NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021
(unaudited)
1.Organization
New York Mortgage Trust, Inc., together with its consolidated subsidiaries (“NYMT,” “we,” “our,” or the “Company”), is a real estate investment trust ("REIT") in the business of acquiring, investing in, financing and managing primarily mortgage-related single-family and multi-family residential assets. Our objective is to deliver long-term stable distributions to our stockholders over changing economic conditions through a combination of net interest margin and capital gains from a diversified investment portfolio. Our investment portfolio includes credit sensitive single-family and multi-family assets.
The Company conducts its business through the parent company, New York Mortgage Trust, Inc., and several subsidiaries, including taxable REIT subsidiaries (“TRSs”), qualified REIT subsidiaries (“QRSs”) and special purpose subsidiaries established for securitization purposes. The Company consolidates all of its subsidiaries under generally accepted accounting principles in the United States of America (“GAAP”).
The Company is organized and conducts its operations to qualify as a REIT for U.S. federal income tax purposes. As such, the Company will generally not be subject to federal income taxes on that portion of its income that is distributed to stockholders if it distributes at least 90% of its REIT taxable income to its stockholders by the due date of its federal income tax return and complies with various other requirements.
2.Summary of Significant Accounting Policies
Definitions – The following defines certain of the commonly used terms in these financial statements:
“RMBS” refers to residential mortgage-backed securities backed by adjustable-rate, hybrid adjustable-rate, or fixed-rate residential loans;
“Agency RMBS” refers to RMBS representing interests in or obligations backed by pools of residential loans guaranteed by a government sponsored enterprise (“GSE”), such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”), or an agency of the U.S. government, such as the Government National Mortgage Association (“Ginnie Mae”);
“non-Agency RMBS” refers to RMBS that are not guaranteed by any agency of the U.S. Government or GSE;
“IOs” refers collectively to interest only and inverse interest only mortgage-backed securities that represent the right to the interest component of the cash flow from a pool of mortgage loans;
“POs” refers to mortgage-backed securities that represent the right to the principal component of the cash flow from a pool of mortgage loans;
“ARMs” refers to adjustable-rate residential loans;
“Agency ARMs” refers to Agency RMBS comprised of adjustable-rate and hybrid adjustable-rate RMBS;
“Agency fixed-rate RMBS” refers to Agency RMBS comprised of fixed-rate RMBS;
“ABS” refers to debt and/or equity tranches of securitizations backed by various asset classes including, but not limited to, automobiles, aircraft, credit cards, equipment, franchises, recreational vehicles and student loans;
“CMBS” refers to commercial mortgage-backed securities comprised of commercial mortgage pass-through securities issued by a GSE, as well as PO, IO or mezzanine securities that represent the right to a specific component of the cash flow from a pool of commercial mortgage loans;
“Agency CMBS” refers to CMBS representing interests or obligations backed by pools of mortgage loans guaranteed by a GSE, such as Fannie Mae or Freddie Mac;
“multi-family CMBS” refers to CMBS backed by commercial mortgage loans on multi-family properties;
“CDO” refers to collateralized debt obligation and includes debt that permanently finances the residential loans held in Consolidated SLST, multi-family loans held in the Consolidated K-Series and the Company's residential loans held in securitization trusts and non-Agency RMBS re-securitization that we consolidate, or consolidated, in our financial statements in accordance with GAAP;
“business purpose loans” refers to short-term loans collateralized by residential properties made to investors who intend to rehabilitate and sell the residential property for a profit;
“Consolidated SLST” refers to a Freddie Mac-sponsored residential loan securitization, comprised of seasoned re-performing and non-performing residential loans, of which we own or owned the first loss subordinated securities and certain IOs and senior securities that we consolidate in our financial statements in accordance with GAAP;
“Consolidated K-Series” refers to Freddie Mac-sponsored multi-family loan K-Series securitizations, of which we, or one of our “special purpose entities,” or “SPEs,” owned the first loss POs, certain IOs and certain senior or mezzanine securities that we consolidated in our financial statements in accordance with GAAP prior to disposition; and
“SOFR” refers to Secured Overnight Funding Rate.
Basis of Presentation – The accompanying condensed consolidated balance sheet as of December 31, 2020 has been derived from audited financial statements. The accompanying condensed consolidated balance sheet as of June 30, 2021, the accompanying condensed consolidated statements of operations for the three and six months ended June 30, 2021 and 2020, the accompanying condensed consolidated statements of comprehensive income for the three and six months ended June 30, 2021 and 2020, the accompanying condensed consolidated statements of changes in stockholders’ equity for the three and six months ended June 30, 2021 and 2020 and the accompanying condensed consolidated statements of cash flows for the six months ended June 30, 2021 and 2020 are unaudited. In our opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the Company’s financial position, results of operations and cash flows have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with Article 10 of Regulation S-X and the instructions to Form 10-Q. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the U.S. Securities and Exchange Commission (“SEC”). Accordingly, significant accounting policies and other disclosures have been omitted since such items are disclosed in Note 2 in the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020. Provided in this section is a summary of additional accounting policies that are significant to, or newly adopted by, the Company for the three and six months ended June 30, 2021. The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the operating results for the full year.
The accompanying condensed consolidated financial statements have been prepared on the accrual basis of accounting in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management has made significant estimates in several areas, including fair valuation of its residential loans, multi-family loans, certain equity investments and Consolidated SLST CDOs. Although the Company’s estimates contemplate current conditions and how it expects those conditions to change in the future, it is reasonably possible that actual conditions could be different than anticipated in those estimates, which could materially impact the Company’s results of operations and its financial condition.
The COVID-19 pandemic and resulting emergency measures have led (and may continue to lead) to significant disruptions in the global supply chain, global capital markets, the economy of the U.S. and the economies of other countries impacted by COVID-19. The fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions. The Company believes the estimates and assumptions underlying our condensed consolidated financial statements are reasonable and supportable based on the information available as of June 30, 2021; however, uncertainty over the ultimate impact COVID-19 will have on the global economy generally, and our business in particular, makes any estimates and assumptions as of June 30, 2021 inherently less certain than they would be absent the current and potential impacts of COVID-19. Accordingly, it is reasonably possible that actual conditions could be different than anticipated in those estimates, which could materially impact the Company’s results of operations and its financial condition.
Reclassifications – Certain prior period amounts have been reclassified in the accompanying condensed consolidated financial statements to conform to current period presentation.
Principles of Consolidation and Variable Interest Entities – The accompanying condensed consolidated financial statements of the Company include the accounts of all its subsidiaries which are majority-owned, controlled by the Company or a variable interest entity (“VIE”) where the Company is the primary beneficiary. All significant intercompany accounts and transactions have been eliminated in consolidation.
A VIE is an entity that lacks one or more of the characteristics of a voting interest entity. A VIE is defined as an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The Company consolidates a VIE when it is the primary beneficiary of such VIE, herein referred to as a "Consolidated VIE". As primary beneficiary, the Company has both the power to direct the activities that most significantly impact the economic performance of the VIE and a right to receive benefits or absorb losses of the entity that could be potentially significant to the VIE. The Company is required to reconsider its evaluation of whether to consolidate a VIE each reporting period, based upon changes in the facts and circumstances pertaining to the VIE.
Goodwill – Goodwill is not amortized but is evaluated for impairment on an annual basis, or more frequently if the Company believes indicators of impairment exist, by initially performing a qualitative screen and, if necessary, then comparing fair value of the reporting unit to its carrying value, including goodwill. If the fair value of the reporting unit is less than the carrying value, an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value (in an amount not to exceed the total amount of goodwill allocated to the reporting unit) is recognized.
In the first quarter of 2020, financial, credit and mortgage-related asset markets experienced significant volatility as a result of the spread of COVID-19, which in turn put significant pressure on the mortgage REIT industry, including financing operations, mortgage asset pricing and liquidity demands. In response to these conditions and the Company's intention to improve its liquidity, in March 2020, the Company sold, among other things, its entire portfolio of first loss POs issued by the Consolidated K-Series, certain senior and mezzanine securities issued by the Consolidated K-Series, Agency CMBS and CMBS that were held by its multi-family investment reporting unit. As a result of the sales, the Company re-evaluated its goodwill balance associated with the multi-family investment reporting unit for impairment. The Company considered qualitative indicators such as macroeconomic conditions, disruptions in equity and credit markets, REIT-specific market considerations, and changes in the net assets in the multi-family investment reporting unit to determine that a quantitative assessment of the fair value of the reporting unit was necessary. The Company performed its quantitative analysis by updating its discounted cash flow projection for the multi-family investment reporting unit for the reduced investment portfolio. This analysis yielded an impairment of the entire goodwill balance related to the Company's multi-family investment reporting unit reported as a $25.2 million impairment of goodwill on the accompanying condensed consolidated statements of operations for the six months ended June 30, 2020.
Other Assets – Other assets as of June 30, 2021 and December 31, 2020 include restricted cash held by third parties, including cash held by the Company's securitization trusts, of $75.6 million and $11.3 million, respectively. Operating real estate held in Consolidated VIEs, net in the amounts of $125.3 million and $50.5 million are also included in other assets as of June 30, 2021 and December 31, 2020, respectively. Other assets includes collections receivable from loan servicers, recoverable advances and interest receivable on residential loans totaling $65.9 million and $63.6 million as of June 30, 2021 and December 31, 2020, respectively. Also included in other assets are operating lease right of use assets of $9.6 million and $10.1 million as of June 30, 2021 and December 31, 2020, respectively (with corresponding operating lease liabilities of $10.2 million and $10.6 million as of June 30, 2021 and December 31, 2020, respectively, included in other liabilities in the accompanying condensed consolidated balance sheets).
Summary of Recent Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"). ASU 2020-04 provides optional expedients and exceptions to GAAP requirements for modifications to debt agreements, leases, derivatives and other contracts, related to the expected market transition from LIBOR, and certain other floating rate benchmark indices, or collectively, IBORs, to alternative reference rates. ASU 2020-04 generally considers contract modifications related to reference rate reform to be an event that does not require contract remeasurement at the modification date nor a reassessment of a previous accounting determination. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope ("ASU 2021-01"). ASU 2021-01 clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the "discounting transition" (i.e., changes in the interest rates used for margining, discounting, or contract price alignment for derivative instruments that are being implemented as part of the market-wide transition to new reference rates). The guidance in ASU 2020-04 is optional and may be elected over time, through December 31, 2022, as reference rate reform activities occur. Once ASU 2020-04 is elected, the guidance must be applied prospectively for all eligible contract modifications. The amendments in ASU 2021-01 are effective immediately and may be applied on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 or on a prospective basis for eligible contract modifications through December 31, 2022. The Company continues to evaluate the impact of ASU 2020-04 and ASU 2021-01 and may apply elections, as applicable, as the expected market transition from IBORs to alternative reference rates continues to develop.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity ("ASU 2020-06"). ASU 2020-06 simplifies an issuer's accounting for convertible instruments, enhances disclosure requirements for convertible instruments and modifies how particular convertible instruments and certain instruments that may be settled in cash or shares impact the diluted earnings per share computation. Entities may adopt the guidance through either a modified retrospective method of transition or a fully retrospective method of transition. The amendments are effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. Early adoption is permitted, but no earlier than fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company does not anticipate that the implementation of ASU 2020-06 will have a material impact on its consolidated financial statements or notes thereto.
3.Residential Loans, at Fair Value
The Company’s acquired residential loans, including performing, re-performing and non-performing residential loans, and business purpose loans, are presented at fair value on the Company's condensed consolidated balance sheets as a result of a fair value election. Subsequent changes in fair value are reported in current period earnings and presented in unrealized gains (losses), net on the Company’s condensed consolidated statements of operations.
The following table presents the Company’s residential loans, at fair value, which consist of residential loans held by the Company, Consolidated SLST and other securitization trusts, as of June 30, 2021 and December 31, 2020, respectively (dollar amounts in thousands):
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|
June 30, 2021
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|
December 31, 2020
|
|
Residential loans (1)
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Consolidated SLST (2)
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|
Residential loans held in securitization trusts (3)
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Total
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|
Residential loans (1)
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|
Consolidated SLST (2)
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Residential loans held in securitization trusts (3)
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Total
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Principal
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$
|
1,227,386
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|
|
$
|
1,162,852
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|
|
$
|
784,933
|
|
|
$
|
3,175,171
|
|
|
$
|
1,097,528
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|
|
$
|
1,231,669
|
|
|
$
|
696,543
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|
|
$
|
3,025,740
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|
(Discount)/premium
|
(43,840)
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|
|
(1,220)
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|
|
(38,928)
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|
|
(83,988)
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|
|
(42,259)
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|
|
1,337
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|
|
(41,506)
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|
|
(82,428)
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|
Unrealized gains
|
43,295
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|
|
14,907
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|
|
53,358
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|
|
111,560
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|
|
35,661
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|
|
33,779
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|
|
36,414
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|
|
105,854
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Carrying value
|
$
|
1,226,841
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|
|
$
|
1,176,539
|
|
|
$
|
799,363
|
|
|
$
|
3,202,743
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|
|
$
|
1,090,930
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|
|
$
|
1,266,785
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|
|
$
|
691,451
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|
|
$
|
3,049,166
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|
(1)Certain of the Company's residential loans, at fair value are pledged as collateral for repurchase agreements as of June 30, 2021 and December 31, 2020 (see Note 10).
(2)The Company invests in first loss subordinated securities and certain IOs issued by a Freddie Mac-sponsored residential loan securitization. In accordance with GAAP, the Company has consolidated the underlying seasoned re-performing and non-performing residential loans held in the securitization and the CDOs issued to permanently finance these residential loans, representing Consolidated SLST. Consolidated SLST CDOs are included in collateralized debt obligations on the Company's condensed consolidated balance sheets.
(3)The Company's residential loans held in securitization trusts are pledged as collateral for CDOs issued by the Company. These CDOs are accounted for as financings and included in collateralized debt obligations on the Company's condensed consolidated balance sheets (see Note 11).
The following table presents the unrealized gains (losses), net attributable to residential loans, at fair value for the three and six months ended June 30, 2021 and 2020, respectively (dollar amounts in thousands):
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|
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Three Months Ended
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June 30, 2021
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June 30, 2020
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Residential loans
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|
Consolidated SLST (1)
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|
Residential loans held in securitization trusts
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|
Residential loans
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|
Consolidated SLST (1)
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|
Residential loans held in securitization trusts
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Unrealized gains (losses), net
|
$
|
1,009
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|
|
$
|
6,471
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|
|
$
|
4,893
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|
|
$
|
38,198
|
|
|
$
|
75,051
|
|
|
$
|
4
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|
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|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
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|
June 30, 2021
|
|
June 30, 2020
|
|
Residential loans
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|
Consolidated SLST (1)
|
|
Residential loans held in securitization trusts
|
|
Residential loans
|
|
Consolidated SLST (1)
|
|
Residential loans held in securitization trusts
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Unrealized gains (losses), net
|
$
|
7,435
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|
|
$
|
(18,872)
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|
|
$
|
17,143
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|
|
$
|
(43,482)
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|
|
$
|
(13,049)
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|
|
$
|
(1,725)
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|
(1)In accordance with the practical expedient in ASC 810, Consolidation ("ASC 810") the Company determines the fair value of the residential loans held in Consolidated SLST based on the fair value of the CDOs issued by Consolidated SLST, including investment securities we own, as the fair value of these instruments is more observable (see Note 14). See Note 7 for unrealized gains (losses), net recognized by the Company on its investment in Consolidated SLST, which include unrealized gains (losses) on the residential loans held in Consolidated SLST presented in the table above and unrealized gains (losses) on the CDOs issued by Consolidated SLST.
The Company recognized $0.3 million and $0.5 million of net realized gains on the sale of residential loans, at fair value for the three and six months ended June 30, 2021. The Company recognized $2.0 million and $18.2 million of net realized losses on the sale of residential loans, at fair value during the three and six months ended June 30, 2020, respectively. The Company also recognized $4.9 million and $8.3 million of net realized gains on the payoff of residential loans, at fair value for the three and six months ended June 30, 2021. The Company recognized $2.1 million and $4.0 million of net realized gains on the payoff of residential loans, at fair value during the three and six months ended June 30, 2020, respectively.
The geographic concentrations of credit risk exceeding 5% of the unpaid principal balance of residential loans, at fair value as of June 30, 2021 and December 31, 2020, respectively, are as follows:
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|
|
|
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|
|
June 30, 2021
|
|
December 31, 2020
|
|
Residential loans
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|
Consolidated SLST
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Residential loans held in securitization trusts
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Residential loans
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Consolidated SLST
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Residential loans held in securitization trusts
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California
|
22.0
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%
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|
10.7
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%
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|
22.9
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%
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23.6
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%
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|
10.9
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%
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19.8
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%
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Florida
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11.0
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%
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|
10.4
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%
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10.3
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%
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|
13.1
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%
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|
10.5
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%
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8.1
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%
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New York
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10.0
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%
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|
9.5
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%
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7.7
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%
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9.2
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%
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9.3
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%
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|
8.9
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%
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New Jersey
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7.5
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%
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|
7.2
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%
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5.0
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%
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5.6
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%
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7.1
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%
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5.6
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%
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Texas
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5.7
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%
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|
3.9
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%
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4.6
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%
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5.6
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%
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4.0
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%
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|
4.3
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%
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Maryland
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2.7
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%
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|
3.9
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%
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|
5.0
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%
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|
2.8
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%
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|
3.8
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%
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|
6.3
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%
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Illinois
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2.7
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%
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|
6.9
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%
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|
2.3
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%
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|
2.5
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%
|
|
6.8
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%
|
|
2.7
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%
|
The following table presents the fair value and aggregate unpaid principal balance of the Company's residential loans and residential loans held in securitization trusts in non-accrual status as of June 30, 2021 and December 31, 2020, respectively (dollar amounts in thousands):
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|
|
Greater than 90 days past due
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|
Less than 90 days past due
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|
|
Fair Value
|
|
Unpaid Principal Balance
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|
Fair Value
|
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Unpaid Principal Balance
|
|
|
June 30, 2021
|
$
|
130,638
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|
|
$
|
152,057
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|
|
$
|
15,268
|
|
|
$
|
16,203
|
|
|
|
December 31, 2020
|
149,444
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|
|
169,553
|
|
|
16,057
|
|
|
17,748
|
|
|
|
Residential loans held in Consolidated SLST with an aggregate unpaid principal balance of $188.4 million and $236.7 million were 90 days or more delinquent as of June 30, 2021 and December 31, 2020, respectively.
4.Multi-family Loans, at Fair Value
The Company's multi-family loans consisting of its preferred equity in, and mezzanine loans to, entities that have multi-family real estate assets are presented at fair value on the Company's condensed consolidated balance sheets as a result of a fair value election. Accordingly, changes in fair value are presented in unrealized gains (losses), net on the Company's condensed consolidated statements of operations. Preferred equity and mezzanine loan investments consist of the following as of June 30, 2021 and December 31, 2020, respectively (dollar amounts in thousands):
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|
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|
|
June 30, 2021
|
|
December 31, 2020
|
Investment amount
|
$
|
125,924
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|
|
$
|
163,392
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|
Deferred loan fees, net
|
(871)
|
|
|
(1,169)
|
|
Unrealized gains, net
|
1,666
|
|
|
1,370
|
|
Total, at Fair Value
|
$
|
126,719
|
|
|
$
|
163,593
|
|
For the three and six months ended June 30, 2021, the Company recognized $0.2 million and $0.3 million in net unrealized gains on preferred equity and mezzanine loan investments, respectively. For the three and six months ended June 30, 2020, the Company recognized $0.1 million and $5.8 million in net unrealized losses on preferred equity and mezzanine loan investments, respectively.
For the three and six months ended June 30, 2021, the Company recognized $1.5 million and $2.0 million in preferred equity and mezzanine loan premiums resulting from early redemption, respectively. For the three months ended June 30, 2020, there were no preferred equity and mezzanine loan premiums resulting from early redemption. For the six months ended June 30, 2020, the Company recognized $0.1 million in preferred equity and mezzanine loan premiums resulting from early redemption.
The table below presents the fair value and aggregate unpaid principal balance of the Company's preferred equity and mezzanine loan investments in non-accrual status as of June 30, 2021 and December 31, 2020, respectively (dollar amounts in thousands):
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|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
Days Late
|
|
|
Fair Value
|
|
Unpaid Principal Balance
|
|
Fair Value
|
|
Unpaid Principal Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90 +
|
|
|
$
|
3,648
|
|
|
$
|
3,363
|
|
|
$
|
3,325
|
|
|
$
|
3,363
|
|
The geographic concentrations of credit risk exceeding 5% of the total preferred equity and mezzanine loan investment amounts as of June 30, 2021 and December 31, 2020, respectively, are as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
Tennessee
|
16.0
|
%
|
|
14.3
|
%
|
Texas
|
15.2
|
%
|
|
11.4
|
%
|
Florida
|
11.3
|
%
|
|
8.5
|
%
|
South Carolina
|
9.5
|
%
|
|
7.2
|
%
|
Alabama
|
8.8
|
%
|
|
9.7
|
%
|
Georgia
|
6.8
|
%
|
|
10.1
|
%
|
Ohio
|
6.8
|
%
|
|
5.2
|
%
|
North Carolina
|
6.5
|
%
|
|
4.9
|
%
|
|
|
|
|
|
|
|
|
5.Investment Securities Available for Sale, at Fair Value
The Company accounts for certain of its investment securities available for sale using the fair value election pursuant to ASC 825, Financial Instruments ("ASC 825"), where changes in fair value are recorded in unrealized gains (losses), net on the Company's condensed consolidated statements of operations. The Company also has investment securities available for sale where the fair value option has not been elected, which we refer to as CECL Securities. CECL Securities are reported at fair value with unrealized gains and losses recorded in other comprehensive income (loss) on the Company's condensed consolidated statements of comprehensive income. The Company's investment securities available for sale consisted of the following as of June 30, 2021 and December 31, 2020, respectively (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
Amortized Cost
|
|
Unrealized
|
|
Fair Value
|
|
Amortized Cost
|
|
Unrealized
|
|
Fair Value
|
|
|
Gains
|
|
Losses
|
|
|
|
Gains
|
|
Losses
|
|
Fair Value Option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency RMBS
|
$
|
134,461
|
|
|
$
|
—
|
|
|
$
|
(3,162)
|
|
|
$
|
131,299
|
|
|
$
|
138,541
|
|
|
$
|
854
|
|
|
$
|
—
|
|
|
$
|
139,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Agency RMBS (1)
|
100,379
|
|
|
674
|
|
|
(8,560)
|
|
|
92,493
|
|
|
100,465
|
|
|
170
|
|
|
(10,786)
|
|
|
89,849
|
|
CMBS (2)
|
111,977
|
|
|
4,156
|
|
|
(405)
|
|
|
115,728
|
|
|
139,019
|
|
|
5,685
|
|
|
(3,731)
|
|
|
140,973
|
|
ABS
|
27,917
|
|
|
14,703
|
|
|
—
|
|
|
42,620
|
|
|
34,139
|
|
|
9,086
|
|
|
—
|
|
|
43,225
|
|
Total investment securities available for sale - fair value option
|
374,734
|
|
|
19,533
|
|
|
(12,127)
|
|
|
382,140
|
|
|
412,164
|
|
|
15,795
|
|
|
(14,517)
|
|
|
413,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CECL Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Agency RMBS (3)
|
189,398
|
|
|
6,742
|
|
|
(645)
|
|
|
195,495
|
|
|
266,855
|
|
|
4,336
|
|
|
(5,374)
|
|
|
265,817
|
|
CMBS
|
28,420
|
|
|
1,734
|
|
|
(382)
|
|
|
29,772
|
|
|
43,435
|
|
|
2,032
|
|
|
—
|
|
|
45,467
|
|
Total investment securities available for sale - CECL Securities
|
217,818
|
|
|
8,476
|
|
|
(1,027)
|
|
|
225,267
|
|
|
310,290
|
|
|
6,368
|
|
|
(5,374)
|
|
|
311,284
|
|
Total
|
$
|
592,552
|
|
|
$
|
28,009
|
|
|
$
|
(13,154)
|
|
|
$
|
607,407
|
|
|
$
|
722,454
|
|
|
$
|
22,163
|
|
|
$
|
(19,891)
|
|
|
$
|
724,726
|
|
(1)Includes non-Agency RMBS held in a securitization trust with a total fair value of $37.6 million as of December 31, 2020. During the six months ended June 30, 2021, the Company exercised its right to an optional redemption of its non-Agency RMBS re-securitization, returning the non-Agency RMBS held by the re-securitization trust to the Company (see Note 7).
(2)Includes IO and mezzanine securities transferred from the Consolidated K-Series as a result of de-consolidation during the six months ended June 30, 2020, with a total fair value of $72.6 million and $97.6 million as of June 30, 2021 and December 31, 2020 respectively.
(3)Includes non-Agency RMBS held in a securitization trust with a total fair value of $71.5 million as of December 31, 2020. During the six months ended June 30, 2021, the Company exercised its right to an optional redemption of its non-Agency RMBS re-securitization, returning the non-Agency RMBS held by the re-securitization trust to the Company (see Note 7).
Accrued interest receivable for all investment securities available for sale in the amount of $2.0 million and $2.4 million as of June 30, 2021 and December 31, 2020, respectively, is included in other assets on the Company's condensed consolidated balance sheets.
Realized Gain and Loss Activity
The following tables summarize our investment securities sold during the three months ended June 30, 2021 and 2020, respectively (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2021
|
|
Sales Proceeds
|
|
Realized Gains
|
|
Realized Losses
|
|
Net Realized Gains (Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS
|
$
|
3,770
|
|
|
$
|
392
|
|
|
$
|
—
|
|
|
$
|
392
|
|
Total
|
$
|
3,770
|
|
|
$
|
392
|
|
|
$
|
—
|
|
|
$
|
392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
Sales Proceeds
|
|
Realized Gains
|
|
Realized Losses
|
|
Net Realized Gains (Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Agency RMBS
|
$
|
37,810
|
|
|
$
|
294
|
|
|
$
|
(1,690)
|
|
|
$
|
(1,396)
|
|
CMBS
|
24,022
|
|
|
1,327
|
|
|
—
|
|
|
1,327
|
|
Total
|
$
|
61,832
|
|
|
$
|
1,621
|
|
|
$
|
(1,690)
|
|
|
$
|
(69)
|
|
The following tables summarize our investment securities sold during the six months ended June 30, 2021 and 2020, respectively (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
Sales Proceeds
|
|
Realized Gains
|
|
Realized Losses
|
|
Net Realized Gains (Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Agency RMBS
|
$
|
72,083
|
|
|
$
|
12
|
|
|
$
|
(833)
|
|
|
$
|
(821)
|
|
CMBS
|
43,315
|
|
|
5,587
|
|
|
—
|
|
|
5,587
|
|
Total
|
$
|
115,398
|
|
|
$
|
5,599
|
|
|
$
|
(833)
|
|
|
$
|
4,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
Sales Proceeds
|
|
Realized Gains
|
|
Realized Losses
|
|
Net Realized Gains (Losses)
|
Agency RMBS:
|
|
|
|
|
|
|
|
Agency ARMs
|
$
|
49,892
|
|
|
$
|
44
|
|
|
$
|
(4,157)
|
|
|
$
|
(4,113)
|
|
Agency Fixed-Rate (1)
|
943,074
|
|
|
5,358
|
|
|
(11,697)
|
|
|
(6,339)
|
|
Total Agency RMBS
|
992,966
|
|
|
5,402
|
|
|
(15,854)
|
|
|
(10,452)
|
|
Agency CMBS (2)
|
145,411
|
|
|
5,666
|
|
|
(209)
|
|
|
5,457
|
|
Total Agency
|
1,138,377
|
|
|
11,068
|
|
|
(16,063)
|
|
|
(4,995)
|
|
Non-Agency RMBS
|
168,758
|
|
|
294
|
|
|
(25,821)
|
|
|
(25,527)
|
|
CMBS
|
138,061
|
|
|
1,327
|
|
|
(29,584)
|
|
|
(28,257)
|
|
Total
|
$
|
1,445,196
|
|
|
$
|
12,689
|
|
|
$
|
(71,468)
|
|
|
$
|
(58,779)
|
|
(1)Includes Agency RMBS securities issued by Consolidated SLST (see Note 7).
(2)Includes Agency CMBS securities transferred from the Consolidated K-Series (see Note 7).
Weighted Average Life
Actual maturities of our investment securities available for sale are generally shorter than stated contractual maturities (with contractual maturities up to 39 years), as they are affected by periodic payments and prepayments of principal on the underlying mortgages. As of June 30, 2021 and December 31, 2020, based on management’s estimates, the weighted average life of the Company’s investment securities available for sale portfolio was approximately 5.6 years.
The following table sets forth the weighted average lives of our investment securities available for sale as of June 30, 2021 and December 31, 2020, respectively (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Life
|
June 30, 2021
|
|
December 31, 2020
|
0 to 5 years
|
$
|
248,347
|
|
|
$
|
332,934
|
|
Over 5 to 10 years
|
317,620
|
|
|
320,361
|
|
10+ years
|
41,440
|
|
|
71,431
|
|
Total
|
$
|
607,407
|
|
|
$
|
724,726
|
|
Unrealized Losses in Other Comprehensive Income
The Company evaluated its CECL Securities that were in an unrealized loss position as of June 30, 2021 and December 31, 2020, respectively, and determined that no allowance for credit losses was necessary. The Company did not recognize credit losses through earnings for the three and six months ended June 30, 2021 and 2020.
The following table presents the Company's CECL Securities in an unrealized loss position with no credit losses reported, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of June 30, 2021 and December 31, 2020, respectively (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
Less than 12 months
|
|
Greater than 12 months
|
|
Total
|
|
|
|
Carrying
Value
|
|
Gross
Unrealized
Losses
|
|
Carrying
Value
|
|
Gross
Unrealized
Losses
|
|
Carrying
Value
|
|
Gross
Unrealized
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Agency RMBS
|
$
|
35,532
|
|
|
$
|
(25)
|
|
|
$
|
36,175
|
|
|
$
|
(620)
|
|
|
$
|
71,707
|
|
|
$
|
(645)
|
|
|
|
|
|
CMBS
|
22,488
|
|
|
(382)
|
|
|
—
|
|
|
—
|
|
|
22,488
|
|
|
(382)
|
|
|
|
|
|
Total
|
$
|
58,020
|
|
|
$
|
(407)
|
|
|
$
|
36,175
|
|
|
$
|
(620)
|
|
|
$
|
94,195
|
|
|
$
|
(1,027)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
Less than 12 months
|
|
Greater than 12 months
|
|
Total
|
|
Carrying
Value
|
|
Gross
Unrealized
Losses
|
|
Carrying
Value
|
|
Gross
Unrealized
Losses
|
|
Carrying
Value
|
|
Gross
Unrealized
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Agency RMBS
|
$
|
159,841
|
|
|
$
|
(4,526)
|
|
|
$
|
8,234
|
|
|
$
|
(848)
|
|
|
$
|
168,075
|
|
|
$
|
(5,374)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
159,841
|
|
|
$
|
(4,526)
|
|
|
$
|
8,234
|
|
|
$
|
(848)
|
|
|
$
|
168,075
|
|
|
$
|
(5,374)
|
|
At June 30, 2021, the Company did not intend to sell any of its investment securities available for sale that were in an unrealized loss position, and it was “more likely than not” that the Company would not be required to sell these securities before recovery of their amortized cost basis, which may be at their maturity.
Gross unrealized losses in other comprehensive income on the Company's non-Agency RMBS and CMBS were $0.6 million and $0.4 million, respectively, at June 30, 2021. Credit risk associated with non-Agency RMBS and CMBS is regularly assessed as new information regarding the underlying collateral becomes available and based on updated estimates of cash flows generated by the underlying collateral. In performing its assessment, the Company considers past and expected future performance of the underlying collateral, including timing of expected future cash flows, prepayment rates, default rates, loss severities, delinquency rates, current levels of subordination, volatility of the security's fair value, temporary declines in liquidity for the asset class and interest rate changes since purchase. Based upon the most recent evaluation, the Company does not believe that these unrealized losses are credit related but are rather a reflection of current market yields and/or marketplace bid-ask spreads.
6.Equity Investments, at Fair Value
The Company's equity investments consist of, or have consisted of, preferred equity ownership interests in entities that invest in multi-family properties where the risks and payment characteristics are equivalent to an equity investment (or multi-family preferred equity ownership interests), equity ownership interests in entities that invest in single-family properties and residential loans (or single-family equity ownership interests) and joint venture equity investments in multi-family properties. The Company's equity investments are accounted for under the equity method and are presented at fair value on its condensed consolidated balance sheets as a result of a fair value election. The following table presents the Company's equity investments as of June 30, 2021 and December 31, 2020, respectively (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
Investment Name
|
|
Ownership Interest
|
|
Fair Value
|
|
Ownership Interest
|
|
Fair Value
|
Multi-Family Preferred Equity Ownership Interests
|
|
|
|
|
|
|
|
|
BBA-EP320 II, L.L.C., BBA-Ten10 II, L.L.C., and Lexington on the Green Apartments, L.L.C. (collectively)
|
|
45%
|
|
$
|
12,145
|
|
|
45%
|
|
$
|
11,441
|
|
Somerset Deerfield Investor, LLC
|
|
45%
|
|
19,373
|
|
|
45%
|
|
18,792
|
|
RS SWD Owner, LLC, RS SWD Mitchell Owner, LLC, RS SWD IF Owner, LLC, RS SWD Mullis Owner, LLC, RS SWD JH Mullis Owner, LLC and RS SWD Saltzman Owner, LLC (collectively)
|
|
43%
|
|
5,438
|
|
|
43%
|
|
5,140
|
|
Audubon Mezzanine Holdings, L.L.C. (Series A)
|
|
57%
|
|
12,078
|
|
|
57%
|
|
11,456
|
|
EP 320 Growth Fund, L.L.C. (Series A) and Turnbury Park Apartments - BC, L.L.C. (Series A) (collectively)
|
|
46%
|
|
7,426
|
|
|
46%
|
|
7,234
|
|
Walnut Creek Properties Holdings, L.L.C.
|
|
36%
|
|
9,063
|
|
|
36%
|
|
8,803
|
|
Towers Property Holdings, LLC
|
|
37%
|
|
12,529
|
|
|
37%
|
|
12,119
|
|
Mansions Property Holdings, LLC
|
|
34%
|
|
12,073
|
|
|
34%
|
|
11,679
|
|
Sabina Montgomery Holdings, LLC - Series B and Oakley Shoals Apartments, LLC - Series A (collectively)
|
|
43%
|
|
4,446
|
|
|
43%
|
|
4,320
|
|
Gen1814, LLC - Series A, Highlands - Mtg. Holdings, LLC - Series A, and Polos at Hudson Investments, LLC - Series A (collectively)
|
|
37%
|
|
10,256
|
|
|
37%
|
|
9,966
|
|
Axis Apartments Holdings, LLC, Arbor-Stratford Holdings II, LLC - Series B, Highlands - Mtg. Holdings, LLC - Series B, Oakley Shoals Apartments, LLC - Series C, and Woodland Park Apartments II, LLC (collectively)
|
|
53%
|
|
12,679
|
|
|
53%
|
|
12,337
|
|
DCP Gold Creek, LLC
|
|
44%
|
|
6,546
|
|
|
44%
|
|
6,357
|
|
1122 Chicago DE, LLC
|
|
53%
|
|
7,465
|
|
|
53%
|
|
7,222
|
|
Rigsbee Ave Holdings, LLC
|
|
56%
|
|
11,150
|
|
|
56%
|
|
10,222
|
|
Bighaus, LLC
|
|
42%
|
|
14,984
|
|
|
42%
|
|
14,525
|
|
FF/RMI 20 Midtown, LLC
|
|
51%
|
|
24,649
|
|
|
51%
|
|
23,936
|
|
Lurin-RMI, LLC
|
|
38%
|
|
7,446
|
|
|
38%
|
|
7,216
|
|
Total - Multi-Family Preferred Equity Ownership Interests
|
|
|
|
189,746
|
|
|
|
|
182,765
|
|
|
|
|
|
|
|
|
|
|
Single-Family Equity Ownership Interests
|
|
|
|
|
|
|
|
|
Morrocroft Neighborhood Stabilization Fund II, LP
|
|
11%
|
|
14,951
|
|
|
11%
|
|
13,040
|
|
Headlands Asset Management Fund III (Cayman), LP (Headlands Flagship Opportunity Fund Series I)
|
|
—
|
|
—
|
|
|
49%
|
|
63,290
|
|
Total - Single-Family Equity Ownership Interests
|
|
|
|
14,951
|
|
|
|
|
76,330
|
|
Total
|
|
|
|
$
|
204,697
|
|
|
|
|
$
|
259,095
|
|
The Company records its equity in earnings or losses from its multi-family preferred equity ownership interests under the hypothetical liquidation of book value method of accounting due to the structures and the preferences it receives on the distributions from these entities pursuant to the respective agreements. Under this method, the Company recognizes income or loss in each period based on the change in liquidation proceeds it would receive from a hypothetical liquidation of its investment. Pursuant to the fair value election, changes in fair value of the Company's multi-family preferred equity ownership interests are reported in current period earnings. The following table presents income from multi-family preferred equity ownership interests for the three and six months ended June 30, 2021 and 2020, respectively (dollar amounts in thousands). Income from these investments is presented in income from equity investments in the Company's accompanying condensed consolidated statements of operations. Income from these investments during the three and six months ended June 30, 2021 includes $0.8 million and $0.9 million of net unrealized gains, respectively. Income from these investments during the three and six months ended June 30, 2020 includes $0.2 million of net unrealized gains and $4.1 million of net unrealized losses, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
Investment Name
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
BBA-EP320 II, L.L.C., BBA-Ten10 II, L.L.C., and Lexington on the Green Apartments, L.L.C. (collectively)
|
|
$
|
357
|
|
|
$
|
358
|
|
|
$
|
704
|
|
|
$
|
603
|
|
Somerset Deerfield Investor, LLC
|
|
675
|
|
|
627
|
|
|
1,141
|
|
|
787
|
|
RS SWD Owner, LLC, RS SWD Mitchell Owner, LLC, RS SWD IF Owner, LLC, RS SWD Mullis Owner, LLC, RS SWD JH Mullis Owner, LLC and RS SWD Saltzman Owner, LLC (collectively)
|
|
174
|
|
|
158
|
|
|
298
|
|
|
92
|
|
Audubon Mezzanine Holdings, L.L.C. (Series A)
|
|
357
|
|
|
284
|
|
|
721
|
|
|
175
|
|
EP 320 Growth Fund, L.L.C. (Series A) and Turnbury Park Apartments - BC, L.L.C. (Series A) (collectively)
|
|
240
|
|
|
225
|
|
|
419
|
|
|
124
|
|
Walnut Creek Properties Holdings, L.L.C.
|
|
263
|
|
|
216
|
|
|
541
|
|
|
122
|
|
Towers Property Holdings, LLC
|
|
361
|
|
|
284
|
|
|
740
|
|
|
122
|
|
Mansions Property Holdings, LLC
|
|
348
|
|
|
273
|
|
|
713
|
|
|
118
|
|
Sabina Montgomery Holdings, LLC - Series B and Oakley Shoals Apartments, LLC - Series A (collectively)
|
|
131
|
|
|
107
|
|
|
266
|
|
|
53
|
|
Gen1814, LLC - Series A, Highlands - Mtg. Holdings, LLC - Series A, and Polos at Hudson Investments, LLC - Series A (collectively)
|
|
302
|
|
|
245
|
|
|
616
|
|
|
114
|
|
Axis Apartments Holdings, LLC, Arbor-Stratford Holdings II, LLC - Series B, Highlands - Mtg. Holdings, LLC - Series B, Oakley Shoals Apartments, LLC - Series C, and Woodland Park Apartments II, LLC (collectively)
|
|
374
|
|
|
304
|
|
|
762
|
|
|
135
|
|
DCP Gold Creek, LLC
|
|
197
|
|
|
222
|
|
|
400
|
|
|
102
|
|
1122 Chicago DE, LLC
|
|
225
|
|
|
296
|
|
|
446
|
|
|
236
|
|
Rigsbee Ave Holdings, LLC
|
|
896
|
|
|
425
|
|
|
1,215
|
|
|
279
|
|
Bighaus, LLC
|
|
443
|
|
|
—
|
|
|
879
|
|
|
—
|
|
FF/RMI 20 Midtown, LLC
|
|
758
|
|
|
—
|
|
|
1,504
|
|
|
—
|
|
Lurin-RMI, LLC
|
|
235
|
|
|
—
|
|
|
470
|
|
|
—
|
|
Total Income - Multi-Family Preferred Equity Ownership Interests
|
|
$
|
6,336
|
|
|
$
|
4,024
|
|
|
$
|
11,835
|
|
|
$
|
3,062
|
|
Income from single-family equity ownership interests and joint venture equity investments in multi-family properties is presented in income from equity investments in the Company's accompanying condensed consolidated statements of operations. The following table presents income (loss) from these investments for the three and six months ended June 30, 2021 and 2020, respectively (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
Investment Name
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Single-Family Equity Ownership Interests
|
|
|
|
|
|
|
|
|
Morrocroft Neighborhood Stabilization Fund II, LP
|
|
$
|
998
|
|
|
$
|
347
|
|
|
$
|
2,186
|
|
|
$
|
565
|
|
Headlands Asset Management Fund III (Cayman), LP (Headlands Flagship Opportunity Fund Series I) (1)
|
|
3,273
|
|
|
1,051
|
|
|
(15)
|
|
|
2,051
|
|
Total Income - Single-Family Equity Ownership Interests
|
|
$
|
4,271
|
|
|
$
|
1,398
|
|
|
$
|
2,171
|
|
|
$
|
2,616
|
|
|
|
|
|
|
|
|
|
|
Joint Venture Equity Investments in Multi-Family Properties (2)
|
|
|
|
|
|
|
|
|
The Preserve at Port Royal Venture, LLC (3)
|
|
$
|
—
|
|
|
$
|
(1,310)
|
|
|
$
|
—
|
|
|
$
|
(1,071)
|
|
|
|
|
|
|
|
|
|
|
Total Loss - Joint Venture Equity Investments in Multi-Family Properties
|
|
$
|
—
|
|
|
$
|
(1,310)
|
|
|
$
|
—
|
|
|
$
|
(1,071)
|
|
(1)The Company's equity investment was redeemed during the six months ended June 30, 2021.
(2)Includes net unrealized loss of $1.3 million and $1.1 million for the three and six months ended June 30, 2020, respectively.
(3)The Company's equity investment was redeemed during the year ended December 31, 2020.
7.Use of Special Purpose Entities (SPE) and Variable Interest Entities (VIE)
Financing VIEs
The Company uses SPEs to facilitate transactions that involve securitizing financial assets or re-securitizing previously securitized financial assets. The objective of such transactions may include obtaining non-recourse financing, obtaining liquidity or refinancing the underlying securitized financial assets on improved terms. Securitization involves transferring assets to an SPE to convert all or a portion of those assets into cash before they would have been realized in the normal course of business through the SPE’s issuance of debt or equity instruments. Investors in an SPE usually have recourse only to the assets in the SPE and depending on the overall structure of the transaction, may benefit from various forms of credit enhancement, such as over-collateralization in the form of excess assets in the SPE, priority with respect to receipt of cash flows relative to holders of other debt or equity instruments issued by the SPE, or a line of credit or other form of liquidity agreement that is designed with the objective of ensuring that investors receive principal and/or interest cash flow on the investment in accordance with the terms of their investment agreement.
The Company has entered into financing transactions, including residential loan securitizations and re-securitizations, which required the Company to analyze and determine whether the SPEs that were created to facilitate the transactions are VIEs in accordance with ASC 810 and if so, whether the Company is the primary beneficiary requiring consolidation.
As of December 31, 2020, the Company evaluated its residential loan securitizations and re-securitization of non-Agency RMBS and concluded that the entities created to facilitate each of the financing transactions are VIEs and that the Company is the primary beneficiary of these VIEs (each a “Financing VIE” and collectively, the “Financing VIEs”). As of June 30, 2021, the Company evaluated its residential loan securitizations and concluded that the entities created to facilitate each of the financing transactions are VIEs and that the Company is the primary beneficiary of these VIEs. Accordingly, the Company consolidated the then-outstanding Financing VIEs as of June 30, 2021 and December 31, 2020. During the six months ended June 30, 2021, the Company exercised its right to an optional redemption of its non-Agency RMBS re-securitization with an outstanding principal balance of $14.7 million, returning the non-Agency RMBS held by the re-securitization trust to the Company.
Consolidated SLST
The Company invests in subordinated securities that represent the first loss position of the Freddie Mac-sponsored residential loan securitization from which they were issued, and certain IOs and senior securities issued from the securitization. The Company has evaluated its investments in this securitization trust to determine whether it is a VIE and if so, whether the Company is the primary beneficiary requiring consolidation. The Company has determined that the Freddie Mac-sponsored residential loan securitization trust, which we refer to as Consolidated SLST, is a VIE as of June 30, 2021 and December 31, 2020, and that the Company is the primary beneficiary of the VIE within Consolidated SLST. Accordingly, the Company has consolidated the assets, liabilities, income and expenses of such VIE in the accompanying condensed consolidated financial statements (see Notes 2, 3 and 11). The Company has elected the fair value option on the assets and liabilities held within Consolidated SLST, which requires that changes in valuations in the assets and liabilities of Consolidated SLST be reflected in the Company’s condensed consolidated statements of operations.
The Company does not have any claims to the assets or obligations for the liabilities of Consolidated SLST, other than those securities owned by the Company as of June 30, 2021 and December 31, 2020 with a fair value of $228.3 million and $212.1 million, respectively (see Note 14). The Company’s investments that are included in Consolidated SLST were not included as collateral to any Financing VIE as of June 30, 2021 and December 31, 2020.
During the six months ended June 30, 2020, the Company purchased approximately $40.0 million in additional senior securities issued by Consolidated SLST and subsequently sold its entire investment in the senior securities issued by Consolidated SLST for sales proceeds of approximately $62.6 million at a realized loss of approximately $2.4 million, which is included in realized gains (losses), net on the Company's condensed consolidated statements of operations.
Consolidated K-Series
As of December 31, 2019, the Company invested in multi-family CMBS consisting of POs that represented the first loss position of the Freddie Mac-sponsored multi-family K-series securitizations from which they were issued, and certain IOs and certain senior and mezzanine CMBS securities issued from those securitizations. The Company evaluated these CMBS investments in Freddie Mac-sponsored K-Series securitization trusts to determine whether they were VIEs and if so, whether the Company was the primary beneficiary requiring consolidation. The Company determined that the Freddie Mac-sponsored multi-family K-Series securitization trusts were VIEs, which we refer to as the Consolidated K-Series. The Company also determined that it was the primary beneficiary of each VIE within the Consolidated K-Series and, accordingly, consolidated its assets, liabilities, income and expenses in the accompanying condensed consolidated financial statements (see Note 2). The Company elected the fair value option on the assets and liabilities held within the Consolidated K-Series, which required that changes in valuations in the assets and liabilities of the Consolidated K-Series be reflected in the Company's condensed consolidated statements of operations. Our investment in the Consolidated K-Series was limited to the multi-family CMBS that we owned.
In March 2020, the Company sold its first loss POs and certain mezzanine securities issued by the Consolidated K-Series which resulted in the de-consolidation of each Consolidated K-Series as of the sale date of each first loss PO. These sales, for total proceeds of approximately $555.2 million, resulted in a realized net loss of $54.1 million and reversal of previously recognized net unrealized gains of $168.5 million. The sales also resulted in the de-consolidation of $17.4 billion in multi-family loans held in the Consolidated K-Series and $16.6 billion in Consolidated K-Series CDOs. Also in March 2020, the Company transferred its remaining IOs and mezzanine and senior securities owned in the Consolidated K-Series with a fair value of approximately $237.3 million to investment securities available for sale.
Other Consolidated VIEs
During the six months ended June 30, 2021, the Company invested in two joint venture investments that own multi-family apartment communities, which the Company determined to be VIEs and for which the Company is the primary beneficiary. Accordingly, the Company consolidated the assets, liabilities, income and expenses of these VIEs in the accompanying condensed consolidated financial statements with non-controlling interests for the third-party ownership of the joint ventures' membership interests. The Company accounted for the initial consolidation of the joint venture investments in accordance with asset acquisition provisions of ASC 805, Business Combinations, ("ASC 805"), as substantially all of the fair value of the assets within the entities are concentrated in either a single identifiable asset or group of similar identifiable assets. The initial consolidation of the joint venture entities included operating real estate and lease intangibles in the amounts of $73.5 million and $5.0 million, respectively (included in other assets in the accompanying condensed consolidated balance sheets), mortgages payable, net in the amount of $61.8 million (included in other liabilities in the accompanying condensed consolidated balance sheets) and non-controlling interests in the amount of $1.9 million.
In addition, on November 12, 2020 (the "Changeover Date"), the Company reconsidered its evaluation of its variable interest in a VIE that owns a multi-family apartment community and in which the Company holds a preferred equity investment. The Company determined that it gained the power to direct the activities, and became primary beneficiary, of the VIE on the Changeover Date. Prior to the Changeover Date, the Company accounted for its investment as a preferred equity investment included in multi-family loans. The Company does not have any claims to the assets or obligations for the liabilities of this VIE other than the Company's net investment in the VIE. On the Changeover Date, the Company consolidated this VIE into its consolidated financial statements. The Company accounted for the initial consolidation of the VIE in accordance with asset acquisition provisions of ASC 805 as substantially all of the fair value of the assets within the entity are concentrated in either a single identifiable asset or group of similar identifiable assets. The estimated Changeover Date fair value of the consideration transferred totaled $8.7 million, which consisted of the estimated fair value of the Company's preferred equity investment in the VIE that was determined using assumptions for the underlying contractual cash flows and a discount rate. The initial consolidation of this VIE included operating real estate and lease intangibles in the amounts of $50.5 million and $1.6 million, respectively (included in other assets in the accompanying condensed consolidated balance sheets), a mortgage payable, net in the amount of $36.8 million (included in other liabilities in the accompanying condensed consolidated balance sheets) and a non-controlling interest (representing third-party ownership of the VIE's membership interests) in the amount of $6.8 million.
In analyzing whether the Company is the primary beneficiary of the Financing VIEs, Consolidated SLST, the Consolidated K-Series and other Consolidated VIEs, the Company considered its involvement in each of the VIEs, including the design and purpose of each VIE, and whether its involvement reflected a controlling financial interest that resulted in the Company being deemed the primary beneficiary of the VIEs. In determining whether the Company would be considered the primary beneficiary, the following factors were assessed:
•whether the Company has both the power to direct the activities that most significantly impact the economic performance of the VIE; and
•whether the Company has a right to receive benefits or absorb losses of the entity that could be potentially significant to the VIE.
The following table presents a summary of the assets, liabilities and non-controlling interests of the Company's residential loan securitizations, Consolidated SLST and other Consolidated VIEs as of June 30, 2021 (dollar amounts in thousands). Intercompany balances have been eliminated for purposes of this presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing VIEs
|
|
Other VIEs
|
|
|
|
Residential
Loan Securitizations
|
|
|
|
Consolidated SLST
|
|
Other
|
|
Total
|
Cash and cash equivalents
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
$
|
2,799
|
|
|
$
|
2,799
|
|
Residential loans, at fair value
|
799,363
|
|
|
|
|
1,176,539
|
|
|
—
|
|
|
1,975,902
|
|
|
|
|
|
|
|
|
|
|
|
Operating real estate, net held in Consolidated VIEs (1)
|
—
|
|
|
|
|
—
|
|
|
125,253
|
|
|
125,253
|
|
Other assets
|
94,036
|
|
|
|
|
3,849
|
|
|
10,162
|
|
|
108,047
|
|
Total assets
|
$
|
893,399
|
|
|
|
|
$
|
1,180,388
|
|
|
$
|
138,214
|
|
|
$
|
2,212,001
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligations ($683,724 at amortized cost, net and $948,090 at fair value)
|
$
|
683,724
|
|
|
|
|
$
|
948,090
|
|
|
$
|
—
|
|
|
$
|
1,631,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages payable, net in Consolidated VIEs (2)
|
—
|
|
|
|
|
—
|
|
|
98,611
|
|
|
98,611
|
|
Other liabilities
|
9,618
|
|
|
|
|
2,467
|
|
|
2,179
|
|
|
14,264
|
|
Total liabilities
|
$
|
693,342
|
|
|
|
|
$
|
950,557
|
|
|
$
|
100,790
|
|
|
$
|
1,744,689
|
|
Non-controlling interest in Consolidated VIEs (3)
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
$
|
5,198
|
|
|
$
|
5,198
|
|
Net investment (4)
|
$
|
200,057
|
|
|
|
|
$
|
229,831
|
|
|
$
|
32,226
|
|
|
$
|
462,114
|
|
(1)Included in other assets in the accompanying condensed consolidated balance sheets.
(2)Included in other liabilities in the accompanying condensed consolidated balance sheets.
(3)Represents third party ownership of membership interests in other Consolidated VIEs.
(4)The net investment amount is the maximum amount of the Company's investment that is at risk to loss and represents the difference between total assets and total liabilities held by VIEs, less non-controlling interest, if any.
The following table presents a summary of the assets, liabilities and non-controlling interests of the Company's residential loan securitizations, non-Agency RMBS re-securitization, Consolidated SLST and other Consolidated VIEs as of December 31, 2020 (dollar amounts in thousands). Intercompany balances have been eliminated for purposes of this presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing VIEs
|
|
Other VIEs
|
|
|
|
Residential
Loan Securitizations
|
|
Non-Agency RMBS Re-Securitization
|
|
Consolidated SLST
|
|
Other
|
|
Total
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
462
|
|
|
$
|
462
|
|
Residential loans, at fair value
|
691,451
|
|
|
—
|
|
|
1,266,785
|
|
|
—
|
|
|
1,958,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale, at fair value
|
—
|
|
|
109,140
|
|
|
—
|
|
|
—
|
|
|
109,140
|
|
Operating real estate, net held in Consolidated VIEs (1)
|
—
|
|
|
—
|
|
|
—
|
|
|
50,532
|
|
|
50,532
|
|
Other assets
|
24,959
|
|
|
535
|
|
|
4,075
|
|
|
3,045
|
|
|
32,614
|
|
Total assets
|
$
|
716,410
|
|
|
$
|
109,675
|
|
|
$
|
1,270,860
|
|
|
$
|
54,039
|
|
|
$
|
2,150,984
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligations ($569,323 at amortized cost, net and $1,054,335 at fair value)
|
$
|
554,067
|
|
|
$
|
15,256
|
|
|
$
|
1,054,335
|
|
|
$
|
—
|
|
|
$
|
1,623,658
|
|
Mortgages payable, net in Consolidated VIEs (2)
|
—
|
|
|
—
|
|
|
—
|
|
|
36,752
|
|
|
36,752
|
|
Other liabilities
|
2,610
|
|
|
70
|
|
|
2,781
|
|
|
1,435
|
|
|
6,896
|
|
Total liabilities
|
$
|
556,677
|
|
|
$
|
15,326
|
|
|
$
|
1,057,116
|
|
|
$
|
38,187
|
|
|
$
|
1,667,306
|
|
Non-controlling interest in Consolidated VIEs (3)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,371
|
|
|
$
|
6,371
|
|
Net investment (4)
|
$
|
159,733
|
|
|
$
|
94,349
|
|
|
$
|
213,744
|
|
|
$
|
9,481
|
|
|
$
|
477,307
|
|
(1)Included in other assets in the accompanying condensed consolidated balance sheets.
(2)Included in other liabilities in the accompanying condensed consolidated balance sheets.
(3)Represents third party ownership of membership interests in other Consolidated VIEs.
(4)The net investment amount is the maximum amount of the Company's investment that is at risk to loss and represents the difference between total assets and total liabilities held by VIEs, less non-controlling interest, if any.
The following table presents condensed statements of operations for non-Company-sponsored VIEs, including Consolidated SLST and other Consolidated VIEs, for the three months ended June 30, 2021 (dollar amounts in thousands). Intercompany balances have been eliminated for purposes of this presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated SLST
|
|
Other
|
|
Total
|
Interest income
|
|
$
|
10,479
|
|
|
$
|
—
|
|
|
$
|
10,479
|
|
Interest expense
|
|
7,151
|
|
|
430
|
|
|
7,581
|
|
Total net interest income (expense)
|
|
3,328
|
|
|
(430)
|
|
|
2,898
|
|
|
|
|
|
|
|
|
Unrealized gains, net
|
|
9,793
|
|
|
—
|
|
|
9,793
|
|
Other income
|
|
—
|
|
|
2,150
|
|
|
2,150
|
|
Total non-interest income
|
|
9,793
|
|
|
2,150
|
|
|
11,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general, administrative and operating expenses
|
|
—
|
|
|
3,913
|
|
|
3,913
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
13,121
|
|
|
(2,193)
|
|
|
10,928
|
|
Net loss attributable to non-controlling interest in Consolidated VIEs
|
|
—
|
|
|
1,625
|
|
|
1,625
|
|
Net income (loss) attributable to Company
|
|
$
|
13,121
|
|
|
$
|
(568)
|
|
|
$
|
12,553
|
|
The following table presents condensed statements of operations for the non-Company-sponsored VIEs, including Consolidated SLST and other Consolidated VIEs, for the three months ended June 30, 2020 (dollar amounts in thousands). Intercompany balances have been eliminated for purposes of this presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated SLST
|
|
Other
|
|
Total
|
Interest income
|
|
$
|
11,522
|
|
|
$
|
—
|
|
|
$
|
11,522
|
|
Interest expense
|
|
8,158
|
|
|
—
|
|
|
8,158
|
|
Total net interest income
|
|
3,364
|
|
|
—
|
|
|
3,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains, net
|
|
4,096
|
|
|
—
|
|
|
4,096
|
|
Other income (loss)
|
|
—
|
|
|
(1,780)
|
|
|
(1,780)
|
|
Total non-interest income (loss)
|
|
4,096
|
|
|
(1,780)
|
|
|
2,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general, administrative and operating expenses
|
|
—
|
|
|
(26)
|
|
|
(26)
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
7,460
|
|
|
(1,754)
|
|
|
5,706
|
|
Net loss attributable to non-controlling interest in Consolidated VIEs
|
|
—
|
|
|
876
|
|
|
876
|
|
Net income (loss) attributable to Company
|
|
$
|
7,460
|
|
|
$
|
(878)
|
|
|
$
|
6,582
|
|
The following table presents condensed statements of operations for non-Company-sponsored VIEs, including Consolidated SLST and other Consolidated VIEs, for the six months ended June 30, 2021 (dollar amounts in thousands). Intercompany balances have been eliminated for purposes of this presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated SLST
|
|
Other
|
|
Total
|
Interest income
|
|
$
|
20,797
|
|
|
$
|
—
|
|
|
$
|
20,797
|
|
Interest expense
|
|
14,254
|
|
|
740
|
|
|
14,994
|
|
Total net interest income (expense)
|
|
6,543
|
|
|
(740)
|
|
|
5,803
|
|
|
|
|
|
|
|
|
Unrealized gains, net
|
|
19,018
|
|
|
—
|
|
|
19,018
|
|
Other income
|
|
—
|
|
|
3,645
|
|
|
3,645
|
|
Total non-interest income
|
|
19,018
|
|
|
3,645
|
|
|
22,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general, administrative and operating expenses
|
|
—
|
|
|
6,837
|
|
|
6,837
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
25,561
|
|
|
(3,932)
|
|
|
21,629
|
|
Net loss attributable to non-controlling interest in Consolidated VIEs
|
|
—
|
|
|
3,034
|
|
|
3,034
|
|
Net income (loss) attributable to Company
|
|
$
|
25,561
|
|
|
$
|
(898)
|
|
|
$
|
24,663
|
|
The following table presents condensed statements of operations for the non-Company-sponsored VIEs, including Consolidated K-Series (prior to the sale of first loss POs and de-consolidation of the Consolidated K-Series), Consolidated SLST and other Consolidated VIEs, for the six months ended June 30, 2020 (dollar amounts in thousands). Intercompany balances have been eliminated for purposes of this presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated K-Series
|
|
Consolidated SLST
|
|
Other
|
|
Total
|
Interest income
|
|
$
|
151,841
|
|
|
$
|
23,646
|
|
|
$
|
—
|
|
|
$
|
175,487
|
|
Interest expense
|
|
129,762
|
|
|
16,693
|
|
|
—
|
|
|
146,455
|
|
Total net interest income
|
|
22,079
|
|
|
6,953
|
|
|
—
|
|
|
29,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses, net
|
|
(10,951)
|
|
|
(62,038)
|
|
|
—
|
|
|
(72,989)
|
|
Other income (loss)
|
|
—
|
|
|
—
|
|
|
(2,121)
|
|
|
(2,121)
|
|
Total non-interest income (loss)
|
|
(10,951)
|
|
|
(62,038)
|
|
|
(2,121)
|
|
|
(75,110)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general, administrative and operating expenses
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
11,128
|
|
|
(55,085)
|
|
|
(2,121)
|
|
|
(46,078)
|
|
Net loss attributable to non-controlling interest in Consolidated VIEs
|
|
—
|
|
|
—
|
|
|
1,060
|
|
|
1,060
|
|
Net income (loss) attributable to Company
|
|
$
|
11,128
|
|
|
$
|
(55,085)
|
|
|
$
|
(1,061)
|
|
|
$
|
(45,018)
|
|
Unconsolidated VIEs
As of June 30, 2021 and December 31, 2020, the Company evaluated its investment securities available for sale, preferred equity, mezzanine loan and other equity investments to determine whether they are VIEs and should be consolidated by the Company. Based on a number of factors, the Company determined that, as of June 30, 2021 and December 31, 2020, it does not have a controlling financial interest and is not the primary beneficiary of these VIEs. The following tables present the classification and carrying value of unconsolidated VIEs as of June 30, 2021 and December 31, 2020, respectively (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
Multi-family loans
|
|
Investment
securities
available for
sale, at fair value
|
|
Equity investments
|
|
Total
|
ABS
|
$
|
—
|
|
|
$
|
42,620
|
|
|
$
|
—
|
|
|
$
|
42,620
|
|
Non-Agency RMBS
|
—
|
|
|
3,029
|
|
|
—
|
|
|
3,029
|
|
Preferred equity investments in multi-family properties
|
126,719
|
|
|
—
|
|
|
189,746
|
|
|
316,465
|
|
Equity investments in entities that invest in residential properties
|
—
|
|
|
—
|
|
|
14,951
|
|
|
14,951
|
|
Maximum exposure
|
$
|
126,719
|
|
|
$
|
45,649
|
|
|
$
|
204,697
|
|
|
$
|
377,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Multi-family loans
|
|
Investment
securities
available for
sale, at fair value
|
|
|
|
|
|
|
Equity investments
|
|
Total
|
ABS
|
$
|
—
|
|
|
$
|
43,225
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
43,225
|
|
Preferred equity investments in multi-family properties
|
158,501
|
|
|
—
|
|
|
|
|
|
|
|
182,765
|
|
|
341,266
|
|
Mezzanine loans on multi-family properties
|
5,092
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
5,092
|
|
Equity investments in entities that invest in residential properties and loans
|
—
|
|
|
—
|
|
|
|
|
|
|
|
76,330
|
|
|
76,330
|
|
Maximum exposure
|
$
|
163,593
|
|
|
$
|
43,225
|
|
|
|
|
|
|
|
$
|
259,095
|
|
|
$
|
465,913
|
|
8.Derivative Instruments and Hedging Activities
The Company enters into derivative instruments in connection with its risk management activities. These derivative instruments may include interest rate swaps, swaptions, futures and options on futures. The Company may also purchase or sell “To-Be-Announced,” or TBAs, purchase options on U.S. Treasury futures or invest in other types of mortgage derivative securities. The Company's derivative instruments, comprised of interest rate swaps which were designated as trading instruments, were terminated during the three months ended March 31, 2020. The Company had no outstanding derivatives as of June 30, 2021 and December 31, 2020.
Derivatives Not Designated as Hedging Instruments
The table below summarizes the activity of derivative instruments not designated as hedging instruments for the six months ended June 30, 2020 (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount For the Six Months Ended June 30, 2020
|
Type of Derivative Instrument
|
|
December 31, 2019
|
|
Additions
|
|
Terminations
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
495,500
|
|
|
$
|
—
|
|
|
$
|
(495,500)
|
|
|
$
|
—
|
|
The following table presents the components of realized gains (losses), net and unrealized gains (losses), net related to our derivative instruments that were not designated as hedging instruments, which are included in non-interest income (loss) in our condensed consolidated statements of operations for the six months ended June 30, 2020 (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Realized Gains (Losses)
|
|
Unrealized Gains (Losses)
|
Interest rate swaps
|
|
|
|
|
|
$
|
(73,078)
|
|
|
$
|
28,967
|
|
Total
|
|
|
|
|
|
$
|
(73,078)
|
|
|
$
|
28,967
|
|
The use of derivatives exposes the Company to counterparty credit risks in the event of a default by a counterparty. If a counterparty defaults under the applicable derivative agreement, the Company may be unable to collect payments to which it is entitled under its derivative agreements and may have difficulty collecting the assets it pledged as collateral against such derivatives. All of the Company's interest rate swaps were cleared through CME Group Inc. ("CME Clearing") which is the parent company of the Chicago Mercantile Exchange Inc. CME Clearing serves as the counterparty to every cleared transaction, becoming the buyer to each seller and the seller to each buyer, limiting the credit risk by guaranteeing the financial performance of both parties and netting down exposures.
9.Operating Real Estate Held in Consolidated VIEs, Net
During the six months ended June 30, 2021, the Company invested in two joint venture investments that own multi-family apartment communities, which the Company determined to be VIEs and for which the Company is the primary beneficiary. Accordingly, the Company consolidated the joint venture entities into its condensed consolidated financial statements (see Note 7).
On November 12, 2020, the Company determined that it became the primary beneficiary of a VIE that owns a multi-family apartment community and in which the Company holds a preferred equity investment. Accordingly, on this date, the Company consolidated the VIE into its condensed consolidated financial statements (see Note 7).
The Consolidated VIEs actively lease the apartment units within the multi-family apartment communities to individual tenants at market rates for the production of rental income. These leases are generally leased at a fixed monthly rate with no option for the lessee to purchase the leased unit at any point. Rental income for the three and six months ended June 30, 2021 in the amounts of $2.1 million and $3.6 million, respectively, is included in other income (loss) on the accompanying condensed consolidated statements of operations.
The following is a summary of the real estate investments in Consolidated VIEs, collectively, as of June 30, 2021 and December 31, 2020, respectively (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
Land
|
|
$
|
16,866
|
|
|
$
|
5,400
|
|
Building and improvements
|
|
104,368
|
|
|
43,764
|
|
Furniture, fixture and equipment
|
|
5,693
|
|
|
1,522
|
|
Real estate
|
|
$
|
126,927
|
|
|
$
|
50,686
|
|
Accumulated depreciation (1)
|
|
(1,674)
|
|
|
(154)
|
|
Real estate, net (2)
|
|
$
|
125,253
|
|
|
$
|
50,532
|
|
(1)Depreciation expense for the three and six months ended June 30, 2021 totaled $0.8 million and $1.5 million, respectively, and is included in operating expenses on the accompanying condensed consolidated statements of operations.
(2)Included in other assets on the accompanying condensed consolidated balance sheets.
10.Repurchase Agreements
Residential Loans
The Company has repurchase agreements with three financial institutions to fund the purchase of residential loans. The following table presents detailed information about the Company’s financings under these repurchase agreements and associated residential loans pledged as collateral at June 30, 2021 and December 31, 2020, respectively (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Aggregate Uncommitted Principal Amount
|
|
Outstanding
Repurchase Agreements (1)
|
|
Net Deferred Finance Costs (2)
|
|
Carrying Value of Repurchase Agreements
|
|
Fair Value of Loans Pledged
|
|
Weighted Average Rate
|
|
Weighted Average Months to Maturity (3)
|
June 30, 2021
|
$
|
1,289,237
|
|
|
$
|
341,791
|
|
|
$
|
(1,250)
|
|
|
$
|
340,541
|
|
|
$
|
497,018
|
|
|
2.93
|
%
|
|
6.64
|
December 31, 2020
|
$
|
1,301,389
|
|
|
$
|
407,213
|
|
|
$
|
(1,682)
|
|
|
$
|
405,531
|
|
|
$
|
575,380
|
|
|
2.92
|
%
|
|
11.92
|
(1)Includes a non-mark-to-market repurchase agreement with an outstanding balance of $44.7 million, a rate of 4.00%, and maturity of 8.03 months as of June 30, 2021. Includes non-mark-to-market repurchase agreements with an outstanding balance of $49.8 million, weighted average rate of 4.00%, and weighted average maturity of 8.80 months as of December 31, 2020.
(2)Costs related to the repurchase agreements, which include commitment, underwriting, legal, accounting and other fees, are reflected as deferred charges. Such costs are presented as a deduction from the corresponding debt liability on the Company’s accompanying condensed consolidated balance sheets and are amortized as an adjustment to interest expense using the effective interest method, or straight line-method, if the result is not materially different.
(3)The Company expects to roll outstanding amounts under these repurchase agreements into new repurchase agreements or other financings, or to repay outstanding amounts, prior to or at maturity.
During the terms of the repurchase agreements, proceeds from the residential loans will be applied to pay any price differential and to reduce the aggregate repurchase price of the collateral. The financings under the repurchase agreements with two of the counterparties are subject to margin calls to the extent the market value of the residential loans falls below specified levels and repurchase may be accelerated upon an event of default under the repurchase agreements.
As of June 30, 2021, the Company's repurchase agreements contain various covenants, including among other things, the maintenance of certain amounts of liquidity and total stockholders' equity. The Company is in compliance with such covenants as of June 30, 2021 and through the date of this Quarterly Report on Form 10-Q.
Investment Securities
The Company has repurchase agreements with financial institutions to finance its investment securities portfolio. These repurchase agreements provide short-term financing that bear interest rates typically based on a spread to LIBOR and are secured by the investment securities which they finance and additional collateral pledged, if any. As of June 30, 2021 and December 31, 2020, the Company had no amounts outstanding under repurchase agreements to finance investment securities.
11.Collateralized Debt Obligations
The Company's collateralized debt obligations, or CDOs, are accounted for as financings and are non-recourse debt to the Company. See Note 7 for further discussion regarding the collateral pledged for the Company's CDOs as well as the Company's net investments in the related securitizations.
The following tables present a summary of the Company's CDOs as of June 30, 2021 and December 31, 2020, respectively (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
Outstanding Face Amount
|
|
Carrying Value
|
|
Weighted Average Interest Rate (1)
|
|
Weighted Average Rate of Notes Issued (2)
|
|
Stated Maturity (3)
|
Consolidated SLST (4)
|
$
|
906,703
|
|
|
$
|
948,090
|
|
|
2.75
|
%
|
|
3.53
|
%
|
|
2059
|
Residential loan securitizations
|
688,404
|
|
|
683,724
|
|
|
3.10
|
%
|
|
4.35
|
%
|
|
2025 - 2060
|
Total collateralized debt obligations
|
$
|
1,595,107
|
|
|
$
|
1,631,814
|
|
|
|
|
|
|
|
(1)Weighted average interest rate is calculated using the outstanding face amount and stated interest rate of notes issued by the securitization and not owned by the Company.
(2)Weighted average rate of notes issued is calculated using the outstanding face amount and stated interest rate of all notes issued by the securitizations, including those owned by the Company.
(3)The actual maturity of the Company's CDOs are primarily determined by the rate of principal prepayments on the assets of the issuing entity. The CDOs are also subject to redemption prior to the stated maturity according to the terms of the respective governing documents. As a result, the actual maturity of the CDOs may occur earlier than the stated maturity.
(4)The Company has elected the fair value option for CDOs issued by Consolidated SLST (see Note 14).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Outstanding Face Amount
|
|
Carrying Value
|
|
Weighted Average Interest Rate (1)
|
|
Weighted Average Rate of Notes Issued (2)
|
|
Stated Maturity (3)
|
Consolidated SLST (4)
|
$
|
975,017
|
|
|
$
|
1,054,335
|
|
|
2.75
|
%
|
|
3.53
|
%
|
|
2059
|
Residential loan securitizations
|
557,497
|
|
|
554,067
|
|
|
3.36
|
%
|
|
4.83
|
%
|
|
2025 - 2060
|
Non-Agency RMBS Re-Securitization
|
15,449
|
|
|
15,256
|
|
|
One-month LIBOR plus 5.25%
|
(5)
|
One-month LIBOR plus 5.25%
|
(5)
|
2025
|
Total collateralized debt obligations
|
$
|
1,547,963
|
|
|
$
|
1,623,658
|
|
|
|
|
|
|
|
(1)Weighted average interest rate is calculated using the outstanding face amount and stated interest rate of notes issued by the securitization and not owned by the Company.
(2)Weighted average rate of notes issued is calculated using the outstanding face amount and stated interest rate of all notes issued by the securitizations, including those owned by the Company.
(3)The actual maturity of the Company's CDOs are primarily determined by the rate of principal prepayments on the assets of the issuing entity. The CDOs are also subject to redemption prior to the stated maturity according to the terms of the respective governing documents. As a result, the actual maturity of the CDOs may occur earlier than the stated maturity.
(4)The Company has elected the fair value option for CDOs issued by Consolidated SLST (see Note 14).
(5)Represents the pass-through rate through the payment date in December 2021. Pass-through rate increases to one-month LIBOR plus 7.75% for payment dates in or after January 2022.
The Company's collateralized debt obligations as of June 30, 2021 had stated maturities as follows:
|
|
|
|
|
|
|
|
|
Year ending December 31,
|
|
Total
|
2021
|
|
$
|
—
|
|
2022
|
|
—
|
|
2023
|
|
—
|
|
2024
|
|
—
|
|
2025
|
|
208,613
|
|
2026
|
|
180,000
|
|
Thereafter
|
|
1,206,494
|
|
Total
|
|
$
|
1,595,107
|
|
12. Debt
Convertible Notes
As of June 30, 2021, the Company had $138.0 million aggregate principal amount of its 6.25% Senior Convertible Notes due 2022 (the "Convertible Notes") outstanding. Costs related to the issuance of the Convertible Notes which include underwriting, legal, accounting and other fees, are reflected as deferred charges. The underwriter's discount and deferred charges, net of amortization, are presented as a deduction from the corresponding debt liability on the Company's accompanying condensed consolidated balance sheets in the amount of $1.4 million and $2.7 million as of June 30, 2021 and December 31, 2020, respectively. The underwriter's discount and deferred charges are amortized as an adjustment to interest expense using the effective interest method, resulting in a total cost to the Company of approximately 8.24%.
The Convertible Notes were issued at 96% of the principal amount, bear interest at a rate equal to 6.25% per year, payable semi-annually in arrears on January 15 and July 15 of each year, and mature on January 15, 2022, unless earlier converted or repurchased. The Company does not have the right to redeem the Convertible Notes prior to maturity and no sinking fund is provided for the Convertible Notes. Holders of the Convertible Notes are permitted to convert their Convertible Notes into shares of the Company's common stock at any time prior to the close of business on the business day immediately preceding January 15, 2022. The conversion rate for the Convertible Notes, which is subject to adjustment upon the occurrence of certain specified events, initially equals 142.7144 shares of the Company’s common stock per $1,000 principal amount of Convertible Notes, which is equivalent to a conversion price of approximately $7.01 per share of the Company’s common stock, based on a $1,000 principal amount of the Convertible Notes. The Convertible Notes are senior unsecured obligations of the Company that rank pari passu in right of payment with the Company's senior unsecured indebtedness and rank senior in right of payment to the Company's subordinated debentures and any of its other indebtedness that is expressly subordinated in right of payment to the Convertible Notes.
During the six months ended June 30, 2021, none of the Convertible Notes were converted. As of August 6, 2021, the Company has not been notified, and is not aware, of any event of default under the indenture for the Convertible Notes.
Senior Unsecured Notes
On April 27, 2021, the Company completed the issuance and sale to various qualified institutional investors of $100.0 million aggregate principal amount of its unregistered 5.75% Senior Notes due 2026 (the "Unregistered Notes") in a private placement offering at 100% of the principal amount. The net proceeds to the Company from the sale of the Unregistered Notes, after deducting offering expenses, were approximately $96.3 million. Subsequent to the issuance of the Unregistered Notes, the Company conducted an exchange offer wherein the Company exchanged its registered 5.75% Senior Notes due 2026 (the "Registered Notes", the "Senior Unsecured Notes" jointly with the Unregistered Notes) for an equal principal amount of Unregistered Notes.
As of June 30, 2021, the Company had $100.0 million aggregate principal amount of its Senior Unsecured Notes outstanding. Costs related to the issuance of the Senior Unsecured Notes which include underwriting, legal, accounting and other fees, are reflected as deferred charges. The deferred charges, net of amortization, are presented as a deduction from the corresponding debt liability on the Company's accompanying condensed consolidated balance sheets in the amount of $3.6 million as of June 30, 2021. The deferred charges are amortized as an adjustment to interest expense using the effective interest method, resulting in a total cost to the Company of approximately 6.64%.
The Senior Unsecured Notes bear interest at a rate of 5.75% per year, subject to adjustment from time to time based on changes in the ratings of the Senior Unsecured Notes by one or more nationally recognized statistical rating organizations (a “NRSRO”). The annual interest rate on the Senior Unsecured Notes will increase by (i) 0.50% per year beginning on the first day of any six-month interest period if as of such day the Senior Unsecured Notes have a rating of BB+ or below and above B+ from any NRSRO and (ii) 0.75% per year beginning on the first day of any six-month interest period if as of such day the Senior Unsecured Notes have a rating of B+ or below or no rating from any NRSRO. Interest on the Senior Unsecured Notes will be paid semi-annually in arrears on April 30 and October 30 of each year and the Senior Unsecured Notes will mature on April 30, 2026.
The Company has the right to redeem the Senior Unsecured Notes, in whole or in part, at any time prior to April 30, 2023 at a redemption price equal to 100% of the principal amount of the Senior Unsecured Notes to be redeemed, plus the applicable "make-whole" premium, plus accrued but unpaid interest, if any, to, but excluding, the redemption date. The "make-whole" premium is equal to the present value of all interest that would have accrued between the redemption date and up to, but excluding, April 30, 2023, plus an amount equal to the principal amount of such Senior Unsecured Notes multiplied by 2.875%. On and after April 30, 2023, the Company has the right to redeem the Senior Unsecured Notes, in whole or in part, at 100% of the principal amount of the Senior Unsecured Notes to be redeemed, plus accrued but unpaid interest, if any, to, but excluding, the redemption date, plus an amount equal to the principal amount of such Senior Unsecured Notes multiplied by a date-dependent multiple as detailed in the following table:
|
|
|
|
|
|
|
|
|
Redemption Period
|
|
Multiple
|
April 30, 2023 - April 29, 2024
|
|
2.875
|
%
|
April 30, 2024 - April 29, 2025
|
|
1.4375
|
%
|
April 30, 2025 - April 29, 2026
|
|
—
|
|
No sinking fund is provided for the Senior Unsecured Notes. The Senior Unsecured Notes are senior unsecured obligations of the Company that rank pari passu in right of payment with the Company's Convertible Notes and are structurally subordinated in right of payment to the Company's subordinated debentures.
As of June 30, 2021, the Company's Senior Unsecured Notes contain various covenants including the maintenance of a minimum net asset value, ratio of unencumbered assets to unsecured indebtedness and senior debt service coverage ratio and limit the amount of leverage the Company may utilize and its ability to transfer the Company’s assets substantially as an entirety or merge into or consolidate with another person. The Company is in compliance with such covenants as of June 30, 2021 and through the date of this Quarterly Report on Form 10-Q.
Subordinated Debentures
Subordinated debentures are trust preferred securities that are fully guaranteed by the Company with respect to distributions and amounts payable upon liquidation, redemption or repayment. The following table summarizes the key details of the Company’s subordinated debentures as of June 30, 2021 and December 31, 2020 (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
NYM Preferred Trust I
|
|
NYM Preferred Trust II
|
Principal value of trust preferred securities
|
$
|
25,000
|
|
|
$
|
20,000
|
|
Interest rate
|
Three month LIBOR plus 3.75%, resetting quarterly
|
|
Three month LIBOR plus 3.95%, resetting quarterly
|
Scheduled maturity
|
March 30, 2035
|
|
October 30, 2035
|
As of August 6, 2021, the Company has not been notified, and is not aware, of any event of default under the indenture for the subordinated debentures.
Mortgages Payable in Consolidated VIEs
During the six months ended June 30, 2021, the Company invested in two joint venture investments that own multi-family apartment communities, which the Company determined to be VIEs and for which the Company is the primary beneficiary. Accordingly, the Company consolidated the joint venture entities into its condensed consolidated financial statements (see Note 7).
On November 12, 2020, the Company determined that it became the primary beneficiary of a VIE that owns a multi-family apartment community and in which the Company holds a preferred equity investment. Accordingly, on this date, the Company consolidated the VIE into its condensed consolidated financial statements (see Note 7).
The real estate held by the Consolidated VIEs are subject to mortgages payable which are included in other liabilities on the accompanying condensed consolidated balance sheets and for which the Company has no obligation for repayment as of June 30, 2021. The following table presents detailed information for these mortgages payable in Consolidated VIEs as of June 30, 2021 and December 31, 2020, respectively (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Mortgage Balance
|
|
Net Deferred Finance Cost
|
|
Mortgage Payable, Net
|
|
Stated Maturity
|
|
Weighted Average Interest Rate (1)
|
|
Unfunded Commitment
|
June 30, 2021
|
$
|
99,680
|
|
|
$
|
(1,069)
|
|
|
$
|
98,611
|
|
|
2024 - 2031
|
|
2.90
|
%
|
|
$
|
3,310
|
|
December 31, 2020
|
37,030
|
|
|
(278)
|
|
|
36,752
|
|
|
2028
|
|
2.54
|
%
|
|
—
|
|
(1)Weighted average interest rate is calculated using the outstanding mortgage balance and interest rate as of the date indicated.
Debt Maturities
As of June 30, 2021, maturities for debt on the Company's condensed consolidated balance sheet are as follows (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
Year Ending December 31,
|
|
Total
|
2021
|
|
$
|
—
|
|
2022
|
|
138,000
|
|
2023
|
|
—
|
|
2024
|
|
36,610
|
|
2025
|
|
—
|
|
2026
|
|
100,000
|
|
Thereafter
|
|
108,070
|
|
|
|
$
|
382,680
|
|
13. Commitments and Contingencies
Impact of COVID-19
As further discussed in Note 2, the full extent of the impact of the COVID-19 pandemic on the global economy generally, and the Company's business in particular, is uncertain. As of June 30, 2021, no contingencies have been recorded on our condensed consolidated balance sheets as a result of the COVID-19 pandemic; however, as the global pandemic and its economic implications continue, it may have long-term impacts on the Company's operations, financial condition, liquidity or cash flows.
Outstanding Litigation
The Company is at times subject to various legal proceedings arising in the ordinary course of business. As of June 30, 2021, the Company does not believe that any of its current legal proceedings, individually or in the aggregate, will have a material adverse effect on the Company’s operations, financial condition or cash flows.
14. Fair Value of Financial Instruments
The Company has established and documented processes for determining fair values. Fair value is based upon quoted market prices, where available. If listed prices or quotes are not available, then fair value is based upon internally developed models that primarily use inputs that are market-based or independently sourced market parameters, including interest rate yield curves.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of valuation hierarchy are defined as follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The following describes the valuation methodologies used for the Company’s financial instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.
a.Residential Loans Held in Consolidated SLST and Multi-Family Loans Held in the Consolidated K-Series –Residential loans held in Consolidated SLST and multi-family loans held in the Consolidated K-Series are carried at fair value and classified as Level 3 fair values. In accordance with the practical expedient in ASC 810, the Company determines the fair value of residential loans held in Consolidated SLST and multi-family loans held in the Consolidated K-Series based on the fair value of the CDOs issued by these securitizations and its investment in these securitizations (eliminated in consolidation in accordance with GAAP), as the fair value of these instruments is more observable.
The investment securities (eliminated in consolidation in accordance with GAAP) that we own in these securitizations are generally illiquid and trade infrequently, as such they are classified as Level 3 in the fair value hierarchy. The fair valuation of these investment securities is determined based on an internal valuation model that considers expected cash flows from the underlying loans and yields required by market participants. The significant unobservable inputs used in the measurement of these investments are projected losses within the pool of loans and a discount rate. The discount rate used in determining fair value incorporates default rate, loss severity, prepayment rate and current market interest rates. Significant increases or decreases in these inputs would result in a significantly lower or higher fair value measurement.
b.Residential Loans and Residential Loans Held in Securitization Trusts – The Company’s acquired residential loans are recorded at fair value and classified as Level 3 in the fair value hierarchy. The fair value for residential loans is determined using valuations obtained from a third party that specializes in providing valuations of residential loans. The valuation approach depends on whether the residential loan is considered performing, re-performing or non-performing at the date the valuation is performed.
For performing and re-performing loans, estimates of fair value are derived using a discounted cash flow model, where estimates of cash flows are determined from scheduled payments for each loan, adjusted using forecast prepayment rates, default rates and rates for loss upon default. For non-performing loans, asset liquidation cash flows are derived based on the estimated time to liquidate the loan, expected liquidation costs and home price appreciation. Estimated cash flows for both performing and non-performing loans are discounted at yields considered appropriate to arrive at a reasonable exit price for the asset. Indications of loan value such as actual trades, bids, offers and generic market color may be used in determining the appropriate discount yield.
c.Preferred Equity and Mezzanine Loan Investments – Fair value for preferred equity and mezzanine loan investments is determined by both market comparable pricing and discounted cash flows. The discounted cash flows are based on the underlying contractual cash flows and estimated changes in market yields. The fair value also reflects consideration of changes in credit risk since the origination or time of initial investment. This fair value measurement is generally based on unobservable inputs and, as such, is classified as Level 3 in the fair value hierarchy.
d.Investment Securities Available for Sale – The Company determines the fair value of all of its investment securities available for sale based on discounted cash flows utilizing an internal pricing model. The methodology considers the characteristics of the particular security and its underlying collateral, which are observable inputs. These inputs include, but are not limited to, delinquency status, coupon, loan-to-value ("LTV"), historical performance, periodic and life caps, collateral type, rate reset period, seasoning, prepayment speeds and credit enhancement levels. The Company also considers several observable market data points, including prices obtained from third-party pricing services or dealers who make markets in similar financial instruments, trading activity, and dialogue with market participants. Third-party pricing services typically incorporate commonly used market pricing methods, trading activity observed in the marketplace and other data inputs similar to those used in the Company's internal pricing model. The Company has established thresholds to compare internally generated prices with independent third-party prices and any differences that exceed the thresholds are reviewed both internally and with the third-party pricing service. The Company reconciles and resolves all pricing differences in excess of the thresholds before a final price is established. The Company’s investment securities available for sale are valued based upon readily observable market parameters and are classified as Level 2 fair values.
e.Equity Investments – Fair value for equity investments is determined (i) by the valuation process for preferred equity and mezzanine loan investments as described in c. above or (ii) using the net asset value ("NAV") of the equity investment entity as a practical expedient. These fair value measurements are generally based on unobservable inputs and, as such, are classified as Level 3 in the fair value hierarchy.
f.Derivative Instruments – The Company’s derivative instruments were classified as Level 2 fair values and were measured using valuations reported by the clearing house, CME Clearing, through which these instruments were cleared. The derivatives were presented net of variation margin payments pledged or received.
g.Collateralized Debt Obligations – CDOs issued by Consolidated SLST and the Consolidated K-Series are classified as Level 3 fair values for which fair value is determined by considering several market data points, including prices obtained from third-party pricing services or dealers who make markets in similar financial instruments. The third-party pricing service or dealers incorporate common market pricing methods, including a spread measurement to the Treasury curve or interest rate swap curve as well as underlying characteristics of the particular security. They will also consider contractual cash payments and yields expected by market participants.
Refer to a. above for a description of the fair valuation of CDOs issued by Consolidated SLST and the Consolidated K-Series that are eliminated in consolidation.
Management reviews all prices used in determining fair value to ensure they represent current market conditions. This review includes surveying similar market transactions and comparisons to interest pricing models as well as offerings of like securities by dealers. Any changes to the valuation methodology are reviewed by management to ensure the changes are appropriate. As markets and products develop and the pricing for certain products becomes more transparent, the Company continues to refine its valuation methodologies. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies, or assumptions, to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The Company uses inputs that are current as of each reporting date, which may include periods of market dislocation, during which time price transparency may be reduced. This condition could cause the Company’s financial instruments to be reclassified from Level 2 to Level 3 in future periods.
The following table presents the Company’s financial instruments measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020, respectively, on the Company’s condensed consolidated balance sheets (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured at Fair Value on a Recurring Basis at
|
|
June 30, 2021
|
|
December 31, 2020
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets carried at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential loans
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,226,841
|
|
|
$
|
1,226,841
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,090,930
|
|
|
$
|
1,090,930
|
|
Consolidated SLST
|
—
|
|
|
—
|
|
|
1,176,539
|
|
|
1,176,539
|
|
|
—
|
|
|
—
|
|
|
1,266,785
|
|
|
1,266,785
|
|
Residential loans held in securitization trusts
|
—
|
|
|
—
|
|
|
799,363
|
|
|
799,363
|
|
|
—
|
|
|
—
|
|
|
691,451
|
|
|
691,451
|
|
Multi-family loans
|
—
|
|
|
—
|
|
|
126,719
|
|
|
126,719
|
|
|
—
|
|
|
—
|
|
|
163,593
|
|
|
163,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency RMBS
|
—
|
|
|
131,299
|
|
|
—
|
|
|
131,299
|
|
|
—
|
|
|
139,395
|
|
|
—
|
|
|
139,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Agency RMBS
|
—
|
|
|
287,988
|
|
|
—
|
|
|
287,988
|
|
|
—
|
|
|
355,666
|
|
|
—
|
|
|
355,666
|
|
CMBS
|
—
|
|
|
145,500
|
|
|
—
|
|
|
145,500
|
|
|
—
|
|
|
186,440
|
|
|
—
|
|
|
186,440
|
|
ABS
|
—
|
|
|
42,620
|
|
|
—
|
|
|
42,620
|
|
|
—
|
|
|
43,225
|
|
|
—
|
|
|
43,225
|
|
Equity investments
|
—
|
|
|
—
|
|
|
204,697
|
|
|
204,697
|
|
|
—
|
|
|
—
|
|
|
259,095
|
|
|
259,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
—
|
|
|
$
|
607,407
|
|
|
$
|
3,534,159
|
|
|
$
|
4,141,566
|
|
|
$
|
—
|
|
|
$
|
724,726
|
|
|
$
|
3,471,854
|
|
|
$
|
4,196,580
|
|
Liabilities carried at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated SLST CDOs
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
948,090
|
|
|
$
|
948,090
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,054,335
|
|
|
$
|
1,054,335
|
|
Total
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
948,090
|
|
|
$
|
948,090
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,054,335
|
|
|
$
|
1,054,335
|
|
The following tables detail changes in valuation for the Level 3 assets for the six months ended June 30, 2021 and 2020, respectively (dollar amounts in thousands):
Level 3 Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
Residential loans
|
|
|
|
|
|
|
Residential loans
|
|
Consolidated SLST
|
|
Residential loans held in securitization trusts
|
|
Multi-family loans
|
|
Equity investments
|
|
Total
|
Balance at beginning of period
|
$
|
1,090,930
|
|
|
$
|
1,266,785
|
|
|
$
|
691,451
|
|
|
$
|
163,593
|
|
|
$
|
259,095
|
|
|
$
|
3,471,854
|
|
Total gains/(losses) (realized/unrealized)
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
14,494
|
|
|
(21,788)
|
|
|
21,105
|
|
|
10,853
|
|
|
14,006
|
|
|
38,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers out (1)
|
(1,259)
|
|
|
—
|
|
|
(1,415)
|
|
|
—
|
|
|
—
|
|
|
(2,674)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer to securitization trust (2)
|
(160,623)
|
|
|
—
|
|
|
160,623
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Contributions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
320
|
|
|
320
|
|
Paydowns/Distributions
|
(306,209)
|
|
|
(68,458)
|
|
|
(70,025)
|
|
|
(47,727)
|
|
|
(68,724)
|
|
|
(561,143)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
(15,568)
|
|
|
—
|
|
|
(2,376)
|
|
|
—
|
|
|
—
|
|
|
(17,944)
|
|
Purchases
|
605,076
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
605,076
|
|
Balance at the end of period
|
$
|
1,226,841
|
|
|
$
|
1,176,539
|
|
|
$
|
799,363
|
|
|
$
|
126,719
|
|
|
$
|
204,697
|
|
|
$
|
3,534,159
|
|
(1)Transfers out of Level 3 assets include the transfer of residential loans to real estate owned.
(2)In May 2021, the Company completed a securitization of certain business purpose loans (see Note 7 for further discussion of the Company's residential loan securitizations).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
Residential loans
|
|
Multi-family loans
|
|
|
|
|
|
Residential loans
|
|
Consolidated SLST
|
|
Residential loans held in securitization trusts
|
|
Preferred equity and mezzanine loan investments
|
|
Consolidated K-Series
|
|
Equity investments
|
|
Total
|
Balance at beginning of period
|
$
|
1,429,754
|
|
|
$
|
1,328,886
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17,816,746
|
|
|
$
|
83,882
|
|
|
$
|
20,659,268
|
|
Total (losses)/gains (realized/unrealized)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
(55,144)
|
|
|
(15,279)
|
|
|
(1,730)
|
|
|
4,866
|
|
|
41,795
|
|
|
4,606
|
|
|
(20,886)
|
|
Transfers in (1)
|
164,279
|
|
|
—
|
|
|
46,572
|
|
|
182,465
|
|
|
—
|
|
|
107,477
|
|
|
500,793
|
|
Transfers out (2) (3)
|
(3,953)
|
|
|
—
|
|
|
(349)
|
|
|
—
|
|
|
(237,297)
|
|
|
—
|
|
|
(241,599)
|
|
Contributions
|
—
|
|
|
—
|
|
|
—
|
|
|
8,440
|
|
|
—
|
|
|
22,106
|
|
|
30,546
|
|
Paydowns/Distributions
|
(155,135)
|
|
|
(38,757)
|
|
|
(3,800)
|
|
|
(14,921)
|
|
|
(239,796)
|
|
|
(3,782)
|
|
|
(456,191)
|
|
Recovery of charge-off
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
35
|
|
|
—
|
|
|
35
|
|
Sales (3)
|
(93,755)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,381,483)
|
|
|
—
|
|
|
(17,475,238)
|
|
Purchases
|
156,639
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
156,639
|
|
Balance at the end of period
|
$
|
1,442,685
|
|
|
$
|
1,274,850
|
|
|
$
|
40,693
|
|
|
$
|
180,850
|
|
|
$
|
—
|
|
|
$
|
214,289
|
|
|
$
|
3,153,367
|
|
(1)As of January 1, 2020, the Company elected to account for all residential loans, residential loans held in securitization trusts, equity investments and preferred equity and mezzanine loan investments using the fair value option.
(2)Transfers out of Level 3 assets include the transfer of residential loans to real estate owned.
(3)During the six months ended June 30, 2020, the Company sold first loss PO securities included in the Consolidated K-Series and, as a result, de-consolidated multi-family loans held in the Consolidated K-Series and transferred its remaining securities owned in the Consolidated K-Series to investment securities available for sale (see Note 7).
The following tables detail changes in valuation for the Level 3 liabilities for the six months ended June 30, 2021 and 2020, respectively (dollar amounts in thousands):
Level 3 Liabilities:
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
Consolidated SLST CDOs
|
Balance at beginning of period
|
$
|
1,054,335
|
|
Total gains (realized/unrealized)
|
|
Included in earnings
|
(37,931)
|
|
|
|
|
|
Paydowns
|
(68,314)
|
|
|
|
|
|
Balance at the end of period
|
$
|
948,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
|
Collateralized debt obligations
|
|
|
|
|
|
Consolidated K-Series
|
|
Consolidated SLST
|
|
Total
|
|
|
Balance at beginning of period
|
$
|
16,724,451
|
|
|
$
|
1,052,829
|
|
|
$
|
17,777,280
|
|
|
|
Total losses/(gains) (realized/unrealized)
|
|
|
|
|
|
|
|
Included in earnings
|
35,018
|
|
|
52,420
|
|
|
87,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paydowns
|
(147,376)
|
|
|
(39,242)
|
|
|
(186,618)
|
|
|
|
Sales (1)
|
(16,612,093)
|
|
|
22,226
|
|
|
(16,589,867)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of period
|
$
|
—
|
|
|
$
|
1,088,233
|
|
|
$
|
1,088,233
|
|
|
|
(1)During the six months ended June 30, 2020, the Company sold first loss PO securities included in the Consolidated K-Series and, as a result, de-consolidated the Consolidated K-Series CDOs (see Note 7). Also includes the Company's net sales of senior securities issued by Consolidated SLST during the six months ended June 30, 2020 (see Note 7).
The following table discloses quantitative information regarding the significant unobservable inputs used in the valuation of our Level 3 assets and liabilities measured at fair value (dollar amounts in thousands, except input values):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
Fair Value
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Weighted Average
|
|
Range
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential loans and residential loans held in securitization trusts (1)
|
|
$1,891,087
|
|
Discounted cash flow
|
|
Lifetime CPR
|
|
9.6%
|
|
—
|
-
|
54.7%
|
|
|
|
|
|
|
Lifetime CDR
|
|
0.8%
|
|
—
|
-
|
20.3%
|
|
|
|
|
|
|
Loss severity
|
|
11.8%
|
|
—
|
-
|
100.0%
|
|
|
|
|
|
|
Yield
|
|
4.9%
|
|
2.4%
|
-
|
40.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$135,117
|
|
Liquidation model
|
|
Annual home price appreciation
|
|
1.0%
|
|
—
|
-
|
18.0%
|
|
|
|
|
|
|
Liquidation timeline (months)
|
|
30
|
|
8
|
-
|
53
|
|
|
|
|
|
|
Property value
|
|
$608,523
|
|
$13,000
|
-
|
$4,000,000
|
|
|
|
|
|
|
Yield
|
|
7.2%
|
|
7.0%
|
-
|
29.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated SLST (3)
|
|
$1,176,539
|
|
|
|
Liability price
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$3,202,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family loans (1)
|
|
$126,719
|
|
Discounted cash flow
|
|
Discount rate
|
|
11.5%
|
|
11.0%
|
-
|
19.5%
|
|
|
|
|
|
|
Months to assumed redemption
|
|
35
|
|
1
|
-
|
60
|
|
|
|
|
|
|
Loss severity
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity investments (1) (2)
|
|
$189,746
|
|
Discounted cash flow
|
|
Discount rate
|
|
11.7%
|
|
11.0%
|
-
|
18.3%
|
|
|
|
|
|
|
Months to assumed redemption
|
|
35
|
|
3
|
-
|
57
|
|
|
|
|
|
|
Loss severity
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated SLST CDOs (3) (4)
|
|
$948,090
|
|
Discounted cash flow
|
|
Yield
|
|
2.8%
|
|
1.9%
|
-
|
21.6%
|
|
|
|
|
|
|
Collateral prepayment rate
|
|
5.5%
|
|
2.4%
|
-
|
6.2%
|
|
|
|
|
|
|
Collateral default rate
|
|
2.0%
|
|
—
|
-
|
8.6%
|
|
|
|
|
|
|
Loss severity
|
|
19.4%
|
|
—
|
-
|
22.1%
|
(1)Weighted average amounts are calculated based on the weighted average fair value of the assets.
(2)Equity investments does not include equity ownership interests in entities that invest in residential properties. The fair value of these investments is determined using the net asset value ("NAV") as a practical expedient.
(3)In accordance with the practical expedient in ASC 810, the Company determines the fair value of the residential loans held in Consolidated SLST based on the fair value of the CDOs issued by Consolidated SLST, including investment securities we own, as the fair value of these instruments is more observable. At June 30, 2021, the fair value of investment securities we own in Consolidated SLST amounts to $228.3 million.
(4)Weighted average yield calculated based on the weighted average fair value of the liabilities. Weighted average collateral prepayment rate, weighted average collateral default rate, and weighted average loss severity are calculated based on the weighted average unpaid balance of the liabilities.
The following table details the changes in unrealized gains (losses) included in earnings for the three and six months ended June 30, 2021 and 2020, respectively, for our Level 3 assets and liabilities held as of June 30, 2021 and 2020, respectively (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Assets
|
|
|
|
|
|
|
|
Residential loans:
|
|
|
|
|
|
|
|
Residential loans (1)
|
$
|
3,752
|
|
|
$
|
39,991
|
|
|
$
|
12,192
|
|
|
$
|
(36,303)
|
|
Consolidated SLST (1)
|
6,471
|
|
|
75,052
|
|
|
(18,872)
|
|
|
(13,049)
|
|
Residential loans held in securitization trusts (1)
|
6,030
|
|
|
59
|
|
|
18,611
|
|
|
(1,641)
|
|
Multi-family loans (1)
|
460
|
|
|
(127)
|
|
|
665
|
|
|
(5,686)
|
|
Equity investments (2)
|
805
|
|
|
(1,108)
|
|
|
927
|
|
|
(5,130)
|
|
Liabilities
|
|
|
|
|
|
|
|
Consolidated SLST CDOs (1)
|
3,322
|
|
|
(70,956)
|
|
|
37,890
|
|
|
(48,990)
|
|
(1)Presented in unrealized gains (losses), net on the Company's condensed consolidated statements of operations.
(2)Presented in income from equity investments on the Company's condensed consolidated statements of operations.
The following table presents the carrying value and estimated fair value of the Company’s financial instruments at June 30, 2021 and December 31, 2020, respectively (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
Fair Value
Hierarchy Level
|
|
Carrying
Value
|
|
Estimated
Fair Value
|
|
Carrying
Value
|
|
Estimated
Fair Value
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
Level 1
|
|
$
|
324,927
|
|
|
$
|
324,927
|
|
|
$
|
293,183
|
|
|
$
|
293,183
|
|
Residential loans
|
Level 3
|
|
3,202,743
|
|
|
3,202,743
|
|
|
3,049,166
|
|
|
3,049,166
|
|
Multi-family loans
|
Level 3
|
|
126,719
|
|
|
126,719
|
|
|
163,593
|
|
|
163,593
|
|
Investment securities available for sale
|
Level 2
|
|
607,407
|
|
|
607,407
|
|
|
724,726
|
|
|
724,726
|
|
Equity investments
|
Level 3
|
|
204,697
|
|
|
204,697
|
|
|
259,095
|
|
|
259,095
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
Repurchase agreements
|
Level 2
|
|
340,541
|
|
|
340,541
|
|
|
405,531
|
|
|
405,531
|
|
Collateralized debt obligations:
|
|
|
|
|
|
|
|
|
|
Residential loan securitizations at amortized cost, net
|
Level 3
|
|
683,724
|
|
|
688,491
|
|
|
554,067
|
|
|
561,329
|
|
Consolidated SLST
|
Level 3
|
|
948,090
|
|
|
948,090
|
|
|
1,054,335
|
|
|
1,054,335
|
|
Non-Agency RMBS re-securitization
|
Level 2
|
|
—
|
|
|
—
|
|
|
15,256
|
|
|
15,472
|
|
Subordinated debentures
|
Level 3
|
|
45,000
|
|
|
42,615
|
|
|
45,000
|
|
|
36,871
|
|
Convertible notes
|
Level 2
|
|
136,586
|
|
|
140,416
|
|
|
135,327
|
|
|
137,716
|
|
Senior unsecured notes
|
Level 2
|
|
96,380
|
|
|
103,045
|
|
|
—
|
|
|
—
|
|
In addition to the methodology to determine the fair value of the Company’s financial assets and liabilities reported at fair value, as previously described, the following methods and assumptions were used by the Company in arriving at the fair value of the Company’s other financial instruments in the table immediately above:
a.Cash and cash equivalents – Estimated fair value approximates the carrying value of such assets.
b.Repurchase agreements – The fair value of these repurchase agreements approximates cost as they are short term in nature.
c.Residential loan securitizations at amortized cost, net and non-Agency RMBS re-securitization – The fair value of these CDOs is based on discounted cash flows as well as market pricing on comparable obligations.
d.Subordinated debentures – The fair value of these subordinated debentures is based on discounted cash flows using management’s estimate for market yields.
e.Convertible notes and senior unsecured notes – The fair value is based on quoted prices provided by dealers who make markets in similar financial instruments.
15. Stockholders' Equity
(a) Preferred Stock
The Company had 200,000,000 authorized shares of preferred stock, par value $0.01 per share, with 20,872,888 shares issued and outstanding as of June 30, 2021 and December 31, 2020.
As of June 30, 2021, the Company has issued four series of cumulative redeemable preferred stock (the “Preferred Stock”): 7.75% Series B Cumulative Redeemable Preferred Stock (“Series B Preferred Stock”), 7.875% Series C Cumulative Redeemable Preferred Stock (“Series C Preferred Stock”), 8.00% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (“Series D Preferred Stock”) and 7.875% Series E Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (“Series E Preferred Stock”). Each series of the Preferred Stock is senior to the Company’s common stock with respect to dividends and distributions upon liquidation, dissolution or winding up.
The following table summarizes the Company’s Preferred Stock issued and outstanding as of June 30, 2021 and December 31, 2020 (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class of Preferred Stock
|
|
Shares Authorized
|
|
Shares Issued and Outstanding
|
|
Carrying Value
|
|
Liquidation Preference
|
|
Contractual Rate (1)
|
|
Optional Redemption Date (2)
|
|
Fixed-to-Floating Rate Conversion Date (1)(3)
|
|
Floating Annual Rate (4)
|
Fixed Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B
|
|
6,000,000
|
|
|
3,156,087
|
|
|
$
|
76,180
|
|
|
$
|
78,902
|
|
|
7.750
|
%
|
|
June 4, 2018
|
|
|
|
|
Series C
|
|
6,600,000
|
|
|
4,181,807
|
|
|
101,102
|
|
|
104,545
|
|
|
7.875
|
%
|
|
April 22, 2020
|
|
|
|
|
Fixed-to-Floating Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series D
|
|
8,400,000
|
|
|
6,123,495
|
|
|
148,134
|
|
|
153,087
|
|
|
8.000
|
%
|
|
October 15, 2027
|
|
October 15, 2027
|
|
3M LIBOR + 5.695%
|
Series E
|
|
9,900,000
|
|
|
7,411,499
|
|
|
179,349
|
|
|
185,288
|
|
|
7.875
|
%
|
|
January 15, 2025
|
|
January 15, 2025
|
|
3M LIBOR + 6.429%
|
Total
|
|
30,900,000
|
|
|
20,872,888
|
|
|
$
|
504,765
|
|
|
$
|
521,822
|
|
|
|
|
|
|
|
|
|
(1)Each series of fixed rate preferred stock is entitled to receive a dividend at the contractual rate shown, respectively, per year on its $25 liquidation preference. Each series of fixed-to-floating rate preferred stock is entitled to receive a dividend at the contractual rate shown, respectively, per year on its $25 liquidation preference up to, but excluding, the fixed-to-floating rate conversion date.
(2)Each series of Preferred Stock is not redeemable by the Company prior to the respective optional redemption date disclosed except under circumstances intended to preserve the Company’s qualification as a REIT and except upon occurrence of a Change in Control (as defined in the Articles Supplementary designating the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, respectively). Refer to Note 20 for disclosure regarding the optional redemption of the Company's Series C Preferred Stock.
(3)Beginning on the respective fixed-to-floating rate conversion date, each of the Series D Preferred Stock and Series E Preferred Stock is entitled to receive a dividend on a floating rate basis according to the terms disclosed in footnote (4) below.
(4)On and after the fixed-to-floating rate conversion date, each of the Series D Preferred Stock and Series E Preferred Stock is entitled to receive a dividend at a floating rate equal to three-month LIBOR plus the respective spread disclosed above per year on its $25 liquidation preference.
For each series of Preferred Stock, on or after the respective optional redemption date disclosed, the Company may, at its option, redeem the respective series of Preferred Stock in whole or in part, at any time or from time to time, for cash at a redemption price equal to $25.00 per share, plus any accumulated and unpaid dividends. In addition, upon the occurrence of a change of control, the Company may, at its option, redeem the Preferred Stock in whole or in part, within 120 days after the first date on which such change of control occurred, for cash at a redemption price of $25.00 per share, plus any accumulated and unpaid dividends.
The Preferred Stock generally do not have any voting rights, subject to an exception in the event the Company fails to pay dividends on such stock for six or more quarterly periods (whether or not consecutive). Under such circumstances, holders of the Preferred Stock voting together as a single class with the holders of all other classes or series of our preferred stock upon which like voting rights have been conferred and are exercisable and which are entitled to vote as a class with the Preferred Stock will be entitled to vote to elect two additional directors to the Company’s Board of Directors (the "Board") until all unpaid dividends have been paid or declared and set apart for payment. In addition, certain material and adverse changes to the terms of any series of the Preferred Stock cannot be made without the affirmative vote of holders of at least two-thirds of the outstanding shares of the series of Preferred Stock whose terms are being changed.
The Preferred Stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and will remain outstanding indefinitely unless repurchased or redeemed by the Company or converted into the Company’s common stock in connection with a change of control.
Upon the occurrence of a change of control, each holder of Preferred Stock will have the right (unless the Company has exercised its right to redeem the Preferred Stock) to convert some or all of the Preferred Stock held by such holder into a number of shares of our common stock per share of the applicable series of Preferred Stock determined by a formula, in each case, on the terms and subject to the conditions described in the applicable Articles Supplementary for such series.
(b) Dividends on Preferred Stock
From the time of original issuance of the Preferred Stock through December 31, 2019, the Company declared and paid all required quarterly dividends on such series of stock. On March 23, 2020, the Company announced that it had suspended quarterly dividends on its Preferred Stock that would have been payable in April 2020 to focus on conserving capital during the difficult market conditions resulting from the COVID-19 pandemic. On June 15, 2020, the Company reinstated the payment of dividends on its Preferred Stock and declared dividends in arrears for the quarterly period that began on January 15, 2020 and ended on April 14, 2020. The following table presents the relevant information with respect to quarterly cash dividends declared on the Preferred Stock commencing January 1, 2020 through June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Dividend Per Share
|
Declaration Date
|
|
Record Date
|
|
Payment Date
|
|
Series B Preferred Stock
|
|
Series C Preferred Stock
|
|
Series D Preferred Stock
|
|
Series E Preferred Stock
|
|
June 14, 2021
|
|
July 1, 2021
|
|
July 15, 2021
|
|
$
|
0.484375
|
|
|
$
|
0.4921875
|
|
|
$
|
0.50
|
|
|
$
|
0.4921875
|
|
|
March 15, 2021
|
|
April 1, 2021
|
|
April 15, 2021
|
|
0.484375
|
|
|
0.4921875
|
|
|
0.50
|
|
|
0.4921875
|
|
|
December 7, 2020
|
|
January 1, 2021
|
|
January 15, 2021
|
|
0.484375
|
|
|
0.4921875
|
|
|
0.50
|
|
|
0.4921875
|
|
|
September 14, 2020
|
|
October 1, 2020
|
|
October 15, 2020
|
|
0.484375
|
|
|
0.4921875
|
|
|
0.50
|
|
|
0.4921875
|
|
|
June 15, 2020
|
|
July 1, 2020
|
|
July 15, 2020
|
|
0.968750
|
|
(1)
|
0.9843750
|
|
(1)
|
1.00
|
|
(1)
|
0.9843750
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Preferred Stock dividends declared on June 15, 2020 included cash dividends in arrears for the quarterly period that began on January 15, 2020 and ended on April 14, 2020 and cash dividends for the quarterly period that began on April 15, 2020 and ended on July 14, 2020.
(c) Dividends on Common Stock
On March 23, 2020, the Company announced that it had suspended its quarterly dividend on common stock for the first quarter of 2020 to focus on conserving capital during the difficult market conditions resulting from the COVID-19 pandemic. As a result, the Company did not declare a cash dividend on its common stock during the three months ended March 31, 2020. Beginning in the second quarter of 2020, the Company has declared a regular quarterly cash dividend in each quarterly period through June 30, 2021. The following table presents cash dividends declared by the Company on its common stock with respect to the quarterly periods commencing January 1, 2020 and ended June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Declaration Date
|
|
Record Date
|
|
Payment Date
|
|
Cash Dividend Per Share
|
Second Quarter 2021
|
|
June 14, 2021
|
|
June 24, 2021
|
|
July 26, 2021
|
|
$
|
0.100
|
|
First Quarter 2021
|
|
March 15, 2021
|
|
March 25, 2021
|
|
April 26, 2021
|
|
0.100
|
|
Fourth Quarter 2020
|
|
December 7, 2020
|
|
December 17, 2020
|
|
January 25, 2021
|
|
0.100
|
|
Third Quarter 2020
|
|
September 14, 2020
|
|
September 24, 2020
|
|
October 26, 2020
|
|
0.075
|
|
Second Quarter 2020
|
|
June 15, 2020
|
|
July 1, 2020
|
|
July 27, 2020
|
|
0.050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d) Equity Distribution Agreements
On August 10, 2017, the Company entered into an equity distribution agreement (the “Common Equity Distribution Agreement”) with Credit Suisse Securities (USA) LLC (“Credit Suisse”), as sales agent, pursuant to which the Company may offer and sell shares of its common stock, par value $0.01 per share, having a maximum aggregate sales price of up to $100.0 million, from time to time through Credit Suisse. On September 10, 2018, the Company entered into an amendment to the Common Equity Distribution Agreement that increased the maximum aggregate sales price to $177.1 million. The Company has no obligation to sell any of the shares of common stock issuable under the Common Equity Distribution Agreement and may at any time suspend solicitations and offers under the Common Equity Distribution Agreement.
There were no shares of the Company's common stock issued under the Common Equity Distribution Agreement during the three and six months ended June 30, 2021 and 2020. As of June 30, 2021, approximately $72.5 million of common stock remains available for issuance under the Common Equity Distribution Agreement.
On March 29, 2019, the Company entered into an equity distribution agreement (the "Preferred Equity Distribution Agreement") with JonesTrading Institutional Services LLC, as sales agent, pursuant to which the Company may offer and sell shares of the Company's Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, having a maximum aggregate gross sales price of up to $50.0 million, from time to time through the sales agent. On November 27, 2019, the Company entered into an amendment to the Preferred Equity Distribution Agreement that increased the maximum aggregate sales price to $131.5 million. The amendment also provided for the inclusion of sales of the Company’s Series E Preferred Stock. The Company has no obligation to sell any of the shares of Preferred Stock issuable under the Preferred Equity Distribution Agreement and may at any time suspend solicitations and offers under the Preferred Equity Distribution Agreement.
There were no shares of Preferred Stock issued under the Preferred Equity Distribution Agreement during the three and six months ended June 30, 2021 and 2020. As of June 30, 2021, approximately $82.4 million of Preferred Stock remains available for issuance under the Preferred Equity Distribution Agreement.
16. Earnings (Loss) Per Common Share
The Company calculates basic earnings (loss) per common share by dividing net income (loss) attributable to the Company's common stockholders for the period by weighted-average shares of common stock outstanding for that period. Diluted earnings (loss) per common share takes into account the effect of dilutive instruments, such as convertible notes, performance share units ("PSUs") and restricted stock units ("RSUs"), and the number of incremental shares that are to be added to the weighted-average number of shares outstanding.
During the three and six months ended June 30, 2021, the Company's Convertible Notes were determined to be anti-dilutive and were not included in the calculation of diluted earnings (loss) per common share. During the three months ended June 30, 2020, the Company's Convertible Notes were determined to be dilutive and were included in the calculation of diluted earnings per common share under the "if-converted" method. Under this method, the periodic interest expense (net of applicable taxes) for dilutive notes is added back to the numerator and the number of shares that the notes are entitled to (if converted, regardless of whether they are in or out of the money) are included in the denominator. During the six months ended June 30, 2020, the Company's Convertible Notes were determined to be anti-dilutive and were not included in the calculation of diluted loss per common share.
During the three and six months ended June 30, 2021, certain of the PSUs and RSUs awarded under the Company's 2017 Equity Incentive Plan (as amended, the "2017 Plan") were determined to be dilutive and were included in the calculation of diluted earnings per common share under the treasury stock method. Under this method, common equivalent shares are calculated assuming that target PSUs and outstanding RSUs vest according to the respective PSU and RSU agreements and unrecognized compensation cost is used to repurchase shares of the Company’s outstanding common stock at the average market price during the reported period. During the three months ended June 30, 2020, certain of the PSUs and RSUs awarded under the 2017 Plan were determined to be dilutive. During the six months ended June 30, 2020, the PSUs and RSUs awarded under the 2017 Plan were determined to be anti-dilutive and were not included in the calculation of diluted loss per common share.
The following table presents the computation of basic and diluted earnings (loss) per common share for the periods indicated (dollar and share amounts in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Basic Earnings (Loss) per Common Share:
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Company
|
|
$
|
53,240
|
|
|
$
|
117,813
|
|
|
$
|
105,448
|
|
|
$
|
(470,570)
|
|
Less: Preferred Stock dividends (1)
|
|
(10,296)
|
|
|
(10,296)
|
|
|
(20,593)
|
|
|
(20,593)
|
|
Net income (loss) attributable to Company's common stockholders
|
|
$
|
42,944
|
|
|
$
|
107,517
|
|
|
$
|
84,855
|
|
|
$
|
(491,163)
|
|
Basic weighted average common shares outstanding
|
|
379,299
|
|
|
377,465
|
|
|
379,091
|
|
|
364,189
|
|
Basic Earnings (Loss) per Common Share
|
|
$
|
0.11
|
|
|
$
|
0.28
|
|
|
$
|
0.22
|
|
|
$
|
(1.35)
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings (Loss) per Common Share:
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Company
|
|
$
|
53,240
|
|
|
$
|
117,813
|
|
|
$
|
105,448
|
|
|
$
|
(470,570)
|
|
Less: Preferred Stock dividends (1)
|
|
(10,296)
|
|
|
(10,296)
|
|
|
(20,593)
|
|
|
(20,593)
|
|
Add back: Interest expense on Convertible Notes for the period, net of tax
|
|
—
|
|
|
2,665
|
|
|
—
|
|
|
—
|
|
Net income (loss) attributable to Company's common stockholders
|
|
$
|
42,944
|
|
|
$
|
110,182
|
|
|
$
|
84,855
|
|
|
$
|
(491,163)
|
|
Weighted average common shares outstanding
|
|
379,299
|
|
|
377,465
|
|
|
379,091
|
|
|
364,189
|
|
Net effect of assumed Convertible Notes conversion to common shares
|
|
—
|
|
|
19,695
|
|
|
—
|
|
|
—
|
|
Net effect of assumed PSUs vested
|
|
2,003
|
|
|
642
|
|
|
1,931
|
|
|
—
|
|
Net effect of assumed RSUs vested
|
|
215
|
|
|
2,180
|
|
|
145
|
|
|
—
|
|
Diluted weighted average common shares outstanding
|
|
381,517
|
|
|
399,982
|
|
|
381,167
|
|
|
364,189
|
|
Diluted Earnings (Loss) per Common Share
|
|
$
|
0.11
|
|
|
$
|
0.28
|
|
|
$
|
0.22
|
|
|
$
|
(1.35)
|
|
(1)For the six months ended June 30, 2020, includes Preferred Stock dividends declared in arrears in June 2020 for the quarterly period that began on January 15, 2020 and ended on April 14, 2020.
17. Stock Based Compensation
In May 2017, the Company’s stockholders approved the 2017 Plan, with such stockholder action resulting in the termination of the Company’s 2010 Stock Incentive Plan (the “2010 Plan”). The terms of the 2017 Plan, as amended from time to time, are substantially the same as the 2010 Plan. At June 30, 2021, there were no common shares of non-vested restricted stock outstanding under the 2010 Plan.
Pursuant to the 2017 Plan, eligible employees, officers and directors of the Company are offered the opportunity to acquire the Company's common stock through equity awards under the 2017 Plan. The maximum number of shares that may be issued under the 2017 Plan is 43,170,000.
Of the common stock authorized at June 30, 2021, 30,747,566 shares remain available for issuance under the 2017 Plan. The Company’s non-employee directors have been issued 661,013 shares under the 2017 Plan as of June 30, 2021. The Company’s employees have been issued 2,801,396 shares of restricted stock under the 2017 Plan as of June 30, 2021. At June 30, 2021, there were 1,902,344 shares of non-vested restricted stock outstanding, 6,728,375 common shares reserved for issuance in connection with outstanding PSUs under the 2017 Plan and 1,110,322 common shares reserved for issuance in connection with outstanding RSUs under the 2017 Plan.
Of the common stock authorized at December 31, 2020, 5,540,536 shares were reserved for issuance under the 2017 Plan. The Company's non-employee directors had been issued 507,821 shares under the 2017 Plan as of December 31, 2020. The Company’s employees had been issued 1,881,380 shares of restricted stock under the 2017 Plan as of December 31, 2020. At December 31, 2020, there were 1,603,766 shares of non-vested restricted stock outstanding, 4,798,517 common shares reserved for issuance in connection with outstanding PSUs under the 2017 Plan and 441,746 common shares reserved for issuance in connection with outstanding RSUs under the 2017 Plan.
(a) Restricted Common Stock Awards
During the three and six months ended June 30, 2021, the Company recognized non-cash compensation expense on its restricted common stock awards of $1.2 million and $2.3 million, respectively. During the three and six months ended June 30, 2020, the Company recognized non-cash compensation expense on its restricted common stock awards of $1.0 million and $1.8 million, respectively. Dividends are paid on all restricted common stock issued, whether those shares have vested or not. Non-vested restricted stock is forfeited upon the recipient's termination of employment, subject to certain exceptions. There were forfeitures of 9,433 and 19,430 shares for the three and six months ended June 30, 2021, respectively. There were no forfeitures of shares for the three and six months ended June 30, 2020.
A summary of the activity of the Company's non-vested restricted stock collectively under the 2010 Plan and 2017 Plan for the six months ended June 30, 2021 and 2020, respectively, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Number of
Non-vested
Restricted
Shares
|
|
Weighted
Average Per Share
Grant Date
Fair Value (1)
|
|
Number of
Non-vested
Restricted
Shares
|
|
Weighted
Average Per Share
Grant Date
Fair Value (1)
|
Non-vested shares as of January 1
|
1,603,766
|
|
|
$
|
6.27
|
|
|
837,123
|
|
|
$
|
6.18
|
|
Granted
|
939,446
|
|
|
3.82
|
|
|
1,054,254
|
|
|
6.33
|
|
Vested
|
(621,438)
|
|
|
5.41
|
|
|
(287,611)
|
|
|
6.22
|
|
Forfeited
|
(19,430)
|
|
|
3.26
|
|
|
—
|
|
|
—
|
|
Non-vested shares as of June 30
|
1,902,344
|
|
|
$
|
5.09
|
|
|
1,603,766
|
|
|
$
|
6.27
|
|
Restricted stock granted during the period
|
939,446
|
|
|
$
|
3.82
|
|
|
1,054,254
|
|
|
$
|
6.33
|
|
(1)The grant date fair value of restricted stock awards is based on the closing market price of the Company’s common stock at the grant date.
At June 30, 2021 and 2020, the Company had unrecognized compensation expense of $7.2 million and $7.9 million, respectively, related to the non-vested shares of restricted common stock under the 2017 Plan and 2010 Plan, collectively. The unrecognized compensation expense at June 30, 2021 is expected to be recognized over a weighted average period of 1.9 years. The total fair value of restricted shares vested during the six months ended June 30, 2021 and 2020 was approximately $2.5 million and $1.8 million, respectively. The requisite service period for restricted stock awards at issuance is three years and the restricted common stock either vests ratably over the requisite service period or at the end of the requisite service period.
(b) Performance Share Units
During the six months ended June 30, 2021 and 2020, the Company granted PSUs that had been approved by the Compensation Committee and the Board of Directors. Each PSU represents an unfunded promise to receive one share of the Company's common stock once the performance condition has been satisfied. The awards were issued pursuant to and are consistent with the terms and conditions of the 2017 Plan.
The PSU awards are subject to performance-based vesting under the 2017 Plan pursuant to the PSU award agreements ("PSU Agreements"). Vesting of the PSUs will occur at the end of three years based on the following:
•If three-year TSR performance relative to the Company's identified performance peer group (the "Relative TSR") is less than the 30th percentile, then 0% of the target PSUs will vest;
•If three-year Relative TSR performance is equal to the 30th percentile, then the Threshold % (as defined in the individual PSU Agreements) of the target PSUs will vest;
•If three-year Relative TSR performance is equal to the 50th percentile, then 100% of the target PSUs will vest; and
•If three-year Relative TSR performance is greater than or equal to the 80th percentile, then the Maximum % (as defined in the individual PSU Agreements) of the target PSUs will vest.
The percentage of target PSUs that vest for performance between the 30th, 50th, and 80th percentiles will be calculated using linear interpolation.
TSR for the Company and each member of the peer group will be determined by dividing (i) the sum of the cumulative amount of such entity’s dividends per share for the performance period and the arithmetic average per share volume weighted average price (the “VWAP”) of such entity’s common stock for the last thirty (30) consecutive trading days of the performance period minus the arithmetic average per share VWAP of such entity’s common stock for the last thirty (30) consecutive trading days immediately prior to the performance period by (ii) the arithmetic average per share VWAP of such entity’s common stock for the last thirty (30) consecutive trading days immediately prior to the performance period.
The grant date fair value of the PSUs was determined through a Monte-Carlo simulation of the Company’s common stock total shareholder return and the common stock total shareholder return of its identified performance peer companies to determine the Relative TSR of the Company’s common stock over a future period of three years. For PSUs granted, the inputs used by the model to determine the fair value are (i) historical stock price volatilities of the Company and its identified performance peer companies over the most recent three year period and correlation between each company's stock and the identified performance peer group over the same time series and (ii) a risk free rate for the period interpolated from the U.S. Treasury yield curve on grant date.
The PSUs granted during the six months ended June 30, 2021 and 2020 include DERs which shall remain outstanding from the grant date until the earlier of the settlement or forfeiture of the PSU to which the DER corresponds. Each vested DER entitles the holder to receive payments in an amount equal to any dividends paid by the Company in respect of the share of the Company’s common stock underlying the PSU to which such DER relates. Upon vesting of the PSUs, the DER will also vest. DERs will be forfeited upon forfeiture of the corresponding PSUs. The DERs may be settled in cash or stock at the discretion of the Compensation Committee.
A summary of the activity of the target PSU awards under the 2017 Plan for the six months ended June 30, 2021 and 2020, respectively, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Number of
Non-vested
Target
Shares
|
|
Weighted
Average Per Share
Grant Date
Fair Value (1)
|
|
Number of
Non-vested
Target
Shares
|
|
Weighted
Average Per Share
Grant Date
Fair Value (1)
|
Non-vested target PSUs as of January 1
|
2,902,014
|
|
|
$
|
4.98
|
|
|
2,018,518
|
|
|
$
|
4.09
|
|
Granted
|
1,631,661
|
|
|
5.56
|
|
|
883,496
|
|
|
7.03
|
|
Vested
|
(842,792)
|
|
|
4.20
|
|
|
—
|
|
|
—
|
|
Non-vested target PSUs as of June 30
|
3,690,883
|
|
|
$
|
5.41
|
|
|
2,902,014
|
|
|
$
|
4.98
|
|
(1)The grant date fair value of the PSUs was determined through a Monte-Carlo simulation of the Company’s common stock total shareholder return and the common stock total shareholder return of its identified performance peer companies to determine the Relative TSR of the Company’s common stock over a future period of three years.
The three-year performance period for PSUs granted in 2018 ended on December 31, 2020, resulting in the vesting of 974,074 shares of common stock during the six months ended June 30, 2021 with a fair value of $3.7 million on the vesting date. The number of vested shares related to PSUs granted in 2018 exceeded the target PSUs of 842,792.
As of June 30, 2021 and 2020, there was $11.7 million and $8.2 million of unrecognized compensation cost related to the non-vested portion of the PSUs, respectively. The unrecognized compensation cost related to the non-vested portion of the PSUs at June 30, 2021 is expected to be recognized over a weighted average period of 2.1 years. Compensation expense related to the PSUs was $1.7 million and $3.1 million for the three and six months ended June 30, 2021, respectively. Compensation expense related to the PSUs was $1.2 million and $2.5 million for the three and six months ended June 30, 2020, respectively.
Restricted Stock Units
During the six months ended June 30, 2021 and 2020, the Company granted RSUs that had been approved by the Compensation Committee and the Board of Directors. Each RSU represents an unfunded promise to receive one share of the Company's common stock upon satisfaction of the vesting provisions. The awards were issued pursuant to and are consistent with the terms and conditions of the 2017 Plan. The requisite service period for RSUs at issuance is three years and the RSUs vest ratably over the requisite service period.
The RSUs granted during the six months ended June 30, 2021 and 2020 include DERs which shall remain outstanding from the grant date until the earlier of the settlement or forfeiture of the RSU to which the DER corresponds. Each vested DER entitles the holder to receive payments in an amount equal to any dividends paid by the Company in respect of the share of the Company’s common stock underlying the RSU to which such DER relates. Upon vesting of the RSUs, the DER will also vest. DERs will be forfeited upon forfeiture of the corresponding RSUs. The DERs may be settled in cash or stock at the discretion of the Compensation Committee.
A summary of the activity of the RSU awards under the 2017 Plan for the six months ended June 30, 2021 and 2020 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Number of
Non-vested
Shares
|
|
Weighted
Average Per Share
Grant Date
Fair Value (1)
|
|
Number of
Non-vested
Shares
|
|
Weighted
Average Per Share
Grant Date
Fair Value (1)
|
|
|
|
|
Non-vested RSUs as of January 1
|
|
441,746
|
|
|
$
|
6.23
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Granted
|
|
815,830
|
|
|
3.69
|
|
|
441,746
|
|
|
6.23
|
|
|
|
|
|
Vested
|
|
(147,254)
|
|
|
6.23
|
|
|
—
|
|
|
—
|
|
|
|
|
|
Non-vested RSUs as of June 30
|
|
1,110,322
|
|
|
$
|
4.36
|
|
|
441,746
|
|
|
$
|
6.23
|
|
|
|
|
|
(1)The grant date fair value of RSUs is based on the closing market price of the Company’s common stock at the grant date.
During the six months ended June 30, 2021, 147,254 shares of common stock were issued in connection with the vesting of RSUs at a fair value of $0.5 million on the vesting date.
As of June 30, 2021 and 2020, there was $4.0 million and $2.3 million of unrecognized compensation cost related to the non-vested portion of the RSUs, respectively. The unrecognized compensation cost related to the non-vested portion of the RSUs at June 30, 2021 is expected to be recognized over a weighted average period of 2.2 years. Compensation expense related to the RSUs was $0.5 million and $0.9 million for the three and six months ended June 30, 2021, respectively. Compensation expense related to the RSUs was $0.2 million and $0.5 million for the three and six months ended June 30, 2020, respectively.
18. Income Taxes
For the three and six months ended June 30, 2021 and 2020, the Company qualified to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, for U.S. federal income tax purposes. As long as the Company qualifies as a REIT, the Company generally will not be subject to U.S. federal income taxes on its taxable income to the extent it annually distributes at least 100% of its taxable income to stockholders and does not engage in prohibited transactions. Certain activities the Company performs may produce income that will not be qualifying income for REIT purposes. The Company has designated its TRSs to engage in these activities. The tables below reflect the taxes accrued at the TRS level and the tax attributes included in the condensed consolidated financial statements.
The income tax provision for the three and six months ended June 30, 2021 and 2020, respectively, is comprised of the following components (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Current income tax expense
|
$
|
58
|
|
|
$
|
2,033
|
|
|
$
|
271
|
|
|
$
|
2,043
|
|
Deferred income tax benefit
|
(43)
|
|
|
(106)
|
|
|
(190)
|
|
|
(355)
|
|
Total income tax provision
|
$
|
15
|
|
|
$
|
1,927
|
|
|
$
|
81
|
|
|
$
|
1,688
|
|
Deferred Tax Assets and Liabilities
The major sources of temporary differences included in the deferred tax assets and their deferred tax effect as of June 30, 2021 and December 31, 2020 are as follows (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
Deferred tax assets
|
|
|
|
Net operating loss carryforward
|
$
|
5,269
|
|
|
$
|
6,024
|
|
Capital loss carryover
|
4,980
|
|
|
4,442
|
|
GAAP/Tax basis differences
|
571
|
|
|
814
|
|
Total deferred tax assets (1)
|
10,820
|
|
|
11,280
|
|
Deferred tax liabilities
|
|
|
|
Deferred tax liabilities
|
4
|
|
|
2
|
|
Total deferred tax liabilities (2)
|
4
|
|
|
2
|
|
Valuation allowance (1)
|
(8,852)
|
|
|
(9,503)
|
|
Total net deferred tax asset
|
$
|
1,964
|
|
|
$
|
1,775
|
|
(1)Included in other assets in the accompanying condensed consolidated balance sheets.
(2)Included in other liabilities in the accompanying condensed consolidated balance sheets.
As of June 30, 2021, the Company, through wholly-owned TRSs, had incurred net operating losses in the aggregate amount of approximately $13.9 million. The Company’s carryforward net operating losses of approximately $13.0 million can be carried forward indefinitely until they are offset by future taxable income. The remaining $0.9 million of net operating losses will expire between 2036 and 2037 if they are not offset by future taxable income. Additionally, as of June 30, 2021, the Company, through its wholly-owned TRSs, had also incurred approximately $14.6 million in capital losses. The Company's carryforward capital losses will expire between 2023 and 2026 if they are not offset by future capital gains.
At June 30, 2021, the Company has recorded a valuation allowance against certain deferred tax assets as management does not believe that it is more likely than not that these deferred tax assets will be realized. The change in the valuation for the current year is approximately $0.7 million. We will continue to monitor positive and negative evidence related to the utilization of the remaining deferred tax assets for which a valuation allowance continues to be provided.
The Company files income tax returns with the U.S. federal government and various state and local jurisdictions. The Company's federal, state and city income tax returns are subject to examination by the Internal Revenue Service and related tax authorities generally for three years after they were filed. The Company has assessed its tax positions for all open years and concluded that there are no material uncertainties to be recognized.
Based on the Company’s evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements. To the extent that the Company incurs interest and accrued penalties in connection with its tax obligations, including expenses related to the Company’s evaluation of unrecognized tax positions, such amounts will be included in income tax expense.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was enacted in the U.S. This legislation was intended to support the economy during the COVID-19 pandemic with temporary changes to income and non-income based tax laws. For the three and six months ended June 30, 2021, the changes did not have a material impact to our financial statements. We will continue to monitor as additional guidance is issued by the U.S. Treasury Department, the Internal Revenue Service and others.
19. Net Interest Income
The following table details the components of the Company's interest income and interest expense for the three and six months ended June 30, 2021 and 2020, respectively (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Interest income
|
|
|
|
|
|
|
|
Residential loans
|
|
|
|
|
|
|
|
Residential loans
|
$
|
20,155
|
|
|
$
|
17,471
|
|
|
$
|
39,816
|
|
|
$
|
39,153
|
|
Consolidated SLST
|
10,479
|
|
|
11,522
|
|
|
20,797
|
|
|
23,646
|
|
Residential loans held in securitization trusts
|
9,933
|
|
|
427
|
|
|
17,901
|
|
|
921
|
|
Total residential loans
|
40,567
|
|
|
29,420
|
|
|
78,514
|
|
|
63,720
|
|
Multi-family loans
|
|
|
|
|
|
|
|
Preferred equity and mezzanine loan investments
|
4,130
|
|
|
5,202
|
|
|
8,531
|
|
|
10,575
|
|
Consolidated K-Series
|
—
|
|
|
—
|
|
|
—
|
|
|
151,841
|
|
Total multi-family loans
|
4,130
|
|
|
5,202
|
|
|
8,531
|
|
|
162,416
|
|
Investment securities available for sale
|
7,475
|
|
|
13,269
|
|
|
15,150
|
|
|
32,026
|
|
Other
|
14
|
|
|
79
|
|
|
30
|
|
|
421
|
|
Total interest income
|
52,186
|
|
|
47,970
|
|
|
102,225
|
|
|
258,583
|
|
Interest expense
|
|
|
|
|
|
|
|
Repurchase agreements
|
3,733
|
|
|
7,366
|
|
|
7,773
|
|
|
28,112
|
|
Collateralized debt obligations
|
|
|
|
|
|
|
|
Consolidated SLST
|
7,151
|
|
|
8,158
|
|
|
14,254
|
|
|
16,693
|
|
Consolidated K-Series
|
—
|
|
|
—
|
|
|
—
|
|
|
129,762
|
|
Residential loan securitizations
|
5,015
|
|
|
130
|
|
|
9,735
|
|
|
367
|
|
Non-Agency RMBS re-securitization
|
—
|
|
|
469
|
|
|
283
|
|
|
469
|
|
Total collateralized debt obligations
|
12,166
|
|
|
8,757
|
|
|
24,272
|
|
|
147,291
|
|
Convertible notes
|
2,788
|
|
|
2,739
|
|
|
5,572
|
|
|
5,474
|
|
Senior unsecured notes
|
1,136
|
|
|
—
|
|
|
1,136
|
|
|
—
|
|
Subordinated debentures
|
459
|
|
|
582
|
|
|
916
|
|
|
1,231
|
|
Derivatives
|
—
|
|
|
—
|
|
|
—
|
|
|
868
|
|
Other
|
429
|
|
|
—
|
|
|
741
|
|
|
—
|
|
Total interest expense
|
20,711
|
|
|
19,444
|
|
|
40,410
|
|
|
182,976
|
|
Net interest income
|
$
|
31,475
|
|
|
$
|
28,526
|
|
|
$
|
61,815
|
|
|
$
|
75,607
|
|
20. Subsequent Events
Issuance and Redemption of Preferred Stock
In July 2021, the Company closed an underwritten public offering of 5,750,000 shares of the Company's 6.875% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, $0.01 par value per share ("Series F Preferred Stock"). Holders of Series F Preferred Stock will be entitled to receive cumulative cash dividends (i) from and including the original issue date to, but excluding, October 15, 2026 at a fixed rate of 6.875% of the $25.00 per share liquidation preference (equivalent to $1.71875 per annum per share) and (ii) from and including October 15, 2026, at a floating rate equal to a benchmark rate (which is expected to be Three-Month Term SOFR published by the Federal Reserve Bank of New York) plus a spread of 6.130% per annum of the $25.00 per share liquidation preference. The Series F Preferred Stock is not redeemable by the Company prior to October 15, 2026, except under circumstances where it is necessary to preserve the Company’s qualification as a REIT for U.S. federal income tax purposes and except in certain instances upon the occurrence of a change of control. The issuance and sale of the 5,750,000 shares of Series F Preferred Stock resulted in total net proceeds to the Company of approximately $138.6 million after deduction of underwriting discounts and commissions and estimated offering expenses.
The Company used approximately $104.9 million of the net proceeds from the 6.875% Series F Preferred Stock offering to fund the redemption of all outstanding shares of its 7.875% Series C Preferred Stock at an aggregate redemption price of approximately $25.08 per share, which included accumulated and unpaid dividends up to, but not including, the redemption date of July 30, 2021.
Redemption of Residential Loan Securitization
On July 29, 2021, the Company directed the trustee of one of the Company's residential loan securitizations, with an outstanding balance of $208.6 million as of June 30, 2021, to exercise its right to redeem the securitization. The scheduled redemption date is August 12, 2021.
Sale of CMBS
In July 2021, the Company sold CMBS for proceeds of approximately $89.5 million.