Consolidated K-Series

3 Months Ended

Mar. 31, 2020

During the three months ended March 31, 2020, the Company sold its first loss POs and certain mezzanine securities issued by certain Freddie Mac-sponsored multi-family loan K-Series securitizations that we consolidated in our financial statements in accordance with GAAP and which we refer to as the Consolidated K-Series. These sales, for total proceeds of approximately $555.2 million, resulted in the de-consolidation of each Consolidated K-Series as of the sale date of each first loss PO, a realized net loss on de-consolidation of multi-family loans held in securitization trusts and multi-family collateralized debt obligations 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 securitization trusts and $16.6 billion in multi-family collateralized debt obligations. 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.

The Company elected the fair value option on the assets and liabilities held within the Consolidated K-Series as of December 31, 2019, 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 with an aggregate net carrying value of $1.1 billion at December 31, 2019 (see Note 9).

The condensed consolidated balance sheet of the Consolidated K-Series at December 31, 2019 is as follows (dollar amounts in thousands):



Balance Sheet	December 31, 2019
Assets
Multi-family loans held in securitization trusts, at fair value	$	17,816,746
Receivables ⁽¹⁾	59,417
Total Assets	$	17,876,163
Liabilities and Equity
Multi-family CDOs, at fair value	$	16,724,451
Accrued expenses	57,873
Total Liabilities	16,782,324
Equity	1,093,839
Total Liabilities and Equity	$	17,876,163


⁽¹⁾	Included in receivables and other assets on the accompanying condensed consolidated balance sheets.

The multi-family loans held in securitization trusts had unpaid aggregate principal balances of approximately $16.8 billion at December 31, 2019. The multi-family CDOs (the "Multi-Family CDOs") had aggregate unpaid principal balances of approximately $16.8 billion at December 31, 2019 and had a weighted average interest rate of 3.85%.

The Company did not have any claims to the assets or obligations for the liabilities of the Consolidated K-Series (other than those securities represented by the first loss POs, IOs and certain senior and mezzanine securities owned by the Company). We elected the fair value option for the Consolidated K-Series. The net fair value of our investment in the Consolidated K-Series, which represented the difference between the carrying values of multi-family loans held in securitization trusts less the carrying value of Multi-Family CDOs, approximated the fair value of our underlying securities (see Note 14).

The condensed consolidated statements of operations of the Consolidated K-Series prior to the sale of first loss POs and de-consolidation of the Consolidated K-Series for the three months ended March 31, 2020 and for the three months ended March 31, 2019, are as follows (dollar amounts in thousands):



	Three Months Ended March 31,
Statements of Operations	2020			2019
Interest income	$	151,841		$	111,768
Interest expense	129,762			96,797
Net interest income	22,079			14,971
Unrealized (losses) gains, net	(10,951		)	9,410
Net income	$	11,128		$	24,381

The geographic concentrations of credit risk exceeding 5% of the total loan balances related to multi-family loans held in securitization trusts as of December 31, 2019 are as follows:



	December 31, 2019
California	15.9	%
Texas	12.4	%
Florida	6.2	%
Maryland	5.8	%