Real Estate Loans Receivable

3 Months Ended

Mar. 31, 2020

Loans Receivable

Loans receivable are recorded on our Consolidated Balance Sheets in real estate loans receivable, net of allowance for credit losses, or for non-real estate loans receivable, in receivables and other assets, net of allowance for credit losses. Real estate loans receivable consists of mortgage loans and other real estate loans which are primarily collateralized by a first, second or third mortgage lien, a leasehold mortgage on, or an assignment of the partnership interest in, the related properties, corporate guarantees and/or personal guarantees. Non-real estate loans are generally corporate loans with no real estate backing. Interest income on loans is recognized as earned based upon the principal amount outstanding subject to an evaluation of the risk of credit loss. Accrued interest receivable was $7,868,000 and $6,897,000 as of March 31, 2020 and December 31, 2019, respectively, and is included in receivables and other assets on the Consolidated Balance Sheets. The following is a summary of our loans receivable (in thousands):



	March 31, 2020			December 31, 2019
Mortgage loans	$	97,896		$	188,062
Other real estate loans	125,811			124,696
Allowance for credit losses on real estate loans receivable	(2,479		)	(42,376		)
Real estate loans receivable, net of credit allowance	$	221,228		$	270,382
Non-real estate loans	451,271			362,850
Allowance for credit losses on non-real estate loans receivable	(78,092		)	(25,996		)
Non-real estate loans receivable, net of credit allowance ⁽¹⁾	373,179			336,854
Total loans receivable, net of credit allowance	$	594,407		$	607,236

⁽¹⁾ Included in receivables and other assets on the Consolidated Balance Sheets.

During the three months ended March 31, 2020, the real estate collateral associated with one loan was released, therefore, the principal balance of $86,411,000 and related allowance for credit losses of $42,376,000 was reclassified to a non-real estate loan.

The following is a summary of our loan activity for the periods presented (in thousands):



	Three Months Ended
	March 31, 2020		March 31, 2019
Advances on loans receivable:
Investments in new loans	$	—	$	25,000
Draws on existing loans	10,441		20,452
Net cash advances on loans receivable	10,441		45,452

Receipts on loans receivable:
Loan payoffs	—		4,384
Principal payments on loans	10,045		2,826
Net cash receipts on loans receivable	10,045		7,210
Net cash advances (receipts) on loans receivable	$	396	$	38,242

The allowance for credit loss on loans receivable is maintained at a level believed adequate to absorb potential losses in our loans receivable. The determination of the credit allowance is based on a quarterly evaluation of each of these loans, including general economic conditions and estimated collectability of loan payments. We evaluate the collectability of our loans receivable based on a combination of credit quality indicators, including, but not limited to, payment status, historical loan charge-offs, financial strength of the borrower and guarantors, and nature, extent, and value of the underlying collateral.

A loan is considered to have deteriorated credit quality when, based on current information and events, it is probable that we will be unable to collect all amounts due as scheduled according to the contractual terms of the loan agreement. For those loans we identified as having deteriorated credit quality we determine the amount of credit loss on an individual basis. Placement on non-accrual status may be required. Consistent with this definition, all loans on non-accrual are deemed to have deteriorated credit quality. To the extent circumstances improve and the risk of collectability is diminished, we will return these loans to income accrual status. While a loan is on non-accrual status, any cash receipts are applied against the outstanding principal balance.

For the remaining loans we assess credit loss on a collective pool basis and use our historical loss experience for similar loans to determine the reserve for credit losses. The following is a summary of our loans by credit loss category (in thousands):



	March 31, 2020
Loan category	Years of Origination	Loan Carrying Value		Allowance for Credit Loss			Net Loan Balance		No. of Loans
Deteriorated loans	2007 - 2018	$	185,982	$	(75,372	)	$	110,610	4
Collective loan pool	2007 - 2015	128,971		(1,873		)	127,098		15
Collective loan pool ⁽¹⁾	2016	183,218		(1,534		)	181,684		6
Collective loan pool	2017	117,156		(970		)	116,186		7
Collective loan pool	2018	15,865		(229		)	15,636		2
Collective loan pool	2019	43,786		(593		)	43,193		6
Total loans		$	674,978	$	(80,571	)	$	594,407	40

⁽¹⁾ Carrying value is exclusive of deferred gains of $62,819,000 recorded in accrued expenses and other liabilities on the Consolidated Balance Sheets.

In March 2019, we recognized a provision for loan losses of $18,690,000 to fully reserve for certain Triple-net real estate loans receivable that were no longer deemed collectible. During the quarter ended June 30, 2019, these loans were written off. In March 31, 2020, we recognized a provision for loan losses of $6,898,000 to fully reserve for one Triple-net non-real estate loan receivable that was no longer deemed collectible. The following is a summary of the allowance for credit losses on loans receivable for the periods presented (in thousands):



	Three Months Ended
	March 31, 2020			March 31, 2019
Balance at beginning of period	$	68,372		$	68,372
Adoption of ASU 2016-13	5,212			—
Provision for loan losses	7,072			18,690
Foreign currency translation	(85		)	—
Balance at end of period	$	80,571		$	87,062

The following is a summary of our deteriorated loans (in thousands):



	Three Months Ended
	March 31, 2020			March 31, 2019
Balance of deteriorated loans at end of period ⁽¹⁾	$	185,982		$	206,783
Allowance for credit losses	(75,372		)	(87,062		)
Balance of deteriorated loans not reserved	$	110,610		$	119,721
Interest recognized on deteriorated loans ⁽²⁾	$	4,046		$	3,971

⁽¹⁾Includes two loans that are on non-accrual as of March 31, 2020, with a total carrying value of $9,534,000 at both the beginning and the end of the first quarter of 2020.

⁽²⁾ Represents cash interest recognized in the period.