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REAL ESTATE SECURITIES
 3 Months Ended
Mar. 31, 2020
Investments, Debt and Equity Securities [Abstract]  
REAL ESTATE SECURITIES
4. REAL ESTATE SECURITIES
 
Due to the recent market volatility, there has been a significant decrease in liquidity across all types of securities. There was a significant reduction in trading activity with the turbulent and uncertain market conditions that existed at the end of March as restrictive responsive measures related to the COVID-19 pandemic impacted the overall economy. The credit profile of our portfolio is predominantly AAA-rated and almost entirely investment grade. We expect the subordination structure of the investments, as well as the hyperamortization provision included in our senior CRE-CLO security positions, to help mitigate potential losses in the current market conditions. Spreads in the commercial mortgage backed securities (“CMBS”) market have generally tightened from the widest levels seen in March 2020 and that has continued to be the trend with the introduction of Term Asset-Backed Securities Loan Facility (“TALF”) for financing certain CMBS securities. The reduction in liquidity and overall trading activity during this period resulted in a decline of approximately $78.2 million in market value of the Company’s real estate securities through March 31, 2020. This decline was reflected in our consolidated financial statements as other comprehensive income.

CMBS, CMBS interest-only securities, Agency securities, Government National Mortgage Association (“GNMA”) construction securities, GNMA permanent securities and corporate bonds are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income. GNMA and Federal Home Loan Mortgage Corp (“FHLMC”) securities (collectively, “Agency interest-only securities”) are recorded at fair value with changes in fair value recorded in current period earnings. Equity securities are reported at fair value with changes in fair value recorded in current period earnings. The following is a summary of the Company’s securities at March 31, 2020 and December 31, 2019 ($ in thousands):

March 31, 2020
 
 
 
 
 
 
 
Gross Unrealized
 
 
 
 
 
Weighted Average
Asset Type
 
Outstanding
Face Amount
 
Amortized Cost Basis/Purchase Price

 
Gains
 
Losses
 
Carrying
Value
 
# of
Securities
 
Rating (1)
 
Coupon %
 
Yield %
 
Remaining
Duration
(years)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CMBS(2)
 
$
1,943,507

 
$
1,943,359

 
$
1,476

 
$
(76,686
)
 
$
1,868,149

(3)
127

 
AAA
 
2.20
%
 
2.21
%
 
2.31
CMBS interest-only(2)(4)
 
1,550,358

 
26,800

 
1,044

 
(9
)
 
27,835

(5)
15

 
AAA
 
0.60
%
 
2.99
%
 
2.46
GNMA interest-only(4)(6)
 
105,009

 
1,661

 
139

 
(193
)
 
1,607

 
11

 
AA+
 
0.46
%
 
4.86
%
 
3.05
Agency securities(2)
 
621

 
631

 
2

 
(5
)
 
628

 
2

 
AA+
 
2.63
%
 
1.70
%
 
1.70
GNMA permanent securities(2)
 
31,159

 
31,345

 
866

 
—

 
32,211

 
6

 
AA+
 
3.90
%
 
3.50
%
 
2.61
Total debt securities
 
$
3,630,654

 
$
2,003,796

 
$
3,527

 
$
(76,893
)
 
$
1,930,430

 
161

 
 
 
1.48
%
 
2.25
%
 
2.32
Equity securities(7)
 
N/A

 
598

 
—

 
(401
)
 
197

 
3

 
N/A
 
N/A

 
N/A

 
N/A
Provision for current expected credit losses
 
N/A

 
—

 
—

 
(22
)
 
(22
)
 
 
 
 
 
 
 
 
 
 
Total real estate securities
 
$
3,630,654

 
$
2,004,394

 
$
3,527

 
$
(77,316
)
 
$
1,930,605

 
164

 
 
 
 
 
 
 
 
 
(1)
Represents the weighted average of the ratings of all securities in each asset type, expressed as an S&P equivalent rating. For each security rated by multiple rating agencies, the highest rating is used. Ratings provided were determined by third-party rating agencies as of a particular date, may not be current and are subject to change (including the assignment of a “negative outlook” or “credit watch”) at any time.
(2)
CMBS, CMBS interest-only securities, Agency securities, GNMA permanent securities and corporate bonds are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income.
(3)
Includes $11.6 million of restricted securities which are designated as risk retention securities under the Dodd-Frank Act and are therefore subject to transfer restrictions over the term of the securitization trust and are classified as held-to-maturity and reported at amortized cost.
(4)
The amounts presented represent the principal amount of the mortgage loans outstanding in the pool in which the interest-only securities participate.
(5)
Includes $0.8 million of restricted securities which are designated as risk retention securities under the Dodd-Frank Act and are therefore subject to transfer restrictions over the term of the securitization trust and are classified as held-to-maturity and reported at amortized cost.
(6)
Agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings. The Company’s Agency interest-only securities are considered to be hybrid financial instruments that contain embedded derivatives. As a result, the Company has elected to account for them as hybrid instruments in their entirety at fair value with changes in fair value recognized in unrealized gain (loss) on Agency interest-only securities in the consolidated statements of income in accordance with ASC 815.
(7)
The Company has elected to account for equity securities at fair value with changes in fair value recorded in current period earnings.
  
December 31, 2019
 
 
 
 
 
 
 
Gross Unrealized
 
 
 
 
 
Weighted Average
Asset Type
 
Outstanding
Face Amount
 
Amortized
Cost Basis
 
Gains
 
Losses
 
Carrying
Value
 
# of
Securities
 
Rating (1)
 
Coupon %
 
Yield %
 
Remaining
Duration
(years)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CMBS(2)
 
$
1,640,597

 
$
1,640,905

 
$
4,337

 
$
(920
)
 
$
1,644,322

(3)
125

 
AAA
 
3.06
%
 
3.08
%
 
2.41
CMBS interest-only(2)(4)
 
1,559,160

 
28,553

 
630

 
(37
)
 
29,146

(5)
15

 
AAA
 
0.60
%
 
3.04
%
 
2.53
GNMA interest-only(4)(6)
 
109,783

 
1,982

 
123

 
(254
)
 
1,851

 
11

 
AA+
 
0.49
%
 
4.59
%
 
2.77
Agency securities(2)
 
629

 
640

 
1

 
(4
)
 
637

 
2

 
AA+
 
2.65
%
 
1.73
%
 
1.83
GNMA permanent securities(2)
 
31,461

 
31,681

 
688

 
—

 
32,369

 
6

 
AA+
 
3.91
%
 
3.17
%
 
1.93
Total debt securities
 
$
3,341,630

 
$
1,703,761

 
$
5,779

 
$
(1,215
)
 
$
1,708,325

 
159

 
 
 
1.84
%
 
3.06
%
 
2.39
Equity securities(7)
 
N/A

 
12,848

 
292

 
(160
)
 
12,980

 
2

 
N/A
 
N/A

 
N/A

 
N/A
Total real estate securities
 
$
3,341,630

 
$
1,716,609

 
$
6,071

 
$
(1,375
)
 
$
1,721,305

 
161

 
 
 
 
 
 
 
 
 
(1)
Represents the weighted average of the ratings of all securities in each asset type, expressed as an S&P equivalent rating.  For each security rated by multiple rating agencies, the highest rating is used.  Ratings provided were determined by third-party rating agencies as of a particular date, may not be current and are subject to change (including the assignment of a “negative outlook” or “credit watch”) at any time.
(2)
CMBS, CMBS interest-only securities, Agency securities, GNMA permanent securities and corporate bonds are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income.
(3)
Includes $11.6 million of restricted securities which are designated as risk retention securities under the Dodd-Frank Act and are therefore subject to transfer restrictions over the term of the securitization trust and are classified as held-to-maturity and reported at amortized cost.
(4)
The amounts presented represent the principal amount of the mortgage loans outstanding in the pool in which the interest-only securities participate.
(5)
Includes $0.8 million of restricted securities which are designated as risk retention securities under the Dodd-Frank Act and are therefore subject to transfer restrictions over the term of the securitization trust and are classified as held-to-maturity and reported at amortized cost.
(6)
Agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings. The Company’s Agency interest-only securities are considered to be hybrid financial instruments that contain embedded derivatives. As a result, the Company accounts for them as hybrid instruments in their entirety at fair value with changes in fair value recognized in unrealized gain (loss) on Agency interest-only securities in the consolidated statements of income in accordance with ASC 815.
(7)
The Company has elected to account for equity securities at fair value with changes in fair value recorded in current period earnings.
 
The following is a breakdown of the carrying value of the Company’s debt securities by remaining maturity based upon expected cash flows at March 31, 2020 and December 31, 2019 ($ in thousands):
 
March 31, 2020
 
Asset Type
 
Within 1 year
 
1-5 years
 
5-10 years
 
After 10 years
 
Total
 
 
 
 
 
 
 
 
 
 
 
CMBS
 
$
262,830

 
$
1,552,917

 
$
52,402

 
$
—

 
$
1,868,149

CMBS interest-only
 
1,151

 
26,684

 
—

 
—

 
27,835

GNMA interest-only
 
135

 
1,189

 
283

 
—

 
1,607

Agency securities
 
—

 
628

 
—

 
—

 
628

GNMA permanent securities
 
324

 
31,887

 
—

 
—

 
32,211

Total debt securities
 
$
264,440

 
$
1,613,305

 
$
52,685

 
$
—

 
$
1,930,430

 
December 31, 2019
 
Asset Type
 
Within 1 year
 
1-5 years
 
5-10 years
 
After 10 years
 
Total
 
 
 
 
 
 
 
 
 
 
 
CMBS
 
$
177,193

 
$
1,389,392

 
$
77,737

 
$
—

 
$
1,644,322

CMBS interest-only
 
1,439

 
27,707

 
—

 
—

 
29,146

GNMA interest-only
 
91

 
1,504

 
256

 
—

 
1,851

Agency securities
 
—

 
637

 
—

 
—

 
637

GNMA permanent securities
 
416

 
31,953

 
—

 
—

 
32,369

Total debt securities
 
$
179,139

 
$
1,451,193

 
$
77,993

 
$
—

 
$
1,708,325


During the three months ended March 31, 2020 and 2019, the Company realized a gain (loss) on the sale of equity securities of $1.3 million and $0.1 million, respectively, which is included in realized gain (loss) on securities on the Company’s consolidated statements of income.

During the three months ended March 31, 2020, the Company realized losses on securities recorded as other than temporary impairments of $0.2 million which are included in realized gain (loss) on securities on the Company’s consolidated statements of income. During the three months ended March 31, 2019 the Company realized no losses on securities recorded as other than temporary impairments.