XML 33 R14.htm IDEA: XBRL DOCUMENT v3.20.2
Real Estate Securities, Available for Sale
 9 Months Ended
Sep. 30, 2020
Investments, Debt and Equity Securities [Abstract]  
Real Estate Securities, Available for Sale Real Estate Securities, Available for Sale
Investments in CRE Securities
CRE securities are composed of CMBS backed by a pool of CRE loans which are typically well-diversified by type and geography. The following table presents CMBS investments as of September 30, 2020 and December 31, 2019 (dollars in thousands):
Weighted Average
Principal Amount(1)
Total DiscountAmortized
Cost		Cumulative Unrealized
on Investments		Fair
Value
Coupon(2)
Unleveraged
Current
Yield(3)
As of Date:CountGain(Loss)
September 30, 202011$67,334 $(35,375)$31,959 $4,291 $— $36,250 3.47 %— %
December 31, 201943292,284 (55,981)236,303 17,084 (563)252,824 3.19 %7.12 %
_________________________________________
(1)CRE securities serve as collateral for financing transactions including carrying value of $18.4 million as of September 30, 2020 for the CMBS Credit Facilities (refer to Note 9, “Debt,” for further detail). The remainder is unleveraged.
(2)All CMBS are fixed rate.
(3)The Company placed all of its CRE securities on cost recovery status as of April 1, 2020.
During the three months ended September 30, 2020, the Company sold five CRE securities for a total gross sales price of $28.8 million and recognized a gain of $5.2 million. The gain is recorded in other gain (loss), net on the Company’s consolidated statements of operations. During the nine months ended September 30, 2020, the Company sold 32 CRE securities for a total gross sales price of $118.5 million and recognized a net loss of $51.8 million. The loss is recorded in other gain (loss), net on the Company’s consolidated statements of operations. In connection with these sales, the Company repaid $79.2 million of debt on its CMBS Credit Facility. See Note 19, “Subsequent Events,” for additional details regarding CRE securities sales.
Consistent with the overall market, the Company’s CRE securities, which it marks to fair value, lost significant value since the onset of the COVID-19 pandemic. Although the market at September 30, 2020 experienced a slight rebound in some securities from the marks taken at June 30, 2020, the Company believes bond prices will remain volatile over the next six to twelve months reflecting changes in the macro environment as well as individual credit events within individual bonds. While the Company will evaluate selling its investment grade and non-investment grade rated CRE securities over the next twelve months, it is more likely than not that the Company will sell before recovery. This impairment loss was a result of writing down the Company’s amortized cost basis to equal fair value. The loss is recorded in other gain (loss), net on the Company’s consolidated statements of operations. Additionally, 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. This decision was made given the inability to project future cash flows from the Company’s CRE securities. To the extent that the carrying value of any CRE security is reduced to zero, any cash subsequently received would be recorded as interest income.
The Company recorded an unrealized gain in OCI of $4.3 million and an unrealized loss of $12.2 million for the three and nine months ended September 30, 2020 and an unrealized gain in OCI of $5.1 million and $22.7 million for the three and nine months ended September 30, 2019. For securities in which the fair value dropped below the amortized cost basis during the three and nine months ended September 30, 2020, the Company wrote down through earnings the amortized cost basis of the securities to fair value as of September 30, 2020, realizing a loss for the three and nine months ended September 30, 2020 of $3.4 million and $32.6 million, respectively. As of September 30, 2020, the Company did not hold any securities in an unrealized loss position.
As of September 30, 2020, the weighted average contractual maturity of CRE securities was 28.6 years with an expected maturity of 5.5 years.
The Company had $0.7 million of interest receivable related to its real estate securities, available for sale as of December 31, 2019. This is included in receivables, net on the Company’s consolidated balance sheets.
Investments in Investing VIEs
The Company is the directing certificate holder of two securitization trusts and has the ability to appoint and replace the special servicer on all mortgage loans. As such, U.S. GAAP requires the Company to consolidate the assets, liabilities, income and expenses of the securitization trusts as Investing VIEs. Refer to Note 2, “Summary of Significant Accounting Policies” for further discussion on Investing VIEs.
In July 2019, the Company sold its retained investments in the subordinate tranches of one securitization trust for $33.4 million in total proceeds. As a result of the sale, the Company deconsolidated one of the securitization trusts with gross assets and liabilities of approximately $1.2 billion and $1.2 billion, respectively.
Other than the securities represented by the Company’s subordinate tranches of the securitization trusts, the Company does not have any claim to the assets or exposure to the liabilities of the securitization trusts. The original issuers, who are unrelated third parties, guarantee the interest and principal payments related to the investment grade securitization bonds in the securitization trusts, therefore these obligations do not have any recourse to the general credit of the Company as the consolidator of the securitization trusts. The Company’s maximum exposure to loss would not exceed the carrying value of its retained investments in the securitization trusts, or the subordinate tranches of the securitization trusts.
As of September 30, 2020, the mortgage loans and the related mortgage obligations held in the securitization trusts had an unpaid principal balance of $1.8 billion and $1.6 billion, respectively. As of December 31, 2019, the mortgage loans and the related mortgage obligations held in the securitization trusts had an unpaid principal balance of $1.8 billion and $1.6 billion, respectively. As of September 30, 2020, across the two consolidated securitization trusts, the underlying collateral consisted of 115 underlying commercial mortgage loans, with a weighted average coupon of 4.5% and a weighted average loan to value ratio of 56.8%.
The following table presents the assets and liabilities recorded on the consolidated balance sheets attributable to the securitization trust as of September 30, 2020 and December 31, 2019 (dollars in thousands):
September 30, 2020December 31, 2019
Assets
Mortgage loans held in a securitization trust, at fair value$1,839,390 $1,872,970 
Receivables, net7,272 7,020 
Total assets$1,846,662 $1,879,990 
Liabilities
Mortgage obligations issued by a securitization trust, at fair value$1,770,924 $1,762,914 
Accrued and other liabilities6,307 6,267 
Total liabilities$1,777,231 $1,769,181 
The Company elected the fair value option to measure the assets and liabilities of the securitization trusts, which requires that changes in valuations of the securitization trusts be reflected in the Company’s consolidated statements of operations.
The difference between the carrying values of the mortgage loans held in securitization trusts and the carrying value of the mortgage obligations issued by securitization trusts was $68.5 million and $110.1 million as of September 30, 2020 and December 31, 2019, respectively, and approximates the fair value of the Company’s retained investments in the subordinate tranches of the securitization trusts, which are eliminated in consolidation. Refer to Note 14, “Fair Value” for a description of the valuation techniques used to measure fair value of assets and liabilities of the Investing VIEs.
The below table presents net income attributable to the Company’s common stockholders for the nine months ended September 30, 2020 and 2019 generated from the Company’s investments in the subordinate tranches of the securitization trusts (dollars in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Statement of Operations
Interest expense$(75)$(220)$(420)$(761)
Interest income on mortgage loans held in securitization trusts20,462 22,586 61,556 99,718 
Interest expense on mortgage obligations issued by securitization trusts(18,204)(20,299)(54,627)(91,690)
Net interest income2,183 2,067 6,509 7,267 
Administrative expense(274)(225)(969)(915)
Unrealized gain (loss) on mortgage loans and obligations held in securitization trusts, net(13,162)(1,976)(41,589)4,602 
Realized gain on mortgage loans and obligations held in securitization trusts, net— 2,724 — 2,772 
Net income (loss) attributable to Colony Credit Real Estate, Inc. common stockholders$(11,253)$2,590 $(36,049)$13,726