(2)
CMBS, CMBS interest-only securities, Agency securities, GNMA permanent securities and corporate bonds are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income.
(3)
Includes $11.6 million of restricted securities which are designated as risk retention securities under the Dodd-Frank Act and are therefore subject to transfer restrictions over the term of the securitization trust and are classified as held-to-maturity and reported at amortized cost.
(4)
The amounts presented represent the principal amount of the mortgage loans outstanding in the pool in which the interest-only securities participate.
(5)
Includes $0.9 million of restricted securities which are designated as risk retention securities under the Dodd-Frank Act and are therefore subject to transfer restrictions over the term of the securitization trust and are classified as held-to-maturity and reported at amortized cost.
(6)
Agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings. The Company’s Agency interest-only securities are considered to be hybrid financial instruments that contain embedded derivatives. As a result, the Company has elected to account for them as hybrid instruments in their entirety at fair value with changes in fair value recognized in unrealized gain (loss) on Agency interest-only securities in the consolidated statements of income in accordance with ASC 815.
(7)
The Company has elected to account for equity securities at fair value with changes in fair value recorded in current period earnings.
  
December 31, 2018
 
 
 
 
 
 
 
Gross Unrealized
 
 
 
 
 
Weighted Average
Asset Type
 
Outstanding
Face Amount
 
Amortized
Cost Basis
 
Gains
 
Losses
 
Carrying
Value
 
# of
Securities
 
Rating (1)
 
Coupon %
 
Yield %
 
Remaining
Duration
(years)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CMBS(2)
 
$
1,258,819

 
$
1,257,801

 
$
2,477

 
$
(7,638
)
 
$
1,252,640

(3)
138

 
AAA
 
3.32
%
 
3.14
%
 
2.33
CMBS interest-only(2)(4)
 
2,373,936

 
55,534

 
428

 
(271
)
 
55,691

(5)
19

 
AAA
 
0.57
%
 
2.80
%
 
2.69
GNMA interest-only(4)(6)
 
135,932

 
2,862

 
93

 
(307
)
 
2,648

 
12

 
AA+
 
0.51
%
 
6.30
%
 
4.11
Agency securities(2)
 
668

 
682

 
—

 
(20
)
 
662

 
2

 
AA+
 
2.73
%
 
1.83
%
 
2.36
GNMA permanent securities(2)
 
32,633

 
32,889

 
420

 
(245
)
 
33,064

 
6

 
AA+
 
3.94
%
 
3.76
%
 
5.03
Corporate bonds(2)
 
55,305

 
54,257

 
—

 
(386
)
 
53,871

 
2

 
BB
 
4.08
%
 
5.04
%
 
2.51
Total debt securities
 
$
3,857,293

 
$
1,404,025

 
$
3,418

 
$
(8,867
)
 
$
1,398,576

 
179

 
 
 
1.54
%
 
3.19
%
 
2.40
Equity securities(7)
 
N/A

 
13,154

 
—

 
(1,604
)
 
11,550

 
3

 
N/A
 
N/A

 
N/A

 
N/A
Total real estate securities
 
$
3,857,293

 
$
1,417,179

 
$
3,418

 
$
(10,471
)
 
$
1,410,126

 
182

 
 
 
 
 
 
 
 
 
(1)
Represents the weighted average of the ratings of all securities in each asset type, expressed as an S&P equivalent rating.  For each security rated by multiple rating agencies, the highest rating is used.  Ratings provided were determined by third-party rating agencies as of a particular date, may not be current and are subject to change (including the assignment of a “negative outlook” or “credit watch”) at any time.
(2)
CMBS, CMBS interest-only securities, Agency securities, GNMA permanent securities and corporate bonds are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income.
(3)
Includes $11.3 million of restricted securities which are designated as risk retention securities under the Dodd-Frank Act and are therefore subject to transfer restrictions over the term of the securitization trust and are classified as held-to-maturity and reported at amortized cost.
(4)
The amounts presented represent the principal amount of the mortgage loans outstanding in the pool in which the interest-only securities participate.
(5)
Includes $0.9 million of restricted securities which are designated as risk retention securities under the Dodd-Frank Act and are therefore subject to transfer restrictions over the term of the securitization trust and are classified as held-to-maturity and reported at amortized cost.
(6)
Agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings. The Company’s Agency interest-only securities are considered to be hybrid financial instruments that contain embedded derivatives. As a result, the Company accounts for them as hybrid instruments in their entirety at fair value with changes in fair value recognized in unrealized gain (loss) on Agency interest-only securities in the consolidated statements of income in accordance with ASC 815.
(7)
The Company has elected to account for equity securities at fair value with changes in fair value recorded in current period earnings.
 
The following is a breakdown of the carrying value of the Company’s debt securities by remaining maturity based upon expected cash flows at June 30, 2019 and December 31, 2018 ($ in thousands):
 
June 30, 2019
 
Asset Type
 
Within 1 year
 
1-5 years
 
5-10 years
 
After 10 years
 
Total
 
 
 
 
 
 
 
 
 
 
 
CMBS(1)
 
$
368,984

 
$
1,143,775

 
$
140,944

 
$
—

 
$
1,653,703

CMBS interest-only(1)
 
1,014

 
43,038

 
—

 
—

 
44,052

GNMA interest-only(2)
 
297

 
1,745

 
249

 
—

 
2,291

Agency securities(1)
 
—

 
663

 
—

 
—

 
663

GNMA permanent securities(1)
 
414

 
32,670

 
—

 
—

 
33,084

Corporate bonds(1)
 
—

 
41,418

 
—

 
—

 
41,418

Total debt securities
 
$
370,709

 
$
1,263,309

 
$
141,193

 
$
—

 
$
1,775,211

 
(1)
CMBS, CMBS interest-only securities, Agency securities, GNMA permanent securities and corporate bonds are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income.
(2)
Agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings.
 
December 31, 2018
 
Asset Type
 
Within 1 year
 
1-5 years
 
5-10 years
 
After 10 years
 
Total
 
 
 
 
 
 
 
 
 
 
 
CMBS(1)
 
$
342,121

 
$
772,594

 
$
137,925

 
$
—

 
$
1,252,640

CMBS interest-only(1)
 
1,145

 
54,546

 
—

 
—

 
55,691

GNMA interest-only(2)
 
17

 
2,276

 
353

 
2

 
2,648

Agency securities(1)
 
—

 
662

 
—

 
—

 
662

GNMA permanent securities(1)
 
551

 
1,048

 
31,465

 
—

 
33,064

Corporate bonds(1)
 
—

 
53,871

 
—

 
—

 
53,871

Total debt securities
 
$
343,834

 
$
884,997

 
$
169,743

 
$
2

 
$
1,398,576

 
(1)
CMBS, CMBS interest-only securities, Agency securities, GNMA permanent securities and corporate bonds are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income.
(2)
Agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings.

During the three and six months ended June 30, 2019, the Company realized a gain (loss) on sale of equity securities of none and $86.9 thousand, respectively, which is included in realized gain (loss) on securities on the Company’s consolidated statements of income. During the three and six months ended June 30, 2018, the Company realized a gain (loss) on sale of equity securities of $72.0 thousand, which is included in realized gain (loss) on securities on the Company’s consolidated statements of income.

There were no realized losses on securities recorded as other than temporary impairments for the three and six months ended June 30, 2019. During the three and six months ended June 30, 2018 there were $0.6 million and $1.6 million, respectively, of realized losses on securities recorded as other than temporary impairments, which is included in realized gain (loss) on securities on the Company’s consolidated statements of income. The determination of whether a security is other-than-temporarily impaired involves judgments and assumptions based on subjective and objective factors. Consideration is given to (i) the length of time and the extent to which the fair value has been less than amortized cost, (ii) the financial condition and near-term prospects of recovery in fair value of the security, and (iii) the Company’s intent to sell the security and whether it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. The Company has no intention to sell its securities before recovery of its amortized cost basis. For cash flow statement purposes, receipts of interest from interest-only real estate securities are bifurcated between amortization of premium/(accretion) of discount and other fees on securities as part of cash flows from operations and basis recovery of Agency interest-only securities as part of cash flows from investing activities.