Loans Receivable and Other Lending Investments, net

The following is a summary of the Company's loans receivable and other lending investments by class ($ in thousands):



	As of December 31,
Type of Investment	2013			2012
Senior mortgages	$	1,071,662		$	1,751,256
Subordinate mortgages	60,679			152,737
Corporate/Partnership loans	473,045			450,491
Total gross carrying value of loans	$	1,605,386		$	2,354,484
Reserves for loan losses	(377,204		)	(524,499		)
Total loans receivable, net	$	1,228,182		$	1,829,985
Other lending investments—securities	141,927			—
Total loans receivable and other lending investments, net(1)	$	1,370,109		$	1,829,985

Explanatory Note:

_______________________________________________________________________________


(1)	The Company's recorded investment in loans as of December 31, 2013 and 2012 also includes accrued interest of $6.5 million and $9.8 million, respectively, which are included in "Accrued interest and operating lease income receivable, net" on the Company's Consolidated Balance Sheets.

During the years ended December 31, 2013, 2012 and 2011, the Company sold loans with total carrying values of $95.1 million, $53.9 million and $144.9 million, respectively, which resulted in a net realized loss of $0.6 million, a net gain of $6.4 million and no gain or loss, respectively. Gains and losses on sales of loans are included in "Other income" on the Company's Consolidated Statements of Operations.

Reserve for loan losses—Changes in the Company's reserve for loan losses were as follows ($ in thousands):



	For the Years Ended December 31,
	2013			2012			2011
Reserve for loan losses at beginning of period	$	524,499		$	646,624		$	814,625
Provision for loan losses(1)	5,489			81,740			46,412
Charge-offs	(152,784		)	(203,865		)	(214,413		)
Reserve for loan losses at end of period	$	377,204		$	524,499		$	646,624

Explanatory Note:

_______________________________________________________________________________


(1)	For the years ended December 31, 2013, 2012 and 2011, the provision for loan losses includes recoveries of previously recorded loan loss reserves of $63.1 million, $4.6 million and $23.6 million, respectively.

The Company's recorded investment in loans (comprised of a loan's carrying value plus accrued interest) and the associated reserve for loan losses were as follows ($ in thousands):



	Individually Evaluated for Impairment(1)			Collectively Evaluated for Impairment(2)			Loans Acquired with Deteriorated Credit Quality(3)			Total
As of December 31, 2013
Loans	$	752,425		$	849,613		$	9,889		$	1,611,927
Less: Reserve for loan losses	(348,004		)	(29,200		)	—			(377,204		)
Total	$	404,421		$	820,413		$	9,889		$	1,234,723
As of December 31, 2012
Loans	$	1,095,957		$	1,210,077		$	58,281		$	2,364,315
Less: Reserve for loan losses	(472,058		)	(33,100		)	(19,341		)	(524,499		)
Total	$	623,899		$	1,176,977		$	38,940		$	1,839,816

Explanatory Notes:

_______________________________________________________________________________

(1)

The carrying value of these loans include unamortized discounts, premiums, deferred fees and costs aggregating to a net premium of $0.5 million and a net discount of $4.0 million as of December 31, 2013 and 2012, respectively. The Company's loans individually evaluated for impairment primarily represent loans on non-accrual status and therefore, the unamortized amounts associated with these loans are not currently being amortized into income.


(2)	The carrying value of these loans include unamortized discounts, premiums, deferred fees and costs aggregating to a net discount of $4.6 million and $3.8 million as of December 31, 2013 and 2012, respectively.


(3)	The carrying value of these loans include unamortized discounts, premiums, deferred fees and costs aggregating to a net premium of $0.4 million and $0.1 million as of December 31, 2013 and 2012, respectively. These loans had cumulative principal balances of $10.2 million and $58.8 million, as of December 31, 2013 and 2012, respectively.

Credit Characteristics—As part of the Company's process for monitoring the credit quality of its loans, it performs a quarterly loan portfolio assessment and assigns risk ratings to each of its performing loans. Risk ratings are based on judgments which are inherently uncertain and there can be no assurance that actual performance will not be different than current expectation.

The Company's recorded investment in performing loans, presented by class and by credit quality, as indicated by risk rating, was as follows ($ in thousands):



	As of
	December 31, 2013			December 31, 2012
	Performing Loans		Weighted Average Risk Ratings	Performing Loans		Weighted Average Risk Ratings
Senior mortgages	$	591,145	2.50	$	840,593	2.75
Subordinate mortgages	61,364		3.37	99,698		2.27
Corporate/Partnership loans	438,831		3.88	444,772		3.69
Total	$	1,091,340	3.11	$	1,385,063	3.01

As of December 31, 2013, the Company's recorded investment in loans, aged by payment status and presented by class, were as follows ($ in thousands):



	Current		Less Than and Equal to 90 Days		Greater Than 90 Days		Total Past Due		Total
Senior mortgages	$	625,267	$	—	$	449,085	$	449,085	$	1,074,352
Subordinate mortgages	61,364		—		—		—		61,364
Corporate/Partnership loans	476,211		—		—		—		476,211
Total	$	1,162,842	$	—	$	449,085	$	449,085	$	1,611,927

Impaired Loans—The Company's recorded investment in impaired loans, presented by class, were as follows ($ in thousands)(1):



	As of December 31, 2013							As of December 31, 2012
	Recorded Investment		Unpaid Principal Balance		Related Allowance			Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Senior mortgages	$	3,012	$	2,992	$	—		$	108,077	$	107,850	$	—
Corporate/Partnership loans	—		—		—			10,110		10,160		—
Subtotal	$	3,012	$	2,992	$	—		$	118,187	$	118,010	$	—
With an allowance recorded:
Senior mortgages	$	650,337	$	645,463	$	(304,544	)	$	918,975	$	918,496	$	(442,760	)
Subordinate mortgages	—		—		—			53,979		53,679		(39,579		)
Corporate/Partnership loans	99,076		99,067		(43,460		)	63,096		63,246		(9,060		)
Subtotal	$	749,413	$	744,530	$	(348,004	)	$	1,036,050	$	1,035,421	$	(491,399	)
Total:
Senior mortgages	$	653,349	$	648,455	$	(304,544	)	$	1,027,052	$	1,026,346	$	(442,760	)
Subordinate mortgages	—		—		—			53,979		53,679		(39,579		)
Corporate/Partnership loans	99,076		99,067		(43,460		)	73,206		73,406		(9,060		)
Total	$	752,425	$	747,522	$	(348,004	)	$	1,154,237	$	1,153,431	$	(491,399	)

Explanatory Note:

_______________________________________________________________________________


(1)	All of the Company's non-accrual loans are considered impaired and included in the table above. In addition, as of December 31, 2013 and 2012, certain loans modified through troubled debt restructurings with a recorded investment of $231.8 million and $175.0 million, respectively, are also included as impaired loans in accordance with GAAP although they are performing and on accrual status.

The Company's average recorded investment in impaired loans and interest income recognized, presented by class, were as follows ($ in thousands):



	For the Years Ended December 31,
	2013				2012				2011
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Senior mortgages	$	31,409	$	9,269	$	162,093	$	2,765	$	309,079	$	31,799
Corporate/Partnership loans	8,062		6,050		10,110		160		10,110		680
Subtotal	$	39,471	$	15,319	$	172,203	$	2,925	$	319,189	$	32,479
With an allowance recorded:
Senior mortgages	$	794,247	$	1,976	$	1,064,045	$	3,865	$	1,608,486	$	7,187
Subordinate mortgages	32,382		—		52,208		—		19,477		—
Corporate/Partnership loans	77,661		323		62,248		312		66,087		332
Subtotal	$	904,290	$	2,299	$	1,178,501	$	4,177	$	1,694,050	$	7,519
Total:
Senior mortgages	$	825,656	$	11,245	$	1,226,138	$	6,630	$	1,917,565	$	38,986
Subordinate mortgages	32,382		—		52,208		—		19,477		—
Corporate/Partnership loans	85,723		6,373		72,358		472		76,197		1,012
Total	$	943,761	$	17,618	$	1,350,704	$	7,102	$	2,013,239	$	39,998

During the years ended December 31, 2013, 2012 and 2011, the Company recorded interest income of $13.3 million, $0.0 million and $26.3 million, respectively, related to the resolution of certain non-performing loans. Interest income was not previously recorded while the loans were on non-accrual status.

Troubled Debt Restructurings—During the years ended December 31, 2013 and 2012, the Company modified loans that were determined to be troubled debt restructurings. The recorded investment in these loans was impacted by the modifications as follows, presented by class ($ in thousands):



	For the Years Ended December 31,
	2013					2012
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Senior mortgages	6	$	179,030	$	154,278	8	$	319,667	$	272,753

Troubled debt restructurings that occurred during the year ended December 31, 2013 included the modification of two performing loans with a combined recorded investment of $4.6 million. The modified terms of these loans granted maturity extensions of one year. In each case, the Company believes the borrowers can perform under the modified terms of the loans and continues to classify these loans as performing.

Non-performing loans with a combined investment of $174.5 million were also modified during the year ended December 31, 2013. Included in this balance were two loans with a combined recorded investment of $98.3 million in which the Company received $15.4 million of paydowns and accepted discounted payoff options on these loans, with final payments expected to be made in January 2014 and July 2014 and the loans were reclassified from non-performing to performing status as the Company believes the borrowers can perform under the modified terms of the agreements. The remaining loans were granted payoff option extensions ranging from one year to three years. These loans continued to be classified as non-performing subsequent to modification.

Troubled debt restructurings that occurred during the year ended December 31, 2012 included the modifications of performing loans with a combined recorded investment of $64.1 million. The modified terms of these loans granted maturity extensions ranging from one year to three years and included conditional extension options in certain cases dependent on borrower-specific performance hurdles. In each case, the Company believes the borrowers can perform under the modified terms of the loans and continues to classify these loans as performing.

Non-performing loans with a combined recorded investment of $255.6 million were also modified during the year ended December 31, 2012 and continued to be classified as non-performing subsequent to modification. Included in this balance was a loan with a recorded investment of $181.5 million prior to modification, for which the Company agreed to reduce the outstanding principal balance and recorded charge-offs totaling $45.5 million, and also reduce the loan's interest rate. The remaining non-performing loans were granted maturity extensions ranging from one month to seven months and the interest rate was reduced on one loan.

Generally when granting concessions, the Company will seek to protect its position by requiring incremental pay downs, additional collateral or guarantees and in some cases lookback features or equity kickers to offset concessions granted should conditions impacting the loan improve. The Company's determination of credit losses is impacted by troubled debt restructurings whereby loans that have gone through troubled debt restructurings are considered impaired, assessed for specific reserves, and are not included in the Company's assessment of general loan loss reserves. Loans previously restructured under troubled debt restructurings that subsequently default are reassessed to incorporate the Company's current assumptions on expected cash flows and additional provision expense is recorded to the extent necessary. As of December 31, 2013, the Company had $13.3 million of unfunded commitments associated with modified loans considered troubled debt restructurings.

Troubled debt restructurings that subsequently defaulted during the period were as follows ($ in thousands):



	For the Years Ended December 31,
	2013			2012
	Number of Loans	Outstanding Recorded Investment		Number of Loans	Outstanding Recorded Investment
Senior mortgages	1	$	26,693	1	$	18,511

Securities—As of December 31, 2013, Other lending investments—securities includes the following ($ in thousands):



	Face Value		Amortized Cost Basis		Net Unrealized Gain (Loss)			Estimated Fair Value		Net Carrying Value
Available-for-Sale Securities
Municipal debt securities	$	1,055	$	1,055	$	(18	)	$	1,037	$	1,037
Held-to-Maturity Securities
Corporate debt securities	139,842		140,890		—			140,890		140,890
Total	$	140,897	$	141,945	$	(18	)	$	141,927	$	141,927

During the year ended December 31, 2013, the Company originated a mandatorily redeemable preferred equity investment, which has an initial term of three years with two 12-month extensions. At December 31, 2013, the Company's investment was $140.9 million and the unfunded commitment was $6.2 million. The investment is classified as a held-to-maturity debt security as the Company has the ability and intent to hold the investment until maturity.

As of December 31, 2013, the contractual maturities of the Company's securities were as follows ($ in thousands):



	Held-to-Maturity Securities				Available-for-Sale Securities
	Amortized Cost Basis		Estimated Fair Value		Amortized Cost Basis		Estimated Fair Value
Maturities
Within one year	$	—	$	—	$	—	$	—
After one year through 5 years	140,890		140,890		—		—
After 5 years through 10 years	—		—		—		—
After 10 years	—		—		1,055		1,037
Total	$	140,890	$	140,890	$	1,055	$	1,037