5.	Loans Receivable

The following table summarizes the Trust’s loans receivable at June 30, 2013 and December 31, 2012 (in thousands):


			Carrying Amount				Contractual Maturity Date
Description	Loan Position	Stated Interest Rate	June 30, 2013		December 31, 2012		Contractual Maturity Date

Hotel Wales	Whole Loan	LIBOR + 4.0% (2)	$	20,097	$	20,101	10/05/13 (5)
Renaissance Walk	Mezzanine	LIBOR + 12.0% (3)		3,000		3,000	01/01/14
The Shops at Wailea	B-Note	6.15%		5,796		5,376	10/06/14
Legacy Orchard (1)	Corporate Loan	15.0%		9,750		9,750	10/31/14
Queensridge	Whole Loan	LIBOR + 11.5% (4)		13,863		39,170	11/15/14
San Marbeya	Whole Loan	5.88%		27,502		27,149	01/01/15
Playa Vista	Mezzanine	LIBOR + 14.25% (4)		10,322		—	01/23/15
Churchill (1)	Whole Loan	LIBOR + 3.75%		683		683	06/01/15
Rockwell	Mezzanine	12.0%		364		323	05/01/16
500-512 7th Ave	B-Note	7.19%		10,019		10,009	07/11/16
Pinnacle II	B-Note	6.31%		4,648		4,652	09/06/16
Poipu Shopping Village	B-Note	6.62%		1,999		1,948	01/06/17
Wellington Tower	Mezzanine	6.79%		2,754		2,687	07/11/17
Mentor Building	Whole Loan	10.0%		2,511		2,512	09/10/17
1515 Market	Whole Loan	(6)		—		58,650	(6)
127 West 25th Street	Mezzanine	—		—		8,687	(7)
180 N. Michigan	Mezzanine	—		—		5,237	(7)
Fenway Shea (1)	Whole Loan	—		—		2,273	(7)
The Disney Building	B-Note	—		—		9,043	(8)

			$	113,308	$	211,250

(1)

The Trust determined that certain loans receivable are variable interests in VIEs primarily based on the fact that the underlying entities do not have sufficient equity at risk to permit the entity to finance its activities without additional subordinated financial support. The Trust does not have the power to direct the activities of the entity that most significantly impact the entity’s economic performance and is not required to consolidate the underlying entity.

(2)	LIBOR floor of 3%.

(3)	LIBOR floor of 2%.

(4)	LIBOR floor of 0.5%.

(5)	The borrower has a one year extension option and has given notice of their intention to exercise the option. The Trust is reviewing the borrower’s financial covenants and expects the extension to be granted.

(6)	This loan was in maturity default at the time of acquisition. The loan was modified on February 1, 2013. The Trust consolidates the operations of the borrower entity and the loan receivable is eliminated in consolidation.

(7)	The loans were satisfied at par during the six months ended June 30, 2013.

(8)	The loan was sold during the six months ended June 30, 2013.

The carrying amount of loans receivable includes accrued interest of $640,000 and $1,016,000 at June 30, 2013 and December 31, 2012, respectively, and cumulative accretion of $4,004,000 and $2,527,000 at June 30, 2013 and December 31, 2012, respectively.

At June 30, 2013 and December 31, 2012, the Trust’s loans receivable have unamortized discount totaling $5,861,000 and $9,865,000, respectively.

The weighted average coupon as calculated on the par value of the Trust’s loans receivable was 7.09% and 7.65% and the weighted average yield to maturity as calculated on the carrying value of the Trust’s loan receivable was 11.86% and 11.43% at June 30, 2013 and December 31, 2012, respectively.

Playa Vista - On January 24, 2013 the Trust originated a $20,500,000 mezzanine loan collateralized by a 260,000 square foot office campus in the Los Angeles, California area. The loan is subordinate to an $80,300,000 mortgage loan, matures January 23, 2015, bears interest at LIBOR plus 14.25% per annum, with a 0.5% LIBOR floor and requires payments of interest only at a rate of 8.25% with the remaining interest being accrued and added to principal. In connection with the origination, the borrower paid to the Trust an origination fee of $205,000. On March 1, 2013 the Trust sold a 50% pari passu participation interest in the loan for $10,250,000 and gave the transferee a credit of $100,000 from the initial loan origination. No gain or loss was recognized on the sale of the interest.

The San Marbeya, Hotel Wales and Queensridge loans receivable are part of secured financing transactions, with recourse and non-recourse financings at June 30, 2013. The Trust had outstanding non-recourse secured financings related to the San Marbeya and Hotel Wales loans receivable in the amount of $29,150,000 at June 30, 2013 and December 31, 2012. The Trust had recourse secured financings related to the Queensridge loan receivable in the amount of $23,770,000 at December 31, 2012. As of June 30, 2013 the Trust has fully repaid the recourse secured financing related to the Queensridge loan receivable. No other loans receivable are part of secured financing transactions at June 30, 2013. Please see Note 8 for additional disclosures regarding the Trust’s secured financings.

Loan Receivable Activity

Activity related to loans receivable is as follows (in thousands):


	Six Months Ended June 30, 2013

Balance at January 1, 2013	$	211,250
Purchase and advances		22,314
Interest (received) accrued, net		(376	)
Repayments/ Sale proceeds		(61,078	)
Elimination of 1515 Market		(60,279	)
Loan discount accretion		1,477
Discount accretion received in cash		—

Balance at June 30, 2013	$	113,308

The following table summarizes the Trust’s interest, dividend and discount accretion income for the three and six months ended June 30, 2013 and 2012 (in thousands):


	Three Months Ended June 30, 2013				Six Months Ended June 30, 2013
	2013		2012		2013		2012

Interest on loan assets	$	3,447	$	2,746	$	7,901	$	5,145
Accretion of loan discount		761		2,726		1,477		5,559
Interest and dividends on REIT securities		100		306		250		592

Total interest, dividends, and discount accretion	$	4,308	$	5,778	$	9,628	$	11,296

Credit Quality of Loans Receivable and Loan Losses

The Trust evaluates impairment on its loan portfolio on an individual basis and has developed a loan grading system for all of its outstanding loans that are collateralized directly or indirectly by real estate. Grading categories include debt yield, debt service coverage ratio, length of loan, property type, loan type, and other more subjective variables that include property or collateral location, market conditions, industry conditions, and sponsor’s financial stability. Management reviews each category and assigns an overall numeric grade for each loan to determine the loan’s risk of loss and to provide a determination as to whether an individual loan is impaired and whether a specific loan loss allowance is necessary. A loan’s grade of credit quality is determined quarterly.

All loans with a positive score do not require a loan loss allowance. Any loan graded with a neutral score or “zero” is subject to further review of the collectability of the interest and principal based on current conditions and qualitative factors to determine if impairment is warranted. Any loan with a negative score is deemed impaired and management then would measure the specific impairment of each loan separately using the fair value of the collateral less costs to sell.

Management estimates the loan loss allowance by calculating the estimated fair value less costs to sell of the underlying collateral securing the loan based on the fair value of underlying collateral and comparing the fair value to the loan’s net carrying value. If the fair value is less than the net carrying value of the loan, an allowance is created with a corresponding charge to the provision for loan losses. The allowance for each loan will be maintained at a level the Trust believes will be adequate to absorb losses.

The table below summarizes the Trust’s loans receivable by internal credit rating at June 30, 2013 and December 31, 2012 (in thousands, except for number of loans):


	June 30, 2013				December 31, 2012
Internal Credit Quality	Number of Loans		Carrying Value of Loans Receivable		Number of Loans		Carrying Value of Loans Receivable

Greater than zero		13	$	102,986		18	$	211,250
Equal to zero		1		10,322		—		—
Less than zero		—		—		—		—

		14	$	113,308		18	$	211,250

Non-Performing Loans

The Trust considers a loan to be non-performing and places loans on non-accrual status at such time as management determines it is probable that it will be unable to collect all amounts due according to the contractual terms of the loan. While on non-accrual status, based on the Trust’s judgment as to collectability of principal, loans are either accounted for on a cash basis, where interest income is recognized only upon actual receipt of cash, or on a cost-recovery basis, where all cash receipts reduce a loan’s carrying value. If and when a loan is brought back into compliance with its contractual terms, the Trust will resume accrual of interest. As of June 30, 2013 and December 31, 2012, there were no non-performing loans and no past due payments. The Trust did not record any provision for loan loss for the three and six months ended June 30, 2013.