Real Estate Assets, Net

3 Months Ended

Mar. 31, 2020

The Company acquires real estate assets either through direct purchases of properties for its rental portfolio or through conversions of mortgage loans in its portfolio such as when a mortgage loan is foreclosed upon and the Company takes title to the property on the foreclosure date or the borrower surrenders the deed in lieu of foreclosure.

Rental Property

As of March 31, 2020, the Company owned nine rental properties with an aggregate carrying value of $1.3 million held for investment as rentals, at which time five properties were rented. One property was acquired as an RPL but transitioned to foreclosure prior to boarding by the Servicer, one was acquired through foreclosure and six were transferred from Property held-for-sale, where all six were acquired through foreclosures. The remaining rental property was directly purchased. As of December 31, 2019, the Company owned 10 rental properties with a carrying value of $1.5 million held for use as rentals, at which time six were rented. Two properties were acquired as an RPL but transitioned to foreclosure prior to boarding by the Servicer, one was acquired through foreclosures, and six were transferred from Property held-for-sale, where all six were acquired through foreclosures. The remaining rental property was directly purchased.

Property Held-for-Sale

The Company classifies REO as held-for-sale if the REO is expected to be actively marketed for sale. As of March 31, 2020 and December 31, 2019, the Company’s net investments in REO held-for-sale were $10.9 million and $13.5 million, respectively, which include balances of $0.7 million and $2.2 million, respectively, for properties undergoing renovation or which are otherwise in the process of being brought to market. For the three months ended March 31, 2020 and 2019, all of the additions to REO held-for-sale were acquired through foreclosure or deed in lieu of foreclosure, and reclassified out of the mortgage loan portfolio.

The following table presents the activity in the Company’s carrying value of property held-for-sale for the three months ended March 31, 2020 and 2019 ($ in thousands):


	Three months ended March 31,
	2020				2019
Property Held-for-sale	Count	Amount		Count	Amount
Balance at beginning of period	58	$	13,537	102	$	19,402
Transfers from mortgage loans	5	814		26	4,171
Adjustments to record at lower of cost or fair value	—	(897)		—	(475)
Disposals	(19)	(2,730)		(33)	(5,028)
Transfer from Rental property	1	181		3	880
Transfers to Rental property	—	—		(1)	(293)
Other	—	—		—	(77)
Balance at end of period	45	$	10,905	97	$	18,580

Dispositions

During the three months ended March 31, 2020 and 2019, the Company sold 19 and 33 REO properties, respectively, realizing a net gain of approximately $0.4 million and $0.1 million, respectively. These amounts are included in Other income on the Company's consolidated statements of income. The Company recorded lower of cost or net realizable value adjustments in Real estate operating expense for the three months ended March 31, 2020 and 2019 of $0.9 million and $0.5 million, respectively.